University of Southern California Dissertations and Theses

Internal venturing in public agencies

(USC Thesis Other)

Internal venturing in public agencies

PDF

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content INTERNAL VENTURING IN PUBLIC AGENCIES
by
Thomas J. Mierzwa
A Dissertation Presented to the
FACULTY OF THE SCHOOL OF POLICY, PLANNING
AND DEVELOPMENT
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PUBLIC ADMINISTRATION
August 2003
Copyright 2003 Thomas J. M ierzwa
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
UMI Number: 3116755
Copyright 2003 by
Mierzwa, Thomas J.
All rights reserved.
INFORMATION TO USERS
The quality of this reproduction is dependent upon the quality of the copy
submitted. Broken or indistinct print, colored or poor quality illustrations and
photographs, print bleed-through, substandard margins, and improper
alignment can adversely affect reproduction.
In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if unauthorized
copyright material had to be removed, a note will indicate the deletion.
®
UMI
UMI Microform 3116755
Copyright 2004 by ProQuest Information and Learning Company.
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
ProQuest Information and Learning Company
300 North Zeeb Road
P.O. Box 1346
Ann Arbor, Ml 48106-1346
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
UNIVERSITY OF SOUTHERN CALIFORNIA
SCHOOL OF PUBLIC ADMINISTRATION
UNIVERSITY PARK
LOS ANGELES, CALIFORNIA 90089
This dissertation, written by
Ihamas.. James..M iecswa............................
under the direction o f his.... Dissertation
Committee, and approved by all its
members, has been presented to and
accepted by the Faculty o f the School of
Public Administration in partial fulfillment
o f requirements for the degree of
DOCTOR OF PUBLIC ADMINISTRATION
Dean
D a,e..F l}> A .?2
DISSERTATION COMMIJfEE
> erson
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ACKNOWLEDGEMENTS
This effort could not have been completed without help from many people.
Ross Clayton, chair of my dissertation committee, provided helpful advice and
strong encouragement over several years of work on this project. Committee
members Chester Newland and Catherine Burke provided constructive and
challenging comments to drafts of the document. My learning experiences in each of
their courses were sources of inspiration for rigor in the dissertation. Bob Biller
provided constant attention and motivation to my progress in this effort.
My thanks go to the agency employees who were willing to speak with me
and provide important information for the case studies in this document. Gratitude is
offered to the many scholars who returned phone calls and e-mails about conceptual
and theoretical aspects of this study. Their spirit of sharing gave me a deeper
appreciation of collaboration in the academy.
To my family and friends who have been especially understanding and
supportive throughout my entire doctoral experience, I am very grateful. Neither this
dissertation nor the degree that accompanies it would have been completed without
the enduring support of my wife, Dana Lane. Her steadfast faith in my ability to
complete this dissertation provided the impetus to bring it to a conclusion.
ii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CONTENTS
ACKNOWLEDGMENTS.......................................................................................... ii
LIST OF TABLES...................................................................................................... vi
LIST OF FIGURES..................................................................................................viii
ABSTRACT..................................................................................................................x
Chapter
1. INTRODUCTION........................................................................................... 1
The Entrepreneurial Environment in Government.................................. 1
Uncertainty about the Meaning of Public Entrepreneurship..................4
Franchise Funds as an Entrepreneurial Initiative.................................... 6
The Research Problem.............................................................................. 8
Research Questions Addressed by this Study........................................10
Significance for the Field of Public Administration............................. 11
Definitions and Key Terminology......................................................... 12
Study Approach........................................................................................15
Scope of this Study..................................................................................15
Dissertation Chapters...............................................................................16
2. THEORETICAL OVERVIEW................................................................... 18
Government as a Value-Creating Sector................................................ 18
Innovation Perspectives.......................................................................... 19
Entrepreneurship Perspectives................................................................30
Public Entrepreneurship Perspectives....................................................36
Differences between Public and Private Sector Entrepreneurship...... 47
Similarities between Public and Private Sector Entrepreneurship...... 48
Corporate Venturing Perspectives.......................................................... 49
Innovation and Entrepreneurship Relationships................................... 50
Observations.............................................................................................51
Common Elements for Analysis............................................................ 53
Basis for Theory Development.............................................................. 54
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
3. METHODOLOGY.........................................................................................55
Methodological Context..........................................................................55
Theory Development from Case Studies...............................................56
Theory and Model Development........................................................... 60
Research Design.......................................................................................62
Data Collection........................................................................................64
Data Analysis...........................................................................................66
Addressing Research Validity.................................................................68
Research Quality and Significance........................................................ 70
Limitations of This Study.......................................................................71
4. REVIEW OF CORPORATE VENTURING LITERATURE................... 73
Antecedents to Internal Venture Formation...........................................75
Internal Venture Process.........................................................................79
Internal Venture Structure.......................................................................86
Internal Venture Strategy........................................................................98
Internal Venture Outcomes................................................................... 104
Corporate Venturing Models.................................................................110
Concluding Observations...................................................................... 114
5. THEORY FORMATION............................................................................ 116
Building Blocks of Theory Development............................................116
Perspectives on Theory......................................................................... 118
Approach to Middle-Range Theorizing............................................... 121
Tasks of Theory Building...................................................................... 122
Internal Venture Theoretical Relationships.........................................124
A Working Model of Internal Ventures............................................... 127
6. CASE STUDIES.......................................................................................... 131
Case Study Approach............................................................................ 130
Background on Franchise Funds...........................................................133
Department of the Treasury.................................................................. 134
Department of Commerce..................................................................... 141
Department of Health and Human Services.........................................148
Department of the Interior..................................................................... 155
Department of Veterans Affairs............................................................160
Environmental Protection Agency........................................................167
Background on Other Federal Agency Ventures................................ 172
GovWorks Venture................................................................................173
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Defense Reutilization and Marketing Service......................................180
National Finance Center........................................................................ 185
U.S. Forest Service Enterprise Program....................................... 190
NIST Proposal Review Program...........................................................197
Central Intelligence Agency’s In-Q-Tel Venture................................203
Cross-Case Analyses............................................................................. 209
Observations on Internal Venture Elements....................................... 221
7. TESTING VENTURE MODEL FIT IN PUBLIC AGENCIES...............222
Explanation of ICV Model F it............................................................. 222
ICV Antecedents................................................................................... 223
ICV Concept Identification...................................................................226
Feasibility Testing................................................................................. 230
Organization...........................................................................................234
Strategy.................................................................................................. 236
Outcomes............................................. 240
Summary Findings................................................................................ 242
8. TOWARD A THEORY OF INTERNAL AGENCY VENTURING 244
Corporate Venturing Explanations of Internal Agency Ventures 245
Model of Internal Agency Venturing...................................................248
Conclusions and Observations............................................................. 254
Implications for Practice.......................................................................256
Potential Research Agenda...................................................................264
Concluding N ote................................................................................... 265
SELECTED BIBLIOGRAPHY........................................................................267
APPENDIX A: 12 Business Operating Principles...........................................286
APPENDIX B: Case Study Interview/Discussion Questions.........................287
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
LIST OF TABLES
Table 3.1 Theory-Building Methodologies Applied to This Study................72
Table 4.1 Taxonomy of Venture Antecedent Factors.................. 79
Table 4.2 Taxonomy of Venture Process Factors............................................ 85
Table 4.3 Taxonomy of Venture Structural Factors.........................................97
Table 4.4 Taxonomy of Venture Strategy Factors......................................... 103
Table 4.5 Taxonomy of Venture Outcome Factors........................................ 109
Table 4.6 Summary of Venture Model Formats............................................ 114
Table 5.1 Theory-Building Tasks Applied to This Study...............................125
Table 6.1 Service Offerings of the Treasury Franchise Funds.......................137
Table 6.2 Internal Venture Characteristics of Treasury Franchises.............. 140
Table 6.3 Service Offerings of Commerce Franchise Funds......................... 144
Table 6.4 Internal Venture Characteristics of Commerce Franchises........... 148
Table 6.5 Service Offerings of HHS Franchise Funds....................................150
Table 6.6 Internal Venture Characteristics of HHS Franchises.....................154
Table 6.7 Service Offerings of Interior’s National Business Center.............156
Table 6.8 Internal Venture Characteristics of Interior Franchises.................159
Table 6.9 Service Offerings of Veterans Affairs Enterprise Centers.............162
Table 6.10 Internal Venture Characteristics of DVA Franchises..................... 166
Table 6.11 Service Offerings of EPA Franchises..............................................168
Table 6.12 Internal Venture Characteristics of EPA Franchises...................... 172
Table 6.13 Service Offerings of GovWorks Venture........................................ 176
vi
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.14 Internal Venture Characteristics of GovWorks.............................179
Table 6.15 Service Offerings of Defense Reutilization Marketing Service . 182
Table 6.16 Internal Venture Characteristics of the DRMS..............................184
Table 6.17 Service Offerings of the National Finance Center.........................186
Table 6.18 Internal Venture Characteristics of the National Finance Center 189
Table 6.19 Service Offerings of Forest Service Enterprises............................192
Table 6.20 Internal Venture Characteristics of Forest Service Enterprises.. 196
Table 6.21 Service Offerings of the NIST Proposal Review Venture............ 199
Table 6.22 Internal Venture Characteristics of the NIST Proposal
Review Venture................................................................................102
Table 6.23 Service Offerings of In-Q-Tel......................................................... 205
Table 6.24 Internal Venture Characteristics of In-Q-Tel.................................208
Table 6.25 Environmental Influences on Internal Ventures............................210
Table 6.26 Business Models Used for Internal Venture Formation................ 212
Table 6.27 Feasibility Tests Used for Internal Ventures.................................. 214
Table 6.28 Organizational Location of Internal Ventures................................ 216
Table 6.29 Strategies Employed by Internal Ventures..................................... 218
Table 6.30 Value Outcomes of Internal Ventures.............................................220
Table 8.1 Comparison of ICV and IAV Approaches..................................... 254
Table 8.2 Fit between Case Study Ventures and Working Model................ 255
vii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
LIST OF FIGURES
Figure 2.1 Typology of Entrepreneurial Activities............................................31
Figure 3.1 Two Approaches to Theory Building:...............................................61
Figure 3.2 Sequence of Research Phases............................................................ 63
Figure 4.1 Framework for Corporate Venturing Literature Review................ 73
Figure 4.2 Organization Designs for Corporate Entrepreneurship................... 93
Figure 5.1 Working Model of Internal Venturing............................................ 128
Figure 7.1 Internal Venture Antecedent Relationships................................... 224
Figure 7.2 Internal Venture Concept Identification..........................................228
Figure 7.3 Internal Venture Feasibility Testing...............................................231
Figure 7.4 Internal Venture Organizational Relationships.............................. 234
Figure 7.5 Internal Venture Strategy Relationships......................................... 237
Figure 7.6 Internal Venture Outcome Relationships........................................ 240
Figure 8.1 A Component Perspective of IA V ...................................................249
Figure 8.2 A Process Perspective of IAV..........................................................251
Figure 8.3 A Relationship Perspective of IAV..................................................253
Figure 8.4 Sources of IAV Opportunities.......................................................... 257
Figure 8.5 Antecedent Effects on IA V s............................................................ 258
Figure 8.6 IAV Feasibility Screening.................................................................259
Figure 8.7 IAV Organizational Alignment........................................................ 260
Figure 8.8 IAV Competitive Strategies..............................................................261
viii
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 8.9 IAV Championing Behavior...........................................................262
Figure 8.10 IAV Value Outcomes......................................................................263
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ABSTRACT
Innovation in organizations requires the exercise of creativity, vision,
entrepreneurial effort, and perseverance. The federal government is making a
significant effort to foster entrepreneurial approaches that translate innovative ideas
into practice. These entrepreneurial approaches resemble many aspects of corporate
venturing strategies practiced by private sector organizations.
This dissertation examines how federal agencies use internal agency
venturing to carry out innovative management practices and program initiatives. An
iterative triangulation approach is used to relate data from 12 case studies, research
findings from the corporate venturing literature, and elements of a working model of
internal agency venturing. Venture experiences of six Franchise Fund Pilots and six
federal agency entrepreneurial initiatives are studied. These cases are comparatively
analyzed against six venture factors, including environmental influences, business
model employed, feasibility tests, organizational format, strategy choice, and value
outcomes. Review of the corporate venturing literature is structured around these
same factors, resulting in a series of theoretical propositions. A middle-range
theorizing approach is used to construct a working model of internal agency
venturing, which is tested against the results of the 12 cases.
The study finds a number of similarities between internal corporate venturing
(ICV) in private sector organizations and internal agency venturing (IAV) in public
x
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
agencies. The most significant of these is venture strategy selection and emphasis on
value outcomes. The study reveals a wide range of public value outcomes pursued
by internal agency ventures and venture strategies that resemble private sector
approaches. The study also finds significant differences in value outcomes between
franchise ventures and other federal agency entrepreneurial initiatives. Franchise
ventures focus on process efficiency and cost reimbursable services, while agency
entrepreneurial initiatives leverage innovations to achieve broader forms of public
value.
The study models components, processes, and relationships of internal
agency ventures and provides a framework for interpreting and explaining the
internal venturing phenomenon in public agencies. A research agenda for extending
the theoretical findings of this study is presented.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 1
INTRODUCTION
The Entrepreneurial Environment in Government
The federal government is placing increasing emphasis on innovative reforms
and on internal initiatives that might be described as entrepreneurial venture pathways
to improve government services. Several reform initiatives influence the
entrepreneurial environment of government, including the Clinton-Gore era’s National
Performance Review (NPR), the Franchise Fund Pilot Program, the allocation of
venture capital in various agencies, and the Federal Activities Inventory Reform Act.
As part of the National Performance Review, a major initiative was the
establishment of agency "reinvention labs" designed to test ways that agencies could
improve their performance and customer service by reengineering work processes and
eliminating unnecessary regulations. A report by the U.S. General Accounting Office
(1996) found that more than two dozen agencies and other federal entities had
developed a total of 185 reinvention labs in various parts of the country. These
reinvention labs addressed a variety o f issues, ranging from traditional personnel
management and procurement systems to such cross-cutting themes as how agencies
could use technology to improve their operations. Clearly, these initiatives indicated
of the copyright owner. Further reproduction prohibited without permission.
that agencies in the federal government offer fertile ground for innovative
improvements.
Another federal level initiative fostering entrepreneurial efforts, the Franchise
Fund Pilot Program, was authorized by Section 403 (f) of Public Law 103-356, the
Government Management Reform Act (GMRA) of 1994. Six agencies were
designated as pilot programs to provide "such administrative support services to the
agency and other agencies.. .as can be provided more efficiently through such funds
than by any other means." The status of these pilot programs was reported to Congress
by the federal Chief Financial Officer Council (1998). The report noted that the
concept of franchising is not new even though its use in federal agencies is. There has
been a history of using existing authority to promote efficiency and competition
through consolidated delivery of services across government. Implementation of the
Franchise Fund Pilot Program was expected to reduce duplicative and redundant
service providers and reduce costs to both internal and external customers by providing
faster and more responsive services and by using an expanded customer base to achieve
economies of scale. The entrepreneurial operating philosophy of the franchise fund
programs is based on business operating principles drawn from private sector practices.
This initiative represents a significant attempt to introduce entrepreneurial behavior to
improve services offered within government agencies.
A third effort designed to encourage innovative and entrepreneurial initiatives in
federal agencies is the allocation of budget funds for venture capital. As a financial
resource for investing in innovations, venture capital can fund redesigned work
2
permission of the copyright owner. Further reproduction prohibited without permission.
processes, new information systems, or other technology and ideas that help improve
the quality and responsiveness of government services. A report on improving
financial management by the NPR (1993) argued that the availability of venture capital
for innovations "calibrates the ability of federal agencies to build a capacity to govern
and improve performance. The increased availability of innovation capital acts as an
incentive for federal managers and employees to develop and implement their creative
ideas.. .for improving government." The report also recommended that agencies be
allowed to create innovation capital funds, establish working capital funds (WCFs) that
would be matched by participating federal agencies, and convene a WCF forum to
support the transfer of innovative ideas and experiences using working capital. This
initiative recognized the role of venture capital in launching an innovative idea and
supports entrepreneurial behavior for improving government.
A fourth example of stimulants for privatization and entrepreneurial
government is found in the Federal Activities Inventory Reform Act of 1998 (P.L. 105-
270). This law directs the head of each federal agency to submit to the Office of
Management and Budget (OMB) a list of activities performed by federal agency
sources for the government that, in the judgment of the head of the executive agency,
are not inherently governmental functions. Interested parties (expected to be from the
private sector) may challenge an omission of a particular activity from that list. The
ultimate intention o f the law is to codify the guidance from OMB Circular A-76 to
ensure that government activities are classified as either inherently governmental or
potentially subject to privatization. This law creates a context for greater scrutiny of
3
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
activities that may be characterized as entrepreneurial within the federal government. It
highlights the need to distinguish between entrepreneurial behavior to improve
government services and governmental initiatives that may resemble entrepreneurial
ventures.
Uncertainty about the Meaning of Public Entrepreneurship
Recently, some writers in the field claim that even though entrepreneurial
approaches like corporate venturing are useful for launching innovative private sector
initiatives, these approaches may not be appropriate in the government sector.
Robert Behn (1995) has contributed to the debate over public
entrepreneurship by raising what he calls “the big questions of public management.”
In his discussion of how public managers can break the micromanagement cycle, he
raises another question labeled “the entrepreneurship question: How can public
managers define and develop an entrepreneurial approach to public management that
is not only necessary, but also legitimate and ethical?” (p. 318). Drawing from the
work of Diver (1982), Behn contrasts two models of public management: the
engineering model and the entrepreneurial model. While the public manager as
“engineer” guides and supervises the execution of previously defined government
policy, the public manager as “entrepreneur” is involved in interpreting policy goals
and translating them into program vehicles rather than simply accepting them. Behn
notes that the entrepreneurial model offers a good description of reality but creates
an ethical problem: the entrepreneurial model is in apparent conflict with democratic
4
permission of the copyright owner. Further reproduction prohibited without permission.
theory. Diver argues that the entrepreneurial model represents a more faithful
reflection of reality, yet is morally unacceptable, while the engineering model is
ethically preferable but unrealistic.
Diver’s argument raises a number of specific questions: what kind of
entrepreneurship is acceptable and desirable? How can public managers be
encouraged to take risks to achieve policy objectives rather than play it safe and
avoid criticism for making a mistake? How can we balance the conflict between
political reform (designed to prevent corruption) and managerial reform (designed to
encourage creative actions to achieve policy objectives)? When should public
managers act entrepreneurially, and when should they adhere strictly to established
policy and the letter of the law? What are the ethical boundaries to
entrepreneurship? These important philosophical questions raise practical
implementation issues in carrying out public policies and programs.
Writers such as Linden (1990), Palumbo, Musheno, and Maynard-Moody
(1986), Osborne and Gaebler (1992), Light (1994), Berry (1994), and Roberts and King
(1996) have also noted the merits of a renewed examination of opportunities for ways
that innovation and entrepreneurship can be adapted from the private sector for
effective improvement of public management.
Coupled with the often pessimistic belief that private sector innovations cannot
be imported to public agencies is the debate over whether they should be at all.
Debaters on this issue include Mitchell and Scott (1987), Dobell (1989), Bellone and
Goerl (1992,1993), Perlmuter and Cnaan (1995), and Behn (1995). These authors
5
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
reflect the range of pros and cons regarding the merits and appropriateness of
entrepreneurial behavior by public sector employees. On the one hand, their arguments
support claims that entrepreneurial approaches are the key to innovation in the private
sector and therefore should be considered in the public sector. On the other hand, their
arguments claim that entrepreneurial initiatives are not appropriate in the public sector
since they cannot be controlled or guided by public policy or legislation.
Franchise Funds as an Entrepreneurial Initiative
An OMB Report to the Congress on the Franchise Fund Pilot Program (1997)
outlined the sources of change in attitudes toward entrepreneurial initiatives in federal
agencies. Traditionally, federal program managers are provided a range of
administrative services within their own organizations. These service providers are in
effect internal monopolies dedicated to supporting a single unit or program. As internal
monopolies, they have little incentive to treat program managers as customers, and the
program managers have little control over the quality of services received.
Compounding this situation is the prevalence of a conservative, risk-averse federal
culture that emphasizes adherence to regulations over service and results.
In recent years there has been considerable expansion of cross-servicing within
the federal government. Service units within large agencies have extended their
services to customers in other agencies on a reimbursable basis. The Cooperative
Administrative Support Unit program has been a catalyst for service arrangements
between agencies. The OMB Report to Congress (1997) noted that centers of
permission of the copyright owner. Further reproduction prohibited without permission.
innovative entrepreneurship have developed elsewhere in government, including the
Department of Agriculture’s National Finance Center; the Department of Treasury
Financial Management Service’s Center for Applied Financial Management; the
Interior Department’s Administrative Service Centers in Denver and Washington; and
the General Services Administration’s Federal Computer Acquisition Center for
automated data processing purchases by other agencies. The success of these
organizations in improving service and reducing cost has set the stage for applying the
franchising concept throughout the federal sector.
The franchising concept drew on a series of 12 business operating principles
(see Appendix A), including focusing on the needs of the line manager, injecting
competition, finding market solutions, and fostering excellence, among others. The
term franchise was used to refer to internal services based on three fundamental
requirements: that services would be reimbursable, competitive, and conducted within
government-wide principles and criteria.
The Franchise Fund Pilot Program was authorized by Section 403 (f) of Public
Law 103-356, the Government Management Reform Act of 1994. This authorization
and the designation of six franchise fund pilots established a set of fully self-supporting
business entities within the federal government to compete in a marketplace fashion and
provide common administrative support services.
permission of the copyright owner. Further reproduction prohibited without permission.
The Research Problem
Innovation in organizations requires the exercise of creativity, vision,
entrepreneurial initiative, and perseverance to achieve results. In the private sector
innovation drives improvement and corporate competitiveness and is usually
recognized through attendant market rewards to the innovator. In the public sector the
process for implementing an innovative idea is not always recognizable or
understandable through the exercise of public powers and bureaucratic process.
Management structures and processes necessary for routine agency operations
are very different from those required to manage innovation. The pressures of program
delivery and constituency responsiveness on the one hand and the reality of short-term
budget control on the other combine to produce an agency environment that favors
carefully planned and stable operations based on incremental change and highly defined
programs and policies. Such an environment is unlikely to be conducive to the kind of
radical innovation sought in most private sector ventures.
Private sector organizations create internal corporate ventures (ICVs) to exploit
the resources of their organizations as a whole, while providing a sheltered environment
more conducive to launching an innovation as a venture. An ICV can take the form of
a separate organizational unit or system designed and located to initiate a new business
idea, policy, or program. ICVs can be used to meet organizational goals that exploit
underutilized resources, divest noncore activities, initiate a new program or expand an
8
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
existing one, meet the needs of a new constituency, or develop a new technological
capability.
Many, if not most, agency entrepreneurial initiatives being pursued appear to
reflect internal corporate venturing approaches widely practiced in the private sector.
Given the number of legislative and program initiatives designed to foster
innovative and entrepreneurial approaches in the federal government, agencies can be
expected to devote significant public management attention to them in the future. Based
on the agency entrepreneurial initiatives examined in this study, a substantial effort is
being made in the federal government to foster innovative and entrepreneurial
approaches for improving operations.
One premise for this research is the assumption that leaders possessing
entrepreneurial traits in organizations with an innovative climate will be more likely to
carry out innovative programs and initiatives. Another premise is that public
organizations are seldom guided by feasibility criteria in the selection of approaches to
carry out innovative program initiatives or improvements. This research posits that a
theoretical basis for understanding innovation and venturing in private sector
organizations will yield strategic insight for pursuing innovative, entrepreneurial
opportunities in the public and nonprofit sectors.
This study seeks to clarify contradictory findings about the value and methods
o f entrepreneurial venturing approaches in the public sector. Current attention to
innovation, public entrepreneurship, and venturing has not yet been matched with
theoretical foundations that would stimulate a broader understanding of entrepreneurial
9
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
approaches in government and their applications for increased value from government
programs. There is a need for research to provide a theoretical foundation identifying
the key relationships between corporate venture requirements at selected organizational
levels and the essential steps needed to launch innovations successfully in public
agencies.
The apparent success of venturing approaches in the private sector challenges
the enduring knowledge of conventional practices in the field of public administration.
While the prospect of translating private sector experience to the public sector is
somewhat daunting, research on private sector experiences remains the richest and most
diverse source of explanations of venturing approaches for transfer and application.
Research Questions Addressed by This Study
This study examines three fundamental questions: (1) To what extent are
corporate venturing approaches practiced by public agencies; (2) Do these approaches
resemble corporate venturing in the private sector; and (3) How do these approaches
deliver value in carrying out innovative initiatives?
An outcome of the study will be a theoretical framework for understanding and
managing internal agency ventures (IAVs) in the public sector that embraces
entrepreneurial practices and goes beyond rudimentary descriptions currently available
in the Public Administration literature. With a theoretical framework for corporate
venturing, public managers will be better equipped to carry out innovative initiatives in
a creative yet organized and understandable way.
10
permission of the copyright owner. Further reproduction prohibited without permission.
Significance for the Field of Public Administration
Private sector companies have sought to employ innovative practices over the
years. Government organizations have employed innovative practices over the years as
well. The Tennessee Valley Authority and the Rural Electrification Administration
serve as early examples of innovative public enterprises. More recently, the National
Aeronautics and Space Administration created an innovative technology transfer
program designed to stimulate private sector ventures that spawned new technology
products in the marketplace. Policy initiatives like the NPR placed greater emphasis on
innovation as both an objective and a method for improving agency operations
throughout the federal government.
In both government and business, there is a heightened interest in innovation
and entrepreneurship. As attention in corporations moves beyond the reengineering
paradigm toward innovative strategies for growth, managers are seeking ways to foster
entrepreneurial initiatives among their employees. Recent public sector and business
management literature has advocated keeping the entrepreneurial spirit alive in both
large companies and government agencies at all levels.
There is a need for a better way to recognize innovative opportunities and
effectively launch them as initiatives in the public sector. Examining approaches and
experiences of innovative private sector organizations can bring understanding to public
sector managers for a broad range of innovation opportunities seen as “ventures.” This
research effort will interpret private sector literature on innovation and new venture
11
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
formation and suggest opportunities for applying innovative approaches in a wide
variety of public sector organizational settings.
Definitions and Key Terminology
Throughout this study a series of concepts are explored, analyzed, related, and
translated theoretically. As a way of introducing those concepts and establishing a
point of departure for their understanding, they are described briefly below and in more
detail in chapter two:
• Innovation: The understanding of innovation varies with the perspective from
which one views it. From a technology viewpoint, innovation leads to the
development of new tools or technologies. From a managerial perspective,
innovation can bring about improved ways of operations and decision making.
From a new product development perspective, innovation is a trigger that
results in a commercially viable product. From a marketplace perspective, an
innovation delivers added value to a customer. From an entrepreneurial
perspective, innovation is the basis for exploiting a competitive advantage.
Innovation can be distinguished from creativity by the tangible value it
transmits. Embracing these varied perspectives, innovation can be defined as an
organizational process of intentional change with the goal of producing a result
that represents or delivers additional value to the adopters or users of that
innovation. In a Public Administration context, an innovation can be an
12
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
improvement in a process or service resulting in added value to an agency or the
public at large as end users of a government service.
• Entrepreneurship: Venkataraman (1997) recognized that, to date, most
researchers have defined the field in terms of who the entrepreneur is and what
that individual does. This view conforms to the popular view of the
entrepreneur as a “rugged individualist” overcoming obstacles to achieve
success in the marketplace. Shane and Venkataraman (2000) expand this view
by defining entrepreneurship as the process of how opportunities that create
future value (usually goods and services) are discovered, evaluated, and
exploited. From this broad perspective, entrepreneurship can be viewed as the
instrument of innovation and can occur in almost any context where value is
brought to the marketplace, a user group, or a constituency.
• Internal corporate venturing is often referred to in the literature as “corporate
entrepreneurship.” A basic definition of this domain is offered by a pioneer in
this field, Burgelman (1984), who conceptualized it as a process of extending
the firm’s domain of competence and corresponding opportunity set through
internally-generated new resource combinations. In this view, ICVs are the
result of an effort to extend an organization’s competitive advantage through
internally generated innovations that significantly alter the balance of
competition within an industry or even create entirely new industries or market
spaces. Interpreting this domain in a Schumpeterian (1939) sense,
13
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
diversification through development of internal innovations is the corporate
analogue to the process of individual entrepreneurship.
• Public entrepreneurship-. This domain has many faces at many levels of
government. Roberts (1996) captures an understanding of this domain in her
definition of public entrepreneurs as individuals who introduce, translate, and
put an innovative idea into public practice. “Enterprise Government”
(Halachmi and Nichols 1996) and “Entrepreneurial Government” (Laurent
2000) are descriptors that embrace the notion that entrepreneurial public
organizations offer a way for bureaucracies to adopt techniques, technologies,
and efficiencies of the business world while still functioning within the legal
and policy framework of the public sector.
• Franchise fund initiative: As defined in its enabling legislation, a franchise is an
entrepreneurial activity within a government organization that provides
common administrative support services to other agencies or other components
within the same agency. A franchise may offer one or more common
administrative services and generally conducts its business on a reimbursable
basis in a manner that fosters competition. It operates within appropriate
standards and legal authorities for both the service rendered and the method of
accounting for franchise expenditures and charges. Like ventures in the private
sector, franchises must meet customer needs in order to be self-sustaining and
provide customers the option of choosing alternative sources that will better
meet their needs.
14
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Study Approach
Steps in this research effort include:
1. Review of the case study literature and current agency innovations to reveal
internal venturing approaches
2. Selection of cases, including six federal franchise funds and six federal agency
internal ventures
3. Review of the corporate venturing literature and classification of variables
influencing internal ventures in a taxonomy
4. Construction of a working model of internal corporate venturing
5. Establishment of a format for case study analysis based on variables in the
taxonomy
6. Analysis and comparison of case studies for similarities with ICVs
7. Test of the fit of the ICV working model to internal venturing cases studied
8. Triangulation of findings and statement of conclusions about the fit of internal
agency ventures to the ICV working model
9. Construction of a model of internal agency venturing and identification of
future research agenda.
Scope of This Study
There are several limits to the scope of this study. First, the interpretation of
the meaning of entrepreneurship and innovation is ambiguous as evidenced by the
15
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
diverse portrayals in the literature. The challenge to bring consistency and
understanding to a theoretical framework that currently does not exist is formidable.
Second, the transferability of corporate venturing concepts and experiences from the
private sector to the public sector has been much talked about but less written about.
Determining whether a concept that has standing in the private sector could
be applicable in the public sector will require use of grounded theory and
triangulation of case study results. By themselves, the Franchise Fund cases do not
provide complete enough evidence of that applicability. In an effort to address this
limitation, additional agency ventures are included as case studies.
Dissertation Chapters
• Chapter 1, Introduction, presents a rationale for the study and its approach.
• Chapter 2, Theoretical Overview, identifies forms of innovation and
entrepreneurship as they occur in the public and private sectors.
• Chapter 3, Methodology, outlines an approach for generating and testing a
model of internal venturing in public agencies.
• Chapter 4, Review of the Corporate Venturing Literature, explores theoretical
elements and processes of corporate venturing.
• Chapter 5, Theory Formation, distills theoretical elements found in the
literature and establishes a grounded theory o f internal corporate venturing.
• Chapter 6, Case Studies, analyzes the internal venturing process in Federal
Franchise Fund initiatives and other selected public agency ventures.
16
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• Chapter 7, Testing Venture Model Fit in Public Agencies, compares case
study results with the grounded ICV model and assesses the “fit” of those
cases with the model.
• Chapter 8, Toward a Theory of Internal Agency Venturing, presents a formal-
theory explanation of internal agency venturing.
17
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 2
THEORETICAL OVERVIEW
To provide a context for recognizing the presence of entrepreneurship and its
precursor innovation in the public sector, this chapter explores four separate topics:
innovation as a process common to any organization, entrepreneurship as practiced
in the private sector, internal corporate venturing as a form of entrepreneurship
practiced within organizations, and entrepreneurship as practiced in the public sector.
The chapter seeks to find unifying links through common factors and
processes operating in organizations. It attempts to draw relationships between
innovation and entrepreneurship in their processes, roles, organizational
arrangements, and antecedents. A similar effort is made to draw parallels between
the practice of entrepreneurship in the private sector and the potential opportunities
to apply entrepreneurship in the public sector. This chapter aims to build a common
framework for understanding and interpreting entrepreneurship within organizations
in both the public and the private sectors.
Government as a Value-Creating Sector
A basic premise of this study is that government, through its various
organizational elements and managers, has the capacity to create and expand value
18
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
for the community it serves. An argument supporting this premise is made by Moore
(1995). He equates managerial success with initiating and reshaping public sector
enterprises in ways that increase their value to the public in both the short and the
long term. By contrasting conventional bureaucratic approaches in the public sector
with entrepreneurial and innovative venture initiatives in the private sector, Moore
attempts to build a conception of how public managers can adopt an entrepreneurial
perspective in their search for opportunities to create and expand public value.
Seen from a business perspective, this argument appears closely aligned
philosophically to entrepreneurial and innovative strategies widely pursued in the
private sector. In Moore’s view, public managers can be seen as explorers who seek
opportunities to define and deliver public value. Instead of simply carrying out
mandates, they can become important agents in discovering and defining what is
valuable to deliver. Public managers and the organizations they lead can become
more strategic and innovative than their traditional administrative roles would
dictate. This perspective is not without challenge and tension as shown later in this
chapter.
Innovation Perspectives
Innovation in the public sector, according to Roberts (1992), is the generation of
a novel or innovative idea and the design and implementation of that idea in public
sector practice. Individuals who generate, design, and implement novel ideas in the
public domain are, in her view, innovative public entrepreneurs. Built on the
19
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Schumpeterian (1939) premise that the first function of the entrepreneur is innovation,
Roberts’s definition implies a series of steps in a process and a series of roles that might
be performed in each of those process steps. By translating this basic definition into a
portrayal of the innovation process and comparing her description with innovation
processes outlined by others, the author seeks to expand Roberts’s definition, adding
clarity to steps in the innovation process and roles played.
Innovation Process
Four phases are described in Roberts’s (1996) version of the innovation process:
creation, design, implementation, and institutionalization. The creation phase involves
the generation of an innovative idea and the association of that idea with some need,
problem, or concern. The design phase translates the idea onto paper and into some
form of prototype. The implementation phase moves the innovation into “the field” to
be tested and, if successful, put into practice. The institutionalization phase occurs as
the innovation has been proven practical and feasible and has become widely adopted
or accepted.
Another view of the innovation process is offered by Albrecht and
Albrecht (1987). The five steps in their scheme include absorption, inspiration,
testing, refinement, and selling. The absorption step occurs when the external
environment is scanned for a problem or opportunity. Inspiration comes when an
idea for a solution to that problem or opportunity takes conceptual shape. Testing
occurs next and involves building prototypes or models of the concept or idea.
Refinement removes the “rough edges” from the prototype, enhancing it and making
20
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
it “market ready.” Finally, in the selling step, the innovation is placed in the
marketplace for users or customers.
A third view of innovation can be found in the work of Amabile (1988).
Building on the premise that innovation originates from individual creative skills and
professional domain knowledge, she outlines five stages of organizational innovation
that are influenced primarily by creative members of the organization: setting the
agenda with a mission statement for the organization, setting the stage by assembling
supporting resources, producing ideas for solutions to a problem or opportunity,
testing and implementing the ideas with users or customers, and assessing the
outcome of the innovation’s implementation.
Another view of the innovation process is offered by Marquis (1969). This
analysis, one of the earliest efforts to outline the steps in the innovation process,
relies on the paradigm then dominant—that of technology innovation. Marquis’s
model contains six process steps, including recognition of technical feasibility and
market demand, idea formulation by fusing recognized demand and recognized
technical feasibility into a design concept, problem solving to refine the design
concept into a solution that represents a true innovation, development to adjust levels
of production of the innovation to meet expected demand, and utilization and
diffusion, where the innovation is first adopted and then, if deemed successful,
diffused in the marketplace.
A fifth view of the process is captured by Zegans (1992) in his identification
of the four basic steps of bureaucratic innovation: origination of ideas from people
21
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
involved in a management process, notification of policy makers of these ideas,
ratification of the idea by legitimate policy sources, and implementation of the idea
within or outside the bureaucracy.
Innovation Roles
Building on the model presented by Albrecht and Albrecht (1987) as a point
of departure, the authors outline several roles in the innovation process. While
Amabile’s (1988) process description is similar to that of Albrecht and Albrecht, her
role descriptions rely on creative skills that individuals in the organization might
manifest in any of the five stages, and they are not specifically discussed here.
Expressed more as a list of possibilities and less as a mold to fit all circumstances of
innovation in the public sector, these roles are offered here as an initial translation of
innovation roles identified in the management literature.
• Spotter: A person who recognizes needs or opportunities for new responses
to the environment, new methods, new products, or new ways of
accomplishing things. By scanning for information, the spotter brings back
intelligence about the political and customer environments and the
constituencies an entrepreneur is attempting to serve.
• Inventor: An innovator or creative idea source that can be represented by an
individual, a group, or an entire department. This role might be played by a
strategic planning function in an agency or by a temporary team that is
charged with developing options for solving a problem.
22
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• Philosopher: One who serves as a source of seasoned experience and
judgment to determine the feasibility of the proposed innovation. Usually
this role is held by someone who has either managerial influence or strong
technical knowledge, or both. The role of gatekeeper fits into this category as
well.
• Champion: A person who advocates the innovative idea by pushing
persistently to carry it through. Champions are often supported at a higher
level by sponsors who provide support in the form of needed resources and
help protect the innovation idea and the champion against threats from either
inside or outside the organization. Kirzner (1973) describes the role of
“investor” as one who participates in an innovation by bearing some of the
risk in return for some of its benefits.
• Seller: A person who lobbies policy managers or interest groups who control
the paths of implementation for the innovation, as well as the army of
administrative people, middle managers, supervisors, and those who may
have lived without the innovation up to this time. Kirzner (1973) describes
this role as a broker, or arbitrageur, serving as middleman between different
user communities or constituencies and the innovation itself.
Innovation Implementation
In contrast to the anecdotal approach taken by Pressman and W ildavsky
(1974), Klein and Sorra (1996) describe implementation as the transition period
when organizations and their members become increasingly skillful in and
23
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
committed to an innovation. Implementation is seen as the critical gateway between
the decision to adopt the innovation and the routine application of the innovation by
an organization.
A key notion in their work is innovation effectiveness, which is described as
the benefits (in profitability, productivity, customer service, or employee morale) an
organization receives as a result of its implementation of a given innovation. They
argue that although an innovation is unlikely to yield significant benefits to an
adopting organization unless the innovation is used consistently and well, effective
implementation does not guarantee that the innovation will prove beneficial for the
organization. Four possibilities comprise the outcomes of implementation:
resistance, avoidance, compliance, or commitment. They suggest that while many
potential innovations await adoption by organizations, there are significant barriers
to their full implementation.
Rogers (1995) interprets implementation of innovation as diffusion. In his
view, “innovation is communicated through certain channels over time among
members of a social system. Diffusion is a special type of communication concerned
with the spread of messages that are perceived as new ideas” ( 35). Rogers interprets
innovation broadly as any new idea and diffusion as the adoption of that new idea by
potential user groups. He distinguishes types of adopters by the time frames over
which a user population adopts a new idea. The sequence of adoption ranges from
early adopters to early majority to late majority and finally to laggards. This
24
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
interpretation of the implementation sequence for an innovation offers a way to
recognize the success of an innovative idea or practice in the public sector.
In a study of innovative technology adoption, Burke (1979) builds on the
innovation diffusion work of Rogers and Shoemaker (1971) to explore attributes of
innovation that influence the implementation and adoption of such changes in an
agency. The relative advantage of an innovation is perceived to be its usefulness for
resolving immediate agency problems and enhancing agency stature rather than its
benefits to ultimate users. Compatible innovations are seen as those replacing
existing agency approaches rather than entirely new approaches. The appearance of
an innovation’s complexity is seen as a significant barrier to its implementation by
an agency. The ease with which an innovation can be tested or prototyped by an
agency influences its ability to be adopted. Finally, the inability to visualize the
consequences of adopting an innovation within an agency’s operational context
proves to be a significant barrier to its implementation. Those factors affecting
implementation of an innovation are particularly significant in a public agency
environment where policy influences are pervasive and decision making is
contingent on broad sources of support.
Holzer and Olshfski (1993) studied motivating factors behind public sector
innovations. They focus on three factors affecting implementation of innovation:
that it occurs only under fiscal pressure, that it requires discretionary resources, and
that it occurs because public servants are highly motivated to respond to the needs of
the client public. In a series of case studies, they found that these factors were not
25
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
mutually exclusive and that some (if not all) were present in each case. Light (1994)
also inventoried obstacles to innovation in county governments. He argued that
overcoming these obstacles became the primary emphasis for the implementation
strategy for local governments.
Research Findings on Innovation
Investigations of how innovation occurs in public organizations and what
roles public managers play have expanded. Examples begin with the work of Yin et
al. (1977) at the local government level, through the Minnesota Innovation Research
Program headed by Van de Ven and Angle (1989), and culminate in a plethora of
studies at the federal level spawned by the National Performance Review in the
1990s. The examples reviewed here illustrate important relationships between
innovation and entrepreneurship in public organizations.
In their approach for the Minnesota Innovation Research Program, Van de
Ven and Angle (1989) address the problem of identifying which innovation
processes lead to successful or unsuccessful outcomes:
Unfortunately, while many innovation process models in scholarly and
trade journals are prescriptive, they lack empirical validity. Too many
innovation scholars and consultants have jumped to prescriptions with
little or no substantiated evidence on how innovations actually develop
over time and what processes are associated with success or failure. The
little empirical evidence that exists is largely limited to retrospective case
histories conducted after innovation outcomes were known. Even though
attempts can be made to minimize bias, a priori judgments about the
success or failure of innovations studied invariably filter and color one’s
analysis, often leading to self-fulfilling prophecies. Moreover, historical
case studies tend to be too far removed in time and space to observe the
real-time interactions between processes and outcomes as innovations
develop over time. We believe the likelihood of making significant and
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
substantiated prescriptions on the management of innovation increases
when researchers 1) place themselves into the manager’s frame of
reference with real-time studies of innovations without knowing the
outcomes of actions taken, 2) carefully observe and track innovation
processes and outcomes as they occur over time, and 3) show the evidence
to substantiate relationships between innovation processes and outcomes.
(5)
Altshuler and Zegans (1990) make a strong case for emulating private sector
innovation in the public sector but point out obstacles to its acceptance. Four key
factors limit the migration of innovation ideas from the private to the public sector: a
widespread sense that public agencies utilize resources inefficiently; the fact that
business innovation is driven by competition, while public competition is mainly
political; public ambivalence toward the appropriateness of innovation and resistance
to permitting public employees the freedom to innovate; and the general theme that
innovation arouses suspicion among various constituencies.
Managers as Innovators
Grady (1992) examined the extent to which managers can foster public sector
innovation. The research approach tested existing anecdotal knowledge against a
large sample of state program managers. The approach was a two-stage survey.
First, supervisors of state programs nominated for the Council of State Governments’
Innovations Transfer Program were surveyed. Next, a follow-up survey was sent to
those individuals whom the supervisors identified as primarily responsible for the
innovation. A hypothesis stated that information was a key factor for innovators
early in the sequence of the innovation process. A seven-point scale was used to
assess the value of 10 different information sources during the origination phase of
27
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the innovation development process. Informal communication with agency co
workers ranked as the most valuable source of information, while cross-agency
information and professional information ranked second and third.
Across 42 states and a variety of agencies, innovators in this study rated their
agency climates as supportive and their managers as “enablers” in the process.
Managers were seen to have a broader external focus than the innovators. Appointed
and administrative agency managers were more involved at the early development
phase, while career and line agency managers were more supportive in the later
implementation phase. The underlying implication of these findings is that managers
can and do play an enabling role for innovators in (state government) agencies and
that depending on the technical nature of the program, they can be more enabling
earlier or later in the innovation cycle.
In a study of city managers, Teske and Schneider (1994) note that
entrepreneurial managers typically focus on external agency issues rather than on
internal ones. The currency of innovative ideas has become a source of power for
some city managers, and as (innovative) reform ideas are more widely diffused, city
managers knowledgeable about those ideas have gained power and autonomy often
lacking in political staffs. This lack of full-time and informed political overseers
may give city managers more discretion to use expertise and to engage in more
assertive entrepreneurial behavior.
28
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Fostering Innovation at the National Level
In the realm of technology transfer, several nationwide programs have
actively fostered the diffusion of innovation experiences and novel approaches. The
Innovations in State and Local Government Awards program sponsored by the Ford
Foundation (1995) and the innovation case studies program administered by the
Kennedy School of Government at Harvard are exemplary nongovernmental efforts
supporting innovation research and demonstration. The reporting by Osborne and
Gaebler (1992) has served in the spirit of innovation diffusion as well during this
period.
A recent GAO report (1996) described the progress being made in some 185
federal agency reinvention labs across the country. While many of the labs had
reinvention efforts underway, some 50 percent had not yet implemented their
innovations at the lab site itself, and less than 20 percent had been implemented
beyond the lab site. Thompson (2000) observes the political nature of the innovation
process in these reinvention labs. In contrast to the GAO study, he identified 48
different innovations at 35 labs. The unit of analysis was the innovation itself, which
he defined as a specific, identifiable change. While acknowledging that this effort
was largely exploratory research, he offers little guidance for interpreting the
reinvention effort, save the observation that internal politics is central to processes of
organizational change. Unlike other studies described in this paper, this one offers
no framework for the innovation process by which to compare progress across
29
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
reinvention labs. It does, however, offer useful insights into sources of resistance to
innovation.
Entrepreneurship Perspectives
Types o f Entrepreneurial Activity
Previous attempts at classifying entrepreneurship have focused either on
types of entrepreneurial ventures (Gartner, 1985; Guth and Ginsberg, 1990; Vesper,
1980) or traits of entrepreneurs (Solomon and Winslow, 1988; Carland, et al. 1984).
For a broader view of the context of public entrepreneurship and corporate venturing
within the overall domain of entrepreneurship, Figure 2.1 presents a typology of
entrepreneurial activities. This typology builds and expands upon previous efforts
by Kunkel (2001) and Sharma and Chrisman (1999) to categorize entrepreneurial
activities in the private sector.
Categories of entrepreneurial activity include those from independent
enterprises (the most well-known form of entrepreneurial activity), social
entrepreneurship comprising the realm of not-for-profit activities, corporate
entrepreneurship comprising activities sponsored by private sector companies, and
public entrepreneurship comprising both external and internal venture activities
sponsored by government organizations.
While the focus of this study is on internal venture activity within
