Innovation: the execution challenge
As he publishes his latest book, The Other Side of Innovation, Ann O’Dea caught up with leading academic Vijay Govindarajan on a recent trip to London to discuss his thoughts on managing innovation.
After the success of the much-vaunted 10 Rules for Strategic Innovators, Vijay Govindarajan has teamed up with his Tuck School collaborator Chris Trimble again on a new book that deals with executing innovation within an organisation – The Other Side of Innovation – Solving the Execution Challenge.
When we meet in London he has just completed a two-year stint as chief innovation consultant with General Electric (GE), where he worked closely with the iconic Jeff Immelt.
He tells me it was a great experience to be out in the ‘real world’ of business, but that he is happy to be back in the halls of Tuck School of Business. “I am at heart an academic, a professor,” he says.
With so much talk of innovation, and so many different interpretations, I begin by asking Govindarajan if he and Trimble attempted to define innovation for the purpose of the new book. “Innovation is all about adapting to change. So you think of a company like The New York Times, which, for 150 years, was printing a newspaper, and then came the internet. This is a technological change that forces the organisation to reinvent itself. So, any time an organisation adapts to change is when they need to innovate – that’s the way we define innovation.”
In their preface, the authors cite Ray Stata, co-founder and chairman of Analog Devices, who said some 10 years ago: “The limits to innovation in large organisations have nothing to do with creativity and nothing to do with technology. They have everything to do with management capability.”
Having read the book, I suggest to Govindarajan that this is at the heart of what he and Trimble are trying to tackle here. “It is the very crux of the book, because we say the problem in cracking the code for innovation is not technology, it’s not financial, it’s organisational – the reason being that innovation has two sides: one side of innovation is coming up with an idea, the other side of innovation is execution. And the execution side of innovation is the biggest black box for companies. It is all about getting the organisation right, and we find that is the biggest barrier to innovation.”
The old idea of ‘innovation equals ideas’ is quite simply flawed, says Govindarajan. “People tend to equate innovation with creativity,” he says. “Innovation is not creativity. Innovation is commercialising creativity. Thomas Edison said it well over a hundred years ago: ‘Innovation is 1pc inspiration and 99pc perspiration.’ And he ought to have known because he is the greatest innovator of all time.”
The performance engine
The challenge lies in the fact that most organisations are not designed for innovation, he argues. “Let’s go back to the example of The New York Times. For 150 years it printed and distributed newspapers. That is its core business – which we call the ‘performance engine’. That is the foundation of the company, and it is designed for efficiency, because the whole idea here is to make money and, when you want to make money, every activity, everything you do, must be repeatable and predictable. If you can do that, then you can scale it.
“Innovation is just the opposite. It is about non-routine and unpredictable things. So we say in the book that organisations are built for efficiency, not for innovation. And, interestingly, that’s not a mistake. They should be built for efficiency, that’s how you make money, but that creates this conflict between the performance engine and innovation.”
And just how does an organisation or innovation leader manage that conflict, I ask. “That is the crux of the execution challenge – to succeed in innovation while sustaining excellence in your performance engine. It means sort of doing two contradictory things, and we say if you want to do that well there are three principles. These principles are easy to say but it doesn’t mean they are easy to do.
“Principle No 1: you have to create a dedicated innovation team which is separate from the performance engine.
“Principle No 2: The dedicated team, while separate, cannot be isolated. The only reason The New York Times newspaper is doing an innovation experiment on the web is because it can bring some assets, some capabilities, from the performance engine to the benefit of this dedicated team. There has to be a partnership.
“Principle No 3: Innovation is by definition an experiment. An experiment by definition has unknown outcomes, therefore you can’t judge the performance of the person who’s leading the innovation on short-term financial results. Judge them on learning, not results. If you judge them on results you’re not going to get results. If you judge them on learning then they will learn to make better decisions and that will ultimately get you better results.”
Innovating with discipline
Not that Govindarajan is suggesting that innovation initiatives should not be measured or evaluated. “Innovation doesn’t mean chaos, innovation doesn’t mean you’ve got a blank cheque. You have to be held accountable and the accountability has to be very strict, not on results but on learning. Because innovation is an experiment, we need to evaluate [the innovation team] on whether it is able to do successful, disciplined experiments. And because they are experiments, you need to keep the cost low, so you must also evaluate the team on its ability to do low-cost experiments. While spending very little money you are turning assumptions into knowledge, therefore you evaluate the team on how well it is able to understand the uncertainties involved in an innovation initiative. You can do all of this in a disciplined way.”
