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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2010) 12: 138–153.

Innovative and entrepreneurial activity in the public sector: The changing face of public sector institutions B ELINDA L UKE Queensland University of Technology, Brisbane QLD, Australia M ARTIE -L OUISE V ERREYNNE University of Queensland Business School, Brisbane QLD, Australia K ATE K EARINS Auckland University of Technology, Auckland, New Zealand ABSTRACT This paper investigates the drivers and facilitators of innovative and entrepreneurial activity in three New Zealand state-owned enterprises (SOEs). Illustrative cases reveal that those aspects typically associated with entrepreneurship, such as innovation, risk acceptance, pro-activeness and growth, are supported by a number of other elements within the public sector context studied. These elements include external drivers related to performance, including operational excellence and cost efficiency. They also comprise internal facilitators such as a more flexible culture, an investment in people, a focus on branding, and the deliberate application and transfer of knowledge. The implications are twofold. First, that innovation and entrepreneurship in the public sector can go beyond government policy-making, with the SOE model representing an important policy decision and sector of the New Zealand Government. And second, that the impact of several SOEs on international markets suggests competition on the global stage will increasingly come from both public and private sector organisations. Keywords: innovation, entrepreneurship, state-owned enterprises, New Zealand

INTRODUCTION

T

he importance of innovation and entrepreneurship from both a macro and micro perspective is widely recognised (Cornwall & Naughton 2003; Timmons 1999). In particular, the Global Entrepreneurship Monitor (GEM) Executive Reports note there is a positive, statistically significant association between national eco-

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nomic growth and the national level of entrepreneurial activity (Acs et al. 2005; Minniti, Bygrave & Autio 2006; Reynolds et al. 2004). This finding is consistent with numerous studies which identify both economic and non-economic benefits arising from entrepreneurial activity. These benefits include increased levels of innovation, productivity, and employment (Longenecker,

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Innovative and entrepreneurial activity in the public sector: The changing face of public sector institutions

McKinney, & Moore 1988), creation of value through civic leadership, jobs, and hard work (Ward & Aronoff 1993). It is not surprising then that governments increasingly promote innovative and entrepreneurial behaviour. Traditionally, the role of government has been viewed as one focused on policy and administration: enacting appropriate legislation and regulations, and ensuring the rules are duly applied and enforced to provide a framework for a stable, progressive society (Moe 1994). Establishing an environment conducive to innovative and entrepreneurial development is generally viewed as the task of government from a macro economic perspective (Moore 1992). The deployment of entrepreneurial behaviour and innovative activity is more commonly seen as being within the private sector domain from a micro economic perspective (Moe 1994). This focus may in part be attributable to the association between entrepreneurship and profitability, typically considered in the context of private sector organisations (Bahaee & Prasad 1992). Further, responsibility for the perceived risks of entrepreneurial activity may well be viewed as being more appropriately assumed by private sector interests, rather than being the prerogative of government organisations established with public funds. Yet, interest in what we might call public sector innovation and entrepreneurship is developing. Governments can, and increasingly do go beyond indirect involvement (‘steering’) and take a more direct involvement (‘rowing’), by undertaking innovative and entrepreneurial activities themselves (Osborne & Gaebler 1992; Savas 1987). The notion of ‘entrepreneurial government’ has been used in a number of divergent contexts, often beyond the traditional scope of entrepreneurship (Bellone & Goerl 1992; Moon 1999; Shockley, Frank & Stough 2002). Despite the promotion of innovation and entrepreneurship within government, however, debate on government’s role of rowing versus steering (Osborne & Gaebler 1992; Savas 1987) prevails. And while success within state-owned enterprises (SOEs)

has been noted in countries such as New Zealand (Hood 1995), contention over corporatisation versus privatisation continues to resurface. Accordingly, the focus of this paper was to examine the potential for innovative and entrepreneurial activity in public sector organisations such as SOEs, and investigate the elements which support such activity. Specifically, we considered the nature of innovative and entrepreneurial activity in SOEs and what are the drivers and facilitators of such activity in a public sector context? In particular, drivers were considered in terms of those elements which influenced the undertaking of innovative and entrepreneurial activity. Facilitators were evaluated in terms of elements which aided or supported such activity, providing a valuable foundation (Koch & Hauknes, 2005). This paper is structured as follows. First, a review of the literature on innovative and entrepreneurial activity in a public sector context is undertaken, together with a more strategic approach to such activity. The research method follows. Illustrative case summaries are then presented of innovative and entrepreneurial activity in three separate SOEs. Drawing on key findings, the drivers and facilitators of such activity are discussed. The conclusion follows, highlighting the implications for both theory and practice, and the three main contributions of this paper.

