Organizational Structure ◾ 147
pre-described process of pharmaceutical product testing. The process, as
described by FDA, consists of the following steps:
◾ Preclinical trials (involving laboratory animals)
◾ Phase I (involving a few healthy volunteers)
◾ Phase II (limited patients enrolled; compared to placebo)
◾ Phase III (larger patient population; compared to best available treatment)
Seek the truth. Costs increase exponentially at later stages. Be prepared
to accept failure. If failure appears likely, it is best to cut your losses early. If
your initial decision was based on the best available information available to
you at the time, neither recriminate nor punish failure.
Convene your staff early to change direction. Failure is science’s way of
forcing you to change to a new direction. Conversely, if the drug seems safe
and effective, be prepared to dive in headrst. Reward your staff for a job
well done (Figure7.8).
7.9 Overcoming Organizational Inertia and Defenses
“Don’t punish failure, reward success.”
When the proper incentives do not exist for innovation, organizations
develop inertia and defenses. Most employees are afraid to fail because
Failure as Te aching Concept
Failure
Post-Mortem
Accept Reality
Rework?
Au
topsies
& debate
s
Financial/technical
Analysis
Abandon?
Executive
Decision
Figure 7.8 Failure as teaching concept—If it looks like you are going to fail, then fail
as fast as you can.
148 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
failure likely can lead to dismissal. “Doing nothing” or “keeping your nose
clean” is seen as a clever survival mode. It does not pay for individuals in
large organizations to innovate.
In a breakthrough study of over 450 careers of successful men and
women, Yeaple found that there are limited nancial incentives to take per-
sonal risks when pushing an innovation.
9
This is shown in Figure7.9.
Since innovation is the key to a startup, the founder must provide con-
siderable upside to risk taking by authorized managers. As the old saying
goes, “Show me an employee with a perfect record, and I will show you an
employee who has not taken any chances.”
7.9.1 Organizational Inertia
“Make stones out of stumbling blocks.”
Overcoming organizational inertia is the extent to which the executive staff
is motivated to change, learn, use, and accept a new direction through
empowerment. Empowerment is the process of increasing the capacity of
staff individuals or groups to make choices and to transform those choices
into desired outcomes. It is accomplished through authority delegation.
Figure7.10 summarizes the main factors at your control to overcome
organizational inertia.
Rewards? What rewards?
+ Rewards to organization– Punishments to employee
Punishments
Rewards
Possible
Peer recognition ?
Monetary gains ?
Promotions ?
Guaranteed
Public humiliation
Demotions
Dismissals
GainsLosses
It was your job all along !
Figure 7.9 Rewards? What rewards?—Make sure you reward your innovators (and
communicate how).
Organizational Structure ◾ 149
7.9.2 Organizational Defenses
“It is difcult to change things around here.”
You can expect your organization to develop stubborn defenses against
needed changes. Chris Argyris from Harvard Business School has been
exploring this phenomenon for four decades.
10
Organizational defenses are the pattern of obstacles presented to execu-
tives (“change agents”) when a major managerial inection point is reached
during periods of fast growth or crisis. Some of the defenses take the follow-
ing characteristics:
◾ We tried it before and it didn’t work.
◾ There is nothing wrong with our current approach.
◾ Other companies in our eld use the same techniques.
◾ We are too busy already.
Overcoming Organizational Inertia
(through sta empowerment)
Your
vision
Strategy
Tactics
Goals
Plans
Objectives
Corporate objectives
Reaching protability
Managing high growth
Execution
Implementation costs
Intellectual property
Revenues
Market penetration
Positioning
Achievements
Timing (deadlines)
Marketing approaches
All related tactics
Figure 7.10 Overcoming organizational resistance—Empower your executives to
overcome organizational inertia.
150 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
◾ We need time to think about this new approach.
◾ Let us set up an ad hoc committee to look into this situation.
As founder, you must lead the painful change without alienating your
team. You must change the conversation from “today” to “the future.” How
will everyone benet from the impending change? What roles will they play
in the new structure?
Founders nd great advantage in the use of teams in times of crises
because teams are known to increase workforce satisfaction and lead to bet-
ter decision-making. Figure7.11 presents a tried-and-true method for over-
coming both organizational inertia and resistance by the use of teams.
7.10 An Old Aphorism
“The three envelopes.”
An old joke (probably originating during the Cold War)
11
tells the story of
a new CEO hired during turbulent times. The old CEO who was stepping
down met with him privately and presented him with three numbered and
sealed envelopes. “Open these only if you run up against a problem you
don’t think you can solve,” he said.
Overcoming organizational resistance
and defenses by situational teams
Change
Strategic
teams
Ad hoc
teams
Executive
teams
Experts
Consultants
Rank and file inpu
t
Figure 7.11 Overcoming organizational resistance and defenses—Establish situ-
ational teams in times of crises.
Organizational Structure ◾ 151
Things went along smoothly, but a few months later, sales took a down-
turn and the stock started to collapse. Then he remembered the three sealed
envelopes. He went to his drawer and opened the rst envelope. The mes-
sage read, “Blame the old CEO.”
The new CEO called a press conference and tactfully laid the blame
at the feet of the previous CEO. Satised with his comments, Wall Street
responded positively and the problem was soon behind him.
About a year later, the company was again experiencing a great dip in
sales, combined with serious product problems. Having learned from his
previous experience, the CEO quickly opened the second envelope. The
message read, “Reorganize.” This he did, Wall Street was appeased, and the
company’s stock quickly rebounded.
After several consecutive protable quarters, the company once again fell
on difcult times. The CEO went to his ofce, closed the door, and opened
the third and last envelope.
The message said, “Write three envelopes.”
References
1. Prive, T. Top 5 qualities of an unstoppable founding team. http://www.forbes.com/
sites/tanyaprive/2013/05/31/top-5-qualities-of-an-unstoppable-founding-team/.
2. Building a New New Venture Team. Chapter 6. Prentice Hall and Pearson
Digital Learning, http://prenticehall.com
3. Allen, K.R. Launching New Ventures: An Entrepreneurial Approach, 6th ed.
Independence, KY: Cengage Learning, 2011.
4. Katzenbach, J.R. Teams at the Top. Cambridge, MA: Harvard Business School
Press, McKinsey & Company, Inc., 1998.
5. Smith, D.K. Make Success Measurable! New York: John Wiley & Sons, 1999.
6. Loblow, B. http://www.bothsidesofthetable.com/2010/01/21/
how-to-work-with-lawyers-at-a-startup/.
7. Walker, S.E. Top 10 reasons why entrepreneurs hate lawyers. http://venture-
hacks.com/articles/hate-lawyers.
8. McGraw, B. Managing Managers Requires Good LeadershipSkills,
May 12, 2011. http://fearnoproject.com/2011/05/12/
managing-managers-requires-good-leadership-skills/.
9. Yeaple, R.N. The Success Principle. New York: Macmillan/Spectrum, 1997.
10. Argyris, C. Overcoming Organizational Defenses. Allyn and Bacon, 1990.
11. https://www.facebook.com/Hahahalaughitout/posts/307976069255405
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