10 Rules for Strategic 10 Rules for Strategic Innovators:Innovators:

From Idea to ExecutionFrom Idea to Execution

Source:Source:Vijay Govindarajan & Vijay Govindarajan & Chris TrimbleChris Trimble

Tuck School/DartmouthTuck School/Dartmouth

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5 Years5 Years’’ Research Research• UnileverUnilever• HasbroHasbro• New York TimesNew York Times• Analog DevicesAnalog Devices• CorningCorning• CiscoCisco• KodakKodak• J&JJ&J• Nucor ++Nucor ++

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Value Creation:Value Creation:What a Business Aims to AchieveWhat a Business Aims to Achieve

Com

mitt

edM

anag

emen

t

CommittedEmployees

DeliverGreaterPerceivedValue

DelightedCustomers

IncreaseMkt Share

RevenueGrowth

DelightedShareholders

ContinuallyRefineProcesses

ReducedWaste

GreaterProductivity

LowerCosts

Improved:•Margins•Asset Utilzn•Comp. posn

inno

vatio

n

4

5

6

CoreCo NewCo

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Toys & Gaming - Software

Semiconductors - MEMS

6 Innovations

CoreCo<<< >>>NewCo

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CoreCo vs NewcoCoreCo vs NewcoADIADI MEMSMEMS

CustomerCustomer FamiliarFamiliar UnfamiliarUnfamiliarValueValue Features/ Features/

VarietyVarietyQuality/ Quality/ DeliveryDelivery

MarketMarket HorizontalHorizontal Vertical -AutoVertical -AutoCost Cost StructureStructure

Many Many Designs/ less Designs/ less volumesvolumes

Few designs/ Few designs/ Hi volumesHi volumes

CostsCosts PredictablePredictable UnpredictablUnpredictablee

SystemsSystems RigidRigid FlexibleFlexible

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Revenue & Op Profits for the Revenue & Op Profits for the MEMS VentureMEMS Venture

MEMS

-800

-600

-400

-200

0

200

400

600

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Year

$ m

n Revenue

Op. Profit

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Strategic experiments are crucial to long-termgrowth – but exactly what does it take to get promising ideas out of the incubator and upas sustainable new business?

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Forget

LearnBorrow

Basic skills for Strategic Innovation

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MEMS faced moderately difficult MEMS faced moderately difficult challenge on all three dimensions challenge on all three dimensions

LearningHi

ForgettingBorrowing

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3 Challenges3 Challenges• Forget:Forget: old business models & skills old business models & skills

• BorrowBorrow: only those assets ( brands, sales : only those assets ( brands, sales relationships, manufacturing capacity) relationships, manufacturing capacity) that provide a distinctive competitive that provide a distinctive competitive advantageadvantage

• LearnLearn quickly. Resolve your venture quickly. Resolve your venture’’s s unknowns to zero in on winning business unknowns to zero in on winning business model.model.

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ForgetForget• WhoWho’’s our s our

customer?customer?

• What value do we What value do we offer?offer?

• How do we How do we deliver that value?deliver that value?

• Institutional memoryInstitutional memory can prevent new can prevent new business leaders from business leaders from forgetting old forgetting old answers.answers.

• StrategyStrategy: Restructure : Restructure the nascent the nascent organizationorganization

• ExampleExample: Corning : Corning MicroArray MicroArray TechnologiesTechnologies

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Muscle MemoryMuscle Memory

Badminton Tennis

Institutional memory

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BorrowBorrow• Borrow only Borrow only

those assets that those assets that offer a distinctive offer a distinctive competitive competitive advantageadvantage

After borrowing, After borrowing, manage tensions manage tensions between old and between old and new businessesnew businesses

ExampleExample

New York TimesNew York TimesNYTD borrowed NYTD borrowed

branded content branded content and advertiser and advertiser basebase

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LearnLearn• Predicted Predicted

performance vs performance vs Actual Actual performanceperformance

• Develop winning Develop winning business model business model or exit a or exit a hopeless hopeless situationsituation

To accelerate To accelerate learning:learning:

• Create & review Create & review simple business simple business plans at frequent plans at frequent intervalsintervals

• DonDon’’t judge t judge performance against performance against standards. Evaluate standards. Evaluate ability to learn and ability to learn and make good decisionsmake good decisions

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Is NewCo Learning?Is NewCo Learning?

Prediction InformedEstimates

WildGuesses

ReliableForecasts

TimeReliable forecasts are the best indicators that a new business is learning

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Strategic InnovationStrategic InnovationLeading a Strategic Leading a Strategic

Innovation may be a Innovation may be a general managergeneral manager’’s s triple fliptriple flip with a with a quadruple twistquadruple twist, , but it is well within but it is well within reach if you design reach if you design NewCo so that it NewCo so that it can forget, borrow can forget, borrow and learn.and learn.

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The 10 Rules:The 10 Rules: to translate to translate breakthrough ideas into breakthrough ideas into breakthrough growth!breakthrough growth!

