ENTREPRENEURSHIP IN PUBLIC SECTOR ORGANISATIONS Jarna Heinonen D.Sc. (Econ. & Bus. adm.), Director Turku School of Economics and Business Administration, Small Business Institute P.O.Box 110, 20521 Turku, Finland Tel. +358 2 3383 577, Fax +358 23383 393, GSM +358 50 5631 713 Email:
[email protected] ABSTRACT This study discusses the concept, substance and impact of entrepreneurship in public sector organisations by applying the concepts of entrepreneurship theories into public sector activities. The entrepreneurial practises in this study are categorised into two different types: a) The development of an entrepreneurial model of action in the public sector organisations, i.e. intrapreneurship, and b) SME and industrial policies aiming at improving the environment and competitiveness of SMEs. These entrepreneurial practises discussed are heavily linked to each other. SME and industrial policy run by municipal support agencies cannot be customer oriented or entrepreneurial if the organisation itself does not work in an entrepreneurial way. It seems that the most effective and efficient SME policy would be achieved by operating public sector organisations entrepreneurially and in accordance with the SME ideology. INTRODUCTION Entrepreneurship as a term is usually linked to private sector business activity, more particularly SMEs1. Public and private sectors are not, however, disconnected areas in the realm of economy with no impact on each other, but interlinked in many different ways. Entrepreneurship research today seems to be concentrating on different kinds of settings, e.g. SMEs or creation and growth of firms, disregarding the conceptual domain of entrepreneurship (see Shane – Venkataraman 2000). This study presents another setting, i.e. public sector organisations, in which entrepreneurship is studied. However, I attempt to discuss the concept of entrepreneurship in the public sector organisations in the frame of entrepreneurship theories by relying on the entrepreneurial process. The objective of this study is to discuss the concept, substance and impact of entrepreneurship in public sector organisations. The research task is: 1
SME refers to small and medium-sized enterprise. According to general definition an SME employs less than 250 employees.
•
To identify the entrepreneurship related interlinks of private and public sector organisations
•
To describe and understand the types of phenomena to be found in Finnish public sector organisation
•
To analyse how the different types of entrepreneurial practises identified can be understood in the frame of entrepreneurship theories.
Accordingly, the study aims at capturing the essence of entrepreneurial practises in public sector organisations, empirically to be found in Finland, and discussing these phenomena in more general terms by using the frame of entrepreneurship theories. ENTREPRENEURSHIP RELATED INTERLINKS OF PRIVATE AND PUBLIC SECTOR ORGANISATIONS Even though entrepreneurship is not solely a private sector phenomenon, it is usually studied in the context of private enterprises. Entrepreneurship as a process can, however, also be found in the public sector organisations, especially nowadays after several changes in the society, that have brought private and public sector organisations closer to each other. Due to the economic recession public sector organisations have faced severe problems, which are of both economic and ideologic nature. These changes have forced public sector organisations to renew and re-evaluate their activities. In practise the changes mean the opening up of public sector activities towards more market and customer oriented concepts as well as accountability and efficiency. Public sector organisations have started to prefer smaller unit size due to increasing demands on accountability. The production of several types of public services is no longer a monopoly of any public sector organisation. It is not only the increasing competition, but also the wider co-operation between public sector organisations and private enterprises, that have brought public and private sector organisations closer to each other. This study discusses two particular entrepreneurship related interlinks between public and private sector organisations. Firstly, the changes taking place in the society mean also changes in the ways of running operations in public sector organisations. Public sector organisations have felt the need to look for the enjoyment and motivation of work lost somewhere along the line, and with them growth in productivity, by
