Something very fundamental is broken in large corporations. The ability and spirit to experiment as a corporate function. Managers are:
chasing short term results that improve existing operations with traditional strategies (cost cutting, outsourcing, value chain improvement, and the like) and/or- designing large 3 – 5 year plans and multi-billion dollar acquisitions, predicting where the markets would move (supported nicely by multi-horizon pictures supplied by management consultants) and/or
- buying their way into successful experiments (=acquiring successful start ups) after the fact, not before – losing the ability to experiment from within.
I have a hypothesis on why experiments have taken a back seat:
The adoption of Henderson and Porter’s work (and by extension traditional management consulting work) negatively impacted experimentation as a strategy discovery tool.
Bruce Henderson and Michael Porter are two of the most celebrated strategy theorists in recent times. Much of corporate America, MBA consultants and academicians revolve around the Experience Cuve, Growth Share Matrix and Five Forces work the two published.
Henderson’s study of experience curves effects on business is about how mass production and the experience of it can give advantages to companies in cost for scaling production. His growth share matrix is a 2×2 matrix that guides how managers should optimize their portfolios – dumping dogs, milking cows and riding stars.
Porter’s 5 Forces is about a static industrial organization theory set in the aftermath of how American companies became dominant industrial organizations – the rest of the world was still catching up after World War II in building a decent factory to compete (See W.E. Deming‘s work for details). Neither theorist embedded the idea of experimentation or learning in their frameworks. But consultants and managers at corporations have wielded their frameworks for much of the last 30 years. The effects are telling.
Don’t agree with my hypothesis? See Ngram below. Note the drop in the experiment line after 1960.
(click to enlarge)
Of course you are going to argue “correlation is not causation”. My response to that is – go ask your executive leadership how many experiments they have conducted in the last 12 months at any scale and how much of management theory from Porter and Henderson they have employed during the same period. I rest my case.
The problem with strategic intent is that you need to know where you are going. The reality is, you can never be certain of that. The experimental/learning school of strategy tells you that your strategy is mostly what you see in retrospection. Not something you can deliberately design and execute, especially for a long period of time.
HP’s roundabout on Compaq and Palm are examples of how experimentation as a corporate function has been disappearing, and a case of failing big bets and fortune telling gone awry. (HP withdrew TouchPad after just 49 days on the market. See HP’s lack of invention is why WebOS failed on Tom’s Hardware).
Steve Denning writes about how traditional management ideas lead to Why Amazon Can’t Make A Kindle in the USA. If only managers at corporations focused on experimentation as a strategy tool, employees would be on the path of continuous innovation across the entire value chain and not within the bounds of core versus non core activities or a set of disaggregated activities tied together by marketing and sales functions.
When was the last time you placed a little bet (i.e. conducted an experiment)?
Prabhakar Gopalan
NOTE: Originally posted on Prabhakar.me
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