Rory McDonald is an Associate Professor of Business Administration in the Technology and Operations Management Unit. He teaches Building and Sustaining a Successful Enterprise (BSSE) in the MBA elective curriculum and previously taught the Technology and Operations Management course in the MBA required curriculum. In 2016, he was named one of the world’s top 40 business school professors under 40 by Poets and Quants.
Professor McDonald’s research focuses on how firms compete and innovate effectively in new technology-enabled markets. Drawing on a mix of in-depth fieldwork and archival data, he studies how executives develop viable strategies in these contexts and how they obtain resources that improve their chances of success. For his research on entrepreneurial firms, Professor McDonald received both the Kauffman Foundation Junior Faculty Fellowship in Entrepreneurship as well as the Kauffman Foundation Dissertation Fellowship. He was also a finalist for best dissertation award in business policy and strategy by the Academy of Management.
Professor McDonald received his PhD in Management Science and Engineering from the Stanford Technology Ventures Program. He also holds an MBA from the Stanford Graduate School of Business, an MA in economic sociology from Stanford University, as well as two engineering degrees from the University of South Florida. Before joining Harvard, he was on the faculty of the University of Texas at Austin where he received the CBA Foundation Teaching award. McDonald is on the board of YCG Funds, an Austin-based mutual fund company, and is an advisor to several startups.
Professor McDonald and his wife Anne live in Sudbury, MA with their four children. They are active in their church and enjoy a variety of family activities.
New technology ventures often experience deviations from their original plans that oblige them to reorient in pursuit of better fit between their evolving products and target customers. Yet research is largely silent on how entrepreneurs explain and justify their ventures in the wake of fundamental redirections in strategy. Since ventures attain legitimacy and resources based on original aims that constituencies find compelling, entrepreneurs’ initial claims are likely to complicate subsequent course corrections. To shed light on how ventures effectively manage strategic reorientations, we conducted an inductive, longitudinal field study of two startups in the “robo-advisor” sector. Despite similar initial profiles, parallel reorientations, and comparable end products, the startups’ fortunes diverged in a conspicuous way that is difficult to reconcile with prior research. We develop a theoretical model introducing principled pragmatism—a novel strategy process that enables entrepreneurs to make changes to their fledgling businesses while portraying faithfulness to enduring aims. Our framework suggests that technology ventures’ success depends not only on sensible redirections, but also on how entrepreneurs anticipate, communicate, and pace these changes to various external supporters. In other words, how they explain strategic reorientations may matter as much or more than the changes themselves. Successful entrepreneurs do not merely generate and test hypotheses, like scientists, to find viable product solutions; they also resemble adept politicians—convincingly justifying deviations from plan to diverse constituencies.
Prior research examines how firms navigate nascent markets but overlooks an imperative for entrepreneurial firms that pioneer in these contexts: finding a viable business model. Through an in-depth, multiple-case study of ventures in the nascent social investing market, we induce a theoretical framework to explain how firms efficiently accomplish this important strategic objective. Our core contribution is the concept of parallel play—a theoretical construct characterizing the search process by which entrepreneurial firms efficiently reach a viable business model ahead of competitors. Parallel play’s three components, enacted in sequence, map onto how very young children play. These components are (1) focusing on substitutes and borrowing selectively from peers, (2) testing assumptions about profit logics before committing to one, and (3) pausing with a loosely connected activity system to await surprise before completing the business model. We describe how parallel play promotes efficient search by unpacking the mechanisms by which it leads to fast, inexpensive, and reliable problem solving. We offer a richer and more realistic view of search in nascent markets and contribute to search theory and its nexus with learning theory.
Citation:
McDonald, Rory, and Kathleen Eisenhardt. "Parallel Play: Startups, Nascent Markets, and The Effective Design of a Business Model." Administrative Science Quarterly (forthcoming).
