BOOK REVIEWS

covers reviews of current books on management

10 Rules for Strategic Innovators: From Ideas to Execution

Vijay Govindarajan and Chris Trimble
Boston, Mass.: Harvard University Press, 2005, pp 224, $29.95 here have been numerous books on how to foster innovation but few on how to carry those innovations to the logical end by converting them into business propositions. Most top-level managers have no doubt had the frustrating experience of not being able to implement their breakthrough strategic ideas into execution. The problem is greater when the new idea involves devising a new business model and hence implies the setting up of a new organizational unit with a different business modelBarnes and Noble with its online business, R R Donnelley with its digital division, Hindustan Lever with its IT Division or Gujarat Cooperative Milk Marketing Federation (GCMMF) with its pizza business.1 The new unit has a clear business model which ought to work, but does not, despite the organization staffing it with its best and brightest executives and setting up tried and tested systems similar to what had worked in the parent company. Well, not despite , but because of the above actions, argue Govindarajan and Trimble in their new book. The central argument of the book is that when a new strategic unit is set up to exploit a new idea with a new business model, it would be a big mistake to borrow the old business model or transfer its old staff. When a company, Core-Co, spins off a new unit, New-Co, its natural tendency is to transfer as much of its personnel, systems, and know-how from the parent company as possible. But, the New-Co typically requires new models, new systems, and often a new culture to work and this is not going to happen if the Core-Co tries to replicate its old models and transfer the Core-Co personnel to the new venture. Anyone familiar with public sector enterprises in India can see the point straightaway. When PSUs were formed, the systems of checks prevalent in the government were transferred, often along with its bureaucracy, to run the PSUs and the result is there for all to see. This happens equally in the private sector as well, and not just in India, as shown by a number of case studies in this book. All the cases, in fact, have American content but there is nothing culture-or context-specific about these studies. The core of the problem lies in what Govindarajan and Trimble call forgetting
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THEMES BOP Development Innovators Sustainability Technology Management Practices

GCMMF, however, did not set up a new organizational unit for its pizza business.

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challenges. Much has been written on organizational learning but an important contribution of this book is to bring to the centre-stage the technology of forgetting. Those familiar with the literature on exploration vs. exploitation of technology (March, 1991) will readily recognize the problem in such radical innovations as their being treated as problems of exploitation whereas they ought to be treated as problems of exploration. The problem is amplified by the new ventures being treated as nothing more than related diversification. Old models, assumptions, and actions are applied in a new setting and they become orthodoxy. Their appropriateness is seldom questioned. What should the New-Co forget? Three things, argue the authors: the Core-Cos business definition, its old competencies, and its exploitation of a proven business model. It should also learn to unlearn and apply new technologies of foolishness (March, 1976) to see what works in the new setting. This is virtually impossible if the New-Co is staffed by Core-Cos executives or is linked to the Core-Co at a low level in the organization so that it is effectively controlled by the Core-Co. The functioning of an organization is encoded in what the authors call its organizational DNA its staff, structure, systems, and culture. These are deeply embedded into its systems; and, it is virtually impossible to split open the DNA and address the problems in parts. So when the DNA finds its way into the New-Co, it replicates itself. The authors show how each of the above elements of the organizational DNA are very likely to be inappropriate in most New-Co settings. For the new business model to succeed, there is much need to experiment; the staff in the New-Co need to be creative and inspirational rather than transactional; the structures need to be flat and informal (organic) and not hierarchical; systems must focus not so much on immediate tangible results as on learning; and the organizational culture needs to be risk tolerant. Thus, a typical quarterly result-driven system will take the focus away from the true determinants of success: the ability to innovate and learn. This implies, usually, a new set of people with different attitudes and competencies which, in turn, implies, usually, a fresh set of people. This, however, does not mean that there should be no linkage between the CoreCo and the New-Co or that the latter should not leverage on the Core-Co in any way. What can and should be

