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.

On October 23, President Barack Obama will deliver at MIT “an address about American leadership on clean energy.” This blog will cover the talk, of course, and you can watch it live, October 23 at noon. If there is any problem with the stream, as there sometimes are with live events, MIT World will post a video by 3 p.m.

While you’re waiting for Obama’s address on sustainability to start, read our special report on the business of sustainability.

Yesterday on our Twitter feed, we directed readers to our special report on design thinking and noted that a TEDtalk by design thinking icon Tim Brown had just been posted.

There was other Tim Brown-related news yesterday that’s relevant to two of our favorite subjects here: design thinking and sustainability. Turns out Brown’s firm, IDEO, launched Living Climate Change, which hopes to be “a clearinghouse for design thinking about the environment.” The site is just getting started; right now it’s just a showcase for selected designers. But the site makes a promise:

Living Climate Change is a place where the most defining challenge of our time is explored through design thinking. It’s also a place to show, discuss, and share compelling and provocative thoughts and ideas about the future.

If the site really attempts to keep this promise, it should be, at the least, a fascinating experiment.

We here at MIT Sloan Management Review are voracious readers. After all, part of our service is to read management literature so you don’t have to read all of it. But it’s not only academic journals that are full of smart management ideas you can act on. This week’s issue of The Economist has a pair of articles in particular that hit the spot:

In “Creative Tension,” the magazine looks at ways Google is trying to make sure that the inevitable bureaucracy that comes with having 20,000 employees doesn’t stifle innovation. The example in question is Google Wave, a still-in-development mix of email, chat, and file-sharing that some think might unseat Microsoft’s SharePoint. How different was the development of Wave from what the company does usually? Quite a bit. “Some Googlers felt this was a betrayal of the firm’s open culture.”

“A Maket for Ideas” looks at how the Eli Lilly startup Innocentive has created an “innovation marketplace.” “Seekers” post problems and quote a fee; “solvers” compete to answer them. It’s turning out to be a successful model, even as the parent Eli Lilly is cutting jobs.

Finally, the magazine also debuted a new column on business and management that it’s calling “Schumpeter.” As you might expect, the column kicks off with an entry on why it is named after Joseph Schumpeter, who the column identifies as “one of the few intellectuals who saw business straight.” We’re curious to see how this new page tries to do the same.

Relationships between a company’s R&D and marketing departments aren’t always cordial.  According to a survey conducted by Philip Kotler, Robert C. Wolcott and Suj Chandrasekhar, only 34% of mid-level managers describe the relationship between their company’s R&D & marketing departments as collegial. 

The researchers describe their findings in their  article “Playing Well With Others,” which is part of the new edition of Business Insight, a collaboration between MIT Sloan Management Review and The Wall Street Journal.

What are the complaints? Among other things, Kotler, Wolcott and Chandrasekhar found that R&D employees complained about poor data from marketing, while marketing folks felt the R&D people did not include them in the early stages of product development. To address the problem, the authors suggest a number of approaches:

• Make sure people understand each department’s value — and how they complement one another.
• Prevent one group or the other from dominating the company’s new product development process.
• Develop a common language for both groups to use.
• Avoid having people stay strictly in their silos.
• And, finally, stay focused on the customer.   

“When engagement and thinking in terms of customer needs becomes routine, everyone has a common vision for what is being developed and why,” the authors note.

 Here’s a fascinating, short video clip– just under two minutes long — of Andrew Lippman of the MIT Media Lab discussing the need to develop “open-architecture products” that users can customize.  A few highlights of Lippman’s comments:

• “The stability that we associated with products is gone. And so if you try to base your business on a product that you think will last a long time, then I suspect you’re likely to be in trouble — because society will change more rapidly.”
• “The young are not satisfied with products. They’re satisfied with things they can build into their own products. And so the challenge is to build those as open-architecture products.”

www.hsmglobal.com

Two pieces of innovation-related news:

1) There’s an interesting new article at the strategy+business website about “in-market innovation.” What’s that? The article’s authors  (Alexander Kandybin, Surbhee Grover and Nami Soejima, all of Booz & Company)  define “in-market innovation” as the practice of doing ”mini-launches” of a number of products, with more limited prior market research — and seeing which succeed.  Companies that they cite as trying some aspect of this strategy include Procter & Gamble, Target and Tiffany & Co.

The article brings to mind other thinking about the benefits of experimentation, such as Michael Schrage’s (of the MIT Center for Digital Business) advocacy of inexpensive digital business experiments, and John  Mullins’ (of London Business School), observation that start-up companies need to be willing to experiment until they develop the right strategy.

