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.

In the popular imagination, innovation is often associated with creative inspiration that can neither be predicted nor planned. So what happens when two professors of operations and information management (who have also developed products and launched companies) tackle the topic of innovation?

An informative new book, Innovation Tournaments: Creating and Selecting Exceptional Opportunities, is the result. In it, Christian Terwiesch and Karl T. Ulrich, professors at the Wharton School of the University of Pennsylvania, look at innovation process — in other words, a process management approach to innovation.

In particular, Terwiesch and Ulrich focus on “innovation tournaments” as a tool that companies can use to identify promising ideas for innovation, which they term “opportunities.” Much as the American Idol television show is able to use a tournamentlike approach to identify a small number of promising performers from thousands of would-be contestants, companies can use tournaments, Terwiesch and Ulrich argue, to identify new opportunities for their businesses. Ideas may be sought from employees, from people outside the organization, or from a combination of internal and external sources.

You can read more of this book review of Innovation Tournaments in the Summer 2009 issue of MIT Sloan Management Review.

Ran across an intriguing article in Sunday’s New York Times. The author, Steve Lohr, raised the question of whether current trends may create a shift in advantage in innovation – from entrepreneurial companies to large ones. The argument is that many of today’s biggest problems are in complex fields such as energy and  the environment — and that solutions will need to be multidisciplinary rather than the work of entrepreneurial inventors. “The pendulum of thinking on innovation does seem to be swinging toward the big guys,”  Lohr wrote.

The article brought to mind for me an interview I conducted with Harvard Business School’s Clayton M. Christensen last fall. An edited version of the interview with Clay Christensen appeared in the Spring 2009 issue of MIT Sloan Management Review – but one point that didn’t make it into the published version (due to space constraints) was a brief observation Christensen made about established companies and disruptive innovation. Christensen noted that he had become ”a lot more optmistic” in the last five years about leading companies’ ability to successfully innovate disruptively, if the management team understands the principles of disruptive innovation.

Still, though, there’s certainly research suggesting that large companies often have difficulty successfully managing corporate venturing programs designed to foster innovative new businesses. As authors Rita Gunther McGrath, Thomas Keil and Taina Tukiainen observed in “Extracting Value From Corporate Venturing,” a 2006 article in MIT Sloan Management Review:

Executives wax and wane in their enthusiasm for launching new ventures outside an organization’s core business. In their more enthusiastic moments, leaders often see corporate venturing initiatives as sources of organic growth and vitally important engines of renewal. However, in their more disenchanted periods executives may see new ventures as high-risk, foolhardy distractions from effectively running the core business. What’s more, such pessimism isn’t wrong. Corporate ventures are risky and they usually do not produce hoped-for results.

What do you think? Are the dynamics of innovation changing in ways that favor larger companies? And are  large companies getting significantly better at managing innovation — or not?

Clayton Christensen  is an expert on disruptive innovation, a professor at Harvard Business School — and, apparently, an optimist.  In the new edition of Business Insight, our collaboration with The Wall Street Journal,  Christensen explains why economic downturns are good times to innovate. Christensen points out that most innnovations need adjustment before they’re successful. And, in good economic times, would-be innovators can waste a lot of resources before they make the adjustments to their strategy that are needed to succeed in the marketplace, Christensen argues. Not so in tougher economic times.  As Christensen put it:

In an environment where you’ve got to push innovations out the door fast and keep the cost of innovation low, the probability that you’ll be successful is actually much higher.

The New York Times ran a fascinating article on General Motors’ checkered history of innovation  in recent years (registration required); it’s a veritable case study on how not to innovate. With many G.M. senior executives coming from finance — rather than engineering or product development – backgrounds in recent decades, the company judged new products on profitability — killing an electric car initiative in the late 1990s and not capitalizing on its own hybrid technology for years, according to The New York Times.

But inconsistent support for innovation is not a problem unique to G.M. In “Managing Internal Corporate Venturing Cycles,” a 2005 MIT Sloan Management Review article by Stanford’s Robert  Burgelman and Liisa Välikangas, Burgelman and Välikangas observed that “many major corporations experience a strange cyclicality” in their attempts to launch new ventures internally — a cyclicality marked by starting up programs only to shut them down later.

Can innovation save G.M. now? Well, one common stage of the cycle that Burgelman and Välikangas described is when companies are “desperately seeking” to launch new ventures because their core business is deteriorating. “Such decay is often caused by disruptive technologies, which the company may very well have dabbled in early on but given up or failed to capitalize on….If top management waits until new business opportunities are desperately needed, it is usually already very late in the game.”

What if every business had to be managed like a start-up? Rita Gunther McGrath, an associate professor of management at Columbia Business School, has some interesting observations along those lines – about managing in today’s uncertain business climate.  McGrath, who has written in the past on corporate venturing for MIT Sloan Management Review, recently noted that it may no longer be so clear that managing innovation requires different tools from managing established “core” businesses. 

Why? Because nowadays, even a company’s so-called “core” businesses may be subject to the same kind of uncertainty that has traditionally characterized new businesses, McGrath observes.  And that, she argues, means that using traditional metrics to measure management performance might no longer be a good idea.

Writes McGrath in a recent entry in her blog for Harvard Business Publishing : ”The question to me…is whether we are inappropriately trying to hold leaders accountable for predictable performance in a fundamentally unpredictable time. Perhaps the model for future discussions of corporate performance will have to begin to look a lot more like the models we have been using to deliver new businesses and innovation.”