Great By ChoiceResearch Foundations

Kyle KunkelThor FinkJohn Barron ParkerTeddy Lathrop

Authors pick 14 different companies

Made 7 comparisons with 10x co, and average performing co.

“Why do some companies thrive in uncertainty, even chaos, and others do not?”

Five characteristics of uncertainty and chaos.

Foundation Research Methodology

Selected various industries and companies

Time period from 1970s-2002

Matched pair methodology

Study a small number of cases with more detail.

Key benefit: avoid “sampling of success.”

Methodology Continued

Selected companies that experienced chaos or uncertainty

Selected young and companies that were public.

Measured success of companies on market performance.

Selecting Study Population

Two overreaching principles

When comparison company became public, it should have been similar in comparison to 10 x company (industry, age, size).

Registered average market performance

Comparison Companies

All major articles: Business Week, Economist, Forbes, Fortune, Harvard Business Review, NYT, WSJ.

Business School Case studies

Annual Reports

Company Financial Data

Materials Obtained directly from the companies.

Resources the Authors Used

Leadership; key executives, CEOs, MGMT.

Founding Roots

Strategy; bus model, product/service.

Innovations

Organizational Culture

Other Key Factors

Clear difference between 10x and comparison co, supported with evidence.

Explanation why the difference affected the outcome.

Cross Pair Analysis, Concept Generation, Financial Analysis, and Event-History Analysis.

Conducting Analysis

Is a sample size of 14 too small? “The test of whether we had and adequate

study set was whether we were confident that we had enough pairs to detect a pattern across all of the companies.”

Generalized findings: only studied US, companies, only studied companies from 1970-2002.

Limitations & Issues

Authors state that if you adopt these principles you are not guaranteed exceptional performance, but the probability of improving success is improved.

Some critics argue that some of the 10x companies were just lucky.

Other Limitations and Issues

Second Presenter Starts here

Assemble allies

Pre-empt the market

Manage expectations

Winning Standards Wars

While invention depends on creativity, innovation requires collaboration and cross-functional integration Managing creativity

Organizing for creativity From invention to innovation

The challenge of integration

“Invention is an act of creativity requiring knowledge and imagination.”

Creating the Conditions for Innovation

The creativity that drives invention is typically an individual act that establishes a meaningful relationship between concepts or objects that had not previously been related Creativity is associated with particular

personality traits Depends on the organizational environment in

which people work Stimulated by human interaction

Managing Creativity

Organizing for Creativity

Balancing creativity and commercial direction

Organizational approaches to the management of innovation Cross functional product development teams Product champions Buying innovation Open innovation Corporate incubators

From Invention to Innovation:The challenge of integration

The critical link between creative flair and commercial success is market need Customers are most acutely involved with

matching existing products and services to their needs.

Balancing Creativity and Commercial Direction

Organizational initiatives aimed at stimulating new product development and the exploitation of new technologies include the following: Cross functional product development teams

highly effective mechanisms for integrating creativity with functional effectiveness.

Product champions provide a means for incorporating individual

creativity within organizational processes and for linking invention to subsequent commercialization

Organizational Approaches to the Management of Innovation

Buying innovation Recognition that small, technology- intensive start- ups

have advantages in the early stages of the innovation process has encouraged large companies to enhance their technological performance by acquiring innovation from other firms.

Open innovation requires creating a network of collaborative

relationships that comprises licensing deals, component outsourcing, joint research, collaborative product development and informal problem solving and exchanges of ideas

Organizational Approaches to the Management of Innovation cont.

Corporate Incubators business developments established to fund and

nurture new businesses, based upon technologies that have been developed internally, but have limited applications within a company’s established businesses.

Organizational Approaches to the Management of Innovation cont.

In Ch. 4, they performed an analysis of 290 innovation events

Determined the types and degree of innovation among the 10X and the comparison companies.

Innovation refers to different dimensions, including product, operational, and business-model innovations.