2) In other innovation news, the Bits blog at NYTimes.com reports that in a recent interview,  Aneesh Chopra, the new chief technology officer of the United States, identified four main goals for his new job. Interestingly, all four involved innovation. The list:

• “Economic growth through innovation
• Addressing presidential priorities through innovation platforms
• Building the next-generation digital infrastructure
• Fostering a culture of open and innovative government.”

Could mass customization work for your business?

The idea of mass customization — cost-effectively manufacturing products that nonetheless have enough variety that customers can get products tailored to their needs — may sound like an ideal only a few companies, such as Dell, have obtained. But a new article in MIT Sloan Management Review argues that, in fact, mass customization could make sense for most businesses.

Fabrizio Salvador, Pablo Martin de Holan and Frank Piller report that their research suggests that “mass customization is not some exotic approach with limited application. Instead, it is a strategic mechanism that is applicable to most businesses, provided that it is appropriately understood and deployed.” One key: Seeing mass customization as a process rather than as some “ideal state” that sounds impossible to obtain.

In their article in the Spring 2009 issue of MIT Sloan Management Review, the authors discuss the capabilities needed to make mass customization work –and they describe a variety of tactics that can be used to make mass customization practical. For example , in some cases “innovation tool kits”  can allow customers to use a software design tool to express their product preferences.

Mick McManus, CEO of a company called MAYA Design, offers some interesting reflections on the state of product innovation during the current downturn. In a brief video clip from The Wall Street Journal’s website, McManus observed that he sees companies trying to protect their investment in new product development so that they will be ready when the economy picks up. He said he’s seen some companies “that have laid off factory workers but have actually started pulling in more designers and more innovators to try to figure out what to do.”

Innovating  in difficult economic times can be discouraging. With that in mind, here’s an upbeat video clip from Tom Kelley, general manager of IDEO, the well-known design firm. Kelley spoke at Stanford a few months ago on the topic of “how to be an innovator for life.” In this five-minute excerpt from that talk, he reflects on the importance of viewing “life as an experiment” — and, in particular, persisting beyond any initial failures:

(Follow all of MIT Sloan Management Review’s TED coverage.)

TEDsters smile through financial meltdown. That’s the headline of a blog post WIRED’s Steven Levy wrote yesterday, essentially arguing that all the optimism in the presentations ignored the multi-trillion-dollar elephant in the room: the current financial horror. TED curator Chris Anderson took that on from the stage first thing this morning. “There might be issues in our world more important than the Gross Domestic Product,” he said. “Market cycles come and go. Good ideas last forever.” To underline that final point, he pulled out a John Maynard Keynes quote from 1930 that felt like it could have been written today:

“This is a nightmare, which will pass away with the morning. For the resources of nature and man’s devices are just as fertile and productive as they ever were. The rate of our progress toward solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life … We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.”

The point of the conference, I suppose, is to think beyond the current catastrophe to what may lie beyond. That’s how Juan Enriquez started the conference on Wednesday, and that’s how the mostly sober panels today ended it.

The best way to predict the future is to invent it, Alan Kay (once a TED speaker, naturally) said famously, so it’s not surprising that these makers of the future are interested in predicting it, too. The first session today took on the notion of prediction from a variety of angles. It’s a topic our magazine has covered intensely recently (see our most recent issue).

The first predictor up was Nate Silver, who became everyone’s favorite statistician during the last election cycle with his website fivethirtyeight.com. Silver has a point of view — he’s left of center (no surprise; I’m guessing there were more mosquitoes than Republicans at TED this year) — but he seems much more interested in where the numbers take him than in making political points. And his interests are wide-ranging: before he turned to politics he was best know for his sabermetric research. As with so many TED speakers, Silver started his talk with a provocative question — “Is racism predictable?” — and used presidential election results from 1996 to 2008 to back up his argument that it is. His evidence wasn’t particularly surprising: uneducated, rural whites who have little interaction with African Americans are most likely to be racist, the numbers show. This being TED, Silver also took a crack at how to fix the problem. The most provocative of his suggestions was an intercollegiate exchange program between urban and rural colleges. These might seem far-fetched, but they illuminated Silver’s basic point that what is predictable is also designable.

Political scientist Bruce Bueno de Mesquita was more grandiose. A consultant to the CIA and Department of Defense, he uses game theory to predict the future. Some of his more famous predictions weren’t particularly revelatory (everyone saw the second intifada in Palestine coming), but he agreed with Silver’s predictable=designable premise, saying “you predict the future so you can engineer it.” His provocative question was “What will Iran do?” Bueno de Mesquita argued that full development of a bomb is unlikely and President Ahmadinejad is likely to see his power lessen in the years to come. He “backed up” his hypothesis with plenty of charts, but unlike Silver, who labelled every slide meticulously, he offered up some charts that didn’t even bother to mention what both axes stood for. I hope his prediction of a relatively accommodating Iran is true, but I also took photos of all of his slides just in case. Trust, but verify.

