Entrepreneurial Mindset.pdf

Rita Gunther McGrath

The Entrepreneurial Mindset By Rita Gunther McGrath & Ian C. MacMillan

An Execu Executi tive ve Summary of the book: The The Ent Entrepreneurial rial Mind Mindset: Strategies for Continuously Creating Opportunity in an Age of Uncertainty

E xecuti xecutive ve Summar Summary y Successful executives will learn to master uncertainty through the skills of entrepreneurial leadership. This calls for different disciplines than in conventional management. There T here are fi five key elem elements:  Creating a climate supporting continuous search for opportunity Framing  Stocking an opportunity register  Focus   Promoting adaptive execution E ntre ntrepre preneur neurial ial le l eadership: T he most ost impor impor tant j ob A lthough unce uncertai rtainty nty mi might cause cause many any to freeze, it i t can be use used d to your your benefit. Uncertain situati situations ons are full of new new opportu opportuni niti tie es. Y our tas task k iis s to continuous continuouslly ide identify ntif y high-potential business opportunities and exploit these opportunities with speed and confi confidence. nce. Thus, uncertainty rtainty can can become your all ally, not your ene enem my. Entrepreneurial leaders are distinguished from other managers by their personal practices. The These fall fall int into three categories ies: setting ing the work climate, orchestrating ing opportunity ityseeking and moving particular ventures forward personally. 

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Climate setti setting ng practices practices create a perv pervasi asive ve sense of urgency for for everyone to work on new busi business initi initiat atiives. ves. Dedicate dicatea disproporti disproportiona onate te share of your own tim time, attention and discretionary resources to finding and supporting new business model odels. Gary Wendt, Wendt, who drove massi assive ve growth at General El Electric ectric Financi nancial al Services Services,, dem demonstrate onstrated d thi this princi principl ple e. He consiste consistently, ntly, predictab predictablly made ade new busine business ss devel developm opment his his top priori pri ority ty agenda agenda item- at every meeting eting and and chance encounter. Orchestrating opportunity seeking involves removing uncertainty from your people by clearly specifying what type of entrepreneurial opportunities are wante wanted. d. We call this this 'ballpark parkiing.' A Swedish Swedish entreprene ntrepreneur whose small company pany excel xcelled at CAD/ CA D/C CA M techn technol ology ogy defined an entreprene preneurial urial pla playing ying field for his his peopl people e of "50 to the power of 4." This his meant ant he was inte interested in in proposal proposals that that

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had the potential to deliver 50 million Swedish kroner ($8 million) in profits, by capturi capturing ng 50% 50% market share, with with 50% 50% margins in in at at le least ast 50 countrie countries. The logic ogic was to seek opportuniti opportunities es where he solved solved a real probl problem emfor enough customers that he could capture the lions' share of a defensible global market without having to deal with competition from multinational firms. This gave his people scope, but also also kept them focused on those opportuni opportuniti ties es where he felt elt that hi his company could build a strong position. 

Specific hands-on management practices recognize that the quest for insight is the singl single e most im important source of competiti titive ve di differenti erentiati ation on a management team can can bring to an an organizat nizatiion. For example ple, Robe Robert Brown Brown and and Li Linda nda Ma Mason, son, founders of Bright Horizons child care centers capitalized on an insight that allowed them to create an attractive business model in a traditionally unattractive indust ndustry. ry. I nste nstea ad of of focus f ocusiing on individu ndivi dual al fa families' ne needs for child chil d care, care, the the couple couple instead redefined their customer as corporations. corporations. I n 15 years, the venture venture grew from from a concep conceptt to a thrivi thriving ng business with with over 340 centers. nters.

