How to Pick Managers for Disruptive Growth

"Right stuff" managers may be entirely wrong to lead a new-growth business. An excerpt from The Innovator’s Solution

by Clayton M. Christensen and Michael Raynor. Harvard Business School Working Knowledge

We suspect that the mistakes happen when firms choose managers at any level—from CEO to business unit head to project manager—based on what we call "right stuff" thinking, borrowing the term from Tom Wolfe’s famous book and the 1983 movie of the same name.4 Many search committees and hiring executives classify candidates by right-stuff attributes. They assume that successful managers can be identified using phrases such as "good communicator," "results oriented," "decisive," and "good people skills." They often look for an uninterrupted string of past successes to predict that more successes are in store. The theory in use is that if you find someone with a track record and with the right-stuff attributes, then he or she can successfully manage the new business venture. But in the parlance of this book, right-stuff thinking gets the categories wrong.5
One problem with predicting future success from past success is that managers can succeed for reasons not of their own making.

An alternative, circumstance-based theory articulated by Professor Morgan McCall can, in our view, serve as a much more reliable guide for executives who are attempting to get the right people in the right positions at the right time.6 McCall asserts that the management skills and intuition that enable people to succeed in new assignments were shaped through their experiences in previous assignments in their careers. A business unit therefore can be thought of as a school, and the problems that managers have confronted within it constitute the "curriculum" that was offered in that school. The skills that managers can be expected to have and lack, therefore, depend heavily upon which "courses" they did and did not take as they attended various schools of experience.

Managers who have successfully worked their way up the ladder of a stable business unit—for example, a division that manufactures standard high-volume electric motors for the appliance industry—are likely to have acquired the skills that were necessary to succeed in that context. The "graduates" of this school would have finely honed operational skills in managing quality programs, process improvement teams, and cost-control efforts. Even the most senior manufacturing executives from such a school would likely be weak, however, in starting up a new plant, because one encounters very different problems in starting up a new plant than in running a well-tuned one.

When a slowly growing firm’s leaders decide they need to launch a new-growth business to restore their company’s vitality, who should they tap to head the venture? A talented manager from the core business who has demonstrated a record of success? An outsider who has started and grown a successful company? The school-of-experience view suggests that both of these managers might be risky hires. The internal candidate would have learned how to meet budgeted numbers, negotiate major supply contracts, and improve operational efficiency and quality, but might not have attended any "courses" on starting a new business in his or her prior career assignments. An outside entrepreneur might have learned a lot about building new fast-moving organizations, but would have little experience competing for resources and bucking inappropriate processes within a stable, efficiency-oriented operating culture.

In order to be confident that managers have developed the skills required to succeed at a new assignment, one should examine the sorts of problems they have wrestled with in the past. It is not as important that managers have succeeded with the problem as it is for them to have wrestled with it and developed the skills and intuition for how to meet the challenge successfully the next time around. One problem with predicting future success from past success is that managers can succeed for reasons not of their own making—and we often learn far more from our failures than our successes. Failure and bouncing back from failure can be critical courses in the school of experience. As long as they are willing and able to learn, doing things wrong and recovering from mistakes can give managers an instinct for better navigating through the minefield the next time around.

To illustrate how powerfully managers’ prior experiences can shape the skills that they bring to a new assignment, let us continue Chapter 4’s discussion of Pandesic, the high-profile joint venture between Intel and SAP that was launched in 1997 to create a new-market disruption selling enterprise resource planning (ERP) software to small businesses. Intel and SAP hand-picked some of their most successful, tried-and-true executives to lead the venture.

Pandesic ramped to 100 employees in eight months, and quickly established offices in Europe and Asia. Within a year it had announced forty strategic partnerships with companies such as Compaq, Hewlett-Packard, and Citibank. Pandesic executives boldly announced their first product in advance of launch to warn would-be competitors to stay away from the small business marketspace. The company inked distribution and implementation agreements with the same IT consulting firms that had served as such capable channel partners for SAP’s large-company systems. The product, initially intended to be simple ERP software delivered to small businesses via the Internet, evolved into a completely automated end-to-end solution. Pandesic was a spectacular failure. It sold very few systems and shut its doors in February 2001 after having spent more than $100 million.

