June 15, 2006

Staff Picks: 10 Rules for Strategic Innovators reviewed by Arun Sadhashivan

By: 800-CEO-READ @ 7:09 PM – Filed under: Management & Workplace Culture

Review of Ten Rules for Strategic Innovators

by Vijay Govindarajan and Chris Trimble, Harvard Business School Press, December 2005

I loved this book. Its written for entrepreneurs, and mirrors what folks like me who do this every day either in our own businesses or at our clients organizations. Id recommend it wholeheartedly to everyone struggling to fit strategy, innovation and execution together in their organizations.
The book focuses on the nuts and bolts of building a new business unit; one that focuses on serving new customers with new products something they call strategic innovation The 4th Quadrant of the famous Ansoff Matrix. Failing at such a program sets the whole company up for failure, since the new business unit needs tremendous amount of resources.
Success will be possible only when one balances the needs of the core business (CoreCo) with the needs of the new business (NewCo). One also needs to balance the conflicts between the two units. In particular, Vijay and Chris tell us that NewCo needs to
  1. Forget the assumptions, mindsets and biases that made CoreCo so successful. They are deadly for NewCo.

  2. Borrow resources from CoreCo which give NewCo the crucial edge over competitors to succeed

  3. Learn by planning frequently, experimenting, evaluating outcomes with plans and adjusting the plan accordingly.

The 10 Rules

These are things to keep in mind if NewCo were to tackle the Forgetting Borrowing and Learning challenges.
Rule 1: Finding a good leader for the new business isnt enough. NewCo needs to solve its three challenges and build its own Organizational DNA
Rule 2: Hire people from outside CoreCo to fill key positions in NewCo. Possibly even the head of NewCo should be an outsider, preferably from the markets that NewCo hopes to target.
Rule 3: NewCo needs to borrow from CoreCo to leverage the enormous capabilities and assets of the organization. This gives it unbeatable advantages over small startups.
Rule 4: There are the great unknowns. You cannot predict the future easily in NewCo. But you can build your ability to predict by conducting little experiments, learning from them and acting accordingly.
Rule 5: Redesign the NewCo organization. Make fresh choices on issues of structure, staff, systems and culture. Here is where the external hires are useful. If you need to use CoreCos processes, link to but dont borrow these. Design your own processes.
Rule 6: Manage the tensions between the two organizations personal fiefdoms, egos, self-interest, capital allocation and other sources of tension need to be identified and managed. Let both units report to one senior manager who is well respected by all. (easier said than done)
Rule 7: Use bottom up planning and create a new planning process for NewCo. Dont schedule the planning process of CoreCo at the same time as NewCo. The needs, methods and goals of both are different.
Rule 8: Remove bottlenecks to learning. Interest, influence, internal competition and politics strongly influence learning. Take everything with a pinch of salt..
Rule 9: Hold NewCo accountable for learning and not results. Dont judge individual performance using planned outcomes as a benchmark. Instead drive everyone to learn and share what he or she has learnt. Review plans very frequently since the plans will be crap anyway (at the beginning).
Rule 10: Build this capacity for breakthrough growth early on in the organizations life. Itll make your organization more flexible, and be able to handle such massive challenges easier, since the organization would have gone through a few of these in the past.
Theory Focused Planning
Reading this reminds me of planning processes in companies that Ive worked at. Its quick, and is guided by the principle: You can only plan what you know best about. So if youre a Marcom professional, youd be the best person to know what the investments and the trend/timing of investments need to be in Marcom if management wanted 10 times sales for e.g. But you could only come up with a guess, no matter how good you are. So you need to keep on experimenting, revising the plan, and watching how the trend moves until you get it right.
It incorporates cause and effect descriptions of the business, bottom up planning for every functional area, budgeting per area to achieve the strategic goal, rapid experimentation and good old-fashioned common sense.
You really need to read this section. Implementing it according to the authors can be done in a day!
Once youve succeeded at creating a new DNA for NewCo, how do you get NewCo and CoreCo to co-exist in one organization? But thats the subject for another book by Vijay Govindarajan and Chris Trimble
The title doesnt do justice to the book. There is a hell of a lot more information in this book than the 10 rules. Heres a shot at a better title:
Be a Master of the Universe transform Innovative Ideas to Industry Shapers
In the VC world, a Master of the Universe is an all-encompassing company, like Google, Ebay and Yahoo.
The insights in this book can be used also by small businesses. The bit missing in small business is the ability to borrow from another unit in the company. There usually isnt another unit. Id suggest that small businesses go and look for partners who can provide those resources. These dont necessarily need to be huge companies. The rest can be followed as it is!
Now go and buy this book. What are you waiting for?
Reviewed by Arun Sadhashivan