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How long will it be before Apple sell iTunes?

There are many definitions of entrepreneurship. One I particularly like makes the connection between entrepreneurship and resources. It suggests that we can define entrepreneurship as the relentless pursuit of opportunities even when the necessary resources (e.g. people, skills, finance, and facilities) are not yet under one’s control. In short, the ambition is there but the means are still to be obtained. For the entrepreneur this is a challenge, not a show stopper.

But what if you’re already a successful business with all of the resources that are available to a large, multi-national corporation? You have the best people, with their knowledge of the products and services that you create and deliver; you know the market and your customers. You a have the infrastructure and manufacturing facilities and you have optimized your supply chain. What scope is there for being entrepreneurial at the level of the corporation? Normally as an answer to this question I would look to many examples of how companies try to change their organizational culture or structure.  Resource rich companies have found new ways to use their pool of talented people and incentivise them to take more risk, think out of the box and be creative in new directions. They have set up internal units aimed at identifying, nurturing and perusing new ideas. Alternatively, they have used their financial resources to invest in new businesses that offer new opportunities in new markets, sometimes in the form of venture capital.  A now classic example of corporate entrepreneurship is the way Apple reinvented itself with the introduction of iTunes, and as it continues to do so, we now see it moving into payment services.

However, recently I noticed a number of announcements in the news that drew my attention to the question behind much of the effort to stimulate corporate entrepreneurship; that is, how to be successful and maintain a competitive advantage.

Recently three large corporations announced major restructuring that will split up their businesses; Philips, Hewlett-Packard and Ebay/PayPal. Philips will split into two independent companies one for its healthcare and consumer goods and one for lighting products. Hewlett-Packard will split up into a consumer products company and a professional products and services company. Ebay has decided to split off PayPal (which it acquired in 2002 at a cost of $1.5 billion) into a separate company.

A few years ago the synergies from being large and diversified seemed to bring benefits for these conglomerates. Yet, it seems, and possibly quite ironically, that in the pursuit of opportunities they have obtained too many resources.  By being smaller and independent these businesses will be able to focus more on their direct competitors: that is at least one rationale. Fundamentally, the need for reinvention and innovation underpins such change. Such structural change surely points up the challenges firms have in being able to be entrepreneurial and grow while being able to stay agile enough to adapt, be flexible and even take the lead in developing new products, services and markets.

As Frans van Houten, the CEO of Philips recently said “Great companies need to reinvent themselves...” I wonder how long it will be before Apple sells off iTunes?

 

Dr. ir. James Small

 

Tilburg, October 16th, 2014

 

James Small is a member of the Department of Management at the Tilburg School of Economics and Management,Tilburg University . His fields of interest and expertise include Entrepreneurship, Innovation Strategy, Management and Sustainability.