research@hec - Issue #5 - (Page VII)

No crystal ball? No big deal! Key ideas: schemes. trials will increase the chances of project success. • Divide projects into parts and only use traditional planning for areas where all is clear. • When risks cannot be pinpointed, approaches like trial & error learning or parallel • Novel initiatives frequently require such approaches as well as atypical monitoring How do you develop a good plan when you don’t know what tomorrow may bring? This is the challenge for managers in start-up companies or those involved in brand new projects. Human nature is such that people tend to keep making detailed plans even when they lack knowledge about certain aspects of their project—like how a new technology will translate on a large scale or what kind of support customers will need for a brand new product—but sticking to such plans often brings everyone down. Svenja Sommer and her colleagues have explored how start-ups use two principal alternatives to traditional risk planning to deal with unknowns more effectively, revealing where managers should use each in order to reach the desired outcome: success! M INNOVATIVE INITIATIVES: THE PROBLEM WITH PLANNING By definition, new projects contain at least a minimal amount of mystery. When you start developing a new technology, enter a new market, or decide to expand your customer pool, you have few precedents to rely on to design your project. And what further complicates the situation is that you do not always know what it is that you don’t know! Svenja Sommer suggests thinking in terms of “knowledge gaps” and warns managers to beware of detailed planning when they are significant. • When there are large knowledge gaps, detailed planning is most likely a waste of time, and even worse, it tends to generate a counterproductive, false sense of security. For example, based on the small-scale success of a new technology, a detailed business plan was developed for a new plant. KNOWLEDGE GAPS AND SOLUTIONS When managers and projects teams have to identify the areas in which they are knowledgeable and those which present “knowledge gaps”. • Break the project into parts and review each of them. Do you or do you not know all that you need to about pertinent technologies? Markets? Customer needs? • For areas of the project that are clearly understood, use traditional planning methods, identifying potential risks and making contingency plans. In areas where you lack knowledge and cannot pinpoint specific risks, you cannot plan. These areas should be approached using one of two schemes: selectionism or trial & error learning. • Selectionism or parallel trials means developing several options, seeing how each one works, and choosing the best of the lot. When an area of a project is interconnected with others, and changes in it provoke changes elsewhere, launching several versions of a plan will enable you to discover the most successful. Let’s say you need to choose an external development partner among an unfamiliar group. Give several But the large scale was an entirely different story, and stubborn reference to “the plan” resulted in ignored problems, project delays, budget overruns, and ultimately a failed venture. • Novel endeavors must be recognized to require onthe-job learning, at least in certain areas of the project. There is no recipe, so you have to test options and integrate new information as it is uncovered rather than make hasty, assumption-based decisions. BIOGRAPHY Svenja Sommer recently joined HEC as assistant professor of operations management and information technology. Her research interests include new project development and decision making in projects facing high uncertainty. Sommer holds a PhD in management from INSEAD, and prior to joining HEC, she was assistant professor of management at the Krannert School of Management, Purdue University (USA). October-November 2008 • research@hec VII http://www.hec.fr/hec/eng/professeurs_recherche/p_liste/p_fiche.php?num=178

Table of Contents for the Digital Edition of research@hec - Issue #5

Cover & Contents

Five Principal Research Themes at HEC

Women Have to Choose BetweenMotherhood and Auditing

Small Splurges, Large Benefits

No Crystal Ball? No Big Deal!

research@hec - Issue #5