developing models, which would transfer the advantages of an owner-managed organisation to public sector units. Many of these activities aimed at bringing about change can well be dealt with under the title entrepreneurship – more specifically intrapreneurship. Secondly, in the frame of SME policy it is a task of national governments to improve the environment of SMEs and to foster the competitiveness of SMEs. Different regional and local public authorities also take respective actions. (The European Observatory for SMEs… 2000) In Finland there are several actors in local, regional and national level in order to give guidance to SMEs, to promote different initiatives and to strengthen the growth and competitiveness of SMEs. These organisations working in close co-operation with SMEs are also faced with changes in the society accordingly. Entrepreneurship as well as intrapreneurship are connected to the working patterns of these organisations, and especially the ways these organisations co-operate with one of their target groups, i.e. SMEs. A lot of discussion has been focused on the means and instruments of SME and/or industrial policy. Not that much has discussion been conducted the way of implementing these policies. Even though there is no great theory of entrepreneurship, the concept of entrepreneurship is based on entrepreneurial opportunities – without entrepreneurial opportunities there is no entrepreneurship (see Shane – Venkataraman 2000). Entrepreneurship is a process of becoming, not a static phenomenon. The change involved usually takes place in quantum jumps, being a holistic process in which existing stability disappears. (Bygrave 1989) Therefore entrepreneurship is about identifying opportunities, creatively breaking patterns, taking and managing risk, organising and co-ordinating resources (see Landström 1998). Entrepreneurship integrates seeing (vision) and doing (action). As Pinchot (1985) puts it, entrepreneurs are “the dreamers who do”. Intrapreneurship is a concept closely related to entrepreneurship emphasising the entrepreneurial
process
(entrepreneurs
carry
out
new
combinations)
and
innovativeness (Guth – Ginsberg 1990). The intrapreneur acts like an entrepreneur in that he/she realises his/her own ideas without being the owner of the enterprise (Cunningham – Lischeron 1991). Intrapreneurship is here defined to mean entrepreneurial way of action in an existing organisation – more specifically, in a public sector organisation. The basis of intrapreneurship is recognising an opportunity, exploiting it and trusting that exploiting an opportunity in a new way that
deviates from previous practise will succeed and support the realisation of the organisation´s aims. (Heinonen 1999b) RESEARCH METHOD The focus of this study is to describe and understand reality and the phenomena studied, not to build a theoretical model. By applying the concepts of entrepreneurship theories into public sector activities I aim at recognising the entrepreneurial practises of public sector organisations. The entrepreneurial practises on this study are categorised into two different types: •
The development of an entrepreneurial model of action in the public sector organisations, i.e. intrapreneurship
•
SME and industrial policies aiming at improving the environment and competitiveness of SMEs.
The section of intrapreneurship consists of two different case studies from 1998-1999 discussing the process and elements of intrapreneurship in these public sector organisations. At the moment of research the case units were in a very different phase when analysing the cases from the intraprenurship point of view. The analysis presented in the following sections is based on the differences and similarities found from empirics. (Heinonen 1999b) The second section on SME and industrial policy consists of survey data from 1998 concerning 71 municipal support agencies. All these support agencies were owned at least partly by municipalities, but they operated as a limited company. The data was collected by using semi-structured telephone interviews and structured mail questionnaire. (Heinonen – Leiwo 1998) The data presented here has not been collected in order to assess and analyse the entrepreneurial practises involved, but for other specific purposes in two separate research projects. In this study I, however, reanalysed the data collected in order to find any characteristics of entrepreneurial practises. In the following section I discuss the findings in these two specific areas.