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Clayton M. Christensen, Rory McDonald, Elizabeth J. Altman and Jonathan E. Palmer
The concept of disruptive innovation has gained considerable currency among practitioners despite widespread misunderstanding of its core principles. Similarly, foundational research on disruption has elicited frequent citation and vibrant debate in academic circles, but subsequent empirical research has rarely engaged with its key theoretical arguments. This inconsistent reception warrants a thoughtful evaluation of research on disruptive innovation within management and strategy. We trace the theory’s intellectual history, noting how its core principles have been clarified by anomaly-seeking research. We also trace the theory’s evolution from a technology-change framework—essentially descriptive and relatively limited in scope—to a more broadly explanatory causal theory of innovation and competitive response. This assessment reveals that our understanding of the phenomenon of disruption has changed as the theory has developed. To reinvigorate academic interest in disruptive innovation, we propose several underexplored topics—response strategies, performance trajectories, and innovation metrics—to guide future research.
Bermiss, Y. Sekou, and Rory McDonald. "Managing Political Misfits." Special Issue on HBR Big Idea: Leadership in a Hot-Button World. Harvard Business Review (website) (March–April 2018).
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Though organizations are increasingly active participants in the political realm, little research has investigated how an organization’s heightened focus on political ideology impacts employees. We address this gap by exploring how an individual’s political ideological misfit with an organization’s prevailing ideology impacts mobility. By tracking the movements of over 40,000 investment professionals in the U.S. private equity industry over 10 years, we investigate the consequences of the ideological misfit that arises when individuals’ political ideologies diverge substantially from the prevailing ideology of their firms. We hypothesize that ideological misfit increases the likelihood of mobility, though the effects vary with liberal/conservative ideological orientation. Polynomial regression analyses reveal that the fit relationship between individual and organizational political ideology deviates from the idealized congruence relationship that underlies prevailing theory. Through a supplemental, qualitative investigation, we propose some potential interpretations for our findings.
McDonald, Rory, and Cheng Gao. "Entrepreneurship: Every Pivot Needs a Story."Harvard Business Review 95, no. 4 (July–August 2017): 24. (Summary of “Pivoting Isn’t Enough: Principled Pragmatism and Strategic Reorientation in New Ventures”.)
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Avery C. Plough, Grace Galwin, Zhonghe Li, Stuart R. Lipsitz, Shehnaz Alidina, Natalie J. Henrich, Lisa R. Hirschhorn, William R. Berry, Atul A. Gawande, Doris Peter, Rory McDonald, Donna L. Caldwell, Janet H. Muri, Debra Bingham, Aaron B. Caughey, Eugene R. Declercq and Neel T. Shah
OBJECTIVE: To define, measure, and characterize key competencies of managing labor and delivery units in the United States and assess the associations between unit management and maternal outcomes.
METHODS: We developed and administered a management measurement instrument using structured telephone interviews with both the primary nurse and physician managers at 53 diverse hospitals across the United States. A trained interviewer scored the managers' interview responses based on management practices that ranged from most reactive (lowest scores) to most proactive (highest scores). We established instrument validity by conducting site visits among a subsample of 11 hospitals and established reliability using interrater comparison. Using a factor analysis, we identified three themes of management competencies: management of unit culture, patient flow, and nursing. We constructed patient-level regressions to assess the independent association between these management themes and maternal outcomes.
RESULTS: Proactive management of unit culture and nursing was associated with a significantly higher risk of primary cesarean delivery in low-risk patients (relative risk [RR] 1.30, 95% CI 1.02–1.66 and RR 1.47, 95% CI 1.13–1.92, respectively). Proactive management of unit culture was also associated with a significantly higher risk of prolonged length of stay (RR 4.13, 95% CI 1.98–8.64), postpartum hemorrhage (RR 2.57, 95% CI 1.58–4.18), and blood transfusion (RR 1.87, 95% CI 1.12–3.13). Proactive management of patient flow and nursing was associated with a significantly lower risk of prolonged length of stay (RR 0.23, 95% CI 0.12–0.46 and RR 0.27, 95% CI 0.11–0.62, respectively).
