One of the few who has begun to examine this notion is Weinstock (2002). Specifically, Weinstock contends there is a strong foundation for government organisations incorporating entrepreneurial activity, focus, and strategy. While such organisations “are still a minority…their ranks are growing” (Weinstock, 2002, p. 55). Arguably, review of this minority can provide lessons for government and non-government organisations elsewhere. Teske and Schneider (1994) support this notion, arguing cases of entrepreneurial government can be analysed and explained systematically, thus providing guidance for others, rather than considered as a rare, chance occurrence.
Certainly the identification of an underlying systematic approach to strategic entrepreneurship which achieves the intended results, offers substantial benefits to government and non-government organisations alike. Within NZ alone, non-government spending on public services represented 94 per cent of the total operating costs and 79 per cent of the total capital costs for the 2004 Budget (New Zealand Treasury, 2004). This expenditure was primarily funded through taxpayer contributions. Thus, even small changes in cost savings, increases in efficiency, and profit based objectives within government organisations would have a significant impact on the nation’s economy. Essentially, however, an understanding of any underlying system or structure resulting in activity which is both strategic and entrepreneurial, strategic entrepreneurship, is still being obtained.
Shaker Zahra, Entrepreneurship Program Chair for the Academy of Management in both 2004 and 2005, has examined the notion of entrepreneurship within government in detail. In particular, Zahra and Hansen (2000) suggest a combination of entrepreneurship and strategy in government
can be achieved through privatisation, or abstract privatisation. Specifically, Zahra and Hansen examine changing ownership, or both management and ownership within government organisations through privatisation (sale to the private sector) of SOEs. Alternatively, they examine abstract privatisation, whereby lease agreements or management contracts are entered into with private sector organisations for the management of SOEs. Such arrangements are viewed as consistent with the promotion of a free market system, encouraging risk-taking, innovation, and entrepreneurship. According to Zahra and Hansen, these changes offer significant benefits, and alter the dynamics of global competitiveness.
Essentially Zahra and Hansen (2000) note that government organisations often introduce inefficiencies and stifle economic growth. This, coupled with the globalisation of the world economy pressuring all organisations (both public and private) to become more productive, suggests the solution for SOEs is privatisation in some form. “The persistent failure of SOEs has pressured policy makers to explore privatisation” (Zahra & Hansen, p. 85). Previous studies which identify the immediate problems associated with SOEs highlight failure to deliver high standards of living, delays in national economic, social, and technological progress; and significant financial loss (McKinnon, Aslund, & Rostowski, 1994). Extended implications identified by Zahra and Hansen (2000) include stifled growth within private sector organisations due to the availability of government protection and insulation from the discipline of a free market economy.
Conversely, the benefits of privatisation identified by Zahra and Hansen include promoting competition, reducing costs, increasing productivity, raising funds and improving capital markets.
Each of these is considered further below.
Opening up economies to national and international competition through privatisation, Zahra and Hansen contend, encourages risk-taking, initiative, and entrepreneurial decision-making.
Competition, they argue, fuels innovation, growth, and profitability. Additional benefits include public access to international goods and services, higher standards of living, and a resulting influence on organisations in general to adopt innovative technologies and respond to changes and challenges in global competition.
Such competition is also associated with reduced costs and increased productivity, by emphasising the importance of market discipline, strategic choice, and competitive advantage;
such that “only the most efficient companies survive” (Zahra & Hansen, p. 87). One aspect within this notion is the investment in selection, training, and management of staff. Such actions not
only enhance productivity within individual organisations, but collectively impact on the international competitiveness of a nation as a whole.
Lastly, the financial benefits of privatisation are identified as providing additional government funds which can be applied to meet social welfare obligations, repay national debt, and finance further economic growth and development. An emphasis on competition is also associated with increased efficiency in capital markets, thereby increasing the strategic and entrepreneurial expectations placed upon management.
Examination of such proposals however, gives rise to several issues, some of which are acknowledged by Zahra and Hansen as obstacles to privatisation, requiring attention. These obstacles include privatisation essentially being both a costly and involved process, the loss of national resources through the sale of assets, uncertainty regarding the abilities and intentions of any new private sector management, increase in unemployment due to subsequent downsizing, resulting loss of trust in the political system, public resentment of foreign ownership, reduction in public sector spending, increased costs of goods and services, and elimination of industry subsidies to domestic private sector organisations operating within privatised industries. Clearly these issues are significant in both number and scope. Further complexity emerges through the management of such issues primarily focusing on avoiding the mistakes other countries have already made (Ol’shtynskii, 1991). Nations such as Chile, Egypt, Poland, and Russia have all provided lessons on what to avoid in the course of privatisation (Zahra & Hansen, 2000).
Extreme disparity of wealth, perceived inequity, corruption within the privatisation process, and lengthy delays in transforming established institutional mindsets of SOEs: “a monumental undertaking that sometimes takes decades to achieve” (Zahra & Hansen, p. 97); are just some examples.
Despite these issues, exploring privatisation continues to be seen as a viable option by policymakers, in response to the “persistent failure of SOEs” (Zahra & Hansen, p. 85). In consideration of both the costs and benefits however, arguably researchers and policymakers are over-looking a more viable but seemingly less obvious solution; that of promoting entrepreneurial activity within government, encouraged through market deregulation. As noted by Easton (1999, para. 10) “if privatisation is the answer, very often one has misunderstood the question”. The underlying assumption of privatisation is essentially that government organisations such as SOEs are unable to be competitive, commercially viable, and profitable organisations. Arguably,
however, the first issue to be explored is not privatisation, but rather what is preventing such organisations from becoming commercially viable. Rephrased, the question becomes what is required for SOEs to be competitive and profitable organisations? While market deregulation may not be a viable solution in all situations, such as developing countries which have neither the resources to be competitive nor the intention to allow foreign ownership, arguably the notion of deregulation as an alternative to privatisation should at least be considered. Certainly a comparison of the costs and benefits associated with deregulation suggests the notion deserves some attention.
