You get to decide by selecting someone from the list. Now leadership isn't always be a popularity contest, but I do appreciate all of you who have emailed me to let me know about the contest.

Thank you!

P.S. - vote by selecting a name from the drop-down menu >>

Here's what they had to say:

"Ten Rules for Strategic Innovators: From Idea to Execution is the best book we’ve seen on the “how-tos” of creating an innovative new business, and thus the single best strategic book of the year. The authors’ five case studies — Corning, the New York Times, Analog Devices, Hasbro, and an unnamed manufacturer of computer printers — reflect our own experience with clients. In short, this book rings true. Furthermore, the 40 percent success rate the authors observe is the same we’ve found in our work on strategic innovations.

"To turn a powerful idea into a successful business, authors Vijay Govindarajan and Chris Trimble, both of Dartmouth’s Tuck School of Business, recommend: “forget, borrow, and learn.” Forget assumptions, mind-sets, and biases from the traditional core business, because a new business (as opposed to a business extension) must be fundamentally different from a company’s traditional core business. Borrow assets like existing customer relationships, distribution channels, supply networks, brands, credibility, manufacturing capacity, and technological expertise from the core business, because those assets confer a significant advantage over entrepreneurial startups. Learn to make ideas — some of which may not be new — work together in ways that are fresh to your industry. And learning quickly minimizes the time to profitability, lowers risk exposure, and maximizes the chance to overwhelm the competition.

"The authors argue that the key measure of learning is the ability to predict future performance. They recommend “theory-focused planning,” a process based on the scientific method designed to test a series of predictions until they lead to sufficiently reliable forecasts. They also recommend holding leaders of potential strategic innovations accountable for learning, not for profitability and growth. After all, the value created by a strategic experiment is primarily a function of its likelihood and speed of success (i.e., its ability to learn), not its profitability and growth during the experiment. Those metrics are better applied to existing businesses.

"The heart of 10 Rules is detailed guidance about the “organizational DNA” of the new strategic enterprise. “In the context of strategic innovation,” the authors write, “organizational DNA matters because CEOs cannot be on call to solve every problem that NewCo faces. They cannot make every decision; instead they must shape decisions by encoding assumptions, values, and decision biases into NewCo’s DNA at the time it is created.” This DNA includes the familiar elements of staff, structure, systems, and culture. 10 Rules excels in its ability to provide actionable organizational guidance for designing these elements, and for linking the assessment of the causes of problems to recommendations of solutions in the context of real cases."

Chris and I are quite happy with this assessment because, quite simply, it means that more people will read the book!

We wanted leaders to understand what makes the difference between success and failure when it comes to growth driven by strategic experimentation. Our hope is we make a difference.

My Indian colleagues and I don't see it this way. This isn't a fad, or a business mantra.

What we are seeing is a new force in the history of capitalism. A capitalism which acknowledges its debt to society at large. Whatever we choose to call it, this enlightened capitalism is not going to go away. It is simply the only sustainable way forward.

In the article, I'm quoted as saying: "Karma is a principle of action. Innovation is about creating change, not reacting to change." What they didn't quote me on was dharma - the privileges, duties, conduct and obligations of the individual as a member of the community. If individuals have a responsibility to society, why shouldn't business?

Like my grandfather before me, we believe in the good in all people and have a genuine respect for the individual. Like him, we are helping leaders set their sights higher than they previously envisioned.

Here are the key questions:

Q. Why is the subject of innovation so hot these days?

A. In the 1990's, people were just rolling the dice and spending billions of dollars. It was reckless innovation. Post-9/11 and the dot-com bursting, people went back to cost-cutting. But now they also said, "After Act I is over, we must create growth and innovation." This time, they're saying, "We want to grow, but minimize risks and grow profitably." Innovation has come back with a different twist. It's very much on the agenda of chief executive officers. Without growth and innovation, organizations die.

Q. Is this fascination with innovation being driven by the emergence of new competitors from China and India?

A. The emergence of India and China has made innovation extremely critical. Together they are about $2 trillion in gross domestic product. That's only 5 percent of the world's G.D.P. But if these two economies grow at the rate at which the World Bank and Goldman Sachs predict, then tens of trillions of dollars worth of economic activity will be created in the next 25 years.

