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Vijay Govindarajan, Professor, Dartmouth College and Author
Summary from the Front End of Innovation Conference in Boston, May 2007.
Visualize your 2007 strategic plan. Organize the tasks into three separate boxes: Managing the present to improve efficiency; Selectively forgetting the past to permit change to happen; and Creating the future to assure competitive advantage.
Most organizations focus on box one and call that strategy. It is not. Strategy is about boxes two and three. Strategy is about leadership in 2030, about initiatives you undertake now to assure relevance in 2030. Preparing to address competition for the future is strategy.
But, how do you create strategy for future while managing present? The thinking processes are quite different. Competition in the present requires incremental – six sigma, continuous process improvement. The future is about discontinuous changes in environment - fundamental transformations in the market and society.
In the future, technology will continue to transform industries and customer bases, demographics and competitor offerings creating a need for new models.
Consider that the GDP of the U.S. is $15 trillion, accounting for 30% of world’s income, but representing only 5% of the population. India and China combined have a GDP of $3.5 trillion. By 2030 India and China will have a $55 trillion GDP. This cannot be ignored and the pending discontinuities cannot be anticipated while focusing on efficiencies for the present.
Ford did not understand this emerging market and disastrously tried to market the wrong car at $18,000 to the Indian market. They tried to take unnecessary costs out of the design. Incremental changes could not compensate for the magnitude of the difference in market needs. Only 1% could afford to buy the car. And that 1% was wealthy enough to afford BMW and Mercedes. Capture remaining opportunity is box 2 and box 3 thinking
Innovative thinking addresses the larger opportunity and tries to convert the population from 2-wheel transportation into a $2000 car.
The notion of non-linearship is essential to understand the coming shifts. How has family entertainment changed? What might be the impact of India’s population with 40% age15 or younger. Does this create a market opportunity?
An ability to comprehend the long view is why breakthrough thinking is so difficult. It was a lack of this kind of thinking that sent Encyclopedia Britcanica into bankruptcy when digital content threatened its paper-based publishing empire with its direct sales force of 10,000. Britanica was very efficient in managing box #1. It had no vision for boxes 2 and 3.
Everyone wants to excel in current business. That is also the foundation for the inflexibility to innovate. It is a mistake to accept success as validation for what you are doing. Legacy investments create a different and often deceptive mindset.
The present is focused on restructuring, downsizing, right sizing and efficiency. Boxes 2 and 3 focus on the opportunity gap, the growth gap, the innovation gap. A restructure does not solve a problem that requires that you fundamentally reinvent the organization.
Three methods for box 1 management which prevent box 2 and 3 success:
1. Best practices benchmarking focuses on those playing by similar rules. They have no differentiation. When a disruptive change comes, they will all fail together for the same reasons.
2. Top-down strategy making misses the bottom-up opportunities. The top thinks. The bottom does. The people at the bottom are directly in touch with the dynamics of the market.
What does CEO know most about the current business model because he/she is the one who shaped the past. That is also the least likely to challenge the status quo or change strategy. It would admit that the current method is wrong. How many revolutions are started by the king? Transformation comes from people with ideas – people on the front line.
3. Setting realistic goals is foolish. Set unrealistic ambitious goals. People rarely exceed expectations. But, it is better to fail at something grand and accomplish an improvement of 90% than to meet an improvement of only 10%. Processes in goals, planning and performance are the greatest enemy to boxes 2 and 3.
Chas Martin
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Reader Comments (1)
Thank you...I am doing a presentation to our board on Monday and this is EXACTLY useful...a fabulous crisp, clear and simple message! Genius.