borrowed from the Core-Co are its assets its production facilities, distribution systems, brand names, etc., provided that this does not imply dependence on the Core-Co. This usually means a structural separation of the New-Co from the Core-Co and reporting of the NewCo managers to the Core-Co at the highest level. It has to be ensured that the Core-Cos systems and cultural attitudes do not exert an undue influence over the NewCo. To develop these ideas, the authors take the reader through ten chapters in which the reader is presented with detailed case studies of five companies: Cornings venture into DNA microways, the New York Times foray into its digital edition (forming a new unit called New York Times Digital), Hasbros getting into the toys business, CapstonWhites moving into service business (the company was in the business of manufacture and supply of computer printers and related technology), and the entry into micro electro-mechanical systems (MEMS) by Analog Devices Inc. In each case, the problem was similar: a new business to manage for which a unit was spun off with little, if any, realization of just how different the model in the new business needed to be. Chapters 2 and 3 deal in detail with Cornings problems and constitute the most detailed case study: Chapter 2 dealing with the false steps taken by the company and the resulting problems and Chapter 3 on how it solved the problems. Chapter 4 shows how tensions arise when New-Cos borrow from Core-Cos using the case of New York Times Digital. Chapter 5 shows how to convert these tensions into a productive form. Chapter 6 is an important and interesting chapter with the title Why Learning from Experience is an Unnatural Act that explains the thrust of its contents; so does chapter 7 titled, How Being Bold, Competitive or Demanding can Inhibit Learning, and chapter 8 titled, How Being Reasonable or Diligent can Inhibit Learning. Chapters 7 and 8 argue their themes through case studies of Hasbro Interactive and Capstone-White respectively, and have important ideas on the central theme of the book. Chapter 9 is a difficult chapter to read but is the richest of all. It emphasizes the need for developing a theory for the business: how it works and its causeand-effect linkages. It also gives a number of very specific recommendations. This chapter should serve as a practical supply step guide for practising executives; and,
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if the earlier chapters have been gone through fairly intensely, this chapter could serve as a ready how-todo guide later. The last chapter states and explains the ten rules for strategic innovation. It serves as a sort of recap of the other chapters and converts the discussions into a set of easy to understand rules to increase the chances of a new venture to succeed using the case study of Analog Devices as a background. I am tempted to list the ten rules here but I would rather that the reader reads them himself/herself. The book is undoubtedly a major contribution to strategic management and innovation literature. With some adaptations, the principles can be applied to situations such as diversifications and starting new ventures in a family group of businesses. Inevitably, one compares these ideas with those in Clayton Christensens Innovators Dilemma (Christensen, 1997) and wonders whether the companies studied by Christensen could have avoided the problems faced by them by adopting the approach given in this book by Govindarajan and Trimble. There is little doubt that the uncertainties of successfully exploiting new business ideas have a lot to do with the attempt to graft the New-Cos into strong and vigorous Core-Cos. But, the book seems to skirt two issues: first, it does not explore the fundamental nature of such uncertainties: that they are essentially very complex problems that are sought to be reduced to simpler formulations but still understandable in a rational framework. The building of theory for the new business may all too easily slip into a simple modification of the old theory. The problem will then be sought to be glossed over as one of poor implementation while the basic approach itself needs to be different (March, 2006). While the authors recommendations of active experimentation in the New-Cos are undoubtedly useful, the technologies of effectively putting them into practice are not clear. Probably, that is what the authors next book will be on. The second issue skirted in this book is the existing culture of the parent company itself. It is possible that the Core-Cos differ in their rigidity and hence their ability to tolerate a different culture even in their existing organization. Infosys, in India, is an excellent example:

it has a number of essentially small businesses with a great deal of autonomy and freedom to explore; Bransons Virgin Group is another, where the vastly different businesses are run in their own way by managers and the culture of these units could be quite different. At best, the exercise of leveraging on assets such as brands and other assets but keeping away from cultural issues is likely to be a slippery one. There is little doubt that this book is likely to be a major and path-breaking work in the areas of strategic management of change, managing cultures, and developing theories of business. The vulnerabilities of successful companies to their own success formulae, a narcissistic or over-confident approach that they-knowit-all, and the unwillingness to recognize the need for an alternative business model existing side-by-side with its old model is well brought out. Teachers will undoubtedly like to get hold of the full case studies to present the cases in the class as a learning mechanism, and as a cap for the discussion, the authors article on the same theme in a recent issue of California Management Review (Govindarajan and Trimble, 2005) may be given at the end. The book is written in a very reader-friendly style, including the one as difficult as Chapter 9, and can be carried in the pocket for ready reference when the situation calls for it.

