VIJAY GOVINDARAJAN CHRIS TRIMBLE

Shahbaaz Roomy

SUBMITTED BY-

Submitted toProf Prasad S.N

Md.shahbaaz Roomy Akhtar Group-C14 Date-12-12-2012

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Contents
Objectives and Structure of the Book: -- ............................................................................................... 2 The10rules:--.......................................................................................................................................... 2 Forgetting:............................................................................................................................................... 3 Forgetting challenges:- ........................................................................................................................... 4 Coming over forgetting challenges:- ....................................................................................................... 4 Borrowing:- ............................................................................................................................................. 5 Borrowing Challenges:- ........................................................................................................................... 5 Overcoming borrowing challenges:- ....................................................................................................... 6 Learning:- ................................................................................................................................................ 6 Learning Challenge:- ............................................................................................................................... 7 Overcoming Learning Challenges:- ......................................................................................................... 7 Culture of New Company:- ..................................................................................................................... 8 Learning from the book:- ........................................................................................................................ 8

Objectives and Structure of the Book: --

The objective to write the book is to assist organization in solving problems faced while creating new venture. Driving innovation is one thing for start-up companies but it poses entirely different challenge for large, established corporation. Govindarajan and Trimble not only map the differences but also provide a guidebook for managing strategic innovation that leverages the benefit while discarding the baggage of being large and established. This insightful book asserts that established, successful companies must become skilled in strategic innovation; that is, skilled in creating new businesses that depart significantly from historic ideas and assumption about how businesses succeed. By analysing strategic experiment in diverse industries, the authors diagnose the root cause of failure and illustrate how observing ten rules for strategic innovations will substantially enhance the chances for success. The author talks about organizational code - a set of rules that can reduce dysfunctions, sustain growth, and lengthen the average corporate life span. The strategic innovation will have to be enabled in the organizational code. Because innovation is core of economic vitality it drives growth, creates jobs, builds wealth, etc. To assert the point author cite example of innovative efforts made by companies like, Corning, The New York Times Company, Capston White, Analogy devices, Unilever, Cisco System, Hasbro, Nucor, Stora Enso, and the Thomson Corporation. Strategic innovation are unmet needs of customer, they are done before any competitor and they leverage some of the corporations exciting assets and capabilities in addition to capital. Finely author doesnt count little modification in process or business model as strategic innovations.

The10rules:--
Renowned venture capitalist Arthur Rock once said, I invest in people not in Ideas The basic Ten rules of strategic innovation are as follow:-- 1. ThegreatinnovationstoriesrequiregreateffortsofleveragingorganizationalDNA 2. Toseethestrategicplanworkingonehastocomeovergreatsourceoforganizationlmemor y. 3. Large established companies can beat start-ups. 4. Strategic experiments face critical unknowns. 5. The New co organization must be built from scratch. 6. Senior managers most critical job should be to manage tensions between new company and Core Company. 7. New company needs its own planning process. 8. Interest, influence, internal competition and politics disrupt learning. 9. Hold new company accountable for learning and for results. 10. Companies can build a capacity for break through growth through strategic Innovation.

Managing organizational code:--

Finding great ideas are as big challenge as to pursue them. The main hurdle, which stifles CEOs, is to differentiate between core co and new co. Here author cites example of two set of companies, where in one set companies like Xerox and Sears struggled while redefining industry and on the other hand companies like Wal-Mart and Conon did great innovative job.
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Five challenges faced while dealing with innovation: 1. Protect funding for new company regardless of performance of Core Company. 2. Established new organisation norms and policies that make sense for new company. 3. Over come tension between new company and core company, when norms and policies conflict. 4. Effect changes in existing power structure required supporting New Company. 5. Engage core company employees in supporting new company. Referring the tenor of Gifford Pinchots book Intrapreneuring: why you dont have to leave the corporation to become an entrepreneur author lists various roles and characteristics of intrapreneur. Research has also called for leaders of strategic experiment to appoint a senior executive champion someone who actively musters support for new co and breaks down barriers in Core co. It is not the ideas that count; it is what you do with it, means great execution matters more than great innovation. There are two type of organizational code: code A (to be efficient) and code B (to be creative). Core co believes that code A delivers results and that New co must soon deliver results too. New co on the other hand sees it is needed code B to get started and wants to stick with it. There will always be struggle because great companies are masters of efficiency- code A, understand that creativity is opposite of efficiency. According to author organization should develop code X, which is, blend of forgetting, learning, borrowing but not code A and code B. The success of new co depends on many uncontrollable factors which is called Organizational DNA. Organizational DNA includes staff, structure, system, and culture. The crucial role of CEOs is to give new co the DNA it needs and while doing that they must avoid choices that are easiest and most convenient. The organizational code of New co should neither be replication nor be isolation with Core co. The best organizational code for New co will emphasizes high on both need for forgetting and borrowing.