ENTREPRENEURIAL PRACTISES IN PUBLIC SECTOR ORGANISATIONS Intrapreneurship in public sector organisations2 The elements of intrapreneurship on the organisational level can be put together as follows (see Guth – Ginsberg 1990, Miller 1983, Kuratko et al. 1990): 0 $1$*(0(17 %(+$9,285
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Figure 1. The factors influencing intrapreneurship (Heinonen 1999b, elaborated from Guth – Ginsberg 1990, Miller 1983, Kuratko et al. 1990). The figure presented (Figure1) is not a model of the elements of intrapreneurship, but an attempt at outlining the discussion on the topic. The figure is the result of combining the concepts of different researchers of the factors influencing intrapreneurship. In the following I present the central findings of the study of the prerequisites of intrapreneurship in the municipal organisation. Intrapreneurship is a process, which occurs in interaction with the environment (see van de Ven 1993) On the basis of the study the emerging central factors are the management interpretation of environmental changes – whether threats or opportunities – and the resources available to the organisation to react to the changes in its environment (see recognising and exploiting the opportunity Stevenson – Jarillo 1990). The task of top management is to interpret the change trends brought on by the environment and assess the influence of these changes on the organisation. According to Ansoff (1981) it is the responsibility of the organisation´s management to secure such organisational behaviour that will ensure its success and survival. On the basis of the research results of the study the concrete management involvement in the daily 2
Empirical data based on research projects reported in Heinonen 1999b
activities of the unit is a central factor concerning the realisation of intrapreneurship. The closer the unit manager as a leader works with other employees of the organisation, the better possibilities he/she has to promote intrapreneurship. As to involvement, it is also important how well the management of the unit has been provided with resources and organised in general, because management as an extra function to other responsibilities does not often give the manager the opportunity to give a large enough input to managerial activities. The challenge of public sector management is made bigger by the sparsity of the change pressures rising from the environment, which makes it necessary for the management to find incentives and motivation from inside the organisation by applying their own input (see the challenge and appreciation of public sector management Heinonen 1999a). As organisational prerequisites of intrapreneurship, the culture, strategy, and structure and behaviours of the organisation emerge from the literature (Guth – Ginsberg 1990). In the following, all these factors are dealt with separately, even if they have interrelated effects. Organisation culture has an influence on intrapreneurship by creating a basis for growth (MacMillan 1986). Based on the empirics of the study, security and trust as the basic assumptions of the organisation create a favourable ground for the emergence of intrapreneurship. When a municipality puts heavy change pressures and strict targets to a municipal unit, the ability of the unit management to act as a buffer between the municipality and the personnel of the unit is put to test. When people in a work community can rely on the fact, that the fundaments of the organisation are secure, the commitment of the employees to the development of themselves and the unit will improve. Building up and developing a common target and an ambitious target-orientation in an atmosphere of trust so that every employee will understand his/her own role in the whole, will improve the prerequisites of intrapreneurship. Finally, the organisation culture will determine, how individuality is accepted in the organisation – as well inside the organisation as in relation to the customer. On the basis of the study an organisation culture, which emphasises equality and utmost consensus, does not encourage intrapreneurship. Strategy directs organisational activity, because it usually includes the activity area of an organisation (markets), central competition factors, on which the success of the organisation is built and the aims, which the organisation strives to achieve (Day
1990). The strategies of the units studied are incomplete and nebulous from the point of view of directing activities. The strategies of the units have been formed largely as an expression of will of the municipality as a whole, which the units studied strive to implement within the limits of their capabilities and resources. The own strategy work of the unit in order to develop the strategy, which the municipality has set for it, is almost non-existent, which is why the strategies are formulated at a very general level. The main reason for the nebulousness of the strategy is the fact, that the flow of customers is considered inexhaustible. In the same way as the invisible part of the organisation culture influences intrapreneurship in the organisation, organisation structure and its behaviours as visible parts are the organisational prerequisites of intrapreneurship (see Zahra 1991). On the basis of the units studied, the natural co-operation to achieve the common aims during the daily tasks of the employees improve the possibilities for intrapreneurship. Flexibility and loose task definitions make the daily co-operation possible. Development and change are investments in the future, which is why the time reserved for development work promotes intrapreneurship. A central issue is also, how intrapreneurship is encouraged. Organisational performance and intrapreneurship are linked to each other (Guth – Ginsberg 1990). Intrapreneurship, firstly, improves the performance (both economic and non-economic) of the organisation (Pearce et al. 1997). The relation works also to the opposite direction: the success of the organisation influences intrapreneurship. It is easier for a successful organisation to exploit opportunities – to innovate and change – when it has the necessary resources at its disposal. (Guth – Ginsberg 1990) Based on the empirics of the study the definition of the relation between intrapreneurship and success has many aspects. The interpretation is affected by on one hand, how intrapreneurship as a concept is understood within the organisation and on the other hand, how success is defined. However, it was noticed, that adequate resources and success promote intrapreneurship – correspondingly, scarce resources and negative feedback curb it.
