Vijay Govindarajan is a Top 50 Management Thinker and Professor, Dartmouth’s Tuck School of Business
Ongoing operations are at odds with innovation.
Strategy is not about celebrating the past but leadership in the future. And the world keeps changing in the future. So if you want to be a leader in the future, you need to adapt to change. Which is innovation. So strategy is innovation.
Manage the present, selectively abandon the past, create the future. Most organizations over focus on box 1, and think they are doing strategy.
Competition for the present is about efficiency; competition for the future is about innovation. Both are important. So how do you create the future while maintaining the present?
Innovation is more than ideas. People mistake innovation as creativity. Innovation is commercializing creativity. Creativity is the idea; innovation is commercializing the idea. Innovation takes massive work. The idea is only 1% of the process. The bulk of the challenge lays in the execution.
innovation = idea + leader + team + plan
“Effective innovative leaders are subversives fighting the system. “ “Making innovation happen is not just the job of the leader. It’s not just about breaking all the rules. You have to work with the bureaucracy. The role of the leader is not to subvert but to harness the core capabilities of the core business.”
Innovation killers: 1. Assume that innovation can happen inside the performance engine. The performance engine is built for one purpose: to promote efficiency. But innovation is the opposite of efficiency. It is about flexibility. 2. Not constitute the team and the plan correctly.
You need to separate out the team and have them devoted to innovation outside the framework of regular operations. Innovation is a non-linear shift. It’s not just an improvement on the existing model; it’s a creation of a new model altogether.
NY Times digital should not be thought of as a newspaper on a digital platform. You have to create a distinct team. This means you can have different processes, metrics, culture, people. Almost assume you are a Silicon Valley startup. But must be linked to the performance engine, because it has assets that can be leveraged (100 years of digital archives, etc.—a SV startup cannot even imagine having that). The dedicated team is the new logic; the performance engine is the dominant logic. When they interact, there is difficulty!
You have to protect the performance engine and plant seeds. If you want a tree five years from now, you have to start today—not in five years.
Conflicts are not bad in organizations. Conflicts are healthy, provided you know how to manage them.
“Innovation is unmanageable chaos.” Innovation is non-routine. Ongoing operations are predictable; innovations are unpredictable. So you have to go about planning differently.
Zero-based planning. In ongoing operations, you are responding to clear signals. In Box 3, the future (innovation), you are responding to weak signals and non-linear shifts, because box 3 is about the future, and the future is less clear. Weak signals: don’t know size of the market, what the customer wants, etc. So the job in box three is to learn to resolve unknowns. In box 1 you can plan, because you have strong signals. In box 3, it’s very hard to plan because you have weak signals. So it’s about testing assumptions. Spend a little, learn a lot. Low cost experimentation.
How do you track and judge whether an innovation is working and you should keep investing in it? A performance engine you can evaluate on the basis of present results. It’s a known system. Box 3 is an experiment. You can’t evaluate it on the basis of short-term financial results, for it’s a bet about the future. So how do you evaluate? On the basis of the ability to learn. Can you set up your hypothesis or assumptions? Can you set up low cost experiments to test those hypotheses? The way you evaluate the performance of a leader here is their ability to conduct low-cost experiments and continuously learn.