In the domains
of strategy and innovation, the book titled “Ten Rules for Strategic
Innovators” authored by Vijay Govindarajan and Chris Trimble, Professors at the
Tuck School of Business, (Harvard Business School Press, 2005) provided an
interesting thesis, ten years ago. The book was inspired by the authors’ belief
(shared still by the author of this blog post) that innovation is at the core
of economic vitality as it drives growth, creates jobs, builds wealth, provides
purpose to employees and revitalizes organizations. The authors, in their work,
held that innovation would enable companies to simultaneously enhance society
and increase profits in two ways of improving productivity and commercializing
new products and services. According to the authors, knowledge of the genetic
code served as knowledge of the fundamental rules that guide human behaviour.
Genetic code is, as then and to date, researched to cure illnesses more
effectively, seek immunity from disease proactively and hopefully resist or
reverse the ageing process itself. Ten years after the postulate in the book,
human genetic understanding continues to hold promise with sporadic discoveries
on the above lines.
Vijay and Chris
proposed strategic innovation as the organizational code for exploring a set of
experimental strategies that could help corporations reduce dysfunctions,
sustain growth, and lengthen the average corporate life span beyond that of a
human being. The authors held that strategic innovation differed from
continuous process improvement, process revolutions and product or service
innovations in that, unlike others, strategic innovation would involve unproven
business models. Strategic innovation would be successful with or without the
three other types of innovation, they held. They also cautioned that strategic
innovation offered major challenges to entrepreneurs and professional CEOs, in
terms of one-time career challenges in starting and growing a new company as part
of, or distinct from, the core established company. The authors proposed ten
rules for success of strategic innovation, therefore. Ten years after the
postulates in the book, a wave of start-ups with disruptive business models and
technologies validate the need for strategic innovation but also challenge us
with a leadership paradigm that goes beyond any classic rules of innovation.
The ten rules
Vijay and Chris
considered the case of innovation being driven by a new company (NewCo) set up
by a big parent company and argued that the middle phase that would exist
between ideation and execution required the typical NewCo to forget or unlearn
some past practices, borrow the good practices and learn new relevant
processes. The organizational DNA
comprising staff, structure, systems and culture was proposed as the compelling
inner logic. All the rules, the authors stated, reflect learnings from various
case studies of strategically innovative (but also challenged) companies that
form the core chapters of the book. They proposed that understanding the
relative roles of creativity (typically required at the beginning) and
execution (typically required at the end), and the need for identifying the
process of strategic innovation through the middle of converting ideas into
actions. The base assumption of
parent-child relationship in fostering innovation limits the canvas of
strategic innovation, however.
The authors, in
their last chapter, distilled and emphasized ten rules (that are summarized
herein), rule 1 and rule 10 being general rules. These rules are prescriptive
as well as cautionary. Rule 1 states that in all great
innovation stories, the great idea is only Chapter 1. Rule 2 is that sources of organizational memory are powerful. Rule 3 is that large, established
companies can beat start-ups if they can succeed in leveraging their enormous
assets and capabilities. Rule 4
states that strategic experiments face critical unknowns. Rule 5 is that the NewCo organization must be built from scratch. Rule 6 is that managing tensions is job
one for senior management. Rule 7
states that NewCo needs its own planning process. Rule 8 cautions that interest, influence, internal competition, and
politics disrupt learning. Rule 9
suggests to hold NewCo accountable for learning and not results. Rule 10 is that companies can build a
capacity for breakthrough growth through strategic innovation.
Ten years later…
As observed in
the beginning, the book by Vijay and Chris was published in 2005. Today, in
2015, we witness a completely new dimension of innovation. Facebook founded in
2004, Twitter founded in 2006, WhatsApp founded in 2007 and Uber founded in
2009 as well as iPhone launched in 2007, which together represent a completely
new dimension of start-up innovation bring into question some of the rules
detailed in the book. Ten years later, there is now a clear recognition that strategic
innovation, deploying disruptive technologies and disruptive processes, has
already rewritten the rules of innovation. These start-ups which grew in less
than a decade into mega phenomena (including the earlier ones such as Google
and Amazon) came into being with no parentage or legacy and no prior brands or
resources to leverage. They had nothing to forget and nothing to borrow from
any established entity and everything to learn and everything to execute from
their own inspiration. And, some of them have been dazzling successes.