INNOVATION

AND ENTREPRENEURSHIP IN THE PUBLIC SECTOR

Entrepreneurship within the public sector has been presented as a deliberate search for innovative change (Linden 1990), the generation of new revenue sources and provision of enhanced services through the involvement of citizens (Bellone & Goerl 1992), and on-going innovation to achieve increased efficiency and effectiveness (Osborne & Gaebler 1992). Other approaches to public sector entrepreneurship in both theory and practice include downsizing staff and operations (Gore 1993), refocusing the efforts of existing staff towards purposeful objectives (Osborne & Gaebler 1992), selling govern-

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Belinda Luke, Martie-Louise Verreynne and Kate Kearins

ment assets through privatisation (Savas 1987; Zahra & Hansen 2000), operating with a strong customer focus under competitive market forces (Cullen & Cushman 2000), and adopting an entrepreneurial role through creative and risktaking activity (Lewis 1980) versus maintaining an administrative role which aids entrepreneurship within the private sector (Moe 1994). While the aforementioned innovation, revenue, and efficiency and effectiveness motives are closely related to the traditional view of entrepreneurship, the latter approaches are yet to be extensively studied in a public sector context. Public sector innovation and entrepreneurship are worthy of research, not least because of the broader public interest issues involved. The context for the rise in public sector innovation and entrepreneurship also merits some consideration. Advancements in technology and liberalisation of financial markets, particularly in developed nations, have meant resources such as large scale finance, capital assets, and expansive networks have become increasingly accessible to private sector organisations (OECD 1998) – at least until recently. Traditional barriers to entry such as high startup costs, significant capital investment, and large scale demand and supply (often at a regional or national level), traditionally associated with core public service industries, have diminished considerably. Entry to these industries has become increasingly manageable for private sector organisations. Subsequent deregulation of such industries (whereby government organisations which had operated in a monopolistic or oligopolistic environment allow private sector organisations to establish similar operations) has made entry to these markets increasingly accessible. This opening up has resulted in competition for public sector organisations in these industries, as well as the opportunity for governments to privatise existing public sector organisations (Zahra & Hansen 2000) by selling off government businesses which they do not wish to continue managing. 140

THE NATURE OF ENTREPRENEURSHIP AND A MORE STRATEGIC APPROACH Given the economic importance of entrepreneurship, and the significant impact of business activity on a country’s economy, arguably an enhanced understanding of a more systematic or strategic approach towards entrepreneurial activity offers significant benefits. The potential for benefit through combining entrepreneurship and strategy is clearly noted within the literature (Burgelman 1983; Miller 1983; Venkataraman & Sarasvathy 2001). In particular Burgelman (1983) refers to the need for both diversity and order, suggesting entrepreneurial activity provides such diversity; strategy provides the necessary order. While entrepreneurship has been examined and presented from various perspectives including bold risk-taking individuals (Mintzberg 1973), new and small businesses (Glancey & McQuaid 2000), and large organisations (Hitt et al. 2001), increasingly noticeable is the acceptance of entrepreneurship as a process applying broadly to all forms of business (Drucker 1985; Gartner 2001; Hart 2003; Low & MacMillan 1988; McMullen & Shepherd 2006; Venkataraman & Sarasvathy 2001). Further, the association between entrepreneurship and innovation has repeatedly been reinforced by scholars since the 1930s (Baumol 2002; Drucker 1985; Schumpeter 1934). Specifically innovation has been referred to as the successful application of new ideas to products, processes, and services (Baumol 2002; Carlsson & Mudambi 2003; Utterback & Suarez 1993; Van de Ven 1988). With the potential of altering existing patterns of consumption or production, innovation has an increasingly significant impact on business and competition. Innovation leads inevitably to adjustments in the strategic direction of organisations, but also to adjustments in the policies of governments (Nelson 2004; Robertson & Gatignon 1986; Rogers 1995; Utterback & Suarez 1993). For organisations, the innovation process provides a means by




which managerial decisions, organisational structures, resources, and skills are reconfigured and used to produce innovative outcomes (Dodgson, Gann & Salter 2005). There is therefore, an increasing recognition that innovation research can be focused in different areas including organisations outside the traditional corporate (Kearney, Hisrich & Roche 2009), which may not only be involved in innovative activity, but may also contribute to economic growth through these activities. A key challenge, however, for public sector organisations is ensuring a focus on efficiency does not stifle innovation (Potts 2009). While innovation remains central to entrepreneurship, research has also emphasised a number of other themes central to entrepreneurial activity. Collectively these themes can be summarised as opportunity recognition (Kirzner 1997; Shane 2003), acceptance of risk (Busenitz & Barney 1997), flexibility (Bhide 1994), vision (Prahalad & Hamel 1990), and growth as a form of reward (Drucker 1985; McClelland 1961). Such reward may take various forms, both financial (Drucker 1985; Hawley 1901) and non-financial (Hitt et al. 2001; McClelland 1961). Hence these themes may be viewed as fundamental to entrepreneurship as a concept and process, rather than entrepreneurship in a particular environment or context, and were used in this study as the elements characteristic of (and necessary for) entrepreneurial activity. The combination or integration of entrepreneurship and strategy has been explored in recent years through the development of theoretical frameworks and models of strategic entrepreneurship (Ireland et al. 2001; Ireland, Hitt & Sirmon 2003; Ireland & Webb 2007; Ketchen, Ireland & Snow 2007). However, the development of this new field remains in the very early stages and continues to evolve. Specifically, strategic entrepreneurship has been referred to as a combination of exploration and exploitation, a mix of opportunity seeking and advantage-seeking behaviour (Ireland et al. 2003). Thus, an examination of innovative and entrepreneurial activity

within a public sector context not only provided the opportunity to examine the scope of public sector entrepreneurship, but also consider the potential for strategic entrepreneurship in an applied setting.

