Retail Operations

Top Three Playbook Ideas for C-Suite Executives: An interview with Professor Michael Tushman of the Harvard Business School

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Preface: With only 12.2% of the Fortune 500 companies in 1955 still on the list in 2015[1], how can today’s C-Suite executives successfully lead their teams for long-term success? This Q&A is part of a series inspired by Fortune’s Most Admired Company rankings.[2] The process includes interviewing executives and professors for their insights on the specific attributes that are measured to derive these rankings and their potential role in company transformation. In this interview, Professor Tushman shares his ideas on quality of management and innovation.

Q. With the recent announcement that the Dollar Shave Club will be acquired for $1 billion, many people might agree with Professor Clayton M. Christensen’s pessimism about whether established companies can prevail in the face of disruption. After all, if even a perennial Fortune Most Admired Company like P&G can have one of their key brands disrupted by a start-up entity that was created only about 5 years ago; what are the realistic chances for long-term success of our current Fortune 500 firms?

A. Clay is right about the risk of disruption, but his prescription for what to do about it has a flaw. He advocates separating out your innovation units as spin-outs. It sounds attractive, but it doesn’t work as well as he claims. Why? Because you give up all the advantages of being a large, successful firm and behave like a start-up. Start-ups are great, but if you’ve looked at the rate of start-up failure, it’s pretty easy to see the odds are against you.

We advocate ‘Ambidexterity’: keep the ‘explore’ business separate from the core, but still let it have access to all the assets of the mothership. That’s what can set it apart from the start-ups. The ambidextrous unit can take what it needs to be successful from the existing business –  brand, technology, manufacturing, go to market resources – without all of the cumbersome operational bureaucracy of a large firm.

For the past fifteen years, Charles O’Reilly (a Professor at the Stanford Business School) and I have researched successful renewal efforts at a number of companies in different industries. Our conviction is that innovation can be optimized when a company leverages the potential synergies between a firm’s existing capabilities and ideation investments. For instance, consider how HBS is attempting to redefine who we are and what we do with the web. While we have continued our successful operating model to bring leaders in for in-person executive education classes, we’re also leveraging one of our historical strengths (our teachers) to engage with a much broader audience via new digital/tech channels like HBX (HBX.hbs.edu), which is part of the school.

Q. Given your perspectives on ambidexterity, some readers might challenge that the concept sounds good, but wonder if potential duplicative investments in efforts and resources will drag down financial performance?

A. Firms cannot exploit and explore for free. However, you can exploit yourself to death via the ever popular operational excellence goals of effectiveness and efficiency.  Instead, prudent leaders are able to make strategic investment decisions on exploration targets via lean and disciplined experimentation as well as creative R&D collaborations with other companies and academic entities. Moreover, much research has been conducted on the value of ambidexterity and it has been shown to be positively associated with sales growth.[3] For those of your readers who are interested in the findings, I’ll provide the link. [4]

Q. Given the potential value of ambidexterity, what are the top three playbook ideas that you have for C-Suite officers?

A. First, based upon our research, elevate your exploration efforts such that the teams are directly reporting to your C-Suite. Rather than have their efforts limited by the potential bureaucracies of large organizations, they need to be purposely separated so that adequate time is enabled for experiments to gain traction or eventually discontinued.

Second, even after elevating such innovation efforts, the inevitable challenge will be for C-Suite leaders to build a culture that embraces contradiction since employees often struggle with executing against both exploitation and exploration targets. With their likely different KPIs and timelines, employees can become perplexed with understanding how they fit into the company’s overall strategic path forward. And so, C-Suite leaders need to clearly communicate the logic and aspirations of both, to help build higher employee engagement.

Finally, these C-Suite leaders need to be brave in their path forward. As many of these leaders are often measured on short-term results, when challenges emerge they often pivot towards the one (exploitation) which is familiar and where incremental improvements are prized. Still, to build sustainable success, these leaders require courage to stand up new operating models, enter new markets and if need be, lead change of existing vision statements.

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Michael Tushman is the Paul R. Lawrence MBA Class of 1942 Professor of Business Administration and Chair, Program for Leadership Development. Tushman was on the faculty of the Graduate School of Business, Columbia University, from 1976 to 1998; he was the Phillip Hettleman Professor of Business from 1989 to 1998. He has also been a visiting professor at MIT (1982, 1996) and INSEAD (1995-1998, 2011). In 2008 Tushman was awarded an honorary doctorate from the University of Geneva. In 2013 Tushman was awarded the Academy of Management’s Career Achievement Award for Distinguished Scholarly Contributions to Management. He also won the 2013 Academy of Management Review Decade Award for his paper with Mary J. Benner, “Exploitation, Exploration and Process Management: The Productivity Dilemma Revisited”. Tushman was also the recipient of the 2013 Apgar Award for Innovation in Teaching, and was the winner of the 2013 Lifetime Achievement Award from the American Society for Training and Development (ASTD).

He has published numerous articles and books including Lead and Disrupt: How to Solve the Innovator’s Dilemma (with C. O’Reilly), Stanford University Press, 2016; Winning Through Innovation: A Practical Guide to Leading Organizational Renewal and Change (with C. O’Reilly), Harvard Business School Press, 1997, 2002; Navigating Change: How CEOs, Top Teams, and Boards Steer Transformation (with D. Hambrick and D. Nadler,1998), Harvard Business School Press; Competing by Design: A Blueprint for Organizational Architectures (with D. Nadler), Oxford University Press, 1998; and Managing Strategic Innovation: A Collection of Readings (with P. Anderson), Oxford University Press, 1997, 2004.

Professor Tushman holds degrees from Northeastern University (B.S.E.E.), Cornell University (M.S.), and the Sloan School of Management at M.I.T. (Ph.D.).

[1] American Enterprise Institute, 2015, https://www.aei.org/publication/fortune-500-firms-in-1955-vs-2015-only-12-remain-thanks-to-the-creative-destruction-that-fuels-economic-growth/

[2] Key attribute measurements for Fortune’s Most Admired Company rankings include: innovation, people management, use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment value, quality of products and services, as well as global competitiveness

[3] Organizational Ambidexterity: Past, Present and Future, May 2013

[4] https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/319236

 

Associate Partner, IBM Global Enterprise Transformation

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