If you’re looking for the place where the very divergent mindsets of corporate strategy and startup dogma meet around the back end of the “horseshoe,” you may want to try Creative Construction, by Prof. Gary Pisano of the Harvard Business School.
Creative Construction is another in the long series of books by HBS profs who seek to turn their scholarship and private consulting into books of practical advice aimed at workaday businesspeople. Normally I hold limited expectations for such titles, but Pisano is someone I’ve been following since his excellent work with his colleague Prof. Willy Shih on America’s loss of manufacturing supply chains and the impact on our national innovation capacity.
Creative Construction presents a very nice exposition of why large businesses that genuinely want to be innovative often fail despite the best intentions, and then the book suggests how they can do better. With a title that plays on Schumpeter’s famous coinage “creative destruction,” but also phonically on the word “disruption” as used in the last decade by his HBS colleague Prof. Clayton Christensen, Creative Construction lays out a three-part agenda for executives in “Big Corp” (my term, not his): creating an innovation strategy, designing a system to support that strategy, and building a culture that makes it all more than just words.
Since “disruption” has become the mantra of venture-capital-backed startups, I wondered whether there would be overlap between Pisano’s argument and the guiding principles of the startup world. Surprisingly, though, the book’s index includes no explicit reference to several canonical works in the literature of practical advice on startups: Eric Ries’s The Lean Startup; Alex Osterwalder’s Business Model Generation and Business Model Canvas; and most especially Steve Blank’s The Four Steps to the Epiphany and The Startup Owner’s Manual. And yet, despite the lack of explicit reference, the reader with feet in both camps (for example, investors or bankers) will find important points of connectivity.
As someone who has taught “strategic management” to graduate students (in public administration), and who reads and contributes to strategic plans all the time as part of my consulting work, I really appreciate what a good job Pisano does motivating the word “strategy.” I know just how hard it can be to convey what “strategy” actually is, and also all the typical mistakes even very smart people make in writing strategic plans.
Pisano is crystal clear that strategy is about tradeoffs: a corporate executive may decide to pursue certain paths (for example, improving existing products or services) and not others (say, inventing and introducing new ones) because that choice represents a good “fit” with the company’s strengths, avoids its weaknesses, exploits what the external environment is presenting by way of opportunities, and avoids or finesses threats on the horizon. Good strategies, he notes, are succinct and provide direction for the myriad and often high-stakes decisions that must be made as an innovation effort unfolds.
Pisano’s central point about strategy is that while companies do often discuss how various routine corporate functions support their overall business strategy, they “rarely articulate strategies to align innovation with their business strategy” (p. 25). “Without an explicit innovation strategy,” he writes, “no one actually knows what kinds of innovation are really important to the organization. Anything is possible, and when anything is possible, everything is potentially important. And when everything is potentially important nothing is particularly important. If nothing is particularly important, nothing gets done” (pp. 26-27). Exactly.
Pisano shows the reader exactly how to make these choices and tradeoffs sensibly, using excellent examples drawn from his consulting experience with Big Corp. Generalizing from these examples, he brings forward two four-quadrant diagrams that form the heart of the book.
In the first 2×2 matrix, Pisano classifies an innovation into one of four boxes according to whether it’s the business model or underlying competency that either “fits” with existing corporate practice or else needs to change substantially. Disruptive innovation as we have come to understand it requires big changes in business model but not necessarily much else; what he dubs radical innovation involves mainly changes in underlying technical competencies; what he calls architectural innovation requires big changes in both business models and competencies at once; and routine innovation is everything else — not bad per se, but not requiring large changes in either sphere.
Classifying innovation is not enough, however. “The issue,” he writes,
“is one of making explicit choices around the tradeoffs that work best for the company given its unique strategic circumstances. Effort should never be allocated to innovation by default. Good innovation strategy is about finding the right mix of projects across routine, radical, disruptive, and architectural categories” (p. 35).
No unthinking acolyte of disruption theory, Pisano does not believe executives should always be willing to “eat your own lunch” before a competitor does. It depends on the circumstances, he reasons. In a second 2×2 matrix, Pisano outlines how he thinks Big Corp executives should consider that mix of innovation efforts according to how imminent or likely the competitive threat is, and the value (as represented by profitability) that can be created and captured if the innovation under consideration is achieved successfully. Again, he populates all four quadrants with sensible examples from his experience with the business world.
The last two sections of the book address designing a system for innovation and creating a culture of innovation. To me, though perhaps not to all business students or executives, the importance of culture seem obvious. What is of more interest to me and to the startup world, I think, are Pisano’s prescriptions for systematizing innovation (the middle section of the book).
There is some excellent discussion, again well supported by example, of how to look for innovation outside your own company, how to synthesize what you learn from others, and possibly most resonant with startups, how to be guided down the innovation path by repeated, sharp experiments designed to disconfirm or at least illuminate the key hypotheses on which the innovation will depend to capture value in the marketplace.
If that sounds familiar to those in the startup world, it should – because it’s the exact focus of what we also teach would-be entrepreneurs about Lean Startup techniques and how to use the Business Model Canvas. Blank, in fact, defines the startup itself as not a small version of a large company, but rather as an organized experiment to find a replicable, scalable, profitable business model. When they’re going through these curricula, startup teams are told to “get out of the building” and talk to potential customers or try and sell “minimum viable products” in a way that illuminates what may be wrong about the initial hypotheses underlying the business idea. Big Corp, it turns out, is being told to do almost the same thing!
Once every few years, a book emerges from HBS that sets the tone for how Big Corp thinks. I suspect Creative Construction will be one of those books. Startups are taught to think of Big Corp as potential customers for entrepreneurial innovation, and also as partners, investors, and eventually acquirers. But the youngest entrepreneurial team leaders, especially in collegiate settings, are naïve about both the corporate and startup settings. What could be better for guiding their sense of how to work with Big Corp than learning what Big Corp leaders themselves are being taught in this generation about how to scout widely for innovation (including outside the corporation)? In addition to all the Big Corp types who will read this book, ambitious entrepreneurs who want to understand Big Corp strategy and play to it effectively should as well.
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