The Monster in the Closet: Reliable Unpredictability

The Monster in the Closet: Reliable Unpredictability

Vijay Govindarajan considers the balance of efficiency and entrepreneurship within larger organizations -- and the need to embrace reliable unpredictability.

Young, aspiring business leaders are remarkably adaptable. No sooner had the bubble burst than had the first super-confident, super-intelligent MBA student walked into my office to announce, "I still want to create and grow my own business, but now I want to do it within a corporation." He was hardly the last.

I talk with such students about how the corporate environment has many advantages; most notably a wealth of existing knowledge, skills, and relationships. We also talk about the problems that corporate entrepreneurs face, especially resistance from other executives who desire to protect the status quo, who compete for the same promotions, or who strive for the same capital. To my super-ambitious students, this all just makes it sound like more of an adventure. In this student's mind -- "Cool! In addition to rescuing the princess with the innovative new concept, I also get to slay evil dragons out to do me harm!"

I encourage such imagination. At the same time, I wish that it were easier for students to weave demons of a more abstract variety into their dreams. For the biggest enemy of the corporate entrepreneur is not another person, but a way of defining how an organization works. The enemy is routine and administrative, not dark and dangerous. The biggest enemy is... the planning process.

Corporations are designed for efficiency, not entrepreneurship. Managers achieve efficiency through planning. They set goals, monitor results, and improve. They are motivated because their CEOs have linked compensation and promotion to performance.

They are also motivated because exceeding goals engenders respect. Go inside any successful corporation and you will find a strong performance-oriented culture. As one finance executive at Thomson Corp. told me, "The basic culture of this corporation is that you make your numbers." Indeed, a strong culture of accountability can take root early in a corporation's life. At the height of the boom at Cisco I was told, "Look around. You'll find that most people here are thinking very short term, worried about making their quarterly targets." A young company that liked to think of itself as a 30,000-person startup was already sounding like a machine geared for reliable and efficient performance.

There is conflict between efficiency and entrepreneurship. Most CEOs have acted to encourage their coexistence. But where change is most necessary, no change is made. CEOs properly view a disciplined planning process as a critical mechanism for ensuring that managers are eager to deliver, and they are loath to alter it. Yet the most basic premise of the planning process simply does not apply to a new venture.

The premise is reliable predictability. That is, I can predict today what is possible next year -- and I can do it so reliably that it is very reasonable to judge managers' performance based on differences between predictions and outcomes. Everyone in disciplined organizations knows that these are the rules, and everyone lives by them.

Inevitably, however, outcomes for new ventures fall short of expectations. If anything, new ventures are reliably unpredictable. So I ask my students, what will you say when your venture does not deliver? "Well, certainly whoever evaluates me will understand that..."

They do, usually, for a time. Corporate ventures tend to be allowed a grace period. The boss says, in effect, "I understand your business is new, so I'm not going to hold you accountable in the first year. But you better deliver by the second, third, or fourth."

Still, not everyone in the corporation will understand the grace period. Once the numbers are missed, credibility suffers. Other managers become less willing to help. The biggest advantage of the corporation -- its wealth of existing skills and assets -- crumbles. It may get worse as leaders of other divisions attack the viability of the venture to win scarce resources. These performance pressures have a funny way of influencing venture leaders to escalate commitment to original plans. ("I'll show you that I can succeed...") Which is another way of saying that venture leaders are driven not to learn from their early mistakes.

All of this may make corporate entrepreneurs long for a return to 1999 and 2000, when some CEOs really did believe that it was time to break all the rules. That's not likely. But one specific change is crucial. Within new ventures, CEOs must create a planning environment that emphasizes learning over accountability. Only then will my enterprising students have a chance.

Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth College. Additional information about Govindarajan -- as well as additional Strategy & Execution columns -- are available in Online Insights.