SME and industrial policy conducted by municipal support agencies3 According to different studies the success and working possibilities of SMEs are somehow related to their use of external support and advice services. Two issues are of crucial importance: the supply of these services and the capability and willingness of SMEs to use them. (ENSR 1997) Municipalities as public local actors have seen it important to develop SME structure and the competitiveness of SMEs at the local level. By doing so municipalities are implementing SME and industrial policy. In late 1980´s and especially in the 1990´s an increasing number of municipalities have organised their local economic development (LED-) policy in the company form. The main aim has been to develop the LED-policy activities in a more entrepreneurial way. At least the following entrepreneurship related aims have supported the company form (Nupponen 1997): more flexible working patterns and faster decision making processes, increased accountability in LED-policy activities, decreased byrocratisation and hierarchy as the activities are taken away from the municipal organisation, innovative renewal of LED-policy activities, supporting cooperation between entrepreneurs and municipality, improved image of LED-policy among entrepreneurs, and supporting co-operation in regional level with other public and semi-public actors. The municipal support agencies studied were typically established in early 1990´s, employed 1-3 persons, and operated either on the local or regional level. The largest activity was real estate management amounting to half of the total turnover of the companies. The most typical activities were different kinds of developing projects, which amounted about 30% of the turnover of the companies studied. About two thirds of the municipal support agencies studied conducted different kinds of developing projects with SMEs. The objectives of the municipal support agencies highlight the activities of the agencies. The most common objective was the development and promotion of the business environment of the SMEs in order to gain successful and profitable business in the region. Also developing and counselling local business life as well as producing business-to-business services were typical answers. The latter can be seen as tasks or instruments of support agencies in their effort to fulfil the quite broad objectives above mentioned. Also the following objectives were mentioned: catalysing and 3
Empirical data based on research project reported in Heinonen – Leiwo 1998
supporting start-ups, increasing employment as well as maintaining present employment. It seems that business idea, strategy and objectives of the municipal support agencies are quite clear at the general level. However, these are presented in a way, which gives hardly any possibilities for measuring the outcomes. The objectives are usually of quite qualitative nature making it almost impossible to operationalise them. By looking at the ways of running the operations I tried to get some evidence of entrepreneurial practises within the municipal support agencies. The most typical products of the support agencies studied were counselling services, business premises, training services, and financing services for SMEs. The products offered were much more clearly defined than the objectives. Even though the support agencies were limited companies, the main owner – municipality – naturally had a strong effect on the activities of the support agencies. The limited company was believed to give the agencies autonomy as well as greater possibilities for fast and flexible decision making processes. The main obstacle of the company form were the financial problems as the agencies were not included in the budgetary frames of the municipalities in charge. Thus, the agencies were supposed to receive income by selling their services in the market place. However, the activities of the support agencies were quite clearly linked to general and official plans of the municipalities. The situation seems to be somewhat contradictive. A strong liasion with the municipality is understandable as it reflects the owner´s voice. On the other hand the support agencies were longing for greater autonomy and flexibility, which was believed to be possible in the limited company form. They were not, however, prepared to greater responsibility, which normally comes along with the independency. The capability of the support agencies to go further in their strategic work and positioning has, based on the result of the study, been quite poor. The agencies have not been able to take enough responsibility of their competitiveness, financial solvency, quality of the services offered and clientele. Most of all the support agencies have not been capable of renewing their operations neither inside the organisation, nor towards the customers. Also the overall innovativeness of the activities was quite low reflecting somewhat poor performance from the entrepreneurship point of view.