METHOD In order to investigate the nature of innovation and entrepreneurship in the public sector, activity in three New Zealand SOEs was selected for illustrative cases. Using New Zealand as a context for such a study is particularly appropriate given the success of SOE corporatisation as part of New Zealand’s public sector reforms (Easton 1999; Mulgan 1997). Moreover, in several SOEs (and in particular, the three SOEs selected), leading practice in their respective industries had been noted, with attention attracted from across the globe for particular innovative and entrepreneurial activities. Hence, activity which had been publicly recognised as innovative and entrepreneurial in three of the then 17 SOEs was selected for further examination. As part of New Zealand’s public sector reforms, Government departments with a strong trading function were corporatised under the StateOwned Enterprises Act 1986, such that ownership was maintained by the Government, and management was transferred to independent boards. These boards were responsible for managing each SOE as a profitable business in deregulated markets, and returning regular dividends to Government. Strong financial returns and subsequent acknowledgement of successful and entrepreneurial activity within various SOEs (Crown Company Monitoring Advisory Unit 2005; Pullar-Strecker 2001) suggests this sector is valuable for the study of public sector management in general, and public sector innovation and entrepreneurship in particular. Furthermore, based on GEM Executive Reports (Acs et al. 2005; Minniti et al. 2006; Reynolds et al. 2004), New Zealand had (at this time this study commenced) consistently been ranked in the top five of the global listing of entrepreneurial countries.


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Given the absence of empirical research on strategic entrepreneurship in the public sector, and the emphasis on conceptual frameworks within contemporary studies, an inductive, qualitative approach was considered appropriate (Cohen, Manion & Morrison 2000). Case studies on three SOE activities recognised as innovative and entrepreneurial (Birchfield 2005; Pullar-Strecker 2002; Talbot 2004) provided the opportunity to examine the practical application of this topic in detail, facilitating inquiry from the inside (Evered & Louis 1981), leading to a ‘deep understanding of a particular social setting and the benefits of comparative insights’ (Dyer & Wilkins 1991: 614). Consistent with the notion that case studies should be purposefully selected on a theoretical basis (Burgess 1984; Eisenhardt 1989), case studies focused on activities recognised as innovative and entrepreneurial, but also considered the strategic and organisational context of each activity, within the three SOEs. The three organisations relevant to the case studies were Meteorological Service of New Zealand Limited (MetService), New Zealand Post Limited (NZ Post) and Quotable Value Limited (Quotable Value). Examples of innovative and entrepreneurial ventures within these organisations were investigated in the first instance for elements characteristic of entrepreneurial activity, and then explored in the second instance for the drivers and facilitators of such activity. Although the initial focus of this study was to examine innovative and entrepreneurial activity, the preparation and analysis of multiple case studies subsequently provided the opportunity to gain knowledge inductively from a comparison of the case study findings (Yin 2003) on other aspects which emerged as supportive of such activity. Limiting the number of cases to three also allowed innovative and entrepreneurial activity to be examined in detail, identifying both the commonalities and differences between the cases. Practical support for the conclusions drawn was established through strong associations between the case data and various themes within existing literature (Yin 2003). 142

A triangulated data collection design was used as a basis for each case. Interviews were requested with a senior executive from each SOE, and interview data were supported with observation and publicly available data from websites, annual reports, and texts. Data were collected in two separate phases over a six month period in order to identify the developments and changes resulting from each activity over time, providing a valuable longitudinal perspective (Low & MacMillan 1988). Recorded interviews were subsequently transcribed and analysed using NVivo, a qualitative data analysis package. Interview transcripts were sent to interviewees for their review and approval, prior to any formal data analysis. Analysis predominantly followed the inductive approach set out by Glaser and Strauss (1967). Although not fully developing theory from data as happens within grounded theory, the data and theory were compared during the data collection and analysis process (Isabella 1990). Thus, theory evolved from the data while simultaneously recognising and highlighting previously developed dimensions. As such, the analysis process facilitated an evaluation of previous frameworks while also providing the opportunity for reconceptualisation (Eisenhardt 1989). Following data collection, the individual case studies were prepared and presented in a similar format to establish familiarity with each case, thereby enabling both ‘within-case analysis’ (Eisenhardt 1989: 540) and cross-case comparison. Once the case studies were completed, a search for cross-case patterns was undertaken (Eisenhardt 1989). Elements and themes identified from the literature review were once again used as the basis for this analysis, supported by additional themes which emerged from the case studies, revealing clear similarities between cases in terms of the elements identified, and only minor differences in terms of the nature of each of those elements. A summary of each of the three cases is detailed below, followed by a discussion of key findings on the drivers and facilitators of innovative and entrepreneurial activity in each case. Quotes from




SOE executives are used in both the findings and discussion sections where relevant, in order to draw on findings in relation to both drivers and facilitators.

