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Entrepreneurial Employee Activity: New Research & Insights for Managers*

By Donna Kelley

The Global Entrepreneurship Monitor (GEM) survey has traditionally focused on the attributes, motivations, and ambitions of individuals who are starting or running new business ventures less than 42 months old.

But, more recently, GEM has begun to look at an adjacent area: entrepreneurial activity happening inside established business. Specifically, this includes employees who are developing new activities for their main employer, such as launching new goods or services, or setting up a new business unit, a new establishment or subsidiary.

Below we offer five findings about employee entrepreneurs from the GEM survey in 52 economies, along with practical implications for business managers.

1.  Entrepreneurial employee activity is a special type of entrepreneurship that acts as a substitute for independent entrepreneurship in some societies. In other societies it co-exists with and complements entrepreneurial activity focused on starting a new business.

This exploratory investigation confirms the existence of entrepreneurial employee activity ("EEA") in established businesses, but also reveals that entrepreneurial employee activity is not just restricted to the business sector but can be found in the public sector, too. It also can be found in most parts of the world, although with typically greater prevalence in the more developed economies. Therefore, entrepreneurial activity is a multifaceted phenomenon that can be found in all phases of the business life cycle, in the private and public sector, and across many geographic regions.

The observations in our research provide ample support for the view that entrepreneurs can exist inside mature organizations. Compared with other employees, individuals who are involved in EEA are significantly more likely to perceive entrepreneurial opportunities and believe they have the capabilities for starting a business, and they are less likely to state that fear of failure would prevent them from starting a business. On the whole, the perceptions of entrepreneurial employees are remarkably similar to those of early-stage entrepreneurs.

Nevertheless, entrepreneurial employees differ from independent entrepreneurs in the circumstances they face with their efforts. One obvious difference relates to whom these employees must call on for support. As persistent as they might be, their efforts rely heavily on the encouragement and assistance of the firm’s management. In addition, entrepreneurial employees may have access to the resources of the organization they work for, but they often have to compete with the needs of established businesses that already have customers and can produce predictable returns. In that respect, entrepreneurial employee activity can rightly be called a special type of entrepreneurship.

Managerial implication: ensure all managers understand the unique nature of entrepreneurship, and are accountable for encouraging and guiding these efforts in their employees.  

2. Entrepreneurial employee activity is a scarce asset.  

EEA is not a very widespread phenomenon. On average, only about 3 percent of the adult population and 5 percent of the employees in the sample are currently involved in this activity, but its prevalence differs markedly across individual economies, from slightly more than zero to almost 14 percent. EEA is most prevalent in developed economies and least prevalent in those at an early stage of economic development.

The pattern of entrepreneurial employee activity across the stages of economic development is thus the reverse of that for early-stage independent entrepreneurship, the latter of which tends to decrease with economic development. These patterns suggest that at the national level, entrepreneurship in organizations may, to some extent, replace independent entrepreneurial activity as an alternative mode of exploiting entrepreneurial opportunities.

On the other hand, there also are many examples of economies where the prevalence of entrepreneurial activity in all its forms is either high or low.

Implication for managers: appreciate the value of entrepreneurial employee activity as an important, but rare asset. Identify these exceptional employees and nurture their development through such aspects as training, multiple assignments that build their skills and confidence, and the advice and support of managers that understand and are willing to promote their efforts.   

3.  Social and cultural values matter.  Entrepreneurial employee activity more often can be found in economies which promote innovative and proactive behavior of individuals, but also provide an appropriate level of social security.  

A national culture that promotes job autonomy seems to have a higher prevalence of entrepreneurial employee activity. Encouragement of innovative and proactive behavior of individuals, both in the educational system and within organizations, also seems to play a role here. Finally, EEA was observed to be more prevalent in countries with a high level of perceived employer support for employees who come up with new ideas. In addition, entrepreneurial employee activity appears to correlate with (perceived) employment protection and several indicators of social security entitlements.

This is in line with the view that high opportunity cost of independent entrepreneurship might stimulate enterprising employees to engage in entrepreneurial behavior within an existing business.

Implication for managers: to motivate employees for entrepreneurial activity, corporate leaders might review the degree of job autonomy accorded to employees in their organizations as well as other relevant aspects of job design; they can provide strategic guidance for how employees can stretch beyond current businesses. 

4. Entrepreneurial employee activity contributes to job creation, innovativeness, and starting new independent businesses.  

The research demonstrates that entrepreneurial employee activity appears to be more innovative than early-stage entrepreneurial activity, particularly in the developed economies. Entrepreneurial employees also have substantially higher job expectations for their new activity than nascent entrepreneurs and owner-managers of young businesses.

Finally, entrepreneurial employees are also far more likely than other employees to be actively involved in setting up an independent new business which they will own and manage. Thus, while some entrepreneurial employees opt for entrepreneurial employee activity instead of self-employment, it appears that entrepreneurial employee activity also can be a steppingstone toward founding one’s business at a later stage.

Implications for managers: recognize the impact entrepreneurial employee activity can have for the organization, but also for society, with respect to such dimensions as job creation and bringing innovative new products and services into being. Recognize that entrepreneurs exist in organizations and have options to go outside with their creative energy. Experiment with new structures and processes that can facilitate the development of their ideas inside; supplement this with managers experienced or trained in guiding and supporting this activity and with performance metrics that hold them accountable for doing so. 
 

5. Education matters: entrepreneurial employee activity is more often connected to better educated employees.

The probability of being an owner-manager in a nascent or new business increases with levels of educational attainment. Entrepreneurial employee activity seems to be an activity that is more often driven by highly educated employees.

This finding is partly related to the human capital requirements of innovation activity. In addition, higher job levels offer more autonomy to employees and provide better opportunities to develop social networks, which may both be conducive to entrepreneurial employee activity.

Implication for managers: evaluate the contribution of the investment in lifelong education of the organization’s employees as an investment in a very scarce and special type of human capital. Ensure this education includes entrepreneurship training.  

*Adapted from The Global Entrepreneurship Monitor: Special Report of Entrepreneurial Employee Activity (PDF)
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Donna J. Kelley, Ph.D.

Donna J. Kelley, Ph.D. is an Associate Professor of Entrepreneurship at Babson College, and holds the Frederic C. Hamilton Chair of Free Enterprise. She teaches courses at Babson in entrepreneurship, corporate entrepreneurship and entrepreneurship in Asia. Professor Kelley is a board member of the Global Entrepreneurship Research Association (GERA), the oversight board of the GEM project and leader of the GEM U.S. team. She co-authored the 2008 GEM Korea Report, the 2008 GEM Education and Training Report, the 2010 and 2011 GEM Global Executive Reports, the 2010 GEM Global Women's Report, and the 2011 GEM U.S. Report.

Donna received her Ph.D. in Management from Rensselaer Polytechnic Institute. Her early career involved work as a chemist in the graphics and industrial and consumer cleaning products industries. Her entrepreneurship experience includes businesses in the health/fitness, computer hardware and education fields.