Intrapreneur Exodus - Brief Article

Chief Executive, The, Feb, 2000 by Norbert Gottenberg

THE LIST GETS LONGER EVERY DAY: brian Swette, formerly of Pepsico; Joseph Galli, formerly of Black & Decker Corp.; Tom Harden, formerly of L.L. Bean; Meg Whitman, formerly of Hasbro. All these managers and executives have left traditional corporate posts to go the dot-com route.

We are seeing a drain of intrapreneurs from major corporations to Web-based companies, and it should be worrying CEOs. It was scarcely 10 years ago that America's major corporations restructured themselves to act more entrepreneurially after decades of lumbering activity. They created a new class of manager who acted creatively and independently to build new enterprises but stayed within the corporate boundaries. Hence, the term intrapreneur. Now, the intrapreneurs these corporations nurtured are moving on. CEOs need to start asking why--and what they can do about it.

We see several reasons for the drain, some of which can be countered by established companies. For one, the challenge is greater for intrapreneurs in e-commerce outside the boundaries of the traditional company. For an intrapreneur, it is more attractive to build a new e-commerce business from nothing to $1 billion than it is to build an established business from $5 billion to $10 billion. Established businesses are in well-defined markers with well-established competitors. E-commerce businesses make up the rules as they go along. They demand more vision and creativity, if they expect to survive.

Secondly, e-commerce businesses are for speed junkies who thrive in a hyper-growth environment. If corporate U.S. moves at 50 m.p.h. to meet global competition, e-commerce businesses sprint at 150 m.p.h., propelled by a nagging fear that two kids in a garage will beat them if they don't get there first.

Consider that: 1) It took four years to register the first million Web sites and three months to move from 4 million to 5 million domain names. 2) The global Web population was 142 million in 1998; in '99, it reached 196 million and in 2003, it is expected to reach 502 million. 3) Global e-commerce spending in '98 was $50 billion. It is estimated to be $111 billion in 1999 and $1.3 trillion in 2003. B2B products and services sold on-line are expected to grow from $131 billion in '99 to $1.5 trillion in 2003.

Companies erupt our of empty space, but even new players realize that already only a few sites are the mass-market players. Others will compete in niches that they can define and dominate at blinding speed. SciQuest.com, for example, has radically changed service to the scientific products industry by combining hundreds of catalogs on-line into a single-point source of supply for research laboratories.

The demand for certain kinds of skills sets, such as logistics and distribution, is so large in e-commerce that capable practitioners will be hugely rewarded in a successful e-commerce business, far beyond the compensation packages at most corporations today.

It is no secret that e-commerce businesses are buying time when they raid the ranks of corporate America for intrapreneurs. They want to jump-start their businesses against ferocious competition and they want a managerial group that can handle growth that zooms from nothing to hundreds of millions of dollars in less than five years.

This presents a challenge for the CEOs of companies left behind, and it has touched off a convoluted cycle of raids of one company on another to replace intrapreneurs who have departed. That includes reverse recruitment of entrepreneurs from dot-coms into corporate America to build and run e-commerce businesses for established companies.

The competition has generated imitation of e-commerce businesses in that e-commerce divisions are spun off from companies like barnesandnoble.com and Zdnet.com in order to reward intrapreneurs with option packages similar to those of a start-up. It has also generated a restructuring of e-commerce efforts in established businesses to remind intrapreneurs of the resources they have in established corporations that they will not have in a start-up.

Finally, e-commerce is generating a top-to-bottom restructuring of established marketplaces through disintermediation of many players. For example, if state laws allowed auto manufacturers to sell directly to the public today, the jobs of hundreds of thousands of auto dealers and company dealer support personnel would be in jeopardy. Over the next five years, CEOs have to consider what they are going to do with skilled managers who are no longer needed because e-commerce has eliminated their jobs. Can they use these managers to replace intrapreneurs who have departed, or will the CEOs have to continue raiding for scarce talent?

Looking out over the next five years, it is impossible to forecast how acute the need for intrapreneurial talent will be. If e-commerce businesses are able to go global from their relatively domestic market operations today, then the demand for talent will be as great in 2005 as it is now. Whatever the outcome, CEOs will have to scramble to find qualified managers and executives for their in-house e-businesses while protecting against the drain of established executives to start-ups. It will not be an easy challenge.