Two MIT-associated speakers rounded out the session. Media Lab giant Nicholas Negroponte gave a brief talk about the status of his One Laptop Per Child (OLPC) project that managed to be both angry and optimistic. It was part rant against the makers of tiny “netbook” laptops, which dominate the market OLPC created, and part vision for the future of OLPC. Both parts were entertaining. “The commercial markets will go to no end to stop us. Netbooks didn’t steal the right things from us,” Negroponte said as he tossed two of the sturdy OLPC devices across the stage. They landed hard and unharmed; you could count on regular laptops to do only the former. The next step in the development of the OLPC is to move to open source hardware: build hardware with open specifications that everyone can copy. It’s a canny move, changing the playing field when the current one isn’t yielding ideal results.

Then Dan Ariely talked about behavioral economics. His stories wouldn’t have been new to anyone who read his book Predictably Irrational: The Hidden Forces That Shape Our Decisions or read senior editor Alden M. Hayashi’s interview with him in MIT Sloan Management Review. Yet he’s an energetic speaker and most in the audience seemed unfamiliar with his work, despite his book having been sent to TED attendees several months ago. His vision of a world in which people reliably make easily anticipated errors has quickly moved from counterintuitive to conventional wisdom.

“From counterintuitive to conventional wisdom” is also, in a sense, the dream that powers TED. Ideas are launched here and sometimes, as with, say, Al Gore’s initial climate crisis presentation, the world accepts them. Some may be put off by the event’s optimism and elitism — and there are good arguments against both of them, but the ideas are stronger than any inadequacies in attitude. As fellow TED attendee Paul Kedrosky twittered earlier today, “For all TED’s flaws, criticisms, etc., it remains a magic thing.” Now let’s see what happens to the ideas from this year’s TED over the next 12 months.

When some portion of a company is engaged in innovative new product development activity, what determines how much the larger organization learns from the new information being gained?  That question is at the heart of a recent working paper by Alva Taylor and Lynn Foster-Johnson, both at the Tuck School of Business at Dartmouth, and Richard Harriman of Synectics.

After surveying numerous new product development projects in an unnamed large, global consumer goods company with multiple divisions, the researchers come to an interesting conclusion.  They found that how organizations should manage learning from innovation varies — depending on how much knowledge the innovative activity generates.

The researchers suggest that, in new product development groups where there is a steady flow of new information — say, a knowledge-intensive venture like pharmaceuticals — the larger company is likely to learn more if managers are closely involved in the knowledge management process. In such circumstances, managers should also make sure workers aren’t overloaded — so they have the bandwidth to readily learn from new information. But in mature industries where there is less new information flowing from the innovation activities, managers can encourage organizational learning by giving employees autonomy to try new things and by focusing on what competitors are doing – since in such situations, competition often stimulates learning.

How does a large, global corporation capture employees’ ideas about new technologies? “An Inside View of IBM’s ‘Innovation Jam,’” from the Fall 2008 issue of MIT Sloan Management Review, analyzes the results of IBM’s 2006 “Innovation Jam,” where about 150,000 people, from within IBM and also from outside it, participated in online discussions about promising new business ideas for the company.

The article’s authors conclude that the Innovation Jam in 2006, which took place over two three-day periods, ”was successful to a considerable degree. It uncovered and solved problems in and mobilized support for substantial new ways of using IBM technology.” But, they note, the process also had limitations: Most contributors didn’t build well on each other’s postings, so “ideas didn’t bubble up.” And, despite the use of text-mining software, evaluating the ideas later “demanded a great deal of management time.” (IBM has continued to ”jam”; this fall it held InnovationJam 2008.)

The article’s description of both the successes and challenges of the 2006 Innovation Jam brings to mind an interesting question: What is the best way to make sure employees’ ideas and knowledge don’t get overlooked when an organization seeks ways to innovate? 

What, in your experience, are the most effective ways of seeking – and using — employee input effectively in the innovation process?

Yes, it looks different. No, it’s not finished. But you can still find everything you expect to see here on the site, including articles from MIT Sloan Management Review and Business Insight, our collaboration with The Wall Street Journal, and much new material.

That new material includes two new blogs, Improvisations, which covers innovation, and Beyond Green, which looks at sustainable business, as well as a full sustainability section.

We have designed this new website so it’s easy to get around, but we know it’s a big change from our old website. If you have trouble finding anything, we recommend visiting our help and search pages. And if those pages don’t help, please email us.

