Improvisations

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.

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.

To generate innovative ideas, companies need to look in areas beyond the familiar — and often slightly beyond their core, day-to-day businesses. That’s one of the messages of “In Search of Innovation,” an  article that is part of this week’s edition of Business Insight. which is produced in a collaboration between MIT Sloan Management Review and The Wall Street Journal.

In the article, researchers John Bessant, Kathrin Möslein and Bettina von Stamm describe eight ways companies can spark innovative thinking:

• Create scenarios of the future.
• Use the Web to create “marketplaces of ideas,” as InnoCentive does.
• Work with innovative “lead users.”
• “Deep dive” by closely  observing consumers’ behavior.
• Conduct “probe-and-learn” experiments in market segments you want to learn more about.
• Encourage staff to look for market trends.
• Foster entrepreneurial behavior in employees.
• Get different parts of the organization talking together.
• Seek partners and staff with diverse perspectives.

Vijay Govindarajan

How should companies think about innovation during a downturn like this one? Vijay Govindarajan, an expert on innovation and strategy from the Tuck School of Business at Dartmouth, thinks that businesses should be careful not to  abandon innovation in their quest for efficiency and cost control during a recession — but they may need to reduce their focus on risky breakthrough innovation plans. 

How should a company strike that balance? In  an interview published today  as part of Business Insight, MIT Sloan Management Review’s collaboration with The Wall Street Journal, here’s what Govindarajan suggested:

“I distinguish between two types of innovation: adjacency innovation, which is a little less risky because you are innovating in a business area adjacent to your existing core business, and breakout innovation, where you are going multiple steps outside of your core business. In a normal time, I would say spend about 50% of company resources on the core business and about 50% on adjacency and breakout innovation—perhaps 35% on adjacency innovation and maybe 15% on breakout innovation.

But during times like this, the percentages shift. I would shift to spending more like 70% on the core business and perhaps 25% on adjacency innovations—and maybe 5% on really breakout innovation. The investment in innovation in adjacency areas probably doesn’t change much, but you shrink some of the spending on real breakout innovation. The reason is: Breakout innovations are high-risk and high-payoff. And one thing you cannot afford during this economic crisis is to make a serious mistake.”

You can read more about Govindarajan’s thoughts on innovation and strategy during the downturn in the new edition of Business Insight.

Andrea Ordanini takes an interesting look at “crowd funding” in the latest edition of Business Insight. What’s crowd funding? It’s the emerging practice of consumers investing small amounts of money (as little as $1) in products they fancy by musicians or fashion designers. It’s yet another form of community activity facilitated by the Internet.

However, don’t expect an explosion of consumer-funded start-up businesses. Ordanini notes that the “crowd funding” process “works best with products for which customers feel a strong personal attachment — products like music and designer goods. Without that bond, customers are unlikely to support a product beyond simply buying it.”

Last week I blogged about an executive who thinks that environmental sustainability initiatives helped his company survive the last recession. Now, this week, here’s another example of a company reporting economic benefits from environmentally sustainable practices.

The new edition of Business Insight, which MIT Sloan Management Review produces in collaboration with The Wall Street Journal, contains a fascinating case study of a Subaru plant in Indiana that has found that reducing its environmental impact saves money.  For example,  the company says that it has reduced electricity-per-car consumption 14% since 2000. (Researchers Alan G. Robinson and Dean M. Schroeder report that they confirmed the company’s claims.)

The article goes into interesting detail — including a passage about how Subaru employees explored the contents of the company’s dumpsters to figure out ways to reduce waste. The most substantial cost-saving impacts, according to Subaru? “Where the biggest savings have been achieved, in descending order: reducing waste by revising processes, conserving energy; and working with suppliers.”

This week’s official launch of Tata’s Nano — the world’s most inexpensive car – represents not  only an innovation — but perhaps also a harbinger of more innovations in the future. The Christian Science Monitor reported: 

 Indeed, it’s the middle class in poor nations who will be the focus of innovation for years to come, much as the Internet has spawned new businesses over the past 15 years, says Vijay Govindarajan, professor at Dartmouth College’s Tuck School of Business. “Innovating in these countries does require a fundamental shift in the price paradigm,” says Dr. Govindarajan.

