This chapter examines how the personal assets of the division general manager (DGM) influence new business creation. These include personality, experience, and leverage with the corporate executives (Table 11.1).

Personality

The DGMs who participated in this study were requested to complete a set of personality tests because research regarding entrepreneurs suggested several important dimensions. These tests were chosen with two criteria in mind: (1) each test had to be relatively simple to administer, and (2) all the tests combined had to take less than one hour to complete. The DGMs were generous with their time, but there were limits to their patience with such tests. DGM comparisons based on these personality tests and the implications for new business creation are described below.

Extroverted versus introverted

DGMs either were balanced between extroverted and introverted (March, Stewart, and McVay) or were extroverted (Walker, Smith, Gibbons, and Carter). This external orientation aided their capacity to perceive new business opportunities, and to gain the support of others in order to pursue them.

March's successor, Thorngate, was the only introvert. He realized that his introversion was dampening his capacity to perceive new business opportunities, as well as his ability to get others excited about these opportunities, and he began to force himself to visit more customers as the study ended.

Intuitive versus sensing

People who are “intuitive” have an inclination to look for possibilities and relationships whereas those who are “sensing” have an inclination to work with known facts.

Some indicators of the emphasis on new business creation

Three indicators reveal the extent of emphasis on new business creation: money invested, time invested, and size of the new business creation pipeline.

The amount of money invested in new programs and/or in research and development activities is one useful indicator of the emphasis on new business creation. This can be measured by expenditures on new products as a percentage of sales and R&D spending as a percentage of sales, relative to the industry. The amount of time that a top manager spends on new business creation activities is another indicator of his emphasis on it, as DGM Dan Stewart of Monsanto Fab Products pointed out:

The size of the new business creation pipeline is another important indicator, as DGM Ian McVay of Monsanto Engineered Products explained:

This chapter examines how the way in which the corporate executives deal with various challenges influences new business creation (Table 9.1).

It is difficult to pursue the bigger-is-better and the small-is-beautiful corporate philosophies simultaneously because of the fundamental difference in the scale of thinking, the duration of time, and the amount of resources needed to pursue bigger versus smaller opportunities. But with the right management approach it can be done.

How to successfully pursue the bigger-is-better and the small-is-beautiful corporate philosophies simultaneously

The challenge for corporate executives

With the small-is-beautiful corporate philosophy, the number of small wins needed to maintain the historical rate of corporate growth rises as the company grows. To take a very simple example, assume that a corporation needs to grow 10 percent from its new initiatives each year, and that a successful new initiative brings in on average $10 million in annual revenue. If the company's revenue is $100 million, it needs just one successful initiative (“win”), at $1 billion in revenue the company needs ten wins, and at $10 billion it needs a hundred wins.

For years 3M had been the model of the small-is-beautiful corporate philosophy for other companies, including AMP. But with more than $6 billion in revenue, 3M was experiencing increasing difficulty in securing the required number of wins each year with the small-is-beautiful corporate philosophy. (AMP, with $1.5 billion in revenue when this study ended, had not yet encountered this challenge.)

This chapter examines how shared beliefs about rewards, risks, opportunities, and rule-bending influence new business creation (Table 5.1).

Big financial incentives hurt new business creation

Many people believe that corporate entrepreneurs must be rewarded in the same way as “Silicon Valley” independent entrepreneurs, with big financial incentives to offset the big personal risks of failure. This is a flawed assumption, even for independent entrepreneurs, because some of them don't have much to lose, and for others the opportunity costs are quite low because there is not much else they can do or want to do. If their perceived risk or opportunity cost is low, big financial incentives are not needed to motivate independent entrepreneurs.

In any case, the belief that independent entrepreneurship and corporate entrepreneurship require similar incentives is flawed – because there are significant differences between the two. The independent entrepreneur may seek rewards — such as the pride of starting one's own business and leaving it to posterity – that the corporation cannot hope to match. Also, as founder/owner, the independent entrepreneur's right to reap big financial gains in return for creating the company's wealth and its jobs is generally acknowledged by others. The corporate entrepreneur does not have the same right in the eyes of his or her associates because the corporate entrepreneur relies on resources that he neither paid for nor helped to create in the way that the independent entrepreneur did.

This chapter examines how the DGM's leadership of the division influences new business creation (Table 14.1). DGMs rely on three major levers to try to change the division's mindset and behavior for new business creation: getting people to buy into the vision and strategy for new business creation; educating and training them for the task; and motivating and supporting them appropriately.