REFERENCES
Christensen, C M (1997). The Innovators Dilemma , Boston, Massachusetts: Harvard Business School Press. Govindarajan, V and Trimble, C (2005). Organizational DNA for Strategic Innovation, California Management Review, 47(3), 47-76. March, J G (1976). The Technology of Foolishness, in March, J G and Olsen, J P (eds.), Ambiguity and Choices in Organizations, Bergen: Universitetsforlaget. March, J G (1991). Exploration and Exploitation in Organizational Learning, Organization Science , 2(1), 7178. March, J G (2006). Rationality, Foolishness, and Adaptive Intelligence, Strategic Management Journal , 27(3), 201214.

S Manikutty Professor, Business Policy Area Indian Institute of Management, Ahmedabad e-mail: manikuti@iimahd.ernet.in

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Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the Worlds Most Difficult Problems
Stuart L Hart
New Delhi: Pearson Power in association with Wharton School Publishing, 2005, pp 241, Rs. 499. an multinational corporations actually help to make the world more sustainable? Or, is this a project that is better left to the regulatory arm of the government? Stuart Hart, an internationally acclaimed expert on strategy and sustainability at the Johnson Graduate School of Management, Cornell University, argues that if the profit motive is harnessed in a responsible direction, even multinational corporations can, contrary to popular belief, actually help to accelerate (not inhibit) the transformation toward global sustainability with non-profits, governments, and multilateral agencies all playing crucial roles as collaborators. This book then is aimed at all those who believe that public-private partnerships can play a crucial role in promoting sustainability and that even the private sector can take the initiative on sustainability. As Dr. H Fisk Johnson, Chairman and CEO of S C Johnson & Son, Inc., points out in the Foreword to this book, many companies including Johnsons have taken the lead in designing business models that can drive sustainability. He describes the case of his father, Samuel C Johnson, who had taken the initiative to voluntarily and unilaterally ban CFCs from our products despite fervent opposition from colleagues and competitors alike. Samuel Johnsons pioneering work led to a place on the Presidents Council on Sustainable Development and to the founding of the World Council on Sustainable Development. What then are the business models that are required for addressing the problem of sustainability? What are the presuppositions of value creation built into such models? These are the crucial questions that must be addressed in order to operationalize the new paradigm that Hart spells out in this volume. But, as Fisk Johnson points out, the essential requirements for such a project are the following: the willingness to engage with a plurality of stakeholders rather than sticking to the traditional binary opposition of public sector versus private sector, moving away from an incrementalist model of growth in favour of creative destruction, innovation, and reinvention, and, most importantly,

