The Dartmouth strategist on innovation and leadership shares his thoughts on the future of business.
It’s said that the problem with the future is that it comes too fast and in the wrong order. We can’t predict it. We can’t manage it. What we can do – and must do – is place smart bets on where we believe it is taking us, and build an organization that can adapt to constant change along the way. To help us break out of the assumptions and perceptions that can hold back any large, successful organization, it helps to look outside for experts that can stretch and challenge our thinking.
In this post, we talk with Dartmouth professor Vijay Govindarajan, author of the best-selling book Reverse Innovation, consultant to dozens of Fortune 500 companies, and one of the world’s leading thinkers on strategy and innovation. Professor Govindarajan visited UPS as part of our Leadership Speaker Series, where he talked about innovation, the future and the art of high jumping.
First question, why do you argue that strategy and innovation are indivisible?
If you’re not focused on innovation at a company like UPS, you’re not focused on strategy. You’re doing something else. The connections are clear. Strategy equals leadership in the future. Leadership in the future equals adapting to change. Adapting to change equals innovation.
It’s interesting. When I debate that point, people like to find examples to disprove it.. And they sometimes cite my business, academics. But look at the top ten universities in the world 100 years ago. Six of them were in Germany. None were American. Today, there is Harvard, MIT and Stanford. But none are in Germany. Without innovation, it’s doubtful the list would have changed.
And the innovation continues. Harvard, MIT and Stanford have all put their courses on-line. And at MIT, if you can pass the same tests that on-campus students can, you can get an MIT certification.
With your view across companies and industries, how are companies doing in making the strategy-leadership-innovation connection?
Look at any organization, and the leaders’ job divides into three boxes. The first box is focusing on the present – optimizing the performance of the business as it’s constructed today. Box two is about selectively forgetting the past – breaking free of your history. And box three is about creating the future.
In general, I see too many companies that way over-focus on box one and believe they are executing strategy. But strategy has nothing to do with the past. It has nothing to do with the present. Strategy has everything to do with boxes two and three – letting go of the past and creating the future.
Think about everything we do. How many of the projects would go into box one? How many are about improving the business model as it is constructed today? How many would go into box two – selectively forgetting the past? How many would focus on creating the future in box three?
It’s understandable that companies put a lot of attention into box one, optimizing results. Shareholders tend to like that. How can that be a fault?
That is the leadership challenge. Box one is competing for the present. Boxes two and three are competing for the future. One thing we know as leaders is that competing for the present is extraordinarily important. So the challenge is how to create the future while you are managing the present. How do you shape the evolution of the year 2025 when you are also squarely focused on the year 2014?
What makes that especially difficult is that box one and boxes two and three require different capabilities, different metrics, different processes, different mindsets. This is the central strategic challenge. This is the central leadership challenge.
It’s really common sense. But common sense is not always common practice. There are inherent conflicts, inherent paradoxes, inherent tensions between the demands of the present and the demands of the future.
I’ll talk about the big one. The box one — competition for the present – projects are always in response to what I call clear and linear changes in an industry. The organizational responses to those changes are incremental improvements to the current business model. Call it Six Sigma. Call it continuous improvement. Call it operational excellence. These are powerful concepts. But they are all box one.
Box two and three projects – the competition for the future projects — are all in response to what I call the big and non-linear changes. They require an organization to respond with non-linear innovation, breakthrough innovation, fundamental innovation.
The most obvious example of a non-linear change is the Internet. Concepts like eBay, Amazon.com and Google would not have been possible without it. It obviously continues to demand non-linear response from all industries.
The question now is what non-linear changes lie ahead that will demand breakthrough and fundamental innovation. 3-D printing? New and non-traditional competitors that will cause us to remake ourselves? Fundamental changes in customers and their expectations?
Why do you think companies tend to struggle with boxes two and three?
I like to use the analogy of the high jump. I put together about 100 years of data on Olympic gold medal winners in the high jump. The first style was the scissor, which was essentially hurdling the bar. Then came the western roll, where you back goes over the bar. Then came the eastern roll, where your belly is over the bar. Those were all linear innovations, and they evolved over decades.
Then a guy named Dick Fosbury revolutionized the sport by running up to the bar at an angle and lunching himself backwards. It’s an illogical way to high jump. You’re not looking at the bar. Your head goes over the bar first, when for 100 years we were told that your legs had to go over first. That was a non-linear innovation, and it changed the sport. Now virtually every top competitor uses it, and they are clearing more than eight feet.