Establishing the Entrepreneurial Frame The The entrepreneurial ial fra frame define fines your goals. ls. The The ide idea is to push you and your team to undertake those initi nitiati atives ves that go beyond beyond mere mere incremental ental improvem provement to really make a difference. Framing has two parts: first, a definition of success, and secondly an articulation of strategic direction. The The process for for establish lishing ing a fra frame inv involve lves working ing through the follo follow wing ing question ions: 1. I f you were were to do do somethi ething ng in the next threeto fi five years that that you, your boss, and your company's investors would regard as a major win, what would this look like? 2. What are the minim nimum amount of prof profiits you need from your new ventures ventures (at maturi aturity) ty) to make a dif difference to your busine business? ss? From your your establi blished busi business? ness? What rate of growth must you sustain? 3. What hat is the increase in p prof rofiitabi tability you need to achie chieve in the next next three three to five fi ve years? 4. What return on investment ent are you seeking? eking?




The The results lts can be categorize ized thus:

L ast ast year's Prof Profiits Return on sales sales Revenues required to produce profits Return on assets A ssets requi required red to produce profits

Current Performance 200 20 0 10% 2,000 15% 1,333 1,333

Desire Desir ed Performance 10% 10 % improvement ent 5% improvem provement ent 220 (above) / 10.5% (above) 10% improvem provement ent Profi Profit goal / ROA ROA goal

Specification of Success 220 10.5% 2,095 16.5% 1,333

Next articulate strategic direction by establishing screening criteria that are consistent with your 'ballparking' definition. Screening-out criteria are "drop dead" if a proposal has that that characte characteristi ristic. c. Scre Screening-i ning-in n crite criteri ria a are "the more themerrie errier" (the more of these characte characteristi ristics, cs, the the more attracti attractive ve the opportunity). opportunity). Think hink through through the foll ollowing owing questions: 1. What have the least desirabl sirable e busines businesses ses that you have been invol involved ved with with been, en, and what characteristi racteristics cs madethemundesirabl sirable? e? What does this this tell you about areas to avoid in the future? 2. What hat made ade a parti particul cular ar opportuni opportunity ty very very rewardi rewarding ng for you? What doe does s thi this tell you about areas to pursue in the future? 3. I ntegrate ntegrate these these statements into a list of (about) (about) ten "screen out" statements and ten "screen in" statements that capture your experien experience. ce. A "screen out" might might be"the opportuni opportunity ty would would consum consume too much time from our key people ople." A "screen in" might be "this "this is is an attractive ctive market in which whi ch we already have have a strong positi position". on". Try to make make your screening ning stat statem ements as spe specif cific to your business as possible. Eventually, your your goal is to have about 10 screeni screening ng in in and and 10 screeni screening out statements that theorganizati organization on can agree accuratel accurately refl reflect the types of busines businesses ses that are desired sired and not desired. sired. Creating a well-stocked opportunity register A n opportuni opportunity ty regi registe ster is is an inventory of potenti potentiall ally y attracti attractive ve new new busi busine ness




Two Two techniqu iques are useful ful here. The The firs first is called lled consumption ion chain analys lysis. is. The The consumption ption chain chain is is used to map the the customers' entire entire set of experien ri ences ces with with your product or service rvi ce off offering. ring. I t begins gins with with thetrigge trigger event or circum circumstance stance that that lea leads the the customer customer to beaware of a nee need, and continue continues s through al all the steps involved nvolved in in their being acustom customer of yours. A ny li link in in the the chain has diff differentiati rentiation on pote potential - which which you can uncover uncover by probing probi ng into into the customers' customers' experi experien ences ces at each each link. li nk. The The second techniqu ique is attribu ibute mapping ing. This This captures how well your offering ing is appe appeali aling ng to custom customers' needs at the moment. ent. Start sim simply, ply, by ide i dentif ntifying ying an off offering ering and an im important customer segment. Then hen analyze yze to see see where you coul could d enhance enhance positive attributes and eliminate negative ones, as in the chart below. By using these two techniques, you will typically discover more good ideas than you can execute with with the resources you have have.. The chall challenge enge is to now winnow winnow them them down to the very best, while realizing that you don't want to over-emphasize either existing busines businesses ses or new one ones. s.