government organizations, this typology provides an essential context for relating
broader factors of entrepreneurship to those internal ventures.
30
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 2.1 Typology of Entrepreneurial Activities
Innovation &
Opportunity
Entrepreneurial
Activities
L ow growth
H igh growth
Internal Venture Internal Venture
External Venture External Venture
Enterprise unit
Innovation lab New product/service
Venture capital
Outsourcing
Sponsored R&D
Mgmt. improvement
Acquisition
Market driven
Privatization
Franchise fund
Technology driven
Nonprofits
Innovation driven
Income substitute
Public enterprises Alliance
Income supplement
Foundations
Issue Entrepreneurs
C ivic Entrepreneurs
Corporate
Entrepreneurship
Public
Entrepreneurship
Enterprise
Entrepreneurship
Social
Entrepreneurship
Socially R esponsible
B usinesses
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Roots o f Entrepreneuship Theory
Schumpeter (1939), often called the father of modem entrepreneurial thought,
saw entrepreneurs as different from firm owners, managers, or industrialists who may
merely operate an established business. Rather, he saw the entrepreneur's challenge as
finding and using new ideas to jostle the economy out of otherwise repetitive and
unproductive cycles of activity. In this way, the entrepreneur performed an act of
“creative destruction,” which led to reconstruction of new economic activity in the
marketplace. Schumpeter recognized a range of possible alternative combinations that
could initiate entrepreneurial action, including new products or services, new methods
of production, new markets, new sources of supply, and new forms of organization. As
socioeconomic innovators, entrepreneurs were different from speculators and inventors.
They were the creators of new business combinations. This vision of the causal
relationship between innovation and entrepreneurship was to have a lasting effect on
subsequent interpretations of the field.
Recent Views o f Entrepreneurship
Fundamental ideas of entrepreneurship were amplified conceptually by writers
like Drucker (1985), who focused on sources of innovation as the basis for
entrepreneurship; Kanter (1983), who identified key entrepreneurial roles of middle
managers; and Lippitt (1987), who saw the creative aspects and leadership potential in
entrepreneurial roles. Deutsch (1985) acknowledges that entrepreneurs as individuals
may risk careers and reputations in the context of a public sector bureaucracy to
produce an innovation. He argues, however, that the entrepreneurial function may be
32
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
performed by a single personality or an “institutional assembly line.” This is one of the
first recognitions of the potential of organizations to act entrepreneurially.
Solomon and Winslow’s (1988) effort to profile entrepreneurs and Gartner’s
(1990) work defining entrepreneurship as a field represent two ends of a spectrum for
viewing this phenomenon. The traits that Solomon and Winslow describe are similar to
those described by Gaebler (see Moore, 1983) and include need for achievement, risk
taking, creativity, commitment, and self-confidence, among others. In this view, a
person with the right combination of traits would seek out an opportunity and pursue it
as an entrepreneur. In Gartner’s view, which was the result of a delphi survey of
business scholars, entrepreneurship is viewed in a less “heroic” way and more like a set
of conditions, which, when acted upon by an individual manifesting entrepreneurial
traits, leads to an entrepreneurial venture and outcome having value in the marketplace
or elsewhere.
Entrepreneurship and Organization
Slevin and Covin (1988) draw several conclusions about entrepreneurship and
organizations based on their understanding of Bums and Stalker (1961). They note that
an organically structured organization is more adaptable, more open in its
communication, more consensual, and more loosely controlled, while a mechanistic
organization tends to be much more traditional, more tightly controlled, and more
hierarchical in its approach. They argue that in organically structured firms, increases
in top management’s entrepreneurial orientation will positively influence performance,
whereas in mechanistically structured firms the reverse will be the case. This premise
33
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
yields four basic types of organizations. The combination of management style and
organizational structure determines the degree of fit for an organization to pursue
entrepreneurial activity. According to Slevin and Covin, a strong entrepreneurial
orientation is warranted only when all other elements in the organizational system
provide a supportive context.
Entrepreneurial Relationships
Organizations previously seen to have little relationship to other organizations
are increasingly pursuing joint interests in the form of "partnering" or joint ventures.
Such partnerships may involve the creation of research and development consortia
(among government, academia, and the private sector), cooperative agreements, or
cross-licensing agreements. One model, the Japanese keiretsu, an association of
organizations with common interests centered on a bank, has proved to be very
effective in reducing time-to-market for new products and services.
Chesborough and Teece (1996) describe another model, “virtual” companies
that coordinate much of their business through the marketplace where agents come
together to buy and sell one another’s goods and services. These companies harness the
power of market forces to develop, manufacture, market, distribute, and support their
offerings in ways that fully integrated companies cannot duplicate. Whether the
promise of virtual relationships can be realized for public agencies delivering public
services remains to be seen, although numerous examples spawned by the NPR and
examples described by Osbome and Gaebler (1992) strongly suggest movement in that
direction.
34
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Public organizations—between agencies or programs or between levels of
government—face many of these same time-to-market challenges in meeting
expectations of citizens and politicians in implementing a policy, delivering a service,
or carrying out a program. Another approach, described by Waits et al. (1992), has
state governments turning to coalitions and partnerships to broaden involvement in
economic development policy and agenda setting. These public-private partnerships
are broadly based, enlisting a host of new players to coordinate multiple services and
perform strategic planning. In most cases, collaborations among universities,
consulting firms, government agencies, and economic development organizations
support these activities.
One review of cooperative relationships between organizations by Ring and
Van de Ven (1992) suggests that organizations are pursuing a diverse set of objectives
that require cooperation because they involve reciprocal dependencies. These
objectives include gaining access to new technologies or markets; benefiting from
economies of scale in joint research, production, or marketing; gaining complementary
skills by tapping into sources of know-how located outside the firm; and sharing the
risks for activities beyond the scope or capability of a single organization. They also
seek to gain synergy by combining the strengths and overcoming the weaknesses of
individual firms in undertaking ventures much broader than a simple supplier
relationship (as in the typical privatization of government services), marketing joint
ventures (as described by Waits et al., above), or technology-licensing agreements (as
currently sought through ARPA and NASA in the federal government).
35
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Collaboration will take on an increasingly important role for public
entrepreneurs. Rather than the heroic style described in past literature, future public
entrepreneurs will measure success through the opportunities they can find in coalitions
and partnerships.
Public Entrepreneurship Perspectives
Early Views o f Public Entrepreneurship
Writers in the field of Public Administration like Thompson (1969) define
innovation as the generation, acceptance, and implementation of new ideas, processes,
and products or services. As such, innovation requires an entrepreneurial role and
implies that organizations have the capacity to change and adapt. He also identified the
element of risk, arguing that innovation was more risky for the bureaucrat than for the
private entrepreneur, because loss of face in the organization was far more serious than
loss of money in the business world. Another early observer of innovation in
organizations, Wilson (1966), notes that
although more has been written about innovation in the firm than in voluntary
associations or government agencies, the state of the literature is not much more
satisfactory than in sociology or political science. Not only can little be said
about the effect of market structure on innovation, but little can be said about
the correlation between firm characteristics and innovation. (196)
Nevertheless, he offers suggestions on how and where innovation might occur in
organizations.
36
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Recent Views of Public Entrepreneurship
Roberts (1992) presents a conceptual framework for public entrepreneurship.
By defining public entrepreneurship as the generation, design, and implementation of
an innovative idea in public sector practice, she acknowledges a process with a
sequence. This definition offers several advantages: first, policy innovation may be
viewed as both a process and an outcome; second, the framework provides a way to
distinguish public entrepreneurs from nonentrepreneurs. Each step in the sequence
entails risk and either success or failure. According to Roberts, only those who
successfully navigate the entire process are characterized as public entrepreneurs.
Most of the other literature about entrepreneurship had a “trade” or “how-to”
orientation (see White 1977 or Vesper 1980, as examples) until recently, when curiosity
about the process and recognition of the possibility of entrepreneurship in public
organizations grew in the minds of program executives and politicians. The conceptual
state of the field of public entrepreneurship has progressed from economics-based
explanations, to behavioral explanations, and now to process explanations.
Entrepreneurial Styles in Public Organizations
A range of case studies (Lewis 1980; Doig and Hargrove 1990; Osbome and
Gaebler 1992; Peirce and Kruger 1993; Lambright 1994) describe individual
entrepreneurs, their style, and the context they have operated in. Most of these studies
rely heavily on biographical portrayals of well-known leaders whose actions resulted in
the implementation of a range of policies or programs. It can be said that many other
public managers and professionals have made entrepreneurial efforts but lacked the
37
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
high-profile notice received by those featured in such case studies. What follows is a
sampling of various styles of entrepreneurship found among the ranks of professionals
and managers in public organizations.
Administrative Entrepreneurs
Public servants who are appointed rather than elected regularly influence the
implementation of public policies and programs. In the Schumpeterian sense, these
administrative (or bureaucratic) entrepreneurs engage in “creative discovery” of
opportunities and sometimes preside over “creative destruction” of an existing program
as they help an organization implement a new policy or program. In a study of city
managers, Teske and Schneider (1994) note that entrepreneurial managers focus on two
key concerns: the need to motivate public sector employees to perform more efficiently
and the need to respond to the external community of politicians, interest groups, other
government officials, and constituencies supporting new policies. Their study indicates
that the primary concern for city managers is external rather than internal. It is also
important, according to the study, for administrative entrepreneurs to be knowledgeable
about innovative ideas both within their organization and outside of it. Administrative
entrepreneurs gain power and autonomy when they have a broader knowledge of
innovative solutions than the political officials to whom they report. Thus they are
inclined to engage in more assertive entrepreneurial behavior.
Another study by Corwin (1983) examines the differences between an
entrepreneurial bureaucracy and an old-line agency. Using as a setting the National
Institute of Education (NIE), an independent federal agency that merged with the
38
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Department of Education, Corwin describes three properties unique to the
entrepreneurial bureaucracy in NIE. First, subordinates are given more encouragement
to take initiatives. Entrepreneurial bureaucracies not only permit discretion but also
aggressively capitalize on it by explicitly rewarding initiative and competition. Second,
personnel in these organizations tend to rotate between their governmental roles and
other institutions such as universities, state and local governments, research firms, and
businesses. While diffusion of new knowledge, viewpoints, and approaches is a result,
a by-product is that bureaucratic entrepreneurs tend to split their loyalties and
allegiances to external constituencies.
Procedural Entrepreneurs
Brower and Abolafia (1996) examine influences by entrepreneurs who
operate in a style of “procedural entrepreneurship” within public organizations. The
entrepreneurship they describe has a mundane rather than a heroic nature and
consists simply of getting things done by being creative and taking risks. Procedural
entrepreneurship includes actions from which an entire agency can implement
managerial improvements or program innovations, as well as other one-time events
that do not endure as organizational routines. Procedural entrepreneurship is a
response to the limiting organizational influences of procedural conflicts that block
effective accomplishment of organizational goals (rules and routines like personnel
or procurement requirements) or structural conditions influencing social interactions
or reporting relationships in the organization (status, power, resources, technology,
and hierarchical authority). Less conspicuous structural arrangements such as
39
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
budget control systems, information systems, and appraisal systems also influence
the incentives for procedural entrepreneurship.
Public Entrepreneurs as Hero Models
Another view of entrepreneurship as personal achievement is found in the
chronicling of the public administrator as hero by Bellavita (1991). In a survey of 45
public administrators with at least five years of managerial experience in the public
sector, Bellavita identifies 10 characteristics of personal-best organizational
experiences. Matching these to the steps in Joseph Campbell’s “hero’s journey,”
Bellavita outlines a pattern of behavior that corresponds to many of the steps taken by
an entrepreneur in a public organization.
Among the less frequently discussed dimensions of entrepreneurship is the
effect of an entrepreneur’s misdirected internal motivations on an organization or the
constituency it serves. This “dark side” of entrepreneurship is described by Kets de
Vries (1985). For some entrepreneurs, the high degree of energy and drive necessary to
succeed can wreak havoc on an organization if turned loose without constraints.
Despite a heroic charisma, entrepreneurs can be difficult to work with because of their
bias for action, which makes them act first and think later, sometimes resulting in dire
consequences for an organization.
Policy Entrepreneurs
In the similar works of Kingdon (1984) and Polsby (1984), the characterization
of the policy entrepreneur emerges. Policy entrepreneurs can be elected officials, civil
servants, lobbyists, academics, or even journalists. Kingdon describes their three
40
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
functions: to promote ideas by pushing them higher up on the public agenda; to
“educate” the system so that when a policy window opens, a favored idea will meet a
receptive audience; and to make the critical “coupling” of problem, policy, and politics
when opportunity allows. Policy entrepreneurs engage in two distinct types of activity:
advocacy of their proposals and brokering ideas among people to make critical
couplings. Polsby observes that policy innovation seems to arise from the intersection
of three forces: interest groups in society; intellectual convictions of experts and policy
makers; and comparative knowledge, usually carried by experts or subject-matter
specialists, diffused from successful innovations elsewhere.
Entrepreneurship in State and Local Government
In their study of public sector entrepreneurs, Palumbo, Musheno, and
Maynard-Moody (1986) acknowledge that while research on entrepreneurial risk
taking is typically focused in the private sector, research on the importance of
entrepreneurs in public agencies has increased. As part of a larger project aimed at
discovering factors that account for successful implementation of community
corrections programs, Palumbo et al. attempt to identify who these entrepreneurs are
and to ascertain their role in implementing new public programs.
Because it is difficult to measure the different effects of entrepreneurial
activity and other variables affecting implementation through quantitative means
alone, their study team employed an approach that “triangulated” qualitative and
quantitative methods. Specifically, they overlapped field research based on open-
ended interviews with mailed questionnaires, agency records, and data supplied by
41
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the agencies to analyze entrepreneurial activity and roles in implementing the
community corrections program.
Research findings on entrepreneurial roles indicate rank order of importance:
(1) being a philosophical proponent of community corrections; (2) getting the
program launched; (3) garnering local support; and (4) ensuring that community
corrections programs become an established component of the larger criminal justice
process. The search for public entrepreneurs in this study revealed that a number of
different people were entrepreneurs in each locale where successful implementation
was evident. Significantly, they found that a number of organizational participants
were influential in getting community corrections programs adopted and
implemented. The researchers concluded that although the entrepreneurial role is
more likely to be held by an individual in middle- and upper-level positions, street-
level workers also played entrepreneurial roles in the implementation process. They
found that entrepreneurs in the more successful districts were doing a better job of
getting the members of their organizations to work toward a common goal.
Noting that no apparent framework was used as a basis for comparing results
on the seven impact variables examined, one critique of this research raises questions
about its internal validity. While the study did identify factors that helped optimize
program performance, there seemed to be no way to translate those results back into
focused actions in a given agency, much less to diffuse innovative results to other
similar programs.
42
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Entrepreneurship and the Public Interest
As a point of departure for understanding the debates over public
entrepreneurship, an understanding of the public interest is important. The public
interest is a difficult concept to define in practical terms. Van Wart (1996) offers a
two-part interpretation. One is defined in terms of social equity from either an
external perspective (allocating equity to those less fortunate) or an internal
perspective (allocating equity to all members within an organization). The other
relates to the notion of disinterest. Disinterest (as with morality) appeals to a sense
of impartiality as opposed to self-interest. Van Wart observes that “with competing
sources of administrative decision making, even when the argument about the merits
of public interest as a value is settled affirmatively, the issue ultimately shifts to
which situations the value [equity or disinterest] applies, to what degree, and how to
put the values [in] practice” (p. 527). For the public servant as entrepreneur, respect
for the public interest requires a respect for external and internal equity as well as an
objective, disinterested motivation in the pursuit of innovative opportunities.
Although we usually think of organizations as either public or private, with
public entrepreneurs operating in one domain and private entrepreneurs operating in
the other, Bozeman’s (1987) view of organizations is that they are (nearly) all public
to some degree. Accepting this premise means that the difference between applying
entrepreneurial approaches in an operational sense for public organizations and
applying them in private organizations is ambiguous at best.
43
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Accountability and Entrepreneurship
Concerns about risk, ethics, legitimacy, and reform have framed much of the
published debate about public entrepreneurship. Most notable have been the
exchanges between Bellone and Goerl (1992, 1993) and Terry (1993). Bellone and
Goerl argue that public entrepreneurs must be evaluated in terms of administrative
responsibility if their actions are to be compatible with democratic values. They
believe that four key characteristics of public entrepreneurs—autonomy, a personal
vision of the future, secrecy, and risk taking—need to be reconciled with the
fundamental values of accountability, citizen participation, open policy-making
processes, and concern for the long-term public good (stewardship). Their
suggestion for reconciling these characteristics and values is offered in the form of a
“civic-regarding entrepreneurship,” which emphasizes public participation as a
remedy for overzealous pursuits of self-interest by public entrepreneurs. By
developing more opportunities for citizens to participate, Bellone and Goerl (1993)
believe the quality of citizenship could be raised to a level where citizens themselves
would become more responsible in efforts to provide public goods and services
within acceptable tax burdens.
While acknowledging the value of citizen participation as a counterbalance to
public entrepreneurship, Terry (1993) argues that civic-regarding entrepreneurship
ignores less apparent values intrinsic to the entrepreneurial model such as a heavy
reliance on domination and coercion, a preference for revolutionary change, and
disrespect for tradition. Terry’s argument relies on three keystones. First, portraying
44
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
public entrepreneurs as heroes endowed with enormous power that enables them to
transform organizational events at their discretion is inconsistent with a democratic
society. This theme is amplified as Terry (1995) suggests the value of the role of
administrator as “conservator.” Second, because entrepreneurs are characterized as
innovators, they exploit innovation opportunities by introducing radical change to
achieve results. Revolutionary changes are not appropriate in some instances. Third,
public entrepreneurs are, as a rule, antitraditionalists (based on his reading of Doig
and Hargrove 1990 and Lewis 1980). Since tradition provides the rational basis for
authority, he argues, the antitradition orientation of the public entrepreneur targets
and dismantles tradition and thereby undermines authority in a bureaucracy. This
theme is amplified as the preservation of institutional integrity in Terry (1995).
Bellone and Goerl’s (1993) rejoinder counters the limited view of public
entrepreneurship asserted by Terry. They argue that, as a concept, entrepreneurship
is now multidimensional with many noneconomic nuances and capable of being
applied in the policy arena, to moral issues, to administrative concerns, and to issues
of “place.”
Other writers have both expressed concerns about and noted opportunities for
public entrepreneurship. Dobell (1989) distinguishes entrepreneurial behavior in
public service (innovative activity where the risks and benefits are essentially
personal or where informed consent can reasonably be assumed) from decisions
involving risks to others, usually anonymous and beyond consultation. In this case,
risk is external to the public entrepreneur and must be held in check through
45
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
guidelines drawn from risk-benefit analysis. Perlmutter and Cnaan (1995) offer an
example of external benefit for citizen-users of a recreation facility, resulting from an
entrepreneurial initiative for fund raising and development. An important public
interest consideration here is to monitor the activities of public entrepreneurs and
ensure that external risks and benefits are made known to affected parties.
Values in Public Entrepreneurship
Kobrak (1996) critiques Osborne and Gaebler’s (1992) view of the public
entrepreneur’s task as simply to economize. He argues that nowhere in the public
entrepreneur’s value system (as represented by the reinventing government
movement) is there a sense that public entrepreneurs must also possess a
commitment to the agency’s mission, a mastery of technical subject matter, and a
willingness to gamer support by working through the internal and external political
processes relevant to their mission. Nor are they the “quiet entrepreneurs” found in
the middle manager ranks who serve as cost-cutting experts, effective providers of
client services, socially conscious pioneers, or sensitive scanners of the political
environment. Kobrak (1996) also argues that in urging public entrepreneurs to
circumvent political leaders, Osbome and Gaebler (1992) have turned the politics-
administration dichotomy upside down. Kobrak sees the problems that public
administrators face as more political than managerial and suggests renewed efforts to
incorporate the citizenry and representative interest groups into a stronger system of
governance, in a manner similar to the suggestions of Bellone and Goerl (1993).
46
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Moe (1994) offers another critique of the reinventing government movement
as it is manifested in the NPR report. He notes that despite the many analogies and
assertions that the government must reflect the values of the private sector, the
management of the executive branch is not like the management of General Electric
or the Ritz-Carlton hotels. The mission of government agencies, he argues, is
determined by the representatives of the people, not agency management.
Government does not have the option available to private sector managers of simply
stopping the performance of some activity because it is not profitable or pleasant.
He observes that change is an instrumental value and like efficiency (another
instrumental value) it has no normative content until linked with some other concept
or objective.
Differences between Public and Private Sector Entrepreneurship
In contrasting public agencies with private sector abilities to foster
entrepreneurial behavior, Aharoni (1985) identifies three public sector characteristics
that impede innovation. First, opportunities to launch innovative programs
independently are limited since changes in policy and budget allocation will likely be
resisted by countless vested interest groups, whereas a private firm can readily decide to
embark on a new venture and focus its objective so that it can be reached more easily.
Second, public accountability in a democracy—in which civil servants have the
responsibility to reveal, explain, and justify their actions—dampens creativity and
innovation. Private sector organizations are also accountable, but to their stockholders,
47
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
not the public at large. Finally, incentive systems in the public sector do not reward risk
and thereby dampen innovation. A private firm can take risks in the expectation of
reasonable rewards for its risk-taking employees.
Similarities between Public and Private Sector Entrepreneurship
Bozeman (1987) asserts that virtually any organization-govemment,
business, nonprofit-has significant public aspects. While arguing that an
organization’s “publicness” is a matter of degree, he maintains the view that public
sector organizations and private sector organizations have much in common from an
organizational theory perspective. Zahra et al. (2000) examine the phenomenon of
privatization and entrepreneurial transformation in government organizations. Many
of the privatization strategies reviewed are translated directly from private sector
practices and adopted by governments. Robertson and Seneviratne (1995) present a
contrasting view of the differences between public and private sector organizations.
While acknowledging the clear-cut and consistent differences between organizations
in the public and private sectors, their study of planned change initiatives found that
such initiatives are just as successful in either sector. These viewpoints support the
reasonableness of considering comparisons of planned change activities such as
innovative or entrepreneurial venture activities between the public and private
sectors.
48
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Corporate Venturing Perspectives
Corporate venturing attempts to develop a spirit, philosophy, and structure of
entrepreneurship within an organization to yield innovations that create value for that
organization. From the perspective of the individual employee or manager, Pinchot
(1985) has coined the term intrapreneur to describe those who take hands-on
responsibility for creating innovations that contribute to the corporate venturing
strategy of an organization. While intrapreneurs may or may not be inventors or the
originators of an innovative idea, they are the ones who are able to “launch” the idea
successfully and make it a profitable reality.
Block and MacMillan (1993) characterize corporate activities as ventures
when they:
• Involve an activity new to the organization
• Are initiated and conducted internally
• Involve significantly higher risk of failure than the organization’s traditional
business base
• Will be managed separately during their venture life cycle
• Are undertaken for the purpose of increasing sales, profit, productivity, or
quality
From a growth standpoint, a rationale for corporate venturing is portrayed as
a business expansion to take advantage of an innovation or market opportunity
presented to the organization. This expansion may be in the form of a new product
49
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
or new service. From a defensive standpoint, a rationale for corporate venturing is to
retain long-run competitiveness in a traditional business line. This may take the
form of diversification, such as seeking a new segment of the marketplace.
In either case, the organization may create a venture that is internally based,
or it may create an external venture based in an alliance, an acquisition, or even a
new independent spin-off venture. In any of these corporate ventures, many of the
traits and operating characteristics of entrepreneurial enterprises will be applicable.
Chapter 4 explores the unique characteristics of corporate venturing and identifies
those traits and characteristics that differ from traditional entrepreneurial ventures.
Innovation and Entrepreneurship Relationships
Innovation and entrepreneurship are related in the ways they operate and how
they are analyzed. One can conceive of innovation as the fuel of opportunity and
change, and entrepreneurship as the engine of that change which produces value in
the marketplace or for a constituency. Elements common to both include antecedent
conditions that enable or constrain them, steps in a sequential (and sometimes
parallel) process, roles played by various types of actors, organizational
arrangements that structure the roles and process steps, and an outcome that produces
value.
Whether public or private, every organization consists of goals, tasks, structure,
people and their actions, and results. It is generally accepted, however, that the public
and private sector have different goals, different modes of operation, different
50
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
incentives, and different sources for management recruitment. These differences have
led to the perception that there is incompatibility between creativity, innovation, and
entrepreneurship on the one hand and public sector organizations on the other.
Public sector organizations are generally perceived as bureaucratic structures,
designed to maintain stability and operate in predictable environments. The uncertainty
inherent in change and innovation tends to run counter to public bureaucracies. A study
by Levine (1983) found that bureaucratic organizations hinder innovation through
seven characteristics: strict hierarchy of authority, narrowly specialized units, a
tendency to strive for stability, risk aversion, ambiguous performance measures and
rewards, potential for slack, and limited competitiveness.
Altshuler and Zegans (1990) make a strong case for emulating private sector
innovation in the public sector but point out obstacles to its acceptance. Four key
factors limiting the migration of innovative ideas from the private to the public sector
include a widespread sense that public agencies utilize resources inefficiently; the fact
that business innovation is driven by competition, while public competition is mainly
political; public ambivalence about the appropriateness of innovation and resistance to
permitting public employees the freedom to innovate; and the suspicion that innovation
arouses among various constituencies.
Observations
In contrasting public agencies with private sector abilities to foster
entrepreneurial behavior, these writers identify certain public sector characteristics that
51
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
impede innovation. First, opportunities to launch innovative public programs
independently are limited since changes in policy and budget allocation will likely be
resisted by vested interest groups. Because a private firm can readily decide to embark
on a new venture, it can focus on a venture objective more easily. Corporations are
much more agile when it comes to adjusting their strategies. Second, public
accountability in a democracy, where managers and civil servants have the
responsibility to reveal, explain, and justify their actions, can dampen creativity and
innovation. Private sector organizations are also accountable, but to their stockholders,
not the public at large. This autonomy provides some greater flexibility for fostering
innovation. Third, public sector organizations are often limited in adjusting their
organizational structures to accommodate a new initiative or innovative program
because of legal mandates or political constraints. Private sector organizations can
more readily shape their organizational structure to respond to the challenge of
launching a new venture or innovation. Finally, incentive systems in the public sector
do not reward risk and thereby dampen innovation. A private firm can take risks in the
expectation of reasonable rewards for its risk-taking employees.
As Roberts (1992) notes, one of the difficulties in understanding the literature
on public entrepreneurship has been the inability to separate the functions of
entrepreneurship from the individual entrepreneur and varied roles played in the
process. While “heroic” models of the entrepreneur exist in public organizations, as
described in Bellavita (1991), entrepreneurship can also extend to venture teams to
the extent that policy intellectuals, champions, and administrators integrate their
52
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
efforts. Although each actor may focus on only one or two aspects of the
entrepreneurial process, their joint, collective actions can produce an innovation.
Palumbo, Musheno, and Maynard-Moody (1986), in their study of public
entrepreneurs in community corrections programs at the local level, observe that
entrepreneurial roles include a mixture of promotional networking and administrative
activities. These include efforts to convince skeptics of the value of the approach,
making sure that viable programs emerge from the policy mandate, and linking
community corrections programs with the larger process of administering justice.
Seen this way, public entrepreneurship is much more a process than a single event or
heroic role.
Common Elements for Analysis
Five key elements that exist across innovation, entrepreneurship, internal
corporate ventures, and public entrepreneurship include:
• Antecedent conditions or environmental factors that would influence all
four domains in a similar manner
• Process steps that outline the sequence of events that lead to an outcome
or result
• Roles that innovators, entrepreneurs, managers, or other supporting
players perform
• Organizational arrangements that structure the roles, process, and
resources needed to carry out the innovative or entrepreneurial initiative
53
permission of the copyright owner. Further reproduction prohibited without permission.
• Implementation or the measure and sustainability of results that create
value
Basis for Theory Development
Using these five elements, the literature on corporate venturing is reviewed
for evidence of these elements. Both research studies and conceptual literature are
included in the review to determine the presence of these elements. Their presence is
expected to reveal patterns that can be translated into causal factors and ultimately
into a taxonomy of internal venturing variables. These variables and their
relationships will then be translated into a grounded theory of internal venturing,
which is then tested in a series of case studies.
54
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 3
METHODOLOGY
Methodological Context
This chapter outlines a methodology used for generating and testing an
internal venturing model in public agencies. The approach distills venture formation
factors from the literature and translates them into a working model; the model is
then tested against a series of internal venture cases from federal government
agencies. Through a theoretical model this study seeks to build an understanding of
the factors that influence the formation of internal ventures, not to test a
predetermined hypothesis.
The chapter begins with a description of key distinctions between a theory-
testing research approach and a theory-building approach. It offers a rationale for
using case studies in a theory building approach to develop a “middle-range” theory
(Bourgeois, 1979) that relies more heavily on a comparative analysis of influential
factors and relationships than on quantitative data. The research design delineates
key steps in the process. Finally, the chapter explains the limitations of this study.
Answering the research question presented here requires identification o f
factors that influence internal venturing in public and private sector organizations and
an analysis of how those factors lead to the emergence of a new venture within a public
55
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
sector organization. Because there are no comprehensive explanations of public sector
internal venture phenomena, an explanation is constructed from the literature describing
private sector organizations and that construction is used as a framework to compare the
experiences of selected public agency ventures. These unique requirements have
determined the nature of the methodology for this study.
Theory Development from Case Studies
In its simplest terms, a case study examines people and processes in an
organizational context to reveal causes, effects, and relationships. Yin (1989, 23) offers
a more technical definition: He says that a case study is “an empirical inquiry that:
• Investigates a contemporary phenomenon within its real-life context; when
• The boundaries between phenomenon and context are not clearly evident; and
in which
• Multiple sources of evidence are used.”
While this definition distinguishes the case study method from other research
strategies such as experiments, surveys, archival analysis, or literature reviews, it
suggests that these other sources can be combined with case study data to interpret
findings about organizational relationships and their causes and effects. This study uses
case studies along with other sources of data to form theoretical propositions that will
allow a broad understanding of corporate venturing in public agencies of the federal
government.
56
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In an article addressing the applicability of case studies to public administration
research, Bailey (1992) advances the belief that case studies have the scientific rigor to
build and test theory if they meet the tests of generalizability, transferability, and
replicability. To be generalizable, case study results must be uniform and consistent
across a set of organizations. To be transferable, research findings must be applicable
in similar organizations. Ability to replicate the case methodology with the same or
similar results is a third requirement for the rigor needed to build and test theory.
Yin (1989) addresses each of these requirements of scientific rigor: “case
studies, like experiments, are generalizable to theoretical propositions not to
populations or universes” (21). A case study provides the opportunity to “expand and
generalize theories (analytical generalization) and not to enumerate frequencies
(statistical generalization)” (21). Transferable findings mean that research results can
be applied in other similar organizations, either completely or with only minor
modifications. Replicability can be built into case studies through the use of multiple
cases, where each case is selected to produce either “similar results (literal replication)
or contrary results but for predictable reasons (theoretical replication)” (53). To
facilitate replication, Yin (1989) outlines a case study protocol (70) that includes an
overview, field procedures, a discussion guide of case study questions, and a format for
reporting case study results. These requirements for scientific rigor are addressed in the
research methodology.
A rationale for using case study methodology to build theory is offered by
several other writers on research methods. Eisenhardt (1989, 532) notes that
57
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
researchers have traditionally developed theory by “combining observations from
previous literature, common sense, and experience.” While these sources of data can
combine to develop a testable theory, their link to actual data (in either quantitative or
qualitative form) is often hard to demonstrate. An argument is made that a synthesis of
qualitative methods (Miles and Huberman 1994), case study research (Yin 1989), and
grounded theory (Glaser and Strauss 1967) can provide a framework for testing theories
found in the existing literature.
Agranoff and Radin (1991) explore the potential of multiple case study research
and the ability to examine a number of situations within an overall framework.
Building on Yin’s (1989) approach for multiple-case research designs that would
follow a replication logic like multiple experiments, Agranoff and Radin (1991) argue
that “this logic can be extended to include enumeration and comparison of phenomena
in public administration that are extremely difficult to investigate by other means.. .and
by comparing cases, one can build explanations and identify important variables that
emanate from multiple settings” (205). This dissertation uses multiple case studies
placed within a framework of a venture formation model to explain how new ventures
are formed within federal agencies. Comparing the same model across a series of cases
affords sufficient generalizability to test theoretical findings.
Lewis (1998) introduced a novel approach, termed iterative triangulation, for
developing theory using existing case studies. As a theory development process,
iterative triangulation employs systematic iterations between literature review, case
evidence, and intuition. Consistent with the approach taken in this study, “iterative
58
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
triangulation compares and contrasts emerging constructs and theories across case
settings to refine conceptual definitions and strengthen internal validity, enhancing
testability of resulting theory” (455). Lewis outlines four research conditions that
maximize the advantages of iterative triangulation while downplaying its limitations:
First, the literature must contain sufficient case study work. Second, when
existing literature employs an array of conceptualizations of the core constructs
and/or requires conceptual redefinition, cases enable examination of many
different forms of constructs, facilitating conceptual development. Third, as
some cases describe complex interrelationships, iterative triangulation may aid
theorists when their goal is integration of previously fragmented research.
Finally, when existing literature contains contradictory theory and evidence and
spans theoretical perspectives and academic disciplines, iterative triangulation
provides a systematic method to spur creativity in the search for connections.
(458)
Conditions in this study align with the conditions that favor the use of iterative
triangulation described above. Sufficient case study work on private sector venture
formation is available in the literature, while the study itself provides six public sector
cases from the Federal Franchise Fund program. Because the conceptualizations of
venture formation in the private sector are different from those characterizing public
sector ventures, conceptualizations of Franchise Fund ventures are different from other
federal program ventures. A new explanation of venture formation in public agencies
serves a useful purpose. Complex relationships exist in all of these ventures. This
study uses iterative triangulation techniques to integrate previous research in the
literature and case study findings. The bodies o f public and private sector venturing
literature contain theoretical perspectives that are present in one and absent in the other.
Iterative triangulation provides a systematic method for identifying common factors and
59
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
relationships that will more completely explain the venture formation process in the
public sector.
Theory and Model Development
As a traditional approach, researchers have sought to either reinforce or
disprove existing theories to advance a portion of some theory or modify an existing
one. Glaser and Strauss (1967) call this the logico-deductive approach to theory-
building. In this approach, new theory is most often derived from a priori assumptions,
common sense observations, or previous research and is tested or verified using
sophisticated protocols for the collection and analysis of empirical data. Testing an
existing theory is expected to produce new, though limited, findings that add to what is
already known about a given phenomenon.
The generation of grounded theory employs a different method. In contrast to
the logico-deductive approach, grounded theory begins with the premise that some
theory or theory element is embedded in the case under study and can be discovered
through the systematic examination of concepts, categories, and propositions. As a
result of a grounded inquiry, a theory emerges that can subsequently be tested using the
logico-deductive approach. A grounded theory approach generates or “discovers”
theory embedded in data and phenomena through (1) empirical observations; (2)
propositions developed by establishing significant relationships; (3) categorization and
analysis of those relationships; and (4) theoretical expression of those relationships.
The result of such a grounded inquiry is a theory or theory element that would
60
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ultimately be validated and tested using a logico-deductive approach. Figure 3.1
contrasts the steps and results of these approaches.
Figure 3.1 Two Approaches to Theory Building
Grounded theory approach
to theory-building
• Empirical data collected
• Data categorized and
patterns identified
• Hypotheses generated out
of significant relationships
• Relationships portrayed in
cause-effect model
• Theoretical statement
grounded in data and logic
of relationship patterns
RESULT:
Discovery or generation of a
new theory
This study employs both theory development and theory testing. Theory
development occurs initially as concepts, relationships, and propositions are distilled
from cases and research studies found in the existing literature. These theories are then
tested against the empirical data from the selected Federal Franchise Fund cases.
Conclusions about “fit” and “conflicts” between case data and the grounded theory are
61
Logico-deductive approach
to theory-building
• A priori assumptions,
propositions, or existing
theory
• Hypotheses generated
from logic and variance
from existing theory
• Empirical techniques to
verify hypotheses
• Theory is tested and
modified as appropriate
RESULT:
Testing, verification, and
potential modification of an
existing theory
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
translated into a restated theory of venture formation in public agencies. Other reasons
supporting the use of this approach are found in the very limited knowledge base on
public entrepreneurship in general and in venture formation within public agencies
specifically. Moreover, since no articulated theory applicable to public agency
venturing exists, a new theory would have to be generated in order to be tested.
Research Design
The six primary cases chosen for this study are part of the Federal Franchise
Fund Initiative discussed in chapter 1. The research design for this study incorporates
elements of multiple and comparative case study approaches outlined in Yin (1989),
Agranoff and Radin (1991), and Eisenhardt (1989). The design also draws on the
techniques of iterative triangulation offered by Lewis (1998). The methodological
sequence consists of five phases; it is illustrated in Figure 3.2 below.
Phase 1 Groundwork includes a definition of the theoretical domains of
innovation, public and private sector entrepreneurship, and corporate venturing to
provide a framework for reviewing the literature. The literature review itself focuses on
internal corporate venture cases and research to explore relevant sources and theory
elements. From this literature review, a taxonomy of internal venture variables is
outlined in a structured format.
Phase 2 Induction builds on the taxonomy to establish causal factors in internal
venture formation and relationships between those factors. Using conjecture and
62
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 3.2 Sequence of Research Phases
Phase 1. Groundwork
• Define theoretical domain
• Construct relationship
fram ew ork
▼ * V
Test and
Refine
Theory
Phase 2. Induction
• Identify factors
• Form patterns
• Construct model
ICV
Patterns
Review Distill a
Initial
V
Internret-
Literature
— ►
Taxonomy 1--------1 > ICV
4—
ation
of Factors
Model
Phase 4.
Iteration
• Middle-
range
theorizing
• Triangulate
model
against
cases
Case Study Data & Patterns
a
t
Franchise Other Federal
Fund Cases Agency Cases
Phase 3. Case Study Analysis
• Pattern matching
• Within case analysis
• Cross case analysis
Phase 5. Conclusions
Operational
• Evaluate applicability of theory
IAV Model
• Suggest directions for future research
for Agencies
63
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
“disciplined imagination” (Weick, 1989), an initial model of internal venture formation
is fashioned to include concepts, factors of influence, and propositions.
Phase 3 Case Study Analysis starts with the selection of six Federal Franchise
Fund initiatives and other examples federal agency internal ventures. Analysis of these
cases, including archival data, literature supporting explanations of the cases, and
interviews with key participants is used to reveal patterns of venture formation that
compare and contrast with internal ventures in the private sector.
Phase 4 Iteration involves triangulation of findings from the literature, the initial
ICV model, and results of the case studies of Franchise Fund initiatives and other
federal agency internal ventures. A key result of this phase is the refinement of the
initial ICV model to reflect discovery of new relationships and causal factors from the
case studies.
Phase 5 Conclusions involves the translation of a grounded and tested theory to
an operational model for internal venture initiatives in public agencies. Based on the
research experience of this study, directions of future research for internal venturing in
public agencies is suggested.
Data Collection
The basic sources of data for the case studies include articles in the literature,
archival data obtained from Franchise Fund program managers, and interviews with
staff members of Franchise Fund ventures. Two types of internal venture cases are
compared in this study: First, the six Franchise Funds of the U.S. Departments of
64
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Commerce, Health and Human Services, Interior, Treasury, Veterans Affairs, and the
U.S. Environmental Protection Agency. Second, a series of other cases were selected
to represent internal ventures by federal agencies including the GovWorks Venture in
the Department of the Interior, the National Institute of Standards and Technology
(NIST), the In-Q-Tel Venture sponsored by the Central Intelligence Agency, the
National Finance Center in the Department of Agriculture, the Defense Reutilization
and Marketing Service, and the U.S. Forest Service Enterprise Units.
According to Agranoff and Radin (1991), a comparative case study approach
has several advantages:
(1) The methodology allows researchers the ability to establish a developmental
perspective. (2) The researcher is able to focus on the unique qualities within
each site in a way that allows one to probe beneath facile surface responses to
questions and review documents not specifically prepared for the purposes of
the study. (217-218)
This study’s approach uses multiple sources of evidence to explain the internal
ventures examined. The case studies include analyses of agency documents,
Congressional reports, interviews with agency personnel responsible for management
of the ventures, and journal articles describing and evaluating the cases. Cases are
reported in a format that highlights the presence or absence of certain venture formation
factors distilled from the literature review and translated into the initial ICV model.
Data quality is ensured through consistent data collection and a standard pattern
of data categories drawn from the taxonomy. Triangulation of the case data, interviews,
and agency documents is employed to strengthen data collection and analysis. An
Interview guide is outlined in Appendix B. It is patterned after the key factors affecting
65
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
internal ventures as distilled from the literature review and is designed to elicit
responses from the Franchise Fund venture personnel during inquiries and discussions
about a specific case.
Data Analysis
The unit of analysis in this study is the internal venture organization as it fits
within a larger agency context and is comprised of individuals who act as internal
entrepreneurs. Triangulating case study findings with venture formation factors
identified in the taxonomy, factors described in the literature, and to relationships
identified in the initial ICV model is the basis for interpreting venture formation
patterns of the cases.
Data analysis is facilitated by conceptualizing and coding observations in each
case study into categories and properties. Glaser and Strauss (1967) make the
distinction between these two forms of analysis.
Making a distinction between category and property indicates a systematic
relationship between these two elements of theory. A category stands by itself
as a conceptual element of the theory. A property, in turn, is a conceptual
aspect or element of a category. We have, then, both categories and their
properties ... that are concepts indicated by the data (and not by the data itself);
also that they both vary in degree of conceptual abstraction.... In short,
conceptual categories and properties have a life apart from the evidence that
gave rise to them. (36)
Categories in this study include: antecedent conditions enabling an internal venture,
external environmental factors, the venture formation process, venture roles, venture
structure, internal organizational support for the venture, and implementation success of
66
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the venture. Each of these categories contain properties relating to how, why, and how
effectively the venture is formed. These categories and properties provide the coding
structure for data analysis of the selected cases.
Yin (1989) argues that a most desirable strategy for case study analysis is the
use of pattern-matching logic.
Such a logic compares an empirically based pattern with a predicted one (or
with several alternative predictions). If the patterns coincide, the results can
help a case study to strengthen its internal validity. If the case study is an
explanatory one, the patterns may be related to the dependent or the
independent variables of study. (109)
In this study, pattern matching is employed to reveal coincidence and anomaly between
each of the cases and the initial ICV model constructed by the author. Pattern matching
is also employed to identify similarities and differences between the cases themselves.
Miles and Huberman (1994) identify a series of analytic tactics for generating
meaning from a particular pattern of data. Several tactics employed in this study
include: (1) pattern coding, where recurring themes and patterns are found within and
across cases; (2) clustering, where factors or variables have an affinity or relationship to
one another; (3) making contrasts and comparisons to reveal similarities and differences
between how a given factor occurs across cases; (4) partitioning variables, variables are
“unbundled” to reveal their components and potential presence in either a working
model or other cases; and (5) making conceptual/theoretical sense, where mental
exercise is employed to connect discrete facts with other discrete facts and state a
relationship of factors.
67
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
An important technique for data analysis is the use of triangulation. Jick (1979)
defines triangulation broadly as
the combination of methodologies ... where organizational researchers can improve the
accuracy of their judgments by collecting different kinds of data bearing on the same
phenomenon. It is largely a vehicle for cross validation when two or more distinct
methods are found to be congruent and yield comparable data. For organizational
researchers, this would involve the use of multiple methods to examine the same
dimension of a research problem ... For qualitative methods such as (case studies), this
can be reflected in multiple comparison groups to develop more confidence in an
emergent theory. (602-603)
Lewis (1998) outlines a process of iterative triangulation that employs
systematic iterations between literature review, case evidence, and intuition. She
describes a basic procedure of “selecting a set of relevant, usable cases, searching for
patterns among those cases, and iterating between case evidence, reviewed literature,
and intuition to extend and link conjectures into a cohesive theory” (457). Yin (1993)
suggests that “triangulation is the most desired pattern for dealing with case study data”
(69). This study employs triangulation to converge multiple case study data, literature,
and a theoretical model to reinforce a theory-building process.
Addressing Research Validity
Several social science research handbooks [McNabb (2002), Campbell &
Stanley (1963), Isaac and Michael (1974)] identify four tests of research validity,
including construct validity, internal validity, external validity, and reliability. Each of
these tests is described along with research tactics for case study designs drawn from
Yin (1989,41) to ensure validity of this study.
68
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Construct validity is achieved by establishing correct operational measures for
the concepts being studied. According to Yin (1989,41), “This test is especially
problematic in case study research.” Tactics for addressing construct validity in case
study research include using multiple sources of information, establishing a chain of
evidence, and having key informants review case study drafts. This study relies on a
definition of an internal corporate venture that is consistent with the existing literature
and cases being examined. The researcher uses multiple sources of evidence, including
interviews, reports, archival material, and existing literature. Case study documentation
is verified with interview subjects.
Establishing a causal or explanatory relationship, whereby certain conditions are
shown to lead to other conditions, achieves internal validity. This study also employs
explanation building to illustrate the relationships and causal factors that lead to the
formation of ventures in public organizations. Another tactic is the use of pattern
matching, whereby elements of different organizations under study are compared in a
cross-case analysis.
Establishing the domain to which the study’s findings can be generalized
beyond a single case or set of cases achieves external validity. The primary tactic
employed here is to use replication logic and generalize to a broader theory.
Generalization to a theory in this study is strengthened in two ways: first, by the use of
multiple cases and, second, by pattern matching those cases with case examples of
other internal public agency ventures found in the literature. This study serves to
expand and generalize to a theory of venture formation that can be applied to additional
69
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
public organizations to verify the extent to which the venture models found in these
cases apply to other public organizations.
Reliability comes from demonstrating that the operations of the study can be
replicated with the same results. Approaches to achieve reliability include the use of a
case study protocol and the development of a case study database. The case study
protocol uses a consistent approach for each case organization as described earlier. In
addition, reliability is built into this study through the use of multiple cases having the
same characteristics. While existing in different federal agencies, the primary case
study organizations are Franchise Fund ventures that were established with the same
legislation in the same time frame, with expectations of achieving common goals. This
selection of cases reinforces reliability through a literal replication logic (Yin 1989) by
being able to predict similar results. Theoretical replication logic is also built into this
study through the ability to compare case study results with a working model for
internal ventures. Such a comparison allows contrary results to be tested and explained.
Research Quality and Significance
Yin (1989,146) outlines five important characteristics of exemplary case study
research that this study speaks to: (1) the case study must be significant, which is
addressed by the choice of Federal Franchise Fund cases which are part of a growing
trend toward entrepreneurial approaches in government; (2) the case study must be
“ complete, ” which is addressed by defining the boundaries of those cases within
federal agencies and within the Franchise Fund program and by drawing on several
70
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
additional sources of data to describe venture activity in these cases; (3) the case study
must consider alternative perspectives, which is addressed by considering rival
propositions that explain venture activity in the private sector; (4) the case study must
display sufficient evidence, which is addressed by using multiple cases along with
comparative case analysis and cross-case analysis; and; (5) the case study must be
composed in an engaging manner, which is addressed by the translation of case study
findings into a middle-range theory with implications for how public agencies employ
managerial innovations, implement new program initiatives, and provide value for
those affected by government.
Limitations of This Study
Several weaknesses of building theory from case studies that could lead to
limitations for this study are enumerated by Eisenhardt (1989). First, drawing on a high
volume of rich, qualitative data, researchers could be tempted to build an overly
ambitious theory that attempts a holistic explanation of a phenomenon or process. This
study concentrates on a middle-range theory as defined by Merton (1968) and
elaborated by Bourgeois (1979, 443). Theories in the middle-range “lie between the
minor but necessary working hypotheses that evolve in ... day-to-day research and the
all-inclusive systematic efforts to develop a unified theory.” By focusing on the venture
formation process while recognizing the broader influences of both entrepreneurship
theory and innovation theory, this study develops a practical but circumscribed
explanation of internal ventures in public agencies.
71
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Another potential limitation is the inverse of the one above: a theory that is
narrow and idiosyncratic. This concern is addressed by employing a multiple case
study approach that draws on theoretical elements from Franchise Fund ventures, other
federal venture initiatives, and private sector internal corporate venture cases from the
literature. While generalizations are made only for federal agency venture initiatives,
the theoretical body of knowledge is drawn from a wide range of venture research.
Table 3.1 summarizes selected theory-building approaches used in this study.
Table 3.1 Theory-Building Methodologies Applied to This Study
Research
Approach
Existing
Literature
Case Study
as a D ata
Source
Triangulation
o f Source D ata
Iterative
Techniques
Theorizing
Result
A granoff
& Radin
(1991)
Not
specifically
used
Multiple case
study
approach
Replication logic
across cases
Cross-case
analysis
Process
explanation
B ourgeois
(1979)
Literature
reviewed
Topic under