Forgetting:
New company must forget three things to not become orthodoxy. First, it must forget Core companies business definition. Business definition includes customer, value and delivery. Second, business model of core co. Third, core co.s exploitation of proven business model. Here example of corning has been given which have long history of successful innovation. How corning microarray technologies struggles when they replicate cornings business model. And CMT succeeded when corning redesign organizational structure. Cornings business model was consistent across almost all its markets. Corning produced a wide range of specialty glass and ceramics products, including display glass for computer and television, ceramics subtract for automotive emission control, and optical fibre for telecommunication networks. It held strong intellectual property rights on its products and therefore faced little competition. Corning remained focused on high margin, technologically advanced product. In 1990s there were rapid growth in experimentation, which created opportunity in markets of researchers supplies and equipment, including DNA, reactants, laboratory apparatus and specialized computers. One critical piece of experimentation apparatus was the DNA microarray: a rectangular glass slide, a few inches long, on which hundreds of microscopic samples of DNA are adhered. Genomics researchers needed a better solution, particularly
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better choice for microarray. Corning saw the great opportunity for banging quick bucks. Life sciences business of corning was supplying wide range of glass laboratory products to researches.

Forgetting challenges:Before embarking any strategic innovation Core co should answer some questions. How business model viz. customer, value and delivery of new company do differs from Core co. how does new companies desired competency set differs from Core company. How uncertain is new co.s business model relative to core co. Strategic innovation means dealing with ambiguity and uncertainty and on the other hand organizations like elephants have big source of memory. Source of memory includes instincts, nature of relationship between managers, norms about organizational status and Core co.s information system. CMT had to deal with much higher level of ambiguity then it was accustomed to in its core business. CMT needed to forget much of what had made corning successful. CMT was dealing with different set of customers that include senior lad administration so sales work becomes more consultative and sales cycle lengthened. Because of forgetting challenge CMT started missing targets. As the culture of corning managers were held accountable. Under the cloud of perceived failure, tensions within CMT and between CMT and corning disrupted productivity and learning. They became overconfident, listening to outside life scientist telling them that the real challenge in DNA microarray manufacture was in cornings area of expertise, even though molecular biologist would actually see the greatest challenges in unfamiliar disciplines. They did many mistakes like planned on unreliable prediction, inaccurate organizational structure replicate of corning, hiring insiders only at all management position which had big source of memories and emphasizing those quality standards which are least required in new industry.

Coming over forgetting challenges:The book gives various recommendations to fight with forgetting challenges. The staff of New co. should be mixture of both insider and outsider. New co. should hire outsider at both the operational and management level. Only outsider can give external perspective and immunity to big source of memory of Core co. To mitigate the disputes inside new co. and between Core co., the head of New co. should report directly to head of Core co. The New co. should design its own structure of authority and responsibility indifferent to Core co. disciplined accountability, traditional planning systems and rigid Expectations should not be the way for new co. the judgment of the performance of leader of New co. should be on the basis of Effort, quality of decision making and ability to adjust with changes. They need to focus on what is achievable in near term and should not talk about long perspective. The culture of new co. should also be distinct to Core co. Looking on failure of CMT corning evaluated business model the unit made some fruitful changes. Innovation process at CMT became iterative and unpredictable, unlike cornings linear and predictable. Now management was also not being held responsible and they were
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evaluated on the basis of quick learning and adjustment with changes. Though CMT was part of life sciences then also leader of it was reporting to cornings head. These changes effectively broke the conflict of interest between CMT and corning. Experimentation and learning became culture of CMT. Greater flexibility provided to plans. All these changes improved rate of progress of CMT.

