It's a dilemma that every CEO faces at some stage of his company's growth: How to maintain excellence in existing businesses while building those that will drive growth tomorrow. The obvious answer to the paradox is to innovate-to think up ways in which this delicate balance can be struck. But the problem for managers is that while there are dozens of books available on how to innovate, there are few that tell you how to go from idea to execution. In 10 Rules for Strategic Innovators, Vijay Govindarajan, the Earl C. Daum 1924 professor of international business at the Tuck School of Business at Dartmouth, and his colleague and co-author Chris Trimble, do just that. Based on their study of innovative initiatives at 10 large corporations, the authors offer practical guidance for strategic innovators. Slated for launch in the us in mid-December, followed by India early next year, the book has already catapulted Govindarajan to the top 30 of the world's 50 most influential management thinkers as ranked by Suntop Media, a UK-based training and consulting firm. Here's an exclusive excerpt from the book's first chapter:

Why Strategic Innovators Need a different approach to execution

Here is a sequence of events that is familiar to us from our research and may be familiar to you as well: a CEO announces that the strategic imperative for next year is breakthrough growth. Incremental growth from incremental initiatives is no longer enough. To continue to thrive, the company must do new things. It must break all the rules. It must redefine the industry...The company establishes a committee to review preliminary ideas for new growth opportunities. Dozens are submitted, and a handful are selected for further research. Business plans are written. One plan in particular looks most promising.

The CEO examines the chosen project from every angle. Many reasonable proposals are competing for the firm's capital, but none has the chance to reinvigorate growth like this one. The CEO hires an outside expert and receives confirmation that the high-growth-potential business looks like a winner. Now it's a done deal. The CEO commits to the plan, assigns the best available general manager to lead the strategic experiment, and asks a member of the senior corporate staff to shepherd it. Then the CEO makes a big mistake. The CEO moves on to other matters. The new business, after all, is only a tiny fraction of a multibillion-dollar organisation.

How To Fail At Strategic Innovation

Asked to think about the challenges of innovation, most managers think first of the creative, brilliant, and inspired soul who sees the future in a different way-a rebel on a mission. This romance is deeply embedded in our business culture. The CEO's mistake lies in buying in to the romance. The error is in assuming that the company has already hurdled the most difficult barriers to innovation: finding a great idea and a great leader. In fact, the biggest challenges are still to come. Our research has shown that strategic experiments face their stiffest resistance once they are showing signs of success, consuming more resources, and clashing with the organisation at multiple levels.

Ideas get you only so far. Consider companies that have struggled when their competitors have redefined the industry. Why did Xerox and Sears continue to struggle even after the genius behind Canon's personal copiers and Wal-Mart's new everyday-low-price discount retailing format was apparent to everyone; It's because the leaders of any groundbreaking new business must not only identify the big idea but also (1) attract funding, (2) learn quickly from success and failure, (3) rally people around a fuzzy view of the future, (4) reorganise to leverage the lessons learned, and (5) manage expectations of performance amid chaos.

Tendencies within established organisations present additional barriers. In addition to the five challenges just mentioned, the leader must also (1) protect funding for NewCo regardless of the performance of CoreCo, (2) establish new organisational norms and policies that make sense for NewCo, (3) overcome tensions between NewCo and CoreCo when those norms and policies conflict, (4) effect changes in the existing power structure required to support NewCo, (5) engage CoreCo employees in supporting NewCo, and (6) recruit talented CoreCo managers to work within NewCo. The degree of managerial difficulty is very high.

Simply put, strategic experiments are likely to fail if the company relies solely on the heroism of a hypertalented individual, even one who has a great idea, is backed by a gifted senior executive champion, and faithfully follows 10 commandments of intrapreneurship. Instead, companies need to build organisations based on the 10 rules we develop in this book.