Related links:

• Govindarajan has published several articles in MIT Sloan Management Review,  on topics such as strategic innovation and building an effective global team.
• For more on lessons Western companies can learn from companies in developing countries, see “Surviving the Downturn: Lessons From Emerging Markets” in the current issue of Business Insight, which is a collaboration between MIT Sloan Management Review and The Wall Street Journal.

Looking for new strategies for doing business in the recession? In the new edition of  Business Insight, our collaboration with The Wall Street Journal, Martin S. Roth and Richard Ettenson suggest that Western companies would do well to consider strategies employed by companies from emerging markets — where economic volatility and constraints on consumer disposable income are commonplace.  Note Roth and Ettenson:

“In Eastern Europe, South Africa and Latin America, managers look at tumultous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.”
 
Another resource for recession-fighting ideas: MIT Sloan Management Review’s new special report on surviving – and thriving — during the downturn.

In this era of widespread telecommuting and geographically dispersed teams, more and more business leaders need to know how best to manage employees who are seldom in the company offices. Two recent articles take a look at emerging trends in managing telecommuters and remote workers:

• In an article in this month’s edition of Business Insight, two researchers discuss the management challenges — and benefits — represented by a new breed of autonomous, high-level workers who are rarely in the corporate office.  The authors note that, if managed well, these self-starters can offer significant benefits to the corporation, as they can free up management time by not needing close supervision; they also lower traditional overhead costs such as real estate. But managing such employees isn’t easy. One suggestion? “Macro-manage” high-level remote workers  – giving them broad goals to achieve. 
• On a similar note, CIO.com recently featured a three-part series about a 35-person software company, Chorus, that decided to eliminate its corporate offices and, in effect, send the entire company to home offices. While Chorus reports higher productivity now that employees all work at home,  communications in an all-virtual company requires new approaches. One tool Chorus uses: a report that everyone receives each day that lists all of the projects each company team has in progress.  

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.

Are performance reviews passé? At the very least, they are a hot discussion topic  –  judging from reactions to the lead story in this week’s edition of Business Insight, which we at SMR produce in collaboration with The Wall Street Journal.  The article’s author, UCLA management professor Samuel Culbert, opines that performance reviews are  “little more than a dysfunctional pretense,” with bosses out to justify predetermined compensation ranges. Meanwhile, Culbert argues, subordinates become unwilling to admit vulnerabilities because they know such admissions may come back to haunt them at future performance reviews.   

Culbert’s article garnered dozens of comments. Many readers agreed with Culbert that performance reviews need improvement. Wrote one: “As a knowledge worker, performance reviews feel like some anachronistic, industrial-era tool designed to assert dominance in employee relationships… It is hard for me to imagine a motivated professional who benefits from this type of defined periodic review instead of ongoing trusted communication.”  Others disagreed, with some noting that formal performance reviews help managers avoid litigation if they need to later fire a poor performer.

What’s your experience? Are performance reviews worthwhile — or not? How can they be improved?

Mixed news this week from American Airlines: On the plus side for most people, American plans to respond to flight attendants’ concerns and ban porn on its in-flight Wi-Fi system. On the negative, the company plans to charge for more amenities once considered part of a ticket price, such as blankets and soft drinks. What’s next as an a la carte item: the SkyMall catalog?

Two recent publications of MIT Sloan Management Review have particular relevance to the vagaries of managing in the no-longer-so-friendly skies:

In the fall issue of the Review, editor Michael S. Hopkins talks to longtime airline industry watcher Thomas A. Kochan in search of The Management Lessons of a Beleaguered Industry. You can guess Kochan’s solution from the title of his new book: Up in the Air: How the Airlines Can Improve Performance by Engaging Their Employees.

Dan Ariely has a book of his own making noise these days, Predictably Irrational, and, in the latest issue of Business Insight, which we produce with The Wall Street Journal, he talks to the Review’s Alden M. Hayashi about The Irrationalities of Product Pricing. Whether it’s airline amenities or some of the pungent examples Ariely uses from technology (TiVO, iPhone), what we think something is “worth” may be all in our minds.

Remember that next time you need to pay $5 for a two-hour rental of a tiny blanket.