FINDINGS: CASES OF INNOVATIVE AND ENTREPRENEURIAL ACTIVITY MetService: Weatherscape XT In 2003, a local television station approached the New Zealand meteorological service, MetService, about upgrading its weather graphics. The first phase of the project resulted in an enhanced but relatively simple graphics package which the local television station adopted. MetService, however, continued to develop the software and by 2004 it had created a three-dimensional weather graphics package, Weatherscape XT, which was subsequently sold to the British Broadcasting Corporation. Weatherscape XT’s technologically advanced software represented the world’s largest weather services contract (Scoop 2004), and changed the way weather forecasts were presented, producing a bird’s eye view of weather patterns as they moved over a country or region. Further, the project represented an extension of MetService’s existing skills and resources at a time when the company needed to identify new revenue streams, expanding the scope of MetService’s operations to the United Kingdom, Europe, Asia, and the Middle East. The combination of innovation, opportunity identification, and flexibility within MetService to apply its weather forecasting capabilities in the context of television media, and show the vision to anticipate customer expectations evidenced the entrepreneurial nature of Weatherscape XT. Further, a strategic aspect was highlighted by the clear direction and purpose of MetService: focusing on core skills and customer solutions to enhance the success of customers’ businesses and MetService’s own business operations in a market directly related to its core capabilities. We gained the contract, I believe, because the system was developed with the users – the

broadcast meteorologists – in mind. We know how a forecaster’s mind works; we know the sort of things they’re going to want to fiddle with and the sort of things they’ll leave alone. Other packages are either insufficiently flexible or try to provide for every possible variation and become too complex (J Lumsden, Chief Executive, personal communication, 1 December 2004). This strategy helped developed MetService’s reputation as a viable competitor in international markets, establishing a competitive advantage, and securing a profitable future for the organisation.

NZ Post: Kiwibank In the case of NZ Post, consistent with its strategy of pursuing entrepreneurial opportunities, the organisation took the rather bold and controversial step (Vaughan 2005) of entering New Zealand’s banking industry in 2001 with the establishment of Kiwibank. Although controversial at the time and in New Zealand’s political landscape, this activity may be viewed as innovative and entrepreneurial. Essentially, its entrepreneurial nature was evidenced by identifying the opportunity to create a New Zealand owned bank which offered innovative and flexible financial services to a market largely ignored or underemphasised by New Zealand’s large foreignowned banks (Van den Bergh 2005). Further, a strategic aspect of Kiwibank was highlighted through NZ Post’s focus on maximising the use of its existing infrastructure (offices throughout the country) and core capabilities (in payment processing) to create a sustainable income stream and a secure future for the organisation, as its traditional market consistently declined with the increased use of electronic rather than postal mail. From an internal [NZ] Post strategy point of view, we’ve been facing for a long time the situation where we expect our core postal services to start to decline. The question to grapple [with] all over the world, with is ‘when does


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that start to matter?’. Looking at the economics of our business, we needed another income stream to keep up the profitability of the company, and to keep our people employed. We could hear for ourselves what was being said about the [banking industry] profits going out of the country, the service being pretty lousy, [high] fee structures…so we started seeing the opportunity as real to us. We were already keeping an eye on [the banking market] long before the politicians started getting antsy about the profits the big banks were making and taking offshore. At the Post Shop you can do a whole lot more than just post your mail. Up to 86 organisations have a payments service [through Post Shop]. We do a whole lot of financial services. These people are used to processing money, so what’s so different about processing bank transactions? So you’ve got the bricks and mortar, the customer satisfaction surveys saying people want more human contact, [NZ Post staff ] up and down the country, our New Zealand-ness… that was some of the logic on which we said ‘let’s go and set up Kiwibank’ (R Hogg, Organisational Development Leader, personal communication, 1 December 2004).

Quotable Value: E-Valuer Quotable Value was designated as a SOE in 2005, and was referred to as a young, progressive organisation (Pullar-Strecker 2002). While Quotable Value’s main business operations involved the provision of government property valuation services to local councils throughout New Zealand, one activity in particular which reflected the organisation’s search for activities both entrepreneurial and strategic as part of its growth strategy, was the introduction of E-Valuer, an online valuation service. Essentially E-Valuer combined information technology with a professional valuation methodology, such that internet users could log-on to Quotable Value’s website and obtain immediate and current valuations for any property within 144

