Why the Wrong Entrepreneurs Take Big Risks
The study: "The Paradox of Stretch Goals: Organizations in Pursuit of the Seemingly Impossible," by Andrew M. Carton, Duke University; Sim B. Sitkin, Duke University; Michael W. Lawless, University of Maryland; C. Chet Miller, University of Houston; and Kelly E. See, New York University; published in Academy of Management Review
The thesis: Setting stretch goals, or very ambitious objectives, can make companies more innovative. But those best positioned to benefit from such goals rarely pursue them. Weaker companies, though, often reach for unrealistic solutions out of desperation.
The method: The researchers reviewed case studies, such as Southwest Airlines's campaign to turn around flights in 10 minutes. They then studied what compels some companies to reach for overly ambitious goals.
Intriguing finding: Ambitious goals at companies with strong financial resources tend to free up employee creativity, but those resources also lessen the urgency to make big changes.
The takeaway: Before taking big risks, companies should think twice and consider incremental gains instead. At the same time, companies buoyed by success shouldn't become so comfortable that they are afraid to explore ambitious ideas. By doing so, they could be forgoing even bigger breakthroughs.