holding on to the fragile spirit of optimism amidst widespread apathy and cynicism. This, of course, is easier said than done by Johnsons own admission given the widespread belief that global business and sustainable development have no real link to each other. Hart, who holds the S C Johnson Chair of Sustainable Global Enterprise at Cornell, also began with the leftist idea that businesses everywhere seek profit to the exclusion of the Good. This book charts the trajectory of his career where, as a teacher of both strategy and sustainability, he has tried to marshal the arguments necessary to rethink the traditional pessimism that surrounds this topic. Harts intention is to demonstrate (in the words of Fisk Johnson) that there is no inherent conflict between making the world a better place and achieving economic prosperity for all. Maintaining a principled commitment to global sustainability is not a soft approach to businessit is, in fact, the only pragmatic approach for long-term growth. Moreover, understanding that the need for this principled commitment to sustainability on the part of all the stakeholders is not a misplaced sense of idealism, but, in fact, an unprecedented historical opportunity to make a difference to the living conditions of billions of people is the primary challenge thrown up by global capitalism today. Business leaders and other stakeholders who are able to drop their customary cynicism and embrace the demands made to rethink their business models will find that there is, in fact, no real conflict between the generation of unlimited business opportunities and the technical challenges of solving the worlds most difficult problems. Harts strength as a management thinker and writer emerges from the fact that he does not place himself outside the ambit of the stakeholders who have to overcome the inbuilt pessimism of the traditional opposition between the demands of growth and the problem of the Good. Instead, he situates his lifes work on the relationship between strategy and sustainability as a response to an encounter with C K Prahalads unique perspective of strategy as innovation rather than the
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traditional textbook description of strategy as competition. In other words, this book is a testament to a change in his mindset. It is built on the belief that such attitudinal re-wiring is not without implications for a theory of strategy since even the sustainability of theories of strategy is problematic on the desiccated platform of competition. How then can it provide scaffolding for sustainable enterprises? But, given that these bad habits are drummed uncritically into the minds of the young in business schools, Harts intellectual odyssey is a valuable platform for those who wish to rethink the role of strategy not only in relation to sustainability but in the more dynamic contexts of creative destruction, disruptive technology, and innovation. What is it that Hart expects of capitalism at the crossroads? What else but the cultivation of innovation rather than the gospel of competition as the anchor of the sustainable enterprise? But, why, if at all, has it taken the corporation so long to work out that innovation is better than competition? How exactly should the corporation pursue the path of sustainability? These then are the questions that help to structure the rest of the volume. The answer to the first question provides the historical context of capitalism in which competition emerges as the matrix of business activity forcing companies onto the simplistic path of efficiency which itself is conceived as a set of operational problems. The answer to the second question lays out the modalities of innovation that will help companies to make the transition to the paradigm of sustainability provided they drop the bad habits of the past. This means that they will have to rethink the very idea of a business, redefine who they will identify as a customer, re-evaluate the notion of a value proposition, and, most importantly, be willing to engage with the base of the pyramid (BOP). Hart, incidentally, is one of the co-innovators of the base or the bottom of the (economic) pyramid paradigm in strategic theory along with C K Prahalad. Given the constraints of doing business with the very poor, it will not suffice to merely dilute old business models or palm-off dated models onto unsuspecting customers at the base of the economic pyramid. Companies will instead have to rethink everything; otherwise they will abdicate on the new responsibilities and opportunities that the so-called decline of big government has made necessary in the West. Companies cannot just continue to work with the complacent assumptions in Milton Friedmans theory of the firm, where it is
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sufficient for a firm to focus only on the interests of its shareholders, i.e., make as big a profit as possible without violating the relevant laws in place. In other words, in Friedmans model, the regulatory structure in place is the only real constraint. Otherwise, it is business as usual. In this elementary model, the aim is only to please the shareholder; hence, the unilateral focus on competition in strategic theory. But, in Harts model, the firm is focused not so much on the competition but on the hitherto unharnessed sectors of the economy; hence, the focus is on innovation. Given the unprecedented levels of choice available to the consumer at the top of the pyramid, it does not make much sense for new players or even existing players to spend fortunes in penetrating mature markets when there are unprecedented opportunities at the base of the pyramid. These opportunities, however, cannot be accessed using the old assumptions of either manufacturing or marketing. The significance of the sustainability platform for a theory of strategy, and, by implication, for a theory of capitalism should then be obvious: if the base of the pyramid begins to consume in a manner that characterizes the top of the pyramid, an environmental crisis would become inevitable. With the increasing demands of the base, the top would have no choice anyway but to rethink its modalities of production and consumption. Otherwise, as the rise of anti-globalization protests demonstrates, the very viability of capitalism will begin to be called into question. It will also fuel terrorist movements which will try to capitalize on the disaffections of the unemployed young throughout the world. Sustainability then is the key link between the top and the base of the economic pyramid. Sustainable consumption will not only bring dignity to the worlds poorest people by giving them an opportunity to function as economic agents (rather than live as servile objects of exchange), it is the golden key to understanding the contemporary crisis of capitalism since it provides the socio-economic matrix of innovation in the global economy. It is also, not surprisingly, the conceptual link between the three parts of this volume which seeks to map the terrain of capitalism, argue for the necessity of going beyond greening as a form of environmental recuperation, and promote the ethical necessity of becoming indigenous, i.e., rethink the economic definition of growth as a holistic process rather than focus on money income as the primary or sole parameter for defining development.

