With today's breathless enthusiasm for innovation, it's hard to remember when, as far as the management literature was concerned, innovation was something that guys in white coats who worked for companies like DuPont did in the R&D lab. Expanding an existing business into new corporate territory, or corporate venturing, was called "diversification," not innovation. It is also hard to remember that before the 1980s, very little in the way of empirical evidence existed as to what companies should expect when they ventured into new territory. We had little theory and even less evidence to guide us. Most decisions executives made were based on their own experience or intuition (to be charitable) or on the basis of their pet projects and personal biases (to be a little less charitable).
E. Ralph Biggadike's breakthrough research on the realities of corporate venturing, reported in his 1979 HBR article, "The Risky Business of Diversification," therefore broke new ground by collecting actual data about what companies could expect as they explored new markets or extended their reach to new product categories. It was in the mold of many classic HBR pieces of the day — using rigorous academic research to inform an interesting managerial question. Ralph used the then-new Profit Impact of Market Strategies (or PIMS) database and his own original research to create a sample of 68 ventures launched by 35 companies, mostly in industrial goods businesses. He examined the fates of these ventures (which had all survived for some time) to try to determine how long a company could expect to wait for them to be profitable, and how well they would ultimately do financially. One of his most significant conclusions was that "new ventures need, on the average, eight years before they reach profitability." Further, that it took another two to four years before the return on investment of the new businesses equated to returns from the existing businesses. At the time, interestingly, as now, executives often gave a fledgling business three years or so to prove themselves, after which they lost interest. It didn't make sense then, and makes even less sense now.
To read the full, original article click on this link: A Brief History of Inventing Innovation - Rita McGrath - Harvard Business Review