study
partitioned
Induction from
empirical base
Deduction into
propositions
Middle-range
theory
Eisenhardt
(1989)
Comparison
with similar
and conflicting
literature
Cases selected
without a
theory or
hypothesis
Replication logic
across cases
Continuous
comparison of
data and
theory
Tie-in o f
emergent
theory to
existing
literature
L ew is
(1998)
Literature
considered as
one source
Examines
existing cases
in the
literature
Employs
triangulation o f
data
Iterative
triangulation
aids theory
development
Relationship
patterns as
theory
Y in (1989) Not
specifically
used
Single or
multiple cases
Replication logic
across cases
Refining
initial
propositions
against
multiple cases
Analytic
generalization
as theory
M ierzwa
(2003)
Existing ICV
literature is
reviewed for
relevant
theory
elements
6 Franchise
Funds and 6
internal
federal
a g en cy
ventures
selected as
cases
Case study
replication
logic;
results are
tria n g u la ted
with initial ICV
model and
literature
Cross-case
analysis and
iterative
triangulation
o f th e o r y an d
case studies
Theoretical
expression of
internal
venture
m od el
72
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 4
REVIEW OF CORPORATE VENTURING LITERATURE
This chapter examines corporate venturing literature in five different themes,
representing five components of an entrepreneurial venture construct modified from
Ucbasaran et al. (2001) by the author to reflect the key parts of an internal venture.
These components are illustrated in Figure 4.1 and include: (1) antecedent conditions
that explain a priori influences on venture formation; (2) process factors that explain
Figure 4.1 Framework for Corporate Venturing Literature Review
Antecedent
Factors
Parent
Organization
Internal/Subsidiary
Venture Unit
Process
Factors
Implementation
Factors
Structural
Factors
73
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
the sequence of internal venture steps; (3) structural factors that explain venture roles
and relationships; (4) strategy factors that explain actions and behavior of the venture
unit; and (5) implementation factors that explain elements of venture success or
failure.
As an interpretation to the qualitative nature of this literature review, the
author draws on an observation made by Gartner and Birley (2002) that
in qualitative research, there is typically an immersion into the muddled
circumstances of an entrepreneurial phenomenon that is cluttered and
confusing .... Qualitative researchers can get overwhelmed with too much
information .... Yet, it is in this experience of information overload that a
certain knowledge and wisdom occur. (394)
The spirit of this approach to qualitative research is captured in their
reference to a profile of Michael Zinman, a bibliophile renowned for his strategy of
collecting books:
You don’t start off with [an exact] theory about what you’re trying to do.
You don’t begin by saying “I’m trying to prove x.” You build a big pile.
Once you get a big enough pile together—the critical mess—you’re able to
draw conclusions about it. You see patterns .... People who have the greatest
intuitive feel for physical objects start from a relationship with the objects,
then acquire the scholarship, instead of the other way around. The way to
become a connoisseur is to work the entire spectrum of what’s available—
from utter crap to fabulous stuff. If you’re going to spend your time looking
only at the best, you’re not going to have a critical eye. (Singer 2001, 66)
The process of this literature review parallels the “book eater” metaphor
described above. Opportunities to incorporate structure and pattern emerged only
after the initial interpretation of the material.
Literature from each theme is reviewed for key concepts and internal venture
variables. As an overview, articles on corporate venturing models are also reviewed
74
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
to gain perspective on variable relationships. These variables are identified in each
article and presented in a summary table by author and frequency of coverage. The
variables are then organized into categories and presented in a taxonomy
representing factors that influence an internal venture. This taxonomy becomes the
basis for deriving a series of propositions that capture relationships between the
factors and lead to the initial theoretical expression of a “working” internal venture
model in the following chapter.
Antecedents to Internal Venture Formation
Identifying those factors that cause some organizations to be more or less
innovative and entrepreneurial than others implies a cause-effect relationship among
an organization, its culture, and the external forces that affect it. These factors are
termed antecedents. They comprise the internal and external influences on an
organization’s internal climate for supporting entrepreneurship. This section
explores the antecedents affecting corporate venturing activity.
Kuratko et al. (1993) identify factors important for establishing the necessary
entrepreneurial climate in organizations that fosters internal ventures: (1) the
presence of specific venturing goals, mutually agreed upon by workers and
management; (2) a feedback system that enables potential innovators and
intrapreneurs to realize that their parent organization values creative initiative; (3) an
emphasis on individual responsibility and initiative that builds trust and
accountability; and (4) a reward system that encourages risk and achievement. In an
75
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
earlier study, Kuratko, Montagno, and Hornsby (1990) developed an instrument for
measuring an effective corporate entrepreneurial environment. In addition to the
factors described above, they acknowledged that boundary setting between parent
and venture group and allocating time for venture groups to pursue innovative efforts
were important in the creation of an entrepreneurial climate.
Merrifield (1994) developed a screening methodology to assess business risks
for new ventures. Six of the twelve factors focus on “business attractiveness” and
include the venture’s profit potential; potential growth rate of the market need to be
served and the degree to which it is effectively served; competitor reactivity, that is,
the degree to which dominant competitors are able to respond quickly to a new
entrant; risk distribution that enables the venture to diversify in the marketplace; the
potential impact on industry restructuring; and political and social constraints that act
as externalities on the venture. These factors are important considerations in the
early stages of forming an internal venture.
In a study of 119 Fortune 500 companies on financial outcomes of corporate
entrepreneurship, Zahra (1991) concluded that five factors were important
antecedents of internal venture activity. The results of the study indicate that: (1) a
complex external organizational environment tends to intensify corporate venturing
activity; (2) growth-oriented strategies tend to increase corporate venturing activity
while a strategy o f stability (or no growth) does not foster such activity; (3)
environmental scanning and formal communication functions within an organization
are positively related to corporate venturing activity; (4) clearly defined
76
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
organizational values are positively related to corporate venturing activity; and (5)
corporate venturing activity is positively associated with reduced risk and positive
financial performance.
In this same study, Zahra (1991) observes three factors from an
organization’s external environment that influence corporate venturing activity. One
factor is the “dynamism” or the perceived instability of an organization’s market (or
constituency) resulting from continuing changes. Opportunities can emerge from the
dynamism of a market sector where social, political, economic, or technological
changes create new venture niches. A second factor is hostility in the organizational
environment that reduces demand for the organization’s products or services and
challenges its basic mission. A third factor is the heterogeneity of the organizational
environment, where developments in one market segment create increased demands
for venture offerings in related areas.
In a study examining the causes of corporate entrepreneurship, Stevenson and
Jarillo (1990) offer a set of propositions that translate as antecedent factors for an
organization’s culture in support of new ventures. First, the level of
entrepreneurship within an organization is critically dependent on the attitude of
employees below the rank of top management. Second, entrepreneurial behavior
exhibited by a firm will correlate positively with its efforts to put employees in a
position to detect venture opportunities. Third, firms that make a conscious effort to
reduce negative consequences of failure in pursuit of opportunity will exhibit a
higher degree of entrepreneurial behavior. Fourth, organizations that facilitate the
77
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
emergence of informal internal and external networks and allow an increased
allocation of resources will exhibit a higher degree of entrepreneurial behavior.
Tsai, MacMillan, and Low (1991) examined the effects on corporate venture
success and established a link among environment, strategy, and venture
performance. Reciprocal characteristics of “hostility of environment” and
“munificence of environment” are viewed as significant for new ventures entering
into existing markets. Munificence of environment enables an easy market entry for
a new venture, while hostility of environment limits potential market entry.
Table 4.1 interprets and translates venture antecedent factors found in the
literature and arrays them by author source. The “fit” of each factor is described as it
would apply to a public agency.
A set of antecedent propositions derived from this review includes:
1. An opportunistic orientation of the parent agency will be positively
associated with support for internal venturing activity.
2. Complex and dynamic environmental conditions will be positively associated
with increased internal venturing activity.
3. Single focus program agencies will be negatively associated with internal
venturing activity.
4. Presence of an environmental scanning function in the parent agency will be
positively associated with internal venture proposals.
78
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 4.1 Taxonomy of Venture Antecedent Factors
Antecedent
Factors
D escription and Sources Applicability
To Public Sector
Internal V entures
Entrepreneurial
Orientation
D egree o f support for entrepreneurship and venturing
activity em bedded in an organization’s m ission and
operational activity. Kuratko et al. (1993); Zahra
(1991); Stevenson and Jarillo (1990)
Y es, in non-
regulatory agencies
Venture
Incentives
L evel o f rewards or com pensation made available for
those w ho create successful ventures. Kuratko et al.
(1993)
N ot evident
Environmental
H eterogeneity
Extent that com plex external environm ents and
marketplaces tend to stimulate new internal venture
form ations. Zahra (1991)
Probable if program
constituencies can
be considered
Environmental
M unificence
M unificence enables easy market entry for new
ventures. Tsai et al. (1991)
D ependent on
program
Environmental
Hostility
H ostility in the external environm ent tends to lim it new
venture opportunity and is a sign o f increased levels o f
com petition. Tsai et al. (1991); Zahra (1991)
Y es
Competitor
R eactivity
Extent to w hich competitors have the ability to respond
quickly and easily to a new venture offering.
M errifield (1994)
N ot applicable
Portfolio
Distribution
Range o f diversity in a parent organization’s m ission
and product or service offerings. M errifield (1994);
Zahra (1991)
Y es, for agencies
w ith multiple
programs
Venture
Externalities
D egree o f influence from political, policy, or social
constraints on a new venture. M errifield (1994); Zahra
(1991)
Y es
Environmental
Scanning
C apacity for opportunity recognition and
com m unication within the parent organization. Zahra
(1991)
Y es
External
N etworking
C apacity for interchange and alliance w ith external
business entities. Stevenson & Jarillo (1990); Kuratko
et al. (1990)
Y es, depending on
the nature o f public
interest involved
Internal Venture Process
Venturing can best be described as a process. The integrating notion of
stages or steps, some in sequence and some in tandem, enables venturing to be seen
as an identifiable process. Venture process factors include the number and types of
process steps as well as their sequence and influences on the steps themselves.
79
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Block and MacMillan (1993) describe a six-stage corporate venturing process
and point out that rarely can a single person successfully lead a venture through all
stages. Their belief is that really great entrepreneurs are those who realize they must
supplement their own talents, desires, and skills through collaboration with other
venture team members in order to be successful. Their venturing process model
includes the following stages:
• Setting the stage, where senior management decides on venturing strategy and
creates conditions for the flow of venture ideas.
• Selecting ventures, where senior management identifies “venture champions”
who identify, evaluate, and select specific opportunities for ventures.
• Launching the venture, where senior management determines the venture’s
location in the organization overall and venture managers complete a business
plan for the venture.
• Monitoring and controlling the venture, where senior managers monitor the
venture’s risk and venture managers control the venture’s progress.
• Championing the venture, where venture managers promote the viability of the
venture idea and stave off threats and challenges of corporate politics.
• Learning from experience, where senior management and venture managers
analyze the venture’s process and degree of success to leam how future
ventures can be managed more effectively.
80
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Ucbasaran, Westhead, and Wright (2001) identify several key steps in the
entrepreneurial process that apply to internal venturing: opportunity recognition and
information search, and resource acquisition and business strategizing. Drawing on
Kirzner’s (1973) view that opportunity recognition and information search are
considered to be among the first crucial steps in the venturing process, they note that the
ability to connect specific insights or knowledge to a commercial opportunity is the
essential part of the venturing process. They point out that
Once the opportunity has been identified and information relevant to the venture
has been obtained, the next step for the entrepreneur (or team of entrepreneurs)
is to acquire new resources or effectively manage existing resources in order to
exploit the opportunity.... Although resources are crucial to the performance of
a venture, resources alone are not sufficient to achieve a sustainable competitive
advantage. It follows that entrepreneurs must develop skills and select
competitive strategies to make best use of the resources accessible to them.
(62-63)
In their case study of an internal venturing program at Ohio Bell, Kanter and
Richardson (1991) found that the company’s “Enter-Prize” venturing program had
an internal venturing process that employee teams were encouraged to participate in.
The Enter-Prize process steps included: (1) idea development by an innovative-
minded employee; (2) consultation with Enter-Prize staff to screen the idea and
assess its appropriateness and relevance to Ohio Bell’s mission; (3) formal proposal
by the employee to have the innovative idea considered; (4) review of the idea by
subject matter experts for technical feasibility; (5) a decision o f acceptance or
rejection of the proposal; (6) sponsorship of the proposal; and, (7) project execution
and completion. This program was primarily designed to demonstrate the potential
81
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of entrepreneurial behaviors in a largely risk-averse corporate environment. The
process steps for this internal venturing program reflect a primary strategy of seeking
internal improvements, but the program resulted in many new products that produced
significant new revenue for the company.
In a study of the anatomy of a corporate venturing program, Sykes (1986a)
identified several extrinsic procedural factors (those related to managerial processes
imposed by the venture sponsor) affecting venture success. One process factor, the
degree of control over venture decision making, “varies significantly depending on
the stage the venture is in, and upon the relatedness of the venture’s product to the
corporation’s base business products and markets” (278). When the venture is in
early stages, venture managers are likely to be given greater decision-making
autonomy. When the venture is in its later stages, more control over venture
decisions is likely. A second factor, selection of a venture manager, is based on the
prior “business track record” of the venture management team. A third factor, the
level and form of incentive compensation for venture managers, distinguishes
between the risk carried by venture managers and the relative job security of other
corporate managers. A fourth factor, staged venture funding, is based on
completion of stated milestones in a venture business plan. These internal venture
procedures contrast with typical operational sequences of a corporate parent
organization.
Sykes and Block (1989) point out conflicts in management processes when
mature companies attempt to initiate internal new venture activities; they argue that
82
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
to succeed with a new internal venture, corporate management must understand the
inherent difference in process steps between the two approaches. Key factors
addressed in this study include unique ground rules and flexible procedures for each
internal venture, adjustment and revision of the plan to reflect incremental learning,
ample managerial support, incorporation of special compensation incentives for
venture managers, and accommodation of venture team members who don’t fit into
the overall corporate culture. Sykes and Block (1989) observe that many of the
adjustments in management processes needed for new venture development are the
same ones necessary for coping with rapidly changing business environments. By
maintaining a flexible posture on internal venture process steps, parent organizations
can more effectively support those new ventures.
In their study of entrepreneurship in established public organizations, Morris
and Jones (1999) found that public sector managers saw entrepreneurial approaches
as salient for their organizations and that key obstacles to implementing those
approaches are very similar to those reported by corporate managers. This study
represents one of the few attempts to directly interpret a private sector internal
venturing approach as applied in a public sector organization. Using a process
grounded in private sector experience, they translate venture process steps for a
public university into the following: (1) identify an opportunity; (2) develop the
venture concept; (3) assess the need for venture resources; (4) acquire the necessary
resources to launch the venture; and (5) manage and harvest the venture. These
83
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
process steps outline a basic skeletal pattern for describing an internal venturing
process.
In one of the early classic studies of internal corporate venturing, Burgelman
(1983) presents a grounded process model describing both key and peripheral
activities of a new venture process. The initial step in this venture model defines
new business opportunities, with supporting steps of technology and need linking to
establish the feasibility of the opportunity. A second step, termed “impetus,” places
the venture concept in the broader context of the strategy and mission of the parent
organization. One part of this step involves product-championing activities by the
venture manager to create a business plan. The other involves concerted efforts to
commercialize the new product, process, or system through immediate market
penetration. A third step involves organizational-championing activity by the
venture manager and corporate sponsors to position the new venture in the context of
the corporate strategic plan. A fourth step involves building a structural context for
the internal venture within the organizational and administrative framework of the
parent organization. Burgelman (1983) concludes that:
First, the motor of corporate entrepreneurship resides in the autonomous
strategic initiatives of individuals at the operational levels of the organization.
Second, because of their very nature, autonomous initiatives are likely to
encounter serious difficulties in the diversified major firm. Third, the study
of ICVs elucidates the key role of middle-level managers in the strategy-
making process in the diversified major firm. Fourth, corporate
management’s role in the ICV process seems to be limited to the retroactive
rationalization of autonomous strategic initiatives that have been selected by
both the external environment at the market level and the internal corporate
environment. (241)
84
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 4.2 interprets and translates venture process factors found in the literature and
arrays them by author source. The “fit” of each factor is described as it would apply
to a public agency.
Table 4.2 Taxonomy of Venture Process Factors
Process
Factors
Description and Sources A pplicability
To Public Sector
Internal Ventures
Opportunity
R ecognition
Identification o f an innovative solution or market
gap. Ucbasaran et al. (2001); Kirzner (1973)
Y es
Information Search A nalysis the market environm ent for needs and
solutions to be addressed by the new venture.
Kirzner (1973)
Y es
Idea D evelopm ent Translation o f an innovative insight into a venture
concept. Kanter and Richardson (1991); Morris
and Jones (1999);
Y es, if sponsored
internally
C oncept Proposal Subm ission to corporate venture review board for
evaluation for fit and com patibility w ith parent
organization. Kanter and Richardson (1991)
N ot evident
Venture Screening Evaluation o f Venture concept for feasibility and
parent com patibility. Kanter and Richardson
(1991); B lock and M acM illan (1993)
M ay be applicable
inform ally
Product
C hampioning
Proposal for the venture in cost-benefit, business-
plan format. Burgelm an (1983); Kanter and
R ichardson (1991)
Som e Franchise
Funds require this
Organizational
Cham pioning
P ositioning corporate sponsors to support the new
venture. Burgelm an (1983)
N ot evident
B uilding Structural
Context
Creating com patibility betw een the new venture
and the parent organization. Burgelm an (1983)
N ot evident, but
relevant to public
agencies
D ecision-M aking
A utonom y
A ccom m odation o f the need for venture decision
control by the parent organization. Sykes (1986)
A utonom ous venture
control unlikely in
public agencies
Venture Funding A llocation o f resources for initial venture start-up.
Sykes (1986); B lock and M acM illan (1993);
Burgelm an (1983)
Y es, w orking capital
funding exists for
public agencies
Venture Harvest Translating the results o f venture value creation.
Morris and Jones (1999); Burgelm an (1983)
V alue creation
difficult to measure
for public agency
ventures
Flexible Process
Sequence
Enabling process steps to fit unique circum stances
o f the parent organization. Sykes (1986)
N o obvious
requirement for
fixed process in
public agency
ventures
85
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A set of process propositions derived from this review includes:
1. The level of venture opportunity recognition will be positively associated
with the degree of definition of the internal venturing process.
2. The level of product championing will be positively associated with the
degree of specificity of product or service offerings of internal ventures.
3. The degree of integration of structural arrangements governing internal
ventures will be positively associated with internal venture activity.
4. The presence of a working capital fund will be positively associated with
internal venturing activity.
Internal Venture Structure
Within venture organizations, a team structure can foster both flexibility and
creative employee initiative. Because ideas, proposals, and start-ups are usually
initiated at lower organizational levels and only gradually filter upward to the attention
of senior management, venture teams are often given freedom and protection from
“bureaucratic procedures” usually present in the mainstream parent organization.
Organizational context, structure, and venture roles comprise factors affecting internal
ventures discussed in this section. The influence of structural context on initiative has
been studied in early works such as Bums and Stalker’s (1961) examination of
mechanistic and organic organizations and work environments. Traditionally,
entrepreneurial ventures have emerged as “stand alone” structures, designed to pursue a
singular niche opportunity in the marketplace. Bringing a new venture into the
86
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
operating environment of an existing organization has typically led to the creation of a
semi-autonomous unit with ready access to funding support. This separatist approach is
built on the premise that entrepreneurial activity is stimulated by structural
arrangements different from ongoing managerial activity and that, therefore, it needs to
be separate from the main part of the organization. This section examines some of the
factors that influence the structure of internal corporate ventures.
In a study of corporate entrepreneurship in multinational corporations,
Birkinshaw (1999) examined the determinants of subsidiary initiative. For the
determinant structural context, Birkinshaw posits that a high level of centralization for
subsidiary decision making will suppress subsidiary initiative. This premise is based on
survey findings that “freelancing” and “foraging” for resources to support an internal
venture were likely to be discouraged when resources are controlled from a central
office in the parent organization. Two related aspects of this decision-making
relationship are subsidiary credibility and corporate-subsidiary communication.
Credibility is defined as the extent to which central office managers are familiar with
and confident of the capabilities of the (venture) unit. Corporate-subsidiary
communication is a function of the level of direct interaction between central office
managers and the venture unit’s managers. Thus, decision-making autonomy for
subsidiaries (or internal ventures) is a structural factor dependent on the degree of
confidence and communication between the venture and the parent organization.
In their development of an interactive model of corporate entrepreneuring,
Hornsby et al. (1993) explore organizational characteristics of internal ventures.
87
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Structural factors identified include aspects over which venture managers have some
degree of control: (1) the extent to which venture structure supports innovative activity;
(2) the extent that the venture structure allows autonomy and work discretion among
team members; (3) venture organization boundaries that are permeable, allowing an
interchange of ideas and resources useful to the venture; and (4) administrative
mechanisms that enable idea exchange and development.
Thornhill and Amit (2000) examine the effect on venture performance of
internal strategic fit between a corporate parent and its internal venture. Two
dimensions of strategic fit are identified: relational and economic. A venture’s
relational fit reflects the nature of the parent’s organizational culture and structure.
Where relational fit is strong, venture success is more likely, and the relationship
between the venture and the parent is likely to endure. A venture’s economic fit is a
function of the resource needs of the venture and the resources of the parent. As the
venture matures and becomes successful, economic fit is likely to diminish as the
venture becomes financially independent.
Hisrich and Peters (1986) explore whether any basic organizational structures
are better facilitators of internal venturing activity than others. In a survey of Fortune
1000 firms, they studied the “new business venture unit,” which is characterized as a
group of individuals responsible for developing, introducing, and managing a new
business within the context of a parent organization. This study revealed differences in
organizational structure between venturing and nonventuring organizations. For
instance, ultimate authority for the introduction of new products (the proxy for a new
88
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
venture in this study) tended to rest with executive committees and development teams
for companies having corporate venturing initiatives. In contrast, companies without a
corporate venturing strategy tended to rely solely on “brand management” and
corporate-level marketing approaches to achieve their mission. The study found that
key aspects of a supportive environment for new business venture units included
support of “cutting edge” technologies by the corporate parent; the discouragement of
“turf protection” by organizational units in the corporate parent; the encouragement of
multi-disciplinary staffing of business units; and the design of the venture unit’s
structure to enable planning flexibility and easy sponsorship support.
Brazeal (1993) compared and contrasted differing organizational elements
influencing the performance of departmental managers and autonomous venture
managers. She noted that making available both formal and informal structural
outlets for innovative activities was an incentive for higher performance by both
types of managers. Testing an organizational commitment model on managers led to
the following conclusion:
The presence of accelerated promotions, venture groups, and unofficial
projects in combination with long-term orientation and internal locus of
control are key factors in the establishment and promotion of the autonomous
venture managers’ sense of belongingness and allegiance to the organization.
Central to the notion of innovativeness is the presence of loosely defined
structures that may be seen as opportunities for the pursuit of entrepreneurial
activities, coupled with a compensation system that recognizes the strong
financial orientation of the entrepreneur. (86-87)
In a survey of corporate experts from large innovative companies, Quinn (1985)
observed the importance of organizational autonomy in fostering innovation. He noted
89
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
that every highly innovative enterprise in his research sample emulated small company
practices that functioned in an isolated, autonomous style:
Small teams of engineers, technicians, designers, and model makers were
placed together with no intervening organizational or physical barriers to
developing a new product from idea to commercial stages .... The
“skunkworks” approach eliminates bureaucracies, allows fast, unfettered
communications, permits rapid turnaround times for experiments, and instills
a high level of group identity and loyalty. Interestingly, few successful
groups in my research were structured in the classic “venture group” form,
with a careful balancing of engineering, production, and marketing talents.
Instead they acted on an old truism: introducing a new product or process to
the world is like raising a healthy child—it needs a mother (champion) who
loves it, a father (authority figure with resources) to support it, and
pediatricians (specialists) to get it through difficult times. (79)
The notion of a “skunkworks” originated in the aircraft design industry during
World War II and has been employed in industrial environments like the automobile
industry and elsewhere since then. Key characteristics of an autonomous venture-like
organization are described by Single and Spurgeon (1996):
• A cross-functional staff of proven competence, with management experience,
was on loan from the parent organization.
• Located in temporary quarters, the group was physically separated from other
parts of the parent organization but still had access to resources as needed.
• Physical facilities were designed to promote creativity and exchange of ideas
among the team.
• Bureaucratic “red tape” was eliminated, and paperwork was minimal.
• There was sufficient funding to launch the group’s efforts at start-up and strong
support from the parent organization’s management.
90
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Common corporate venturing organizational forms were examined in a study
Miles and Covin (2002). They classified corporate venturing organizations into four
generic forms: (1) direct-internal venturing, where new ventures are funded without
financial support and developed within the domain of the organization by the
organization’s employees; (2) direct-external venturing, where the organization,
without relying on a venture capital fund, acquires or takes an equity position in an
external venture; (3) indirect-internal venturing, where the organization invests in a
venture capital fund designed to encourage employees to develop internal ventures; and
(4) indirect-external venturing, where the organization invests in a venture capital fund
(originated either within or outside the organization) that targets external ventures in
specific industries or technology sectors.
While Miles and Covin offer hypotheses for all four of these forms of corporate
venturing, this study focuses on the direct and indirect-internal forms of venturing. The
appropriate venture form for a high degree of venture control would be the direct-
internal form, while the indirect-internal form would yield a low degree of control by
management of the parent organization. Where management’s commitment of
resources to a venture is a consideration, both direct-internal and indirect-internal forms
would enable a high degree of ability to manage venture resources. Where
management of entrepreneurial risk in a venture is a concern, both direct-internal and
indirect-internal forms offer a high degree of ability to manage risk.
In their work on corporate venturing, Block and MacMillan (1993) identify a
series of factors shaping the choice of internal venture location within an organization.
91
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Locating the venture in a hospitable part of the organization that accepts the idea of
venturing and the venture in particular is important for its potential success. Ventures
that involve concerns highly critical to the mission of the parent organization are best
located where they can directly report to senior levels of the parent organization. In
geographically dispersed companies, internal ventures are best located with a high
degree of separation from staff groups that tend to ensure that all units conform to
corporate policies. The smaller the scale of the venture, the more likely it is to be
located as a part of another organization. Location of an internal venture depends on its
development stage; early-stage ventures may be embedded in other organizations, while
mature ventures may be more independent.
Burgelman and Sayles (1986) identify nine different design alternatives for
placing venture teams within organizations, depending on their relatedness to the
organization's operational pattern and their degree of strategic alignment with the
organization's mission. Venture design and location can range from direct integration
of the venture into the fabric of the organization to a complete spin-off of the venture as
a separate enterprise. Figure 4.2 illustrates the positioning of those nine venture design
options.
92
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 4.2 Organization Designs for Corporate Entrepreneurship
t
g » Unrelated
2 Partly
® Related
R
d
o
•PM
< 3 Strongly
^ Related
V
V ery Uncertain N ot
Important Important
Strategic Importance ------------>
Source: Burgelman and Sayles, 1986:183.
Corporate venturing examples found in Kanter and Richardson (1991) include
Dow Chemical, which created an innovation department that has virtually total license
to establish new venture projects for any other department within the company.
Eastman Kodak and AT&T also use new venture teams to free up creative people from
the bureaucracy and focus on specific initiatives. Eastman Kodak has launched 14 new
ventures since 1984, each of them a company-within-a-company to explore such ideas
as computerized photo imaging, lithium batteries, or large-screen technology. AT&T
has created 11 new venture companies, including one that developed pixel machines.
These venture companies are carefully nurtured and given freedom from their corporate
bureaucracies.
93
3. Special
B usiness
Units
6. Independent
B usiness
Units
9. C om plete
S p in -off
2. N ew -Product
B usiness
Department
5. N ew Venture
D ivision
8. Contracting
Out
1. D irect
Integration
4. “M icro”
N ew Ventures
Department
7. Nurturing
and
Contracting
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Simon, Houghton, and Gumey (1999) examined roles in the organizational
format of an internal venture and identified three key roles essential for corporate
venturing success: the venture manager, the venture “godparent,” and the venture
ombudsman. Venture managers are designated to run the venture and need a
significant degree of autonomy to be successful. Managers in this role also assume the
responsibility of molding the venture’s culture to foster innovation and assertiveness.
The venture godparent protects it from resistance originating in the parent organization
and helps provide autonomy for the venture. This venture role player is an advocate for
strong resource support for the venture in both good economic times and bad. The
venture ombudsman mediates relationships between the venture and the parent
organization. This role player helps direct venture strategy toward a harmonious fit
with the parent organization’s strategy. Simon, Houghton, and Gumey argue that the
establishment of these three venture roles can lead to the appropriate amount of venture
autonomy and support within the parent organization.
Roles described by Frost and Egri (1991) for an intrapreneur are “idea
champion,” “change agent,” or advocate. Idea champions can come in two types: the
technical or product champion and the management champion. The technical or
product champion generates or adopts and develops an idea for a technological
innovation and is devoted to it, even risking professional prestige. The management
champion acts as a supporter and sponsor to shield and promote an idea within the
organization. The management champion sees the potential of the application and has
the prestige and authority to get exposure for it and allocate resources to it. Technical
94
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and management champions often work together because a technical idea will have a
greater chance of success if a manager can be found to sponsor it. These descriptions
are consistent with employee leadership roles on venture teams.
A description of corporate venturing champion roles is provided by
Venkatamaran, MacMillan, and McGrath (1992) as part of their study of research on
corporate venturing. They identify four types of championing roles: (1) championing
the idea, where the role requires coalition building with the parent organization and
within the venture to gain support for the merits of the venture idea; (2) championing
the opportunity, where the role is to be an advocate for the timely exploitation of the
venture idea and to mediate conflicts between the routine of the parent organization and
the accelerated pace of the venture’s activity; (3) championing resources, where the role
is to represent the venture to sources of power in the parent organization and secure
necessary resources for the venture; and (4) championing incorporation, where the role
is to prepare the venture for “institutional citizenship,” ensuring the fit of practices,
norms, values, and routines of the new venture with those of the parent organization.
Burgelman’s (1983) process model of internal corporate venturing identified
championing activities at various levels of corporate management: the venture manager
or group leader, the new venture development manager, and the parent organization
(corporate) manager. Each of these roles is placed in a hierarchy of ascending authority
relationships, whereby the venture itself is managed autonomously under the broad
direction of the new venture development manager and under the broad policies of the
parent corporation.
95
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Howell and Higgins (1991) explore the championing process from three
perspectives: rational championing, participative championing, and renegade
championing. They point out that most literature on internal venturing has focused on
renegade championing to the neglect of the rational and participative approaches. This
focus is explained by state of the art venturing views and the grounding of their
perspective in a traditional independent entrepreneurship paradigm. These authors
suggest key management actions that a parent organization can take to support the
championing of internal ventures: (1) make a strong commitment to the parent
organization’s vision in support of innovation; (2) provide autonomy for venture
managers in their jobs and their careers; (3) offer sponsorship of ventures and forms of
recognition for their success; and (4) mediate differences between internal ventures and
their parent organization.
In a resource-based view of venture roles, Greene, Brush, and Hart (1999)
explain behaviors of corporate venture champions by contrasting their role activities
with those of a traditional independent entrepreneur. For the independent entrepreneur,
some of the most important roles involve the identification, acquisition, and allocation
of venture resources. For the corporate venturing champion, these roles are equally
important but evolve in different ways. Where independent entrepreneurs rely
primarily on their own individual ideas, corporate venture champions draw on the
social capital and human capital found in the experience base of the parent
organization. Where independent entrepreneurs must seek external venture capital
funding, corporate venture champions acquire venture capital internally. Where
96
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
independent entrepreneurs have a certain flexibility to allocate venture resources (staff
and capital), corporate venture champions must work within the operational and
cultural framework of their parent organization to allocate those resources.
Table 4.3 interprets and translates venture structural factors found in the
literature and arrays them by author source. The “fit” of each factor is described as it
would apply to a public agency.
Table 4.3 Taxonomy of Venture Structural Factors
Structural
Factors
D escription and Sources A pplicability
To Public Sector
Internal Ventures
Venture
Definition/Identity
Extent o f designation o f the venture unit by the
organizational parent and by external sources.
H isrich and Peters (1986)
Y es, can be specific in
certain cases
Organizational Fit D egree o f relationship betw een internal venture
unit and parent organization. Thornhill and
A m it (2000); Quinn (1985); Hornsby et al.
(1993)
Y es, important for public
agency ventures
Venture Structure Extent o f structural elem ents com prising the
internal venture unit, including formal and
informal system s. Brazeal (1993); Birkinshaw
(1999); M iles and C ovin (2002)
M ostly informal; not
m any ground rules for
public agency ventures,
except Franchise Funds
Venture
D esign/Location
E ffect on venture location from influence o f the
venture’s strategic importance and its
relationship to the operations o f the parent
organization. Burgelman and Sayles (1986);
B lock and M acM illan (1993)
Y es, but few guidelines
are available
Resource Support Extent and types o f support provided to the
internal venture by the parent organization.
H ornsby et al. (1993); Green et al. (1999)
Y es, resource support is
in evidence
Venture Control D egree and types o f m anagem ent control o f the
internal venture by the parent organization.
M iles and C ovin (2002); Hornsby et al. (1993)
Y es, control o f public
agency venture is
applicable
Venture R oles Type and com position o f internal venture roles.
Sim on et al. (1999); Greene et al. (1999);
Y es, but few guidelines
exist for public agency
ventures
Championing
Behavior
Type and extent o f internal venture leadership.
Venkatamaran et al. (1992); Burgelm an (1983);
H ow ell and H iggins (1990)
Y es, but no clear role
m odels have been
identified for public
agency ventures
97
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A set of structural propositions derived from this review includes:
1. A high degree of resource support for venture initiatives will be positively
associated with feasible internal venture activity.
2. A high level of relatedness to the parent organization by the internal venture
unit will be negatively associated with venture autonomy.
3. A strong alignment of the internal venture unit to the mission of the parent
agency will be positively associated with increased venture activity.
4. A high degree of definition for venture team roles will be positively
associated with increased venture activity.
Internal Venture Strategy
Venture strategy involves the actions taken by venture managers and the
parent corporation. Influence from sources external to the organization that affect
venture strategy are also examined.
Merrifield (1994) developed a constraint analysis for new venture business
risks that identified a series of “business attractiveness” factors. These factors serve
to describe the strategic influences facing internal ventures as they seek to gain entry
to the marketplace and fulfill their purpose:
• The potential for sales and profit from the venture is at the very heart of its
purpose. Whether providing a product or a service, the main intention of a
venture is to deliver value in some form that meets a need or satisfies a
demand from customers, user communities, or constituencies. Expectations
98
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of sales and profit potential for new ventures entering the marketplace cannot
be at the incremental level (which may be an acceptable level of existing
businesses) but rather must be at a significant level to sustain a presence.
• Growth potential of the market being served is another strategic consideration
for new internal ventures as they attempt to survive early-stage development.
While an innovative idea and “first mover” advantage may propel a new
venture into the marketplace, only an expanding market with room for
growth of both the new venture and the existing competitors will likely
sustain the venture.
• Competitive advantage is a strategic factor that includes consideration of the
type, level, and agility of competitors; the innovativeness of the new venture
idea; and the rate of obsolescence of that innovative idea. A strong
proprietary or intellectual property position is the traditional competitive
advantage in the private sector. In the public sector, authority to implement a
policy or deliver a program can provide monopoly-like advantage for
providing a good or service.
• Degree of product or service diversity determines the ability to use a risk-
distribution strategy. For one-product or one-service ventures, the
vulnerability to changes in the marketplace and new competitors is
significant. The risk must be distributed over sufficiently differentiated areas
so that if one is lost, the venture will not fail outright.
99
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• The potential for industry restructuring is another strategic factor for new
ventures to consider. The introduction of an innovation that provides
efficiency or cost-benefit improvements of five to ten times the existing
marketplace offerings can restructure an industry and even cause a paradigm
shift in the way operations are carried out. Knowledge of new technologies
and innovative approaches external to the venture needs to be accumulated
and evaluated for its potential impact on an industry. Strategic responses to
this factor include alliance formation and environmental scanning.
• Political and social constraints are external factors affecting new venture
strategy. Global competitiveness and domestic regulatory policy can be
significant factors affecting such strategy. The multiplicity of external
factors makes it difficult to translate them into a single strategic measure,
since certain types of ventures may be more sensitive to regulatory influences
than others.
Roberts and Berry (1985) explore alternative strategies for entering new
businesses, including the approach of internal venture development. Using “tests of
familiarity” as a gauge for the likely application of a new entry strategy, they identify
strategic concerns for addressing both technologies and the marketplace. Strategic
technology concerns are revealed through the following questions, which represent
decreasing levels of corporate familiarity: (1) Is the designated technology already
used within the parent organization? (2) Do the main features of this technology
relate to or overlap current corporate technological skills? (3) Are technological
100
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
skills not already applied in products or services available within the corporation? (4)
Has an assessment of the technology been made internally? (5) Is relevant
technology advice available from external sources?
Strategic concerns regarding market entry of a new venture are revealed
through this set of questions which represent decreasing levels of corporate
familiarity: (1) Do the main features of the new market relate to or overlap existing
markets held by the parent organization? (2) Does the parent organization currently
participate in the designated marketplace for the new venture? (3) Has the
organization performed market analysis on this segment? (4) Does knowledge of the
market exist within the parent organization? (5) Is relevant market advice available
from external sources?
Based on the extent of familiarity with technology and market conditions,
Roberts and Berry suggest optimum entry strategies for new internal ventures.
Where technologies or services embodied in the new venture’s product or service
offering are new but familiar to the parent organization, it is suggested that an
internal venture, an acquisition, or a licensing arrangement would be the optimum
entry strategy.
Sykes (1990) examined the strategic use of corporate venture capital in the
development of new internal ventures. He points out that over the last quarter-
century, the number of corporate venture capital funds investing in internal ventures
has increased threefold. Strategic investment objectives of corporate venture capital
for internal ventures contrast with those of independent venture capitalists who fund
101
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
entrepreneurial ventures outside corporate walls. Whereas both forms of venture
capital seek to identify new innovative opportunities and develop business
relationships, strategic objectives for corporate venture capital focus on changing the
corporate culture and finding potential acquisitions. These latter two strategies
reinforce and strengthen the base capabilities of the parent organization by growing,
extending, or acquiring increased capability.
Roberts and Malone (1995) developed a series of models for determining
strategies for spinning off new ventures from universities, government laboratories,
and other research and development organizations. Results of their study indicate
that where venture capital and entrepreneurial talent are readily available, parent
organizations can appropriately: (1) exercise a low degree of selectivity in choosing
technologies for spin-off creation; and (2) provide a low level of support for the
venture during the spin-off process. The strategic implication for internal ventures is
that venture resources and support are likely to be sparsely distributed by parent
organizations in order to diversify potential for successful ventures and minimize
overall corporate risk.
McDougall and Robinson (1990) identify eight archetypes of competitive
strategy for new ventures. These archetypes focus on either a niche (narrowly
focused market segment) strategy or an aggressive (broadly focused on large market
segments) strategy. The major dimensions of these strategies involve levels of
aggressiveness for venture growth ranging from aggressive to controlled. Each of
these levels is deemed appropriate for a given venture format and a given market
102
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
niche. Overall, competitive strategies for emergent ventures that were developed
internally tend to concentrate on product or service quality, innovativeness of the
product or service, and controlled growth through premium-priced products or
services offered directly to customers without the benefit of a marketing channel.
Table 4.4 interprets and translates venture strategy factors found in the
literature and arrays them by author source. The “fit” of each factor is described as it
would apply to a public agency.
Table 4.4 Taxonomy of Venture Strategy Factors
Strategy
Factors
D escription and Sources A pplicability
To Public sector
Internal Ventures
Growth
Potential
Extent to w hich the venture has a significant
market to exploit. M errifield (1994); M cD ougall
and R obinson (1990)
D epends on the specific
program
Competitor
R eactivity
Extent o f a com petitor’s ability to respond to a
new venture entry and m inim ize market share o f
that new venture. M errifeld (1994); Roberts and
Berry (1985)
E xcept for interest
groups, not likely
Risk
M anagem ent
D egree o f diversification o f parent organization
product and service offerings. M errifield (1994)
Y es, important for public
agency ventures
External
Factors
L evels o f influence on the new venture from
political, social, or regulatory forces in the
venture’s external environm ent. M errifeld (1994);
M cD ougall and R obinson (1990)
Y es
Venture
Familiarity
Extent o f familiarity w ith venture technology,
operational, and market requirements for
successful im plementation. Roberts and Berry
(1985)
Y es, important to have
resident expertise w hich
m ost agencies have
Venture Capital
U se
Extent to w hich the venture relies on the use o f
either internal or external sources o f venture
capital. Sykes (1990)
Y es, reliance on working
capital funds
Venture
Selectivity
D egree o f choice for parent organizations to select
an internal venture. Roberts and M alone (1995)
Y es, parent agency has
definite control
Venture
Harvest
Type o f venture harvest m echanism and degree o f
support required from the parent organization.
Roberts and M alone (1995)
N ot directly applicable
C om petitive
Strategy
Type and focus on entry strategy for sustained
presence in the marketplace. M cD ougall and
R obinson (1990)
Som e applicability for
ventures selling to other
p u b lic agencies
103
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A set of strategy propositions derived from this review includes:
1. A high degree of formality in venture selection criteria will be negatively
associated with increased internal venture activity
2. High levels of familiarity with venture markets and technology will be
positively associated with increased venture activity.
3. Increased presence of similar ventures will be negatively associated with the
growth potential and number of new entrants.
4. High levels of uncertainty in political (congressional) or economic (national
economy) environments will be negatively associated with internal venture
activity.
Internal Venture Outcomes
Identifying internal venture results can be compared with examining the
implementation of an innovative practice, product, service, policy, or program. As
Klein and Sorra (1996) observe, “Implementation is the process of gaining
organizational members’ appropriate and committed use of an innovation” (1055).
This view of implementation is useful for examining the end result of an internal
venture since innovations are at the heart of internal ventures and corporate
venturing. This section examines the types of results experienced from internal
venturing activities and the factors affecting their successful or unsuccessful
implementation.
Covin and Miles (1999) distinguish four results that are based on the theme
of innovation as a mechanism for corporate entrepreneurship. A premise used in
104
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
their work is that the presence of innovation per se is insufficient to label an
organization entrepreneurial. Rather, they suggest that an entrepreneurial label be
applied only to those organizations that use innovation as a mechanism to redefine or
redevelop themselves and their positions in the marketplace. These four results of
corporate entrepreneurship are: (1) sustained regeneration, where there is a high
frequency of new internal venture activity and the focus of those ventures is on new
products or new markets; (2) organizational rejuvenation, where there is moderate
frequency of new internal venture activity and the focus of those ventures is on
rejuvenating the organization itself; (3) strategic renewal, where there is less frequent
internal venture activity and the focus is on reforming the organization’s overall
strategy; and (4) domain redefinition, where there is infrequent internal venture
activity and the focus is on the creation and exploitation of previously unoccupied
product-market arenas.
Determinants of success in corporate ventures are addressed in a study by
Miller and Camp (1985). Their study recognized important differences between the
management of corporate ventures (CV) and the management of more mature
strategic business units (SBU). These authors conclude that the relative merits of a
strategic advantage based on differentiation are far greater than those based on a low-
cost strategy. Results of their study also indicate that both corporate venture
managers and SBU managers have the ability to influence success, though in
different ways. Corporate venturing success depends on the ability of CV managers
to use in-house infrastructures, corporate growth and diversification experience, or
105
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
even internal competition to foster successful ventures. SBU managers must rely on
available corporate infrastructure to achieve their objectives.
MacMillan, Zemann, and Subbanarasimha (1987) analyzed a series of
screening criteria for distinguishing successful from unsuccessful ventures. The six
factors used in the screening criteria include: (1) management risk-the danger that
the venture team will not have the necessary capabilities to succeed; (2) competitive
risk-the danger that the venture’s entry into the market stimulates competition; (3)
investment risk-where the venture concept has no track record and there is already a
high growth rate in the target market; (4) leadership risk-where past leadership
experience demonstrates an ability to have a successful venture; (5) bail-out risk-
where the investment in the venture is highly liquid; and (6) implementation risk-
where the product already has a prototype and has marketplace acceptance.
In an exploratory study of corporate venturing success, Ellis and Taylor
(1988) examined selected Fortune 300 companies and reviewed the corporate
venturing literature to identify factors contributing to that success. A general
conclusion was that market-driven ventures are clearly more manageable than
technology-driven ventures and that attractive combinations of price and quality
relative to the competition have a major influence on venture success. Key factors
contributing to venture success include parent organization relatedness to the
venture, relative number of customers and market size, ability to make an early entry
into the marketplace, product and service quality, relative price and value provided,
and presence of an expanding growth-oriented market.
106
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Sykes (1986b) identified a set of “lessons learned” from a study of a new-
ventures program at Exxon Enterprises. These findings serve as factors that help
define a successful internal venture: (1) if internal venturing is to work effectively, it
must become part of the mainstream operation of the parent organization; (2) it is
highly unlikely to be able to preserve an independent entrepreneurial environment
within a large, multiproduct corporate setting; (3) politically and strategically,
longer-term internal research and development projects are more supportable in an
established business than in a portfolio of diversified business; (4) successful new
ventures usually focus on a single product; and (5) management experience in the
relevant industry is a significant factor in determining venture success.
In a study of internal corporate venture disappointments, McGrath (1995)
outlines an alternative to conventional approaches for assessing venture
performance. Building from a “trajectory template,” she suggests that outcomes of a
venture can be anticipated by evaluating its results in three areas: (1) market worth,
which is an indicator of the attractiveness of a venture’s products and services to the
external market and customer population of the parent organization; (2) firm worth,
where the venture is deemed to be more attractive than competing alternatives
elsewhere within the parent organization; and (3) competitive insulation, where the
venture is protected from any competitive reaction that would destroy its
distinctiveness in the marketplace.
Taking an alternative perspective, MacMillan, Block, and Subbanarasimha
(1986) identify obstacles encountered in corporate venturing. They note that
107
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
although some of these obstacles are likely to diminish with experience, others are
not. Regardless of levels of experience, managers’ inability to plan for new ventures
is a recurrent theme. Key obstacles to successful corporate venturing include: (1)
misreading the market, either through inadequate market analysis or underestimating
the competition; (2) inadequate corporate support in the form of real commitment to
internal ventures and provision of resources; (3) unrealistic corporate expectations,
including unrealistic payback criteria and lack of patience for venture results; (4)
inadequate planning resulting in poor cost estimation and lack of contingency plans;
and (5) operational difficulties, including disruptions to ongoing operations and
difficulty in maintaining quality control.
Obstacles to corporate venturing have been described by a number of observers,
including Sykes and Block (1989) and Kanter (1983). These authors conclude that
many of these obstacles arise because the mature firm's customary management
practices are inappropriate for new ventures. Two sources of corporate venturing
obstacles they identify are, first, the destructive conflict between formal needs and
policies of the established firm and the needs of new ventures, and second, the
misdirection of new ventures because of the imposition of irrelevant and often
damaging corporate management practices. Sykes and Block (1989) observe that to
innovate successfully, organizations must follow pluralistic management practices
adapted to the needs of both the new venture and the mature business.
108
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 4.5 interprets and translates venture implementation factors found in
the literature and arrays them by author source. The “fit” of each factor is described
as it would apply to a public agency.
Table 4.5 Taxonomy of Venture Outcome Factors
Im plem entation
Factors
D escription and Sources A pplicability
To Public Sector
Internal V entures
Corporate
R enewal
Sustained regeneration im plies a high level o f
internal venturing activity. M iles and C ovin
(1999)
Som e applicability for
m ission changes in
agencies
Differentiation D ifferentiation strategies are more effective than
low -cost strategies for new ventures. M iller and
Camp (1985)
Y es, agency programs
are highly specific
Risk
M anagem ent
Venture risks can be overcom e by identifying and
m anaging them. M acM illan et al. (1987)
Y es; m ust be built into a
public agency venture
Parent
R elatedness
Strong organizational ties with the parent
organization contribute to venture success. Ellis
and Taylor (1988); Sykes (1986)
Y es
Market Worth Venture success is more likely i f market worth is
clearly established. McGrath (1995)
Y es, for definable public
program constituencies
Firm Worth Success o f internal ventures is more likely if firm
worth w ithin the parent organization is
established. McGrath (1995)
Y es, depends on the
level o f internal support
for venturing
Com petitive
Insulation
Protection from com petitive reaction contributes
to venture success. McGrath (1995)
Probably not, depending
on pressures for
privatization initiatives
Planning Lack o f effective venture planning contributes to
failure. M acM illan et al. (1986)
Y es
Singular Market
Focus
Lim ited product or service line contributes to
venture failure. Sykes (1986)
Y es, applicable to single
program agencies
M anagem ent
Experience
Lack o f managem ent experience in the venture
team contributes to failure. Sykes (1986)
Y es
A set of implementation propositions derived from this review includes:
1. A strong risk management policy at the parent agency level will be positively
associated with increased feasibility of new internal ventures.
109
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
2. A well-managed agency program with established market worth is positively
associated with increased venture activity.
3. Organizations with narrow program missions are negatively associated with
new venture activity
4. Organizations with prior new venture management experience will be positively
associated with increasing feasibility of new ventures.
Corporate Venturing Models
Models have been used in the literature to explain complex phenomena in basic
and understandable terms. Groups of elements, processes, and relationships can be
more readily studied by reducing them to models that portray these aspects
systematically. In this section, a series of corporate venturing models is reviewed to
identify their construction and composition.
Miller and Friesen (1982) present two models of corporate entrepreneurship. A