With respect to the benefits of privatisation identified by Zahra and Hansen (2000), arguably each of these is available through market deregulation, such that government organisations can continue to operate in a competitive market environment, rather than be disposed of. A free market economy, increased competition, decreased costs, increased productivity, and more efficient capital markets can all be achieved through the competition fostered within a deregulated industry, and essentially provide SOEs with the opportunity and challenge to take part in these changes. This would effectively encourage or force SOEs to become more efficient and entrepreneurial, and allow governments to maintain their investment in these organisations (provided it is commercially viable to do so) without encountering the economic, political, and social problems associated with privatisation. Such problems are reconsidered briefly below in the context of deregulation.
Deregulation as an alternative to privatisation, essentially eliminates the resources (e.g. time and cost) required as part of the privatisation process. Ultimately the sale of an investment such as a SOE is a one-off transaction, which involves the disposal of income-producing assets. Thus any gain on sale is essentially made at the expense of future potential profits derived from those assets; in economic terms, the opportunity cost. Deregulation however, not only provides the opportunity for national resources to be retained, enhanced, and used to provide a recurring income stream for government; but also offers management and employees the opportunity to develop and establish themselves in a free market economy. Consequently issues such as uncertainty regarding intentions of new private sector management, pending unemployment, and loss of trust in the political system are not direct implications of deregulation. Essentially what does emerge is a government with the confidence in its people, operations, and organisations, which may continue to provide an element of support (where necessary) to the SOE in its transition to a commercially independent organisation, if required. Thus, the notion of
entrepreneurship in government is a viable one, which can be achieved through a combination of entrepreneurial and strategic activity.
Such an approach is gaining increasing recognition within government as public administration shifts from a traditionally bureaucratic or administrative paradigm, to an entrepreneurial one.
Specifically, Moe (1994) refers to an entrepreneurial paradigm as one which blurs the distinction between government and private sector organisations. Essentially this approach to government is associated with a results based outlook, accountability for such results, strong customer focus, and a decentralisation of authority. Hence there is a strong association between government and efficiency.
The promotion of an entrepreneurial government was proposed by the United States’ Vice President Al Gore in the 1993 National Performance Review report “From red tape to results”.
Within the report over 800 recommendations are made, both general and specific regarding measures the United States administration should adopt to achieve an entrepreneurial approach to government (Gore, 1993). Implementation of such recommendations, Gore contends, would save the United States government US$108 billion over five years. Such recommendations include the reduction of government personnel involved in micro-management and over-control, biennial budgeting, privatisation of SOEs, and increased outsourcing of traditionally government functions.
Critics of the report such as Moe (1994) argue that essentially the role of government is an administrative one, setting policies and frameworks within society. Ultimately Moe (1994) contends the responsibility for policy-making and standard setting should be centralised within an administrative system held accountable for that function. While this view is acknowledged and supported, arguably it is not incompatible with an entrepreneurial approach such that the core functions of government continue to be addressed, but in a manner which is efficient, customer focused, and cost effective. Despite such criticisms, Moe (1994) does note that the proposed recommendations include policies both worthy and unworthy. Thus, while the approach promoted by United States government in 1993 may be viewed as a rather strict or extreme interpretation and application of entrepreneurship within government, arguably the opportunity to adopt such an approach within government is a feasible one.
Essentially the basic principles of an entrepreneurial approach within government do offer
practical guidelines under which the public sector can operate, while still attending to the core functions such as policy determination. Although given only limited attention, such principles are not new and can be traced back to the works of Woodrow Wilson (1887) who viewed public administration as a business. This view remains equally relevant to modern day public administration (Doig, 1985). Thus the notion of government employing private sector management techniques to move towards a more commercial and efficient form of public administration begins to resurface. Objectives such as operational efficiency or excellence, cost minimisation, strong customer focus, and commercial viability are equally relevant to government and non-government organisations. Thus the entrepreneurial government paradigm in its most basic form may continue to address basic government functions, while incorporating a different approach to the manner in which it carries out both core and ancillary functions. Such an approach is considered in a practical context in Chapters 5, 6, and 7, by examining three separate government organisations within New Zealand, and their efforts to employ entrepreneurial strategies.
2.6 Summary
This chapter has examined the literature on entrepreneurship, and to a lesser extent strategy and strategic management, for the purposes of identifying elements common to these constructs, thereby providing the opportunity to determine their point of intersection, namely strategic entrepreneurship. Literature on the relationship between entrepreneurship and strategy, and the topic of strategic entrepreneurship were subsequently examined and compared to themes considered central to the founding concepts in order to consider the fundamental elements of strategic entrepreneurship. Limitations within the literature were then identified, before reviewing recent developments in strategic entrepreneurship literature which effectively address some of these limitations, and highlight a change in the direction of strategic entrepreneurship research.
Lastly, a review of strategic entrepreneurship in the context of the public sector, both policy and practice, was conducted to identify the potential application and benefits of strategic entrepreneurship within this domain.
Key findings derived from a review of the literature on entrepreneurship, strategic management, and strategic entrepreneurship, revealed six elements fundamental to both entrepreneurship and
strategy. Collectively these elements represent strategic entrepreneurship, both a field of study and a specific concept at the intersection of entrepreneurship and strategy, which is relevant to business activity at all levels, both public and private. In view of these findings the following chapter presents a framework of strategic entrepreneurship which incorporates the core elements of strategic entrepreneurship discussed and presented in this chapter, and addresses the limitations identified within contemporary research.
Chapter 3