Improving a business’ IQ

Knott researches and teaches ways to make companies smarter

Anne Marie Knott, PhD, associate professor of strategy at Olin Business School, talks with Nick Argyres, PhD, professor of strategy. Knott enjoys the daily interaction and exchange of ideas with her colleagues on the Olin faculty. Knott says she wanted to work at Olin because the faculty is actively engaged in research and “everyone here is really smart!”

Before we get to her academic and career accomplishments as an engineer, entrepreneur and researcher, let’s focus on a slightly faded black-and-white photo on a bookshelf in Anne Marie Knott’s Simon Hall office.

It’s a 25-year-old snapshot of Anne Marie, her two sisters and two brothers, on the set of TV game show Family Feud with host Richard Dawson.

“This is my big claim to fame!” she says with a sarcastic laugh and twinkle in her eyes.

“That’s me, second from the left, behind Richard Dawson,” says Knott, PhD, associate professor of strategy at Olin Business School, with a detectable note of nostalgia.

“We were on the show for seven days and won $22,000 — which was a lot of money then,” Knott says. “We are all very competitive and always played competitive games growing up.”

Knott’s family lived in New Jersey until her father, an engineer, took a job in a suburb of Las Vegas. Her father also was an entrepreneur and passed on a love of learning and adventurous spirit to Anne Marie and her siblings.

Knott’s first career was in engineering. She worked for Hughes Aircraft and was the lead engineer on one of the air-to-ground missiles used in the 1991 Operation Desert Storm. During her stint at Hughes, Knott earned an MBA degree at the University of California, Los Angeles, to advance her career within the management ranks.

“I loved my job in the defense industry,” Knott says. “I was working with lots of really smart people. But then peace broke out. What that meant was there was lots of consolidation in the industry, and our group was being moved to Tucson.”

Not wanting to relocate or further pursue the management track (“It takes you too far from the science,” she discovered), Knott chose to pursue a doctorate at UCLA’s Anderson School of Management.

“I used it as a vehicle to solve some of the problems I saw while I was working,” Knott says.

She saw a need for research that could help the government make better acquisition decisions and help firms make better research and development (R&D) decisions in times of war and peace.

“Anne Marie Knott is a terrific colleague. She always has an interesting new idea or a fresh angle on an older idea. Her background in engineering gives a different perspective on topics in strategy. She has a nice sense of irony, plenty of common sense, and is both tough-minded and fair.”
— Glenn MacDonald, PhD, the John M. Olin Distinguished Professor of Economics & Strategy

From engineering to entrepreneurship

Before joining the faculty at Olin in 2006, Knott taught at the Wharton School at the University of Pennsylvania. At Wharton, she started teaching entrepreneurship and working on two ventures of her own.

Her first venture involved writing, self-publishing, marketing and distributing a textbook for teaching entrepreneurs how to create a business. The book Venture Design is now in its second edition.

“I like teaching entrepreneurship,” Knott says. “The class I teach is how to design a venture, and what’s fun is the students come in with their own ideas. Undergrads have ideas from their personal experience. MBAs have ideas from their work experience. It’s really bold stuff.

“I really like the fact that at Washington University, entrepreneurship courses draw from across the university,” she says. “One time I had a fashion student in my class.”

Knott’s other venture is a bit more complicated. It involves a patented bond mechanism designed to help employers identify job candidates with a propensity to sue their employer. Called a “Method and System for Reversing Induced Discrimination,” Knott admits it is controversial and complex, but she has hopes that her product and company eventually will thrive.

“I have always been impressed with Anne Marie’s focus on answering big questions rather than doing more incremental work. She is fearless in the topics she tackles and integrates approaches from different disciplines when tackling these questions. This gives her unique insights into the questions she is addressing. A great example of this is her paper on Entrepreneurial Risk and Market Entry’ that combines insights from neoclassical economics concerning uncertainty with insights from behavioral economics on overconfidence to better understand an entrepreneur’s decision to start a new venture.”
— Barton Hamilton, PhD, the Robert Brookings Smith Distinguished Professor of Entrepreneurship

Strategies to make business work better

Currently, Knott is teaching strategy of multibusiness firms. Statistics show that these companies trade at a 20 percent discount to their break-up value. Her class shows future managers how to increase that value before a company becomes a target for takeover or is forced to sell off pieces.

Courtesy photo

Anne Marie Knott (third from left) on TV game show Family Feud with host Richard Dawson and her siblings (from left) John, Robert “Deacon,” Meggan and Tricia. The family “feuded” on the show for seven days in 1985 and walked away with $22,000.