conservative model is based on the premise that innovation as a stimulus for new
ventures is pursued reluctantly. An entrepreneurial model is based on the premise that
innovation activity is always pursued and will remain high regardless of market
conditions. This model is constructed from four components: (1) environmental
variables, where those variables are expected to relate positively to innovation;
(2) information processing variables, including effects of scanning techniques and
control frameworks that focus and limit information-processing activities to practical
rather than exploratory purposes; (3) structural variables, where the positive
110
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
relationships between structure and innovation are expected to be weaker in
environmental organizations; and (4) decision-making variables, where analysis,
planning, and deliberate attempts to provide the organization with better knowledge of
its opportunities may actually curb product innovation.
Homsby et al. (1993) derived an interactive model of corporate
entrepreneurship comprising a set of individual and organizational characteristics as
drivers of a precipitating entrepreneurial event. Organizational characteristics include
components such as management support, reward reinforcement, and organizational
boundaries. Individual characteristics include components such as risk-taking
propensity, autonomy, and internal locus of control. Other model components include
entrepreneurial decision making, venture resources, feasibility planning, and idea
implementation.
In another review of entrepreneurial components in the literature, Gartner
(1985) identified a component framework for describing new venture creation that
integrated four major entrepreneurship perspectives, including individual
characteristics, organizational characteristics, the venture environment, and the new
venture process. This framework lists variables for each of the four perspectives and
suggests a broad pattern of interrelationship between and among the main components.
While specific variables identified replicate most other factors identified in the literature
review of this chapter, the main contribution made by this model is its basic
organization and simplicity.
Ill
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Van de Ven and Poole (1989) produced a set of innovation factors derived from
their survey research in the Minnesota Innovation Research Program. An organized set
of factors is used to present a component model of how innovation plays a catalytic role
in new venture formation. The main components include the innovation idea, people in
the venture and their characteristics, resources, transactions, internal organizational
context, external environment, and venture outcomes.
Light (1998) compiled a set of innovation factors as they relate to nonprofit and
government organizations. These factors are grouped into categories that represent
components of a model to foster innovation in public sector organizations. Main
components include the external environment, external resources and slack, internal
structure, leadership, and management systems.
Herron and Sapienza (1992) present a new venture initiation model that
identifies relationships among values, motivations, opportunities, and venture launch to
explain how an entrepreneurial event occurs. Beginning with the premise that a single
entrepreneur who is properly motivated engages in a conscious search for an innovative
opportunity, each relational link in the model represents a proposition about new
venture formation. This model expands on the explanation of factors leading to the
initiation of new ventures offered by Gaebler in Moore (1983).
Zajac, Golden, and Shartell (1991) present a model of internal corporate joint
venture (ICJV) activity. This model describes relationships among pre-existing
conditions, ICJV formation characteristics, and ICJV operational characteristics as they
112
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
contribute to innovativeness in the organization. Positive associations are portrayed
between innovativeness and variables in each of the three model components.
In a model of predictors and financial outcomes of corporate entrepreneurship
correlates, Zahra (1991) describes relationships that influence the intensity of corporate
venturing activity. Model elements leading to corporate venturing activity include the
external environment, overall corporate strategy, and organizational factors. Outcomes
related to corporate venturing include corporate financial performance and marketplace
impacts. Associations between the model elements are suggested as they relate to
financial performance of the corporate venture.
Russell (1999) developed a process model of intrapreneurial systems using a
cognitive mapping approach. Cognitive maps comprise two parts: concepts that
function as model variables and define a characteristic of the venture process and causal
beliefs that describe relationships that link the concepts in the model. Russell’s model
portrays an intrapreneurial event including elements such as the entrepreneurial posture
(of a parent organization), autonomy, information exchange, degree of support and
participation, resource control, and project implementation.
Morris and Jones (1999) conceptualize the entrepreneurial process in a public
university. Their model is a linear and sequential set of steps outlining an internal
venture from opportunity identification through venture harvest. Elements of the model
include external sources of influence, organizational factors, resource allocation events,
and outcomes of the venture.
113
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
In a seminal study of the internal corporate venturing process, Burgelman
(1983) portrays a pattern for venture steps organized in core process and overlaying
process categories. Core processes that define the venture include product-
championing activities such as managerial monitoring, coaching, and technical and
need linking. Overlaying processes that structure and implement the venture include
organizational-championing activities such as gatekeeping, bootlegging resources,
negotiating, and managing the overall venture process. This model represents one of
the more complex explanations of the internal venturing process.
Table 4.6 summarizes the basic formats for internal venture models found in
this literature review.
Table 4.6 Summary of Venture Model Formats
Venture Model Formats
Com ponent M odels Com ponent m odels list and organize venture com ponents into
patterns. Gartner (1985); Hornsby et al. (1993); M iller and Friesen
(1982); Van de V en and P oole (1989); Light (1998)
Relationship M odels Relationship m odels identify causes and effects o f selected venture
com ponents. Zahra (1991); Herron and Sapienza (1992); Zajac et
al. (1991)
Process M odels Process m odels describe steps in the sequence o f creating a new
venture. Burgelm an (1983); M orris and Jones (1999); R ussell
(1999)
Concluding Observations
This chapter has explored the corporate venturing literature and identified
factors and relationships in a series of taxonomies that explain the workings of an
internal venture. A series of propositions are developed for each factor indicating
causal relationships with other venture factors. Three venture model formats suggest
114
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
preliminary ways that a theory can be expressed. Based on this literature review,
taxonomies of venture factors, and the model constructs, a preliminary theory is
developed in the following chapter.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 5
THEORY FORMATION
This chapter describes the approach for developing an initial theory and
framework for testing the data from a series of case studies. The chapter then examines
elements of theory development from several theory-building approaches found in the
literature and presents an approach to theory building suited to this study. A range of
theory-building perspectives portrays alternative approaches along with a sense that
discipline in “theorizing” can lead to valid theory. The level of theorizing selected for
this study is described and explained as “middle-range” theorizing. Classification and
categorization of internal corporate venture characteristics from the literature review
enable theoretical relationships and patterns to be identified. Finally, a working model
is evolved as an initial theory of internal corporate venturing.
Building Blocks of Theory Development
Reynolds (1971, 11) defines theory as either “an abstract statement
considered to be part of the body of [organizational] knowledge in either a set-of-
laws, an axiom, or a description of causal processes.” The set-of-laws form of
theory is conceived as scientific knowledge grounded in well-supported empirical
generalizations. The axiomatic form of theory is derived from mathematical
116
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
conceptions and is an interrelated set of definitions, axioms, or propositions. The
causal process form of theory is a set of descriptions of interrelated causes and
effects. Reynolds (1971) suggests that the preferred form of theory is the causal
process form because it provides a sense o f understanding and makes it easier to
describe new paradigms. It also allows for more efficient research, and enables a
more concise portrayal of organizational relationships.
According to Whetten (1989), a complete theory contains four essential
elements posed in a question format. The “what” question asks which factors
(variables, constructs, concepts) should be considered part of the explanation of
internal venture formation as a phenomenon. The “how” question addresses the
nature of relationships of those factors identified in the previous question.
Addressing this question adds to more accurate conceptualization by explicitly
delineating patterns of relationships. The “why” question addresses underlying
organizational dynamics and assumptions about factors and causal relationships.
The “who, where, when” question addresses temporal and contextual factors that set
the boundaries of generalizability and thus the applicability of the theory.
Kerlinger (1973) defines the notion of a concept: a concept “expresses an
abstraction formed by generalization from particulars” (28). In the case of
innovation and entrepreneurship in public organizations, a concept is an abstraction
formed from observation of certain actions that produce value in the public interest.
Adding meaning to a concept produces a “construct.” In this sense, an internal
venture can be seen as a construct for producing innovation and entrepreneurship in
117
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
public organizations. Such a construct could take a variety of organizational forms,
an ideal expression of which could be termed a “model.”
While the term “model” is sometimes equated to “theory,” Kaplan (1964)
makes the distinction between a theory and a model:
The model is conceived as a structure of symbols interpreted in certain ways,
and what it is a model of is the subject matter specified by the interpretation.
Relations among the symbols are presumed to exhibit corresponding relations
among the elements of the subject-matter .... In a strict sense, not all theories
are in fact models: in general, we learn something about the subject-matter
from the theory, but not by investigating properties o f the theory. The theory
states that the subject-matter has a certain structure, but the theory does not
therefore necessarily exhibit that structure in itself. (264)
Using the notion of theory-building blocks, this study seeks to identify
concepts and causal factors that are then built into theoretical explanations. Those
theoretical explanations are then constructed as a model to explain the causal
relationships of an operating internal venture. This explanation of an internal
venture, which is drawn out of experiences in the private sector, is then applied
against case study data from public agency internal venture experiences to test the
applicability of a derived public agency internal venture model.
Perspectives on Theory
In making a case for the practicality of a good theory, Van de Ven (1989)
argues that “good theory is practical precisely because it advances knowledge in a
scientific discipline, guides research toward crucial questions, and enlightens the
profession of management” (486). He further suggests that the practical value of
introducing a new theory or concept is to reconcile the inconsistencies and
118
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
contradictions between organizational theories and introduce a new understanding of
factors and relationships. This study aims to use knowledge of internal corporate
ventures in the private sector to gain a clearer understanding of internal ventures in
public agencies.
Weick (1995) offers a perspective on theory building that emphasizes the
theorizing process rather than an end product. Asserting that most of what is
presented in the organizational literature as theory actually consists of
approximations, he suggests that “most theories approximate rather than realize the
conditions necessary for a strong theory ... and most [research] products that are
labeled theories are actually approximate theory” (385). Drawing from Merton
(1967), Weick (1995) describes four forms of theory approximation:
(1) general orientations in which broad frameworks specify types of variables
to consider as elements, but stop short of specifying relationships among the
variables; (2) description, clarification, and definition of concepts, but
without explaining interrelationships between them; (3) post-factum
interpretation of research in which ad hoc hypotheses are derived from a
single observation, without exploring new or alternative observations; (4)
empirical generalization in which an isolated proposition summarizes the
relationship between two variables, but further interrelations are not
attempted. (386)
This perspective suggests that although none of these approximations by
themselves are fully developed theories, they serve as a means to further develop a
theory. The current dissertation emphasizes the process of theorizing to evolve a
theory of internal venturing grounded in the private sector; it then iteratively applies
it to case examples in the public sector to determine its “fit” and ability to explain
internal venturing phenomenon in public agencies.
119
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Schon (1983) employs a practitioner’s perspective to theory building:
By methods and theories fundamental to a practice, I mean those that some
practitioners have learned as springboards for making sense of new situations
which seem, at first glance, not to fit them. In this sense an overarching
theory and a generic method of inquiry which is inseparable from it are used
to restructure a situation so that, eventually, one can say that the theory fits
the situation. (317-318)
He suggests that research on fundamental theories and methods may be of two kinds.
In one approach, researchers discover a theoretical framework using a methodology
(such as process flow models) and restructure a phenomenon to fit the theory with
the situation. In a second approach, research on fundamental theories would focus
on situations of uniqueness, uncertainty, and instability that are aberrations from
conventional theory and would develop themes around which practitioners could
construct theories of their own. This practitioner’s perspective has applicability for
understanding a theory of venture formation, since ventures are formed primarily by
entrepreneurs acting as practitioners who typically create their own (theoretical)
understanding of the venture context they operate in.
Another perspective offered by DiMaggio (1995) outlines three views of
what constitutes a valid theory. These three views address Whetten’s (1989) “what,
why and how” theory-building blocks. One view suggests that theories should
consist of “covering laws,” or a set of generalizations that describe the world as we
see it—the “what” theory-building block. A second view characterizes theory as
“enlightenment,” whereby theory goes beyond widely known generalizations to
articulate creative and relevant insights—the “why” theory-building block. A third
view emphasizes theory as narrative, expressing theory as an account of
120
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
organizational process with an application of empirical data to test the plausibility of
the narrative—the “how” theory-building block. The current dissertation focuses on
the latter two views as it explains the internal venturing process and shows how that
process operates in public agencies.
Approach to Middle-Range Theorizing
As Weick (1995) notes above, theorizing can be more useful than an end-
product theory. In that vein, Bourgeois (1979) reinforces the value of theorizing in
his portrayal of a “middle-range” approach. He suggests that seven steps are
involved in building theories in the middle-range. They include: (1) partitioning the
topic under investigation; (2) selecting a method of theory construction; (3)
reviewing the literature relevant to the topic under investigation; (4) constructing a
preliminary theory, induced from an empirical base; (5) extending the theory
deduced in the form of propositions; (6) exercising metaphysical elaboration; and (7)
drawing a conclusion about the theory.
While this approach implies a process in sequence, steps 3, 4, and 5 occur
concurrently rather than sequentially. Step 6, metaphysical elaboration, serves as a
target for the researcher’s intuitions that surface during theory building. Weick
(1995) states that these intuitions consist of
conceptualizations that might not fit the categories delineated or forced by the
imposed rigor of general theory building .... It could be the theory builder’s
chapter for philosophizing, for expressing ideas and deductions that cannot,
because of their speculative and perhaps un-testable nature, be properly
subjected to the rigor of analysis that middle-range theory building requires.
121
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
It would be the “wisdom” of the theoretician, expressed in more discursive
form. (445)
The current dissertation follows the middle-range theorizing approach with
several variations. First, while this study pursues concurrent steps to explore
relationships and links between existing theory descriptions in the literature and data
from case study examples, it also employs iterative triangulation to express a
preliminary theory of internal venturing in public agencies before adding creative
theoretical insights. Rather than reaching closure on the theory at this point, the
study finds relationship patterns in this preliminary theory that set the format for
examining case study data sources. Second, where the Bourgeois approach reaches a
conclusion after a single iteration, the current dissertation tests a preliminary theory
against additional case study data to further refine the theory.
Tasks of Theory Building
Within the framework of this study’s methodology, the goal is building and
testing a theory of internal venturing in public agencies. While the study’s
methodology addresses the broad steps toward that goal, tasks specific in theory
construction are described here. Hage (1972) outlines six broad tasks, including: (1)
translating general variables into a theoretical concept; (2) expressing a theoretical
statement; (3) specifying theoretical and operational definitions; (4) specifying
theoretical and operational linkages (5) ordering concepts and definitions into a
pattern; and (6) ordering theoretical statements and linkages. This traditional social
122
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
science approach is a linear sequence, with each step building on the previous one. It
suggests no iteration of steps or triangulation of data sources.
Christensen, Carlile, and Sundahl (2002) outline a process of theory building
based on his research in the field of innovation. Beginning with observed and
measured phenomena, data are categorized within a framework and an initial theory
is stated. This initial theory is tested in a deductive process against other sources of
observed data through the lens of other disciplines. The results of that deductive
process are interpreted and intuitively compared with the initial theory statement to
confirm, refine, or adjust the initial theory. This approach is iterative, and
Christensen, Carlile, and Sundahl suggest that “there are two sides to every lap
around the theory-building track: a deductive side and an inductive side” (6). Their
approach also triangulates observed data with initial and refined theoretical
statements.
Reynolds (1971) outlines a “theory-then-research” approach, whereby
theories are initially invented and then tested by empirical research: (1) develop an
explicit theory either in axiomatic or process description form; (2) select a statement
generated by the theory for comparison with the results of empirical research; (3)
design a research project to “test” the chosen statement’s correspondence with
empirical research; (4) if the statement derived from the theory does not correspond
with the research results, make appropriate changes in the theory or the research
design and continue with the research (returning to step 2); and (5) if the statement
from the theory corresponds with the results of the research, select further statements
123
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
for testing or attempt to determine the limitations of the theory. The current
dissertation approach is iterative in its cycling of comparisons of theory statements
with results of case study research. It also triangulates theory with several data
sources to test the theory.
Table 5.1 summarizes theory-building tasks described in this section. A
range of theory-building tasks is illustrated against the individual steps employed by
key researchers and the researcher in this study. This study employs a full spectrum
of tasks in the development of a theory for internal ventures in public agencies.
Internal Venture Theoretical Relationships
Antecedent factors include influences on a venture that precede its initiation
or start-up. As such, the antecedent factors are the first things to consider in a
theoretical understanding of an internal venture. Antecedent factors occur in two
types: within the venture organization and outside the venture organization. Internal
factors affecting venture performance include rewards or incentives and the range of
program or service offerings of the parent organization. External factors include all
others identified in table 4.1. These external antecedents influence both the internal
venture unit and its parent organization. All antecedents are unidirectional in their
effect on the venture organization, that is, they are sources of influence on the
venture rather than being influenced by the venture.
124
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 5.1 Theory-Building Tasks Applied to This Study
Tasks
Researchers and Their Theory-Building Approaches
R eynolds
(1971)
Hage
(1972)
Bourgeois
(1979)
C hristensen
(2002)
M ierzw a
(2003)
Identify a
theory gap
D escribe and
measure
phenom ena
Identify need
for theoretical
explanation
Provide a
structure for
investigation
Partition the
topic under
study
Categorize
data w ithin a
fram ework
Create ICV
framework
C hoose a
m ethodology
Select
m ethod o f
theory
construction
Em ploy
grounded
theory
Explore the
literature
R eview o f
literature
R eview ICV
literature
Identify
theoretical
relationships
D evelop an
explicit
theory
Translate
variables into
a theoretical
concept
Construct
theory from
an empirical
base
State an
initial theory
State
theoretical
relationships in
IC Vs
Construct a
w orking m odel
o f theoretical
relationships
Compare
theoretical
statement
w ith research
Express a
theoretical
statement
Create w orking
m odel o f ICVs
Test the theory
against
empirical data
Test theory
statem ent w /
em pirical
research
Test theory
deductively
against other
data
Test ICV
m odel against
Franchise Fund
cases
Compare and
triangulate
other case
findings
against m odel
Specify
theoretical
and
operational
definitions
Interpret and
compare
w ith initial
theory
C ross-case
analysis against
w orking m odel
Form
theoretical
statements
Specify
linkages
Extend
theory to
propositions
State
theoretical
propositions
Creative
insights and
interpretation
o f theory
R efine theory
as needed
Order
concepts and
definitions
into patterns
M etaphysical
elaboration
Confirm
theory w ith
inductive
process
D evelopm ent
o f insights and
disciplined
im agination
D evelop
conclusions
Order
theoretical
statements
and linkages
Draw
theoretical
conclusions
C onclude as
a theory or
construct
Re-state
w orking m odel
as an ICV
theory
Identify need
for further
research
Determ ine
lim its o f
theory
Suggest further
research
125
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Process factors imply an ordered sequence in the internal venture activity.
These factors define the venture’s status as it evolves through its development cycle.
Process factors can be divided into either venture process steps or characteristics of
the steps themselves. For theoretical purposes in this study, the internal venturing
process will include all steps described in Table 4.2. Ideally, their relationships to
one another are sequential, although in reality venture process steps are sometimes
omitted or accomplished simultaneously.
Structural factors comprise the organizational set for internal venture activity.
These factors define how venturing is organized. Three types of factors are
considered in this theoretical view: the venture structure itself, structural
relationships between the internal venture unit and its parent organization, and
venture behavior within the venture organization. Venture structure factors define
the venture’s organization. Venture relational factors define its relationship with the
parent organization. Venture behavior factors define roles and championing activity.
Strategy factors include organizational-level actions of the venture unit and
parent organization. They can be divided into internal strategies and external
strategies. Internal strategies relate to influences on the operation and performance
of the venture unit itself. External strategies relate to effects the venture unit has on
its marketplace or constituency outside of the parent organization. It is also
recognized that some venture units serve internal markets and constituencies.
Competitor reactivity and market familiarity are factors influenced by the venture
itself, whereas political, social, or regulatory influences are external forces.
126
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Implementation factors are the results of venture activity. They include
influences by the venture and influences on the venture. Risk management, parent
relatedness, firm worth, and planning and management experience are all factors
within the control of venture management. They affect the venture’s performance
and ultimately its results. Factors having an influence on the venture’s results, but
not under the control of venture management, include differentiation, market worth,
and competitive insulation. These factors, taken together, comprise an initial
construct of an internal venture model described below.
A Working Model of Internal Ventures
Figure 5.1 below suggests that a venture organization’s external environment
and its parent organization influence the internal venturing process. Venture roles
and parent organizational roles indicate their relationship to the venture process.
This working model of internal venturing is an initial construction of factors
and functional relationships derived from variables identified in the literature review.
For purposes of this study, it is a tool to test the fit of case studies to its patterns. As
such, it is inclusive and portrays a full range of factors and relationships in a format
that can represent venture components, venture process, and venture relationships.
From a component perspective, model components of external influence
include environmental opportunities and constraints on the formation of the venture
and mission and operational mode influences of the parent organization. A second
primary component is the venture itself portrayed as a simple life cycle that starts
127
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 5.1 Working Model of Internal Venturing
Screening
Funding
Scanning
Function
Reward
System
Venture
Proposal
Opportunity
R ecognition
R ole
D efinition
C ham pioning
Firm
Worth
M anage
Risk
Control &
External
Strategy
Venture
D esign &
Location
Market
Worth
Firm
W orth
Parent Organization
Antecedent Influences
External Environmental
Antecedent Influences
Venture Concept
Public Value
Produced
Venture Feasibility
Venture Results
Venture Structuring
Venture Performance
128
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
with a venture concept and concludes with a venture result. Each stage of the
venture has sub-elements that are requirements for its formation and operation.
Subcomponents on the left side of the figure comprise venture management
requirements essential to the operation of the venture, while subcomponents on the
right side of the figure comprise parent-organization requirements for overseeing the
venture. A third component represents the consequences of venture results in the
form of value produced both within the parent organization and for the venture’s
external customers.
From a process perspective, the model represents a core set of sequential
steps that lead the venture from its initial concept through its consequences. Each
step has factors that influence it. From within the venture, the elements on the left
side of the figure represent sources of internal management. Outside the venture, the
elements on the right side of the figure represent sources of management and control
by the parent organization.
From a relationship perspective, the model represents a series of cause and
effect relationships that shape the venture’s operation and ultimate success. The
directional arrows in the figure indicate relationships captured from the set of
propositions developed from the literature review. Relationships of model elements
on the left side of the figure represent the venture management’s influence internally.
Relationships of model elements on the right side of the figure represent the
influence of the parent organization on the venture’s operation.
129
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The purpose of this model is to offer a framework for identifying component
patterns, process patterns, and relationship patterns in the case study phase of this
research. The broad portrayal of venture factors should allow the case study results
to better inform the theory-building effort of this study.
130
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 6
CASE STUDIES
Case Study Approach
The purpose of these case studies is to provide data and an experiential base
to compare internal ventures as they occur in federal government agencies with the
internal corporate venturing approaches practiced in the private sector. The ultimate
purpose of analyzing and comparing these cases to one another and to experiences in
the private sector is to provide a basis for generalizing the case experiences to
theoretical propositions that can be applied to a model for internal venturing in
public agencies.
The cases selected include six franchise fund pilots sponsored by the
Government Management Reform Act (GMRA) of 1994 and six cases of internal
federal agency ventures not specifically supported by GMRA. The franchise fund
cases include studies of the departments of Treasury, Commerce, Health and Human
Services, Interior, Veterans Affairs, and the Environmental Protection Agency.
Other internal agency ventures studied include the GovWorks venture of the
Minerals Management Service, the Defense Reutilization Marketing Service, Forest
Service Enterprise Units, the Department of Agriculture’s National Finance Center, a
131
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Proposal Review Service venture in the National Institute of Standards and
Technology, and the In-Q-Tel venture sponsored by the Central Intelligence Agency.
The analytical approach employed for these case studies is drawn from a
synthesis of the literature review. Each case is analyzed in a consistent pattern to
include the following elements:
• Antecedents of the venture, including its external environment and
organizational context.
• Process of the venture, including the venture concept, its feasibility
determination, and its process sequence.
• Structure of the venture, including its organizational patterns, organizational
design, and location with regard to its parent.
• Strategy of the venture, including its performance, leadership, and
sustainability.
• Implementation or outcomes of the venture, including patterns of its value
and worth.
These characteristics are then compared for each case with characteristics of internal
corporate ventures from the private sector. Conclusions are drawn about similarities
and differences between franchise fund pilots, independent federal agency ventures
and internal venturing approaches in the private sector. These conclusions contribute
to testing the fit of a corporate venturing approach for a federal agency venture as
discussed in the following chapter.
132
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Background on Franchise Funds
The concept of franchise funds was initially developed as part of the Clinton-
Gore Administration’s National Performance Review (NPR) in 1993. As an
experiment in the business of government, a Franchise Fund pilot program was
subsequently authorized by Section 403 (f) of Public Law 103-356, the GMRA.
Franchise funds were created in six federal agencies to promote efficiency by
consolidating repetitive administrative support functions, reducing administrative
support costs, enhancing financial management practices, and expanding public-
public and public-private competition for the delivery of such services. These pilot
funds have operated since 1996 under a set of 12 business-operating principles (see
Appendix A). In a private sector marketplace manner, these franchise funds were
expected to provide services on a fully reimbursable basis and recover the full cost of
those services from their customers. Evolution of franchise practices from their
origination during the Clinton Administration to the Bush administration are
considered in this study. The following six case studies examine how these franchise
funds operated as internal ventures within their parent agencies during the period
from their creation through 2002.
133
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Department of the Treasury
Introduction
The Treasury Franchise Fund began its first full year of operation in fiscal
year 1997. Its mission is consistent with other federal franchise funds and is outlined
below:
The Treasury Franchise Fund is an entrepreneurial governmental enterprise
established to provide to other components within Treasury and/or to outside
agencies, common administrative support services, on a competitive and fully
cost-reimbursable basis. The Fund operates in a businesslike manner by
creating and maintaining a business relationship and environment that
promotes customer participation and satisfaction through delivery of quality
performance, teamwork, and continuous improvement, both in service
delivery and economic benefit. (U.S. Department of the Treasury 2003)
The Fund started operations with five business units: the Center for Applied
Financial Management and four Consolidated Administrative Service Units located
in four regional U.S. cities. In 2002, the Fund operated as a “holding company” for
business units including Treasury Agency Services, which provides financial
management services; the Federal Consulting Group, which provides a range of
management consulting services; and the Administrative Resource Center, which
provides a broad range of administrative support services ranging from human
resources to facility management. Franchise units currently labeled “FedSource”
(which have subsumed the department’s original franchises, the Cooperative
Administrative Service Units) now operate in nine regional U.S. cities.
134
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
External Environment
The Fund’s external environment embraces market opportunities not only
within Treasury but also in other federal agencies. According to Callahan (2002),
these units doubled their external customers and grew their franchise revenue from
$38 million to $165 million over the period from 1998-2002. This growth is
evidence of both an expanse of federal government presence that has facilitated
relatively easy market entry for Treasury Fund franchises and a level of market
diversity that has encouraged the creation of a fairly wide range of franchise service
offerings. The requirement by all federal agencies for financial management
services, coupled with the core competence on financial management at Treasury,
has contributed significantly to Treasury franchise growth. Potential sources of
competition to Treasury franchises constantly emerge, although the strong position it
currently holds is likely to fend off new entrants into the service marketplace it now
occupies.
Organizational Context
The overall financial management mission of Treasury reinforces the
financial management offerings of many of its franchise units. The business
objectives embedded in franchise fund legislation are aligned with the Treasury
mission as well. These two reinforcing factors contribute to the presence of financial
management competence and support for the franchise concept at Treasury.
In the historical development of franchise funds, Treasury has provided a
climate of support for innovative financial management practices. Innovators like
135
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
former Treasury official, Michael Serlin, and others at the department have provided
leadership for the franchise movement with tacit support of top managers. While the
Fund’s management is determined to have all its units operate on a self-sustaining
basis, it does not impose a rigid organizational hierarchy or regulations for how they
achieve that status (Author’s interview with Michael Serlin, April 26, 1996).
Given the range and variety of service offerings (see Table 6.1 below),
Treasury has organized the various franchises in a “holding-company” format in
which each can operate independently but is accountable to a central franchise
manager. This holding company arrangement provides enough flexibility for the
franchises to be entrepreneurial to seek new business that suits their interests and
capabilities.
Venture Approach
The trigger for franchising concepts at Treasury originated with innovative
initiatives that were part of NPR process improvements. The Fund’s approach to
considering new franchise ventures is quite open. Evidence of this entrepreneurial
receptivity is the duplication of service offerings by each of the franchise units.
Table 6.1 outlines the range of Treasury franchise service offerings.
136
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.1 Service Offerings of the Treasury Franchise Funds
Franchise Unit Services Offered
“FedSource”
Franchise Units
D ocum ent automation; Human resource services; Project support;
IT equipm ent and projects; M anagem ent advisory services;
E m ployee assistance; Financial m anagem ent and auditing services;
Public relations, Outreach and m edia services; Professional security
and facility m anagem ent services
Treasury Agency
Services
Professional developm ent and training; A ccounting operations;
Financial managem ent consulting; Financial system s consulting
Federal Consulting
Group
M anagem ent consulting; Facilitation; E xecutive coaching; Team
building; Strategic planning
Administrative
Resource Center
A ccounting; Budget execution services; EEO staffing; Facility
management; Graphics; Human resources; M anagem ent reviews;
Procurement; Security; Travel management; W eb and system s
developm ent
Source: Treasury Franchise W eb Sites 2003.
Feasibility
Detailed risk assessment studies are conducted to determine the feasibility of
forming new franchise units at Treasury. Broad input from a variety of Treasury
officials has helped establish criteria for the creation of any new franchise: the new
venture must not require a subsidy for its operating costs; total cost accounting for all
services will be provided; quarterly financial statements are required; an annual
financial audit will be performed; and benchmarks for quality of service must be
met.
Process
Within Treasury, the initiative for forming a franchise fund is placed with the
operating managers. Managers must make a case for the viability of the franchise
fund to the Fund’s board and chief financial officer. Once screened and evaluated
for its feasibility, the franchise is given approval to operate on an entrepreneurial
137
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
basis and market its services within Treasury and to other federal agencies. New
franchise ventures are reviewed and audited regularly by the Fund’s Board. Should
any franchise not meet its cost-reimbursable objective, it would be closed down and
its remaining commitments picked up by other franchise units in Treasury or
franchise funds from other federal agencies. In the spirit of “let a thousand flowers
bloom,” the Fund has allowed the creation of franchises that offer duplicate services
with the expectation that this duplication will foster competition and improve quality
of service.
Structure
Franchise Fund management operates as a functional unit within the Treasury
Department. It is a holding company for a variety of fee-for-service units that
previously operated as support units to major organizations in Treasury but now
offer their services on an entrepreneurial basis. These individual franchise funds
operate independently and entrepreneurially but are accountable to the Fund’s board,
which is made up of key Treasury managers and employees.
Strategy and Performance
Franchise customers have the freedom of choice to make their purchase
decisions based on quality, price, and level of value that suits their needs at the time
of purchase. Since the use of a franchise service by any customer is strictly
voluntary, each franchise must convince agency customers that its services are both
necessary and cost effective.
138
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Venture Outcomes
Key outcomes of Treasury franchise ventures have been a reduction of
duplicate efforts, increased competition, and improved service quality. According to
the Department of the Treasury Franchise Fund Accountability and Annual Report
(2002):
The Treasury Franchising effort has achieved efficiencies and generated
value internally to the Treasury, externally to other agencies, and to the
government as a whole. This is demonstrated by reducing or eliminating
duplicative/redundant services, implementing best practices, reducing costs
of services, implementing performance measures and benchmarking, and
focusing on customer service. (9)
Specific outcomes include:
• A reduction in the number of service providers through integrated contract
and financial management by the Administrative Resource Center unit.
• Increased penetration of Treasury franchises in other federal agencies.
Callahan (2002) found that at the end of FY 2002, these franchises had
agreements with over 2,100 customers, 90 percent of whom were external to
Treasury.
• Customer satisfaction received an 80 percent approval rating.
Summary
Table 6.2 summarizes the presence of internal corporate venturing
characteristics in Treasury franchises.
139
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.2 Internal Venture Characteristics of Treasury Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In Treasury Franchises
Antecedents
M arket interpretation Lim ited effort to define market.
Environmental trend tracking N o trend tracking sp ecifically
evident.
Venture
Approach
Opportunity recognition Opportunities primarily presented to
the franchise rather than sought out.
Exception is the Federal C onsulting
Group w hich seeks opportunities
aggressively.
Opportunity screening N o specific screening process
evident;
Feasibility
B usiness case presented B usiness cases not required;
Venture funding provided W orking capital funds allow ed only
after approval o f franchise proposal.
Organization
Venture unit defined and located Except for Federal Consulting Group,
franchise units are synonym ous with
existing Treasury organizational
units.
Venture role definition E xcept for Federal C onsulting Group,
franchise roles are synonym ous with
existing Treasury organizational
units.
Strategy
Venture parent support Strong support evident from parent.
C ham pioning behavior N o evidence o f cham pioning
behavior; traditional em ployee roles
m ostly evident.
R isk m anagem ent M anagem ent o f staff and resources to
control risk for the franchise’s self-
sufficiency.
Venture
Outcomes
Profitability/cost savings Goal o f cost-reim bursable operation
met.
Firm worth/internal value N o apparent increase for franchises.
Market worth/external value Services provided by franchises
produce value for customers.
140
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Department of Commerce
Introduction
As one of the original pilot funds, the Department of Commerce had two
basic franchises in 2002: Administrative Service Centers and its Office of Computer
Services. Administrative Service Centers are housed in one of Commerce’s largest
operating agencies, the National Oceanic and Atmospheric Administration (NOAA),
and they are located in four regions: in Norfolk, Virginia (eastern), in Kansas City,
Missouri (central), in Boulder, Colorado (mountain), and in Seattle, Washington
(western). The Office of Computing Services is headquartered in the Washington,
D.C. area, collocated with the National Technical Information Service under the
administrative jurisdiction of Commerce’s Office of Financial Management. These
franchise units have their own mission statements and are generally aligned with the
departmental mission as it relates to the department’s role as one of the franchise
fund pilots.
Commerce has a history of responding to budgetary initiatives for reducing
administrative positions. According to its franchise proposal, U.S. Department of
Commerce (1998a, 1998b), it had reduced administrative positions by 25 percent
since the 1980s. Building from these earlier initiatives, the format for
Administrative Service Centers evolved in 2002 to provide administrative services to
various field units of Commerce. The Office of Computer Services OCS was
originally established to provide computer services for the Office of the Secretary
and later merged with a separate Commerce agency, the National Technical
141
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Information Service (U.S. Department of Commerce, 1998c). The Office of
Computer Services operates a nationwide telecommunications network connecting
organizational units of Commerce and other federal agency computer facilities.
External Environment
Administrative Service Centers primarily serve other agency units within
Commerce with administrative support services. The Office of Computer Services
supports a nationwide market environment within the department, while also serving
other agencies like Treasury and the General Services Administration for specific
computer support needs. Given the nature of Commerce’s franchise services and
their fairly homogeneous market environment, potential competition from other
franchises outside of Commerce appears to be significant. Competition for support
services within units in Commerce is not perceived as intense, due to franchise
familiarity with departmental processes and needs. While the Administrative service
Centers maintain a competitive edge within the departmental family, no data are
available to indicate their market impact as an administrative service provider
externally for other federal agencies nationwide.
Organizational Context
The entrepreneurial climate within the department is difficult to gauge,
despite its broad mission to develop business and economic activity for the nation.
Most of the department’s entrepreneurial focus is external, designed to facilitate new
business and trade. There is not a culture of entrepreneurship, per se, but rather a
culture of functional bureaucracy focused on achieving a broader business
142
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
development mission for the nation as a whole. The department’s franchise activities
are managed by individual units (U.S. Department of Commerce, 1998b).
Each franchise is accountable for its performance to a franchise fund board
composed of two franchise managers and the chief financial officer of NOAA.
According to its charter, this board has the following responsibilities:
• Serve as the point of coordination for financial matters that relate to franchise
fund management.
• Review and make recommendations on applications for the establishment of
additional business activities to the franchise fund.
• Provide oversight and review financial statements, annual budgets and
financial plans, balance sheets, and profit and loss statements by franchise
activities.
• Provide advice on new product lines, pricing strategies, and marketing
techniques with franchise managers.
The structure of Commerce as a parent organization to the franchise activities is not
hierarchical but rather one that enables the individual franchise activities to pursue
entrepreneurial opportunities that they see for themselves. Thus, the department’s
entrepreneurial context is one that allows franchising but does not necessarily build
capacity to grow it.
Venture Approach
The driving force for establishing franchises within Commerce has been the
GMRA legislation and the designation of the department as one of the pilot funds.
143
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
While some initiatives for managerial efficiency and improvement have been
adopted over the years, no major effort had been made to pursue internal
entrepreneurial ventures before the establishment of the pilots. The department’s
franchise service offerings are primarily focused on administrative support services
and are outlined in Table 6.3.
Table 6.3 Service Offerings of Commerce Franchise Funds
Franchise Unit Services Offered
Eastern Administrative
Service Center
A cquisition m anagem ent services; A lternative dispute resolution;
Engineering; Environmental com pliance; Recruitm ent training;
M anagem ent o f COTR programs; Occupational safety and health;
PCS services and training; Purchase card administration;
Retirem ent training; Shipm ent o f freight and household goods;
Small purchase training
Central Administrative
Service Center
A cquisitions m anagem ent services; Facilities and logistics
m anagem ent services; Financial management; Information
technology system s; Purchase card administration; L ogistics
support
Mountain
Administrative Service
Center
A ccounting; B enefits management; B uilding management;
Engineering services; Library services; Personal property
management; Procurement services; R eal estate services; Shipping
and receiving; Supplies purchasing; Travel m anagem ent
Western
Administrative Service
Center
A cquisition m anagem ent services; Financial m anagem ent services;
Facilities m anagem ent services; Information technology services
OCS Information
Management Systems
Administration
Financial m anagem ent information system s; Procurement
information systems; Personnel information system s;
Adm inistrative services information system s; B ulletin board
services
OCS Information
System Design
N etw ork planning and design; C lient/Server transition; Distributed
com puting environments; Technical consulting; Integrated system
analysis and design; D isaster recovery and contingency planning
OCS Data Processing
Services
A ccounting; Budget execution services; EEO staffing; Facility
management; Graphics; Human resources; M anagem ent reviews;
Procurement; Security; Travel management; W eb and system s
D evelopm ent
Source: A C S W eb Sites (2003) and OCS Franchise Proposal 1998.
The franchising venture concepts originated from GRMA legislative
directives. The opportunities pursued were less the result of recognition or deliberate
144
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
scanning on the part of the department than as the logical pursuit of administrative
service consolidation. As such, the venture concepts for franchising in Commerce
were primarily responses to a legislative mandate.
Feasibility
The Franchise Fund Board of Commerce serves as the screening vehicle for
new franchise ideas in the department. While no specific criteria are mentioned for
screening a new franchise proposal, the 12 business operation principles for
franchise fund pilots would serve as new venture feasibility criteria (U.S.
Department of Commerce, 1998a). In most cases, franchises are allowed one year to
test their ability to sustain themselves. After their initial year of operation, if they do
not demonstrate an ability to be reimbursable, they are closed down.
Process
Within Commerce, new franchise initiatives occur at the operating level in
Administrative Service Center regions or within the Office of Computer Services.
Once presented to and approved by the Franchise Fund Board, new franchises may
operate and market their services. Should any new (or existing) franchise unit fail to
be cost-reimbursable, it will be closed down, and its remaining commitments will be
assumed by other franchise units, either within the department, or elsewhere.
Structure
While there has been some evolution in the pattern of franchise units at
Commerce, they have largely remained the same as when they were initiated in
1997. Franchise units that offer administrative support services are distributed
145
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
nationally throughout four regions under NOAA. Office of Computer Services
franchise activities are focused at national agency levels from a Washington, D.C.
base.
All Commerce franchise organizations appear to be structurally integrated
with the parent organization while their activities focus on a relatively narrow
spectrum of administrative support services. Definition of roles for franchises in
Commerce follows very traditional civil service patterns. No apparent efforts are
made to distinguish franchise roles from roles that existed before establishment of
the franchise units.
A working capital fund to support the franchises is managed by the
department’s deputy chief financial officer. According to the department’s franchise
proposal (U.S. Department of Commerce, 1998a), the deputy CFO establishes
productivity and performance measures for franchise activities while individual
franchise managers are responsible for managing their own franchise and ensuring its
self-sufficiency.
Strategy and Performance
Administrative Service Centers have a two-tier marketing strategy: one tier is
focused on customers at national headquarters and the other is focused on customers
in the regions. Each Center develops its own customized regional marketing plan to
accommodate unique needs, capabilities, and competition in a given region. It is
expected that the greatest opportunities to sell administrative support services will be
to organizations under pressure to downsize or to newly-created organizations that
146
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
do not have an administrative support staff in place. Computer service marketing
efforts are more basic and rely on success stories, brochures, and tours of computer
facilities as marketing tools.
There are several impediments to Center franchises’ becoming fully
operational. According to NOAA’s franchise proposal (U.S. Department of
Commerce, 1998b), a lack of delegated authority and funding to other than
departmental or major operating unit levels may preclude potential customers at
some lower organizational level from “comparison shopping” to acquire
administrative support services from the centers. Another impediment is the FTE
staffing ceilings that limit the ability of a franchise to respond to a successful
marketing strategy. NOAA and other agencies in Commerce depend on flexible
staffing mechanisms to support the dynamic staffing needs of a franchise effectively.
Venture Outcomes
One basic outcome of Commerce franchises has been a reduction of duplicate
efforts in regional administrative support services. These units serve both internal
customers at Commerce and other federal agencies located in close geographic
proximity to regional offices. No specific annual report was available to indicate the
current status of the Office of Computer Services franchise.
Summary
Table 6.4 summarizes the presence of internal corporate venturing
characteristics in Commerce franchises.
147
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.4 Internal Venture Characteristics of Commerce Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In Commerce Franchises
Antecedents
M arket interpretation N o evidence o f market analysis.
Environmental trend tracking N o evidence o f trend tracking.
Venture
Approach
Opportunity recognition Opportunities sought primarily within
the department.
Opportunity screening Fund board acts as screening vehicle.
Feasibility
B usiness case presented Proposals presented to Fund board.
Venture funding provided W orking capital funds provided.
Organization
V enture unit defined and located Franchise units defined regionally
(A C S) and functionally (O CS).
Venture role definition N ot significantly different from
existing roles in the department unit.
Strategy
Venture parent support N ot a sense o f entrepreneurial climate
for support o f new franchises.
C ham pioning behavior N o evident cham pioning behavior.
R isk m anagem ent M inim al risks pursued.
Venture
Outcomes
Profitability/cost savings C ost-reim bursable goals met;
Firm worth/internal value N o apparent increase for franchises.
Market worth/external value Services provided by franchises
produce value for customers.
Department of Health and Human Services
Introduction
The last franchise fund pilot to be established by GMRA was in the
Department of Health and Human Services (HHS). In testimony before Congress
(U.S. Department of Health and Human Services, 2003a), the department proposed
the Federal Occupational Health (FOH) unit as
an excellent candidate for franchising because it has been in head-to-head
competition with the private sector for some time and is a leader in federal
cross-servicing with interagency agreements involving over 160 federal
departments and agencies with projected annual expenditures and
148
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
reimbursements of $100 million in FY 1996. FOH has been successful in
retaining 97 percent of its customer base over the most recent four-year
period (1992-1996).
At that time, the department designated FOH as its pilot franchise, rather than
its Program Support Center (PSC). The reasoning behind this choice was that the
FOH was a more focused operation and could be more readily managed as a pilot to
demonstrate the feasibility of franchises in the department. Since then, the PSC
enterprise has become more robust, and a recent reorganization has placed the FOH
under its broad jurisdiction. This case study examines both the FOH and the PSC as
franchise units within the department.
External Environment
Callahan (2002) observes that PSC and FOH each have unique customer
segments and operate in different external environments. PSC provides
administrative and logistical support within the department and to other federal
departments and independent agencies. PSC’s external market environment is
heterogeneous and has a significant degree of competition as a result of numerous
other franchise activities vying for administrative support services business. FOH,
though, operates in an external environment where numerous customers are
prospects for FOH services because they are not offered by competing franchise
units.
Organizational Context
Currently, the FOH and PSC franchise units pursue their customer markets
independently. While both franchises are “children” of the parent organization, FOH
149
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
is now under the organizational jurisdiction of the director of the PSC. FOH is one
of four franchise units, including Administrative Operations Service, Financial
Management Service, and Human Resources Service. All franchise units in the
department are accountable to the chief financial officer for their financial
performance.
Venture Approach
Much of the initiative for establishing franchises in the department came
from previous experience in cross-service agreements for providing fees for services.
Previous success with these agreements provided the basis for selecting and offering
the current range of franchise services, outlined in table 6.5 below.
Table 6.5 Service Offerings of HHS Franchise Funds
Franchise Unit Services Offered
Administrative
Operations Service
Travel management; A cquisitions; B uilding managem ent; Printing
services; M edia arts; Property management; Telecom m unications;
Internet services; PC support services
Financial Management
Service
Paym ent management; Grants management; A ccounting services;
D ebt managem ent
Federal Occupational
Health
Em ployee assistance programs; Environmental reference
laboratories; Health and m edical services; Training and education;
W ellness/Fitness; D isability management; Environm ental health;
Ergonomics; M edical surveillance; Sm oking cessation; C linical
services
Human Resource
Service
C ivilian personnel and payroll System s; C om m issioned personnel
and payroll system s; Enterprise human resources and payroll;
Source: H H S - PSC Franchise W eb Sites 2003.
Feasibility
According to the PSC strategic plan (U.S. Department of Health and Human
Services, 2003b), the department will continue to explore franchising opportunities.
150
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Having folded in the original pilot fund, the FOH unit, the department expects to
focus on providing administrative services that are currently offered and that are
competitive and receptive to customer needs. New franchise proposals would be
evaluated based on their “fit” within the PSC format. If accepted, they would not be
expected to require start-up funding and would be expected to be cost-reimbursable
for their first year of operation. Currently, no new franchise units are proposed.
Process
The FOH franchise continues to operate in the manner it did before becoming
a franchise pilot. For this unit, the primary change was its status as a franchise pilot.
According to Callahan (2002),
The history of the FOH suggests that it has become attuned to changing
customer service needs and, therefore, has been able to expand and diversify
its services over time. It has noted a gradual shift from basic occupational
health services to other specialized clinical, environmental, and employee
assistance programs. (18)
From a venture process perspective, FOH started with a set of mandated programs
and expanded them in a way that took advantage of its core competencies and its
ability to foster cross-service agreements with the broad array of agencies it was
mandated to serve.
While PSC has provided administrative support services for many years, it
has taken on the mantle of a franchise only recently. It now expects to operate like
other franchises on a cost-reimbursable basis with regular reporting to a departmental
franchise board. One difference between PSC and FOH is that PSC seems intent on
151
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
operating with a more strategic businesslike process with a formal business plan and
marketing strategy
Structure
The FOH is a geographically dispersed service provider with 210 permanent
clinical locations, 290 counseling service centers, and 52 wellness/fitness centers
operating throughout the U.S. FOH has retained its current operating structure and
service locations.
PSC franchise units are located at the department’s headquarters in
Washington, D.C., and in each of the 10 federal regional cities across the U.S. Given
the recent strategic emphasis on marketing PSC services, this franchise unit is likely
to become a stronger competitor with other federal franchise units in federal regions.
Strategy and Performance
According to the PSC strategic plan (U.S. Department of Health and Human
Services 2003b), PSC franchise units expect to focus on the following performance
measures: (1) improving PSC services while controlling costs; (2) maximizing
opportunities to improve customer satisfaction levels; (3) improving PSC financial
performance while assuring budget and performance integration; (4) optimizing e-
govemment opportunities; and (5) managing human capital strategically.
FOH fits broadly under the strategic domain of the department, and more
directly under the Public Health Service. Its market focus parallels that of the PSC
franchises. Whereas the PSC seeks to provide administrative support services to a
152
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
spectrum of federal agencies, FOH provides a broad array of occupational health
services to a full spectrum of federal customers.
Venture Outcomes
Callahan (2002) notes that FOH’s success as a franchise is the result of
several factors. Fiscally, FOH started with a significant level of retained earnings
and was able to apply a competitive cost strategy for some of its offerings, especially
employee assistance program services. From a service perspective, FOH provides a
one-stop type of customer service. One factor that contributed to this level of service
was the subcontracting relationship that FOH had with many small businesses eager
to maintain their ties to government customers. FOH found that they could act as a
broker of services using small business providers that were motivated to sustain a
high level of customer service.
Summary
Table 6.6 summarizes the presence of internal corporate venturing
characteristics in HHS franchises.
153
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.6 Internal Venture Characteristics of HHS Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In HHS Franchises
Antecedents
M arket interpretation Little or no effort to define the HHS
franchise market except for FOH,
w hich is aggressively searches for
n ew franchise service opportunities.
Environmental trend tracking N o evidence o f trend tracking for
franchises.
Venture
Approach
Opportunity recognition W ith the exception o f FOH,