These actions do not bear fruit fast enough without a parallel effort to properly assess, appoint, reposition, and remove people – especially the key players – when necessary. Some DGMs either consciously or sub-consciously avoid this difficult task. DGM Mike Walker of AMP Sigcom stands out as the master to learn from in this area.

Changing the division's mindset and behavior

Getting people to buy into the vision and strategy for new business creation

DGMs try to get the people in the division to buy into their vision and strategy for new business creation by various means: by getting them to buy in one person at a time, by involving them in creating the vision, by communicating the vision over and over again, and by reassuring them if the vision does not produce results as rapidly as expected.

Getting people to buy in one person at a time DGM Mike Walker described how he was able to get a key player in AMP Sigcom on board by showing him why the strategy was important and how it could be sold to others:

This chapter examines how the small-is-beautiful corporate philosophy influences new business creation (Table 8.1).

The attraction of the small-is-beautiful corporate philosophy

The small-is-beautiful corporate philosophy encourages the pursuit of many small opportunities because it assumes that the division, not corporate headquarters, is the primary center for corporate entrepreneurship. It is assumed that every business is a growth business, and that innovation and entrepreneurship can create repeated waves of growth in so-called mature businesses. Corporate executives exit an existing business only when there is considerable evidence that the business cannot be profitably grown over the long term, as DGM Buddy March at 3M said when this study began:

The small-is-beautiful corporate philosophy also limits the financial risk to the corporation by requiring each division to self-finance its new initiatives. As Ray Thorngate, DGM of 3M Engineering Products, pointed out, “The tradition in 3M is that each division funds its own growth. Corporate is not going to give you any money.”

Several factors in the external business environment influence new business creation (Table 3.1).

Industry and competitive forces

Customer pressures can facilitate or hinder new business creation

Demanding customers spur new business creation DGM Mike Walker's “let's get into a lot of trouble” philosophy prodded his AMP Sigcom division to work with the most demanding customers on the most challenging new products and applications. Once AMP Sigcom had acquired a reputation as an innovative supplier in the marketplace, demanding customers sought the division out and continued to energize its new business creation pipeline. This occurred even after Walker was promoted and the new group director (GVP) Jon Grover began emphasizing product quality and customer service instead.

3M had an explicit policy of working with lead users – those deemed to be the most advanced and sophisticated in their requirements — and the Micrographics division relied on them to energize new business creation. For example, personnel from key customers were included on the division's new business creation teams.

Customers who are slow or not innovative hamper new business creation Customers can dampen new business creation if they are slow to adopt new technology, as DGM Mike Walker of AMP Sigcom found: “We are slow on fiber optics because our customers have been slow – they are not using fiber in lieu of electrical as fast as I had hoped.” Peter Dell, technical director of Monsanto Fab Products mentioned a similar problem: “At Monsanto we always want to deal with the big customers. But they are not always the most innovative. Maybe we should also deal with smaller companies who are more innovative.”

This chapter examines how the division's organization, competence, and collaboration influence new business creation (Table 17.1).

Frequent reorganizations hamper new business creation

Xerox OPD had already endured several reorganizations when Greg Gibbons became the fourth DGM in six years. He reorganized OPD once again by breaking up the functional organization, “the silos” as he referred to them, to create strategic business units (SBUs) overseen by an Office of the President, which was subsequently disbanded. Whatever their merits, these frequent reorganizations created confusion and disruption that hampered new business creation.

Monsanto Fab Products also underwent several organizational changes in the quest for the right organization for new business creation. When Dan Stewart became DGM of Fab Products, he broke up the functional organization to create self-sufficient business units (BUs). His successor, Ian McVay, reorganized Fab Products into a matrix.

At 3M Micrographics, there was some organizational disruption when the 35mm lines were peeled off to create the Engineering Products department, but this was the normal 3M practice of “cloning” divisions once they became too large. AMP Sigcom and 3M Micrographics did not hinder their new business creation efforts with frequent organizational surgery.

A moratorium on reorganizations is not being recommended, but there is a lot to be said for less frequent organizational changes.

This chapter examines how the DGM's motivation and strategy influence new business creation (Table 12.1).

A combination of business, organizational, and personal reasons motivates the DGM to undertake new business creation.

The DGM's motivation: business reasons

The DGM has extensive network of external contacts

All DGMs rely on their contacts with customers, suppliers, competitors, and other external sources to obtain information, ideas, and support. But the extent of their external network varies. A DGM with a wider network of external contacts is more likely to undertake new business creation for business reasons because he is more likely to have first-hand knowledge of customer needs and competitor actions that call for new initiatives.

