THE ENTREPRENEURIAL MINDSET: STRATEGIES FOR CONTINUOUSLY CREATING

OPPORTUNITY IN AN AGE OF UNCERTAINTY

Rita Gunther McGrath and Ian C. MacMillan
Executive Summary
Successful executives will learn to master uncertainty through the skills of
entrepreneurial leadership
This calls for different disciplines than in conventional management
There are five key elements
Creating a climate supporting continuous search for opportunity
!raming
Stocking an opportunity register
!ocus
"romoting adaptive execution
Etre!reeuria" "ea#er$%i!: T%e m&$t im!&rtat '&(
#lthough uncertainty might cause many to free$e% it can &e used to your &enefit.
'ncertain situations are full of new opportunities. (our task is to continuously
identify high)potential &usiness opportunities and exploit these opportunities with
speed and confidence. Thus% uncertainty can &ecome your ally% not your enemy.
*ntrepreneurial leaders are distinguished from other managers &y their personal
practices. These fall into three categories setting the work climate% orchestrating
opportunity)seeking and moving particular ventures forward personally.
Climate setting practices create a pervasive sense of urgency for everyone to
work on new &usiness initiatives. +edicate a disproportionate share of your
own time% attention and discretionary resources to finding and supporting new
&usiness models. Gary ,endt% who drove massive growth at General
*lectric !inancial Services% demonstrated this principle. -e consistently%
predicta&ly made new &usiness development his top priority agenda item ) at
every meeting and chance encounter.
.rchestrating opportunity seeking involves removing uncertainty from your
people &y clearly specifying what type of entrepreneurial opportunities are
wanted. ,e call this /&allparking./ # Swedish entrepreneur whose small
company excelled at C#+0C#M technology defined an entrepreneurial
playing field for his people of 123 to the power of 4.1 This meant he was
interested in proposals that had the potential to deliver 23 million Swedish
kroner 567 million8 in profits% &y capturing 239 market share% with 239
margins in at least 23 countries. The logic was to seek opportunities where
he solved a real pro&lem for enough customers that he could capture the
lions/ share of a defensi&le glo&al market without having to deal with
competition from multinational firms. This gave his people scope% &ut also
kept them focused on those opportunities where he felt that his company
could &uild a strong position.
Specific hands)on management practices recogni$e that the :uest for insight
is the single most important source of competitive differentiation a
management team can &ring to an organi$ation. !or example% Ro&ert ;rown
and <inda Mason% founders of ;right -ori$ons child care centers capitali$ed
on an insight that allowed them to create an attractive &usiness model in a
traditionally unattractive industry. Instead of focusing on individual families/
needs for child care% the couple instead redefined their customer as
corporations. In =2 years% the venture grew from a concept to a thriving
&usiness with over >43 centers.
E$ta("i$%i) t%e Etre!reeuria" Frame
The entrepreneurial frame defines your goals. The idea is to push you and your
team to undertake those initiatives that go &eyond mere incremental
improvement to really make a difference. !raming has two parts first% a definition
of success% and secondly an articulation of strategic direction.
The process for esta&lishing a frame involves working through the following
:uestions
=. If you were to do something in the next three to five years that you% your
&oss% and your company/s investors would regard as a ma?or win% what
would this look like@
A. ,hat are the minimum amount of profits you need from your new ventures
5at maturity8 to make a difference to your &usiness@ !rom your
esta&lished &usiness@ ,hat rate of growth must you sustain@
>. ,hat is the increase in profita&ility you need to achieve in the next three to
five years@
4. ,hat return on investment are you seeking@
The results can &e categori$ed thus
Curret
Per*&rmace
De$ire#
Per*&rmace
S!eci*icati& &*
Succe$$
<ast year/s "rofits A33 =39 improvement AA3
Return on sales =39 29 improvement =3.29
Revenues
re:uired to
produce profits
A%333 AA3 5a&ove8 0
=3.29 5a&ove8
A%3B2
Return on assets =29 =39 improvement =C.29
#ssets re:uired to
produce profits
=%>>> "rofit goal 0 R.#
goal =%>>>
Dext articulate strategic direction &y esta&lishing screening criteria that are
consistent with your /&allparking/ definition. Screening)out criteria are 1drop dead1
if a proposal has that characteristic. Screening)in criteria are 1the more the
A
merrier1 5the more of these characteristics% the more attractive the opportunity8.
Think through the following :uestions
=. ,hat have the least desira&le &usinesses that you have &een involved
with &een% and what characteristics made them undesira&le@ ,hat does
this tell you a&out areas to avoid in the future@
A. ,hat made a particular opportunity very rewarding for you@ ,hat does
this tell you a&out areas to pursue in the future@
>. Integrate these statements into a list of 5a&out8 ten 1screen out1
statements and ten 1screen in1 statements that capture your experience.
