In Search Of ‘The Entrepreneurial Society’1 December, 2016 / Articles
Whatever happened to “the entrepreneurial society” that Peter Drucker forecast in 1985? Drucker had written in his insightful 1985 book, Innovation and Entrepreneurship, that in future work would transition from bureaucratic practices; management would focus on innovation and new opportunities, generating an entrepreneurial spirit throughout entire organizations; the whole of society itself would become entrepreneurial.
It was a brilliant vision, but now, some 31 years later, it hasn’t generally happened. Bureaucracy is still alive and well and thriving in a big organization near you. Why?
Last week, the world’s leading general management conference—the annual Global Peter Drucker Forum—met in Vienna to discuss the situation. Many speakers lamented the fact that many, if not most, workers continue to plod on as wage slaves, their talents locked in bureaucratic silos or eking out a precarious existence in the emerging gig economy, while big organizations spurn innovation and increasingly focus on exploiting existing business models. Firms are stuck on the treadmill of producing quarterly returns, often to be achieved through financial engineering, rather than exploring new opportunities through innovation.
The Decline Of Innovation And Entrepreneurship
Instead of a golden age of entrepreneurship, most speakers recognized that there is widespread evidence of a global decline of innovation:
- The rate of new business formation in the USA has fallen by 50% since 1978. Today, there are more deaths of businesses than there are new business births. (Jeffrey Pfeffer, Professor of Organizational Behavior at the Stanford Graduate School of Business).
- The search for certainty through data and analysis has fostered exploitation at the expense of exploration. (Roger Martin, Director of the Martin Prosperity Institute)
- Only 20% of R&D has any value, because most big firms lack a coherent approach to innovation. (Curt Carlson, former CEO of SRI).
- In big organizations, being a promoter of innovation is often career suicide. (Alex Osterwalder, Co-founder of Strategyzer)
- The rates of return on assets and on invested capital continue their precipitous five-decade decline. Only one in five workers are fully engaged in his or her work and even fewer are truly passionate. (John Hagel, Founder and Chairman of the Deloitte Center for the Edge).
- Bureaucracy is still rampant, with a cost to the economy in the trillions of dollars (Gary Hamel)
- Existing firms are genetically unable to cope with disruptive innovation; the only solution is to set up a new organization (Clayton Christensen, Professor of Business Administration, Harvard Business School).
- Even the vaunted “hidden champions” of the German Mittelstand are having difficulty in dealing with fast-moving digitization (Gisbert Rühl, CEO, Klöckner & Co)
- In publicly owned firms, a focus on shareholder value is creating a focus on short-term at the expense of value creation in the medium term and destroying real shareholder value (Fredmund Malik, Founder and Chairman of the Malik Institute for Complexity Management).
Exploitation Vs. Exploration
Why hasn’t Peter Drucker’s entrepreneurial society materialized? Roger Martin suggested that established organizations face conflicting forces. Under pressure from capital markets, firms have to care about reliability: producing a consistent replicable outcome. (see Figure 1: 1) Increasingly, organizations have been dominated by the pursuit of exploitation, as capital markets care more about meeting quarterly targets than about what a firm is actually producing. This phenomenon is relatively recent: quarterly guidance to the stock market only became legal in the USA in 1996.
The other dimension is exploration and the value of validity—the production of new outcomes that society actually wants (Figure 1:2) This is the domain where entrepreneurial organizations produce value for society in the long term.