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The first part of the book sets out a brief history of the role of environmental regulation in both the American and international markets. It examines the changing set of assumptions that have mediated the regulatory framework given the unwillingness of most businesses to proactively address the so-called inevitability of externalities in the production process (like pollution). A command-and-control structure of regulation was, therefore, put in place in the 1970s in the United States and elsewhere. This regulatory structure, however, gave way to the greening revolution in the 1980s since a collaborative approach (influenced by the quality movement) was seen as much more likely to yield positive results than a law-and-order approach. The focus turned to the prevention of pollution rather than on the actual modalities involved in cleaning up the environment. Prevention was thought to be better than finding a cure. In the early 1990s, however, the confluence of marketbased solutions like tradable emission permits and the extension of the quality movement to social and environmental issues resulted in ISO 14001. The movement, then, from regulation to self-regulation, revolved around the realization that pollution and litigation were the ultimate forms of muda, i.e., waste. The Toxic Release Inventory (TRI) of 1988 and the introduction of extended producer responsibility laws in Europe made it necessary for manufacturers to take responsibility for the entire product life cycle; this was known as product stewardship. Companies realized that it would make more sense to be proactive in the greening process. They decided to lower costs by internalizing externalities through pollution prevention, and aim wherever possible for superior performance. Volvo, for example, developed a radiator that, in addition to cooling the engine, could clean the surrounding air as well. These strategies (preventing pollution and product stewardship), however, were incremental in their approach and focused on building efficiencies rather than effectiveness. Sustainability, however, must lead to something more fundamental, i.e., natural capitalism. It must not only develop technologies that are cleaner and better but also expand the reach of capitalism to the base of the pyramid. In other words, business must set itself the goal of being culturally appropriate, environmentally sustainable, and economically profitable. The strategy that would make it possible to address these parameters must factor in innovation as a form of disruption. But, this is easier said than done. Companies which are

serious about this goal must move beyond transparency to radical transactiveness. This means that companies must develop fully contextualized solutions to real problems in ways that respect local culture and diversity. The three strategies that have been invoked to address the problem of sustainability include controlling population growth, lowering the rate of consumption, and changing the forms of technology in place to increase production. Hart argues that the first two are not feasible since desperate attempts to reduce population or decrease consumption may come at the cost of civil liberties or political unrest. The real hope, however, is that technology-led innovations in the form of biotechnology, nanotechnology, biomimicry, wireless IT, and distributed energy systems will make the necessary difference and make possible the modes of production that will help to meet the needs of the billions of rural poor (who have thus far been largely ignored by global business) in a way that dramatically reduces environmental impact. In order to do this, Hart argues that businesses will have to be able to differentiate between three forms of economy: the money economy, the traditional economy, and natures economy.2 The first two, broadly speaking, correspond to the urban and rural economies. The last represents natures bounty. While structurally interdependent, argues Hart, these economies have also come into collision in the global economy. The emerging opportunities in global capitalism lie both within and in the intersection of these economies conceived as a Venn diagram. If companies want to seize these opportunities, they will have to move from the demands of the money economy to that of the traditional economy but this means that they need a sustainable strategy to reduce their ecological footprint; they must reinvent products and processes. They must re-think the very idea of a value proposition keeping in mind the global dynamics of the three economies, since strategy, technology, and markets are not anymore what managers expect them to be. What then is the way forward? Hart argues that companies especially incumbents in pollution and asset intensive industries, must turn to Joseph Schumpeters notion of creative destruction as the way forward. But, needless to say, this is easier said than done. What then is creative destruction? How does it emerge to restruc2 Hart borrows this typology from the work of Vandana Shiva, Ecology and the Politics of Survival, New Delhi: United Nations University Press, 1991.

