Making Strategic Innovation Work: An Interview with Vijay Govindarajan

Abstract

Vijay Govindarajan talks with RTM Editor-in-Chief James Euchner about how to put his 10 rules for strategic innovators into practice. In 10 Rules for Strategic Innovators, Vijay Govindarajan and co-author Chris Trimble discuss what it takes to innovate inside established companies. He emphasizes three concepts: forgetting lessons from the past that may inhibit progress on a new venture; focusing on learning and clarifying key assumptions in the early stages of innovation, not on financial metrics; and consciously borrowing appropriate assets from the parent organization. These are simple in principle, but they can be difficult to put into practice. In this interview, conducted as part of the 2009 World Innovation Forum, held in New York City in May, we probe the practical implications of these ideas for innovators seeking to innovate within larger organizations. James Euchner [JE]: Vijay, it's great to have the chance to talk with you about innovation. I really enjoyed reading Rules for Strategic Innovators. I'd like to structure the interview around the three principles you discuss in your book, forgetting, learning, and borrowing. Let's start with the difficulties many companies have forgetting lessons that may no longer be relevant. In the book, you suggest hiring people from the outside to bring a fresh perspective. You also suggest starting internal ventures that are quasi-independent from the core business. But you can't really do that in every single case. In your experience, how different does a new venture need to be before it makes sense to set it up with a separate infrastructure? Vijay Govindarajan [VG]: I think probably the criteria to use is whether the innovation is breaking away from your current business model. You need to really think critically about the business model. A business model answers three questions: Who's your customer? What value is the customer seeking? And what is the process by which you're going to create that value? For your core business you have evolved an answer to these three questions. If you are launching a new venture, and the innovation breaks away from your core business in its answer to any one of these three questions, then I'd say that you have to overcome the forgetting challenge. And one of the most effective ways to do that is to set up a separate venture. JE: Won't that end up being a large number of the things that are going to be truly innovative inside of a corporation? VG: No company can launch hundreds of these new ventures. Therefore, each company needs to understand its capacity for new ventures. Only a few such ventures can be launched, and when you launch those, you have to get it right. You may need very different processes for HR, for instance, to support the different business model. As an example, when General Motors created OnStar, which was a fundamentally different business model than making automobiles, they used the same HR process to recruit for it as they used for their core business. Imagine, at the height of the dot-com boom, trying to persuade people from Silicon Valley to move to Detroit on the same pay scale on which General Motors's regular employees were paid. So you get the picture. A company pursuing a new business may need to think about human resources, for instance, very differently. JE: Now in that situation did they actually set it up as a quasi-independent unit in order to move it forward? VG: Initially they did not, and that's why the unit started to struggle--because they had common HR systems, even a common information technology platform with the core business. Again, imagine for a moment: the information technology that supports the automobile business is oriented towards processing efficiency, whereas information technology was the brain of the OnStar program. If you have the same IT department trying to attend to the needs of OnStar and the needs of the automobile business, the priorities will become skewed, and even the capabilities required may not match. …