opportunities are not sought, but
rather presented to franchise units.
Opportunity screening N ew franchise opportunities w ould
have to fit w ithin the fram ework o f
the PSCs.
Feasibility
B usiness case presented N o new franchises proposed; no
business case needed for existing
franchises to pursue new customer
opportunities.
Venture funding provided W orking capital funds sustain
franchise operations.
Organization
Venture unit defined and located A ll franchise units in H H S are
synonym ous w ith existing
organizational units.
Venture role definition N o unique venture roles identified for
H H S franchises.
Strategy
V enture parent support Strong parent organization support
for FOH franchises; lim ited support
for other HH S franchises.
C ham pioning behavior Evident and encouraged in FOH; not
evident in other HH S franchises.
R isk m anagem ent FOH w eak on risk management;
attempting to sell services too w idely
for the capacity to deliver.
Venture
Outcomes
Profitability/cost savings FOH achieved significant level o f
retained earnings; cost-reim bursable
goals for other HH S franchises met.
Firm worth/internal value FOH has increased internal value.
Market worth/external value Services provided by franchises
create value for their customers.
154
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Department of the Interior
Introduction
Interior’s franchise venture, the National Business Center, is the result of
merging three administrative service centers from different bureaus into a single
service provider within the Office of the Secretary. Administrative service centers in
Denver, Washington, and the Interior Headquarters Service Center were part of the
original franchise fund pilot in 1996. These service centers had become proven
alternatives for agencies seeking to reduce costs associated with administrative
systems and support services, achieve economies of scale, and improve operating
efficiencies. These were logical components for Interior’s new franchise unit.
External Environment
The center’s external environment includes a customer base of more than 100
organizations in the federal sector, including bureaus within Interior and other
federal departments and independent agencies. This customer base is fairly
homogeneous and suggests that other franchises with those same service offerings
will have little difficulty entering the same federal marketplace and competing with
Interior’s franchise units.
Organizational Context
Interior’s primary mission focuses on development and protection of the
nation’s natural resources. The department’s willingness to participate in the
franchise fund pilot program and its history of cross-servicing agreements with other
federal agencies suggests an entrepreneurial climate. The department’s strategic plan
155
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
does not indicate the presence of a scanning function that would search for
innovative business opportunities in its market environment. Because of broad
regional distribution of many bureaus and departmental units, however, there are
ample opportunities for interactions with potential franchise customers from other
federal agencies.
Venture Approach
The center’s mission is to provide quality service and innovative solutions to
meet customer business needs through its most important asset—center employees.
This mission is built on a vision that the center seeks to be Interior’s source of
business excellence and accountability. This venture concept is consistent with the
original franchise fund goals and focuses on efficiency, quality of service, and cost
savings. Table 6.7 outlines the range of services offered by the center.
Table 6.7 Service Offerings of Interior’s National Business Center
Franchise Unit Services Offered
National Business
Center
Federal personnel payroll system ; Federal financial system ; Fixed
assets and inventory subsystem s; A cquisitions system s; Federal
human resources information system; Federal procurement data
system ; Travel management; Electronic com m erce; Electronic time
and attendance system; M ainframe time-sharing; Internet
publishing;
A ccounting services; Property m anagem ent services; M ail
managem ent services; Printing and graphics services; Facilities
managem ent services; A cquisition services; H ousing and quarters
services; Training and developm ent services; and specialized
em ployee services such as security clearances, m edical services,
drug testing, and w orkers’ com pensation case managem ent.
Source: N ational B usiness Center W eb Site 2003.
156
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Feasibility
No specific feasibility criteria are outlined for proposing a new center
franchise activity. The four business principles of accountability, customer value,
integration, and modernization guide the franchise operation once it is established.
Process
Since the consolidation of the earlier service centers at Interior into the
National Business Center in 2002, no new franchises have been initiated. Because
the center’s strategic plan does not outline a formal process whereby new franchise
ventures can be proposed, the current portfolio of franchise services (which is quite
extensive) will likely be the center’s agenda for business development in the
foreseeable future.
Structure
The center serves as the systems manager and general-purpose computing
host for department wide administrative automated data processing systems that
support the functions of budget, procurement and contracts, personnel management,
finance and accounting, e-govemment, and other general administrative services. As
such, the center acts as a holding company and coordinates the various franchise
activities throughout the department. The center monitors financial reporting and
service accountability.
Strategy and Performance
Under its franchise strategy, the center manages the existing set of
administrative services according to four business principles (NBC Web page 2003):
157
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• Accountability
Develop and maintain individual and corporate accountability
within each business unit or franchise activity
Establish clear performance measures for each business
activity
Ensure sound and accurate financial management
Reward accountability
• Integration
- Consolidate similar functions
- Eliminate redundancies
- Achieve economies of scale
- Establish a corporate culture
• Customer Value
Provide superior customer service
Ensure that activities are cost effective, efficient, and value
driven
Train, motivate, and reward center employees
• Modernization
Deliver innovative, creative, sound business solutions
- Make state-of-the-art technology an integral part of all
business activities
- Incorporate best practices into HR, budget, finance, IT, and all
center business processes
Venture Outcomes
Callahan (2002) reports that the original Interior franchise began with 12
FTEs in 1997, and grew to 58 the following year. Sales of franchise services had
grown from $3.4 million to $19.3 million over that same time period. It was
reported that full cost recovery policies were not in place by 1998. No formal
evidence of their existence was available for this case study. The percentage of
external customers of Interior’s franchise units stood at 84 percent in 1998, among
the highest of all franchise fund pilots. These outcomes indicate a significant degree
158
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
of market worth for Interior’s franchise operation. Evidence of actual internal
customer contract numbers was not available for this case study. Thus, firm worth,
or internal value, of the center to Interior is difficult to assess.
Summary
Table 6.8 summarizes the presence of internal corporate venturing
characteristics in the Department of the Interior.
Table 6.8 Internal Venture Characteristics of Interior Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In Interior Franchises
Antecedents
M arket interpretation N o specific marketing plan, but has
aggressive outlook for franchise
business outside the department.
Environmental trend tracking N o trend tracking evident.
Venture
Approach
Opportunity recognition Opportunities sought within the
department and w ith other federal
agencies. Opportunities lim ited to
administrative support services.
Opportunity screening N o specific screening process
evident.
Feasibility
B usiness case presented B usiness case not required.
Venture funding provided W orking capital funds provided for
these franchises.
Organization
Venture unit defined and located N B C acts as a holding com pany for
department franchise units.
Venture role definition B elow the level o f the N B C , no
specific roles defined other than
existing department roles held by
members o f the franchise activity.
Strategy
Venture parent support Entrepreneurial clim ate and positive
support for franchise activities.
C ham pioning behavior N o evidence o f cham pioning
behavior.
R isk management A ccountability a k ey factor in
departm ent’s franchise strategy.
Venture
Outcomes
Profitability/cost savings Franchises show ed a profit.
Firm worth/internal value U nclear how franchises are valued by
Interior internally.
M arket worth/external value Significant market worth for
Interior’s franchises.
159
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Department of Veterans Affairs
Introduction
For over 30 years, support activities of the Department of Veterans Affairs
have been providing a full range of administrative services to customers throughout
the department. In June 1996, the Veterans Administration (as it was then known)
was selected as one of the six Franchise Fund pilots. At that time the department
transformed its support services into entrepreneurial fee-for-service organizations
and expanded its customer base to include other federal agencies. The department
now operates six Enterprise Centers, each operating as a franchise unit with
specialties in administrative support services.
External Environment
The department’s basic mission is relatively limited to providing services to
veterans. As such, its Enterprise Centers have a customer environment focused on
the unique service offerings attuned to the organizational units that serve the needs of
veterans. Awareness of this narrow market focus was reflected in an observation by
David Kubicki, chief of strategic business development and oversight for the
department’s Financial Services Center, who said, “We do offer accounting and
payment services now, but we’re pretty limited by the [department’s] current
systems .... We want to broaden our offerings” (Interview in Government Executive
Magazine, August 14, 2000).
160
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The shape of the department’s external environment is affected by its
customer homogeneity that limits receptivity for a broad range of service offerings.
This customer homogeneity also limits the likelihood of threats from other franchise
competitors and provides a measure of competitive advantage for the department’s
franchise units within the department. Beyond the department’s customer base,
however, these franchise units are likely to encounter significant competition from
other agency franchises that have a broader array of service offerings.
Organizational Context
The Department of Veterans Affairs has an Enterprise Fund Office located in
Washington, D.C., that provides organizational support to Enterprise Centers.
According to the VA Enterprise Centers’ Annual Report (2001), this support is
provided by “directing, reviewing and analyzing budget formulations, managing
overall financial and business planning, and ensuring the Centers are kept informed
of current trends, policies, and legislation impacting their operations” (19). In this
role, the Enterprise Fund Office provides an entrepreneurial and businesslike
environment for the department’s franchise units to operate within.
In the area of financial management support, the Fund Office works with
individual centers to plan their capital acquisitions and presents funding
recommendations to the department’s franchise fund board of directors. For
marketing support, the Fund Office coordinates marketing efforts and maintains a
web site to educate external customers about the services offered by individual
Enterprise Centers. For business planning, the Fund Office works with each
161
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
individual Enterprise Center to annually update its business plans. The trend-
tracking service provided by the office is an example of an environmental scanning
capability that enables awareness of external factors in its market environment.
Venture Approach
According to a 1997 survey on cross-servicing opportunities, the
department’s motivations for offering franchise services were summed up:
The VA’s Franchise Fund provides common administrative services
internally and to other government agencies. Through expanded cross
servicing, the VA’s internal costs can be allocated to a wider base of
business, thus lowering both VA’s and our client’s costs for using this
service. In addition, franchising allows centers of excellence to be used in
providing the most efficient services at the best cost to the government.
(Response to survey question 8)
Currently, the department offers a range of administrative support services in
six Enterprise Centers. Table 6.9 outlines the range of their services.
Table 6.9 Service Offerings of Veterans Affairs Enterprise Centers
Franchise Unit Services Offered
Austin Automation
Center
Platform hosting; Application management; Total information
assurance; Customer business continuity; data conversion and data
interfacing; Configuration m anagem ent
Debt Management
Center
A ccount maintenance; Predictive dialing system s; Adm inistrative
offset services; Adm inistrative services
Financial Services
Center
Com m on administrative services; D ocum ent m anagem ent system s;
Electronic data interchange; Financial reports and accounting;
Paym ent services; Payroll services; Purchase card services; Quality
review and audit recovery; Travel services; Training
Law Enforcement
Training Center
Training for law enforcem ent professional
VA Records Center
and Vault
Records storage
Security and
Investigations Center
Background investigations and adjudications; Fingerprint
processing; Identification cards
Source: V A Enterprise Centers w eb sites 2003.
162
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Feasibility
The department’s Fund Office has a deliberate screening process for creating
new franchise units. A series of feasibility questions posed to determine the
viability of a new franchise idea include:
• Products—do you have clearly defined products that would be readily
understood by the customer?
• Markets—If your services were no longer “free” would your current
customers still want or need those services? Are there potential customers
outside the VA?
• Competition—Who and what is your competition, and how would you
compare?
• Implementation—How long would it take you to gather the information to
implement a franchise offering?
• Funding—Do you anticipate that funding will continue to decrease for your
unit while demand continues to increase?
• Business Planning—Are you and your staff inclined to change the way you
are operating and become more business driven?
• Management Support—Do you have top management support and
commitment?
This type of screening has yielded franchises within the department that have a better
fit with the mission and staff capacity for offering such services.
163
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Process
Similarly, the department’s Fund Office has outlined a series of steps that
would lead to the establishment of a VA franchise unit. Aspiring venture sponsors
should: (1) submit a letter of intent to the chief financial officer; (2) meet with the
Fund Office to assess the franchise idea’s feasibility; (3) prepare a formal business
plan using the VA franchise business planning model; (4) gain approval of the
business plan from the VA Fund’s board of directors; (5) submit plan to the Office of
Management and Budget for approval; and (6) gain access to the department’s
working capital fund and begin offering services.
While this sequence outlines the internal venture process only up to the time
of launch, it represents an orderly, businesslike approach to creating a new franchise.
Operational expectations of each franchise unit include all those that apply
government-wide to franchises, including cost-reimbursable services and self-
sustaining revenues.
Structure
The organizational pattern of the department’s franchise units has not
changed significantly since the establishment of the franchise fund pilots in 1996. A
central Franchise Fund Office oversees the six Enterprise Centers, providing
marketing and business planning support and serving as a review and audit agent for
each center for annual financial and performance reporting.
164
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Strategy and Performance
The VA Enterprise Centers’ Annual Report (2001) acknowledges that the
underlying tenet of entrepreneurial government is competition. Strategic directions
the centers will take in the future are expressed in the report’s following statement:
Since federal agencies are seeking the most economical, best-valued source
to support their programs, we must have a clear sense of where we are now
and where we hope to go, especially in relation to our competitors, if we are
to successfully compete. Franchising has placed added competitive pressure
on us to increase efficiency, improve performance, and enhance value to keep
our existing customers and attract future ones. (20)
Customer retention strategy for the centers focuses on becoming a strategic
partner with customers and exploring new ways to enhance the quality of customer
support. While financial performance has been deemed successful in the past, there
is a recognition that future strategy will need to focus more on internal management
performance of the centers.
Venture Outcomes
The center’s 2001 Annual Report finds that departmental franchises grew in
annual revenue from $59.2 million in 1997 to $141 million in 2001. Over that same
period, franchise customers grew from 36 to 84. Reported performance measures
indicate a consistently high level of customer satisfaction over the time period from
1999 to 2001. By 2001 the Enterprise Fund Office had achieved a 70 percent level
of operating reserves. This 100 percent target reflects an operating reserve
equivalent to three months operating expenses for all department franchise units.
These outcomes indicate that the Enterprise Centers, particularly the Austin
165
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Automation Center, the Debt Management Center, the Financial Services center, and
the Records Center, have a significant level of internal value or firm worth. Since
most of the department’s franchise customers come from within the department
(accounting for 94.5 percent of FY 2001 revenue), there is not a strong case to be
made for the level of external value or market worth held by these franchises.
Summary
Table 6.10 summarizes the presence of internal corporate venturing
characteristics in Veterans Affairs franchises.
Table 6.10 Internal Venture Characteristics of DVA Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In Veterans Affairs
Franchises
Antecedents
Market interpretation A ctive exploration o f market
potential.
Environm ental trend tracking N o trend tracking evident.
Venture
Approach
Opportunity recognition Opportunities w id ely sought.
Opportunity screening Specific criteria for new franchise
proposals.
Feasibility
B usiness case presented Formal business case required.
Venture funding provided W orking capital funding.
Organization
V enture unit defined and located Central franchise office oversees six
enterprise centers.
Venture role definition Other than franchise unit manager, no
specific roles defined.
Strategy
Venture parent support Strong parent organization support;
entrepreneurial spirit present in D V A .
C ham pioning behavior N o exam ples evident.
R isk m anagem ent F ocus is on achieving cost-
reimbursable status.
Venture
Outcomes
Profitability/cost savings Significant profits achieved.
Firm worth/internal value H igh firm worth within D V A .
Market worth/external value N ot high, since custom ers are m ostly
internal.
166
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Environmental Protection Agency
Introduction
In FY 1997, the agency established a Working Capital Fund in conjunction
with the Government Management Reform Act (GMRA) of 1994. Under GMRA,
the agency participated in the Franchise Fund Program, and was designated as one of
six pilot franchises. In FY 1998, however, the agency's appropriation language
established a permanent working capital fund that became the basis for its fee-for-
services franchise activities. While not necessarily limited to the two current lines of
business, this fund currently supports services to all agency organizational units for
their computer and telecommunication services and agency postage.
External Environment
The agency’s external environment comprises relationships with other
organizations at all governmental levels that are primarily regulatory in nature. With
the exception of environmental infrastructure grant programs, the agency has limited
ability for commercial exchanges in its transactions with its external customers.
Organizational Context
Due to the regulatory nature of the agency’s mission, core competencies of
agency staff tend toward implementation of legislation, program controls, and
regulations. This mission is not conducive to an entrepreneurial orientation among
agency staff. Rather, the dominant orientation in the agency’s culture is enforcement
of its mission and legislative mandate. While the agency is well equipped to track
external environmental and technological trends that might affect its mission, it is not
167
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
equipped to use that scanning capability to explore exchange or market opportunities
for potential services that it might offer to customers outside the agency.
Venture Approach
In a report by the Anteon Corporation (1997), a protocol for identifying
internal venture concepts and considering them as franchise units is presented.
Because of the framework established by the working capital fund, only two
franchise services operate within the agency at this time. Table 6.11 outlines their
service offerings.
Table 6.11 Service Offerings of EPA Franchises
Franchise Unit Services Offered
Information Resources
Management
Telecom m unications support; L ocal area netw ork administration
and management; Information center operations; Computer
hardware and software technical support; C lassroom training; Other
computer support services; Graphics support
Office of
Administration
A gen cy postage services and m ail handling
Source: E PA Strategic Plan 2002.
Feasibility
The Anteon Corporation Report suggests criteria for including new franchise
services in the agency’s working capital fund program. While it is clear that these
criteria were employed for the current internal agency franchise activities, their
application to additional franchise proposals is not evident. The franchise selection
criteria include eight requirements: any new franchise service must (1) have
significant impact on the accomplishment of the agency’s mission; (2) provide
common administrative services; (3) be a long-term operation with predictable and
168
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
on-going demand; (4) be an operational activity; (5) require a large amount of
financial resources; (6) allow customers the ability to decide on the type and level of
service; (7) be an auditable activity that supports stable rate structures; and (8)
provide more efficient and economical services.
Process
A logical and defined process is outlined for screening and approving new
franchise services in the agency. The process has a sequence of three phases:
• Screening fo r eligible services. In this phase, the eight selection criteria
discussed above are applied to the proposed franchise idea and reviewed by
the working capital fund board. If the franchise idea meets the criteria, it
proceeds to the next phase. If it fails to meet the screening criteria, it is not
an eligible franchise.
• Analysis o f service eligibility. This phase involves preparing and analyzing
business cases and identifying potential service customers. A key part of this
phase is the identification and commitment of potential (internal) customers
for this franchise service.
• Approval o f new service offering. The approval phase consists of two parts:
approval by the working capital fund board and approval by the agency’s
chief financial officer. Once approved, the franchise can begin offering
services and be supported with funding from the working capital fund.
169
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Structure
The organizational structure of the agency’s franchises is relatively
transparent since there is not a unique identity that the franchise unit would have to
project to market its services outside the agency. The agency’s franchise services are
initially sponsored through the working capital fund and are then expected to be self-
supporting through reimbursable services provided to other agency units.
Functionally, the working capital fund board oversees franchise management and
customer service and acts as a financial auditor on an annual basis.
Strategy and Performance
The agency has employed a fairly rigorous business case approach in
establishing its franchise units; however, it has not attempted to offer any franchise
services outside the agency itself. This strategy of limiting its franchise services to
within the agency has been a deliberate one and is consistent with the nature of its
regulatory mission.
Venture Outcomes
The Anteon Corporation Report identifies potential results of implementing
internal franchises in the agency. The successful implementation of screened
franchises that meet feasibility criteria should lead to quantitative and qualitative
benefits. The quantitative benefits from including qualified franchise services in the
working capital fund include economies of scale, reduced overhead costs, and central
cost-based management. The qualitative advantages are improved service delivery,
170
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
improved service quality, and the ability to fund replacement of equipment and other
assets through depreciation charges to users.
Callahan (2002) reports the most recently available statistics for the agency’s
franchises. For the period up to 1998, FTEs for agency franchises were reduced
from 65 to 59. For that same period, annual revenues increased from $104 million to
$111 million. It can be noted that these increments are the lowest percentage
changes for any of the original six franchise pilots. This stability reflects the
agency’s internal focus and status quo approach to offering franchise services.
While this approach has created a certain amount of internal value or firm worth for
the franchises, there is no external value or market worth for these franchises outside
the agency itself.
Summary
Table 6.12 summarizes the presence of internal corporate venturing
characteristics in the agency’s franchises.
171
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.12 Internal Venture Characteristics of EPA Franchises
Internal
Venture
Elements
In Private Sector
Ventures
In EPA Franchises
Antecedents
Market interpretation N o evidence o f external market
interest.
Environmental trend tracking N o trend tracking for franchises.
Venture
Approach
Opportunity recognition EPA franchises have near-m onopoly
status within the agency;
Opportunities com e to the franchise
rather than the franchise having to
chase them.
Opportunity screening Proposed franchises require
screening.
Feasibility
B usiness case presented B usiness case required for new
venture proposals.
Venture funding provided W orking capital fund available,
though not heavily relied upon.
Organization
Venture unit defined and located Franchises synonym ous w ith existing
organizational service units.
Venture role definition N o specific franchise venture roles
defined.
Strategy
Venture parent support Franchises are supported, though no
entrepreneurial clim ate to support
new franchises.
C ham pioning behavior N o cham pioning noted.
R isk managem ent Limited; only basic support services
offered.
Venture
Outcomes
Profitability/cost savings R evenues equate roughly to existing
unit operating costs.
Firm worth/internal value Som e internal value for
responsiveness and efficiency.
Market worth/external value N on e outside the agency.
Background on Other Federal Agency Ventures
The following cases portray entrepreneurial ventures within federal agencies
that were initiated independently of the Franchise Fund pilots. Whereas the six cases
described in the previous section of this chapter focused on provision of
172
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
administrative support services, these cases illustrate how internal agency ventures
were initiated for other types of services and products.
Gov Works Venture
Introduction
GovWorks is a federal fee-for-service acquisition center operating under the
jurisdiction of the Department of the Interior Franchise Fund, providing procurement
services to federal agencies. As part of the department’s Minerals Management
Service in the mid-1990s, the procurement unit realized that with the government-
wide campaign to reduce budgets and trim staff for support operations—finance,
human resources, acquisition, and the like—that their days might be numbered.
According to David Sutfin, current director of GovWorks, “All administrative
services had targets on their backs. We thought half our staff would have to be let go
.... We decided we had a choice: we could be responsible for our own destiny or we
could let others be.”
In 1996, the group did not yet know that its parent department had an
operating franchise fund. Instead, they considered offering their services under the
1932 Economy Act that allowed agencies providing services at less than full capacity
to perform their services for other federal agencies. The legal and operational
drawback to this vehicle was that funds collected and services performed must be
transacted within a given fiscal year and could not be carried over to a subsequent
fiscal year. GovWorks might not have given birth to its venture had the team not
173
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ultimately discovered the department’s working capital fund and the operational
flexibility that accompanied it.
External Environment
The external environment of GovWorks comprises numerous customers from
federal department and independent agencies. While it is focused on the relatively
narrow business of providing acquisition services, this marketplace is universal in
government agencies since all of them regularly require capital assets to fulfill their
mission. The GovWorks marketplace is munificent in that there are numerous
potential customers to whom it has easy access.
As it has grown in size and stature, GovWorks has spawned more active
competition from other federal service providers. In a recent Washington
Technology article it was reported that GovWorks had entered the
telecommunications acquisitions marketplace; it is challenging a long-held market
position of the General Services Administration’s Federal Technology Service.
Displaying the competitive spirit of GovWorks, its chief, David Sutfin, stated that
“we think the current [procurement] system is broken ... and [that] there is an
opportunity to change the way government buys telecommunications services and
equipment.” GovWorks is acting as an entrepreneurial catalyst in its market
environment by attempting to bring commercial models for acquisition serves to the
federal marketplace.
174
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Organizational Context
GovWorks is part of the organizational fabric of the Minerals Management
Service in the Department of the Interior and operates as a procurement and support
services division within the service’s Office of Administration and Budget. While
the department has a National Business Center that provides generic administrative
support services under a franchise fund, GovWorks operates independently of that
center under its own brand name. It does, however, rely on the department’s
working capital fund as a vehicle to transact acquisition funds of federal agency
customers. This vehicle is crucial to the flexibility GovWorks can provide to federal
agency customers.
The entrepreneurial climate within GovWorks is high compared with other
department franchise activities. Other department franchises provide services on a
reimbursable basis. GovWorks provides its services on a “one price - no escalation”
fixed fee basis. This approach has won over customers, but it is more risky than
other departmental franchises.
Venture Approach
The venture concept for GovWorks came from the belief that government
must rethink and radically change its acquisition process to meet customer
expectations and reduce the costs of acquisition itself. In one sense, the group
responded entrepreneurially to the need to simply survive and hold jobs. In another
sense, GovWorks has exploited the need to improve a government process with its
175
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
core competence. Both of these factors have come together in GovWorks’s venture
formation. Table 6.13 outlines the acquisition services provided by GovWorks.
Table 6.13 Service Offerings of GovWorks Venture
Venture Unit Acquisition Services Offered
GovWorks
A dvisory and assistance studies; Information technology, including
hardware, software, and services; Telecom m unications; Research
and developm ent; Engineering and technical studies; Environmental
studies; Consulting studies; Personnel; M aster and enterprise
licensing solutions; Architecture and Engineering; C ooperative
agreements and grants; B usiness process reengineering; Facilities
managem ent system s; Integrated logistics support; L ogistic support
analysis; Sustaining engineering; Fleet/Field support analysis; Joint
military program support; Engineering change proposals; E-health
A cquisition T ools Em ployed: Individualized contracts and
cooperative agreements; Grants; C om m ercial item acquisition;
M ultiple award schedules; Oral presentations; E-com m erce; Task
order contracts
Source: G ovW orks W eb site 2003.
Feasibility
GovWorks does not employ specific feasibility criteria for pursuing specific
customers. It does, however, base its decision to pursue any new line of acquisition
service on the level of competence resident in its core staff. Selection of new
acquisition service initiatives is balanced between size and scope of the sales
opportunity, the risk involved, and the capacity of the GovWorks staff to handle the
job.
Process
The venture process for GovWorks initially involved a request and approval
to use the department’s working capital fund. The entrepreneurial environment
176
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
within the Minerals Management Service supported the GovWorks business case. A
marketing strategy to solicit new customers was initiated in 1998.
Structure
GovWorks is structured like a consulting business housed in the Procurement
and Support Services Division within the office of Administration and Budget in the
Minerals Management Service. Its organizational format is structured around teams
of acquisition specialists with specific expertise in fields described in table 6.7.
Acquisition service teams are organized to focus on selected customer types.
Strategy and Performance
GovWorks’s strategy for competing with other acquisition service providers
is to use a fixed-fee arrangement. Their fee is usually between 2 and 4 percent of the
total value of the acquisition, depending on the complexity of the acquisition itself.
While some competitors charge on the basis of labor hour rates on a reimbursable
basis and others charge an access fee to use their contracting vehicle, GovWorks
chose a fixed fee as a way of showing customers just what their costs were expected
to be before the project was undertaken.
Venture Outcomes
GovWorks has contributed to removing procedural barriers in the federal
acquisition process. GovWorks has numerous agency customers already; it is
looking to expand into new acquisition fields like telecommunications. The value of
contracts handled by GovWorks in fiscal year 1999 was nearly $100 million. This
level of presence in the acquisition services marketplace indicates a high degree of
177
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
external value or market worth. Internal value, or firm worth, for GovWorks is also
high within the Minerals Management Service.
Summary
Table 6.14 summarizes the presence of internal corporate venturing
characteristics in GovWorks.
178
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.14 Internal Venture Characteristics of GovWorks
Internal
Venture
Elements
In Private Sector
Ventures
In GovWorks
Antecedents
Market interpretation V ery active effort to define its
marketplace.
Environmental trend tracking N ot specifically, though G ovW orks has
tracked the future potential o f federal
acquisition as a guide to its strategy.
Venture
Approach
Opportunity recognition G ovW orks has focused on a niche
service and exploited it fully.
Opportunity screening Customers and acquisition types are
screened for potential growth and
revenue opportunity.
Feasibility
B usiness case presented Feasibility analyses o f new business
areas are expected.
Venture funding provided G ovW orks u ses the departm ent’s
w orking capital fund as a veh icle to
handle receipt o f custom er payments.
Organization
Venture unit defined and
located
G ovW orks has “brand identity” within
the department. Its m ission and
recognition extends w ell beyond the
M ineral M anagem ent Service.
Venture role definition Venture roles are structured like a
consulting service around acquisition
specialty areas.
Strategy
Venture parent support Strong parent organization support in
an entrepreneurial clim ate.
C ham pioning behavior G ovW orks leaders are venture
cham pions.
R isk m anagem ent Fixed fee arrangements are riskier than
other franchise service providers.
Venture
Outcomes
Profitability/cost savings Profits range from 2-4 percent per
acquisition consulting project. Cost
savings to custom er is significant.
Firm worth/internal value Internal value to department is
significant due to its in-house
reputation and experience.
M arket worth/external value External value to other federal agencies
is significant due to custom er
satisfaction and established need for
acquisition expertise.
179
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Defense Reutilization and Marketing Service
Introduction
The Defense Reutilization and Marketing Service is an enterprise of the
Defense Logistics Agency. Its mission is to provide the Department of Defense with
services for the disposal of material no longer needed for national defense, comply
with legislative and regulatory requirements, protect the public interest from
dangerous defense items, and retrieve maximum value for tax dollars. This mission
includes responsibility for property reuse and resale, hazardous property disposal,
demilitarization, precious metals recovery, and recycling program support.
External Environment
The service’s external environment comprises a wide array of military
organizations that use and depreciate equipment and materials that have value if
recycled appropriately. Aside from the private marketplace for defense items that
are not hazardous or dangerous, the service is the primary source for military
organizations to exchange obsolete or depreciated equipment and materials. As
such, the service has no competition within the military for what it does and operates
with little competition from the private market because of its degree of control over
excess military hardware and materials.
Organizational Context
The service is one of the lead centers of the Defense Logistics Agency.
These lead centers purchase and manage a variety of supplies and services for the
U.S. military, including fuel, food, clothing, construction supplies, electronics,
180
with permission of the copyright owner. Further reproduction prohibited without permission
medical supplies, distribution services, and disposal reutilization services. The
service’s role in the logistics chain is to manage its final link, that is, reutilization of
excess or surplus materials and equipment. The Defense Logistics Agency has a
significant interchange with the business world because of its contractual
relationships with private sector suppliers. Its climate is business-based, and its
support of innovative, market-based approaches in achieving its mission is
manifested in the adoption of an enterprise management model for its operations in
1996.
Venture Approach
According to the service’s Strategic Business Plan (2002), the service
adopted an enterprise management model as its method of improving performance
and reducing costs. This model embraced the idea of operating in a competitive
environment, allowing customers to choose their level of service and in some cases
even the service provider. The core concept of the service’s entrepreneurial
approach is to manage information, not property. In this way, the service can
identify opportunities for reuse or resale without ever having to take physical
custody of all of the excess property and without the burden of handling the all the
property.
Table 6.15 outlines the services provided by the Defense Reutilization
Marketing Service.
181
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.15 Service Offerings of Defense Reutilization Marketing Service
Venture Unit
Services Offered
Resource Recovery
and Recycling
Program
C ollecting and sorting o f materials; Storage o f materials;
C om m ercial sales; Governm ental sales
Demilitarization
Program
M aterials management; D em ilitarization coding; Destruction o f
defensive weaponry; Q uality control
Management of
Hazardous Property
Hazardous materials management; Storage facilities; Safety and
training; Storage and inspection; environm ental com pliance; Local
sale o f environm entally nonhazardous items; R egional hazardous
materials contracting
Source: D efen se R eutilization M arketing Service w eb site 2003.
Feasibility
The feasibility for establishing this venture grew out of a reinvention lab
experience of the National Performance Review in 1994 that examined privatization
alternatives. By defining and evaluating each segment of activity in the chain of
logistical activities that the service performed, the review found opportunities for
operational improvement and clarified outsourcing and privatization approaches.
Process
The process of forming this venture was more evolutionary than event driven.
Through a long series of reorganizations, the service evolved to assume its current
role. The venture formation process was both deliberate and entrepreneurial in the
sense that the opportunity to achieve improvements presented through the
reinvention lab coincided with the need to apply more businesslike approaches to
manage increasingly larger defense surpluses.
182
with permission of the copyright owner. Further reproduction prohibited without permission.
Structure
The service is organized into six major business units: logistics (receiving
and warehousing); reutilization/transfer/donation; usable sales; scrap sales,
demilitarization; and environmental. Each unit functions as a step in the supply
chain to reduce the time and effort of processing surplus military equipment.
Strategy and Performance
Because of the significant reduction of military activities during the 1990s,
the infrastructure of the military services experienced a similar downsizing during
that same period. The consequence of those trends was a temporary increase in the
amount of disposal activity that peaked in the mid-1990s and has declined steadily
since. The future growth opportunity for the service is expected to be in the area of
“focused logistics” where information, logistics, and transportation technologies can
be fused to deliver the right amount of supply and support at the right time and place.
Venture Outcomes
According to the service’s web site, fiscal year 2001 statistics indicate sales
of $73.2 million, reutilized equipment at $1.5 billion, transferred property at $314
million, and donated property to other governmental and nonprofit organizations at
$265 million. These revenue and value savings are measured against annual
operating expenses of the service at $299.4 million. These figures indicate that the
service is clearly contributing to public value. The service has internal value, or firm
worth, within the Department of Defense community, and has external value, or
market worth, throughout the government and nonprofit sector.
183
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Summary
Table 6.16 summarizes the presence of internal corporate venturing
characteristics in the Defense Reutilization marketing Service.
Table 6.16 Internal Venture Characteristics of DRMS
Internal
Venture
Elements
In Private Sector
Ventures
In DRMS
Antecedents
Market interpretation Strong market analysis effort to find
custom ers for recycled items.
Environmental trend tracking N ot in evidence, but there is an obvious
need to anticipate future shifts in
demand for excess materials and
equipment.
Venture
Approach
Opportunity recognition This venture driven by market demands
and D oD cost-saving goals.
Opportunity screening D R M S not alw ays able to select its
opportunities; m any materials, even
hazardous ones, are the designated
responsibility o f D R M S to handle.
Feasibility
B usiness case presented N ot applicable here.
Venture funding provided Initial venture capital provided to start
D R M S ’s predecessor; currently DRM S
runs it operations on cost savings and
sales o f material and equipment.
Organization
Venture unit defined and
located
S p ecific internal venture identity within
the D efen se L ogistics A gency.
Venture role definition Standard governm ent em ployee roles
Strategy
Venture parent support D efen se L ogistics A gen cy is a
supportive parent organization,
channeling equipm ent and materials to
D R M S.
C ham pioning behavior Directors o f various units cham pion
their m issions and prom ote increased
levels o f business for these units.
R isk m anagem ent R isks associated w ith handling
hazardous materials are the primary
risks for D RM S. B usiness risks are
low , since sales o f excess equipm ent
produces significant revenue.
Venture
Outcomes
Profitability/cost savings M ost profit o f this venture is realized in
cost savings o f reutilized equipment.
Firm worth/internal value D R M S has significant value to D oD .
Market worth/external value O verall value to the public is
significant as a result o f cost savings
and dem ilitarization o f w eapons.
184
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
National Finance Center
Introduction
The National Finance Center, housed in the Department of Agriculture, was a
“first mover” in the use of cross-servicing between agencies. In the early 1980s, the
center emerged as a leader in developing and operating very efficient administrative,
financial, and management information systems. In 1983, it engaged its first cross
servicing agreements with other federal agencies. These experiences were the
forerunner for franchise activities in the federal government today. The center
handles payroll for more than 450,000 federal employees at more than 120 agencies
and is the record keeper for the federal government’s Thrift Savings Plan.
External Environment
The environment for services that the center offers is a receptive marketplace
in that numerous agencies have a need for administrative and financial management
services for their operations and employees. The center is also heterogeneous in that
agencies vary widely in size and mission. In this kind of environment being a first
mover has significant advantages. While the center’s on-going working relationships
with many agencies do not preclude competition, these relationships tend to diminish
potential competitors from entering this market.
Organizational Context
Situated at an off-site location in New Orleans, the center is the operational
arm of the Office of the Chief Financial Officer. It has the responsibility for
designing, developing, implementing, and operating cost-effective financial,
185
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
administrative, and management information systems and services supporting the
missions of the Department of Agriculture and other federal departments and
agencies through cross-servicing arrangements. The center has four operational
components: (1) an information resources management division, which oversees
enterprise information system architecture; (2) the Thrift Savings Plan division,
which manages operations of the government’s Thrift Savings Plan; (3) the financial
services division, which oversees the administrative payments system and
accounting systems; and (4) the applications systems division, which designs and
develops automated data processing applications for the center.
Venture Approach
The center’s approach is to design, develop, implement, and operate cost-
effective financial, administrative, and management information systems to support
the Department of Agriculture and other federal customers. Its franchising activities
are conducted through fee-for-service contracts. Through these arrangements, the
center stays competitive by meeting customer expectations through reduced costs
and enhanced quality of service. Table 6.17 outlines the center’s main services.
Table 6.17 Service Offerings of the National Finance Center
Venture Unit Services Offered
Information Resources
System software evaluation
Thrift Savings Plan
Thrift Savings Plan system m anagem ent
Financial Services
A dm inistrative payments system management; A ccounts
receivable system management; Payroll/Personnel system
m anagem ent
Application Systems
System design and developm ent
Source: N ational Finance Center w eb site 2003.
186
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Feasibility
Because the center was a forerunner of the franchising movement, the
feasibility of its services is not in question. With so many of those in the federal
financial services market as patrons of its services, however, the center may be
influenced by staffing or budgetary initiatives that reduce its market size. The center
shares the risk and success for introducing new financial management systems by
partnering with key vendors that have developed innovative financial management
tools.
Process
The NFC’s process for franchise and cross-servicing activity is not unlike its
internal service activity for its Department of Agriculture clients. Customer needs
are assessed as a basis for determining appropriate types of tools and levels of their
application. Service support levels are negotiated, and an agreement between the
Center and its client is transacted. This process is more like day-to-day business for
both the center and its customers than it is an entrepreneurial venture.
Structure
The organizational format for the center is designed for service. Two of its
divisions, information resources and applications systems, provide the infrastructure
for operating the financial systems. The other two divisions, thrift savings and
financial services, provide delivery of financial management services and serve as
customer interfaces.
187
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Strategy and Performance
The center has moved beyond reliance on its mainframe-based computer
systems and is seeking partnerships with enterprise software companies to develop a
new payroll management system. This strategy of sharing developmental risk with
potential reward for both the center and the software developer is intended to bridge
to the next technology without a major investment by the center or its customers.
Venture Outcomes
The center has a proven track record for cross-servicing and achieving cost
reductions while maintaining customer satisfaction. Because the center grew largely
to fulfill that purpose, it could be viewed as a maturing venture that is now at the
closing stage of its life cycle. The center performs franchise and cross-servicing
activities effectively, in a business-as-usual manner. As it is currently operating, it
appears that it will continue to be the dominant force in federal financial
management unless or until it becomes vulnerable to external political or economic
forces, or a more formidable innovative competitor.
Summary
Table 6.18 summarizes the presence of internal corporate venturing
characteristics in the National Finance Center.
188
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.18 Internal Venture Characteristics of the National Finance Center
Internal
Venture
Elements
In the Private Sector In the National Finance
Center
Antecedents Market interpretation T he center has d ev eloped several
financial m anagem ent tools that
reflect an interpretation o f their
custom ers’ needs.
Environmental trend tracking Som e evidence o f software
technology trend tracking in the
center’s alliance relationships with
software developers.
Venture
Approach
Opportunity recognition The center responds primarily to
existing custom er needs.
Opportunity screening N o specific process evident.
Feasibility
B usiness case presented B usiness cases not required.
Venture funding provided W orking capital fund used to manage
cross-service paym ents from other
federal agencies.
Organization
Venture unit defined and located Center specifically defined and
independently located from
department headquarters.
Venture role definition C enter’s m anagem ent and operating
roles defined as if it w ere a separate
business.
Strategy
Venture parent support Strong parent organization support
from department.
C ham pioning behavior C ham pioning behavior evident in
leadership role taken by center
director.
R isk m anagem ent Center shares risk o f new system s
im plem entation w ith private sector
alliance partners.
Venture
Outcomes
Profitability/cost savings Center operates on cost-reim bursable
basis.
Firm worth/internal value H igh internal value to the department;
able to bring broader expertise and
practices to internal department
applications.
Market worth/external value Services provided to external
custom ers produce value for them.
189
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
U.S. Forest Service Enterprise Program
Introduction
The Enterprise Program was initiated as part of the National Performance
Review’s Reinvention Lab in U.S. Forest Service Region Five. This program was
designed to improve productivity and effectiveness through the application of
business practices within the organizational structure of the Forest Service. Unlike a
typical governmental unit, enterprise units receive no direct appropriated funds and
must be financially self-sustaining. The Forest Service is allowing individual
employees to become small business operators selling core services as well as
administrative support services throughout California’s 18 national forests.
External Environment
The external environment of the Enterprise Program is heterogeneous with
numerous types of customers and customer organizations. The market size for
soliciting the program’s services is geographically constrained to southern California
and also constrained by the ability of individual enterprisers to market their services
within the framework of their job responsibilities.
Organizational Context
Laurent (1999) observed that staff cuts and level budgets during the 1990s
left the Forest Service short of the skills needed for managing forests, handling
grazing rights, and providing recreation facilities for visitors. Rather than
downsizing further, and putting highly skilled employees out of their jobs, the Forest
Service in California is providing flexibility and incentives for individual employees
190
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
to form their own businesses and accomplish needed tasks. As a result of
reinvention activities, the Forest Service embraced an entrepreneurial approach and
moved away from large staff organizations toward a venture-based model where
units with budgets to support services for land and people could purchase those
services from internal enterprises.
Venture Approach
As stated in the Enterprise Program’s 2001 Report, new venture approaches
unleash the creativity of Forest Service employees by allowing them to
develop internal entrepreneurial [ventures] that are focused on three [goals]
of making government “work better and cost less.” They are: (a) promoting
the Forest Service mission; (b) applying business functions to government
activities; and (c) improving accountability.
This venture concept responds appropriately to the staffs motivation, constraints on
Forest Service budgets, unique staff skills and experience in region five, and unique
customer base for enterprise services. Table 6.19 outlines the services of the Forest
Service Enterprise Units.
191
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.19 Service Offerings of Forest Service Enterprises
Venture Unit Services Offered
ACT2
N E P A analysis; W atershed/ecosystem analysis; B iological
assessm ents; Contract preparation; T echnical writing
Adaptive Management
Services
Fuels and fire m anagem ent support; E cosystem assessm ent;
M onitoring plan design and assessm ent; D ata analysis and
evaluation; L iterature review s; T ech n o lo g y transfer; E cosystem
planning support; M anagem ent consulting; Training; Public
workshops; M onitoring data access
Asbestos Crew Services
A sbestos inspection and abatement services
Compensation
Resolution Brokers
A dvice to managers on w orker’s com pensation issues
Computer
Professionals.com
Autom ation software training; W eb page design
Creative Conflict
Resolution
M ediation; N egotiation; Group collaborative problem solving;
Facilitation; Com m unication skills training
Digital Visions
Product developm ent; Information technology support;
Training; Database construction
Quest
Facilitation; Training; Project m anagem ent services
Forest Inventory
Forest inventory applications
FS Grant Strategists
Com m unity collaboration programs; Project developm ent
assistance
Incident Financial
Services
Centralized fire paym ents and collections; Incident trespass
documentation
Interpretive Arts
Unlimited
Traditional and nontraditional interpretive media; Interpretive
training; Course design; V isual and perform ing arts; W eb site
design; C onference and workshop design; Special events
coordination
Mountain Heritage
Associates
Cultural and environm ental fram ework construction; Public
programs; Preservation o f archeological and historic resources
Recreation Solutions
Trails, routes and scenic byw ay plans; Recreation planning;
National recreation reservation service; N E P A documentation;
Trail inventory and monitoring; N ew sletter developm ent; W eb
site maintenance; W ilderness planning; Partnership and grant
advice; Rural com m unity developm ent; Graphic design;
M eeting facilitation; W ild and scenic river planning; Scenic
resource inventories
Streamline
Environmental analysis training; Process consulting
Timber Expert and
Management Services
Turnkey project planning; Q uality control; Harvest inspection;
R esource planning surveys; N E P A analysis; Burned area
rehabilitation; Forest plan amendments; W atershed analysis
Trails Unlimited
Consultation on non-w ilderness and m otorized trails
Vegetation Management
Solutions
E cosystem management; GIS data analysis and support
Source: U .S . Forest Service W eb site 2003.
192
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Feasibility
Feasibility screening for establishing business service ventures by individual
enterprisers is outlined on the Forest Service Enterprise web site. New enterprisers
must clearly outline the scope of their enterprise, including core service offerings,
team members, skills, location, and sponsorship. Venture plans are submitted to the
reinvention lab for review, and those meeting the test of feasibility are accepted into
the next phase, which involves enterprise training.
Process
New enterprise units can be added in cycles. When a cycle begins, a
solicitation is announced requesting those with business ideas interested in forming a
new enterprise to prepare a business case. Once the business case is reviewed and
supported by a Forest Service manager, that person becomes a sponsor of the new
enterprise. A third phase in the process occurs as the reinvention lab reviews the
business case for its feasibility and fit with other enterprise offerings. Once
approved, venture applicants undergo an intense two-month training process that
prepares them with a thorough understanding of core business principles. Upon
completion of applicant training, the business case is transformed into a formal plan
and presented to the enterprise steering committee. If approved, it is given license to
operate.
Structure
The enterprise units have five organizational components: (1) enterprise
steering committee, whose members provides oversight and monitoring of the
193
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
program and approve new units; (2) director of the reinvention lab, who assists
enterprise leaders in creating efficient businesslike operations; (3) sponsors, who
provide high-level guidance and mentoring; (4) enterprise unit leaders, who are
responsible for daily operations of the unit including financial accountability and
contribution to the Forest Service mission; and (5) enterprise unit partnerships,
which comprise the entire membership of the enterprise units to give a unified voice
for promoting better business principles.
Strategy and Performance
The program’s 2001 progress report identified several key strategy goals for
future enterprise growth:
• Promote ecosystem health and conservation using a collaborative approach
drawing on the diverse talents of enterprise members.
• Provide a variety of uses, values, products, and services for current and future
generations by directing enterprise efforts toward the sustainability of
ecosystems.
• Develop and use the best scientific information available in support of
ecological, economic, and social sustainability.
• Ensure the acquisition and use of appropriate Forest Service infrastructure to
deliver enterprise services efficiently.
Venture Outcomes
An Enterprise Unit Program Review (2000) found that results of its early
experiences had raised awareness of good business practices in several ways: first,
194
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
by adopting good business practices as an inherent part of the program, such as
business planning, marketing, and resource budgeting; and, second, by highlighting
areas for improvement to current field and business operations, such as capturing the
total cost of services through activity-based costing.
Financial results for the enterprise units for fiscal year 2001 yielded revenues
of $11.9 million, expenses of $10.1 million, for retained earnings in the amount of
$1.8 million. This full-cost accounting includes overhead costs and un-billable
salaries along with direct project costs. Enterprisers have learned the true cost of
doing business and can make strategic adjustments based on that knowledge.
Awareness of full costs to government for work programs improves accountability
and promotes better public service.
Summary
Table 6.20 summarizes internal corporate venturing characteristics in Forest
Service Enterprise units.
195
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.20 Internal Venture Characteristics of Forest Service Enterprises
Internal
Venture
Elements
In the Private Sector In Forest Service Enterprise
Units
Antecedents
Market interpretation A ctive market analysis, though
lim ited to a sp ecific region.
Environmental trend tracking N o trend tracking evident.
Venture
Approach
Opportunity recognition Enterprise units seek a broad range o f
sales opportunities for their services.
Opportunity screening Established screening process for
new venture ideas.
Feasibility
B usiness case presented B usiness case required fro venture
approval.
Venture funding provided W orking capital fund used for
venture start-up and first year
operation.
Organization
Venture unit defined and located Specific definition; many solo
em ployee-ow ned ventures that
operate independently.
Venture role definition Owner-operator roles for Forest
Service em ployees.
Strategy
Venture parent support Strong entrepreneurial clim ate
supports creative and flexible venture
arrangement for m eeting Forest
Service goals.
C ham pioning behavior Each owner-operator acts as a
venture champion.
R isk managem ent Redundancy in staffing allocations
cover forest Service needs during
peak tim es (e.g., fire season).
Venture
Outcomes
Profitability/cost savings Enterprise units profitable; retained
earnings applied w ith flexibility to
other Forest Service needs.
Firm worth/internal value Internal value o f m otivated
em ployees and increased
accountability.
Market worth/external value External value to agency and bureau
custom ers o f increased range o f
services available in remote areas.
196
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
NIST Proposal Review Program
Introduction
The Office of Technology Innovation at the National Institute of Standards
and Technology conducted the Energy-Related Inventions Program, established in
1974. It also directed the institute, working with the Department of Energy, to
evaluate all energy-saving technologies for their technical and commercial merits.
Before the program was transferred to the Department of Energy at the end of fiscal
year 1998, it had evaluated nearly 35,000 inventions. Over 650 inventions received
funding support for further product development. The office conducted these
evaluations with the assistance of over 500 technical and business consultants from
academia and the private sector. This case study focuses on the office’s attempt to
launch an entrepreneurial venture to offer its proposal review services to other
federal agencies and draws from an original venture proposal by Dhillon (1995).
External Environment
In addition to agencies in the federal government, many state governments
have research and technology development programs that require proposal
evaluations. In addition, many private investors need to know the technical merits of
a venture proposal but often lack an understanding of technology details associated
with a proposal. This need for a proposal review service in the federal environment
is broad and deep. Most agencies, however, guard their turf very closely and are