Recognizing
what a fresh mind and innovative thought can achieve, the start-up ecosystem
has been attracting some of the largest investments ever. The start-up wave has
clearly been raising in India, long seen as a country of professional
preferences for the tried and tested as well as safe and secure options. While
there are certain bubbled up expectations, there is no doubt that not only individual
firms but also whole segments of industries (be it the Internet or Biologics)
are being built on, and around, start-ups. The sentiment even among the large
corporations seems to be to neither compete nor mimic start-up characteristics
in their established ecosystems but instead let start-ups come up their own way
and acquire them at an opportune time. We have two challenges now, relative to
the base case with which Vijay and Chris started a decade ago. The first is
that start-up firms need rules that help them make them successful. Secondly,
both the large and start-up firms need helpful rules of engagement in the event
of acquisition or merger.
The new ten rules
Ten years
later, the rules of strategic innovation, according to the author of this blog
post, need to be completely different. These are as follows:
Rule 1:
Innovation does not necessarily come from new discovery; it would emerge from
digital development of physical and biological processes. From email which
digitized physical mail to Uber which digitized taxi hiring, digital face of innovation
is evident.
Rule 2: One
has to only look around, but extremely perceptively, for the multiple
opportunities that exist for strategic innovation. Every physical or biological
activity will one day or the other ‘virtually’ mapped to a digital activity.
Keeping a health track of biological parameters is just the beginning.
Rule 3:
The route to innovation in the digital age is not necessarily perfection; once
the core clicks, the rest easily falls into place. Twitter moving from mere
text tweets to hashtags and vine is an example.
Rule 4: In
the new age, collateral earning capability of a strategically innovative platform
is as important as the fulfillment of core business need. Each product or
service tends to be a purveyor of social networking. On-line newspapers are an
example.
Rule 5:
Strategic innovation may have several chapters but passion is the binding
thread of all the chapters; from idea to delivery, through several chapters of
execution. When passion starts ebbing, practicality, including sell-off, begins
as can be seen from the increasing trend of early sell-out of start-up stakes.
Rule 6: Strategic
innovation may be aided by establishment of R&D Centres and creation of Innovation
Offices but it is nurtured only with an organization-wide culture of
innovation. The inner DNA of an innovative organization condones failure as
much as it seeks success.
Rule 7:
Unlike established organizations where management’s primary responsibility is
to resolve intra-organizational tensions, the primary responsibility of
managements of experimentally innovative businesses is to resolve the tensions
between themselves and their investors. The issues faced by certain start-ups
are reflective of this.
Rule 8: Frontend
digital innovation can come about only when there is someone to back it up with
innovation in both back-office and shop floor. Without huge fulfillment centres
and competitive products, for example, it is impossible to snap billions of
deals!
Rule 9: Innovative
organizations must be established and run almost as academic laboratories where
the talent has no obsession other than bringing the products and services
through successful pilots, betas and eventual commercialization.
Rule 10: Whether
it is portfolio investors or established companies, the firms betting on
strategic innovation should aim at more than one initiative of strategic
innovation, for in respect of some, others could be ahead of them, and in
respect of others, their own initiatives could be ahead of time.
The rules reflect
the reality that while digital is the new dimension of strategic innovation,
digital alone cannot provide the complete solution. Classic corporate stuff,
from physical brick and mortar to human aspirations and ambitions would be an
integral part of strategically innovative firms.
Innovate to live or morph?
Logically,
leadership of strategic innovation requires a talent landscape that covers more
than conversion of innovative ideas to commercial fruition; it requires
leadership that not only dwells deeper into the core of product or service
innovation but also connects the dots of innovation across the business value
chain. It is a high intensity leadership that finds not only inspired internal
owners in the organization but also like-minded external sponsors amongst investors,
vendors, buyers, bankers, regulators and so on. The greater the intensity of
competition in the innovation space, the greater would be the need for a
leadership bench that is actually deeper and broader than that exists solely in
either the classic, established and brick and mortar businesses or the neo,
emerging and digitally driven businesses.
It was noted in
the beginning of the blog post that Vijay and Chris wrote their book in 2005
hoping to institutionalize a rule set of strategic innovation that helps firms
reduce dysfunctions, sustain growth, and lengthen the average corporate life
span beyond that of a human being. The reality, just ten years later, is that
highly innovative companies are a complex set of universe; some have such
compelling power of universal innovation that they have become the new mega
corporations with new rules of perpetuity while several others are not
necessarily looking for life beyond the next decade, let alone beyond the
average human life span. It is, however, becoming increasingly clear that
established firms as well as the new mega corporations need smaller but
sparkling innovative firms and entities in increasing measure to stay relevant
in the digital age.
Given the amazing pace of innovation and the frenetic
entrepreneurial zeal, it is not surprising that the book by Vijay and Chris
finds itself overwhelmed in just a decade of its writing. It is certainly clear
that any book on strategic innovation would need to be rewritten every two
years!
Posted by Dr CB
Rao on October 24, 2015
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