It is tempting to use 20/20 hindsight to explain this failure. Pandesic’s channel partners weren’t motivated to sell the product because it was disruptive to their economic model. The company quickly ramped up expenses to establish a global presence, hoping to build a steeper ramp to volume. But this increased dramatically the volume required to break even. The product evolved into a complex solution instead of the simple small business software that originally was envisioned. Its features got specified and locked in before a single paying customer had used the product.

The Pandesic team did a lot of things wrong, certainly. But the truly interesting question isn’t what they did wrong. It is how such capable, experienced, and respected managers—among the best that Intel and SAP had to offer—could have made these mistakes.

To see how managers with great track records could steer a venture so wrong, let’s look at their qualifications for the task from the schools-of-experience point of view. This can be done in three steps. First, imagine yourself at Pandesic on day one, when the executives were agreeing to start this disruptive venture. With only foresight and no hindsight allowed, what challenges or problems could you predict with perfect certainty that this venture would encounter? Here are a few of the problems that we could know we would face:

* We know for sure that we aren’t sure if our strategy is right—and yet we have to figure out the right strategy, develop consensus, and build a business around it.

* We don’t know how this market ought to be segmented. "Small business" probably isn’t right, and "industry vertical" probably isn’t right. We have to figure out what jobs the customers are trying to get done, and then design products and services that do the job.

* We need to find or create a distribution channel that will be energized by the opportunity to sell this product.

* Our corporate parents will bequeath gifts upon us such as overhead, planning requirements, and budgeting cycles. We will need to accept some and fend off others.

* We need to become profitable, and we must manage perceptions and expectations so that our corporate parents will willingly continue to make the investments required to fuel our profitable growth.

Now, as the second step, let’s apply McCall’s theory. List the courses that we would want members of Pandesic’s management team to have taken in earlier career assignments in the school of experience—experiences through which they would have developed the intuition and skill to understand and manage this set of foreseeable problems. This listing of experiences should constitute a "hiring specification" for the senior management team. Rather than specifying a set of right-stuff attributes, the first step specifies the circumstances in which the new team will be asked to manage. The second step matches those circumstances against the challenges with which the managers of the new venture need already to have wrestled.
Finding managers who have been appropriately schooled is a critical first step in assembling the capabilities required to succeed.

We would, in Pandesic’s instance, want a CEO who in the past had launched a venture thinking he or she had the right strategy, realized it wasn’t working, and then iterated toward a strategy that did work. We’d want a marketing executive who had insightfully figured out how a just-emerging market was structured, had helped to shape a new product and service package that did an important job well for customers who had been nonconsumers, and so on.

With that list complete, our third step would be to compare that set of needed experiences and perspectives with the experiences on the resumes of the managers who led Pandesic. Despite their extraordinary track records in managing the global operations of very successful companies, none of the executives who were tapped to run this venture had faced any of these kinds of problems before. The schools of experience that they had attended taught them how to manage huge, complex, global organizations that served established markets with well-defined product lines. None of them had ever wrestled with establishing an initial market foothold with a disruptive product.7

One of the most vexing dilemmas that stable corporations face when they seek to rekindle growth by launching new businesses is that their internal schools of experience have offered precious few courses in which managers could have learned how to launch new disruptive businesses. In many ways, the managers that corporate executives have come to trust the most because they have consistently delivered the needed results in the core businesses cannot be trusted to shepherd the creation of new growth. Human resources executives in this situation need to shoulder a major burden. They need to monitor where in the corporation’s schools of experience the needed courses might be created, and ensure that promising managers have the opportunity to be appropriately schooled before they are asked to take the helm of a new-growth business. When managers with the requisite education cannot be found internally, they need to ensure that the management team, as a balanced composite, has within it the requisite perspectives from the right schools of experience. We will return to this challenge later in this chapter.

Finding managers who have been appropriately schooled is a critical first step in assembling the capabilities required to succeed. But it is only the first step, because the capabilities of organizations are a function of resources other than people, and of elements beyond just resources, namely, processes and values.

Reprinted by permission of Harvard Business School Press. Excerpt from The Innovator’s Solution: Creating and Sustaining Successful Growth. Copyright 2003 Clayton M. Christensen and Michael E. Raynor. All rights reserved. To order, please call (800) 988-0886.

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Clayton M. Christensen is a professor at Harvard Business School.

Michael E. Raynor is a director at Deloitte Research, the thought leadership arm of Deloitte.

http://hbswk.hbs.edu/pubitem.jhtml?id=3712&t=innovation