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Features

Conceiving a Curriculum

3.1.01

Despite a perception that it is primarily a boot-camp for corporate careers, Harvard Business School has long taught about and studied fledgling ventures. That tradition today influences the broader curriculum, too. Professor Myles L. Mace introduced an elective "Management of New Ventures" course in 1947, "for students who contemplate going into business for themselves." The next year, economist Joseph Schumpeter and Arthur H. Cole, professor of business economics and librarian of Baker Library, established the Research Center in Entrepreneurial History.

But entrepreneurship remained on the periphery of the curriculum and faculty until two alumni took matters into their own hands, shortly after John H. McArthur became dean and expressed interest in the field. In 1981, the school received funding for a professorship in entrepreneurial studies from M.B.A. '51 classmates Arthur Rock and Fayez S. Sarofim. The provenance was fitting: Rock had created the first venture-capital firm and funded such start-ups as Intel Corporation and Apple Computer; Sarofim had founded an investment-management firm bearing his name.

McArthur appointed to the chair Howard H. Stevenson, M.B.A. '65, D.B.A. '69, who had previously demonstrated his own entrepreneurial bent by shuttling on and off the faculty for more than a decade, alternating academic work on real estate with stints at private investment firms and a manufacturer.

When Stevenson probed "entrepreneurship" systematically, he found all the existing definitions inadequate. Functional concepts--bearing risk or innovating--seemed wrong. As Stevenson's faculty colleague William Sahlman has put it, "How many entrepreneurs wake up in the morning and ask, 'Where can I find some risk?'" Too narrow a focus on innovation--whether creating a new product or founding a company--excluded such exemplars as Ray Krok, who acquired the concept for McDonald's. Nor did psychological schema--the entrepreneur as a person driven by the need to achieve, control, and take chances--stand up. For one thing, half of Harvard business alumni have historically become involved in founding or running their own enterprises a decade or two after graduation, following experience in larger, more established companies. For another, as Sahlman phrased it, "I can't teach you to have a domineering mother."

Instead of functional or personal traits, Stevenson wrote in a now classic 1983 paper, "A Perspective on Entrepreneurship," the phenomenon could best be understood as a behavioral approach to management: "the pursuit of opportunity without regard to resources currently controlled." At the ends of a managerial spectrum, he posited opportunistic "promoters" and administrative "trustees," and outlined their distinct approaches to strategy, structure, and reward.

Stevenson recently compared this view to the 1960s corporate ideal of conceiving "the perfect long-range plan, where you foresee all contingencies and have an action plan for them," within the confines of existing resources. The entrepreneurial "promoter," in contrast, focused on finding opportunities and pursuing them quickly--scrambling to attract funds and people in stages, renting resources or forming networks to obtain use of them, eschewing hierarchy, and basing pay on performance, rather than on seniority or control over assets.

The latter worldview seemed ideally suited to the early 1980s, when the emerging computer and biotechnology industries and new concepts in retailing and money management spawned myriad business opportunities. At the same time, changes in pension investments and financial regulation unleashed venture funds. The increased mobility of capital (domestically and across national boundaries) and lower tax rates also changed the context for entrepreneurs, Stevenson said.

Established, "administrative" businesses began to change, too. Stevenson pointed to the advent of facsimile, e-mail, and distributed computing as powerful tools for all enterprises. The opening of global markets, enabled by faster communications and overnight shipping, gave all companies access to suppliers and markets previously enjoyed by only the largest firms. As a result, he said, no company today can possibly control all the resources it needs. Entrepreneurial management had trumped trusteeship.

As Stevenson and Sahlman studied new ventures, a young member of the school's faculty, Kim B. Clark '74, Ph.D. '78, was examining technology in what he recently called "decidedly nonentrepreneurial contexts--industries like automobiles and consumer electronics." There too, he found, the dynamics of the enterprise, rather than the resources it controlled, increasingly determined success. "Even in those stable industries, the firms' ability to manage turbulence in marketing and technology was becoming critical," he said. For instance, highly efficient automobile manufacturers procured and installed new capital equipment at one-third the costs of their most sluggish rivals--and such changes became more frequent. Across most industries, "technology was disrupting established markets and processes," transforming financing, logistics, and sales, so speedy adaptation "becomes the name of the game."