Innovation Analysis

Major: Clearly offers a high degree of performance or feature improvement compared to existing products or services in the marketplace

Medium: Offers a solid degree of performance or feature improvement

Incremental: Offers some performance or feature enhancement, but doesn’t signify major progress

Degree of Innovativeness

1. The companies in the study created a number of different innovations.

2. There appears to be an innovation “threshold” effect: companies innovated more in industries in which innovation played a significant role.

3. The 10X companies were not more innovative than comparison companies.

4. The 10X companies pursued more incremental innovations than the comparison companies.

Findings on Innovation

1. 10X companies pursued more of a bullet approach than the comparison companies.

2. 10X companies did not fire more cannonballs than the comparison companies.

3. 10X companies had a higher proportion of cannonballs that were calibrated than the comparison companies.

4. Calibrated cannonballs yielded more positive outcomes than uncalibrated ones.

5. 10X companies had more success with their cannonballs than the comparison companies.

Findings from the Bullets-Then-Cannonballs Approach

In Ch. 5, they performed an analysis of 300 company-years of financial statements to determine the extent to which the 10X and comparison companies built cash reserves and used debt.

They studied financial ratios for each matched pair on an annual basis and determined how often each 10X company had a better ratio than its comparison company.

Cash and Balance-Sheet-Risk Analysis

1. 10X companies overall had more conservative balance sheets during the observation period than the comparison companies.

2. 10X companies overall had more conservative balance sheets in their 1st 5 years as public companies than the comparison companies.

3. 10X companies overall had more conservative balance sheets in their 1st year as public companies than the comparison companies.

Findings on Financial Ratios Analysis

Death Line risk Could kill or severely damage the enterprise

Asymmetric risk Potential downside is much bigger than the

potential upside Uncontrollable risk

Exposes the enterprise to forces and events that it has little ability to manage or control

Risk-Category Analysis

1. 10X companies overall made fewer decisions involving Death Line, asymmetric, and uncontrollable risks than comparison companies.

2. 10X companies overall made less risky decisions.

3. 10X companies had a higher success rate in all risk categories.

Findings on Risk-Category

Pages 260-269Competitive Advantage in Technology

“The principal link between technology and competitive advantage is innovation”

Invention: the creation of new products and processes through the development of new knowledge of existing knowledge

Innovation: the intentional commercialisation of invention by producing and marketing a new good or service, or by using a new method of production

Innovation Process

Basic knowledge Invention Innovation Diffusion

Supply side leads to imitation Demand side leads you to adoption

Figure 6.1 The development of Technology

Profitability of an innovation to the innovator, depends on the value created by the value created by the innovation and share of that value that the innovator is able to appropriate.

Profitability of Innovation

This is used to describe the conditions that influence the distribution of returns to innovation

Strong Regimes: Innovator is able to capture a substantial share of the value created

Weak Regimes: other people get a large share of the value rather than the innovator

Regime of appropriation

Intellectual Property: subset of laws that protect most non-tangible property

Patents: exclusive rights to a new and useful product, process, substance or design (usually last 17 years, 14 years for design)

Copyrights: exclusive to production, publications, or sales rights of the creator of an artistic, literary, dramatic, and musical works

Trademarks: Words, symbols, or other marks used to distinguish the goods or services supplied by a firm

Trade secrets: offer a modest level of legal protection for recipes, formulae, industrial processes, customer lists, and other knowledge acquired by the business

Property Rights in Innovation

Tacitness and complexity

In the absence of laws to protect an innovator these things will help from imitation.

Imitation by a competitor depends on the ease the technology can be comprehended and replicated

1st depends on the extent to which the technical knowledge can be codifiable Codifiable information: that which can be written

down2nd depends on the complexity of the product

Lead-time

1st two factors may not always stop imitation but with significant lead-time the odds of greater success are much better

Lead-time: the time it takes followers to catch up

Complementary Resources

Bringing new products and processes to a market requires not just invention, it also requires the diverse resources and capabilities needed to finance, produce and market the innovation

These are referred to as COMPLEMENTARY RESOURCES

These are also resources that can be acquired through other firms