CONCLUSION: Labor and delivery unit management varies dramatically across and within hospitals in the United States. Some proactive management practices may be associated with increased risk of primary cesarean delivery and maternal morbidity. Other proactive management practices may be associated with decreased risk of prolonged length of stay, indicating a potential opportunity to safely improve labor and delivery unit efficiency.
Plough, Avery C., Grace Galwin, Zhonghe Li, Stuart R. Lipsitz, Shehnaz Alidina, Natalie J. Henrich, Lisa R. Hirschhorn, William R. Berry, Atul A. Gawande, Doris Peter, Rory McDonald, Donna L. Caldwell, Janet H. Muri, Debra Bingham, Aaron B. Caughey, Eugene R. Declercq, and Neel T. Shah. "Relationship Between Labor and Delivery Unit Management Practices and Maternal Outcomes."Obstetrics & Gynecology 130, no. 2 (August 2017): 358–365.
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Y. Sekou Bermiss, Benjamin J. Hallen, Rory McDonald and Emily Cox Pahnke
This paper investigates the social context of entrepreneurship in organizational sectors. Prior research suggests that firm foundings are driven by collective patterns of activity—that is, by patterns of prior foundings—including support from related markets as well as institutional activism in a given sector. Building on research of social salience and signals, we consider the influence of singular sector-level triggers, which we call entrepreneurial beacons. We argue that the actions or outcomes of salient organizations attract and motivate entrepreneurs, thus increasing the rate of foundings. To test this logic, we examine the impact of the Yale University endowment's investment choices and of venture-capital-backed IPO run-ups on venture-capital foundings between 1984 and 2011. The results pinpoint the aspects of the social environment that most heavily influence entrepreneurial activity and the dynamics of organizational sectors.
Clayton M. Christensen, Michael Raynor and Rory McDonald
For the past 20 years, the theory of disruptive innovation has been enormously influential in business circles and a powerful tool for predicting which industry entrants will succeed. Unfortunately, the theory has also been widely misunderstood, and the "disruptive" label has been applied too carelessly anytime a market newcomer shakes up well-established incumbents. In this article, the architect of disruption theory, Clayton M. Christensen and his coauthors, correct some of the misinformation, describe how the thinking on the subject has evolved, and discuss the utility of the theory. They start by clarifying what classic disruption entails—a small enterprise targeting overlooked customers with a novel but modest offering and gradually moving upmarket to challenge the industry leaders. They point out that Uber, commonly hailed as a disrupter, doesn't actually fit the mold, and they explain that if managers don't understand the nuances of disruption theory or apply its tenets correctly, they may not make the right strategic choices. Common mistakes, the authors say, include failing to view disruption as a gradual process (which may lead incumbents to ignore significant threats) and blindly accepting the "Disrupt or be disrupted" mantra (which may lead incumbents to jeopardize their core business as they try to defend against disruptive competitors). The authors acknowledge that disruption theory has certain limitations. But they are confident that as research continues, the theory's explanatory and predictive powers will only improve.
Emily Cox Pahnke, Rory McDonald, Dan Wang and Benjamin Hallen
This paper investigates the impact of early relationships on innovation at entrepreneurial firms. Prior research has largely focused on the benefits of network ties, documenting the many advantages that accrue to firms embedded in a rich network of inter-organizational relationships. In contrast, we build on research emphasizing potential drawbacks to examine how competitive exposure, enabled by powerful intermediaries, can inhibit innovation. We develop the concept of competitive information leakage, which occurs when firms are indirectly tied to their competitors via shared intermediary organizations. To test our theory, we examine every relationship between entrepreneurial firms and their venture capital investors in the minimally-invasive surgical segment of the medical device industry over a 22-year period. We find that indirect ties to competitors impede innovation, and that this effect is moderated by several factors related to the intermediary's opportunities and motivation to leak important information.