Indeed, in The Other Side of Innovation, Govindarajan and Trimble are quick to debunk the myth that innovation leaders are by their nature rule-breakers. “Some think that, because innovation is so different from the performance engine, you can tell the innovation leader to ‘go break all the rules’ in order to get the innovation done,” says Govindarajan. “We think that is a dangerous way to go, because when you utter the words ‘break all the rules’ it implies one of two things: you destroy the performance engine, or you have no rules. We say both are flawed assumptions.
“First of all, the innovation is a partnership between the dedicated team and the performance team, so don’t destroy the performance engine. In fact, you need to sustain excellence in the performance engine while doing the innovation.
“Innovation doesn’t mean there are no rules. Innovation means you have different rules but still you have rules – you have discipline, you have accountability, you have systems and processes. Saying ‘break all the rules’ could be a ticket to disaster.
“Part of what we’re arguing in this book is that day-to-day execution is different from innovation execution, but that doesn’t mean innovation execution is undisciplined. Somehow companies need to master the principles of the day-to-day execution they are good at, and what the principles of innovation execution are, and figure out how they can really make both disciplines exist inside the same organisation.”
One thing at a time
Today we regularly hear leaders talking about embedding innovation at the heart of everything in the organisation, but here again Govindarajan cautions that leaders should focus on one innovation initiative at a time.
“That is another myth. People say innovation should be everyone’s responsibility; that innovation should be embedded in the DNA of the organisation. The organisation as a whole can have both innovation and efficiency, but that doesn’t mean everybody should be doing both. There are lots of people who will be just working on the performance engine, and they’re very valuable people. We need to recognise that performance is the foundation on which the future innovation can be built.”
Reverse innovation
When we meet in September, Govindarajan has already moved onto the next project, with several further books in the pipeline. The next, he says, will be based on his extensive work on reverse innovation, much of which was carried out during his time at GE (see Irish Director, Winter 2009). It is a subject about which he is passionate.
“Reverse innovation goes to the heart of how multinationals innovated in the past. Take a company such as GE. Historically, IT innovated in the US and sold those products in poorer countries such as India or China. Reverse innovation is doing exactly the opposite. It is innovating into poor countries and bringing those innovations to the rich countries.
“The really leading-edge view is to think of so-called poor countries as a source of innovation. The reason why GE should be in Africa is Africa will push it to the frontiers of innovation. This is counter-intuitive thinking, because it is perfectly logical to see why a poor man will want a rich man’s product. It is not that logical to see why a rich man would want a poor man’s product.”
He illustrates the principle with an example at GE Healthcare. “In the US they sold large bulky ultrasound machines for as high as US$350,000. In China, 90pc of the population could not afford that kind of machine, and the bulk of the Chinese population are living in rural areas with no hospitals, so they needed the hospital to come to them. So GE created an ultrasound machine that was portable at a low price point of just US$15,000.
That’s the kind of dramatic innovation you have to do if you want to unlock these markets.
“But, guess what? That US$15,000 ultrasound machine is transforming the US market for GE because it has created new applications in rich countries. For instance, if there was an accident on a highway, you can’t put the big US$350,000 ultrasound machine into an ambulance, whereas you can put a little portable laptop machine in there. So, suddenly, it has opened up new applications because the machines are small and portable and low cost. It has really transformed GE in the US. That’s what reverse innovation is – it is not just about helping India or China, it is really about how India and China can help you.
“This is something that many multinationals are likely to do, because the growth in developed countries is slowing down, and growth is taking off in these so-called emerging economies.
“If you step back and think about it: historically, multinationals catered to rich customers. However, in this world of six billion population, just a billion are rich. So, multinationals took care of them, and the remaining five billion were left to charity, NGOs and government to take care of. That’s an outmoded concept.
“Bringing the five billion into the consumer base is going to be the opportunity in the next five decades. In fact, if I were to define one of the biggest business opportunity for multinationals in the next 50 years it’s going to be reverse innovation.”
The Other Side of Innovation by Vijay Govindarajan and Chris Trimble is out now. Published by Harvard Business Review Press.
This article first appeared in the Autumn 2010 issue of Irish Director magazine.