Q. Are larger companies a more important source of American innovation than smaller ones?

A. I would not say it is "either" or "or." We need small start-ups to continue the innovation stream. But I believe that only large companies like General Electric can solve big, complex problems, which can make a huge difference to humanity.

Q. Which are the most innovative large companies today?

A. There is no perfect example. G.E., eBay, Johnson & Johnson and 3M come to mind. This is a topic that almost every company is concerned about. When you are a large, established, tradition-bound company, to fundamentally innovate, it's not in your genes. Fundamental innovation implies that you have to selectively forget some of the things you're doing well today. That's not so easy.

Q. You say that Apple is among the best innovators in the technology world. Which other companies belong on that list?

A. Motorola. They stumbled in the 90's and missed the boat on several things. But in the past three or four years, it has regained its dominant position. A third company is Google. Some people said it was just a fad and would disappear. But they have created a whole new space and continue to change the rules of the game.

Q. The largest 500 companies in the country have been net shedders of jobs. Shouldn't they be considered consolidators, not innovators?

A. Yes and no. It is true that if you look at Fortune 500 companies, many of them have focused on cost-cutting, re-engineering and restructuring, all of which means shedding jobs. It will be a real shame if companies go bankrupt because they just simply shed jobs. The question is, how do we stop it? They have a lot of capabilities. We as a country must help these companies to maintain an innovative spirit.

Q. Say I'm the chief executive of a major company. Is there a secret to achieving innovation in my company?

A. First, strategic innovation is critical for you. Don't ignore it. In addition to continuous process improvement, focus on strategic innovation. Secondly, coming up with a new idea is only the starting point. You need to pay attention to execution of the idea.

Q. What else do I need to do?

A. You must be able to forget some of the success formula by which you are succeeding today. By definition, that's irrelevant. Secondly, you must be able to borrow one or two of the core assets of your company and lend them to the new idea.

Q. What's the final part of the challenge?

A. The new venture must learn to resolve uncertainties. There are always questions about the size of the market, what the customer needs, what the technology solutions are - these are always unknown. It's the person who resolves the uncertainties and learns the fastest who will win.

Q. Exactly who should manage the hot new idea?

A. You must hire an outsider to run the breakthrough idea because insiders are always wedded to orthodoxy and the inside success formula. You must also hire liberally from outside. Hiring from within kills breakthrough innovation. And the business should report to the C.E.O. even if it is very small. It must get the same organizational status as other business units or it is going to be suffocated.

Q. So would you say the chief executive has an important role in making breakthrough innovation possible?

A. A tremendously important role. I consider the C.E.O.'s role in the modern corporation to be building the capacity to continuously innovate in a breakthrough way. The C.E.O. doesn't create the strategy, but should be listening to the voices of people who are able to see the future. It is the role of the C.E.O. to spot and encourage them. Then, once an idea has promise, you must help build a separate organization around that person.

- "Being Direct" by Lester Wunderman
- "Purple Cow" by Seth Godin
- "Waiting for Your Cat to Bark" by Bryan Eisenberg, Jeffrey Eisenberg and Lisa T. Davis
- "Call to Action: Secret Formulas to Improve Online Results" by Bryan Eisenberg and Jeffery Eisenberg
- "Tipping Point" by Malcolm Gladwell
- "Blink" by Malcolm Gladwell
- "Freakonomics" by Steven D. Levitt and Stephen J. Dubner
- "Art of the Start" by Guy Kawasaki
- "Ten Rules for Strategic Innovators: From Idea to Execution" by Vijay Govindarajan and Chris Trimble

Perhaps I ought to put down my own reading list before the summer is over. Do let us know if you have any recommendations and tell us why they're worth reading.

Why is this happening now?

As I said in the article, “I remember when I got my job at Tuck 20 years ago I was the first Indian faculty member. Now it’s not unusual to see 20 per cent of faculty with Indian roots and connection.”

But why is this flowering of ideas happening now?

On a personal level, I ask myself: "What is it that made me passionate about learning and ideas in my childhood?"

The positive experience that influenced me spanned the majority of my childhood and early adult years. I grew up in the small town of Annamalainagar in southern India. My grandfather was a very religious man, but more importantly, he was an intellectual. Before he moved to Annamalainagar, he was an advisor for the Maharajah of Mysore.

