Rita Gunther McGrath of Columbia Business School helps companies venture out to the frontier of new business creation. Last week, she shared her ideas about how companies should define their growth goals, structure plans, and judge the potential of new businesses. She also knows the kinds of arrows pioneers often have in their backs when they try to launch new businesses in existing companies. In the newly released book Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity, McGrath and co-author Ian MacMillan reveal some dangerous traps that companies pursuing new growth platforms must avoid.
BNET: In your book, you discuss the “dangers” of sticking with plans. That notion might be a little counterintuitive to some managers. When is it dangerous to stick with plans?
McGrath: Sticking with a plan is symptomatic of a broader dysfunction in how we allocate resources and manage expectations in large organizations. The typical way a company gives money to a project goes something like this: There’s an ardent team of supporters that spends weeks or months putting together PowerPoint slides or spreadsheet projections that go on from here until next Sunday. Their goal is to convince whoever has the resources that they should hand them over to them because their presentation is so compelling and overwhelming…how could they be wrong? Large organizations make it so difficult to get money from the people who control the resources that you never want to go back; you want to get all the money you can up front. In exchange, the organization has an expectation that the numbers in your plan will be the numbers that you deliver. That makes an awful lot of sense in a core business your company has run for 10,000 years. In a new business, though, think about how crazy that is. A month later you see the plan isn’t playing out as expected: maybe customers aren’t willing to entertain the idea right now, maybe the channel isn’t as accepting as you thought…but by God, man, you have this plan and all these spreadsheets you promised people you were going to deliver against! The team goes farther and farther in pursuit of a flawed plan that was flawed from the moment they set it up; it might have seemed perfectly fine at the time, but now the team is learning a lot more. But in many corporations, people aren’t allowed to adapt their plans to take account of what they learned.
BNET: The book also emphasizes the importance of consistency in the management of growth. What does that mean to a manager who needs to structure how his or her department will operate over the course of a year?
McGrath: You can think about it in three ways. First of all, with consistency of people. A manager can fall in love with new growth and get the entire process going, and 18 months later he or she is gone. Then somebody new comes in who says “My God, we’ve got to cut unnecessary spending” and eliminates the growth programs. So the first element is an individual or a group who are prepared to do this over time in a consistent way. Then, once you have this cast of characters, are they paying attention consistently week in, week out? We’ve all seen organizations where people say, “Hey, it’s first quarter, so we’re all about growth and innovation.” But then in the second quarter you hear, “The boss just went to a course on Total Quality Management.” The third quarter someone says, “Gee, this human resource stuff is pretty important.” Then, in the fourth quarter, people say, “What can we cut because we’re not making our numbers?” So you want those few well-chosen initiatives that you are going to always have at the top of your agenda and follow through on, a “harvesting” of time and attention. The third piece is that it is very difficult to focus on growth if the resources come and go with the winds of whatever is going on in the company. A typical pattern here is that the core business of the company will discover that they need some resources that have been allocated to growth initiatives…that could be a talented engineer, or some budget money, or relationships with key distribution partners. This just kills new growth initiatives. The classic case here is when Lou Gerstner was trying to spur more growth in IBM. He found that because the growth businesses were lodged within existing businesses, they were constantly getting their resources nibbled away or taken outright. He set up what later became known as the Emerging Business Opportunities program to establish some rules and let them grow. In the late ’90s and early 2000, Dupont was almost a religiously structured strategic business unit organization. What they found was that many of their interesting opportunities for growth fell between the business units. It became internecine warfare. Their response was to create five growth platforms, which involved giving a home to “white space” opportunities that fell between their existing business units. The biggest difference was in their emerging markets strategy, where as of last year, they were growing 16 percent. These are really classic cases of big companies realizing the limitations and acting smartly.
Next week, we’ll learn what kind of people will function best in new growth businesses and what kinds of metrics companies can use to gauge the success of their in-house ventures.