INTERVIEW: VIJAY GOVINDARAJAN "Ideation Is Not An Issue, Execution Is"

In between his consulting assignments and book promotion, Vijay Govindarajan, or VG, took time off to speak over the phone with BT's R. Sridharan. Excerpts: There is a lot of management literature already available on innovation. How is your book different? There are two big differences. The books that you already have on innovation are more about continuous improvement, and not breakthrough innovation. Even the latter sort tell you how to come up with breakthrough innovations, but they don't tell you how to go from innovation to execution. Our book is about how to execute on strategic ideas. Execution is critical because breakthroughs take place in entrepreneurial space. How to take fuzzy business models-which is what all strategic ideas are in the beginning-and turn them into growth engines. I am not saying that other kinds of innovation are not important. It's just that strategic innovation is more important for a company from a long-term perspective. What are the typical problems large companies run into when managing strategic innovation? Large companies typically have a strong focus on accountability. Their internal performance system measures and rewards continuing businesses, whereas strategic innovation is about managing uncertainty. Results are rarely immediate. The second problem is the silo mentality. The departments and executives have a strong sense of individuality, there is no collaboration. But to successfully execute on strategic ideas, the new division (called NewCo in the book) must borrow resources from the parent (called CoreCo). This is what we call the borrowing challenge-gaining access to concrete value, but forgetting (losing) assumptions and biases. Innovation is often romanticised as skunkworks. To me that is bologna. We need to move away from creativity to execution. Ideation is not an issue, execution is. How come your book doesn't look at companies like Nokia or Apple that have literally reinvented themselves? In the case of Nokia, there was no threat of cannibalisation it faced when it went from paper to telecommunication. Similar is the case with Apple. Its iPod hasn't made obsolete its PCs. But consider the risk that the New York Times (one of the case studies in the book) ran when it decided to set up an Internet division: Putting the newspaper online could have killed the offline product. And that's what the challenge for most large corporations is: How to create new businesses while not losing focus on the existing ones. Finally, why 10 rules, not 9 or 11? 10 is a nice round number.

Creativity And Execution

Many companies have attempted to alter their organisational codes to accelerate innovation. But in doing so, they have focussed mostly on creativity-generating ideas-and little on execution-converting ideas to results. We asked hundreds of executives in Fortune 500 companies to rate their companies' innovation skills on a scale of 1 to 10, where 1 represents minimal skill and 10 represents mastery. Survey participants overwhelmingly believe that their companies are far better at generating good ideas (giving this skill a score of at least 5 or 6) than they are at determining what to do with them (giving scores as low as 1 or 2).

We think of an organisation's capacity for innovation as the product of creativity and execution. We say "product" and not "sum," because if either creativity or execution is zero, then capacity for innovation is also zero. Some quick math: which is more effective-lifting your creativity score from 6 to 7, or doubling your execution score from 1 to 2? Nonetheless, most companies, when hoping to improve innovation, focus on generating ideas. Managers obsess over the front end of the innovation process. But the real leverage is in the back end-in execution.

The Mystery Of The Middle

If ideas are only a beginning and if organisations are more powerful than people, then what is the organisational code that enables a company to excel at turning breakthrough ideas into breakthrough growth?

Companies that focus on creativity often adopt an anticode: they break all the rules in the belief that creative organisations have little in common with disciplined, efficient ones. There is some validity to this notion.

To be efficient (code A)

• You stick to your knitting.
• You exploit what you know.
• You meet current customer needs.
• You plan.
• You demand accountability.
• You impose process and structure.

To be creative (code B)

• You think outside the box.
• You explore what you don't know.
• You anticipate future customer needs.
• You let things emerge.
• You allow freedom and flexibility.
• You avoid process and encourage unstructured interaction.

Code A encourages discipline. Code B encourages creativity. In most companies, code A is mainstream, and code B is counterculture. In our observations of breakthrough new businesses, clashes between the two were pervasive. Inevitably, CoreCo believes that code A delivers results and that NewCo must soon deliver results, too. NewCo, on the other hand, sees that it needed code B to get started and wants to stick with it. Both sides are passionate. The debate dominates meetings and defines the agenda.

Such struggles are unproductive. To see why, consider that every innovation story has a beginning, a middle, and an end. Great companies are masters of efficiency-code A. That helps, but efficiency is not needed until the end of the innovation process. Most companies also understand that creativity is in many ways the opposite of efficiency. That is also good, but creativity is the dominant priority only at the beginning of the innovation process.

In the middle, most companies are lost. They do not understand the code for turning breakthrough ideas into breakthrough growth. Because they are lost, they gnash their teeth over the stark contrasts of the two organisational codes that they understand: A and B, code and anticode. But during NewCo's awkward adolescence, neither creativity nor efficiency is the dominant priority. The need for creativity declines after you have a business plan, and focussing on efficiency is premature until the business is proven and stable.