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ture an industry? What are the resonant examples for Hart? Creative destruction is the set of innovative processes through which capitalism reinvents itself. It manifests itself through the emergence of a disruptive technology. In Clay Christensens definition, a disruptive technology revolves around an innovative application of a product or service rather than in the emergence of a big, new technology per se. That is why smaller companies are more likely to pursue them than the bigger companies since disruptive innovations typically enable a larger population of less-skilled or less-wealthy people to begin doing for themselves things that historically could be done only through skilled intermediaries or by the wealthy. The dissemination of desk-top computing, small cars, and on-line investing are a few examples. These innovations have not only made life easier but have generated hundreds of billions of dollars in revenues and market capitalization and created tens of millions of jobs in the process. The success of Japanese companies like Honda, Sony, and Toyota itself was based on their ability to take on market leaders through disruptive technology. Japan went as far as using disruption as a national strategy for economic development. The economic slowdown in Japan can itself be understood as an inability to sustain this strategy. There are a number of other case studies including Grameen Telecom, Light up the World (LUTW), etc. in this book but the strategic lesson is clear. Hart is not advocating the introduction of disruptive technology into a conventional business model, which by bringing it into headon competition with incumbents can endanger it. Instead, companies should aim to incubate disruptive innovations at the base of the pyramid since existing mainstream markets are the wrong place to look for major new waves of growth. What prevents access to the base of the pyramid markets is not the unwillingness of BOP customers to buy innovative products and services but the pre-existing categories of thought that make it difficult for companies to envisage the needs and demands of customers. The very fact that Hart, Prahalad, and others even have to write a theoretical justification to engage with the BOP represents a failure of corporate imagination. Many companies do not realize that it is actually risky to play safe if all that they can come up with are variations of the same set of products in the mature markets. Companies must instead move in the direction of engaging
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fringe stakeholders. Stuart Hart and Sanjay Sharma, therefore, propose the notion of radical transactiveness. Hart and Sharma use this phrase to call attention to the processes required to build the competitive imagination necessary for future business and the pursuit of a truly sustainable form of global development. The two aspects of radical transactiveness include expanding the scope of the firm and the ability to incorporate diverse and disconfirming knowledge. An example of the former is an initiative by Grameen Bank to include beggars as potential customers for microloans converting them thereby to micro-entrepreneurs. An example of the latter is an innovation by Arvind Mills to make jeans affordable by distributing a ready-tomake kit of components. These kits are converted to affordable jeans by a network of 4,000 tailors located in small rural towns and villages. The decentralization of the distribution process is a response to the disconfirming knowledge that the price of the jeans is actually too high for most customers. This innovation made it possible to increase the sales volume to a point that Ruf and Tuf jeans has become a market leader. Such attempts at innovation make it possible to move beyond the world of legal contracts in the formal economy to the building of social contracts in the informal economy. Since the bulk of the BOP is actually implicated in the informal economy, product and market innovations must factor this into account. The multinational corporation, in other words, must move beyond the transnational model which revolves around the mantras of global efficiency, national responsiveness, and worldwide learning and incorporate, in addition, a native capability. Only then will they be able to harness the potential of both the formal and informal economies at play in the BOP. This means that the BOP needs not only models of governance but also models of business that can be built from the ground up, so that the corporation is embedded as an organic part of the economic landscape that it seeks to operate in. The corporation will then stop being an outsider and become indigenous to the community. Only when the multinational corporation can take up these challenges will it be possible to hear the true voices of those who have previously been bypassed by globalization. But for this to happen, companies must stop thinking top-down, muster the courage to think as a disrupter, reinvent cost structures, rethink their scale of operations, and align the organization so that

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the employees do not become discouraged or have to take undue career risks to move the sustainability agenda forward. For this to happen, employees must have what Erik Simanis terms, the license to imagine, and not merely the ability to analysethe staple offering of business schools. The real lack in even the better organizations today is the failure of imagination and the ability to sustain creative tension when this lack emerges. Capitalism, concludes Hart, echoing the recent work of John McMillan, must recapture the excitement of the bazaar that it has lost in the deification of the market.

Only then can the multinational corporation make meaning for their employees and allow them the chance to align their personal values with what they do on the job everyday.

Shiva Kumar Srinivasan Assistant Professor Communications Area Indian Institute of Management, Ahmedabad e-mail: shiv@iimahd.ernet.in

Innovation is the creation of the new or the re-arranging of the old in a new way. Michael Vance

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