Innovation

October 20, 2015 By Don Springer Leave a Comment

Can Entrepreneurship be Taught?

There are many approaches to entrepreneurship including the psychological approach that focuses on the personality of the entrepreneur, the environmental approach that focuses on the social and organizational aspects, and a combination that looks for systemic elements.

Saras Sarasvathy, Darden School research professor at the University of Virginia, has researched the approach from the context of a domain of expertise and has found that serial expert entrepreneurs use a distinct logic in their decision making that she refers to as “Effectual Logic”. As a method for design, it can be taught like other methods of thought.

A Psychological Approach

A psychological approach to entrepreneurship would consider questions of personality. Does one have a high need for achievement, a high locus for control, a high tolerance for risk, and perhaps, suffer from overconfidence bias? Based on these and similar assessments, one could conclude that an entrepreneur is born and bred.

An Environmental Approach

The environmental approach would ask if the entrepreneurial candidate worked in an environment with supportive mentors who themselves had been entrepreneurs. Is the geographical area influenced and supported by multiple companies, skilled employees, venture investors, institutions of higher learning, etc., similar to a Silicon Valley or Cambridge? In essence, this approach assumes the environment to be a significant impact conducive to entrepreneurship or not.

Both of these approaches would assume that entrepreneurship is not taught, but born as personality or coaxed and supported as a socio-economic outcome.

Sarasvathy was interested in two primary questions: (1) What commonalities and differences exist in the decision making process of a group of expert entrepreneurs, and (2) in the face of a non-existent markets, what underlying beliefs about the predictability of the future influence decisions as they build a new venture?

Entrepreneurship: A Design Approach

This led her to research entrepreneurial thinking as a domain of expertise and, as such, she found it had a logic of its own. She found that entrepreneurs have learned how to build ventures in a market in which the future in not only unknown, but unknowable. Yet, entrepreneurs are able to shape this future by utilizing the following five principles:

Start with the Means – they started with their means: who I am, what I know, and whom I know
Affordable Loss – they limit risk by understanding what they can afford to lose
Leverage Contingencies – they invite surprise as a clue to new markets vs. managing for risk
Form Partnerships – they build partnerships with self-selecting stakeholders and change the goals and resources available by doing so
Control vs. Predict – they build the future rather than finding it or predicting it.

She refers to this approach as an “Effectual Logic” that can be contrasted with “Casual Logic”, the approach that predicts the probability of the future, manages the risk, assesses the competition, and moves a new venture forward on the basis of returns on assets.

Effectual logic is an approach to design and construction in contrast to casual logic’s approach to decision making. It is, however, simply another method of thinking along side deductive logic, Bayesian analysis, the experimental method, etc., and as such, can be taught just like other problem solving methods.

October 13, 2015 By Don Springer Leave a Comment

Innovation Management

Innovation can be managed similar to organizational processes like quality initiatives, safety programs, and mergers. Yet, when organizations desire to become more innovative, they seem to move forward in a haphazard way.

Rita McGrath, in The End of Competitive Advantage, argues that a proficiency in managing every aspect of an innovation system is required as part and parcel of the other aspects of operating a company.

Proficiency in innovation requires a management system for planning, monitoring, and budgeting. It also requires a way to manage the resources to be used and a guide of how the innovations will fit into the larger strategic direction.

Additionally, it is important that roles are identified so that the organization knows who is responsible for vision and resource enablement, specific initiative development, and internal launch or market commercialization. With systems and roles in place, the organization can progress innovation phases of ideation, testing, development, and commercialization.

With a strategic direction as guide, an ideation process must include a pipeline of ideas that are promising. McGrath says that this part of the process “encompasses the processes of analyzing trends, connecting innovations to the corporate strategy, scoping potential market opportunities, and eventually defining arenas in which a company may want to participate”.

With regard to focus, there are two schools of thought: (1) ideation must be directed with a clear focus and (2) ideation springs from organizational support of free thinking.

Google, 3M, and others have practiced the latter by providing people with time to work on what they want without restrictions. McGrath argues for the former, coined as “challenge driven” or “needs driven” innovation, because it supports the direction of the firm, even in its widest strategic sense.

Once ideas have been developed, those with promise are further developed, tested, and defined. It is here where customer needs and use cases are defined and a plan developed to test the assumptions. The primary objective is to test those assumptions as quickly and cheaply as possible.