So the question is, what is the nature of the journey from business plan to profitability? From creativity to efficiency? What kind of organisation can excel in the middle of the innovation process? Let's call it code X. We dedicate the rest of this book to revealing the 10 rules of code X that will help you turn mere concepts into breakthrough growth. First, recognise that code X is not simply a mix of A and B; code A may be black, and code B white, but code X is not gray.

Code X must address the three unique challenges that arise from the unnatural coexistence of a new and a mature business within the same corporation: a forgetting challenge, a borrowing challenge, and a learning challenge. NewCo must forget some of what made CoreCo successful. It must borrow some of CoreCo's assets-the greatest advantage NewCo has over independent start-ups. And it must be prepared to learn how to succeed in an uncertain market.

The Forgetting Challenge

Why must NewCo forget? Executives usually repeat actions that they believe have produced success. If success continues, then not only individual executives but also entire organisations shift from consciously repeating these actions to unconsciously accepting them as correct. Even when organisations face failure, it is a struggle for them to reassess these deeply entrenched assumptions. They become orthodoxy.

NewCo must forget three things. First, it must forget CoreCo's business definition. Strategy itself can become an orthodoxy, as answers to the basic questions that define a business-Who are our customers? What value do we provide? How do we deliver that value?-become second nature. NewCo must have the freedom to answer these questions differently and even to pursue options that may cannibalise CoreCo revenues. Second, NewCo must recognise that a different business model requires different competencies. CoreCo's areas of expertise will not matter as much to NewCo as will the new competencies it must develop. Third, NewCo must forget CoreCo's focus on exploitation of a proven business model and shift to exploration of new possibilities.

For example, when GM created OnStar-its integrated automobile information, safety, and communications system-it had to forget all three. It had to adapt to a new business model; the communications services market demanded a much different value proposition and a much shorter product development process than did automaking. It had to build a new competency in information technology. And it had to systematically identify and eliminate unknowns rather than exploit a proven business.

The Borrowing Challenge

Consider the advantages that independent start-ups have over existing corporations. They can offer the possibility of tremendous wealth to the management team. They can move quickly, unhindered by the bureaucratic decision-making processes that sometimes debilitate large corporations. They also benefit from the advice of professional investors who understand the needs of new ventures. Further, they have no entrenched mindsets to overcome. Independent start-ups have nothing to forget. NewCo can compete effectively against start-ups only by borrowing CoreCo's assets: existing customer relationships, distribution channels, supply networks, brands, credibility, manufacturing capacity...resources that start-up ventures can only dream of.

In every strategic experiment we studied, part of the justification for making a risky investment was that there was some unique asset or capability that CoreCo could offer NewCo. Corning could help Corning Microarray Technologies (CMT) by sharing its existing facilities and its expertise in manufacturing processes that required precise control of tiny quantities of fluids. The New York Times Company offered New York Times Digital (NYTD), its Internet division, a well-respected brand in addition to the journalistic content it produced for the newspaper. Analog Devices lent its expertise in semiconductor manufacturing methods to its strategic experiment to commercialise a new technology for automotive crash sensors. In each case, NewCo had little chance if it failed to borrow.

Note that there is an important distinction between forgetting and borrowing. NewCo must forget assumptions, mindsets, and biases. NewCo must borrow assets. That is, forgetting is about what goes on in your head. Borrowing is gaining access to resources with concrete value.

The Learning Challenge

In addition to forgetting and borrowing, NewCo must learn. The notion of organisational learning is a broad one, but in the context of strategic innovation its meaning is specific. One learning curve matters more than any other for NewCo: improvement in its predictions of its business performance.

In learning to predict performance, NewCo proves or disproves theories about what can work. Initial theories are usually wrong. For example, Corning anticipated that mastering the steps in specialty glass manufacturing would be the most challenging part of manufacturing dna microarrays, but it found much bigger challenges elsewhere. New York Times Digital initially expected to build a separate and independent newsroom for the new online medium but eventually found it unnecessary. Analog Devices anticipated that its new semiconductor technology would lead to the development of new markets in addition to automotive crash sensors, but only the automotive market proved economically viable. The faster these kinds of uncertainties are resolved, the sooner NewCo can put itself on a clear path to success.

Note that a failure to forget cripples the learning effort. If NewCo cannot let go of CoreCo's success formula, it cannot discover its own.