The The attrib ibu ute map

Positive Customer is positive about the feature or attributre

Basic You perf perfor orm m as well ell as as competition, everyone in industry at compet co mpetitive itive par

Discriminator Some providers seen to have an advantage in the eyes of customers

Energizers Evokes powerful customer response

Non-negotiable Expected by customer, everyone provides it but it conveys no advantage

Differentiator Different from compet c ompetition ition in a way that appeals to customers

Excites Evokes very positive "wow" response on part of customers

Negative Toler Tolerab able le Customer is P erforms no worse worse than negative about competition feature or attribute

Dissatisfiers Enrages P erforms below the the level of Terri Terrifi fies es competition - a reason Disgusts customers might defect Creates powerful negative emotional response

Neutral So what Customer doesn't Does not affect customers' care about that purchasing decision at all feature or attribute

Parallel Influences customer attitudes, but is not directly related to product or

No such beast




Creating Focus using real options reasoning L ike investi investing ng in a financial option, real real options reas reasoning oning invol involve ves s making king sm small investm nvestments ents that give give you the right right to make a decisi cision on lat later. er. The idea is to li limit your downside downside exposure unti untill the upside potential ntial of the opportunity is demonstrate onstrated. d. In In conjunction with limiting risk, an options approach allows you to create focus and strate strategi gic c al alignm gnment across your your portfol portfoliio of initia niti ative tives. s. The portfoli portfol io addre addresse sses whether the market is certain or not, and whether the technological environment is certain or not, as in in the chart. Map the initi nitiativ ative es that that your fi firm is pursui pursuing ng on thechart. chart. The T he mappi apping ng shoul should d ref reflect your strateg strategy. I f your strategy iis s to grow the existi xisting ng business you wil will want more emphasis sis on the lower left left hand secti section. on. I f your your strate strategy gy iis s explorati xploration, on, you'll you'll want want more options. Firms usually learn from this exercise that they are taking on too many projects and and that that the projects projects that that are in the pipe pipeline are not consistent wi with th their strategi strategies es.. One way to fix this is to allocate resources to different sections of the map before projects are approved, then make them compete compete with with sim similar projects proj ects for for resources. resources.

The Options Portf olio y t n i High a t r e c n U Medium l a c i n h c e Low T

P ositioning ositioning Optio Options ns

Platform Launches

Stepping Stones

Scouting Options

Enhancement Launches

Low Low

Medium

Market Uncert U ncertainty ainty

High




Promoting adaptive execution by discovery-driven planning Discovery driven planning is a plan to learn, not to show that you had all the answers when when you wrote wrote the the pl plan. an. The techni technique que requi requires theinteraction raction of five processe processes, worki working together. These process processes es are: 1) determ termiining ning the frame (objectiv (objective es) at the le level of a project; 2) establishing competitive and market benchmarks; 3) defining operating specif cifications; 4) documenti enting ng assum assumptions; ptions; and and 5) establ stabliishing shing key milestone estones. I n uncertain rtain environm nvironments, ents, conventi conventiona onall plan planni ning ng makes akes no sense. I nstead, ad, plan plan with with disci discipl pliine to thenext next major major milestone estone,, then pause pause and and re-plan re-pl an as new new inf i nform ormat atiion become becomes avai available. able. I n al all these techni technique ques, the emphasis sis is is on the the twin twin acti activi viti tie es of pursuing pursuing opportuni opportunity ty while remaining focused. F or F urther urther Reading ading McGrath, cGrath, R. G. G. and and MacMi cMillan, I. I. C. 1995 1995.. 'Disco 'Di scove very ry Drive Driven n Pla Pl anni nning' ng' Harvard Business Review. Review. J ulyuly-A ugust ugust,, 1995 1995.. This his articl rticle e outline outli nes the the techn techniique que in more depth. pth. McGrath, cGrath, R. G. G. and and Ma MacMi cMillan, I. I. C. C. 20 2000 00. A sse ssessi ssing technol chnolog ogy y proj projects usi using Real Real Options Reasoning. Researcharch-T Technology echnology Management43 ent 43(4) (4) pp. pp. 35 35--49 49.. This his articl rticle e offers an evaluative methodology for uncertain technologies.

Entrepreneurial Mindset.pdf

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