# 1screen out1 might &e ) 1the opportunity would consume too much time
from our key people.1 # 1screen in1 might &e 1this is an attractive market
in which we already have a strong position1. Try to make your screening
statements as specific to your &usiness as possi&le.
*ventually% your goal is to have a&out =3 screening in and =3 screening out
statements that the organi$ation can agree accurately reflect the types of
&usinesses that are desired and not desired.
Creati) a +e"",$t&c-e# &!!&rtuity re)i$ter
#n opportunity register is an inventory of potentially attractive new &usiness
opportunities. The idea is that at any point in time% you/ll have a rich set of
potential opportunities to choose from% rather than having only the choice of
those that managed to survive a corporate winnowing process.
Two techni:ues are useful here. The first is called consumption chain analysis.
The consumption chain is used to map the customers/ entire set of experiences
with your product or service offering. It &egins with the trigger event or
circumstance that leads the customer to &e aware of a need% and continues
through all the steps involved in their &eing a customer of yours. #ny link in the
chain has differentiation potential ) which you can uncover &y pro&ing into the
customers/ experiences at each link.
The second techni:ue is attri&ute mapping. This captures how well your offering
is appealing to customers/ needs at the moment. Start simply% &y identifying an
offering and an important customer segment. Then analy$e to see where you
could enhance positive attri&utes and eliminate negative ones% as in the chart
&elow.
;y using these two techni:ues% you will typically discover more good ideas than
you can execute with the resources you have. The challenge is to now winnow
them down to the very &est% while reali$ing that you don/t want to over)emphasi$e
either existing &usinesses or new ones.
>
Creati) F&cu$ u$i) rea" &!ti&$ rea$&i)
<ike investing in a financial option% real options reasoning involves making small
investments that give you the right to make a decision later. The idea is to limit
your downside exposure until the upside potential of the opportunity is
demonstrated. In con?unction with limiting risk% an options approach allows you to
create focus and strategic alignment across your portfolio of initiatives. The
portfolio addresses whether the market is certain or not% and whether the
technological environment is certain or not% as in the chart.
Map the initiatives that your firm is pursuing on the chart. The mapping should
reflect your strategy. If your strategy is to grow the existing &usiness you will
want more emphasis on the lower left hand section. If your strategy is
exploration% you/ll want more options. !irms usually learn from this exercise that
they are taking on too many pro?ects and that the pro?ects that are in the pipeline
are not consistent with their strategies. .ne way to fix this is to allocate
resources to different sections of the map &efore pro?ects are approved% then
make them compete with similar pro?ects for resources.
4
The attribute map
;asic
(ou perform as well as
competition% everyone in
industry at competitive par
+iscriminator
Some providers seen to
have an advantage in the
eyes of customers
*nergi$ers
*vokes powerful customer
response
"ositive
Customer is
positive a&out the
feature or
attri&utre
Don)negotia&le
*xpected &y customer%
everyone provides it &ut it
conveys no advantage
+ifferentiator
+ifferent from competition
in a way that appeals to
customers
*xcites
*vokes very positive 1wow1
response on part of
customers
Degative
Customer is
negative a&out
feature or attri&ute
Tolera&le
"erforms no worse than
competition
+issatisfiers
"erforms &elow the level of
competition ) a reason
customers might defect
*nrages
Terrifies
+isgusts
Creates powerful negative
emotional response
Deutral
Customer doesn/t
care a&out that
feature or attri&ute
So what
+oes not affect customers/
purchasing decision at all
"arallel
Influences customer
attitudes% &ut is not directly
related to product or
service performance
Do such &east
Source MacMillan E McGrath% /+iscover (our "roducts/ -idden "otential/ -;R% =BBF
Pr&m&ti) a#a!tive executi& (y #i$c&very,#rive !"ai)
+iscovery driven planning is a plan to learn% not to show that you had all the
answers when you wrote the plan. The techni:ue re:uires the interaction of five
processes% working together. These processes are =8 determining the frame
5o&?ectives8 at the level of a pro?ectG A8 esta&lishing competitive and market
&enchmarksG >8 defining operating specificationsG 48 documenting assumptionsG
and 28 esta&lishing key milestones. In uncertain environments% conventional
planning makes no sense. Instead% plan with discipline to the next ma?or
milestone% then pause and re)plan as new information &ecomes availa&le.
In all these techni:ues% the emphasis is on the twin activities of pursuing
opportunity while remaining focused.
F&r Furt%er Rea#i)
McGrath% R. G. and MacMillan% I. C. =BB2. /+iscovery +riven "lanning/ Harvard
Business Review. Huly)#ugust% =BB2. This article outlines the techni:ue in more
depth.
McGrath% R. G. and MacMillan% I. C. A333. #ssessing technology pro?ects using
Real .ptions Reasoning. Research-Technology Management 4>548 pp. >2)4B.
This article offers an evaluative methodology for uncertain technologies.
2
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Glo&al Ialue Chain is a full range of activities including creating% producing%
delivering the products through several companies across the world
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