Thought Leaders II
Discovery-Driven Growth
In pursuit of growth, companies often take unnecessarily big gambles, make unrealistic assumptions about unknowns, and then proceed to apply the same business-as-usual management style that works just fine for their core business. This makes no sense for new ventures. Standard project management and budgeting cannot cope with the uncertainty attending highly innovative projects. However without a rigorous approach, companies may invest far too much in a venture that incurs huge investment but never delivers on expectations.
The challenge of innovative growth is to produce maximum results with controllable risk. In their new book, Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunities, Rita Gunther McGrath and Ian MacMillan expand the concepts for leading growth introduced in their best-selling Harvard Business Review article and taught in Wharton’s Advanced Management Program and Strategic Thinking and Management for Competitive Advantage. McGrath and MacMillan provide tools to select, evaluate, and manage growth projects and "either execute them with relentless success or discontinue them at very low cost."
You invest small amounts of money – money you can afford to lose — to get the information that you need so that you can invest more confidently.
–Rita Gunther McGrath and Ian C. MacMillan, Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunities
An Emphasis on Learning
For growth opportunities that are directly related to expanding the current business, more traditional management approaches can be used. As the opportunities are found farther from the core business or market, however, the prospects become more uncertain. And as uncertainty increases, it becomes harder for managers to manage growth initiatives in the traditional way.
The authors point out that in highly uncertain projects, the emphasis shifts to discovery, or learning. As the authors write, "Initially you invest small amounts of money — money you can afford to lose — specifically to get the information that you need to reduce uncertainty so that you can invest more confidently. As you invest in learning, you are simultaneously being cheap — or parsimonious, if you prefer — which means that you are reducing the cost of real-life tuition even as you expand the scope of opportunities you can go after."
This learning advances by identifying and testing assumptions about the business at strategic checkpoints designed to test the key assumptions ahead of investment. McGrath and MacMillan track these assumptions rigorously and test them through frameworks such as reverse financials and checkpoint/assumption checklists.
Knowing When to Cut Bait
Another critical part of managing growth involves knowing when to get out of a project that is not working, or what the authors call "the necessary art of disengagement." The need to be able to do this is compelling — one study states that it takes as much as three thousand raw ideas to lead to one commercial success.
Managers typically fail to terminate unsuccessful projects or wait too long to do so. The discipline of identifying and tracking assumptions, integral to discovery-driven growth, can help to recognize those projects that will not be successful sooner, so that managers can pull the plug and invest in more promising ventures. This conserves resources and reduces the costs of learning. In their book, McGrath and MacMillan identify a set of specific steps for disengagement.
Discovering Potential
Discovery-driven growth systematically converts assumptions into knowledge ahead of investment as a growth venture unfolds. The real potential of the venture is discovered and funded as it develops, so managers can pursue breakout growth and innovative ventures with calibrated risk.
The authors present engaging stories of learning their way to successes (and failures) at companies both large and small such as:
- Amazon.com, which succeeded in the third-party selling business only after adapting its model from auctions to zshops to listings on the same page as the Amazon offer.
- G. Willikers, an experimental toy store startup that was completely redirected after testing a critical assumption.
The authors have tested the discovery-driven growth framework with corporate venture units, entrepreneurs, venture capitalists, nonprofits, and governments and have taught it at Wharton and many other business schools.
As the authors write, "What needs to replace conventional planning when you are trying a bold new growth program is a process that allows you to set a direction, probe inexpensively, redirect where necessary, and, hopefully, grasp emergent growth, but shut down early and inexpensively if things don’t work out."
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