By Azra Brankovic, IESE Research Associate

Vijay Govindarajan and Chris Trimble, professors at the Tuck School of Business at Dartmouth, recently published The Other Side of Innovation: Solving the Execution Challenge, a follow-up to their 2005 book Ten Rules for Strategic Innovators: From Idea to Execution. Ten Rules was well-received, and it is a lean machine of a book on executing innovation. The Other Side of Innovation is Ten Rules with a fat suit on.

Those who read Ten Rules will not find much new in The Other Side. The terminology has changed so that CoreCo is now the Little Performance Engine and NewCo is simply “an innovation initiative.” For those wondering if they should read the earlier book or the later one, the decision comes down to style, with the first book delivering just-the-facts and the second book being more talky. The rest of this review covers the one story that is told in both books, with longer quotations taken from The Other Side unless otherwise noted.

Innovating in established businesses
The notion that the difficulty with innovation is not in coming up with creative ideas but in implementing them is practically a truism in the innovation industry. Govindarajan and Trimble home in on the problems encountered by established organizations trying to implement an innovation initiative. The fact that a new initiative can draw on the established company’s resources is its key advantage over independent start-ups, they say, but that which propels it also holds it back, as the parent company’s norms prove constrictive. They advise establishing a limited number of links between the two that are tailored to what the new initiative needs while managing tensions that arise with the established company. In Ten Rules the authors talk about the links between the new and the established business in terms of the NewCo’s needing to “forget, borrow, and learn”—it has to borrow certain things from the established business, forget other things so it can be new, and learn as it goes along. In The Other Side, they talk about the links in terms of building the team and running an experiment:

If you lead an innovation initiative, you must address the fundamental incompatibilities by thinking differently about how you organize and how you plan. You must build a team with a custom organizational model and craft a plan that is only revised through a rigorous learning process. If you do both, you’ll fare much better.

Building the team
To create a team that will run an innovation initiative, Govindarajan and Trimble suggest putting together a “Dedicated Team” devoted to the innovation initiative that works with a “Shared Staff” which takes on tasks that are aligned with the Performance Engine’s skills and work relationships. Links should be created early in new initiative’s life, they say, as too much independence early on will hinder integration later. Links should be avoided where there is high conflict between the new and the old business, such as where there is a perceived direct threat.

Govindarajan and Trimble outline three critical dimensions of work relationships that should be taken into account when crafting innovation teams, which they term Depth (meaning that deep collaboration is needed across multiple functions, versus deep relationships existing within but not across groups); Power balance (the department whose expertise is most relevant to customers of the initiative should hold the most power in the team); and Operating rhythm (anticipate that the speed and length of the production cycle may differ from that of the established business). The authors give examples of companies whose organization prevented their capturing new opportunities, and advise matching the organizational model to the Dedicated Team’s job.

The authors urge innovation leaders to buck the pressure to hire within, and instead to hire outsiders to ensure that the new initiative does not end up mimicking the established model. The Dedicated Team also needs to create its own culture; the example they give of this is hewing to a guideline of being frugal versus never sacrificing quality, which might be the established company’s guideline. The Dedicated Team should avoid annoying the established company by claiming it has a uniquely innovative culture, though.

Crafting the plan
Having assembled the team, the innovation initiative has to craft a plan for its activities which must be revised regularly through a rigorous learning process. The plan must be revised continually because a new initiative is a “strategic experiment” or a “strategic innovation.” While an established organization can rely on available information and rational methods to make decisions, managers of strategic experiments hypothesize and resolve “critical unknowns.”

A Performance Engine leader’s central focus is to execute the plan. In an innovation initiative, however, the plan is a hypothesis. Your central focus should be testing and improving the hypothesis as quickly and efficiently as possible…If your initiative is an entirely new business, your hypothesis is your strategy. Your job is not to execute the strategy, as it is in the Performance Engine, but to test and improve it.

Govindarajan and Trimble prescribe “theory-focused planning” for NewCo, where it builds a theory about what it should be doing and tests it. The process has eight steps: describe how the business works; identify metrics; establish goals; create spending guidelines; predict performance; identify critical unknowns (meaning what assumptions have been made that can make or break things); analyze disparities between predictions and outcomes; and revise the plan. They offer detail on each of these steps, suggesting for example that NewCo focus not on the accuracy of its predictions but rather the shape of the trend (showing whether things are moving in a positive direction). The comparison between predictions and outcomes is a comparison of trends, they say, so NewCo must retain historical data and look backward as well as forward in order to learn from experience; if there is a disparity between trends and outcomes, either the prediction was wrong or the management team underperformed. Govindarajan and Trimble comment that “the strong inclination to explain shortfalls as bad execution rather than bad predictions is both innovation’s most omnipresent enemy and its most dangerous one.” A rigorous planning process cannot be elided.