Every weekend early in the morning, my grandfather would leave our home to share ideas with an informal and ever-changing group of children. There was but one common denominator among these children: they were extremely poor and underprivileged. Sitting under a banyan tree in the center of town, my grandfather would spend hours coaching them—helping with schoolwork, planting seeds of inspiration, encouraging higher goals, and wanting them to succeed. Even though we were Brahmins belonging to the upper caste, my grandfather did not see his activities as being unusual. He believed in the good in all people and had a genuine respect for the individual.

At the time, I too didn’t understand why he was giving so much of himself. As a child, I found his behavior an inconvenience because we couldn’t eat lunch until he returned home!

I didn’t begin to appreciate the value of what he was doing until I was in my teens. Many of the children he had inspired had grown to be successful in a variety of professions. They came home just to thank him.

As I grew older, my grandfather’s work inspired me as well. Without his influence, I may not have had the courage and confidence I needed to leave the security and prestige of a top company to search for and fulfill my own ambitions.

My grandfather also shaped the way I work with corporations today. His mission in life was to make a positive difference in the lives of others.

To ensure I have the greatest opportunity for positive impact, there are four questions I continually ask myself.

First, am I passionate about what I am doing? I find that passion is contagious and is extremely powerful in influencing others.

Second, am I learning— becoming different and growing intellectually? In retrospect, I know my grandfather learned as much from his young students as they learned from him, and that learning kept him motivated and fully engaged.

Third, am I altering the aspirations of others, helping them to set their sights higher than they previously envisioned? I believe aspirations provide a guide-wire for our goals. The higher the goals, the higher are the subsequent accomplishments.

And, finally, I ask, do I respect the corporations and executives I work with? Genuine respect is a crucial source of influence, a concept my grandfather understood.

I think there is a cultural aspect to learning as well. In India learning is viewed as sacred tradition, and I believe there is a strong "learning ethic" woven through our culture and lives.

I am beginning to see this "learning ethic" much in the same way as I view the "work ethic" of the early Protestants. In part it explains the devotion of my grandfather to his students, and it explains why his actions shape my thinking to this very day.

We strongly believed that there are many different kinds of innovation, and each requires a profoundly different management approach.

Here are the four fundamental categories of innovation, as described in our book:

1. Continuous Process Improvement
GE's well publicized six-sigma program made continuous improvement a household word. The focus is on incremental process innovation.

2. Process Revolutions
The implementation of new technology to create a significant improvement in process efficiency. For example, the introduction of RFID technology can dramatically improve supply chain management productivity by 30 percent.

3. Product or Service Innovations
Remember Cabbage Patch dolls, Tickle Me Elmo, and Razor scooters? Those were all product innovations- creative ideas that bring in revenue, but don't change existing business models.

4. Strategic Innovations
As described earlier, strategic innovations may include process or product innovation, but they always involve uncertain, new business models.

The cost, timeframe, and risk of each type of innovation increases as we go down this list. We encourage companies to try all four, but we chose to focus on strategic innovation because it's the key to breakthrough growth. It is through strategic innovation that companies lead change, create new lifecycle curves and alter the very nature of their industries.

Finally, the limits of innovation have less to do with creativity or technology than management skill. But that's the subject of another post.

Thus, leaders of breakthrough new businesses have a simple and intuitive strategy for motivating their teams. Tell them that they will be part of a nimble, entrepreneurial, and innovative new business unit that can create the future and change the world. Tell them that the new business unit will have a different culture -- more open, more egalitarian, more empowering. Tell them that they were hired to be part of an elite team because they were the best. Tell them that they were selected because they can think differently, because they are natural rebels, and because they are ready to break out of the traditional mold. Tell them that they are the type of people that can succeed in ways that others in the company can not. Tell them they are going to help save the company from itself.

This approach generally works. In our research, we've observed repeatedly that NewCo employees are highly motivated by it. But what is the message for the managers that continue on with CoreCo?

There is indeed a message. It comes through loud and clear, and it is not pleasant. The message is that CoreCo employees are incapable of turning the company around on their own. That they are rigid, lifeless, and stagnant. Closed-minded, bureaucratic, and top-heavy. Relics of the past. Fossils. Conformists. Utterly incapable of thinking outside the box.