New Zealand. The introduction of E-Valuer served a number of purposes. Firstly, it represented a creative and innovative product which provided an additional income stream for Quotable Value. Further, it assisted the organisation in capturing new target markets, thereby expanding its customer base, and increasing the organisation’s profile. Lastly, it was consistent with the organisation’s overall strategy to grow the business by leveraging from its existing resources, such that Quotable Value continued to be New Zealand’s largest valuations provider, despite the substantial decrease in the SOE’s core business of regional government valuations, once the market was deregulated. Effectively over that period [of deregulation], QV’s revenue from rating and valuation work halved over the space of a three year cycle. That was pretty much 90 per cent of [our] revenue. So we went from a point of having revenues in the vicinity of $26 million from that business, halving over time. There needed to be some fairly innovative ways of replacing that lost revenue to ensure that we didn’t [lose] all of our staff as well; making sure that we survived. [E-valuer is] taking a professional methodology, and creating an online service which replicates [that methodology]. Clearly there was a financial opportunity for us to get that data out in a way which is useful to members of the public who had been willing to pay a fair price. So what we’re doing is seeing the opportunity in terms of this data and the development in the internet. Our opportunity here is to change the platform under which this data has been available; to better inform the public of New Zealand in their property decisions, while making a return on that information (S Langridge, General Manager QV Online, personal communication, 23 February2005). Hence the development and implementation of E-Valuer represented the opportunity to combine existing resources and core capabilities with innovation and vision, effectively facilitating growth.




A summary of the cases examined, together with the immediate and extended implications are detailed in Table 1 below. In particular, Table 1 highlights both the short-term outcomes of the respective activities, as well as the longer-term outcomes and effects from an organisational perspective.

DISCUSSION Nature of innovative and entrepreneurial activity The three illustrative cases examined confirm the widely accepted view that entrepreneurship is represented by elements such as opportunity identification (Kirzner 1979), innovation (Schumpeter 1934), acceptance of risk (Busenitz & Barney 1997), flexibility (Bhide 1994), vision (Hamel & Prahalad 1994) and growth as a form of reward (McClelland 1961). They also show TABLE 1: A

REVIEW OF THE

SOE S ’

that entrepreneurship in public sector firms (Osborne & Gaebler 1992) may be strategic in nature (Ireland et al. 2001). In-depth analysis reveals that in each of the SOEs studied, innovative and entrepreneurial activity was supported by a number of other elements. These elements are not typically associated with the public sector, and can be considered as either drivers or facilitators of innovative and entrepreneurial outcomes. Drivers, representing elements which influenced the undertaking of innovative and entrepreneurial activity include operational excellence and cost efficiency. Facilitators, representing internal attributes of the SOEs which supported innovative and entrepreneurial activity, include culture (with a focus on confidence and people), branding, and transfer and application of knowledge. Individually these elements were not identified as central or fundamental to the relevant activities, but rather estab-

ACTIVITIES , IMMEDIATE , AND EXTENDED IMPLICATIONS

MetService

NZ Post

Quotable Value

Activity

Weatherscape XT – weather graphics software which allowed threedimensional images to be produced, and provided significant flexibility within the graphics

Kiwibank – a retail banking network established throughout New Zealand. Using existing postal offices, Kiwibank quickly established a strong representation in the market, at a time when other banks were closing branches

E-Valuer – online valuation service which provides current and immediate valuations for any property in New Zealand

Immediate implications

Initially sold to the BBC in 2004, representing the world’s largest weather services contract

Initially established in 2001, New and growing revenue stream for the organisation Kiwibank steadily gained market share and established its maiden profit in 2005, earlier than forecast

Extended implications

Subsequently sold throughout Europe, Asia, and the Middle East Provided a reputation and platform for other projects in international markets including turbulence forecasting over the Himalayas for Qantas Airways Limited, energy production forecasts for power stations in the United Kingdom, and low cost weather systems for isolated areas using mobile phone technology

Kiwibank was judged best bank by Consumer Magazine in 2002 and again in 2003. By 2004 the bank’s customer base grew to more than 250,000 people, its home loan portfolio doubled, and there were reports its market share had impacted on the Big 4 banks. As at 2008, Kiwibank continued to increase its market share. Profits for 2008 were $36.8 million, and the bank had expanded the scope of its operations to include a full range of banking services in both the business banking and personal banking markets

Provided a platform for other projects in local and international markets, as well as a growing reputation for Quotable Value Revenue and profits from E-valuer continue to increase. Further expansion through new projects and acquisitions has continued to grow Quotable Value’s market share in New Zealand and Australia


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lished a valuable strategic context for each activity, thereby creating an environment conducive to the establishment of strategic entrepreneurship. It is argued that the presence of these elements may have a profound effect on both the existence and success of innovative and entrepreneurial activity in the public sector. Further, public sector firms which are innovative and entrepreneurial employ many practices often taken for granted in the private sector, but which are not commonly associated with the public sector, often seen as bureaucratic (Kearney et al. 2009). For those public sector firms which are able to successfully employ these practices, the nature of entrepreneurship is different from public or social entrepreneurship, often associated with the public sector. In essence, findings suggest the activity examined is remarkably similar to or characteristic of what has been termed strategic entrepreneurship; ‘entrepreneurial action with a strategic perspective’ (Hitt et al. 2001: 480); a combination of exploration and exploitation (Ireland & Webb 2007; Ketchen et al. 2007). Elements representing both drivers and facilitators are discussed more fully, under the relevant headings below.