reluctant to share the responsibility for judging the worthiness of a proposal that they
would have to fund. Thus, while there appear to be few active competitors for this
197
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
service on an agency-wide basis, many proposal review functions exist within the
agencies themselves. This circumstance is not unlike the franchising of
administrative support services discussed in the first six cases in this chapter. The
impetus for having common proposal review services lacks the strength of
congressional legislation or an executive order.
Organizational Context
The energy-related inventions program was a joint effort between the
Department of Energy and the NIST. The institute provided technical expertise to
solicit and evaluate new inventions, and the department provided funding to advance
the development of the invention to the point where commercializing it would be
beneficial in the energy marketplace. In the program application process, the
institute had responsibility for the first stage, evaluation of the invention. The
second stage, funding the invention, was the responsibility of the department. This
interdependence between these organizations created additional requirements for
close coordination between technical experts and grant administrators.
Venture Approach
The proposal review service initially expected to provide services to federal
agencies and later to extend the service offerings to state governments and private
investors. The chief feature of this venture is that it would provide unbiased,
independent, third-party evaluations through its network of reviewers and
consultants on a fee for service basis. Reviews would be conducted in accordance
198
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
with criteria provided by the client agencies. Table 6.21 outlines the proposal review
services offered by this venture.
Table 6.21 Service Offerings of the NIST Proposal Review Venture
Venture Unit Services Offered
Technical Feasibility
Review
Technical merits; C om m ercial potential; E conom ic feasibility;
Impact on energy value; Im pact on environm ent; Personnel
qualifications; Regulatory hurdles
Business Planning
Review
Industry analysis; Market research; M arket planning;
M anagem ent team Operations; Financial planning
Source: D hillon 1995.
Feasibility
Because this venture was self-initiated within the Office of Technology
Innovation at the National Institute of Standards and Technology, no formal
feasibility analysis was applied to review or screen it. The team that proposed the
venture acted as intrapreneurs attempting to bootstrap their venture with only the
resources that they had available to do their daily jobs at the institute. The venture
idea, however, did have an existing proposal evaluation service that had a track
record and some interagency credibility. While the institute was not part of the
Franchise Fund program, the venture’s staff recognized the general trend to
downsize the federal government. While results of this trend would reduce the
number of potential in-house reviewers in federal agencies, those remaining
reviewers would still be faced with a significant number of review requirements.
The venture would serve as a one-stop service that would have unparalleled expertise
199
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and a smooth running process as well. Under these premises, the venture’s feasibility
seemed reasonable.
Process
The venture expected to enter the federal agency proposal review market
incrementally by expanding its existing technical proposal evaluation service. By
relying on existing consultant databases and current institute staff, the venture could
avoid high start-up costs. No new equipment or office space would be required to
launch the venture.
Structure
The structure of the venture paralleled the existing Office of Technology
Innovation’s organizational pattern. The proposal review venture was a separate
division within the office. The management team comprised two senior evaluators
and several marketing and support staff. While no formal board of directors was
proposed, several office directors of the institute were recruited to serve as advisors
to the venture.
Strategy and Performance
Using a bootstrap approach, the venture team expected to rely on existing
resources and existing expertise to launch the venture. An aggressive outreach
program to create awareness among all federal grant programs was planned. It
would emphasize the availability and expertise of a team of qualified reviewers to
handle the expected increase in workload for in-house reviewers. Once a marketing
200
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
presence was established, growth would be based on customer testimonials and the
track record of the service.
Venture Outcomes
This venture never materialized because of the transfer of the invention
proposal review function to the Department of Energy. The team foresaw the risk of
implementing this venture in its original proposal. Its expectation was to privatize
the proposal review process and reinvent it in the private sector. The team ultimately
chose not to do this and retained their positions in other capacities in the institute.
Members of the team believed that if there were some form of working capital fund
within the institute, a credible venture idea like this one would have been supported.
Summary
Table 6.22 summarizes the presence of internal corporate venturing
characteristics in the NIST proposal review venture.
201
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.22 Internal Venture Characteristics of the NIST Proposal Review
Venture
Internal
Venture
Elements
In Private Sector
Ventures
In NIST Proposal Review
Venture
A n t e c e d e n t s
Market interpretation M arket analysis o f proposal review
functions in other agencies.
Environmental trend tracking N o evidence o f trend tracking.
Venture
Approach
Opportunity recognition This venture based entirely on new
opportunities. R ecognition o f those
opportunities seen in each agency
proposal review process.
Opportunity screening N o specific screening process evident
in parent organization.
Feasibility
B usiness case presented B usiness plan developed by venture
team.
Venture funding provided N o venture capital funding source
available; team intended to bootstrap
its first-year operation.
Organization
Venture unit defined and located Initially, the proposal review unit w as
synonym ous w ith existing staff
structure. A fter start-up, intention
w as to be sp ecifically defined and
sem i-autonom ous.
Venture role definition Specific m anagerial and functional
roles defined.
Strategy
Venture parent support Tacit support from office-level
managem ent; lack o f support from
Department o f Energy.
C ham pioning behavior Venture team mem bers exhibited
cham pioning behavior.
R isk m anagem ent R isk m anagem ent at start-up stage
handled by retaining original staff
configuration and maintaining
continuity o f proposal review service.
Venture
Outcomes
Profitability/cost savings Probable efficien cies expected;
profitability uncertain.
Firm worth/internal value The case for internal value o f this
venture to the Institute not made.
Market worth/external value External value o f a standardized
proposal review process w ould have
added value to other agency
customers.
202
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Central Intelligence Agency’s In-Q-Tel Venture
Introduction
In its corporate overview, In-Q-Tel identifies itself as a private, independent
enterprise funded by the Central Intelligence Agency. Its mission is to identify and
invest in companies developing cutting-edge information technologies that serve
U.S. national security interests. Its expectation is to deliver technologies that provide
superior intelligence capabilities for the Central Intelligence Agency and the broader
U.S. intelligence community. Since its launch in 1999, In-Q-Tel has received
numerous business and technical proposals from companies that had never
previously considered working with the government.
External Environment
In-Q-Tel engages with entrepreneurs, established companies, researchers, and
venture capitalists as part of its operations. Its ultimate client and marketplace for
the technology products it sponsors is the broader U.S. intelligence community. The
intelligence marketplace has been driven primarily by internal research and
development, catering to the unique approaches and needs of specific intelligence
organizations, both military and civilian. In-Q-Tel’s relationship with this broader
environment is as a broker of new intelligence innovations. Existing organizations
with on-going in-house technology development programs, such as federally funded
research and development centers or the Defense Advanced Research Projects
Agency, are likely to be reactive competitors to In-Q-Tel. Overall, In-Q-Tel,
203
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
however, exists in a homogeneous and munificent market environment. Most
customers in this environment want similar technology improvements.
Organizational Context
This venture, while initially funded by the Central Intelligence Agency, has
become operationally independent from the agency. Indeed, its mission is research
and development and technology transfer in stark contrast to the operating style of its
parent and client organizations. The relationship between In-Q-Tel and its parent is
one where the agency is a sponsor, mentor, and advisor, and In-Q-Tel is a broker,
able to find technology producers in the marketplace and translate their technology
products for use in the intelligence community.
Venture Approach
In-Q-Tel is a hybrid of public and private sector business models using
venture capital to sponsor and deliver innovative intelligence technologies for use by
the Agency and the broader U.S. intelligence community. Operating in the
innovative and collaborative culture of a venture capital firm, In-Q-Tel is able to
draw upon a large pool of technology firms without the burdensome constraints of
federal procurement regulations. The agency has created In-Q-Tel to serve as a
flexible, entrepreneurial instrument for finding and transferring innovative
technologies to the intelligence community. Table 6.23 outlines the services it
provides to its parent organization.
204
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.23 Service Offerings of In-Q-Tel
Venture Unit Services Offered
Equity Investment
Team
B usiness plan review; Venture evaluation; Research and
developm ent funding; Product developm ent funding
Technology Team
T echnology identification; Product refinement; T echnology
evaluation
Interface Center
U ser needs analysis; C lient coordination; T echnology transfer
Source: In-Q -Tel w eb site 2003.
Feasibility
Investments by In-Q-Tel are made according to feasibility criteria employed
by typical venture capitalists in the private marketplace: uniqueness and
innovativeness of the technology; technology needs of the intelligence community;
the potential of the technology’s application; and the size of investment for value of
result produced.
Process
In-Q-Tel’s venture process is similar to those employed by corporate
venturing units of large corporations. Traditional equity investments are made in
emerging or established companies that are developing new technologies applicable
to the intelligence community’s needs. When technologies are at the product
development stage, In-Q-Tel provides product development funding and technology
expertise to bring those products to maturity and applicability for its clients in the
intelligence community. This range of capabilities enables In-Q-Tel to build
relationships with technology entrepreneurs who are among the most innovative in
their field.
205
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Structure
In-Q-Tel’s organizational structure is a hybrid of public and private sector
business models. Its three units, an equity investment arm, a technology transfer
arm, and a client interface center, are independent of the Central Intelligence Agency
but serve as a link between the agency and emerging technologies in the commercial
marketplace. In-Q-Tel bridges the public and private sectors by acting as a venture
capital investment firm that delivers technology products to intelligence community
clients.
Strategy and Performance
In-Q-Tel has expanded beyond traditional relationships within the
intelligence community to embrace research and development communities outside
of government including commercial companies and technology research centers.
This strategy has enabled the intelligence community to draw upon a broader array
of innovations and new technologies than it could have if it was limited to
technology development in-house. Priority areas for In-Q-Tel investment include:
internet search and discovery technologies, tools for information security and
privacy, geospatial information systems, and enterprise knowledge management
systems. Investments between $1 million and $3 million are generally made for each
venture.
Venture Outcomes
In-Q-Tel’s goal is to invest in entrepreneurial ventures that have potential for
high growth in the technology marketplace. Since beginning operations in 1999, In-
206
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Q-Tel has evaluated over 2,500 new technology venture proposals that could benefit
the intelligence community. As of 2003, In-Q-Tel’s portfolio contained more than
20 investments in a range of technology ventures.
Summary
Table 6.24 summarizes the presence of internal corporate venturing
characteristics in the In-Q-Tel venture.
207
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.24 Internal Venture Characteristics of In-Q-Tel
Internal
Venture
Elements
In Private Sector
Ventures
In In-Q-Tel Venture
Antecedents
Market interpretation Strong effort m ade to interpret
technology needs o f the governm ent
intelligence com m unity.
Environmental trend tracking Som e evidence o f trend tracking in
information technology fields.
Venture
Approach
Opportunity recognition In-Q -T el’s basic m ission is to foster
opportunity recognition o f technology
applications for the intelligence
com m unity.
Opportunity screening In-Q -Tel screens technology proposals
from private sector businesses and
research institutions.
Feasibility
B usiness case presented B usiness plans evaluated as a basis for
funding.
V enture funding provided In-Q -T el uses a venture capital fund to
support technology research for the
agency.
Organization
Venture unit defined and
located
In-Q -Tel is independent o f the agency
and located separately.
Venture role definition R oles include technology and business
evaluation, sim ilar to a traditional
venture capital organization.
Strategy
Venture parent support Strong parent organization support
from the agency and other governm ent
intelligence organizations that endorse
this entrepreneurial approach to finding
solutions.
C ham pioning behavior In-Q -Tel m anagers exhibit
cham pioning behavior.
R isk managem ent R isk is m anaged by m aintaining a
diverse portfolio o f investm ents in a
range o f techn ology com panies.
Venture
Outcomes
Profitability/cost savings Profitability, per se, is not the goal;
rather, discovery o f innovations in the
intelligence field is the primary goal.
Firm worth/internal value The venture has high internal value
w ithin the agency for its operating
flexibility to achieve its goals.
Market worth/external value The venture has high external value to
organizations in the governm ent
1 intelligence com m unity.
208
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Cross-Case Analyses
Each of the 12 cases is analyzed to identify factors that influence its venture.
Factors used in this comparative analysis include: environmental influences, business
model approach, feasibility testing, venture location, venture strategy, and venture
outcomes. Following a brief description of the factor and its aspects, occurrence of
the factor in each case is described. A discussion of the pattern of these occurrences
provides conclusions about similarities and differences between franchise service
ventures and other federal agency internal ventures. Conclusions about the
believability of antecedent propositions developed in chapter 4 are presented below.
Description o f Environmental Influences
Environmental influences can be classified along a dimension of their
receptiveness to a venture’s entry into the marketplace. A munificent environment
indicates numerous potential customers for the venture’s service offering and few if
any competitors. A neutral environment indicates a reasonable number of potential
customers with a modest number of competitors and a reasonable expectation that
the venture will be able to serve them. A hostile environment indicates a limited
customer base and the presence of numerous competitors. These three aspects of a
venture’s environment represent its primary sources of environmental influence.
Table 6.25 outlines the pattern of these influences for each case.
209
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.25 Environmental Influences on Internal Ventures
Internal
Venture Cases
Environmental Conditions Influencing the Venture
Munificent
Environment
Neutral
Environment
Hostile
Environment
T r e a s u r y
Franchises
E xpansive grow th o f
fairly unique financial
m anagem ent services.
Commerce
Franchises
Fair market potential
within Commerce.
Lim ited external
market potential.
HHS Franchises
FOH has w ide
applicability for its
services w ith no real
competitors.
PSCs have fair market
potential w ithin HHS.
PSC s have
numerous
com petitors outside
HHS
Interior
Franchises
Large custom er base
outside o f Interior;
many com petitors
DVA
Franchises
Franchises focused
m ostly on internal
D V A customers.
EPA Franchises
M any competitors;
O nly basic services
offered; Lim ited
external market.
GovWorks
Venture
Specialty service
offering has w ide appeal
to agency customers.
DRMS Venture
Though lim ited to D oD
custom er base, DRM S
has near m onopoly on
this service.
National
Finance Center
Broad custom er base
w ith and established
track record; few
competitors.
Forest Service
Enterprises
C ustom er types limited
only by em ployee-ow ner
expertise o f enterprises.
Market area lim ited in
scale geographically.
NIST Proposal
Review Venture
Potentially broad
governm ent-w ide
custom er base.
In-Q-Tel
Venture
Though lim ited to
intelligence comm unity
as a marketplace, this
venture’s unique
offerings have no
competitors.
210
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions on Environmental Influences
Environmental munificence plays a significant role in the potential
marketability of an internal venture’s services. While several franchises
demonstrated some competitiveness outside their own organization, most had limited
success in the external agency marketplace. The proposition that complex and
dynamic environmental conditions are positively associated with increased internal
venturing activity applies more to independent internal agency ventures than to
franchises. The proposition that single-focus program agencies will be negatively
associated with internal venturing activity is borne out by the Environmental
Protection Agency experience that has limited its franchise offerings to two basic
administrative support services within the agency itself.
Discussion o f Business Models
A business model is a shorthand way of describing just how a venture
operates to meet its goal of producing value. An efficiency-centered model seeks to
improve operations and process, by creating improved efficiency for the delivery of a
service or product. A profit-centered model seeks to maximize the return on
investment made in the venture. An innovation-centered model seeks to create new
and novel results that enable either improved efficiency or increased profits, or both.
These three business models characterize most venture activity. Table 6.26 outlines
which business models are employed in each case.
211
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.26 Business Models Used for Internal Venture Formation
Internal
Venture Cases
Business Model
Efficiency-
Centered
Profit-Centered Innovation-
Centered
Treasury
F r a n c h is e s
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
Commerce
Franchises
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
HHS Franchises
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
Som e innovations
sought b y FOH
services.
Interior
Franchises
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
DVA
Franchises
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
EPA Franchises
Cost-reimbursable
services seek cost
savings and venture unit
sustainability.
GovWorks
Venture
Goal o f creating
self-supporting and
profitable business
for existing staff
Innovations in
acquisition process as
goal.
DRMS Venture
G oal o f profitability
& w aste elim ination
National
Finance Center
C ost-savings goal. Innovative financial
m anagem ent goals.
Forest Service
Enterprises
Goal o f creating
self-supporting and
profitable business
for existing staff.
NIST Proposal
Review Venture
G oal o f creating
self-supporting and
profitable business
for existing staff.
In-Q-Tel
Venture
Profitability goal to
sustain venture
capital investm ents
Innovative
technologies as goal.
212
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions on Business Models
All the franchises operate as efficiency-based models while most of the
independent internal agency ventures are profit-centered and innovation-centered.
This is accounted for by the original franchise fund pilot designations that initially
constrained service offerings to administrative support services. Where franchises
were aggressive in search of new markets (in the case of Interior and FOH), revenues
were high enough to provide a comfortable level of profitability and sustain the
franchise unit. Where franchises were not aggressive (in the case of EPA), their
revenues only sustained operations at existing levels with some efficiency gains.
Ventures seeking innovations coupled that goal with profitability in order to achieve
success.
Discussion o f Feasibility Testing
Testing the feasibility of a venture idea early in the process is a fairly
common step. Three forms of feasibility testing comprise the approaches employed
to the internal ventures studied here. Screening criteria are the most basic feasibility
test. Under this approach, if a venture concept meets basic criteria to fit
operationally within the parent organization, it is usually acceptable. A second
feasibility test, the business case, is more demanding. Here the logic of functionality
and profitability are described in addition to the venture’s fit within the parent
organization. A third feasibility test, the business plan, is an elaborate explanation of
how the venture will enter the marketplace, how it will operate, and how it will
produce a valued result. Table 6.27 outlines feasibility tests used in each case.
213
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.27 Feasibility Tests Used for Internal Ventures
Internal
Venture Cases
Venture Feasibility Tests
Screening Criteria Business Case Full Business
Plan
Treasury
Franchises
D etailed risk assessm ents
and screening criteria for
new franchises.
Commerce
Franchises
Franchise fund board
screens n ew proposals.
HHS Franchises
N ew franchise units
w ould be screened for fit
into the PSC format.
Interior
Franchises
N o specific criteria
stated.
DVA
Franchises
Seven feasibility
questions used to screen
new franchise proposals.
EPA Franchises
Elaborate screening
criteria developed, but
not applied for new
franchises in EPA.
Gov Works
Venture
Feasibility for new
business based on level o f
staff com petence in a
given subject area.
DRMS Venture
B usiness case made
after potential was
identified in a
reinvention lab effort.
National
Finance Center
N o specific criteria
stated; the center already
did cross-servicing before
franchise fund m ovem ent.
Forest Service
Enterprises
Formal business
plans required for
new venture
consideration.
NIST Proposal
Review Venture
Formal business
plan prepared for
this venture; not
required by N IST.
In-Q-Tel
Venture
Formal business
plan prepared to
initiate In-Q-Tel;
each new venture
considered requires
a business plan.
214
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions on Feasibility Testing
Except at Interior, all the franchises employ screening criteria for evaluating
the feasibility of new ventures. Use of screening criteria represents the most basic
level of feasibility determination, and is consistent with the low-risk administrative
support services offered by most franchises. Feasibility tests for other internal
ventures vary depending on their organizational context. Where ventures are highly
entrepreneurial, a full business plan is required for evaluation. This seems
appropriate where risks are relatively high and where staff resources are highly
committed to the venture. The proposition that the level of opportunity recognition
is positively associated with the degree of definition of the internal venturing process
(as manifested in its business plan) applies to the three independent agency ventures
with business plans. Their venture process is well structured from concept to
implementation.
Discussion o f Venture Organization and Location
Whether an internal venture is appropriately located within the parent
organization depends on its alignment with the organization’s mission and its
operation. Figure 4.2 Organizational Designs for Internal Ventures describes a
distribution pattern for nine types of internal ventures that align with operations or
strategy. The greater the alignment with an organization’s operations and strategy,
the more likely an internal venture will be integrated into the pattern of the parent
organization. The more the absence of alignment with an organization’s strategy and
operations the more likely an internal venture will be function as an independent
215
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
unit. Table 6.28 indicates the alignments resulting from the location of each internal
venture.
Table 6.28 Organizational Location of Internal Ventures
Internal
Venture Cases
Venture Location
Operationally Aligned Strategically Aligned
Treasury
Franchises
A ll franchise activities except the
Federal C onsulting Group, w hich
functions as an independent
business unit.
Commerce
Franchises
A ll franchise activities are
structurally and operationally
integrated.
HHS Franchises
PSC s are structurally and
operationally integrated.
FOH is aligned to the H H S m ission,
but functions as a special business
unit.
Interior
Franchises
A ll franchise activities are
structurally and operationally
integrated.
DVA
Franchises
M ost franchise activities are
structurally and operationally
integrated.
Several centers operate as special
business units.
EPA Franchises
f. .
A ll franchise activities are
structurally and operationally
integrated.
GovWorks
Venture
G ovW orks operates as an
independent business unit.
DRMS Venture
D R M S operates as an independent
business unit.
Forest Service
Enterprises
Enterprise centers are operationally
aligned to the Forest Service.
Owner-operator enterprises function
as independent business units.
National
Finance Center
A ll franchise activities are
structurally and operationally
integrated.
NIST Proposal
Review Venture
Proposal review venture functioned
as an independent business unit.
In-Q-Tel
Venture
In-Q -Tel functions as a com pletely
independent sp in -o ff venture.
216
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions on Venture Location
Location of an internal venture within the parent organization defines how
that venture operates and is treated by its parent. The proposition that a high degree
of internal venture unit alignment will be negatively associated with venture
autonomy applies to most of the franchise units. These units provide administrative
support services that are required within their parent organization as well as
marketed externally to other agencies. Unless the franchises can satisfy internal
customers, they will not be able to serve external customers. The proposition that
strong alignment of the internal venture unit to the mission of the parent organization
will be positively associated with increased venture activity applies to most of the
independent agency ventures. In those ventures, relevance to their parent
organization’s mission reinforces their ability to acquire new business as an
extension of the parent organization.
Discussion o f Venture Strategy
Venture strategy can be considered from three perspectives, in the spirit of
Porter’s (1980) generic strategies: cost leadership, differentiation, and focus. Cost
leadership emphasizes producing standard services (or products) at very low cost for
customers who are price-sensitive. Differentiation is aimed at producing unique
products or services that are directed at customers who are relatively insensitive to
their price. Focus means producing products or services that fulfill the needs of a
select group of customers. Table 6.29 outlines the strategies employed by each
venture.
217
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.29 Strategies Employed in Internal Ventures
Internal
Venture Cases
Strategy Employed
Cost Leadership Differentiation Focus
Treasury
F r a n c h is e s
Service quality and
low price strategy for
franchises
Commerce
Franchises
Service quality and
low price strategy for
franchises
HHS Franchises
Service quality and
low price strategy for
franchises
FOH offers unique
services to a broad
custom er base.
Interior
Franchises
Service quality and
low price strategy for
franchises
DVA
Franchises
Service quality and
lo w price strategy for
franchises
EPA Franchises
Service quality and
low price strategy for
franchises
GovWorks
Venture
U nique acquisition
service specialty to
broad custom er base.
DRMS Venture
R ecycling services
focused on D oD
custom er base.
Forest Service
Enterprises
Enterprise services are
unique.
Enterprise owner-
operators are focused
on niche market area
in California.
National
Finance Center
Service quality and
low price strategy for
franchises
Som e services, like
Thrift Savings Plan, are
unique offerings.
NIST Proposal
Review Venture
F ocused on proposal
review er custom er
market.
In-Q-Tel
Venture
F ocused on serving
the governm ent
intelligence
com m unity.
218
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions on Venture Strategy
The choice of strategy by an internal venture is often dictated by the market
opportunity it faces. Market opportunity for franchises defined by customers seeking
low-cost services as a substitute for their own resources. Franchises must adopt a
cost-leadership strategy to be competitive in a field of many ventures offering similar
services. Independent internal ventures exhibited a variety of strategies consistent
with their missions and staffing. The proposition that a high level of familiarity with
customers and their technology will be positively associated with increased venture
activity applies to most of the independent internal ventures.
Discussion o f Venture Outcomes
Ventures are expected to produce value if successful. That value can occur in
several forms. Internal worth, or firm worth, is the value accrued within the parent
organization from the venture’s activity. External worth, or market worth, is the
value provided to the marketplace or customer base. Public value can be produced in
either of these areas; it is reflected in an increase in worth to the general public, or
the public interest, from the venture’s products or services. Table 6.30 outlines the
value outcomes of each venture.
219
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Table 6.30 Value Outcomes of Internal Ventures
Internal
Venture Cases
Types of Value
Internal Worth External Worth Public Value
Treasury
Franchises
Reduction o f duplication;
im proved service quality.
Transfer o f best
practices.
R educed costs;
efficiency.
Commerce
Franchises
R eduction o f duplication;
im proved service quality.
R educed costs;
efficiency.
HHS Franchises
Reduction o f duplication;
im proved service quality.
U nique service
availability
Reduced costs;
efficiency.
Interior
Franchises
R eduction o f duplication;
im proved service quality.
R educed costs;
efficiency.
DVA
Franchises
Reduction o f duplication;
im proved service quality.
U nique service
availability
R educed costs;
efficiency.
EPA Franchises
Reduction o f duplication;
im proved service quality.
N one R educed costs;
efficiency.
•
GovWorks
Venture
Im proved acquisition
service quality for
Interior.
Innovative acquisition
practices; reduced
costs; efficien cy for
customers.
C ost savings. More
com petitive
acquisitions.
DRMS Venture
Im proved recycling
service quality for D oD .
Innovative recycling
practices; reduced
costs; efficien cy for
customers.
C ost savings.
Dem ilitarization o f
military weaponry.
Forest Service
Enterprises
Public service
commitment; em ployee
motivation.
E fficient custom er
service.
C ost savings.
National
Finance Center
Professionalism ; status
for U SD A .
Transfer o f best
practices.
C ost savings;
efficiency.
NIST Proposal
Review Venture
Innovative proposal
review process.
C ost savings;
efficiency.
In-Q-Tel
Venture
R eduction o f duplication
o f R& D services.
Innovative
technologies for
governm ent
intelligence
comm unity.
C ost savings;
efficiency; security.
Conclusions on Venture Outcomes
The value pattern for franchise units focuses primarily on the internal worth
provided to the parent organization through elimination of duplication and cost
220
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
reductions. Value produced by the independent internal ventures is more widely
applicable and includes the value added from innovations that are transferred to other
agencies and to the general public. In all cases, significant public value is created by
these internal ventures, though it may be difficult to measure.
Observations on Internal Venture Elements
The internal venture cases examined in this chapter reflect that internal
ventures comprise basic elements that existed in each case. Certain elements, like
environmental influences, process steps, and feasibility tests are common to nearly
all internal ventures. Internal ventures produce differing forms of value, but all
ultimately produce public value.
The patterns of venture element relationships and venture type relationships
discussed as part of this case study chapter are translated into a working venture
model format in the following chapter.
221
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 7
TESTING VENTURE MODEL FIT IN PUBLIC AGENCIES
Explanations of ICV Model Fit
This chapter compares how internal agency ventures fit the process and
relationship patterns described in the Internal Corporate Venture (ICV) working
model presented in chapter 5. For each of six factors, the operation of an ICV is
explained. Using this explanation, the study’s two research questions are addressed.
The first question—How do the internal venturing approaches employed in federal
agencies compare with ICV approaches employed widely in the private sector?—is
addressed for agency franchise activities and for other independent agency ventures
described in the case studies in chapter 6. The second question—how closely do the
venture patterns o f agency franchise activities and other internal agency ventures fit
with the internal venture working model described in chapter 5?—is addressed with
a description of how the working model fits with each venture factor. From that
analysis, theoretical propositions are drawn for each venture factor. These
propositions are translated into a refined working model of internal venturing
discussed in the next chapter.
222
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ICV Antecedents
As precursors to venture formation, venture antecedents affect how and why a
parent organization would form an internal venture. Antecedents include internal and
external influences such as market forces, the mission of the parent organization, and
the climate supporting entrepreneurship in that organization. In this explanation, other
external influences such as political, social, or policy actions are determined to have
broad influence on the context of an internal venture but are not directly instrumental in
its formation.
Market forces, which represent the most significant external influence on
venture formation, fall into three types. A heterogeneous market is complex with a
diverse range of potential customers. This heterogeneity suggests a wide range of
business opportunities that might be considered in the formation of an internal venture.
A munificent market is fully populated with potential customers. Munificence enables
easy market entry for a new venture, provided its offering is aligned with the needs and
interests of the market population. A hostile market has high levels of competition and
tends to limit new entrants and their range of venture offerings.
The mission and operational mode of the parent organization influence the
operating approach and type of internal venture offering. Alignment of a parent
organization’s mission with an internal venture’s mission influences how and whether
such a venture could be formed.
The climate for support of entrepreneurial activity in a parent organization is
another influence on venture formation. The degree of support for entrepreneurship
223
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
and venturing activity is a function of a parent organization’s mission, operating mode,
and leadership. Figure 7.1 illustrates the relationships of antecedent factors and internal
venture formation.
Figure 7.1 Internal Venture Antecedent Relationships
Degree o f Alignment
M arket
Forces
Internal
Venture
Form ation
Parent
O rganization’s
M ission
Parent Organization’s
Entrepreneurial Climate
Antecedent Fit with Franchise Ventures
Market forces affecting franchise ventures comprise the service needs of
agency units either within the franchise’s parent organization or in other federal
agencies. These market forces can be largely characterized as either neutral or
hostile, depending on whether the franchise’s services are offered within its parent
organization or in other federal agencies. Where franchises attempt to offer basic
administrative support services to other federal agencies, they encounter market
hostility in the form of competition from other franchises. Where franchises exist
within larger agencies, their market for administrative support services within that
parent organization is relatively strong. Where franchises offer unique services
224
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
(such as Federal Occupational Health services), their market is munificent and is
directly defined by the subscription of federal agencies to those services.
The alignment of franchise ventures with their parent organization’s mission
is indirect, with the exception of FOH. Given the generic nature of administrative
support services, any given franchise unit can perform them, suggesting that their
alignment with their parent organization is not significant.
Entrepreneurial support for franchise ventures exists although it does not
appear to make a significant difference in the amount and level of venture activity
pursued. Agency franchises are efficiency-seeking ventures that do not rely on the
support of an entrepreneurial climate from their parent organizations.
Antecedent Fit with Federal Agency Ventures
Market forces affecting other federal agency ventures tend to be munificent
since the customer base is broad and extends beyond their organizational parents. In
all cases, these ventures offer unique services that have little or no competition
elsewhere in the federal agency community.
Sponsorship of such ventures by their parent organization, independent of the
original Franchise Fund Pilot designations, indicates significant support for
entrepreneurial approaches. In most cases, these ventures are aligned with the
mission of their parent organization. Exceptions to this alignment are the GovWorks
venture and the National Finance Center. These two ventures have developed a
strong expertise in acquisition and financial management systems, respectively, and
function independently of their parent organization’s mission.
225
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Summary o f Antecedent Fit
In response to the research question of how federal internal venturing
approaches compare with internal corporate ventures in the private sector,
antecedents affecting federal franchise ventures and other agency internal ventures
clearly resemble those antecedent relationships found in the private sector. The
influence of such antecedents in other agency internal ventures, however, is more
evident than in franchises.
In response to the research question of how these antecedent factors fit the
working ICV model described in chapter 5, these propositions are offered:
• Internal ventures formed in the absence of a strong entrepreneurial climate
will likely be associated with a parent organization mission that is efficiency
driven.
• Agency internal ventures that receive strong support from their parent
organization will be aligned with that organization’s mission.
• Franchise ventures with limited external market opportunities will have
difficulty forming.
• Agency internal ventures with broad market opportunities will diverge from
their parent organization’s mission.
ICV Concept Identification
The heart of a venture’s formation lies in its business purpose. Ventures may
be formed to improve efficiencies, to exploit an opportunity, or to apply an
226
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
innovation. Each of these purposes is coupled with the underlying purpose of return
on investment that can occur in the form of cost savings, cost avoidance, or
profitability.
Among the factors influencing an internal venture concept is the mission of
the parent organization. Corporations are driven by a business mission and vision
that provide a framework for their strategy and operations, including their internal
venture initiatives. Part of an organization’s mission may include hosting research
and development activities that contribute to the creation of new products and
services. Research and development activity can also contribute to opportunity
recognition, which in turn leads to additional venture concepts that the organization
may consider.
Another factor contributing to the identification of venture concepts is the
innate creative insight of organizational members themselves. The entrepreneurial
literature terms such people intrapreneurs, or entrepreneurially minded employees
(or managers), who seek to form an entrepreneurial venture within an organization.
To translate these intentions into venture concepts, however, high personal
motivation must be present. Figure 7.2 illustrates the relationship of factors
contributing to the identification of an internal venture concept.
227
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 7.2 Internal Venture Concept Identification
Research &
D evelopm ent
Opportunity
R ecognition
M otivated
Intrapreneurs
Scanning Function
Venture
C oncept
Parent
Organization
M ission
Concept Identification Fit with Franchise Ventures
Federal franchise ventures focus primarily on efficiency and cost-reduction
measures. Their administrative support services tend to focus on quality and low
cost as a venture concept. This venture concept has been dictated by Franchise Fund
legislation and leaves little room for the internal entrepreneurial creativity that is an
expected part of internal ventures in the private sector. Since the franchises are
driven by a legislative mandate, the mission of their organizational parent appears to
play a minimal role in shaping the franchise concept. Opportunities for franchises
are limited to the singular category of administrative support service offerings.
Concept Identification Fit with Federal Agency Ventures
Federal agency ventures focus primarily on profit and activities that sustain
their ability to offer innovative services and products. The initiative for these
venture concepts grew from recognition of entrepreneurial opportunities by
228
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
motivated public service employees. In some cases reinvention labs sponsored by
the National Performance Review were a stimulus for those entrepreneurial
opportunities. In all cases except the National Finance Center the concepts of these
ventures were aligned with the missions of their parent organizations.
Summary o f Venture Concept Fit
In response to the question of how federal internal venture concepts are
formed as compared with those in the private sector, clearly venture concepts are
formed differently in the public sector from the way they are formed in the private
sector. This difference is explained by the relatively structured and limited purposes
of public agencies and the relatively open-ended missions and purposes of private
sector organizations. In addition, while both public and private sector organizations
have creative employees and managers in their ranks, incentives and motivations to
pursue entrepreneurial opportunities give greater latitude for venture concepts in the
private sector. Finally, while private sector organizations sponsor deliberate research
and development efforts that will contribute to new venture concepts, the public
sector has only recently fostered efforts to identify innovative opportunities that can
lead to a new venture concept.
In response to the research question of how these venture concept
identification factors fit with the working ICV model described in chapter 5, these
propositions are offered:
• Parent organizations with limited reinvention lab experience will have a
limited range of internal venture concepts.
229
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• Parent organizations with an external scanning function will be more likely to
identify a broader range of internal venture concepts.
• Parent organizations with significant reinvention lab experience will be
associated with increased numbers of motivated intrapreneurs.
• Parent organizations with narrowly defined missions will be associated with
narrowly defined venture concepts.
Feasibility Testing
Many factors are considered in the determination of a venture’s feasibility.
Unlike an external venture or solo entrepreneurial enterprise where the marketplace
is the primary determinant of feasibility, internal ventures must meet that external
test as well as an internal test of venture fitness. Internal tests of venture feasibility
address the venture’s alignment with the mission of its parent organization, a
convincing presentation of the venture’s business case, and the type and level of
funding and resource support it receives.
Externally, the market potential of a venture can be assessed according to the
number of likely customers, the extent and type of competition, and the quality and
uniqueness of the venture’s offering. Market size is a function of the customer
population and its need for venture offerings. Competitors may provide the same
services or products as a venture, or their offerings may be similar enough for
customers to consider them a suitable substitute for the venture’s offerings. Where a
230
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
venture’s offering has uniqueness and high quality, it can be competitive and have
market potential.
Internally, a venture’s fit can be determined by its degree of alignment with
the parent organization’s mission and purpose. Where alignment is clear, ventures
are more likely to be considered. The business case (or business plan) is the primary
tool for communicating the venture’s feasibility. Typically, a review process and
review panel are used to determine whether an internal venture is in the best interest
of the parent organization. This review process is part of the organizational
governance of internal venture development. Once approved, the venture either
seeks funding and support from internal sources or begins operating in a “bootstrap”
mode to demonstrate its market potential and worthiness for support. Figure 7.3
describes the internal venture feasibility testing process.
Figure 7.3 Internal Venture Feasibility Testing
M ission
A lignm ent
R eview
Board
Market
Potential
Funding
& R esources
B usiness
Plan
V enture
Feasibility
231
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Feasibility Testing Fit with Franchise Ventures
Market potential for franchise ventures is limited to administrative support
services provided to other federal agencies. This customer base is broad and
suggests positive feasibility for franchise ventures. But franchise ventures can
encounter significant competition from other agency franchises with the same or
similar offerings. If quality and uniqueness aspects of franchise offerings are not
greatly different from other franchise competitors, it may be concluded that market
feasibility is likely based on a franchise’s ability to be competitive on a cost basis.
There are limited screening tests of a franchise’s fit within its parent
organization. The Franchise Fund Pilot legislation directed agencies to determine
the feasibility of their franchise offerings. Most agencies, with the exception of
Environmental Protection Agency and Department of Veterans Affairs, embarked on
a wide array of administrative support service offerings without any significant
feasibility process. The internal fit of most franchises was relatively straightforward
since administrative support services are a standard part of every agency’s functions.
Funding and resource support for franchises were based on the feasibility test of
whether the franchise could sustain itself on a cost-reimbursable basis from year to
year.
Feasibility Testing Fit with Federal Agency Ventures
Market potential for agency ventures is considerably broader than for
franchises. Agency ventures can test the feasibility of their market potential widely
232
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in the federal agency marketplace. In most cases, federal agency ventures studied
here consider the entire range of federal agencies as their customer population.
The feasibility of a federal agency venture’s internal fit is determined in
numerous ways. Business cases and review boards are employed for Forest Service
Enterprises. The In-Q-Tel venture employs a business plan review process to
determine funding support for proposed technology projects. The NIST venture was
initiated with a formal business plan as a basis for determining its feasibility.
Overall, agency ventures are more likely than franchises to employ feasibility
testing.
Summary o f Feasibility Testing Fit
In response to the research question of how these venture feasibility-testing
factors fit with the working ICV model described in chapter 5, these propositions are
offered:
• Venture feasibility will be positively associated with a governance process in
the parent organization that employs reviews of venture business plans.
• Venture feasibility will be positively associated with clear demonstration of
market potential.
• Venture feasibility will be positively associated with early venture funding
and resource support.
• Venture feasibility will be positively associated with close alignment with the
mission of the parent organization.
233
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Organization
All ventures have a structural pattern that reflects the nature of their status as
start-up organizations. Simple, direct lines of authority and functional definitions of
roles are the norm. Another dimension of an internal venture organization is its
location within the parent organization. These two factors, structure and location,
are interrelated. In the development of an internal venture, its concept determines
how it aligns with its parent organization.
Important variables in the alignment of an internal venture with its parent
organization include the strategic importance of the venture to the parent and the
operational relatedness of the venture to the parent. Depending on that alignment,
the venture’s location will be either more integrated or more independent of the
parent organization. Figure 7.4 describes internal venture organization factors.
Figure 7.4 Internal Venture Organizational Relationships
Venture
Location
Internal
Venture
Concept
Operational
R elatedness
Strategic
Importance
Venture
Organization
Parent
Organizational
Structure
234
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Organization Fit with Franchise Ventures
By their nature, franchises are operationally aligned with their parent
organizations. Their venture structure and location are similar to the structure and
location they had when administrative support services were an integral part of their
parent organization. Franchises tend to be less directly aligned with their parent’s
mission or strategy since the franchise concept of providing administrative services
is generic to any federal organization. Exceptions to these alignments include the
Federal Occupational Health franchise and the storage vault service of the DVA.
These two internal ventures offer unique services unlike their franchise brethren in
other agencies.
Organization Fit with Federal Agency Ventures
Most federal agency ventures studied here are strategically aligned with their
parent organization while their organizational structure is independent. Exceptions
to this pattern are the GovWorks venture and the Forest Service Enterprises.
GovWorks is located within the Department of the Interior structure but operates
independently as an acquisition service venture for other federal agencies. Forest
Service Enterprises are also embedded within the Forest Service but operate
numerous independent services beyond their organizational boundaries.
Summary o f Organization Fit
The organizational fit of both franchises and federal agency ventures reflects
the organizational relationship patterns found in private sector internal ventures. In
235
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
response to the research question of how these venture organization factors fit with
the working ICV model described in chapter 5, these propositions are offered:
• An internal venture’s location will be a function of its operational relatedness
to the parent organization.
• The strategic alignment of an internal venture’s concept will determine its
organizational structure.
• A high degree of structure in a parent organization will limit the range of
internal venture concepts that are proposed.
• Flexibility of an internal venture’s organizational location will be positively
associated with a low degree of structure in the parent organization.
Strategy
Internal venture strategy is the result of many factors and is rooted in the
venture’s concept. Following a trail of relationships once the venture concept is
formed, the parent organization as venture sponsor evaluates the feasibility of the
venture. Two considerations in this evaluation are: (1) the risk associated with
pursuing the venture, and (2) the degree of familiarity the parent organization has
with the venture concept. This evaluation role is played by the parent organization
and is one part of strategy management. The other part is management of the
venture itself.
The venture team responsible for launching and sustaining the venture’s
strategy is influenced by two factors: (1) the degree of championing behavior
236
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
exhibited by the venture leadership and sponsors, and (2) the type and extent of the
reward system that provides incentives for this championing behavior. While it is
recognized that in the private sector reward systems are primarily extrinsic in the
form of cash and equity, it is clear that the public sector has a different range of
reward systems. It may also be noted, however, that intrinsic rewards for internal
ventures are significant forms of motivation for internal venture team members.
Together, the venture concept, parent organization management, and venture
organization management accommodate influences that affect them and contribute to
the internal venture’s strategy. Figure 7.5 describes the relationships of factors
affecting internal venture strategy.
Figure 7.5 Internal Venture Strategy Relationships
Venture
Concept
Venture
Strategy
Reward
System
Cham pioning
Behavior
Venture
Familiarity
Risk
M anagem ent
Venture
Organization
M anagem ent
Parent
Organization
M anagem ent
Strategy Fit with Franchise Ventures
Franchises have tended to pursue a cost-leadership strategy. This is the
logical result of directives in the Franchise Fund legislation. Parent agencies are
237
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
asked to sponsor internal ventures that are relatively simple and very familiar.
Administrative support services represent the most familiar and common set of
services for an internal venture offering. Parent agencies have also engaged in risk
management by requiring (as the Franchise Fund legislation mandates) that each
franchise be self-sustaining and cost reimbursable. In this sense, the parent agency
contributes to internal venture management by setting requirements for performance
and enforcing them. The consequence of franchise failure for the parent agency is
limited because of the numerous other franchises available to provide basic
administrative support services.
Management of the franchise itself is a function of entrepreneurial leadership.
This championing behavior is driven by individual motivation and the recognition
that comes from the parent organization in the form of intrinsic rewards. Franchise
managers focus more on running the franchise efficiently with good quality service
than aggressively expanding their operations. As such, their strategy is a defensive
one, designed for limited growth and retaining the level of business that each has.
Strategy Fit with Federal Agency Ventures
Agency ventures studied here exhibit a range of strategies from cost
leadership, to differentiation and to focus. This range of strategies indicates the
diversity of concepts and relationships with the parent organization associated with
these internal ventures.
In most agency ventures, the management of the parent organization is
supportive and familiar with its concept and strategy. The In-Q-Tel venture is a
238
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
direct expression of a parent organization’s sponsorship of a strategy it could not
pursue by itself. Risk management of agency ventures is evident in the degree of
support and sponsorship provided by parent organizations. One example of this is
the National Finance Center’s operation in a facility distant from USDA
headquarters; the Center provides financial management services government wide,
well beyond the specific needs of the department.
Championing behavior is evident in these agency ventures in the form of
aggressive marketing and expansive growth for their service offerings. Venture
managers are not content to operate in a steady state. Rather, they see growth of
their ventures as a contribution to public value and find these intrinsic rewards as a
source of motivation.
Summary o f Strategy Fit
In response to the research question of how these venture strategy factors fit
with the working ICV model described in chapter 5, these propositions are offered:
• High familiarity with the internal venture concept will be positively
associated with reduced risk-management by the parent organization.
• Championing behavior will be positively associated with a defined reward
system.
• A successful venture strategy will be positively associated with close
cooperation between the parent organization and the venture team.
• A primary strategy of cost leadership will be positively associated with low-
growth, stable ventures.
239
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Outcomes
The outcomes of internal ventures in the private sector are measured in
several ways. Typically, profit and return on investment are the primary metrics.
Other less measurable outcomes include value that accrues to the venturing
organization and its parent. These outcomes may include experiential value and an
expanded knowledge base. Forms of external value produced by ventures include
customer satisfaction, improved quality, and good will for the parent company.
These outcomes depend on the nature and intention of the venture concept
and ultimately on the level of venture performance. Venture outcomes ultimately
produce worth internally for the parent organization and externally for recipients of
value-added services or products. Public value as a venture outcome can be
characterized as a cost saving or a cost reduction in a public sector entity that
improves a public service offering or has reduced tax burden consequences. Figure
7.6 illustrates the factors that contribute to venture outcomes.
Figure 7.6 Internal Venture Outcome Relationships
Venture
Performance
Venture
O utcom es
Customer
V alue
Internal
Firm V alue
Profit
240
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Outcomes Fit with Franchise Ventures
Franchise ventures have outcomes that produce value in several ways. The
primary result of franchise ventures is to reduce duplication of administrative
services in federal agencies leading to cost savings and efficiencies that increase
public value. Several franchises, such as Treasury’s Federal Consulting Group and
the Federal Occupational Health group at HHS, have created external worth as well.
This value shows up in the form of transferable best practices and unique service
availability to sustain the federal work force.
Outcomes Fit with Federal Agency Ventures
Agency ventures have a broader range of outcomes than franchises. Most
create value in all three areas of internal worth, external worth, and public value. For
example, in the form of internal worth the National Finance Center produces
professionalism and status for the USD A; in the form of external worth, it provides a
transfer of best practices to other federal agencies for financial management and; in
the form of public value it delivers cost savings and efficiency in the payroll and
thrift savings systems for other federal agencies.
Summary o f Outcomes Fit
In response to the research question of how these venture outcome factors fit
with the working ICV model described in chapter 5, these propositions are offered:
• Ventures that produce high levels of market worth will be positively
associated with a loyal customer base.
241
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
• Ventures that produce high levels of internal worth will be positively
associated with strong support from their parent organization.
• Ventures that are associated with a reinvention lab experience will seek
innovative methods to produce value outcomes.
• Ventures that emphasize profit and return on investment will be positively
associated with a reward system for venture team members.
Summary Findings
The preceding analysis addresses the research question about the
comparability internal ventures in the public and private sectors. It shows that
internal venturing approaches such as franchises and agency ventures clearly have
elements and factors found in internal corporate ventures in the private sector. While
not all factors directly mirror their counterparts in private sector internal ventures,
the federal agency internal ventures studied here contain key elements and respond
to influences similar to those in the private sector.
Addressing the question of whether factors, patterns, and relationships of the
internal agency ventures studied here can be represented by the working model of
internal ventures described in chapter 5, clearly there are many aspects of agency
ventures that fit into the model’s pattern and format. Propositions built from an
analysis of case studies, research in the literature, and this researcher’s own insights
express those factors, patterns, and relationships of the internal venturing process.
242
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
The following chapter develops a formal theory of public agency venturing
using a modified version of the internal venturing working model developed in
chapter 5.
243
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
CHAPTER 8
TOWARD A THEORY OF INTERNAL AGENCY VENTURING
Glaser and Strauss (1967) make a distinction between grounded substantive
theory that focuses on empirical methods and grounded formal theory that employs
conceptual methods to derive a result. Formal theories are more abstract and general
than the substantive theories from which they are derived. This study relies on
conceptual methods to derive a formal theory of internal venturing in public agencies
represented in a model of internal agency venturing. The model presented here
depicts critical elements of an internal agency venture (IAV) in the expectation that
such a model will be a guide for establishing appropriate and successful internal
ventures in public agencies.
This chapter presents a formal-theory explanation of IAVs and translates it
into a model format. The presentation then states conclusions and observations
about the research findings and discusses implications for the role of the model in the
practice of agency and program management. Finally, the analysis offers an agenda
for further investigation on internal venturing in public agencies.
244
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Corporate Venturing Explanations of Internal Agency Ventures
Innovation as an IA V Opportunity
As defined in chapter 2, innovation is an organizational-level process of
intentional change with the goal of producing a new product, service, or process that
represents or delivers additional value to the users or adopters of the particular
innovation. Drucker (1985) makes the case that entrepreneurship is the logical
response where innovation presents an opportunity for a new venture. Translating
this premise to a public agency, the presence of an innovation (in the form of a new
process, program or product, or management technique) can trigger the creation of
an IAV to implement that innovation and bring added value to a program
constituency or user community.
Antecedents as IA V Context
Antecedent factors comprise the relevant influences that precede the launch
of an internal venture. These antecedents can reside within a parent organization or
exist outside its boundary in a user community or marketplace. Internally,
antecedents include the entrepreneurial orientation of the parent organization, its
capacity to recognize new opportunity, its diversity of mission, and its program
offerings. Externally, antecedents include marketplace demand for services or
program offerings of the parent organization and levels of competition for those
offerings. These antecedents shape the nature of an IAV and influence its feasibility.
245