Eric L. Chen, Riitta Katila, Rory McDonald and Kathleen M. Eisenhardt
Prior work examines competitive moves in relatively stable markets. In contrast, we focus on less stable markets where competitive advantages are temporary and R&D moves are essential. Using evolutionary search theory and an experiential simulation with in-depth fieldwork, we find that the relationship between performance and subsequent competitive moves depends on the type of market, not just on whether performance is high or low. High performers seek to maintain status quo, but this requires different strategies in different markets. They are conservative in established markets and bold in new ones. In contrast, low performers seek to disrupt the status quo. Again, this requires different strategies in different markets. Unlike high performers, low performers are bold in established markets and conservative in new ones where they lack understanding of how to disrupt rivals. Overall, our results incorporate unstable markets in theories of competitive dynamics and competitive interaction in theories of evolutionary search. By examining R&D moves, we also extend competitive dynamics research to include technology-based firms for whom temporary advantages are often essential.
New ventures rely on external relationships for capital, knowledge, and networks. We examine how ventures assemble these resources—and whether they are all accessible from the same sources—in relationships with two types of investors: venture capital firms and angels. We argue the entrepreneurial investment landscape creates tensions between acquiring capital versus knowledge and networks, and secondarily between knowledge and networks pertinent to early operational execution versus long-term development. Through simultaneous relationships with both types of investors, we suggest, ventures can efficiently assemble both capital (via venture capitalists) and broad networks (via numerous angels). This inference is supported in a sample of 838 digital ventures. Our results address the nature and assembly of entrepreneurial resources, pinpointing the respective contributions of venture capital and angel investors.
Hallen, Benjamin, and Rory McDonald. "The Right Mix: Angels, Venture Capitalists, and the Assembly of Entrepreneurial Resources." Harvard Business School Working Paper, No. 17-082, March 2017.
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Although past work has chronicled the benefits of repeated syndication among venture capital firms (VC) for themselves and their portfolio firms, we argue that different patterns of syndication lead start-ups to potentially different exit outcomes. In our analysis of almost 11,000 U.S. VC-backed entrepreneurial firms, we show that although a VC-backed start-up is more likely to be acquired when its VCs have more co-investment experience with one another, it is both more likely to go public and go bankrupt when its VCs have less past co-investment experience. We find that our results are robust to a sample selection correction as well as an inverse probability treatment weight specification. We discuss the implications of our results for work on entrepreneurial firm strategy, organizational learning, and the performance tradeoffs associated with inter-organizational network structures for the firms embedded within them.
Wang, Dan, Emily Cox Pahnke, and Rory McDonald. "United We Stand? Venture-Capital Syndicates' Joint Co-Investment Experience and New Venture Exits." Harvard Business School Working Paper, No. 17-080, March 2017.
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New-industry pioneers confront the challenge of creating a new market category and achieving significance within it. However, prior research largely emphasizes the collective benefits of market creation and overlooks the costs borne by individual evangelists. Through an inductive multiple-case study of five startup competitors, we traced firms’ efforts to stake out a new online investing category between 2007 and 2011. As entrepreneurs deployed cultural resources in different ways to influence several relevant audiences, three firms experienced a conspicuous decline resulting in a diminished standing vis-à-vis the two category leaders. We introduce an emergent theoretical framework, proposing a set of underappreciated organizational processes that help explain pioneers’ divergent trajectories. For these category commoners, scattershot rhetorical attacks generate unanticipated costs while benefitting competitors; embracing imposed labels constrains strategic flexibility and creates category lock-in; and founding stories can obstruct change necessitated by unexpected deviations from the plan. More broadly, by contrasting vigorous missionary work and reluctant evangelism as alternative pathways, we demonstrate how market-creation efforts can undermine startups’ standing in a new market. In addition to contributing to cultural entrepreneurship, our study has implications for category emergence and strategic entrepreneurship in nascent industries.