Knott’s interests in multibusiness firms and entrepreneurs have merged to inspire a new area of research.

“My current research is on pulling the plug,” Knott says. “One of the biggest problems with these multibusiness firms is when to pull the plug — or shut down an underperforming business.”

Knott is looking at how entrepreneurs approach that decision to see how it plays out in a simple venture, and then she’ll move on to study how it works in larger, more complex multibusiness firms.

“Sixty percent of new ventures fail within the first four years,” Knott says. “And if they could actually pull the plug sooner, they would lose less money while they were doing it. So I’m trying to examine when is the right time to pull the plug and what is it that keeps people from doing it.”

Knott has helped mentor many young entrepreneurs as they launch the next big thing. She’s very proud of her former Olin student Ryan Richt, who started CoFactor Genomics, a second-generation genome-sequencing firm that provides genetic experiment services to labs that lack the necessary equipment.

Another former Olin student, Charles Cohn, founder of Varsity Tutors, will be featured in a news segment on KSDK-TV this spring. Kohn insisted that Knott be included in the story because she was his most influential mentor when he started his venture.

“Anne Marie is a tremendous academic. She has a real knack for uncovering important, counterintuitive results. She is always clever in her use of data and consistently bold in the problems she tackles.”
— Todd Zenger, the Robert and Barbara Frick Professor of Business Strategy

Discovering what makes companies effective

The problems Knott began to investigate as a doctoral student surrounding R&D within firms and government agencies have remained on her research radar. Her research is entering a new phase that will move her closer to a book that will translate her findings into a kind of “self-help” guide for firms to improve their R&D output.

“The work I’m doing now I’m very excited about,” Knott says. “It’s a measure of R&D effectiveness, which I call Firm IQ.

“The whole point of the IQ measure is that, right now, firms don’t have a good measure of R&D effectiveness,” Knott says. “Even in academic studies, we use patent counts, but it turns out there are number of problems with patents.

“Only 50 percent of firms that do R&D apply for patents, so it’s not universal,” she says. “Patents have highly variable value. Five percent of patents account for 95 percent of the value of all patents, so they’re not uniform. And they are not reliable if you link them to market value. They’re not predictive.”

Knott’s goal is to identify the characteristics of firms that have effective R&D outcomes and those that don’t. Quantitative data will indicate which characteristics are significant and help firms measure if they have the right stuff to turn research and development investments into profits.

“Ultimately,” Knott says, “I’m hoping once I get all the details behind the IQ that firms can use the information like they use TQM — total quality management — so that once you know your firm’s IQ, you can actually start to improve it.”

Knott wryly acknowledges that companies eventually may accomplish what humans can only dream of: changing their intelligence quotients.

Smarter, more efficient firms will, in turn, lead to more innovation, which brings Knott back to the importance of entrepreneurial studies, research and development.

“Economic growth comes from innovation, and R&D is the biggest source of innovation,” Knott says. “So if we can get each firm to increase its IQ a little bit, that will lead to a permanent increase in economic growth.”

A cure for financial crisis? Maybe. Stay tuned. We don’t want to give away the ending to her book.

Meanwhile, Knott and her siblings are not sure how they will celebrate the 25th anniversary of their Family Feud fame. They could visit the slot machines in Las Vegas that feature the best of video clips from Family Feud history. An excerpt from their appearances plays every 30 minutes!

Or they could watch the well-worn tape that younger generations have seen innumerable times and memorized, to their parents’ delight.

Or maybe they’ll all take a ride through the new Green Forest car wash in Southern California. It’s an eco-friendly wash and amusement ride combo with mechanical elephants squirting recycled water and giant leaves slathering on suds. It’s the latest venture of Anne Marie’s entrepreneur sister — the one in the photo to the far right of Richard Dawson.

Fast facts about Anne Marie Knott

Son: Nick Pulos. Nick is finishing his third year of medical school at the University of Pennsylvania, where as an undergrad he played varsity baseball. He was drafted by the Oakland A’s but chose to stay in school. He hopes to do a residency in orthopedics.
Favorite sports: Skiing, surfing, tennis and golf. Knott recently took up golf because she figures her tennis days are numbered with son Nick. “I needed to find a game I could play with him, even when I’m really old,” she says.
Interests: Theatre, dance and architecture. “I love the ocean, and my family is in California, so I bought a place in Hermosa Beach with a tiny view of the ocean, which I try to translate into big thoughts,” she says.
On Olin: “I love my colleagues here,” she says. “Everybody here is research active. Everybody is here everyday. It’s not like that at other business schools.”