Organisational DNA And The Three Challenges

In analysing each strategic experiment that we researched, we focussed on the ability of NewCo to overcome the forgetting, borrowing, and learning challenges. Ultimate success for NewCo also depends on several other factors, but most of them are not controllable. For example, because strategy formulation in any nascent market involves a great deal of guesswork, luck plays a role. Among the controllable factors, however, we believe that organisational DNA is by far the most important.

When initiating a strategic experiment, executives must make difficult choices to give NewCo the DNA it needs. Because of everything that must be forgotten, NewCo's DNA must be very different from CoreCo's. For example, NewCo may need external hires to build new areas of expertise, whereas CoreCo emphasises internal promotion. NewCo may use a flat organisational structure and encourage unstructured interaction, whereas CoreCo prefers more hierarchy and formal reporting. NewCo may emphasise experimenting and learning, while CoreCo demands accountability to plans. NewCo may encourage risk taking, whereas CoreCo seeks a more conservative culture.

But giving NewCo a unique DNA can lead to resistance. Corporate executives who have played by the rules to work their way up a career ladder in CoreCo will resent changes in routines for such things as establishing organisational hierarchy, assigning staff, granting promotions, allocating resources, providing incentive compensation, or evaluating business performance. Therefore, in creating NewCo, CEOs must be prepared to make unpopular choices, and they must avoid making the choices that are easiest and most convenient.

CEOs who aren't willing to make difficult choices will simply replicate CoreCo's DNA for NewCo. This makes it hard for NewCo to surmount the forgetting challenge, because it remains immersed in CoreCo's assumptions, values, and decision biases. It also makes it difficult to learn, because CoreCo's culture and management systems are designed to exploit a proven business and not to experiment with a new one. When NewCo's DNA is the same as CoreCo's, NewCo is effective only at borrowing. It overcomes only one of the three challenges.

Other CEOs may be willing to create a unique DNA for NewCo but become preoccupied with the conflicts and tensions that result at points of interaction between NewCo and CoreCo. For example, CoreCo understands existing customers, but NewCo must be attentive to emerging customers. CoreCo is focussed on efficiency, often through rigorous definition of processes, while NewCo must remain flexible and emphasise learning. And CoreCo is loath to prioritise the long-term needs of tiny NewCo over the immediate needs of its own, much bigger business. Not surprisingly, many of the executives we spoke to cited points of interaction between NewCo and CoreCo as critical trouble spots.

These conflicts lead to an urge to isolate NewCo from CoreCo, a step that some researchers have suggested. But we maintain that this is an overreaction to legitimate concerns. An isolated NewCo may succeed at forgetting and learning but will not be able to borrow from CoreCo, because borrowing requires interaction. As mentioned earlier, an ability to borrow existing assets is the most important advantage that corporations have over independent start-ups.

Neither replication nor isolation works. Replication facilitates borrowing, but not forgetting or learning. Isolation may allow forgetting and learning, but not borrowing.

Note that for other kinds of innovation initiatives (and not strategic experiments), replication or isolation can work. For example, a new product launch that does not alter the business model may succeed through replication; it need not forget. An investment in a new business that is unrelated to the core business may succeed through isolation; it need not borrow. But a strategic experiment must both forget and borrow.

Indeed, strategic innovation demands a design that overcomes all three challenges. NewCo can forget only by departing from CoreCo's organisational norms. NewCo must have its own DNA. Forgetting, however, is about changing behavior. It is easy for NewCo to talk like NewCo but act like CoreCo. As you will see, there are powerful sources of organisational memory at work. For NewCo to borrow, CEOs must establish a limited number of links between CoreCo and NewCo. They must then foster favorable conditions for cooperation between the two entities and carefully monitor their interactions.

Finally, for NewCo to learn, it needs unconventional planning systems tailored to the dynamic environment faced by strategic experiments. (It) must value learning over accountability, and it must ensure that disparities between predictions and outcomes are analysed quickly and dispassionately. If NewCo struggles to forget, it will inevitably struggle to learn. It cannot find its own success formula if it remains bound to CoreCo's.

As part of its Knowledge Management Forum, Business Today is bringing Vijay Govindarajan to India for a two-city seminar on "Innnovative Strategies for Creating the Future: From Idea to Execution". The first seminar will be held in Delhi on January 23, followed by Mumbai on January 25. For more details, email us at bt@intoday.com.