The stuff of healthy rivalry? Hardly. Such stereotypes are hurtful, and can easily destroy any chance for cooperation between NewCo and CoreCo.

Unless NewCo has embarked on a fool's mission, cooperation is crucial. Companies should be selective about the new high-growth-potential new businesses that they invest in. The competition is stiff -- privately financed independent startups, and the vast and sophisticated networks that stand by ready to support them. So why should a large, mature company think it can win in an emerging and uncertain market? It shouldn't, unless there is a convincing story about how CoreCo's unique assets, resources, or processes can lend a crucial competitive advantage to NewCo.

Leaders of NewCo need a different approach. They must place a high priority not on differentiating themselves from CoreCo, but partnering with CoreCo. This is not an easy mandate. There are numerous sources of tension that naturally develop between the two. CoreCo may resent the resources that NewCo diverts from its own projects. They may be angered by the fact that while they are squeezing every budget line to deliver the best possible margin, NewCo is able to spend freely with only a distant promise of profits. They may fear that NewCo will cannibalize CoreCo revenues. They may believe that NewCo will, out of inexperience, damage CoreCo brands or customer relationships that have been nurtured for years or even decades. They may resent the attention that NewCo gets from the press or the senior management team. They may naturally feel they deserve more respect. After all, they are the foundation of the company's current profitability, and the architects of the company's success to date.

Despite these barriers to cooperation, NewCo's leader can establish a partnership with CoreCo. It takes a dose of humility, a dose of empathy, and a few moments' thought about common interests that NewCo and CoreCo share.

Sure, tell NewCo's staff that they have a chance to change the world and revitalize growth for the company. But only a chance. And only through an effective partnership with CoreCo.

Sure, tell NewCo's staff that they are part of a special organization. But it is not special because it is anything but CoreCo. It is special because it has an opportunity to extend CoreCo's legacy into a new generation.

And sure, tell NewCo's staff to cherish innovative thinking, flexibility, and initiative. But remind them that CoreCo aspires to the same. In fact, there are any number of shared values, from teamwork, to collaboration, to respectful communication, to respect for a shared brand image. Focus on similarities, not differences -- particularly in direct interactions with CoreCo.

The fates of NewCo and CoreCo are interwoven. Divisive leadership can only lead to destructive backlashes.

It's much simpler identifying potential gains on paper than smashing through the barriers necessary to bring two distinctly different organizations together.

And when big buys little and mature buys new, the organizational degree of difficulty becomes particularly high.

Overcoming the challenge of somehow stitching together tradition and invention couldn't be more important in industries facing major transitions. Consider pharmaceuticals, where the dominant model is shifting from the population-based, blockbuster drug model to more targeted therapies tailored to patients' unique genetic makeup. To sustain excellence through the transition, the major pharms will have to build entirely new competencies -- one important mechanism for doing so, being the acquisitions of biotechnology startups.

For the newly-acquired company, "NewCo," to thrive within "CoreCo," there must be a fine balance between separation and integration. It's easy to destroy NewCo, even when both sides join with the best intentions.

Though technology considerations may have led to the acquisition, organizational decisions will make or break the purchase. NewCo comes into the process with an entirely different organizational DNA, and much of that distinctness must be maintained. CoreCo must forget its assumptions about success, and be ready to question second nature assumptions about how it manages its organization. Most likely, NewCo will benefit from different approaches to hiring, promoting, hierarchy, metrics, management processes, culture, and more.

Unfortunately, past merger experiences may lead CoreCo in a different direction -- particularly if such experiences included a major merger with an industry peer. The primary objective of such mergers is usually to achieve economies of scale, one of the most obvious ways involving support functions. But many support functions -- particularly IT, HR, and strategic planning -- have direct and dramatic impacts on organizational DNA. Consolidating here may save a few dollars, but ultimately destroy the organizational fabric that enables NewCo to win in a game much different from CoreCo's.

The acquiring company should be very selective in choosing to integrate its own processes with NewCo's. Where incremental cost saving is the only benefit, NewCo should remain fully independent. But CoreCo likely has at least one or two assets which NewCo could formerly only dream of. Consider the power of an experienced pharmaceutical sales team to a nascent biotech startup.