Borrowing:New co can compete effectively against start-ups only by borrowing Core co.s assets: existing customer relationships, distribution channels, supply networks, brands credibility, manufacturing capacity, and expertise in variety of technologies resources that start-up can only dream of. There is important distinction between forgetting and borrowing. New co. must forget assumption; mind-set, and biases, new co must borrow assets. New co must be distinct from Core co, because distinct organizational design enables new co to forget. At the same time, new co must not be isolated from Core co. In 1995, New York Times found Internet to become a huge opportunity. Company found a strategic business unit New York Times Digital with traditional newspaper times. In early days it became hard for New co and Core co to overcome forgetting challenges. The leader of NYTD was asked to report managers and editors of times newspaper. Most of the staff for NYTD was also insiders. They were working like Code A company or in many constraints. But after some time as Internet technologies started getting popularity the market value of technology stock surged. Now everybody in the management was thinking of creating distinct organization for Internet operations. Now NYTD started working like a distinct organization and here they stared facing borrowing challenges.

Borrowing Challenges:To overcome the forgetting challenges New co should be distinct to Core co but it not be isolated with core company. Isolation ameliorates borrowing challenges. As size of New co. increases capital need also increases which increases tensions between Core co. and New co. Core co starts anticipating various tensions like New co will cannibalize recourses and damage the brand of Core co. Sometimes if Core co. management be inexperienced with or unaware of New co.s need they become jealous of it. Anticipating big business opportunity in Internet media field, New York Times created a totally distinct business unit NYTD. The leader of NYTD was made to report top managers of New York Times to mitigate confusions. A new building of glass walls and large open spaces was constructed far from building of times for NYTD. Wholly new organization structure similar to big corporation was made in NYTD, which included legal advisors, CFO, VC etc. Extensive recruitment was done from outside. New upgraded technology platform was made and new newspaper titles were made for NYTimes.com. Soon NYTD started working in isolation with New York Times. There were several sources of friction. Because NYTD had made it clear that it was trying to build different kind of organization, interaction between the two took on as us versus them undertone. Looking on the free news content on
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net many readers stopped subscription of times. The advertisers were also not happy with individual working of times and NYTD.

Overcoming borrowing challenges:Tensions are inevitable between New co. and Core co. Up to a point tensions are healthy. They show the people are engaged and really care, and they are more likely to place real issues on the table. But even though tensions can be productive, they can escalate and disrupt borrowing. To overcome the borrowing challenges leaders should select the right links, establish co-operative environment, monitor the interaction and intervene between Core co and New co. Citing example On star GMs online assistance group author says that core business requirement of New should neither be borrowed nor outsourced. Right links should be selected and cooperative environment should be created between Core co. and New co. An influential and respected dynamic coordinator (DC) should be selected, to which both GM of Core co. and New co. should report. The DC should be skilled enough to understand the different needs of start-up and established organization. Core co. should share brand with New co. New co. should borrow knowledge and manufacturing capacity. New York Times Company is a great example where NYTD evolved from integrated to isolate to distinct but linked to times. NYTD borrowed brand of times. When tensions started ameliorating between Core co. and New co. they set few borrowing strategy. They gave combined advertisement package to traders for both companies. NYTD retained its own separate senior policy team even though it worked hard to create links to the times in other area. In later strategy development the sales team of NYTD worked in coordination of times. And product development for newspaper titles was also done together.

Learning:Learning is process of analyzing; in which the plans are executed and then outcomes are measured compared to the predictions. Learning is closely tied to planning. First you develop a plan predicting specific outcomes from the actions specified in plan then you execute the plan, later you measure outcomes and compare them to the predictions in the plan. Then you diagnose any disparities between predictions and outcomes. The central learning step is to analyze disparities between predictions and outcomes. Predictions are at the heart of learning process. But research shows that predictions are fragile and vulnerable. Hasbro is a toy manufacturer including a world famous G.I. Joe. The company has expanded into games by acquiring Massachusetts companies Milton Bradley and Parker Brothers. The competitor of Hasbro was Mattel which had revenue of $3.8 billion against the $3.1 billion in 1996. Hasbro Interactive a new division was the main reason for the huge revenue Hasbro made. The products such as Monopoly and Scrabble won the industry honour. It was a point that the learning challenge became directly relevant. Unfortunately Hasbro interactive was not prepared for it. Hasbro had very bold expansion plans. But the results of the first quarter in 1999 were disappointing. Hasbro Interactive reported significant loss at the end of 1999. Then Hasbro interactive was sold to an outside buyer for only $100 million. Has Hasbro interactive been engaged in a learning process throughout, a more favourable outcome would
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have been likely. But Hasbro Interactive learning disabilities prevented this option. This shows how behaviour that in many contexts are viewed positively being bold, competitive or demanding can lead to predictions that are ignored, are manipulated or become rigid and thereby cause strategic experiments to falter.

