By: Samantha Stainburn

June 12, 2006, Crain's Chicago Business

Who'd envy an entrepreneur's late nights developing a new product under if-this-doesn't-work-I-go-back-to-bartending conditions? Large corporations, for one. Crain's asked Steven Rogers, a professor at Northwestern University's Kellogg School of Management, how "intrapreneurship" can thrive in a sea of bureaucracy.

How big a trend is intrapreneurship?

It's huge. The big companies have realized that either they innovate or die. And they've seen companies that started as entrepreneurial firms, like Microsoft and Google, gaining major prominence in the corporate world.

Which Chicago companies have embraced intrapreneurship?

United Airlines did it with the creation of Ted, its low-cost airline where you pay for your snacks and $2 a bag for baggage handling. USG has created a system to look at entrepreneurial ideas from employees by having their proposals judged by investors and venture capitalists. Interestingly enough, both companies were in Chapter 11 at one time. Intrapreneurship is typical when companies are trying to come out of financial distress.

How can large companies act like small, entrepreneurial companies?

There are four classic behaviors. One is acquisition. Microsoft, for example, has spent over $6 billion in the last five years buying other companies and products. Another is creating new products and services outside of the traditional R&D department. The grandson of the founder of S. C. Johnson & Son came up with Raid bug spray on his own, when all the company made was wax products. The third is changing the business model. Nike, for example, was founded as an importer of gym shoes from Japan. It changed its model from an importer to a manufacturer, and now it's a retailer that also sells apparel and non-athletic shoes.

And the fourth?

Promoting innovation from within. Coca-Cola, for example, has created innovation centers in Shanghai, Brussels, Illinois and Atlanta. They are separate entities in separate buildings because they realize that if you try to encourage innovation within your traditional setting, there are people and systems that will try to kill it.

What aspects of intrapreneurship are the most difficult for big companies to adopt?

The fact that you need to manage entrepreneurial people differently. When IBM bought Lotus years ago, everybody was saying, "This ain't going to work." IBM is a white-shirt, blue-suit business, and it was buying a company where people wear Birkenstocks. What did IBM do? It let Lotus stay in its own building, and literally had it written up that when IBM representatives visited Lotus people, they would not wear their ties. Another great challenge is allowing people to be paid outside of the normal systems. That means giving them lower salaries but higher bonuses or equity positions in the new ventures.

Why not just pay intrapreneurs a regular corporate salary?

For a venture to have the entrepreneurial spirit, there must be reward for the risks one is taking. Most entrepreneurial people would leave if something great happened and they didn't get to share the benefits.

So do corporate innovators have the same personality as those scrappy entrepreneurs on the outside?

They have similar traits, but one difference is that an intrapreneur accepts being managed. Entrepreneurs want to be completely in control. Intrapreneurs are also more willing to be political, and are more risk-averse because they want to be in the safety net of Corporate America.

What are the risks involved with intrapreneurship?

Too much entrepreneurship can end up having a ship that's never going in any direction because everybody's doing their own thing. Just like the real world, corporate entrepreneurs can't be allowed to jerk around and lose money. Ideas have to be commercialized, and generate return on the investment.

What's the role of management in a large, innovative company?

As Intel's Andy Grove has said, "Permit chaos, but rein it in." Google, for example, has a program that allows employees to use 10% of their time to come up with new ideas. Management's job is to encourage and support people who have new ideas, and to act on the ideas that can increase shareholder value.