- 18 May 2011
- Working Paper
Executive Summary — CEOs are often innovation cheerleaders, hoping that new ventures will eventually help reshape the industry for the better. But in tough economic times, the other senior company executives often choose to ignore innovative ventures and focus instead on the traditional core business, which reliably generate cash flow. This leads to a situation in which the CEO turns into more of a broker than a leader—trying to negotiate deals between the heads of the core units and the new units. That's a recipe for failure, according to Michael L. Tushman, Wendy K. Smith, and Andy Binns, who argue that firms can thrive only if the whole senior management team can embrace the tensions between the new and the old. In this paper, they introduce three guiding principles to help executives grow their core businesses while still nurturing their new ones. Key concepts include:
- Principle 1: Develop an overarching identity. The corporate identity should be broad enough to inspire both the core as well as the nascent business.
- Principle 2: Hold tension at the top. Innovation business units should report to the top management team. The strategic battles about old versus new businesses should be fought at the top of the corporate food chain.
- Principle 3: Embrace inconsistency. The senior management team needs to recognize that innovative and core businesses require very different, often inconsistent operating modes and measures of success. Still, the company must make a point of leveraging resources that are common between the new and older businesses.
Trying to resolve the paradox between innovation and the core business only weakens the CEO and dooms the company. Exceptional leaders embrace tensions associated with exploiting prior strategies even as they explore into the future.