Moving forward to commercialization is a process of continual testing, prototyping, costing, partnering, planning and launch. Whether this is accomplished in three phases, as McGrath delineates, or in a phase of product commercialization and marketing, the idea is to move the idea to launch in quick, small, inexpensive steps that have been tested and confirmed along the way.

Proficiency in innovation is derived by managing the innovation process as a system, from idea through development to commercialization and integration with the company.

Furthermore, in a continually changing marketplace, innovation is now part of strategic design and operations. It is not simply a separate initiative to be implemented one time.

September 29, 2015 By Don Springer Leave a Comment

A Tightrope for Growth

With markets in continual turbulence and competitive advantage transient, how do companies grow and thrive?

In her book, The End of Competitive Advantage, Rita McGrath contends that companies must continuously reconfigure. They do that by balancing flexibility with stability and thus avoid integration breakdown on one hand or stalling innovation on the other.

When facing extreme uncertainty for extended periods of time, most people become ineffective or even paralyzed with inaction. The high performing business today understands that and provides a ballast to stability in terms of social architectures. McGrath addresses several of these social structures:

Ambition – using stretch goals to keep a company from becoming complacent with today’s market advantages
Identity and Culture – investing in common corporate identities, culture, and leadership
Deployment via Development – educating employees when shifting from one market focus to another
Strategy and Leadership – establishing and reinforcing consistent strategic priorities and guiding principles
Stable Relationships – maintaining long term relationships with past and present employees and partners

Despite the internal systems and social structures above, today’s high performance business must create processes that foster strategic agility. McGrath found that high performance companies do this via the following principles:

Shape Shifting – leveraging industry evolutions and embracing the change rather than dramatic restructurings
Fast Budgeting – centralizing flexible resource allocation to avoid budget hostage situations by powerful executives in the business
Frequent Adjustments – adjusting strategy and changing resources quarterly versus annually
Innovation is the Norm – innovation is continuous and mainstream for everyone rather than episodic
Options Oriented Pattern to Market Exploration – entering markets to test response with small initial investments

McGrath found that the high performance companies “navigate seeming incompatible demands deftly”. While grand strategic priorities, values, and guiding principles are kept stable over time, the companies initiate prodigious amounts of experimentation and innovation.

The very stability of certain principles, culture, and leadership provide organizational energy enabling effective innovation in accordance with market evolutions as well as sheer change.

September 22, 2015 By Don Springer Leave a Comment

Do Industries Matter?

In strategy, do industries or customer needs matter the most? Can the competition and playing field be sufficiently defined such that execution becomes the focus?

To evaluate age old assumptions for strategy, these are some of the questions to ask according to Rita Gunter McGrath, professor at Columbia Business School of New York. In her book, The End of Competitive Advantage, she makes a case that your strategy is most likely based upon two old assumptions: (1) industries matter most and (2) once achieved, advantages are sustainable.

We have been taught that industries are enduring and stable and so once you assess the players and the offerings, you can begin to take action to position your company in a place of advantage and then compete to sustain that advantage. The strategic emphasis is on the analytical capabilities necessary to assess the competitive forces and the industry trends. The goal becomes a positional goal to achieve market share. In strategy design and execution, the only competitors of interest are those inside the industry and the industry drivers are the comparative product and service price, functionality, and quality.

We have also been taught that once a strong position and market share has been achieved, the strategic objective is to be fortified by optimizing people, assets, and processes to sustain the advantage. This all made sense and the operational objectives were all about efficiency, eliminating costs from the enterprise, value chain, and supplier/delivery links. This approach can indeed be sustained in some industries today.

However, in more and more industry sectors, the threat is from outside the industry and the changes are continual and rapid. McGrath argues that “the presumption of stability creates all the wrong reflexes”.

Inertia builds up along existing business units and business models. It creates conditions for rigidity in the organization. She argues that it also critically inhibits innovation. It calcifies the organization’s ability to be proactive in design and growth, ever mindful of alternatives to satisfy specific customer demands no matter what the industry of origin.

For McGrath, what matters most in a dynamic environment is not industries and long term sustainable advantages, but the links between customers’ needs and the solutions that satisfies those needs.

It is about looking across industry boundaries to add new capabilities so that customers can be retained as their needs and the required solutions change. Industry analysis and sustained advantage may become a rigid playing field of the past.