Giving NewCo the ability to leverage CoreCo's assets is never as easy as drawing a line on an org chart. Building cooperation between two entirely different organizations, with very different priorities, is a touchy proposition.

That's why the most important priority for the senior management team should be ensuring that one or two valuable links between NewCo and CoreCo work. Everywhere else, leave NewCo alone.

There have been four distinct “business models” in the high jump. Each enabled athletes to achieve breakout performance.

Early on, the “scissors” style dominated; it was much like hurdling. As all high jumpers were using the scissors approach, the name of the game was being the best at scissors. The high jumpers were operating in Box 1. If they were businesspeople, they would have been competing on cost, market share, and margins.

One day, someone changed the rules of the game by inventing the “western roll.” (High jumpers launched and landed on the same foot and kept their backs to the bar.) The western roll was the style for twenty-five years until someone changed the rules again, introducing the “eastern roll,” a.k.a. the “straddle.” (Now high jumpers launched and landed on opposite feet and faced the bar.) Then, in the 1968 Olympics, former gymnast Dick Fosbury broke the Olympic record by three inches, creating a third discontinuous change. (The “Fosbury flop” involved a straight approach, jumping with both feet and twisting the body 180 degrees, like a gymnast, looking away from the bar.)

These nonlinear shifts exemplify Box 3 thinking. Each transformed the high-jump “industry.” In each case, the inventive high jumpers were not just managing the present, they were creating the future.

Because the future is uncertain, executives cannot predict it. They can only prepare to address its challenges and capture its opportunities.

Some of the key questions executives need to address in this context are:

- How do we identify the non-linear shifts and market discontinuities (e.g., fundamental shifts in technology, customers, competitors, lifestyle/demographics, globalization, regulations, etc.) that could transform our industry?

- How do we analyze the opportunities and risks, as a result of our understanding of market discontinuities?

- How can we create new growth platforms with a view to exploit the market discontinuities?

- What are our core competencies and how can we leverage them in the growth platforms?

- What new competencies do we need? How do we build or acquire them?

- How do we allocate resources to support growth?

- What kind of organizational DNA must we have in order to anticipate and respond to changes on a continual basis?

Don't get caught offguard by your competitor's "Fosbury flop" and, by the same token, make sure you have some foam to cushion your fall if you're going to try one!

The three box thinking model is an example of a framework that I use to facilitate strategic thinking and alignment.

Actions companies take belong in one of three boxes:

Box 1 -- manage the present;
Box 2 -- selectively abandon the past; and
Box 3 -- create the future.

Box 1 is about improving current businesses. Box 2 and Box 3 are about breakout performance and growth.

Many organizations restrict their strategic thinking to Box 1. This tendency has been particularly acute in the past two to three years, as most leaders have emphasized reducing costs and improving margins in their current businesses.

But strategy cannot be just about what an organization needs to do to secure profits for the next year. Strategy must encompass Box 2 and Box 3. It must be about what a company needs to do to sustain leadership for the next ten years. In fact, the central task of an organization’s leaders is to balance managing the present with creating the future. Examples of successful Box 2 and Box 3 initiatives include: Dell’s direct model in the PC industry, Wal-Mart’s transformation of the discount retailing industry, Apple’s introduction of iPod, and Southwest Airlines’ revolution in the airline industry.

Organizations that operate within a short timeframe base their actions on the assumption that their industry is stable and static. But it takes years for large organizations to change directions. If you take this into account, change is rapid and nonlinear. For instance, nanotechnology and genetic engineering are revolutionizing the pharmaceutical and semiconductor industries. Globalization is opening doors to emerging economies, such as India and China, and billions of customers with vast unmet needs. Once-distinct industries, such as mass-media entertainment, telephony, and computing, are converging. Rapidly escalating concerns about security and the environment are creating unforeseen markets. And other, more subtle changes are important as well, such as the trend toward more empowered customers, the aging population in the developed world, and the rising middle class in the developing world.

As a result of these forces, companies find their strategies need almost constant reinvention because the old assumptions are no longer valid, or the previous strategy has been imitated and commoditized by competitors, or changes in the industry environment offer unanticipated opportunities. The only way to stay ahead is to innovate.