We’re experimenting by opening up during a very early stage of the site’s development. We’re glad you’re here and we’re eager to hear from you. You can email your suggestions to the site editor or add to the comments below. We’re big fans of constant iterative development; we’ll be revising the site in real time. We believe we’ll build a better website if we launch early and listen hard. Please join us.

Yesterday we discussed Lawrence Lessig’s work. For some of you, that short summary will be enough. But for those who want to learn more about Lessig’s provocative work, today we discuss his work with him, focusing on his new book Remix: Making Art and Commerce Thrive in the Hybrid Economy.

MIT: What can we learn about the current and upcoming copyright and innovation wars from how they’ve gone in the past?

Lessig: What we learn is there’s a lot of crying and screaming at any moment of significant technical change. Those who are flourishing and prospering from the current technology are the loudest screamers. But the market quickly figures out how to profit in the context of the new technology, and pretty soon into the battle, the competitive system drives people to focus on how to make money rather than how to try to stop progress. That’s what’s beginning to happen right now. And that’s what really makes Remix optimistic.

MIT: How does this hybrid economy that you posit in the book change the definition of the word “original”?

Lessig: In a hybrid world where lots of people are developing and spreading remixes, the question of originality is very important. But in fact it becomes harder to demonstrate your talent or your creativity in this context because your creativity comes from your ability to demonstrate a deeper understanding of the material that you’re working with. People who’ve never done remixes, or have never gotten close to people doing remixes, think it’s easy. They think it’s all about just copying. But to do it well requires some pretty significant talent. It’s different from writing a song from scratch but it still is a talent that’s going to be creating a significant amount of competition among people trying to do it well.

MIT: There have always been cover versions in which the performer totally re-imagines the original. How is what’s happening now different from that?

Lessig: In one sense it’s exactly like that, in one sense it’s about how do you re-use or remake an earlier bit of creativity. But rather than it being one bit of creativity, like one song, or one album, it’s mixing together a whole bunch of different bits of creativity and creating something new out of it. What we need is what people who do cover versions have the right to, non-discriminatory access to the bits of culture that might be put together to produce something interesting or new and compelling.

MIT: Many examples in Remix come from the entertainment business. Can you give us some good, kind of pithy examples of how the notion of a read/write culture is relevant to the non-entertainment businesses?

Lessig: It started with the free software movement. GNU Linux begins with Richard Stallman launching the GNU movement to build a free operating system. Then Linus Torvalds coming along and provides the kernel so that by 1994 or 1995 it begins to be good enough that it could compete with Microsoft as an operating system. At that point, commercial entities like Red Hat come and say, “Wow, here’s a great opportunity for us,” and they try to leverage that sharing economy through a commercial entity. Red Hat was just one of many to produce value for the commercial entity. That’s a classic paradigm of a hybrid. A company like Red Hat needs to make sure that it innovates in a way that doesn’t poison the sharing economy, that’s contributing to the production of Linux. They’ve got to encourage openness in the way they function so they don’t begin to seem like the enemy. The rest of the creative world is going to look more like Red Hat or Ubuntu in the future, than it looks like IBM or the Microsoft of 10 years ago.

MIT: Web 2.0 is famously about harnessing this sort of collective intelligence, particularly from data that people cast off rather than input directly. What do you see as the most compelling examples of products or services or works of art coming out of data that people cast off?

Lessig: The most compelling example is Google. Google’s enormous power comes from the company figuring out very early on that if they captured every bit of data, they could build an enormous value on top of it. When you search Google, Google’s giving you something and you’re giving Google something. The search itself isn’t giving Google anything. But when you then respond to the results of the search by picking a particular link, Google learns something from that, and when Google matches that to everything else you’ve done, Google learns an enormous amount in addition to what you’re giving, what you give just by clicking a particular link. It’s architected to make it so that when I’m doing what I want to do I’m giving Google something of enormous value that it can then leverage. Economists will say this is not new to the market. Financial markets function by trading on the value produced by information produced by people making trades in the marketplace. I learn something when I start seeing prices going up on a certain stock. I learn something about that company that I otherwise wouldn’t have known. The people who are making the trades, because of the rules of the marketplace, can’t help but reveal that information. They’d much rather be able to trade it secretly and not reveal the price exchange, but the market imposes that constraint so that the whole market benefits from the revealing of that information. It’s not like this is the first time we’ve found ways to begin to produce value out of information that’s unintentionally or, as a by-product, revealed. But I think that the Internet lets us leverage that value much more than we ever have been able to before.

For more on Lawrence Lessig’s work, visit his website. A free, Creative Commons-licensed version of Remix will be available there shortly.