Copyright 2005 © by IMD International, Lausanne, Switzerland Not be used or reproduced without permission Internal Entrepreneuring for Growth FEL Annual Conference Amsterdam, September 23, 2005 Dr. Peter Lorange, President, IMD The Nestlé Professor

2 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Why is growth so critical? What characterizes an effective organization – to achieve growth? Why do we need internal entrepreneurs? What must they know? Their place in the organization What is the role of the CEO in growth? A growth culture is critical today, and the Internal Entrepreneur is a key part of this.

3 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Growth is critical! Either you grow – or you die. Status quo is not an option Organizationally Reputation; track record (to attract capital) Growth is key in society Jobs Societal wealth: Focus on how to create the pie, not on how to split it! World competitiveness race Talents Capital

4 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President ex. CHINA Exceptional Economic Growth is key for exceptional Business Growth Infrastructure - congestion – –Harbours – –Roads Energy consumption – can it be sustained? – –Oil imports – –Environmental limitations? Consumer durables exports – –Container ship market – Terrorism? Political stability? Steel manufacturing – can it drive the growth? – –Steel imports – –Ore imports

5 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President GDP Per Capita, $’000 Steel Consumption Per Capita, kgs Expected Chinese Consumption (UBS Warburg) Average Consumption for Developed Countries China South Korea, Taiwan Europe, Japan, U.S. Example re. steel as an underlying economic driver: Steel Intensity Rises as Countries Get Richer – But how fast? New technology in Materials Usage?

6 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President The Daily Burn Relative oil use intensity, in thousands of barrels of oil consumed per day, per billion dollars of GDP in 2004 Source:Morgan Stanley; BP; Statistical Review of Energy; IMF Average

7 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President See opportunities before they are obvious to everyone else Customer relationships – –closeness – –understanding – –continuity – –trust Key to have: Unique know-hows that the customer can appreciate! Technological IT Commercial A good Niche Strategy – does it build on already established strengths? All Growth Strategies should – in essence – be seen as Niche Strategies Key Elements of Niche Strategies

8 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Leverage New Distinctive Competencies Existing Markets New Protect & Extend Existing StepwiseTransformation Build Build Domain of Corporate Entrepreneurship A Model for Internally Generated Growth, and the Domain of Corporate Entrepreneurship Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming

9 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President We see Several Critical Skills/Capabilities that the Effective Internal Entrepreneur must Have Board “See”, Customer Interface “Identify” Competencies “Implement” Mobilize Team and The outside market contacts The inside network The inspiring and confident leader - we, we, we not me, me,me CEO

10 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Ability to: Ability to discover a profitable value proposition and communicate it Ability to understand what critical resources are needed for success Ability to mobilize these resources (networking ability both inside and outside – borrow with pride). Ability to assemble and motivate a team of experts. Ability to deliver results Breaks rules but always stays true to the corporate vision and values An Internal Entrepreneur’s Profile Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming

11 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Characteristics: Not a narrow expert, visionary perspective – thinking out of the box Established track record – buys freedom Long tenure – helps with networking High integrity Not status conscious Not risk averse – unafraid. Will take career risks. Energy & Inner fire. Primary motivation is recognition An Internal Entrepreneur’s Profile Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming

12 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Ability to: Spot the entrepreneur and provide the right assignment Empower, believe in the concept Sell upwards Help access resources: Finance, People, Time and Space Ensure integrity of mission Set tough goals and demand results Tolerate “idea” failures Provide political cover Plan personal development of the entrepreneur around new projects Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming How does the Internal Entrepreneur fit into the Organization? Effective sponsors of corporate entrepreneurs are equally key. A Growth Sponsor Profile:

13 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President Characteristics: A good strategic mind: able translator Handles ambiguity Willing to cash in personal credibility Courageous: Supports risky projects Coach/mentor Patient and persistent Not a control freak Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming How does the Internal Entrepreneur fit into the Organization? Effective sponsors of corporate entrepreneurs are equally key. A Growth Sponsor Profile:

14 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President An effective CEO – for fostering growth – is critical too. A CEO Profile: Ability to Focus on key strategic projects “Pump” strategic resources into such projects – gain momentum, speed Represent the customer vis a vis own organization Balance growth and profits

15 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President An effective CEO – for fostering growth – is critical too. A CEO Profile: Characteristics Get hands dirty – enthusiasm Comfortable with strategic budget Value to customer/marketing orientation Have strength to withstand short-term pressure Be cognizant of risks, and setbacks – with learning, and without stigmatization

16 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President More networked organizations ­ ­Not dogmatic – no illusions of being the “one big brain,” but willing to challenge conventional business models ­ ­Creates “meeting places” between problems and solutions, fights the Not Invented Here (NIH) syndrome ­ ­Pushes for fewer silos and organizational “kingdoms” ­ ­Avoids home country biases! Action orientation ­ ­Promotes doing things, trying things – not analysis in absurdum ­ ­Ensures that there is no stigma if there are setbacks, but seeks break through ideas and not incremental thinking ­ ­Promotes learning from failures and sharing of successes Walk the talk ­ ­Rewards sharing ­ ­Ensures that HR policies support one enterprise thinking ­ ­Fights dysfunctional politics The CEO Should Foster a Growth Culture Source: Chakravarthy & Lorange, Leading for Growth, Forthcoming

17 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President The CEO must take the customer’s viewpoint “Represent” the customer Not isolated (not imperial) Add resources to key strat. initiatives Be following these closely Gain time. Speed!

18 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President The Effective Organization for Achieving Strong Growth is: As simple as possible re. its formal structure – self- contained entities As close to the customer as possible – in a holistic way Lean on processes – above all control processes Light on central staff functions

19 PL-Internal Entrepreneuring for Growth - Amsterdam Dr. Peter Lorange, President “It is not the strongest of the species that survive, nor the most intelligent, but the most responsive to change” Darwin