Learning Challenge:Predictions falls victim to four specific learning disabilities. First is that predictions are ignored and the learning step is left to intuition. Second is that predictions or performance perceptions are manipulated and the lessons learned are distorted as a result. Third is that prediction become rigid. Fourth is that predictions and outcomes are analyzed poorly and as a result managers draw lessons that are inaccurate or incomplete. Root causes of these learning disabilities are insufficient engagement in planning process, a strong culture of accountability for performance, self-interest and influence, inappropriate planning process and frameworks. Unfortunately, it is common for leaders of risky and uncertain business to disdain planning and invest little time in it and this minimal investment in planning leads to minimal learning. The second reason that managers give for slighting the planning process is that predictions are likely to be wrong. The third argument that managers tend to make for minimizing attention to planning is that any time spent planning is time not spent doing. Planning can easily be viewed as nothing more than distraction.

Overcoming Learning Challenges:View the planning system as a testing mechanism for new business models; senior executives must invest their time disproportionately in strategic experiments. Managers must be accountable, but for learning and not performance against plans. Theory focused planning must be there. Make key managers aware of how self-interest can distort the learning process; hold planning meetings for the Core Co and New Co separately. Even though New Co may have only a small fraction of the revenues of Core Co, it demands much greater than a small fraction of senior executives attention. Rather than backing away from holding New Co leader accountable, senior executives must shift the basis for accountability. Instead of being accountable for performance against plans, managers of strategic experiments should be accountable for learning. To achieve learning the three players i.e. general manager of New Co, general manager of Core Co and the executive to whom the general manager of Core Co reports must work together to fight any intrusions of self-interest into the learning process.

Various perspective of the book:Forgetting and Borrowing:The book points at the major topics to taken care of while creating new organization forgetting, borrowing and learning. Here a very thin line of demarcation is there between what to forget and what to borrow. For different industries the kind of things to be borrowed
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and to be forgotten will be totally different. For example Western India Products (WIPRO) started its business of vegetable oil in India in 1945. When in 1980s they found opportunity in IT and computer services field. WIPRO had to forgot the set information system of Core co and create a new one suitable for IT industry. Similarly it had to borrow capital from the Core co. If the same company had jumped in other industry the definition of the things to be borrowed and forgotten would have been different. Sometimes New co may have to totally depend on Core co. and forget nothing. So, it is very hard to define what to forget and what to borrow. Culture of New Company:The culture of New co. should not reflect Core co. Management of New company should not held responsible for results. But these things also depends on kind of industry the New co. operating. If an industry is very lucrative and the New venture is not working good then they may lose market share. Apple was the launcher of graphical user interface but due to slake management culture they lost their core competencies.

Learning from the book:This book is a great guide for new venture creation. This book tells about the strategies that talk out of number. Looking on attractive business opportunity of undefined industry managers goes on predicting big numbers. We find many examples of failure of those strategic innovators. The causes of those failures are simple that the new organization in some term should start from scratch but in other it has to have some strength. New organization should start from scratch means that it should have its own culture and discipline of working. The code of conduct of new organization should also be as innovative as the idea. New organization will be dealing with different set of customers, so the approach should be distinct. When Apple Inc. came to computer industry, Xerox and IBM were mammoth to compete. But culture in Apple Inc. was different. The set of customer for Apple was for personal purpose. And IBM and Xerox were suppliers of industrial customer. Apple focused on creativity and adopted Code B culture in the company. Lets take example of worlds most prominent automobile company Toyota, which diversified from totally new industry. Toyoda(actual name) was manufacturer of weaving machine. The company found enormous opportunity in automobile industry and did research work in the field. They set great example of disciplined organization. Toyota followed the culture prevalent in the Core weaving organization. Used various strategies like just in time, lean manufacturing etc. from core co. only. Toyota became role model for automobile industry for its disciplined work that it borrowed from Core co. The huge investment used in research work was also came from Core co. The above two example are just like two sides of a coin. Where on totally supports author point of view and other tells slightly different story. A told earlier it is easy to say that New Co. should forget, borrow and learn from Core co. But it is always hard to decide what thing,
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to what extent, till what point and how should New co. forget, borrow and learn from Core co.