Part of the job of executives is to make money with the current strategy. That is the challenge in Box 1. Part of their job is to make up for the decay and commoditization of strategy. That is the challenge in Box 2 and Box 3. Too many companies ignore these two boxes until it is too late.

My hope and goal is to help companies transform their industries and reinvent their strategies. In my next post, I'll provide an effective illustration of nonlinear change to help you think about how we identify non-linear shifts and market discontinuities.

As a result of these forces, companies find that their strategies need almost constant reinvention – either because the old assumptions are no longer valid, or because the previous strategy has been imitated and neutralized by competitors, or because technological developments and globalization offer unanticipated opportunities.

Strategic innovation refers to this process of reinventing strategies. Despite some commonalities, strategic innovation is not synonymous with technological or product innovation. New technologies do not always yield successful products. Similarly, new products are not always strategically salient. There also exist many companies (e.g., Southwest Airlines) whose success appears to be driven by innovative strategies without much innovation in either the underlying technologies or the products and services being sold to customers. Strategic innovation is innovation in the strategy itself.

More concretely, strategic innovation represents the following types of creative departures from historical industry practices:

- Innovations in the design of the end-to-end value chain architecture (e.g., Dell Computer);
- Innovations in the conceptualization of delivered customer value (e.g., IBM’s shift from selling hardware and software products to selling complete solutions);
- Innovations in the identification of potential customers (e.g., Canon’s pioneering focus on the development of photocopiers targeted at small businesses and home offices rather than large corporations).

Thus, your company can innovate strategically without necessarily introducing new products, as Dell has done. You can take the same old product but go to market differently. A company should explore innovation opportunities in every part of the value chain. Strategic innovation, therefore, is not the purview of R&D department alone. Everyone in the company can and should play an important role.

Has your company engaged in strategic innovation, in response to fundamental changes in your industry?

Teach mentions the three challenges we stress for all would-be strategic innovators:

1. Forgetting. The new business (NewCo) must selectively "forget" the success formula of the most closely related business unit within the company (CoreCo).

2. Borrowing. NewCo must borrow those assets of CoreCo that will give it a competitive advantage, such as manufacturing capacity, or sales relationships, or a brand.

3. Learning. NewCo must learn how to succeed in a new and uncertain environment.

CFOs, who play a central role in planning, business evaluation, and resource allocation, can aid the task of forgetting by taking a couple of key steps:

- develop new performance measures for NewCo
- hold NewCo's managers accountable for learning, not meeting the numbers

Read Teach's article: "First, Forget What Works."

In our book, Chris and I urge executives to assess the degree of difficulty of the learning challenge presented by the strategic experiment they're undertaking. Specifically, we ask executives to examine the range of critical unknowns and pin-point the intensifiers of the learning challenge. We've outlined a step-by-step method to help executives understand how much time they should dedicate to supervision and how best to direct their efforts; see page 182.

We agree that business is overwhelmingly a force for good. Two reasons far outweigh all the others:

1. Business activity raises the economic standards of living. To compete, companies must constantly find ways to make their businesses more efficient. And the more efficient a society is at producing products and services, the more that society can consume. (If even more economic consumption does not sound wholesome to you, you must be rich. Most of the world is not.)

2. Businesses create innovative products and services that enhance society. As living standards rise, we can afford to fulfill new needs. Businesses research our desires, invest in technology, and deliver the new and improved products and services that we want -- and need.

Thanks to the recent series of corporate scandals, business leaders the world over face the same challenge -- explaining to skeptics what is good about business. But how does our answer compare to those of other leaders? How are companies defining "social performance" in this age of increased public scrutiny?

We conducted a quick -- and admittedly unscientific -- survey by reviewing the annual reports and Web sites of a dozen large and well-known global companies. To assert strong social performance, here are the most common themes that business leaders are stressing:

- We have improved our governance practices, and our operations are transparent. We are not doing anything bad, and we have nothing to hide.

- We comply with and even exceed regulatory standards in areas such as the environment, health, and safety.

- We are philanthropic. We are involved in our communities.

- We provide jobs, and our company is a great place to work.

All of these activities are good. All of these activities help make the world a better place. But the resources dedicated to them is a small fraction of the resources dedicated to innovating and increasing efficiency overall.

So why don't we as business leaders talk about those activities? What message do we send employees? That if you really want to contribute to society, quit working long hours trying to develop that breakthrough product and get involved in some of our community programs?