Strategic interaction has been a topic of scholarly inquiry dating back to the 1960s. Drawing on several early examples, we explore the nature of the concept, comparing it to other forms of competition in strategy and organizations. Next, we organize and review the findings of three ostensibly separate theoretical perspectives that have arisen from game theory, competitive dynamics, and institutional theory—each with its own assumptions, constructs, methods, and findings—and we identify core insights about how firms compete against one another in established markets. Based on our evaluation, we argue that a promising research opportunity for strategy lies in exploring how firms strategically interact in nascent product markets and which moves are most effective in these contexts.
McDonald, Rory, and Cheng Gao. "Competition as Strategic Interaction." Harvard Business School Working Paper, No. 15-067, February 2015. (Revised February 2017.)
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This short case, meant for pairing with HBS case 615-013 “AmazonFresh: Rekindling the Online Grocery Market,” explores Amazon’s rationale for acquiring Whole Foods.
McDonald, Rory, Sarah Mehta, and Shaye Roseman. "Amazon Acquires Whole Foods (B)." Harvard Business School Supplement 619-029, December 2018.
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Rory McDonald, Clayton M. Christensen, Daniel West and Jonathan E. Palmer
After 20 years of growth unprecedented in the sports apparel industry, Under Armour finds itself with a new record to beat: making the leap from $5 to $10 billion in sales—a feat only accomplished to date by competitors Nike and Adidas. At the heart of this challenge is how Under Armour can maintain its brand’s authenticity while adding new products that fuel future growth. The case traces the evolution of Under Armour’s brand and describes how the company chose to extend or not extend its brand into adjacent categories and markets in the past. Now Under Armour needs to decide on their next steps. Should the company focus on its core markets? Should it stretch the brand into more adjacencies? Or should it consider something more radical, like app-related sales through subscriptions and wearable technologies?
McDonald, Rory, Clayton M. Christensen, Daniel West, and Jonathan E. Palmer. "Under Armour." Harvard Business School Case 618-020, January 2018.
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Rory McDonald, Clayton M. Christensen, Daniel West and Jonathan Palmer
After twenty years of growth unprecedented in the sports apparel industry, Under Armour finds itself with a new record to beat: making the leap from $5 to $10 billion in sales — a feat only accomplished to date by competitors Nike and Adidas. At the heart of this challenge is how Under Armour can maintain its brand’s authenticity while adding new products that fuel future growth. The case traces the evolution of Under Armour’s brand and describes how the company chose to extend or not extend its brand into adjacent categories and markets in the past. Now Under Armour needs to decide on their next steps. Should the company focus on its core markets? Should it stretch the brand into more adjacencies? Or should it consider something more radical, like app-related sales through subscriptions and wearable technologies?
McDonald, Rory, Clayton M. Christensen, Daniel West, and Jonathan Palmer. "Under Armour: Evolution of a Purpose Brand." Harvard Business School Case 618-010, September 2017.
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Rory McDonald, Alix Burke, Emma Franking and Nicole Tempest
Founded in 2008, Floodgate pioneered the “micro-VC” category, a new type of investment firm that raised smaller funds and made earlier, smaller investments in technology startups than traditional venture-capital firms. By 2015, Floodgate had raised three funds totaling $225 million and achieved outsize success with investments in high profile startups like Twitter, Twitch, Cruise Automation, and Lyft. Floodgate measured success in terms of its coverage of the top 10-15 exits in any given year. These “Thunder Lizards,” which had the potential to change the business landscape and grow to Godzilla-like scale, accounted for 97% of returns. With increasing competition from micro-VCs and alternatives like crowdfunding, opportunity funds, and incubators, partners Ann Miura-Ko and Mike Maples wondered how Floodgate could continue to compete successfully in a rapidly changing venture-capital landscape. Should Floodgate stay with the micro-VC model it helped invent, or raise more capital, leveraging its successful track record to make investments at the scale of more traditional VC firms? In selecting a path, they needed to consider Floodgate’s dual responsibility to entrepreneurs and LPs.
