In This Issue:
How Small Bets are Valuable--even for Big Bet Business Models (example--Boeing)
To get the most from business research studies like "In Search of Growth Leaders" (Wall Street Journal, July 7), go past the buzz words and pay attention to the underlying principles.
Research findings are often communicated with catchy, memorable words. Examples include the term "small bets" used in "In Search of Growth Leaders" by Sean D. Carr, Jeane M. Liedtka, Robert Rosen and Robert E. Wilbank; or terms like "big, hairy audacious goals" used by bestselling business author Jim Collins. These words make it easier to grasp and remember a study's key points.
But, there is a dark side. Don't take those words so literally that the underlying principles are missed when applying the research to your own, sometimes relatively unique, business situation.
For example, a comment on the tompeters.com blog (Peters authored bestseller "In Search of Excellence") illustrates how easy it is to take terms literally. The blog has an entry about "In Search of Growth Leaders", a study that found managers achieve successful business growth by making "small bets". A comment posted on the blog asks how this could work in companies like Boeing, that are in businesses where making big bets infrequently is their very nature.
Since my 20+ years of research finds small steps vital for successful growth, I'd like to explain how--despite the nature of their business model--companies like Boeing can, in fact, apply the Growth Leaders Study. It's true that compared with many lower priced and easily testable product offerings, a Boeing jetliner requires a huge dollar investment, and failure can have a more dire impact on the business. Furthermore, study of corporate culture has portrayed Boeing as a "bet the company" culture. This all contributes to a perception that a company like Boeing cannot make those "small bets".
But, it is important understand the principles behind catchy words used to report research findings. Whether it's phrases like Growth Leaders' "small bets", or whether it's small evolutionary steps, or pursuing adjacencies, or building on strengths, the underlying principle is basically the same. All these phrases describe ways to avoid excessive risks that come from huge jumps into the unknown. That's why small bets are so valuable--they minimize risks. And, "In Search of Growth Leaders" did find that managers who achieved growth minimized risks--a finding my own research supports.
Small bets--or small steps--are relative. They have nothing to do with the nature of a company's business model. Nor do they have anything to do with the scale of investment required to develop and test new products. So, regardless of the business model, any company can make relatively smaller moves to help keep excessive risks at bay. Even companies like Boeing.
This means no big jumps away from where you are. It entails not venturing far from a company's expertise and strengths, unless moves are relatively small. And, it calls for experiments on the smallest possible scale. For Boeing, this doesn't mean somehow defying its business model and introducing a major new jetliner on as small a scale as new products in, for example, food, booklets, many personal services, or in other low priced or easy to test areas. But, it does mean no giant leaps into the unknown.
For example, to deflect cyclical downturns, Boeing and other aircraft makers diversified beyond defense and commercial aviation, generally without success. "The Jetmakers" Chapter 10 Diversification (www.generalatomic.com/jetmakers/index.html) discusses various aircraft makers' diversification disappointments, among them forays into kitchen ranges, freezers, transit buses, radio cabinets and motor scooters. Bill Virgin's Seattle Post Intelligencer columns (It's Not Easy to Diversify--just ask Boeing, Aug. 22, 2006, and Straying too far can make diversification fail, Aug. 27, 2001) offer more recent accounts of Boeing's disappointing diversification, including furniture making years ago. And, it all contrasts markedly with some excellent results Boeing had producing aircraft.
Those diversification efforts generally faltered because they were big bets (big steps). On the surface, making pieces of furniture may seem smaller scale, and thus less risky, than an expansive, high investment project like designing and building a huge jetliner. But for an aircraft maker, producing furniture entails a bigger jump into the unknown. It involves not only how to cost effectively make furniture, but it also entails marketing, distribution, understanding industry dynamics and trends, and so forth. This is a bigger bet for a company like Boeing than sticking with its strengths in aviation and defense related areas.
Furthermore, what Boeing does is engineering oriented, entailing risks of adopting new technologies. Success comes from taking those risks, yet making sure the risks are not excessive. Boeing can reduce risks by doing testing and relatively small experiments and applying them when developing new "bet the company" aircraft models. And, according to the book, "High Flying" by Eugene Rodgers, when Boeing introduced postwar jetliner technology, it took steps to reduce an extensive list of risks. For example, the same prototype was used for both defense and commercial markets. Strong in defense, Boeing first developed the military version, sharing costs with the military before adapting the jet for commercial use. When the jet needed more major modification for the commercial airlines, Boeing redesigned it only after doing well with the military jets, and after seeing definite airline interest in the new technology.
In conclusion, when applying business research, rather than getting wrapped up in the literal meaning of terms, it is essential to understand the principles involved. Relatively small bets help guard against excessive risks, regardless of the business model. Boeing's business model precludes substantially reducing the huge investments required for new jetliners. But, within the paradigm of large dollar investments and massive new "bet the company" aircraft models, Boeing can still work to keep its generally larger bets relatively small for their large nature. That's how companies like Boeing can make "small bets".
In conclusion, successful growth depends upon what kind of growth avenues you pursue
and how you pursue them. Small steps and non-traditional analysis are important. It is
essential to have a good strategy--one based upon small steps and the right kind of
analysis. And, this is true regardless of who it is that is applying the principles of
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