Hypothesis of record
Because of the unknowns inherent in innovation, Govindarajan and Trimble urge innovation teams to focus not on data, as they would in an established business where data is plentiful, but on what they don’t know, and to discuss the assumptions underlying the predictions they make. The assumptions that underlie the predictions in a plan “are often poorly communicated, poorly understood, and quickly forgotten.” Furthermore, complex, game-changing innovations contain multiple unknowns, and teams composed of specialists have distinct points of view and different assumptions. To reconcile different assumptions and create a record of them, the authors suggest the team create a shared “hypothesis of record”:

At the core of the problem, typically, is the lack of a crucial foundation for any conversation about the best interpretation of results: a clear and shared hypothesis of record…To get to a clear and shared hypothesis of record, each must articulate his or her assumptions. Then, the team must bring all perspectives together, reconcile any conflicting assumptions, and create a single hypothesis that is formally tested.

Rigor and reflexivity
Reading these books, it seems that many of the pitfalls that result in an innovation initiative petering out can be attributed to a lack of rigor in approach. For example, Govindarajan and Trimble find widespread the assumption that conversational awareness of the differences between the new initiative’s and the established company’s business models is enough, whereas they see a change in behavior as necessary. From Ten Rules:

Most of the innovation leaders we have spoken with are aware at some level that learning matters…Too many, however, leave learning to intuition. Most say the words experiment and learn casually, even with a shrug…But open-mindedness is insufficient…Even when an experiment is easy to run, it can be hard to learn from. Lessons are not just magically acquired by those who are open to receiving them.

At the same time, a focus on doing “locks a strategic experiment into its initial path—a path based on a great deal of guesswork,” whereas “only through a disciplined planning and learning process can a strategic experiment gradually iterate toward a successful business model,” they say in Ten Rules. In other words, rigorously planned strategic action combined with self-reflection and learning is the order of the day. The authors list four main impediments to learning: insufficient engagement in planning; a culture of accountability (for performance); self-interest and influence; and inappropriate planning processes or frameworks.

Innovation approach
Govindarajan and Trimble view their approach to executing innovation as disciplined and as particularly relevant to ambitious innovation initiatives. They contrast it with strategies that result in incremental or process innovation, and with approaches that consider a talented leader to be all that is needed to carry an innovation initiative past organizational barriers. (They call these models: innovation = ideas + motivation; innovation = ideas + process; innovation = ideas + leaders, respectively, while theirs is: innovation = idea + leader + team + plan.)

The innovation = ideas + motivation formula can generate thousands of small initiatives, they say, but it is limited to a few people and their spare time and can get little further than the idea stage. The innovation = ideas + process model consists of little steps that can accumulate into a meaningful result, but “larger innovation initiatives require a different approach.” While Govindarajan and Trimble’s approach has strong relevance for innovation (innovation executives can be stymied by their fear of disrupting ongoing operations, and these books offer a concrete set of steps to manage through that fear), their dismissal of what other approaches have to offer seems short-sighted.

The authors say they often hear leaders talk about their “desire to embed innovation in the very fabric of their organizations, so that innovation is happening everywhere, all of the time,” and they characterize this as a flawed notion. Innovation cannot be embedded, they say, because conflicts with ongoing operations are steep; at most the two can coexist, but not throughout a company:

There must be some purposeful separation of the two and then careful management of the interactions between them. Our fundamental prescription is that each innovation initiative needs a special kind of team and a special kind of plan.

The authors’ argument that only their approach, featuring specialized teams and specialized plans, can amount to a “large innovation initiative” is not convincing. They dismiss the “bubbling up” of ideas across the company approach, but in the Harvard Business Review article they co-wrote with General Electric’s CEO Jeff Immelt last year, “How GE Disrupts Itself,” they give an example of an innovation without an application that GE developed in one part of the world for which a need was recognized in a different part of the world. That case shows that isolated ideas can be connected by innovation leaders to uses and markets and can amount to significant innovation, countering the authors’ claim that “the sum of hundreds of individual aspirations is unlikely to aggregate to anything coherent.” GE is also a company whose previous CEO held that innovation should be in the “blood of every employee” and is a “bubbling up of thousands and thousands of people,” and it is curious that Govindarajan, after spending the last couple of years as chief innovation consultant at GE, shows little appreciation for the possibilities in that approach.

Ten Rules and The Other Side are both excellent books that offer a clear guide for what can be a rocky process of innovating in established businesses. Govindarajan and Trimble say that the principles outlined in their approach are also valid for other types of innovation. This is true to the extent that you cannot go wrong in reading these books, although they hardly scratch the surface of topics such as employee or executive motivation to persevere through the process, say. Our biggest quibble is that The Other Side is a repeat of Ten Rules, and as such it wastes the time of those who have read the first book and take up the second one hoping to learn something new.

October 2010. All rights reserved.