DRIVERS Operational excellence While the literature on entrepreneurship in general and strategic entrepreneurship in particular does not specifically address the notion of operational excellence, this issue is addressed in the literature on strategy, in the context of pathways to market leadership (Treacy & Wiersema 1993), an internal safety system (Canterella 1998), core competencies (Prahalad & Hamel 1990), and competitive advantage (Barney 1991). Essentially however, there is a lack of emphasis on the importance of operational excellence within core competencies and capabilities, in the context of strategic entrepreneurship. Based on the data and findings for each of the three case studies, there is a strong awareness of, and emphasis on develop146

ing core capabilities (MetService, NZ Post) or strategic resources (Quotable Value), and ensuring operational excellence with respect to those capabilities and resources. MetService has a capability for forecasting for any particular spot on earth. We realised we didn’t have to be too frightened of things not working out … we had the skills in getting things to work once we analysed them (Lumsden, personal communication, 1 December 2004). Specifically this enabled each of the organisations to leverage from those capabilities and resources in identifying opportunities in related markets, thereby incorporating innovation and flexibility within each organisation’s vision to facilitate growth. The focus on core competencies may in part be attributable to regulations governing SOEs, and the approvals required in order to step outside their core areas of expertise. Given however, the case of NZ Post applying core skills in a distinctly different market, and that strategy literature suggests core competencies are important to all firms, arguably this finding has relevance to both the public and private sector.

Cost efficiency The notion of cost efficiency is not widely addressed in the literature on entrepreneurship or strategic entrepreneurship. Bhide (1994) is one of the few to address this topic in the context of entrepreneurship, and contends entrepreneurs tend to favour ventures which are low cost rather than capital intensive. Within the literature on strategy however, certainly an awareness of cost is an important aspect (Barwise & Meehan 2004; Porter 1980). Dess, Lumpkin, and Covin’s study (1997) is one of the few to broach this topic in the context of both entrepreneurship and strategy, and suggests cost leadership may in fact be inconsistent with innovative pursuits considered fundamental to entrepreneurial strategy-making. Similar concerns are noted by Venkataraman and Sarasvathy (2001) and Mintzberg (1991), who




refer to a tension or conflict between creativity and cost efficiency. Based on the case study findings however, cost efficiency is an important theme which emerges from each of the three cases. While not necessarily viewed as central to entrepreneurship, certainly it provided a benefit to each of the organisations in establishing innovative and entrepreneurial activity. Specifically, operating within a low cost structure was associated with opportunity identification, innovation, flexibility, and risk; such that businesses have the flexibility to pursue opportunities and innovations without committing significant costs to the project (MetService). Cost efficiency also assisted in managing or minimising the relevant on-going financial risks. By the time we’re spending serious money on something within this organisation we’re already pretty well convinced we can make it work. We are able to take emerging technology and solve a wide range of problems, not the least of which is cost (Lumsden, personal communication, 1 December 2004). With respect to Quotable Value, limited funds for advertising forced the organisation to consider cost-effective alternatives. With profits of only a couple of million dollars a year that’s not a lot of extra cash to drive marketing activity (Langridge, personal communication, 23 February 2005). In response, the SOE voluntarily participated in a series of high-profile newspaper features and television programmes directly related to its core market, which significantly increased its public profile. Similarly, the issues of economies of scale and operating within a low cost structure provided NZ Post with the flexibility to offer innovative yet low cost services to customers. The issue of cost efficiency from the case study findings may in part be reflective of the organisations’ commercial imperative due to their designation as SOEs (State-Owned Enterprises Act 1986). Thus, a formal requirement to make prof-

its and a shift from continued government funding meant that each of the organisations was increasingly aware of the need to finance their own operations. While operating within a low cost structure is not unique to government organisations, the changes in funding arrangements and accountability for commercial results may have resulted in a heightened awareness of the importance to search for opportunities and innovations while maintaining a low cost structure. Collectively, these elements may be viewed as a response to the expectations of the New Zealand Government that SOEs will operate as successful organisations in deregulated markets. Thus, the overriding driver is perhaps the SOE policy of the New Zealand Government which requires commercial and competitive operations from SOEs, with expectations of both profits and dividends. The drivers identified were supported by a number of facilitators, considered below.