Another aspect related to entrepreneurship is co-opearation of the agencies studied in the field of support services for the SMEs. In Finland there are several actors in the local and regional level, which aim at providing support services for SMEs. One of the most important actors are Employment and Economic Development Centres (EEDC) situated all over the country. EEDCs were established by merging together the regional offices of three ministries: Ministry of Trade and Industry, Ministry of Agriculture and Ministry of Labour. When the study was conducted, all of these 15 centres were newly established and their role in local and regional economic development was still emerging. EEDCs offer a number of similar services to SMEs as municipal support agencies, which believe to be more competitive in the field of local knowledge. Municipal support agencies see that they could co-operate with EEDCs, but it was hard for municipal agencies to define their core competence in their SME related service production. The idea of the one-stop-shop within the EEDCs was recognised, but the role of the municipal support agencies within that was still unclear. The other local and regional actors in the field of SME policy were seen more as competitors than as partners. This can be understood if we bear in mind the financial difficulties of municipal support agencies studied. THE PROCESS OF ENTREPRENEURIAL MOVEMENT IN PUBLIC SECTOR ORGANISATIONS In this article by entrepreneurship and intrapreneurship in a public sector organisation I understand, as stated above, two different things. Firstly, it is about a change in the ways of management and action within an organisation. Secondly, it is about the public sector organisation´s relation towards its customers, i.e. SMEs in the local and regional level, as well as towards other interested parties. In both cases it is a profound change of organisation and work culture, that is in question (Figure 2). Especially in the public sector, entrepreneurship might be understood as business orientation, managerial competence and strict cost effectiveness. In enterpreneurship – above all in the schumpeterian sense – the emphasis lies on the entrepreneurial process of generating new ideas and practises. Thus, entrepreneurship covers not only the goals set for the running of the organisation, but also the entrepreneurial way of action involved to achieve them. At the same time, the entrepreneurial way of action gives personal satisfaction at the individual level.
Security Order Continuity Functional expertise Rules Planning Lojalility Right/moderation Formal standards Adjustment Static level of income
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Time, quantity Formal performance appraisal
Figure 2. Change of work culture (partly elaborated from Gibb 1999) A change in the work culture of a public sector organisation is not, however, without problems, because an organisation is a mixture of different cultures and ways of action. The modes of action in public sector organisations have, traditionally, followed the modes of action adopted in enterprises. To follow the ideas of Williamson (1975) and Walsh (1995) the movement of a public organisation on a continuum between organisation (hierarchy) and markets can be described as follows (Figure 3): 25*$1,6$7,21
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Figure 3. The development of the ways of action in a public sector organisation (Heinonen 1999b) At its purest form the traditional office mode is planning oriented, hierarchy-led activity, where things are done “in the right way”. With the increasing demands
brought by changes, public sector organisations have tried to get rid of the planning oriented hierarchy and to find greater effectiveness through more entrepreneurial ways of action. In the effectiveness oriented way of action the financial effectiveness of the unit is emphasised. Customer orientation is usually connected to the utmost markets end on the organisation-markets continuum. In the customer oriented way of action, the role of the customer is emphasised and the possibilities offered by the entrepreneurial way of action are taken to use. The empirical data presented in this study show that all the above mentioned modes of action can be found in a public sector organisation. As an example, the trustee system in the municipal organisation represents the planning oriented mode. The municipal planning and democratic decision making are expressions of the planning oriented mode found in the empirical data of this study. The central steering system affecting units´ strategic choices and resources, again, represents the effectiveness oriented mode. The actions of the units in the fields of cost cutting, strict accountability, and overall tendency towards “business like” behaviour can be seen as an effectiveness oriented mode of action. Running the municipal support agencies in the limited company form is also an expression of this effectiveness oriented consern model. Even though this model has “businesslike” characteristics, it does not necessarily involve any entrepreneurial practises. Finally, the customer oriented entrepreneurial mode can also be found in the organisations studied. First of all, this mode seems to be at least a vague aim of the organisations, but there are great differences in a way they have succeeded in fulfilling this objective. The reasons behind it were discussed in the section of intrapreneurship in public sector organisations. The municipal support agencies were very clearly striving at customer oriented entrepreneurship model, but they were lacking deep enough cotact to their customer, and general accountability e.g. on financial matters was not that high. Their modest efforts in the fields of organisational renewal and innovation, as well as loose strategic orientation accordingly show modest performance on entrepreneurial practises. As the different modes of action presented can be found within one organisation, it is clear that, the emergence of conflicts is imminent. This, however, goes beyond the frames of this study. These entrepreneurial practises discussed are, according to this study, heavily linked to each other. SME and industrial policies run by municipal support agencies cannot