DGM Buddy March of 3M Micrographics had spent his entire career in the industry and was known as the “industry godfather.” March loved to travel. Even when he had slowed down during his later years, March was still away from his office about a third of his total time, most of it visiting customers. He was full of insights regarding customer needs when he returned from a trip, and he had ideas for new products. As Ray Thorngate, who had served as his technical director for many years, recalled,

This chapter examines how the shared beliefs about control and learning influence new business creation (Table 6.1).

Many people believe that control is the antithesis of entrepreneurship and new business creation. Yet, contrary to popular belief, managers in companies with long track records of successful new business creation believe that appropriate control is the essential companion of entrepreneurship.

Controls to test business convictions help new business creation

Managers in companies with less experience in new business creation share the belief that the purpose of control is to enable corporate executives to make decisions regarding specific initiatives in the division, which de-motivates division managers and hurts new business creation. Greg Gibbons talked about how corporate interference had stifled new business creation at Xerox OPD before he took over as DGM:

In sharp contrast, managers in companies with successful track records of new business creation share the belief that the purpose of control is to test the business convictions of those engaged in new business creation.

This chapter examines how the building of corporate support by the DGM influences new business creation (Table 13.1).

Support or opposition from corporate constituents

The DGM must build support with three corporate constituencies: his boss, top corporate executives, and relevant corporate committees and staff groups. Those who are opposed to the DGM's new business creation strategy and initiatives must be won over, neutralized, or defeated.

The DGM's boss and the top corporate executives

The DGM needs the support of his boss, typically a GVP, to get things done. It helps even more if the GVP's superiors — the EVP, the president, and the CEO — also support the DGM and his new business creation strategy. This is especially true for new initiatives involving substantial investment, or high risk, or excursions beyond the current corporate strategy.

Buddy March said he had learned the importance of corporate support from his failure to obtain clearance for a key acquisition during his early years as DGM of 3M Micrographics.

This chapter examines how the identification and pursuit of new opportunities by the division influence new business creation (Table 15.1).

New business creation requires the generation and exploration of new business opportunities, their proper specification, and a commitment to pursue them despite the attendant technical and market uncertainties.

It pays to generate and explore a large number of new business opportunities in order find the most attractive ones to specify and commit to. A disciplined system for doing this – consisting of project phases, milestones, reviews, and technical audits – yields better results than less disciplined approaches.

Generation of new business opportunities

New business opportunities can be generated by conducting market and competitor intelligence, by resurrecting discarded business ideas, and by using formal mechanisms such as a new product group or committee.

Conducting market and competitor intelligence

DGM Mike Walker of AMP Sigcom emphasized the importance of market intelligence:

This part of the book examines how the corporate executives influence new business creation (Figure III.1).

Corporate executives pursuing the “bigger-is-better” corporate philosophy are focused on a few big opportunities, whereas those pursuing the “small-is-beautiful” philosophy are focused on many smaller opportunities. Each corporate philosophy has its advantages and limitations. It is difficult to pursue both philosophies simultaneously because of the fundamental difference in the scale of thinking, the duration of time, and the amount of resources needed to exploit bigger versus smaller opportunities.

Chapter 7 describes the bigger-is-better corporate philosophy – its principles, its limitations, and its implications for new business creation – and Chapter 8 does the same for the small-is-beautiful philosophy. Chapter 9 considers a number of challenges for corporate executives seeking new business creation, including the challenge of pursuing the bigger-is-better and the small-is-beautiful corporate philosophies simultaneously. Chapter 10 examines effective versus ineffective guidance and coaching by the DGM's boss, and effective versus ineffective support and challenge by the controllers.

This part of the book examines how the division and its top management team (TMT) influence new business creation (Figure v.1). The DGM is, of course, the leader of the TMT and the division—so his influence will again be apparent—but Part V brings out the influence of other people in the division, including the TMT.

New business creation requires that the people in the division generate, explore, specify, and commit to new business opportunities, despite the attendant technical and market uncertainties. Contrary to popular belief, a disciplined management system for doing this yields better results. These issues are considered in Chapter 15.

Other new business creation challenges for the division are the subject of Chapter 16. These include the dangers of “fake entrepreneurship,” how others in the division can assist the DGM's efforts to build corporate support for new initiatives, and the challenge of managing the volatility of new business and the disruption it creates.

The next two chapters deal with organizational issues. Chapter 17 considers the pros and cons of various organizations for new business creation, as well as the management of competence, conflict, and collaboration for new business creation. Chapter 18 examines how the division's TMT deals with conflict, and the extent to which it compensates for the DGM's weaknesses.