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Entrepreneurship in IA V Concepts
IAVs may be formed to improve efficiencies, exploit an opportunity, take
advantage of an innovation, or respond to an unmet need in the marketplace. In the
absence of specific mandates or program directives, venture concepts emerge
primarily from creative individuals within an organization who seek to exploit
opportunities that align with the organization’s mission. In all entrepreneurial
ventures, two underlying purposes must fit with the venture concept: a return on
investment to the entrepreneur and delivery of expected value to those receiving the
venture’s products or services. For an IAV to be successful, its entrepreneurial
concept must meet these conditions.
Market Demand in IA V Feasibility
Programs administered by the public sector organizations are the result of a
democratic, political process. The marketplace for determining need for a public
agency program is largely a measure of constituent capacity to translate a need into
legislation and subsequently into an operating program. Thus, most public agency
programs exist having survived the test of their political and legislative feasibility.
IAVs function within the framework of existing agency programs and exploit
opportunities to meet market needs.
Parental Fit in IA V Structure
An important feature of an internal venture is the relationship with its parent
organization. This relationship determines how the venture fits within the parent
organization and how it aligns with the operations and functions of the parent. Key
246
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
aspects of a venture concept’s alignment are its fit with the parent organization’s
mission and strategy and its fit with the parent’s operational format. To be
successful, an IAV’s structure must align appropriately with its parent’s mission and
operational pattern.
Championing Behavior in IA V Strategy
IAV strategy at the venture level is often different from the strategy of the
parent organization. Where a parent organization’s mission is the primary driver for
its strategy, an IAV’s strategy can be more flexible, since its goals are simpler and
more clearly defined. The key driver in IAV strategy is the managerial and
entrepreneurial behavior of the venture’s champion or venture manager. This
behavior is influenced by the champion’s individual motivational drive, a creative
ability to overcome obstacles in the venture, and the presence of a reward system for
venture success. Rewards may be in monetary form, or they may be intrinsic in the
form of personal satisfaction or acknowledgment from the parent organization or
other external sources.
Public Value in IA V Outcomes
Outcomes of IAVs can produce value in several ways. Internally, an IAV
can improve the operational efficiency of a parent organization by serving as a
vehicle to implement a managerial or process innovation. In some cases an IAV can
provide a monetary return to its parent organization or at least operate on a cost-
reimbursable basis so that its operation is at no additional cost to the parent
organization. Externally, an IAV can produce value for a user community elsewhere
247
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
in the public sector. The result of that value can be construed as a cost saving to the
general public in the form of reduced cost of governance and hence reduced need for
tax revenues to support the existing governance infrastructure.
Model of Internal Agency Venturing
In the literature, researchers describe theoretical models in a variety of ways.
The most common descriptions are model elements as components, model elements
in process steps, and model elements in relationship patterns. Each of these formats
is used to depict a theoretical explanation of internal agency venturing. These
depictions draw from the working ICV model described in chapter 5, the
interpretations of internal agency venture cases studied in chapter 6, and the testing
of ICV model fit discussed in chapter 7. These three depictions do not attempt to
embrace all the variables discussed in previous chapters. Rather, they serve as
perspectives from which to view the operations of an internal agency venture.
A Component Perspective o f IA V
In a component perspective of IAV, theory in the form of a framework
organizes and classifies key variables in an internal agency venture. One set of
variables includes individual characteristics such as expertise, personal motivation,
and entrepreneurial skills. Another set includes influences from the environment of
government, including sources of policy or program initiatives and innovation
opportunities. A third set of influences comes from the marketplace and includes
market demand and unmet needs. A fourth set of influences come from the venture’s
248
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
parent organization or agency and includes the agency’s mission and operating
approach. These four sets of influence affect the internal venture in each stage of its
process. Figure 8.1 describes the pattern of influence of these components.
Figure 8.1 A Component Perspective of IAV
Internal
Venture
Process
Policy and
Program
Environment
Innovation
Opportunity
Sources
Market
Environment
U ser N eed and
M arket Dem and
Sources
Individual Characteristics
Entrepreneurial Em ployees
Traits and M otivation
Parent Organization/Agency
M ission and Operating Approach
Venture Parent
249
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A Process Perspective o f IA V
In a process perspective of IAV, theory in the form of a sequence of activities
describes how a venture begins and sustains itself. While it is clear that these
activities do not always occur in a linear pattern, their sequence is representative of
an internal venture life cycle.
Public sector ventures are often triggered by events that present an
opportunity to respond to an innovation, a process improvement, or an unmet need
within the purview of an agency’s mission. To take advantage of that opportunity, a
venture concept is formed. The concept may take a variety of forms, but its main
purpose is to create new additional value. Once a venture concept is established, its
feasibility is tested. This can be done through limited tests such as matching the
concept to feasibility criteria or more elaborate testing such as evaluation by a review
board. If the venture is feasible, resources are assembled to support its launch and
operation. Resources such as entrepreneurial talent and funding are basic resources
needed to launch a venture. The venture team is managed with leadership,
championing behavior, and an operational structure suited to its unique purpose. As
the venture’s services or products are successfully delivered, it yields value for the
users of those services and products. This accrued value, termed a venture harvest,
and may result in cost savings, process improvements, an innovative solution to a
difficult problem, or the satisfaction of an unmet need. Figure 8.2 describes the
sequence of internal venture process steps.
250
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 8.2 A Process Perspective of IAV
Opportunity
Venture Concept
Venture Management
Feasibility
Resource Assembly
Venture Harvest
■ N ew L egislation or P olicy
■ Process N eed
■ U nm et N eed in the M arketplace
■ Innovative Insight
■ N ew Service
■ N ew M anagem ent Process
■ N ew Funding Path/Source
■ N ew use o f Expertise
■ Feasibility Criteria
■ Screening Process
■ B usiness Plan
■ R eview Board
■ Entrepreneurial Talent
■ Funding
■ Parent A gen cy Sponsorship
■ M arketing Support
■ C ham pioning Behavior
■ Venture Structure
■ Quality Performance
■ Parent A gen cy M onitoring
■ Return on Investm ent
■ Innovative Solution
■ Transfer o f Venture T echnique
■ Market Worth
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
A Relationship Perspective o f IA V
In a relationship perspective of IAV, theory causes and effects are expressed
in three phases of venture activity: the prelaunch phase, the operational phase, and
the outcomes phase. In each of these phases variables have specific relationships
with one another that contribute to the success or failure of the venture.
In the pre-launch phase, the venture’s concept is the result of environmental
antecedents and parent organization influences that affect it directly. These
influences also work through individual employees who have entrepreneurial
characteristics that affect the identification of a venture concept. New policies or
program initiatives and parent organization influences such as mission and operating
approach are the most significant antecedent influences on a venture concept. In the
operational phase, the venture’s location and design are influenced by the parent
organization’s mission and operating approach. Internally, the parent organization
influences the venture’s management througjj sponsorship and monitoring of its
operations. Externally, venture management is influenced by the market response to
its offering. In the venture outcome phase, a harvest produces two kinds of value:
internally, it produces firm worth, or a return to the parent organization that enhances
efficiencies and reduces costs; externally, it produces market worth, or value to
customers of the venture. This market worth may also result in a public good that
reduces overall costs of governance. Figure 8.3 describes relationships among these
factors.
252
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Figure 8.3 A Relationship Perspective of IAV
PreLaunch Phase
Operational
Phase
Outcomes Phase
Firm
Worth
Market
Worth
Market
Response
Sponsorship
Monitoring
Parent Organization
Influences
Venture
Location
& Design
Environmental
Antecedents
Internal Public
Value
External Agency
Value
Venture Concept
Venture Management
Individual
Characteristics
Venture Formation
Venture Harvest
253
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Conclusions and Observations
The initial research question of this study asked; How do internal venturing
approaches employed in federal agencies compare with Internal Corporate Venture
(ICV) approaches employed widely in the private sector? Table 8.1 compares the
two approaches according to six venture factors.
Table 8.1 Comparison of ICV and IAV Approaches
Venture
Factors
ICV Approach IAV Approach
Antecedents
A ffected by a w ide range o f
external forces, ICVs are
primarily influenced by the
marketplace; parent organization
influences are considered an
antecedent.
R ange o f antecedent influences
on IA V s is narrower than
private sector; m arketplace
lim ited to other governm ental
units’ needs; parent
organization influences are
similar to those o f ICVs.
Concept
Identification
Corporate m ission is not a
lim iting factor in identifying ICV
concepts; entrepreneurial clim ate
fosters more active identification
o f venture concepts.
A gen cy m issions tend to delim it
IA V concepts; lim ited
entrepreneurial clim ate tends to
lim it range o f venture concepts.
Feasibility
Testing
Fairly rigorous set o f feasibility
tests for ICVs.
R elatively lim ited feasibility
testing o f IA V s.
Organization
IC V organization format depends
on alignm ent o f venture to parent
organization’s corporate strategy
and operational format.
IA V organization format
largely resem bles existing
agency structures.
Strategy
ICV strategy is focused on profit,
return on investm ent, or research
and developm ent results.
IA V strategy is focused on
efficien cies and innovation
opportunities for lean
governm ent.
Outcomes
IC V outcom es are measured in
profit levels and internal measures
o f firm worth that produce private
wealth.
IA V outcom es are measured in
cost savings and process
im provem ents that produce
public value.
This study concluded that many similarities exist between ICVs and IAVs.
Key differences between them do not affect how they are explained or modeled.
254
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Their significant similarities provide a framework for interpreting and explaining the
IAV entrepreneurial phenomenon.
A second research question posed in this study asked; How closely do the
venture patterns o f agency franchise activities and other internal agency ventures fit
with a working version o f an internal agency venture model? Chapter 7 tested the fit
of a venture model for public agencies. Table 8.2 describes the degree of fit for
major elements of the IAV working model.
Table 8.2 Fit between Case Study Ventures and Working Model
Model
Elements
Fit with IAV Working Model
Antecedent
Relationships
A gen cy franchises are relatively free o f external influences; other IA V s
are m ore susceptible to antecedents and external influences because o f
their broader market reach and more broadly defined venture concepts.
Venture
Concept
Identification
Franchise concepts are narrowly defined as administrative support
service offerings and focus on efficiencies and cost-reduction measures;
other IA V s are more broadly defined, although they remain w ithin the
context o f the m ission o f their parent agency.
Feasibility
Testing
The six initial agency pilot franchises w ere established w ithout
feasibility testing; subsequent franchises have had lim ited feasibility
tests to determine their viability before they w ere launched; other IA V s
underwent a w ide range o f feasibility testing, from criteria application
to business plans and review boards.
Organizational
Relationships
A gen cy franchises are operationally and strategically aligned w ith their
parent organizations; other IA V s have a broader market base and tend
to not be aligned strategically to their parent organization.
Operationally, how ever, IA V s tend to be organizationally aligned with
their parent.
Venture
Strategy
A gen cy franchises have relatively sim ple, low -risk strategies o f
efficien cy and cost-reim bursem ent for their services; other IA V s have a
broader range o f strategies that incorporate innovation as a goal.
C ham pioning behavior and individual em ployee m otivation were
evident in IA V s w hile they w ere not evident in agency franchises.
Venture
Outcomes
The franchise concept tended to lim it the type o f outcom e for these
ventures to internal firm worth in the form o f cost savings and process
im provem ents. Several IA V s exhibited the potential for a return on
investm ent and an ability to create a public good in the form o f a direct
reduction in the cost o f governance. IA V s also added public value
through the transfer o f their innovative practices to other agency
ventures.
255
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
According to the findings of this study, private sector ICVs and public sector
IAVs resemble one another closely enough so that a similar model can explain their
phenomena. The findings also indicate that agency franchises are quite different
from other IAVs nurtured by federal agencies. Further, according to these findings,
internal venturing in public agencies is more likely to be successful if coupled with
either a process or service innovation. Finally, the study indicates that an internal
venture model could enable entrepreneurial employees and managers in public
agencies to understand the venturing process and apply it where appropriate
opportunities present themselves for creating additional public value.
Implications for Practice
A brief review of the factors and relationships embedded in the IAV working
model offers some practical suggestions for understanding the internal venturing
process and incorporating appropriate innovative opportunities into an internal
venture concept.
IA V Opportunity Selection
Sources of venture opportunity can be found by scanning the organizational
environment for trends that would trigger the need for and acceptability of a new
innovation. As part of a parent agency, such an environmental scanning function can
reveal innovation and venturing opportunities. This search for innovation
opportunity is mirrored by a search for market opportunity. There are four basic
market opportunities for internal ventures: (1) providing existing agency services to
256
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
an existing market; this is what the consolidated administrative service unit
franchises do within their own agencies; (2) providing existing services to other
agencies; some franchises do this now; (3) providing new services to internal agency
customers; this opportunity appears limited; and (4) providing new services to new
customers; this area opens up when a new innovative approach is incorporated into
an internal venture. Figure 8.4 illustrates these opportunities.
Figure 8.4 Sources of IAV Opportunities
Existing New
M arket M arket
Existing
Products
& Services
Existing
Services to
Internal
Customers
Existing
Services to
External
Markets
New
Products
& Services
Innovative
Offerings to
Internal
Customers
Innovative
Offerings to
External
Markets
Managing Antecedent Effects
Effects of antecedents on internal ventures are often overlooked. A way of
classifying antecedent effects is to separate internal from external effects and direct
from indirect effects. An area of direct control over antecedents is in the recognition
of opportunities and in developing a core competence. Basic training and knowledge
management strategies can address these antecedents. Indirectly, an agency can
257
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
foster an entrepreneurial climate oriented to its mission by providing incentives to
employees for creative initiatives that can be translated into ventures that support the
mission. Externally, parent agencies must identify potential competitors for the core
services they would expect to offer in an internal venture. Similarly, the size and
type of market demand for venture-based services would need to be clearly
understood. Figure 8.5 outlines these four areas of antecedent effects.
Figure 8.5 Antecedent Effects on IAVs
C Q
fl
i -
0 >
Direct Indirect
Opportunity Entre
Recognition preneurial
Climate
Core
Competence Mission
Economic
Climate Market
Demand
Competitors
9 t
a
u
W
Screening for IA V Feasibility
The level and type of feasibility screening for internal ventures depend on the
type of risk posed by the venture. Low-risk ventures are those requiring little
additional staff resources or capital where existing program or policy mandates
enable the formation of an internal venture. In these cases, venture feasibility can be
determined with a basic proposal and consensus approval from agency management.
258
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Ventures of higher risk are those not strictly aligned with the parent agency’s
mission or with its operating approach. In these cases, a full business plan and
formal review process are appropriate for determining the feasibility and
appropriateness of an internal agency venture. The development of feasibility
criteria can serve as a guide for would-be intrapreneurs in an agency. Key factors
include a determination of the fit of the venture with its parent and its fit with the
marketplace. Figure 8.6 portrays venture feasibility approaches.
Figure 8.6 IAV Feasibility Screening
f £ g f
a > — .2
J > f l §
t —
> . V i
> c s £
© 4> «
» J u. c /j
> & W >
^ S
A [ « 41
W > S J £
B tl, t /5
L ow Risk High Risk
Venture Business
Proposal Case
Business
Review Plan +
Panel Review
Panel
Managing IA V Fit with Structure
The structural fit of a venture within its parent organization is crucial for on
going sustainability. Where internal ventures closely resemble the purposes and
operating approaches of their parent agencies, they are likely to be more successful if
they are integrated directly into the fabric of their parent. Where internal ventures
259
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
are not aligned to their parent agency’s mission, but still perform services that are
related to the operations of that agency, they will require support from that agency to
be successful. Where internal ventures are aligned with a parent agency’s mission,
but have an operational approach very different from that agency, they will be
successful operating as an independent unit. Where an internal venture has little
relationship to the operations of its parent agency and is not aligned with the
agency’s mission, it can be successful as a separate independent organization.
Figure 8.7 illustrates these organizational relationships.
Figure 8.7 IAV Organizational Alignment
Strategic Im portance
a
-o
C J
1 3
Pi
7 3
a
_ o
‘ - C
a
i-
v
c .
O
J 3
0J3
4 ? S
£
o
-J
High Low
Integrate
Venture
Directly into
Parent
Organization
Nurturing
Support
by
Parent
Organization.
Independent
Venture Unit
Complete
Spin-off
From
Parent
Organization.
IA V Strategy Choices
Strategies chosen for internal ventures will vary according to the core
capabilities of the venture team and the purpose of the venture. Cost leadership
260
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
strategies are most successful where IAVs have teams with capabilities that enable
the venture to be highly competitive in markets with many other competitors. In this
case, an IAV’s potential for success will depend not only on its ability to be cost
reimbursable, but also to offer those services at a cost lower than its competitors.
Where IAVs have unique or innovative capabilities, they may effectively compete
for customers who recognize that the IAV has this unique capability and are willing
to pay a premium for it. Where IAVs have a core expertise or local advantage over
other competitors, they will be competitive for customers willing to pay for that
convenience and unique expertise. Figure 8.8 illustrates these strategic relationships.
Figure 8.8 IAV Competitive Strategies
Cost Leadership
[Sustained Cost-Reimbursable
Service Offerings]
Differentiation
[Innovative
Services]
Focus
[Limited Market
Segment]
IA V Championing and Leadership
Championing behavior is key to entrepreneurial leadership and internal
agency venture success. Venture champions assume their leadership roles more
effectively when conditions in the parent agency are supportive. That support may
261
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
come in the form of venture sponsors—upper-level managers in the parent agency
who lend their influence to the venture to get needed resources and remove barriers.
Support can also come from a reward and incentive system provided by the parent
agency. Where incentives to pursue an internal venture are high and an
entrepreneurial climate is present in the parent agency, championing behavior is
more likely to occur. Where these incentives are absent, IAVs may still be
successful, but will rely heavily on the public service ethic of venture team members.
Figure 8.9 illustrates relationships between venture championing and incentive
support.
Figure 8.9 IAV Championing Behavior
C ham pioning Behavior
U
«
I
g
[3
* C
s
4)
a
u
a
4 )
U
fl
w
£
o
W D
s
Low High
Ordinary Employee
Employee Frustration
Status
Reduced Motivated
Venture Employee +
Success Venture
Success
262
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
IA V Value Outcomes
Outcomes of an internal venture produce public value within a parent agency
and externally for customers or users outside of that agency. Franchises may
produce public value in both of these domains while other IAVs tend to produce
value for external agency customers. The nature of value produced by IAVs varies
according to their effectiveness. With their primary focus on administrative support
services, franchises have a limited potential for effectiveness. When their
effectiveness is high, the value they produce accrues primarily to their parent agency
in the form of increased efficiencies and cost savings. Where IAVs incorporate an
innovative service or delivery approach, they bring an added value not previously
available in the agency marketplace. Here IAVs produce both internal and external
value. Figure 8.10 illustrates relationships between venture value and effectiveness.
Figure 8.10 IAV Value Outcomes
Public Value
Low High
Low
Return
Some
Internal
Agency
Efficiencies
+
>
Reduced
Motivation
V
la
s
High Internal
Agency
Efficiencies
Internal and
External
Value
Produced
263
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Potential Research Agenda
Further research to extend the theoretical explanations of this study could
embrace several areas. One obvious area would be a broader and deeper series of
case studies on internal agency ventures. With a greater body of research on
entrepreneurial phenomena in government, greater clarity and definition would be
brought to the subject.
A second area of research that would expand the horizons of internal venture
consideration in public agencies is the process of venture opportunity identification.
Sources of venture opportunity exist throughout government in the form of process
needs, unmet user needs, difficult un-resolved problems, and un-shared knowledge
about innovations.
Another area of research would address the need for appropriate feasibility
criteria to establish an internal agency venture. Significantly, this study revealed that
little attention is given to this step in the venture process by public agencies as
compared to their private sector counterparts. Internal agency venture feasibility
criteria would be unique to the public sector and provide a framework for decisions
to support such ventures.
Another area of research would address the identification and clarification of
public value resulting from internal agency ventures specifically and entrepreneurial
activities by governments in general. Currently, the focus of attention is on cost-
savings and efficiency. Shedding light on the public value of innovations diffused
264
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
into the public sector through venture vehicles would expand the understanding of
public value and increase the potential for more of it.
Another area of research would address the sources of motivation for public
sector employees to take entrepreneurial initiatives. Clearly, more than incentives
play a role in championing behavior in public agencies. Significance of individual
traits, agency mission, and popular attention to policy issues are but a few of the
factors to consider in such research.
Another area of research would examine the public interest values associated
with an internal agency venture. As part of this research, an examination of the
ethics of entrepreneurial activity by government agencies would reveal potential
issues and conflicts that are currently perceived by those writing in the public
administration literature, but are not clearly explained. Such research could advance
our understanding of entrepreneurial government and clarify policies to shape it.
Concluding Note
In exploring the literature of corporate venturing, distilling a taxonomy of
key internal venture features, and translating them to a working model, this
dissertation has achieved its stated purpose. After an investigation of entrepreneurial
approaches employed in federal agencies, the working model was tested to determine
its fit with the venture cases studied. It was determined that a recognizable fit
existed between internal ventures in the corporate world and those in public
agencies. An iterative triangulation technique was used to develop a theoretical
265
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
model of internal agency venturing. It is hoped that the results of this study will
contribute to a deeper understanding of internal agency venturing and a more
effective realization of innovative approaches originated in public agencies.
266
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
SELECTED BIBLIOGRAPHY
Abramson, Mark A., and Ian D. Littman. 2002. Innovation. Lanham, Md.: Rowman
and Littlefield.
Abramson, Mark A., and Paul R. Lawrence. 2001. Transforming organizations.
Lanham, Md.: Rowman and Littlefield.
Agranoff, Robert, and Beryl A. Radin. 1991. The comparative case study approach in
public administration. In Research in public administration, vol. 1. Stamford:
JAI Press.
Aharoni, Yair. 1986. Different organizational forms in the public sector as a means for
creativity and innovation. In Frontiers in creative and innovative management.
Edited by Robert Lawrence Kuhn. Cambridge: Ballinger Publishing Company.
Albrecht, Karl, and Steven Albrecht. 1987. The creative corporation. Homewood,
1 1 1 : Dow Jones-Irwin.
Alterowitz, Ralph, with Jon Zonderman. 1988. New Corporate Ventures: How to
make them work. New York: John Wiley and Sons.
Altshuler, Alan, and Mark Zegans. 1990. Innovation and creativity: Comparisons
between public management and private enterprise. CITIES (February): lb-
24.
Altshuler, Alan A., and Robert D. Behn, eds. 1997. Innovation in American
government: Challenges, opportunities, and dilemmas. Washington, D.C.:
Brookings Institution Press.
Amabile, Teresa M. 1988. A model of creativity and innovation in organizations.
Research in Organizational Behavior 10: 123-67.
Bacharach, Samuel B. 1989. Organizational theories: Some criteria for evaluation.
Academy o f Management Review 14 (4): 496-515.
Bailey, Mary Timney. 1992. Do physicists use case studies? Thoughts on public
administration research. Public Administration Review 52 (1): 47-54.
267
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Behn, Robert D. 1995. The big questions of public management. Public Administration
Review 55 (4): 313-24.
Bell, C. Gordon, with John E. McNamara. 1991. High-tech ventures: The guide for
entrepreneurial success. Reading, Mass.: Addison-Wesley Publishing
Company.
Bellavita, Christopher. 1991. The public administrator as hero. Administration and
Society 23 (2): 155-85.
Bellone, Carl J., and George Frederick Goerl. 1992. Reconciling public
entrepreneurship and democracy. Public Administration Review 52 (2): 130-
34.
. 1993. In defense of civic-regarding entrepreneurship or helping wolves to
promote good citizenship. Public Administration Review 53 (4): 396-98.
Berry, Frances Stokes. 1994. Innovation in public management: The adoption of
strategic Planning. Public Administration Review 54 (4): 322-30.
Birkinshaw, Julian. 1999. The determinants and consequences of subsidiary initiative in
multinational corporations. Entrepreneurship Theory and Practice 24 (1): 9-36.
Block, Zenas, and Ian C. MacMillan. 1993. Corporate venturing: Creating new
business within the firm. Boston: Harvard Business School Press.
Borins, Sandford. 2000. Loose cannons and rule breakers, or enterprise leaders?
Some evidence about innovative public managers. Public Administration
Review 6 (60): 498-507.
Bourgeois, L.J. 1979. Toward a method of middle-range theorizing. Academy o f
Management Review 4 (3): 443-47.
Box, Richard C. 1999. Running government like a business: Implications for public
administration theory and practice. American Review o f Public Administration
29 (1): 19-43.
Bozeman, B. 1987. All organizations are public: Bridging public and private
organization theories. San Francisco: Jossey-Bass.
Brazeal, Deborah Virginia. 1993. Organizing for internally developed corporate
ventures. Journal o f Business Venturing 8: 75-90.
268
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Brower, Ralph S., and Mitchell Y. Abolafia. 1996. Procedural entrepreneurship:
Enacting alternative channels to administrative effectiveness. American
Review o f Public Administration 26 (3): 287-308.
Burgelman, Robert A. 1983. A process model of internal corporate venturing in the
diversified major firm. Administrative Science Quarterly June: 223-44.
. 1984. Designs for corporate entrepreneurship. California Management Review
26: 154-66.
Burgelman, R.A., and Leonard R. Sayles. 1986. Inside corporate innovation:
Strategy, structure, and management skills. New York: Free Press.
Burke, Catherine G. 1979. Innovation and public policy: The case ofpersonal rapid
transit. Lexington, Ma.: Lexington Books
Bums, T., and G.M. Stalker. 1961. The management o f innovation. London:
Tavistock.
Business Executives for National Security. 2001. Report o f the independent panel on
the CIA In-Q-Tel venture:
http://www.in-q-tel.com/news/attachments/BEN%20report.pdf
Bygrave, William D. 1994. The portable MBA in entrepreneurship. New York: John
Wiley and Sons.
Callahan, John J. 2002. Franchise funds in the federal government: Ending the
monopoly in service provision. Arlington, Va.: PriceWaterhouseCoopers
Endowment for the Business of Government.
Callahan, Kathe, and Marc Holzer. 1994. Rethinking governmental change: New
ideas, new partnerships. Public Productivity and Management Review 17
(3): 201-14.
Campbell, Donald T., and J.C. Stanley. 1963. Experimental and quasi-experimental
designs for research. Chicago: Rand McNally.
Carland, James W., Frank Hoy, William R. Boulton, and Jo Ann C. Carland. 1984.
Differentiating entrepreneurs from small business owners: A conceptualization.
Academy o f Management Review 9 (2): 356.
CFO Council. 1998. The Franchise Fund Pilot Program: A report to Congress.
Washington, D.C.: Chief Financial Officers Council.
269
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Chesborough, Henry W., and David J. Teece. 1996. When is virtual virtuous?
Organizing for innovation. Harvard Business Review 74 (1): 65-73.
Christensen, Clayton M., Paul Carlile, and David Sundahl. 2002. The process o f theory-
building. http://www.innosight.com/documents/theory%20Building.pdf.
Coffee, Joseph N. 1996. Creating entrepreneurial government: The franchising
movement. Public Administration Quarterly 20 (1): 71-88.
Corwin, Ronald D. 1983. The entrepreneurial bureaucracy: Biographies o f two
federal programs in education. Greenwich: JAI Press, Inc.
Covin, Jeffrey G., and Morgan P. Miles. 1999. Corporate entrepreneurship and the
pursuit of competitive advantage. Entrepreneurship Theory and Practice 23 (3):
47-63.
Denhardt, Robert B., and Janet Vinzant Denhardt. 2000. The new public service:
Serving rather than steering. Public Administration Review 60 (6): 549-59.
Dean, Joshua. 2000. Veterans Affairs entrepreneurs to enter new market. Government
Affairs Magazine. (April 10):
http://www.govexec.com/news/index.cfm?mode=report&articleid= 17020.
DeSarbo, Wayne, Ian C. MacMillan, and Diana L. Day. 1987. Criteria for corporate
venturing: Importance assigned by managers. Journal o f Business Venturing
2: 329-50.
Deutsch, Karl W. 1985. On theory and research in innovation. In Innovation in the
public sector, edited by Richard L. Merritt and Anna J. Merritt. Beverly
Hills: Sage Publications.
Dhillon, Jogindar S. 1995. Business plan for Proposal Review Program at the National
Institute of Standards and Technology. Typescript.
DiMaggio, Paul J. 1995. Comments on what theory is not. Administrative Science
Quarterly 40:391-97.
Diver, Colin S. 1982. Engineers and entrepreneurs: The dilemma of public
management. Journal o f Policy Analysis and Management 1 (3): 402-406.
Dobell A.R. 1989. The public administrator: God or entrepreneur? Or are they the same
in the public service? American Review o f Public Administration 19 (1): 1-11.
270
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Doig, Jameson W., and Erwin C. Hargrove. 1990. Leadership and innovation:
Entrepreneurs in government. Baltimore: Johns Hopkins University Press.
Drucker, Peter F. 1985. Innovation and entrepreneurship: Practice and principles.
New York: Harper & Row.
Eisenhardt, Kathleen M. 1989. Building theories from case study research. Academy o f
Management Review 14 (4): 532-50.
Ellis, R. Jeffrey, and Natalie T. Taylor. 1988. Success and failure in internal venture
strategy: An exploratory study. Paper presented at conference, Frontiers of
Entrepreneurship Research. Eighth annual Babson College Entrepreneurship
Research Conference, Wellesley, Massachusetts.
Ford Foundation and JFK School of Government at Harvard University. 1995.
Innovations in American government. New York: Ford Foundation.
Frankel, Charles, 1968. Relation of theory to practice: Some standard views. In Social
theory and social intervention, edited by Herman D. Stein. Cleveland: Case
Western Reserve University Press.
Friel, Brian. 1997. Federal franchisers. Government Executive Magazine (April 10):
http://www.govexec.com/dallvfed/0497/041097bl.htm.
. 2000. Federal agency battles private firm over trademark. Government
Executive Magazine (March 3): http://govexec.com/dailvfed/0300/0300b3.htm.
Frost, Peter J. and Carolyn P. Egri. 1991. The political process of innovation. In L.L.
Cummings and Barry M. Staw, eds. Research in organizational behavior 13:
229-95.
Gartner, William B. 1985. A conceptual framework for describing the phenomenon
of new venture creation. Academy o f Management Review 10: 696-706.
. 1990. What are we talking about when we talk about entrepreneurship?
Journal o f Business Venturing 5: 15-28.
Gartner, William B., and Sue Birley. 2002. Introduction to the special issue on
qualitative methods in entrepreneurship research. Journal o f Business
Venturing 17: 387-95.
Gartner, William B., Terence R. Mitchell, and Karl H. Vesper. 1989. A taxonomy of
new business ventures. Journal o f Business Venturing 4: 169-86.
271
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Grady, Dennis O. 1992. Promoting innovations in the public sector. Public
Productivity and Management Review 16(2): 157-71.
Glaser, Barney G., and Anselm L. Strauss. 1967. The discovery o f grounded theory.
Strategies for qualitative research. New York: De Gruyter.
Greene, Patricia G., Candida G. Brush, and Myra M. Hart. 1999. A corporate venture
champion: a resource-based approach to role and process. Entrepreneurship
Theory and Practice 23 (3): 103-22.
Gronhaug, Kjell, and Geir Kaufmann. 1988. Innovation: A cross-disciplinary
perspective. Bergen: Norwegian University Press.
Guba, Egon G., and Yvonna S. Lincoln. 1989. Fourth generation evaluation. Newbury
Park, Calif.: Sage Publications.
Guth, W.D., and A. Ginsberg. 1990. Guest editors’ introduction: Corporate
entrepreneurship. Strategic Management Journal ll(special issue): 5-15.
Hage, Jerald. 1972. Techniques and problems o f theory construction in sociology. New
York: John Wiley & Sons.
Halachmi, Arie, and Kenneth L. Nichols. 1996. Enterprise government: Franchising
and cross-servicing for administrative support. Burke, Va.: Chatelaine Press.
Herron, Lanny, and Harry J. Sapienza. 1992. The entrepreneur and the initiation of
new venture launch activities. Entrepreneurship Theory & Practice 17 (1):
49-55.
Hisrich, Robert D., and Michael P. Peters. 1986. Establishing a new business venture
unit within a firm. Journal o f Business Venturing 1: 307-22.
Holzer, M., and D. Olshfski. 1993. The availability of financial resources and
innovation, or is necessity the mother of invention? Paper presented at the
Region II ASP A Conference, October, Albany, New York.
Hornsby, Jeffrey S., Donald F. Kuratko, and Shaker A. Zahra. 2001. Middle
managers’ perceptions of the internal environment for corporate
entrepreneurship: Assessing a measurement scale. Journal o f Business
Venturing 17: 253-73.
272
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Homsby, Jeffrey S., et al. 1993. An interactive model of the corporate entrepreneurship
process. Entrepreneurship Theory and Practice 17 (2): 29-37.
Howell, Jane M., and Christopher A. Higgins. 1991. Champions of Change:
Identifying, understanding, and supporting champions of technological
innovations. Organization Dynamics 10 (1): 40-55.
In-Q-Tel. 2003. In-Q-Tel home page: http://www.in-q-tel.com.
Isaac, Stephen, and William B. Michael. 1974. Handbook in research and evaluation.
San Diego: Robert R. Knapp.
Jensen, Jason L., and Robert Rodgers. 2001. Cumulating the intellectual gold of case
study research. Public Administration Review 61 (2): 235-46.
Jick, Todd D. 1979. Mixing qualitative and quantitative methods: Triangulation in
action. Administrative Science Quarterly 24: 602-11.
Johnston, Van R., ed. 2000. Entrepreneurial management and public policy.
Hampton, N.Y.: Nova Science Publishers.
Kanter, R.M. 1983. The change masters: Innovation and entrepreneurship in the
American corporation. New York: Simon & Schuster.
Kanter, Rosabeth Moss, and Lisa Richardson. 1991. Engines of progress: Designing
and running entrepreneurial vehicles in established companies—the Enter-Prize
Program at Ohio Bell, 1985-1990. Journal o f Business Venturing 6: 209-29.
Kaplan, Abraham, 1964. The conduct ofinquiry: Methodology for behavioral science.
Scranton: Chandler Publishing Company.
Kent, Calvin A., and Sandra P. Wooten. 1987. Privatization: The entrepreneurial
response. In Entrepreneurship and the privatizing o f government, edited by
Calvin A. Kent. New York: Quorum Books.
Kerlinger, Fred N. 1973. The foundations o f behavioral research. New York: Holt,
Rinehart and Winston, Inc.
Kets de Vries, Manfred F.R. 1985. The dark side of entrepreneurship. Harvard
Business Review 63 (6): 160-67.
Kingdon, John W. 1984. Agendas, alternatives, and public politics. Boston: Little,
Brown.
273
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Kirlin, John L. 1996a. What government must do well: Creating value for society.
Journal o f Public Administration: Research and Theory 6: (1): 161-85.
. 1996b. The big questions of public administration in a democracy. Public
Administration Review 56 (5): 416-23.
Kirzner, Israel M. 1973. Entrepreneurs and the entrepreneurial function: A
commentary. In Entrepreneurship, edited by Joshua Ronen. Lexington,
Mass.: Lexington Books.
Klein, Katherine J., and Joann Speer Sorra. 1996. The challenge of innovation
implementation. Academy o f Management Review 21 (4): 1055-80.
Koberg, Christine, et al. 1996. Facilitators of organizational innovation: The role of
life-cycle stage. Journal o f Business Venturing 11: 133-49.
Kobrak, Peter. 1996. The social responsibilities of a public entrepreneur.
Administration and Society 28 (2): 205-37.
Kunkel, Scott W. 2001. Toward a typology of entrepreneurial activities. Academy o f
Entrepreneurship Journal 7 (1):
Kuratko, Donald F., et al. 1993. Implement entrepreneurial thinking in established
organizations. SAM Advanced Management Journal (winter): 28-39.
Kuratko, Donald F., Ray V. Montagno, and Jeffrey S. Homsby. 1990. Developing an
intrapreneurial assessment instrument for an effective corporate entrepreneurial
environment. 1990. Strategic Management Journal 11 (4): 49-58.
Lambright, W. Henry. 1994. Administrative entrepreneurship and space technology:
The ups and downs of “mission to planet earth.” Public Administration Review
54 (2): 97-104.
Laurent, Anne. 1999a. Brand New Business. Government Executive Magazine
(October): http://www.govexec.com/features/1099/1099s3.htm.
. 1999b. Home-grown consultants. Government executive magazine
(September): http://www.govexec.com/features/0999/0999s2sl.htm.
. 2000. Entrepreneurial government Bureaucrats as businesspeople.
Arlington, Va.: PricewaterhouseCoopers Endowment for the Business of
Government.
274
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Lewis, Eugene. 1980. Public entrepreneurship: Toward a theory o f bureaucratic
political power. Bloomington: Indiana University Press.
Lewis, Marianne W. 1998. Iterative triangulation: A theory development process using
existing case studies. Journal o f Operations Management 16: 455-69.
Light, Paul C. 1994. Creating government that encourages innovation. In New
paradigms for government, edited by Patricia Ingraham et al. San Francisco:
Jossey-Bass Publishers.
. 1998. Sustaining innovation: Creating nonprofit and government organizations
that innovate naturally. San Francisco: Jossey-Bass Publishers.
Linden, Russell M. 1990. From vision to reality: Strategies o f successful innovators
in government. Charlottesville: LEL Enterprises.
Lippit, Gordon L. 1987. Entrepreneurial leadership: A performing art. Journal o f
Creative Behavior 21 (3): 264-70.
MacMillan, Ian C., Lauriann Zemann, and P.N.Subbanarasimha. 1987. Criteria
distinguishing successful from unsuccessful ventures in the venture screening
process. Journal o f Business Venturing 2: 123-37.
MacMillan, Ian C., Zenas Block, and P.N. Subbanarasimha. 1986. Corporate
venturing: Alternatives, obstacles encountered, and experience effects.
Journal o f Business Venturing 1: 177-91.
Markoff, John. 1999. C.I.A. to nurture companies dealing in high technology.
National Venture Capital Association web site: http://nvca.org.html.
Marquis, Donald G. 1969. The anatomy of successful innovations. Managing
advancing technology 1: 35-48.
McDougall, Patricia, and Richard B. Robinson, Jr. 1990. New venture strategies: An
empirical identification of eight ‘archetypes’ of competitive strategies for entry.
Strategic Management Journal 11: 447-67.
McCabe, Michael E. 1997. Current role o f 1ST in the energy-related inventions
program. Gaithersburg, Md.: National Institute of Standards and Technology.
Typescript.
275
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
McGrath, Rita Gunther. 1995. Advantage from adversity: Learning from
disappointment in internal corporate ventures. Journal o f Business Venturing
10: 121-42.
McGrath, Rita Gunther, and Ian MacMillan. 2000. The entrepreneurial mindset:
Strategies for continuously creating opportunity in an age o f uncertainty.
Boston: Harvard Business School Press.
McNabb, David E. 2002. Research methods in public administration and nonprofit
management: Quantitative and qualitative approaches. Armonk, N.Y.: M.E.
Sharpe.
Merrifield, Bruce D. 1994. Constraint analysis for assessment of business risks.
Technology Management 1: 42-55.
Merton, Richard K. 1967. Social theory and social structure. New York: Free Press.
Miles, Mathew B., and A. Michael Huberman. 1994. Qualitative data analysis: A
sourcebook for new methods. Beverly Hills: Sage Publications.
Miles, Mathew B., and Jeffrey G. Covin. 2002. Exploring the practice of corporate
venturing: Some common forms and their organizational implications.
Entrepreneurship Theory and Practice 26 (3): 21-40.
Miller, Alex, and Bill Camp. 1985. Exploring determinants of success in corporate
ventures. Journal o f Business Venturing 1: 87-105.
Miller, Danny, and Peter H. Friesen. 1982. Innovation in conservative and
entrepreneurial firms. Two models of strategic momentum. Strategic
Management Journal 3: 1-25.
Milward, H. Brinton. 1994. Implications of contracting out: New roles for the hollow
state. In New paradigms for government, edited by Patricia Ingraham and B.
Romzek. San Francisco: Jossey-Bass Publishers.
Mitchell, Terence R., and William G. Scott. 1987. Leadership failures, the distrusting
public, and the prospects of the administrative state. Public Administration
Review 47: 445-52.
Moe, Ronald C. 1994. The ‘reinventing government’ exercise: Misinterpreting the
problem, misjudging the consequences. Public Administration Review 54 (2):
111- 22 .
276
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
. 2001. The emerging federal quasi government: Issues of management and
accountability. Public Administration Review 61 (3): 290-312.
Moon, Myung Jae. 1999. The pursuit of managerial entrepreneurship: Does
organization matter? Public Administration Review 59 (1): 31-43.
Moore, Barbara H., ed. 1983. The entrepreneur in local government. Washington,
D.C.: International City Management Association.
Moore, Mark H. 1995. Creating public value: Strategic management in government.
Cambridge: Harvard University Press.
Morris, Michael H., and Donald F. Kuratko. 2002. Corporate entrepreneurship. New
York: Harcourt College Publishers.
Morris, Michael H., and Foard F. Jones. 1999. Entrepreneurship in established
organizations: The case of the public sector. Entrepreneurship Theory and
Practice 24 (1): 71-91.
National Institute of Standards and Technology. Office of Technology Innovation.
[n.d.]. Energy-related inventions program. Gaithersbeurg, Md.
National Performance Review. 1993. Improving financial management: Create
innovation funds. Report FM 07. Washington, D.C.
Osbome, David, and Ted Gaebler. 1992. Reinventing government: How the
entrepreneurial spirit is transforming the public sector. Reading. Pa.: Addison-
Wesley.
Palumbo, D., M. Musheno, and S. Maynard-Moody. 1986. Public sector entrepreneurs:
The shakers and doers of program innovation. In Performance and credibility:
Developing excellence in public and non-profit organizations, edited by J. S.
Wholey et al. Lexington: Lexington Books.
Peirce, W.S., and P. Kruger. 1993. Entrepreneurship in a bureaucracy: The case of
Friedrich Althoff. Journal o f Economic Studies 20 (4/5): 52-70.
Perlmuter, F.D., and R.A. Cnaan. 1995. Entrepreneurship in the public sector: The
homs of a dilemma. Public Administration Review 55: 29-36.
Perspectives. 1995. How can big companies keep the entrepreneurial spirit alive?
Harvard Business Review 73 (6): 183-90.
277
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Pinchot, Gifford III. 1985. Intrapreneuring. New York: Harper & Row.
Pinchot, Gifford, and Ron Pellman. 1999. Intrapreneuring in action: A handbook for
business innovation. San Francisco: Berret-Koehler Publishers.
Polsby, Nelson W. 1984. Policy innovation in America: The politics o f policy
initiation. New Haven: Yale University Press.
Porter, Michael E. 1980. Competitive strategy: Techniques fo r analyzing industries
and competitors. New York: Free Press.
Pressman, J., and A. Wildavsky. 1974. Implementation. Berkeley: University of
California Press.
Quinn, James Brian. 1985. Managing innovation: Controlled chaos. Harvard Business
Review 63 (3): 73-84.
Reynolds, Paul Davidson, 1971. A primer in theory construction. New York:
Macmillan Publishing Company.
Richards, Sally. 2002. Inside business incubators and corporate ventures. New
York: John Wiley and Sons.
Ring, Peter S., and Andrew Van de Ven. 1992. Structuring cooperative relationships
between organizations. Strategic Management Journal 13: 483-98.
Roberts, Edward B., and Charles A. Berry. 1985. Entering new businesses: Selecting
strategies for success. Sloan Management Review (spring): 3-17.
Roberts, Edward B., and Denis E. Malone. 1995. Policies and structures for spinning
off new companies from research and development organizations. Working
paper, MIT Sloan School of Management, Cambridge, Massachusetts.
Roberts, Nancy C. 1992. Public entrepreneurship and innovation. Public Productivity
and Management Review 16: 137-40.
Roberts, Nancy C., and Paula J. King. 1992. An investigation into the personality
profile of policy entrepreneurs. Public Productivity and Management Review
16 (2): 173-90.
. 1996. Transforming public policy: Dynamics ofpolicy entrepreneurship and
innovation. San Francisco: Jossey-Bass Publishers.
278
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Robertson, Peter J., and Sonal J. Seneviratne. 1995. Outcomes of planned
organizational change in the public sector: A Meta-analytic comparison to the
private sector. Public Administration Review \ ol. 55 (6): 547-58.
Rogers, Everett M. 1995. Diffusion o f innovations. 4th ed. New York: Free Press.
Russell, Robert D. 1999. Developing a process model of intrapreneurial systems: A
cognitive mapping approach. Entrepreneurship Theory and Practice 23 (3): 65-
84.
Sahlman, William, et al., eds. 1999. The entrepreneurial venture. 2d ed. Boston:
Harvard Business School Press.
Scandura, Terri A., and Ethlyn A. Williams. 2000. Research methodology in
management: Current practices, trends, and implications for future research.
Academy o f Management Journal (6): 1248-64.
Schechter, Claudia P. [n.d.]. Transforming a traditional government organization into
an entrepreneurial service provider. Washington, D.C.: U.S. Department of the
Interior, Interior Service Center.
Schneider, Mark, and Paul Teske with Michael Mintrom. 1995 .Public
entrepreneurs. Princeton: Princeton University Press.
Schon, Donald A., 1983. The reflective practitioner: How professionals think in action.
New York: Basic Books.
Schumpeter, J. A. 1939. The entrepreneur as an innovator. Business Cycles: A
theoretical, historical, and statistical analysis o f the capitalist process. Vol.
1. New York: McGraw-Hill.
Shane, Scott, and S. Venkataraman. 2000. The promise of entrepreneurship as a field of
research. Academy o f Management Review 25 (1): 217-26.
Sharma, Pramodita, and James J. Chrisman. 1999. Toward a reconciliation of the
definitional issues in the field of corporate entrepreneurship. Entrepreneurship
Theory and Practice 23 (3): 11-27.
Shrader, Rodney C. 1997. Corporate versus independent new ventures: Resource,
strategy, and performance differences. Journal o f Business Venturing 12: 47-
66.
279
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Shafritz, Jay M., and Albert C. Hyde. 1978. Classics o f public administration. 2d ed.
Chicago: Dorsey Press.
Sirhal, Maureen. 2002. Head of CIA’s venture capital arm lists challenges. Government
Executive Magazine (January 25):
http://govexec.com/news/index.cgm?mode=report&articleid=22131.
Simon, Mark, Susan M. Houghton, and Judith Gurney. 1999. Succeeding at internal
corporate venturing: Roles needed to balance autonomy and control. Journal o f
Applied Management Studies 8 (2): 145-59.
Singer, M. 2001. The book eater. New Yorker 5: 62-71.
Single, Arthur W., and William M. Spurgeon. 1996. Creating and commercializing
innovation inside a skunk works. Research • Technology Management 39
(1): 38-41.
Slevin, D.P., and J.G. Covin. 1988. Entrepreneurship and organicity: Two key
variables in small firm success. Paper presented at the Eleventh National
Small Firms Policy and Research Conference, Cardiff.
Solomon, George T., and Erik K. Winslow. 1988. Toward a descriptive profile of the
entrepreneur. Journal o f Creative Behavior 22 (3): 162-71.
Stevenson, Howard H., and J. Carlos Jarillo. 1990. A paradigm of entrepreneurship:
Entrepreneurial management. Strategic Management Journal 11: 17-27.
Sutton, Robert I., and Barry M. Staw, 1995. What theory is not. Administrative Science
Quarterly 40: 371-84.
Sykes, Hollister B. 1986a. The anatomy of a corporate venturing program: Factors
influencing success. Journal o f Business Venturing 1: 275-93.
. 1986b. Lessons from a new venture program. Harvard Business Review 64
(3): 69-74.
. 1990. Corporate venture capital: Strategies for success. Journal o f
Business Venturing 5: 37-47.
Sykes, Hollister B., and Zenas Block. 1989. Corporate venturing obstacles: Sources
and solutions. Journal o f Business Venturing 4: 159-67.
280
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Terry, Larry D. 1993. Why we should abandon the misconceived quest to reconcile
public entrepreneurship with democracy. Public Administration Review 53
(4): 393-95.
. 1995. Leadership o f public bureaucracies: The administrator as
conservator. Thousand Oaks, Calif.: Sage Publications.
Teske, Paul, and Mark Schneider. 1994. The bureaucratic entrepreneur: The case of
city managers. Public Administration Review 54 (4): 331-40.
Thompson, James R. 2000. The reinvention laboratories: Strategic change by
indirection. American Review o f Public Administration 30 (1): 46-68.
Thompson, Victor A. 1969. Bureaucracy and innovation. Tuscaloosa: University of
Alabama Press.
Thornhill, Stewart, and Raphael Amit. 2000. A dynamic perspective of internal fit in
corporate venturing. Journal o f Business Venturing 16: 25-50.
Timmons, Jeffry A. 1999. New venture creation: Entrepreneurship fo r the twenty-
first century. New York: Irwin McGraw-Hill.
Tsai, William Ming-Hone, Ian C. MacMillan, and Murray B. Low. 1991. Effects of
strategy and environment on corporate venture success in industrial markets.
Journal o f Business Venturing 6: 9-28.
Ucbasaran, Deniz, Paul Westhead, and Mike Wright. 2001. The focus of
entrepreneurial research: Contextual and process issues. Entrepreneurship
Theory and Practice 25 (4): 57-80.
U.S. Defense Logistics Agency. 2003. Defense Reutilization and Marketing Service
home page: http://www.drms.dla.mil/.
. Defense Rutilization and Marketing Service. 2002. Strategic business plan:
2002-2007: http://www.drms.dla.mil/pubaff/strategic.pdf.
U.S. Department of Agriculture. 2000. Enterprise Unit Program review: Final
summary report of findings and recommendations:
http://www.fs.fed.us/reinvention/enterprise/progress reports.html.
. U.S. Forest Service. 2001. Enterprise Program 2001 progress report:
http: //www. fs./us/reinvention/enterprise.
281
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
. National Finance Center. 2003. National Finance Center home page:
http://dab.nfc.usda.gov.
_______ . U.S. Forest Service. 2003. Enterprise Program home page:
http//www.fs.fed.us/reinvention/enterprise/about_enterprise.html.
U.S. Department of Commerce. 1998a. Franchise proposal fo r NOAA’ s
administrative support centers. Washington, D.C.
. 1998b. NOAA Franchise Program brochure. Washington, D.C.
. 1998c. Office o f Computer Services program brochure. Washington, D.C.
. 2003. Administrative service center home page:
http://www.easc.noaa.gov/proc/franchis_v2.htm.
U.S. Department of Health and Human Services. 2003. Federal Occupational Health
home page: http://www.foh.dhhs.gov/.
. 2003. Program Support Center. PSC strategic plan: A blueprint to the
future. Washington, D.C.
. 2003. Services Program Support Center home page:
http: //www. psc. gov/concept .html.
U.S. Department of the Interior. 1996. Interior Service Center. In Departmental
manual, part 112. Washington, D.C.
. [n.d.]. Interior Service Center Product and Service Directory. Washington,
D.C.
. 2003. National Business Center home page: http://www.nbc.gov.
U.S. Department of the Treasury. 2000. Survey on cross-servicing opportunities.
http://www.financenet.gov/gwsurvey/htm.
. 2002. Accountability and annual report.
http://www.ustreas.gov/offices/management/franchising/2002.pdf.
. Office of Franchising. 2003.
http://www.ustreas.gov/offices/management/franchising/2002.pdf.
282
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
U.S. Department of Veterans Affairs, [n.d.]. Administrative service solutions for the
federal sector. Washington, D.C.
. [n.d.]. Becoming a franchise: Is it for you? Washington, D.C.: Veterans
Administration Franchise Fund.
. 2000. Consolidated response to government-wide survey on cross-servicing
opportunities:
http://www.fmance.net.gov/gwsurvey/section4/Survev4 110.htm.
. Veterans Administration Enterprise Centers. 2001. Comprehensive business
solutions for today’s government: annual report, http://va.gov/fund/.
U.S. Environmental Protection Agency. 1994. Telecommunications. In IRMpolicy
manual: http://www.epa.gov/irmpoli8/polman/chaptr07.htm.
. 1997. The Working Capital Fund (WCF) in EPA: A guide to understanding
the WCF and its benefits. Washington, D.C.
. 1997. Working Capital Fund system policy and methodology
documentation: Report on new service criteria and decision process
framework. Washington, D.C.: General Services Administration, National
Region.
. 2000. Consolidated response to government-wide survey on cross-servicing
opportunities: http://www.fmancenet.gov/gwsurvey/section4_l 11 .htm.
. 2002. Working capital fund description:
http://www.epa.gov/ocfo/wcf/wcf.htm.
U.S. General Accounting Office. 1996. Management reform: Status o f agency
reinvention labs. Report No. GAO/GGD-96-69. Washington, D.C.
. 2002. Contract management: Interagency contract program fees need more
oversight. Report number GAO-02-734. Washington, D.C.
Van de Ven, Andrew H. 1989. Nothing is quite so practical as a good theory. Academy
o f Management Review 14 (4): 486-89.
Van de Ven, Andrew H., and Harold L. Angle. 1989. An introduction to the
Minnesota Innovation Research Program. In Research on the management o f
innovation: The Minnesota studies, edited by Andrew H. Van de Ven, Harold
L Angle, and Marshall Scott Poole. New York: Harper & Row.
283
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Van de Ven, Andrew H., and Marshall Scott Poole. 1989. Methods for studying
innovation processes. In Research on the management o f innovation: The
Minnesota studies, edited by Andrew H. Van de Ven, Harold L Angle, and
Marshall Scott Poole. New York: Harper & Row.
Van Wart, Montgomery. 1996. Sources of ethical decision making for individuals in
the public sector. Public Administration Review 56 (6): 525-33.
Venkataraman, S. 1997. The distinctive domain of entrepreneurship research: An
editor’s perspective. In Advances in entrepreneurship, firm emergence, and
growth, vol. 3, edited by J. Katz and R. Brockhaus. Greenwich: JAI Press.
Venkataraman, S., Ian C. MacMillan, and Rita Gunther McGrath. 1992. Progress in
research on corporate venturing. In The state o f the art o f entrepreneurship,
edited by Donald L. Sexton and John D. Kasarda. Boston: PWS Publishing
Company.
Vesper, Karl H. 1980. New venture strategies. Englewood Cliffs, N.J.: Prentice-Hall.
Wait, Patricia. 2002. GSA, GovWorks ready to rumble. Washington Technology
Magazine:
http://www.washingtontechnologv.com/news/16_24/federa!/l 7978-1 .html.
Waits, Mary Jo, et al. 1992. Organizing for economic development: New realities
call for new rules. Public Administration Review 52 (6): 612-16.
Weick, Karl E. 2001. Theory construction as disciplined imagination. Academy of
Management Review 14 (4): 516-531.
Weinstock, Mathew. 2002. Building entrepreneurs. Government Executive Magazine
(June 1): http://govexec.com/news/index.cfm?mode=report&articleid=22748.
Whetten, David A. 1989. What constitutes a theoretical contribution? Academy of
Management Review 14 (4): 490-95.
White, Richard M. Jr. 1977. The entrepreneur’s manual. Radnor, Pa.: Chilton Book
Company
Wilson, James Q. 1966. Innovation in organization: Notes toward a theory. In
Approaches to organizational design, edited by James D. Thompson.
Pittsburgh: University of Pittsburgh Press.
284
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
Yin, Robert K. 1989. Case study research: Design and methods. Newbury Park, Calif.:
Sage Publications.
_______. 1993. Applications o f case study research. Newbury Park, Calif.: Sage
Publications.
Yin, Robert K., et al. 1977. Tinkering with the system. Lexington, Mass.: Lexington
Books.
Zahra, Shaker A. 1991. Predictors and financial outcomes of corporate
entrepreneurship: An exploratory study. Journal o f Business Venturing 6:
259-85.
Zahra, Shaker A., Daniel F. Jennings, and Donald F. Kuratko. 1999. The antecedents
and consequences of firm-level entrepreneurship: The state of the field.
Entrepreneurship Theory and Practice 24 (2): 45-65.
Zahra, Shaker A., et al. 2000. Privatization and entrepreneurial transformation:
Emerging issues and a future research agenda. Academy o f Management
Review 25 (3): 509-24
Zajac, Edward J., Brian R. Golden, and Stephen M. Shortell. 1991. New
organizational forms for enhancing innovation: The case of internal corporate
joint ventures. Management Science 37 (2): 170-84.
Zegans, Marc D. 1992. Innovation in the well-functioning public agency. Public
Productivity and Management Review 16 (2): 141-55.
285
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
APPENDIX A
12 BUSINESS OPERATING PRINCIPLES
1. COMPETITION: The provision of services should be on a fully competitive
basis. The organization’s operations should not be “sheltered” or be a
monopoly.
2. VOLUNTARY EXIT: customers should be able to “exit” and go elsewhere for
services after appropriate notification to the service provider and be permitted
to choose other providers to obtain needed services.
3. SELF-SUSTAINING/FULL COST RECOVERY: The operation should be self-
sustaining. Fees will be established to recover the “full costs,” as defined by
standards issued in accordance with FASAB.
4. SURGE CAPACITY: resources to provide for “surge” capacity and peak
business periods, capital investments, and new starts should be available.
5. FTE ACCOUNTABILITY: Full Time Equivalents (FTEs) would be accounted
for in a manner consistent with the Federal Workforce Restructuring Act and
OMB requirements such as Circular A-l 1.
6. INITIAL CAPITALIZATION: Capitalization of franchises or other cross
servicing operations should include the appropriate FTE commensurate with
the level of effort the operation has committed to perform.
7. ADJUSTMENTS TO BUSINESS DYNAMICS: The ability to adjust capacity
and resources up or down as business rises and falls, or as other conditions
dictate, are necessary.
8. CESSATION OF ACTIVITY: The organization should specify that prior to
curtailing or eliminating a service, the provider will give notice within a
reasonable and mutually agreed time frame so that customer may obtain
services elsewhere. Notice will also be given within a reasonably and
mutually agreeable time frame to the provider when the customer elects to
obtain services elsewhere.
9. ORGANIZATION: The organization would have a clearly defined
organizational structure including readily identifiable delineation of
responsibilities and functions and separately identifiable units for the purpose
of accumulating and reporting revenues and costs. The funds of the
organization must be separate and identifiable and not commingled with
another organization.
10. SERVICES: the enterprise should provide only common administrative support
services.
11. PERFORMANCE MEASURES: The organization must have a comprehensive
. set of performance measures to assess each service that is being offered.
12. BENCHMARKS: Cost and performance benchmarks against other “competitors”
are maintained and evaluated.
286
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
APPENDIX B
CASE STUDY INTERVIEW/DISCUSSION GUIDE
Open-ended questions organized by key venture formation factors:
1. Antecedent conditions
What was the parent organization’ s prior venturing experience? Did any ground
rules exist fo r launching internal ventures? What ‘ triggered’ the IA V? What were
the driving forces that caused it to be formed?
2. External environmental factors
What forms o f competition to the IAV existed inside the parent organization?
Outside the parent organization? From the private sector? What demand exists for
the product or service offered by the internal venture?
3. Venture process clarity
Was there a business plan prepared for the IA V?
Was a feasibility assessment o f the IAV done? What factors were assessed?
4. Venture role definition
Who comprised the IA V team? Was there a clearly identifiable venture champion for
the IA V? Was there an advisory board fo r the IA V? What roles were played?
Were there any unique characteristics o f IAV team members?
5. Venture structure
What was the organizational format o f the IA V? What was its relationship to the
day-to-day operations o f the parent organization? What was its relationship to the
strategic direction o f the parent organization? How autonomous was the IAV?
6. Internal organizational support
Was the venture mission clearly articulated with the parent organization?
How closely did the IA Vfit with the mission o f the parent organization?
What kind (and level) o f venture capital was available for the IAV?
To what extent did the parent organization support an entrepreneurial culture or
innovative approaches? What kind o f incubation was provided?
7. Implementation success
What level offormal support or sponsorship did the IA V have from the parent
organization? From outside the organization? (legislative mandate? Policy
initiative? Innovative response to a need?)
287
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