The way that corporations define social performance reinforces a pervasive but deeply flawed assumption -- that if there is a direct tie between an action and a profit, then there can't be any social benefit.

It is unfortunate that we refer to social sector organizations in the United States as nonprofits.

One company's annual report described how their newly launched medical device led to a radical improvement in post-surgical outcomes -- but only to explain the company's improving business performance. Apparently, medical breakthroughs have nothing to do with social performance.

There are, of course, exceptions. General Electric and Motorola, for example, list innovation as a dimension of social performance. But the message is still diminished by the many less significant ways that these companies contribute.

Not a single company that we looked at made the case that it enhanced society by raising living standards and reducing poverty. Not a single company made the case that a social benefit can, and often does, result directly from the pursuit of profit. Most businesspeople could be better at making that case.

When someone asks, "How's business?" or "What are you working on?" instead of answering in terms of how you are going to make a profit, answer in terms of how you are going to make a difference. Instead of focusing on the race against your competition to expand into China, concentrate on how you will change the lives of millions of Chinese people by making needed products accessible and affordable and raising living standards.

The questions are being asked. Perhaps it's how we answer that's the problem.

The biggest enemy is... the planning process.

Corporations are designed for efficiency, not entrepreneurship. Managers achieve efficiency through planning. They set goals, monitor results, and improve. They are motivated because their CEOs have linked compensation and promotion to performance.

They are also motivated because exceeding goals engenders respect. Go inside any successful corporation and you will find a strong performance-oriented culture. As one finance executive at Thomson Corp. told me, "The basic culture of this corporation is that you make your numbers." Indeed, a strong culture of accountability can take root early in a corporation's life. At the height of the boom at Cisco I was told, "Look around. You'll find that most people here are thinking very short term, worried about making their quarterly targets." A young company that liked to think of itself as a 30,000-person startup was already sounding like a machine geared for reliable and efficient performance.

There is conflict between efficiency and entrepreneurship.

Most CEOs have acted to encourage their coexistence. But where change is most necessary, no change is made. CEOs properly view a disciplined planning process as a critical mechanism for ensuring that managers are eager to deliver, and they are loath to alter it. Yet the most basic premise of the planning process simply does not apply to a new venture.

The premise is reliable predictability. That is, I can predict today what is possible next year -- and I can do it so reliably that it is very reasonable to judge managers' performance based on differences between predictions and outcomes. Everyone in disciplined organizations knows that these are the rules, and everyone lives by them.

Inevitably, however, outcomes for new ventures fall short of expectations. If anything, new ventures are reliably unpredictable. So I ask my students, what will you say when your venture does not deliver? "Well, certainly whoever evaluates me will understand that..."

They do, usually, for a time. Corporate ventures tend to be allowed a grace period. The boss says, in effect, "I understand your business is new, so I'm not going to hold you accountable in the first year. But you better deliver by the second, third, or fourth."

Still, not everyone in the corporation will understand the grace period. Once the numbers are missed, credibility suffers. Other managers become less willing to help. The biggest advantage of the corporation -- its wealth of existing skills and assets -- crumbles. It may get worse as leaders of other divisions attack the viability of the venture to win scarce resources.

These performance pressures have a funny way of influencing venture leaders to escalate commitment to original plans. ("I'll show you that I can succeed...")

Which is another way of saying that venture leaders are driven not to learn from their early mistakes.

CEOs must create a planning environment that emphasizes learning over accountability.

We call the approach we've been working on theory-focused planning, and it diverges from conventional planning in six critical ways:

1. Companies that use it concentrate on a few critical unknowns instead of the usual horde of details in conventional plans;

2. they focus on the theory underlining the predictions rather than the predictions themselves;

3. they look for trends rather than numerical benchmarks;

4. they review the plan often, in response to important new data, instead of annually;

5. in that review, they consider the experiment over time instead of just for the current period;

and

6. they emphasize leading indicators rather than financials.

Companies still hold managers of strategic experiments responsible for performance, but performance is gauged according to how quickly managers learn from new data.

[This post is based on articles written by Chris Trimble and myself. In particular, see "Strategic Innovation and the Science of Learning," MIT Sloan Management Review, Winter 2004.]