be customer oriented or entrepreneurial if the organisation itself does not work in an entrepreneurial way. It seems that the most effective and efficient SME policy would be achieved by operating public sector organisations entrepreneurially and in accordance with the SME ideology. The elements of intrapreneurship discussed in the previous section give some guidance on how to implement intrapreneurship in public sector organisations. This, however, presupposes for a profound change of organisation and work culture as described in Figure 2. CONCLUSION A more entrepreneurial work culture brings about change in the relations between the public sector organisation and its interested parties. A more entrepreneurial way of action in an organisation provides a better opportunity of understanding entrepreneurship and, thus, also SMEs. In practise, it is a question of changing managerial and organisational practises towards self-direction, innovativeness, flexibility and increased responsibility – in a word intrapreneurship. A public sector organisation operating (internally) enterprenerially offers a better basis also for understanding the business as well as for supporting growth within the business community. The future success factors of the public sector organisation and its SME and industrial policy are: speediness, flexibility, integration and innovativeness. All of these are characteristics closely related to entrepreneurship. Speediness is above all reflected on the organisation´s interface with the clientele: product development and changes in the relevant strategic lineations. Flexibility, on the other hand, means learning, getting rid of job descriptions and role obscurity, as well as acquisition of teamwork skills. Integration calls for extensive and open interaction with the clients, as well as with other organisations and enterprises. As a result of integration, new value adding processes emerge, where the parties involved learn from each other. Innovativeness is an important element of the entrepreneurial way of action, where sometimes nearly impossible reforms and new solutions for new problems are discussed. This encourages risk taking and accepting mistakes as a source of learning (see Heinonen – Leiwo 1998). This study was based on empirical data collected for other purposes, and reanalysed according to the objectives of this study. The task was quite challenging, but gave me
some new insights on entrepreneurial practises in the public sector organisations studied. Due to the heterogeneous empirical data involved, it has been difficult to discuss the findings in a methodologically sound way appreciated in the field of scientific research. This, however, gives fertile ground for further research. From the public sector point of view, it would be interesting to understand better the coexistence and integration of three different modes of action – planning oriented office mode, effectiveness oriented consern mode, and customer oriented entrepreneurial mode – found in the municipalities studied. A future challenge would also be to gain a deeper understanding of the possible and already partly realised impact on entrepreneurship on public sector organisations. REFERENCES Ansoff, Igor H. (1981) Strateginen johtaminen. (The ABC of Strategic management 1979) Ekonomia-sarja. Weilin+Göös: Espoo. Bygrave, William D. (1989) The Entrepreneurship Paradigm (I): A Philosophical Look at Its Research Methodologies. Entrepreneurship Theory and Practice, 7-26, Fall. Cunningham, J. Barton – Lischeron, Joe (1991) Defining Entrepreneurship. Journal of Small Business Management, Vol. 29, No. 1, 45-61. Day, George S. (1990) Market Driven Strategy. Process for Creating Value. The Free Press: New York. The European Observatory for SMEs Sixth Annual Report (2000) ENSR – European Network for SME Research, co-ordinated by KPMG Consulting and EIM, Italy. ENSR (1997) The European Observatory for SMEs. Fifth Annual Report 1997. ENSR European Network for SME Research and EIM Small Business Research and Consultancy Gibb, Allan (1999) The Future of Work and the Role of Entrepreneurship and Enterprise Education in Schools and Further Education. Keynote to 3rd Finnish SME Forum, February 3rd 1999. Turku, Finland. Guth, William D. – Ginsberg, Ari (1990) Guest Editors´ Introduction: Corporate Entrepreneurship. Strategic Management Journal, Vol. 11, Summer Special Issue, 5-15. Heinonen, Jarna (1999a) Epilogi. Teoksessa Julkisten palvelujen laatu ja kilpailukyky (The Quality and Competitiveness of Public Services) (Mäki, Katja – Sorri, Taija). Valtiovarainministeriön hallinnon kehittämisosaston tutkimukset ja selvitykset 2/1999. Helsinki, 180-181. Heinonen, Jarna (1999b) Kohti asiakaslähtöisyyttä ja kilpailukykyä. Sisäinen yrittäjyys kunnallisen yksikön muutoksessa. (Towards Customer Orientation and Competitiveness. The Potential of Intrapreneurship in the Change Process of a Municipal Service Unit) Publications of the Turku School of Economics and Business Administration Series A5:1999.
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