MIT Sloan Management Review

Rita Gunther McGrath (Photo credit: Lisa Berg)

Why do established corporations’ new ventures often fail? The new issue of Business Insight, MIT Sloan Management Review’s collaboration with The Wall Street Journal, includes an interview with Rita Gunther McGrath about problems traditional business planning processes encounter when dealing with uncertain new ventures.

McGrath, an associate professor at Columbia Business School, explains that one pitfall is to “take the untested assumptions that underlie the [business] plan and treat them as facts” — and then make expensive business decisions based on those assumptions.

What’s the alternative? McGrath recommends writing down your assumptions when you write a business plan — so you remember what assumptions you made and can check them. Then figure out ways to test and evaluate your assumptions inexpensively as the business progresses.

Should established companies even try to launch new ventures regularly? That question was the subject of an interesting discussion between Julian Birkinshaw of London Business School and Andrew Campbell of Ashridge Strategic Management Centre; their discussion was contained in a recent newsletter from MLab, in an article called “Debating Innovation.”

Campbell,in particular, urged established companies to be very conservative in their approach to innovation and pursuing new ventures. He wrote:

Don’t be blindly enthusiastic about doing new things: the cost can easily exceed the benefit. Innovate in a focused pragmatic way in areas where the gains are likely to be bigger than the costs…Don’t set up venturing units or venturing processes unless the opportunities you face are so exciting that you expect to have a continuous stream of new projects that will require processing.

Interestingly, both Birkinshaw and Campbell were coauthors of a 2003 MIT Sloan Management Review article called “The Future of Corporate Venturing.“