• Rules 1 & 10: General rulesRules 1 & 10: General rules• Rules 2,3 & 4: the Rules 2,3 & 4: the ““Whys Whys ““ of of

Forgetting, Borrowing, LearningForgetting, Borrowing, Learning• Rules 5,6,7,8,9: the Rules 5,6,7,8,9: the ““HowsHows””

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Rule 1Rule 1• In all great innovation stories the great In all great innovation stories the great

idea is only chapter 1idea is only chapter 1• Building breakthrough businesses Building breakthrough businesses

requires requires forgetting, borrowing and forgetting, borrowing and learninglearning

• These central challenges demand more These central challenges demand more than just talented and ambitious than just talented and ambitious leaders, they require leveraging the leaders, they require leveraging the power of the power of the organizational DNA.organizational DNA.

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Rule 2Rule 2• Sources of Sources of organizational memoryorganizational memory

are powerfulare powerful• Organizations naturally cling to Organizations naturally cling to

CoreCoCoreCo’’s s orthodoxyorthodoxy, even when , even when moving into new environmentsmoving into new environments

• But NewCo needs to operate in But NewCo needs to operate in fundamentally different ways.fundamentally different ways.

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Rule 3Rule 3• Large established companies can Large established companies can

beat start-ups if they can succeed in beat start-ups if they can succeed in leveragingleveraging their enormous their enormous assetsassets and capabilities.and capabilities.

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Rule 4Rule 4• Strategic experimentsStrategic experiments face critical face critical

unknownsunknowns• No amount of research can resolve No amount of research can resolve

these unknowns before the business these unknowns before the business is launched. Therefore success is launched. Therefore success depends more on an ability to depends more on an ability to experiment and experiment and learnlearn than on initial than on initial strategy.strategy.

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Rule 5Rule 5• The NewCo organization must be built The NewCo organization must be built

from scratchfrom scratch, with new choices in staffing, , with new choices in staffing, structure, systems and culturestructure, systems and culture

• This is the only way to defeat the powerful This is the only way to defeat the powerful forces of forces of institutional memoryinstitutional memory

• Conversational awareness of the Conversational awareness of the differences between NewCo and CoreCo differences between NewCo and CoreCo business modelsbusiness models does not suffice. does not suffice.

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Rule 6Rule 6• Managing tensionsManaging tensions is job # 1 for sr. is job # 1 for sr.

mgmtmgmt• The health of the The health of the linkslinks between between

NewCo & CoreCo deteriorate easilyNewCo & CoreCo deteriorate easily• There are several natural sources of There are several natural sources of

tensions driven by dynamic forces – tensions driven by dynamic forces – particularly the particularly the changing demand for changing demand for and supply of capitaland supply of capital within the within the organization.organization.

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Rule 7Rule 7• NewCo needs its own NewCo needs its own planning planning

processprocess• CoreCoCoreCo’’s norms for evaluating s norms for evaluating

business performance will disrupt business performance will disrupt NewCoNewCo’’s s learning.learning.

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Rule 8Rule 8• Interest, influence, internal Interest, influence, internal

competition and politics competition and politics disrupt disrupt learninglearning

• To ensure learning, you must take a To ensure learning, you must take a disciplined, detached and analytical disciplined, detached and analytical approach to making predictions and approach to making predictions and interpreting interpreting differences between differences between predictions and outcomes.predictions and outcomes.

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Rule 9Rule 9• Hold NewCo accountable for Hold NewCo accountable for

learning not resultslearning not results• You can achieve accountability for You can achieve accountability for

learning by insisting on a disciplined learning by insisting on a disciplined learning processlearning process

• Accountability for results against Accountability for results against plan, while simpler to practice, is plan, while simpler to practice, is counterproductive.counterproductive.

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Rule 10Rule 10• Companies can build a capacity for Companies can build a capacity for

breakthrough growthbreakthrough growth through through strategic innovationstrategic innovation

• SkillsSkills in forgetting, borrowing & in forgetting, borrowing & learning are the foundationlearning are the foundation

• Managers must start building these Managers must start building these organizational skills early in a organizational skills early in a companycompany’’s life.s life.

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Related ArticlesRelated Articles• Meeting the Meeting the

Challenge of Challenge of Disruptive Change: Disruptive Change: Clayton M Clayton M Christensen & Christensen & Michael OverdorfMichael Overdorf

• The Ambidextrous The Ambidextrous Organization: Organization: Charles A OCharles A O’’Reilly III Reilly III & Michael L & Michael L TushmanTushman

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How to ForgetHow to Forget1.1. DonDon’’t be insulart be insular2.2. DonDon’’t assign status based on sizet assign status based on size3.3. Rearrange the moving partsRearrange the moving parts4.4. Build a new dashboardBuild a new dashboard5.5. Dare to make complex judgementDare to make complex judgement6.6. Promote new thinking about Promote new thinking about

successsuccess

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How to BorrowHow to Borrow1.1. Balance the yin of forgetting with Balance the yin of forgetting with

the yang of borrowingthe yang of borrowing2.2. Find common groundFind common ground3.3. Be careful what you ask forBe careful what you ask for4.4. Co-opt CoreCoCo-opt CoreCo5.5. Be alert to tremorsBe alert to tremors6.6. Force authority uphillForce authority uphill

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How to LearnHow to Learn1.1. DonDon’’t try to mix oil and watert try to mix oil and water2.2. Protect predictionsProtect predictions3.3. Avoid being defensiveAvoid being defensive4.4. Do less, fasterDo less, faster