Those twin phenomena--the opportunities to start new businesses, and the need to shift the management of all enterprises from the "trustee" side of Stevenson's spectrum--affected much of the business school's faculty and curriculum. Upon becoming dean in 1995, Clark began initiatives on the school's values, information technology, globalization, and entrepreneurship, suggesting the wide reach of Stevenson's behavioral definition of entrepreneurship today.

The entrepreneurship and service management faculty has grown to 29 people, including joint appointments--nearly equal to the bedrock discipline of finance. Since the school opened a California research center in 1997, several dozen cases have been written on Silicon Valley companies, many of them start-ups, and, Clark said, half the school's faculty have used the facility.

The entrepreneurship curriculum has expanded to pursue every opportunity: this academic year, including cross-listed classes, its faculty offered 17 courses related to entrepreneurship, ranging from "Building E-Businesses" to "Venture Capital and Private Equity" and "Women Building Businesses." The finance faculty, in contrast, offered 15 options. Of late, Sahlman said, the entrepreneurship faculty has taught about 30 percent of students' second-year elective course selections.

"International Entrepreneurial Finance" and its teacher, associate professor Walter Kuemmerle, illustrated the kind of joint-venturing and opportunity-seeking that have come to characterize the school's entrepreneurship pedagogy. Kuemmerle, affiliated with both the entrepreneurship and the technology and operations management units, had been studying how multinational companies conduct research and development at sites around the world, when Sahlman asked him, five years ago, to look at venture finance outside the United States. The school's many international students increasingly wanted to start businesses in their own countries, Kuemmerle found, and needed to know how to navigate different laws, customs, and capital markets. At the same time, businesses like Yahoo were being launched globally and other countries were loosening their regulatory systems, encouraging the growth of venture capital and buy-out funds outside the United States (still the dominant source for such money).

The resulting course, offered for the third time this spring, presented 30 case studies on international and cross-border entrepreneurial businesses and providers of capital. Twenty-six of those cases were new, researched and written specifically for the class. The pace of case development, Kuemmerle said, was driven in part by student desire: instead of working temporarily in America after graduation, they began returning home to start businesses at once, making Harvard M.B.A.s "some of the most important international arbitrageurs of dot-com knowledge." Foreign governments and international lending institutions were changing, too, bringing entrepreneurship to the center of their development programs. This simultaneous change in markets and policies, Kuemmerle said, has created huge opportunities for entrepreneurial growth and venture financing in other nations.

In that sense, his very specialized course reflected the larger currents running throughout Harvard Business School's approach to management education. In the current environment, "The places that used to be safe are turning out to be potential disasters," Sahlman said, citing as examples such traditional blue-chip enterprises as Kmart, Procter and Gamble, and Barnes and Noble. This pressure has meant that "equilibrium is no longer the assumption" for operating a business.

Operating on that premise, beginning in 2000, the school remade its required first-year general-management course into "The Entrepreneurial Manager." Although the change was viewed with suspicion among some faculty members--as "appealing to the prurient interests of the students," Sahlman joked--he also insisted, "We haven't lost our bearings at all. Ten years out, a GE division head is going to do a better job if he trained to think entrepreneurially than if he didn't." Clark described the new direction as the right way to teach "the fundamentals of general management in a dynamic world."

So the students set out to learn, for example, how Charles Schwab Corporation--itself an upstart which had transformed the brokerage business--reacted when retail investors began trading on the Internet through still newer firms for $15, versus Schwab's $80 commissions. (At the risk of alienating its employee-stockholders, Schwab managers decided to forego profits temporarily, instead building new information systems needed to roll out its own $29.95 trades--an investment that attracted huge numbers of new customers and added revenues.) Far from the new economy, Sahlman led his section through the wrenching decisions a new CEO had to make to save a nearly bankrupt manufacturing conglomerate. (Sample lesson: A student suggested asking division managers about the businesses' condition and value. "So you go in as the friendly guy," Sahlman said, "and assume they'll share useful information--but don't learn their children's names," since you might have to fire them to save the rest of the company.)

In that course and others, the business school has focused its approach to entrepreneurial management on the long run. "One of the challenges of business education," Stevenson said, "is teaching that you can have a very satisfying life building a great business over 25 years." To that end, no matter where students ultimately work, training in entrepreneurial skills--balancing opportunities with the resources and skills needed to realize them--has proven worthwhile as "a way of managing that is necessary to compete in a world of great complexity and rapid change."