Facilitators Culture An overview of the case study findings reveals the notion of an innovative or entrepreneurial culture does not specifically emerge as an element either distinctive of or central to entrepreneurship. Of the three SOEs examined, only one (MetService) deliberately adopted an entrepreneurial culture. This is perhaps reinforced by the number of projects within MetService which seemed prima facie, both innovative and entrepreneurial in nature, and were therefore suitable for inclusion in this study. This variation between MetService and the other two SOEs may suggest an indirect relationship between entrepreneurship and an entrepreneurial culture, such that an entrepreneurial culture assists in establishing an environment conducive to entrepreneurship, but is not fundamental or necessary for the creation of innovative and entrepreneurial activity. More notable perhaps, was the emphasis on an open, flexible, and progressive culture identified within each of the three SOEs, such that they were willing to experi-


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ment (Ireland & Webb 2007), look beyond their existing business operations, and apply their core skills and resources to new products and markets. This summation is consistent with the view that entrepreneurship is essentially an act, activity, or process (Miller 1983). Any organisation which undertakes innovative activity may achieve entrepreneurship (e.g. NZ Post and Quotable Value). However, those organisations which establish an entrepreneurial culture (e.g. MetService) are perhaps more likely to create or establish entrepreneurship on a recurring or more frequent basis (c.f. Morris & Kuratko’s (2002) discussion on degree versus frequency of entrepreneurial activity). Certainly within MetService there seemed to be a more pronounced emphasis on fostering innovation and searching for entrepreneurial opportunity. With respect to aspects within culture which do surface from the findings, however, two such themes repeatedly emerge, being confidence and people. Confidence is identified by Busenitz and Barney (1997), and Ramamurti (1986) is one of the few to address the notion of confidence in the context of government organisations, noting that public entrepreneurs are characterised by a confidence to adopt new methods, take on new projects, and transform ideas into reality. The concept of people is considered below, together with other key strategic elements identified. Literature on entrepreneurship considers the issue of ‘people’ within the context of management (Ireland et al. 2001) and employees (Ireland et al. 2003) – and of course the entrepreneur or intrapreneur within a larger organisation. Within strategy literature, significant emphasis is also placed upon leadership by a single or dominant individual (Mintzberg, 1973) and more recently on top management teams (Ireland et al. 2001). Ireland et al. (2003) also make a very general reference to human capital within the context of managing resources strategically, noting that adequate investment must be made in human resources to facilitate strategic entrepreneurship. Within the case studies, the notion of ‘people’ emerges as a 148

central theme in two contexts: customers and employees. With respect to customers, each of the SOEs examined demonstrated a clear focus on customers, inadvertently referring to customer relationships as partnerships, and emphasising innovative products and services tailored to express or anticipated customer requirements. In the context of staff, each of the three SOEs also demonstrated a genuine appreciation of staff ’s contribution and commitment, encouraging innovation and flexibility within the workplace, and a shared or collective vision. There has been a very intentional attempt to align our policies and procedures with the organisation’s vision, and that has almost magically allowed the people [within the organisation] to do the things which others come along and say ‘that’s pretty good; how did you do this innovative stuff?’ People bring ideas to work, and we encourage that. So once you’ve got people’s minds working on an issue, things happen. Staff can play with ideas, experiment; see whether you’ve got the makings of a project (Lumsden, personal communication, 1 December 2004). Interestingly, in these SOE cases, there was little to uphold the notion of a single entrepreneur/ intrapreneur or a small team within these SOEs being responsible for the success of the innovative and entrepreneurial activities. Rather, success was seen to be more widely contributed to and shared. This aspect is noted as perhaps attributable to a national culture which prefers not to celebrate ‘tall poppies’ or individuals’ success.

Branding Within the literature the notion of branding is examined in the context of strategy (Easton 2004; Quelch & Deshpande 2004) and entrepreneurship, in both the public (Ramamurti, 1986) and private sectors (Koehn 2001), as one of many variables which may assist businesses with strategic positioning and entrepreneurial success.




Within the context of strategic entrepreneurship, however, no such reference or relationship has been drawn. Based on a review and comparison of the case study findings however, branding does emerge as an important aspect of the innovative and entrepreneurial activities examined. In each case, branding was important in a variety of contexts: building an international reputation (MetService), gaining recognition as a New Zealand icon (NZ Post), and establishing a market profile (Quotable Value). We’re seen as a NZ icon; as a NZ institution (Hogg, personal communication, 1 December 2004). We use the brand Metra when we’re overseas because we don’t want people to get confused with the traditional meteorological service. The [national] meteorological service doesn’t stack up too well when you’re selling energy generators in other countries. You have to explain your government ownership, but your commercial focus. So we decided to brand ourselves (Lumsden, personal communication, 1 December 2004). Once again, the disparity between strategic entrepreneurship theory within the literature and practical findings from the case studies may be a reflection of the case study context, being three government organisations, and SOEs in particular. Thus, the issue of branding may be specific to commercial government organisations such as SOEs, and ultimately remains an issue for further research.