In 2013, a team led by Gopalan Sunderraman, vice president of corporate development at Godrej & Boyce Mfg. Co. Ltd.—one of the companies owned by Godrej Group, a large Indian conglomerate—was preparing to launch an innovative low-cost refrigerator. Developed expressly for the approximately 80% of Indians who lacked access to refrigeration (a market Godrej had never before targeted), the chotuKool represented a technological marvel—a small, inexpensive thermoelectric appliance powered by a rechargeable battery. The case traces chotuKool’s development and evolution from an initial product concept inspired by theories of innovation and the strategic vision of Jamshyd Godrej (managing director and chairman at Godrej & Boyce Mfg.) to a promising new line of business that emerged from a process of learning and discovery through market feedback. As the company geared up for the broader rollout of chotuKool, Sunderraman and his team faced some tough questions. What was the proper target and scope for the launch? Which strategy gave them the best chance of success? Could chotuKool really redefine the company and bring refrigeration to hundreds of millions of Indians?
Four teams across the world are furiously designing, building, testing, and learning to sail a boat that would be one-of-a-kind in order to win the 2013 America's Cup. Choosing the best development path was a challenge as the teams had less than three years to prepare, and each decision would affect the performance of the boat as well as the duration of the sailors' training. The case traces the dilemma faced by the favorite, Oracle Team USA (OTUSA), as rumors grew that the challenger was pursuing a revolutionary technology that would enable its six-ton boat to literally fly above waves. With only a year left before the Cup, should OTUSA keep refining its current technology, called "skimming," or should it pivot towards "foiling" (flying)? At this stage foiling could be a red herring, and even if it was not, the limits of the performance of a foiling boat would remain a mystery for some time. The case explores the dilemma of managing innovation in an uncertain environment, where the decision would be sanctioned a year later by a win or a loss.
Feng Zhu, Rory McDonald, Marco Iansiti and Aaron Smith
Upwork, the world's largest freelance talent platform, was the result of a merger between the two leading online freelancing companies in 2014, Elance and oDesk. After the merger, the company operated as Elance-oDesk and continued to manage two online platforms—Elance.com and oDesk.com—independently of one another. However in 2015 the company relaunched as Upwork, with both a new brand and a new platform. The company began to migrate Elance.com members and functionalities over to the new platform, which was based on the technical infrastructure of oDesk.com. This case helps students consider the challenges and opportunities associated with such a platform merger, from strategy to implementation.
This case traces the design and development of the Boeing 787 Dreamliner. Emphasis is on executive leadership and firm strategy in coordinating across a global network of partners in the production of a new aircraft.
In less than 10 years, cofounders Brian Sharples and Carl Shepherd had transformed HomeAway from just another Internet startup into the world's leading vacation-rental marketplace—a global online platform that links customers seeking vacation-home rentals to the property owners and managers who supply them. The case traces HomeAway's founding and acquisition-led growth, its 2011 IPO, and the core elements of its subscription-based business model. By 2014, incumbent travel giants like TripAdvisor and high-profile startups like Airbnb had begun to enter the vacation-rental sector. To stay ahead, HomeAway initiated a pilot cross-platform collaboration to list some of its properties on Expedia's site. More momentously, Sharples was also weighing a new commission-based revenue model that promised to attract a broader array of property listings but at the risk of undermining HomeAway's existing business.
Rory McDonald, Clayton Christensen, Robin Yang and Ty Hollingsworth
More than a decade after the high-profile failures of several early online grocers, grocery remains the largest single U.S. retail category and one of the few that has not yet migrated online. Amazon began testing its grocery-delivery service, AmazonFresh, in Seattle, in 2007; five years later, the company has made significant progress. The case traces the evolution of AmazonFresh's business model and describes the operating capabilities necessary to compete with brick-and-mortar supermarkets like Wal-Mart and Safeway and with new digital grocery startups. Now Amazon needs to decide on AmazonFresh's next step. Should the company continue refining its business model in Seattle or expand to another city? What factors should it take into account when planning its next move?