The challenge for all large, successful companies is to continue to improve in the scissor and roll techniques that were developed through linear innovation. But at the same time, we have to find the Fosbury flop, those non-linear innovations that are transformational.
The fact is that the future is about the things you are doing today. But we tend to focus today on the making the linear, incremental improvements that drive performance. We tend to focus on those things that we know get us over the bar.
What advice do you give to leaders about how to break free of the exclusive focus on the present?
Planning for the future is meaningless. Preparing for the future is everything..
First, have a distinct point of view. That’s how I define leadership. You can’t create a giant strategy manual for the future. It won’t work. Too much is unknown and unknowable. Instead, you need to form a hypothesis. The beauty of a hypothesis is that it can be wrong. The job of leaders is to test the hypothesis; drop the parts that are invalid, add new ones, continuously sharpen it.
You can’t do it in a vacuum. You have to pay attention to the signals. They can either be noise or they can be real. But you have to consider all of them.
The view must be simple and accessible. Again, you’re not going to do that with a manual. It’s not a detailed plan. It’s an architecture. And it should fit on a single sheet of paper. If you can fit anything on one sheet of paper, there is a higher probability you can get the organization aligned behind it.
What should that one page cover? Is there a formula, or is it whatever the signals happen to tell you?
I advise five bullets.
The first is the non-linear shifts that you see in the next decade: technologies, non-consumers becoming consumers, non-traditional competitors becoming competitors, regulatory changes and so on.
Bullet two is strategic intent – what do you want to be in the year 2025?
Three is core competencies. What are you best at as an organization?
Four is horizons. There are three to consider.
The first projects are strengthening the current business. My rule of thumb is that 40 to 60 percent of resources should be strengthening the core.
Horizon two is growing the adjacencies – taking the core competencies into an adjacent space. Some 20 to 25 percent of resources should be focused on taking the things you are already good at into adjacent spaces.
Horizon three is completely new concepts. Here is where you would find the Fosbury flop. It’s the most risky horizon. Roughly 10 to 20 percent of resources should be devoted to his kind of experimentation.
The last bullet on the page is new core competencies. You can’t get to the future by leveraging your current competencies. Part of the competition for the future is developing new core capabilities.
If you can produce these five bullets on a single sheet of paper, then I believe you can get the organization aligned behind them.
A lot of companies distill that even further into a mission statement? Do you also see value in a simple declaration that tells employees what you are, what you value, where you’re heading?
That goes back to strategic intent. I used to have a hobby. I collected Fortune 500 mission statements. I quit doing it because they were all the same: value for customers; create employees with dignity and respect; provide returns to shareholders – along those lines. Management gets enamored of them, and likes to frame them and put them up on the wall.
I think if you went in the middle of the night and mixed them up, employees wouldn’t notice.
The difference between a garden-variety mission statement and strategic intent is in three tests.
First, strategic intent provides clear direction that is unique to your company. It tell us that we are going to go north or south. Strategic intent is about the big picture, not the steps that you will take to get there. At the beginning of the journey, people need to be able to picture the end.
Test two is passion and motivation. Strategic intent has to create a compelling reason for every employee to get out of bed in the morning and be excited about his or her work; to feel they are important to their unit.
Test three is challenge. People want to do something bold. Good employees want to be challenged instead of doing the same things over and over. They want to stretch.
When John Kennedy said that we would put a man on the moon and bring him back, the country got excited. At the time, the scientific community put the odds of success at about 20 percent. He could have made a safer, more typical statement. He could have said “We will become the aeronautical leaders in the world.” Contrast those statements. Which provides the visual picture of the end? Which provides the motivation, the passion, the challenge?
When you set a big picture goal like that, how do you manage expectations? How do you keep it real and vital in the eyes of the organization?
I like the metaphor of a marathon. You dream big, but start small; 400 meters at a time. You are constantly testing and adjusting to conditions and the competition.
You have to keep it directional. I see strategy as folding back the future. Too many companies see it as pushing forward the present. I worked with a company that had a 20 year strategic plan, which I thought was impressive. But then they explained that they created it by doing a pan for next year, and then adding 2 percent a year after that. That’s not a strategic plan. It’s a budget.
I think it’s also important to make it personal. All of us can use the three-box thinking to guide our own growth.. We should look at our calendars every day and ask ourselves if we were spending enough time in all three boxes. We remain leaders only if we reinvent ourselves; only if we continuously transform.