Transfer and application of knowledge While the transfer and application of knowledge is addressed in the literature relating to strategy (Bissell 1997; Hargadon 1998), literature on entrepreneurship and strategic entrepreneurship in particular provide very little insight into the importance of this concept. Specifically the literature on strategy refers to knowledge brokering: leveraging from existing knowledge, and applying

that knowledge in new ways (Bissell 1997; Hargadon 1998). The literature on strategic entrepreneurship, however, largely overlooks the practical steps involved in identifying opportunities and developing innovations, other than providing very general guidance such as making sense of opportunities, and questioning the dominant logic (Ireland et al. 2003). The transfer and application of knowledge also emerges as an important support for innovative and entrepreneurial activity. Again, this theme repeatedly surfaces from the case study findings as a strong supporting factor within the activities examined. As noted previously, the findings indicate transfer and application of knowledge provides an important pathway for opportunity identification, innovation, and flexibility; and is perhaps highlighted by MetService’s Chief Executive (2004) referring to another commercial innovation. I think most of the things we do are some form of adaptation. Solar stuff ’s not new, but the combination of that with cell phone technology has made a huge difference (Lumsden, personal communication, 1 December 2004). This process of knowledge transfer is further reinforced through Quotable Value’s application of a professional methodology to an online service; NZ Post’s application of its existing infrastructure and payment processing skills to quickly establish a retail banking network. Thus, this finding represents an important development in the understanding of a strategic approach to innovative and entrepreneurial activity, and the potential pathways or elements which effectively support the creation of such activity. Interestingly, MetService used Weatherscape XT to continue its expansion in international markets, and gradually establish an overseas presence. Further, the confidence gained from this project provided a platform for the organisation to continue developing and commercialising a number of entrepreneurial projects in various countries (e.g. turbulence forecasting over the Himalayas for Qan-


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tas Airways Limited, energy production forecasting for power stations located in the United Kingdom). Such developments highlight the implications for competitors in international markets. In the case of NZ Post, it worked to establish a strong position in the New Zealand banking market, consistently increasing its customer numbers, the scope of its services, and its profits. However, in doing so, it also posed strong competition for New Zealand’s banking sector dominated by Australian owned banks, impacting upon their market share. And for Quotable Value, E-Valuer represented a tool to reclaim its position in New Zealand as the largest valuation company through the creation of new services and markets. Further, it gave the organisation a sense of confidence to subsequently expand the scope of its services, and also expand overseas.

CONCLUSION A significant contribution of this study is taking research on innovation and entrepreneurship into an applied public sector setting and examining the drivers and facilitators of a strategic approach to such activity. Progression beyond the purely theoretical has provided important insight into strategic entrepreneurship as an evolving concept, and strategic entrepreneurship within a public sector context in particular. Developing an understanding of the broader scope of innovation and entrepreneurship within a public sector context also offers important insight into this aspect of public sector management, as countries become increasingly exposed to and interested in concepts such as ‘new public management’ and ‘entrepreneurial government’. Employing a strategic approach to entrepreneurship as a response to calls for increased efficiency and effectiveness within the public sector, presents the opportunity for both financial and non-financial gains in a planned and structured manner. Arguably, such planning and structure inherent to strategic entrepreneurship is even more important in a public sector context, where public ownership and public funds (both the initial investment and the potential for profits and/or losses) are at stake. Thus, successful cases of 150

innovative and entrepreneurial activity, and an understanding of the associated strategic or supporting elements, provide important lessons. An overview of innovation and entrepreneurship within three SOEs indicates the changing profile of the public sector. This paper has highlighted both incidences of entrepreneurial activity and the drivers and facilitators of such activity. Drivers include operational excellence and cost efficiency, underpinned by Government policy with expectations of both commercial and competitive behaviour in the SOE sector. Facilitators include culture (with a focus on both confidence and people), branding, and transfer and application of knowledge. As an extension of these findings, an important implication for theory is the potential scope or diversity of supporting or strategic aspects which facilitate the creation of such activity. While elements such as innovation and opportunity identification are considered characteristic of and central to entrepreneurial activity, elements contributing to the strategic context of such activity are perhaps more variable in nature. Thus, the specific supporting elements identified inductively from the case study data have been established as relevant but not collectively essential for the creation of strategic entrepreneurship. Importantly however, each SOE in this study leveraged from existing core skills and resources, highlighting the importance of both familiarity and developing a level of expertise within the core business, such that opportunities can be identified strategically in related markets rather than searching for random market gaps where the liability of newness is high. Further, this study has also revealed the importance of understanding strategy and entrepreneurship as the public sector evolves. As government-owned but commercially focused, SOEs have developed successful profitable businesses in New Zealand. Yet each of these organisations has also impacted on private sector organisations in local and international markets. This impact suggests competition on the global stage will increasingly come from both public and private sector organisations in the future.




While this paper has presented cases of only three of the (now) 16 SOEs operating in New Zealand, they are not considered unusual or ‘outliers’ in terms of their progress and success. Several of New Zealand’s SOEs have established themselves as respected competitors in their respective industries, and at times innovative leaders in global markets. A systematic examination of all 16 SOEs will provide further insight into the prevalence, nature, and scope of innovative and entrepreneurial activity in New Zealand’s SOE sector more broadly. Further, examination of innovation and entrepreneurship within a wider public sector context (beyond SOEs and New Zealand), including organisations in more monopoly-like situations, will provide an enhanced understanding of how to assist the public sector in facing future challenges to directly contribute to entrepreneurial activity and economic development. Moreover, this trend is perhaps an important change which private sector organisations should prepare for.

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Accepted 7 March 2010


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