Wednesday, 19 September 2007

Entrepreneurial Leadership

Rita Gunther McGrath from Columbia Business School has been talking about how organisations can become more entrepreneurial.

Her key point: it's not easy. Very few companies manage to grow organically (just 24 or 6.9% of non-US based companies with market cap > $1 bn have grown at 5+% per year over 3 or 4 years).

The key is the right business disciples (ie human and organisation capital, or organisational capability). These are:

- A mindset of entrepreneurial leadership
- A focus on capturing value from dissappointments (contrasting with yesterday's focus on learning from strengths)
- Discovery driven planning (planning when you don't really know what you're planning for).

Ventures into new areas depend on assumptions, not knowledge. But these assumptions typically get forgotten within 6 weeks. Learning is truncated.

Rita provided a (not particularly original) sory of Disney which got too confident after successful launches of parks in the US and Japan but forgot to test their assumptions when opening up EuroDisney (for example assuming that people would buy large cups of basic coffee and move on quickly rather than sitting and chatting over a small cup of a higher quality drink).

HR can help organisations avoid this sort of learning disability.

In particular, it can ensure the organisation:

- Specifies an attractive scope
- Develops clear paths for new ventures
- Creates organisational commitment to pursuing opportunities
- Creates an entrepreneurial climate
- Prune projects and businesses, but capture value from them.

Long-term organisational commitment is the most important of these to me. Like most areas of business, if it's to have any real effect on an organisation, innovation needs to be a key focus for a sustained period of time. And therefore Rita's 5 points above are an example of a best fit approach for an organisation in which innovation is a key strategic requirement.

As Rita says:

"If you want innovation, it has to be in spot 1, 2 or 3. And that has a cost - it means something else gets a lower priority."