Evaluation of professional services consultants in rural government

PDF

Do uses of human resource information technology (HRInT) tools in federal organizations improve their human resource management productivity?

PDF

Care management for the uninsured: A force field analysis of the business case

PDF

A configuration study of multiagency partnerships as practiced in Taipei City government

PDF

A financial audit model for entrepreneurial governments

PDF

Charter schools' influence on public school administrators' innovative behaviors

PDF

Determining risk propensity of government program managers for high risk /high payoff projects

PDF

Conversion of health care organizations from non -profit to for -profit status

PDF

Educational reform for private state -approved schools in California

PDF

Assessing United States information assurance *policy response to computer -based threats to national security

PDF

Detecting the effects social and business pressures on small California trucking firm tax compliance

PDF

Drug treatment providers' organizational responses to implementation of California's Proposition 36

PDF

A search for theory: Performance management to improve transportation safety

PDF

Historical perspectives and future horizons of local government managers and the International City /County Management Association

PDF

Bridled boldness: Reengineering the Federal Bureau of Prisons. Lessons learned

PDF

Getting 'how' and 'why' straight: A critical discourse analysis of the National Partnership for Reinventing Government's ideological discourse on information and communication technologies

PDF

Adapting and applying a mission-focused strategic framework for emergency management

PDF

Determining acceptable seismic risk: A community participation-based approach

PDF

Executive spending power: Flexibility in obligation and outlay timing as a measure of federal budgetary and policy control

PDF

Development of a family risk-factor measure that predicts imminent risk of placement and appropriateness for family-based, wrap -around services

Asset Metadata

Creator Mierzwa, Thomas J. (author)

Core Title Internal venturing in public agencies

School School of Policy, Planning and Development

Degree Doctor of Public Administration

Degree Program Public Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, management,OAI-PMH Harvest,Political Science, public administration

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Clayton, Ross (committee chair), Burke, Catherine (committee member), Newland, Chester (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-648343

Unique identifier UC11340051

Identifier 3116755.pdf (filename),usctheses-c16-648343 (legacy record id)

Legacy Identifier 3116755.pdf

Dmrecord 648343

Document Type Dissertation

Rights Mierzwa, Thomas J.

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA