Action Learning: Research and Practice Vol. 2, No. 1, April 2005, pp.

27 48

Action learning for strate gic innovation in mature organi zations: key cognitive, design and contextual conside rations a b and Victoria J. Marsick

Jeffrey S. Kuhn

aGrowthLeaders, New York City, USA; b Teachers College, Columbia University, New USA York City,

This article lays out a model of action learning for catalyzing strategic innovation set of in mature organizations cognitive that are faced with a new strategic competitive playing field. Centra l to this model is the devel opment of a sophisticated capabilitiessensemakin g, thinking, critical thinking, divergent thinkin g, conceptual capacity and a malleable learning orientation. The learning design provides challenge, oppo rtunity and suppo rt for overcoming organizational orthodox y that

can otherwise hamper Executive Program

innovation. Examples

from the Chubb Global discuss key cognitive,

are used to identify and

contextual, learning and design elements of this model. Introductio n Todays competitive environment presents difficult challenges for executives in many mature organizations: global competition, industry convergence, disruptive technol- ogies, new entrants, evolving customer needs, and the rapid commoditization of pro- ducts and services. Facing ongoing growth and earnings pressures, executive sponsors of senior-level action learning programs are increasingly asking participants to think differently about the business, to look at markets expansively, and to conceptualize new sources of customer value that will catalyze new businesses and revenue stream s. In the language of the new competitive playing field, they are asking for stra- tegic innovation. This article lays out an action learning model that we believe catalyzes strategic innovation in mature organization s. Central to this model is a set of cogniti ve

Corresponding autho r. Depa rtment of Organization and Leade rship, Teache rs College , Columbia University, 525 West 120th Street, New York 10027, USA. Email : jkuhn@[Link]

ISSN 1476-7333 (print); ISSN 1476-7341 (online)/ 05/ 010027-22 # 2005 Taylor & Francis Group Ltd DOI: 10.108 0/ 147673305 00041236

28 J. S. Kuhn and V. J. Marsick capabilities that engender strategic, conceptual and generative thinking. Its learning design provides challenge, oppo rtunit y, and support for overcoming organizational orthodoxies that often hamper innovation.

The

challenge

of strategic

innovat ion in

m ature

organizations Mature companies often grow into a narrow view of innovation, focusing on the devel- opment of new products or services, or the incremental were an impr ovement of existing offer- ings such as adding an extra blade to a razor or offering 15 varieties of toothpaste. Many well-known companies built using this traditional model of business growth: develop

innovative product or service, expand the market globally, and extend the harvest for as long as possible via a steady stream of product enhancements and brand extensions (Slywotzky & Wise, 2003). Facing saturated markets, companies the rate of commoditization and have found that this traditional price erosion due to increased growth model is, at best, a source of incremental revenue replacement given competition. As a result, forward-looking companies are focusing on more sophisticated forms of innovationstrategic inno- vationto provide a platform for new, sustained growth. Strategic innovationa fusion of strategy and innovationis best understood as innovation at the business concept level. It involves the

introduction of new business models (frameworks for creating customer and economic value) that radically trans- form industry economics and upend entire markets, Constantinos often at the expense of sleepy industry is a fundamental reconceptualization incumbent s. of what the Markides (1999) of the London Business School, writes,

Strategic innovation

business is all about that, in turn, leads to a dramatically different way

of playing the game in an existing business (p. 42). The universe of strategic innovation is very broad. A game-changing business model may include a combination of business concept innovation (e.g. Virgin One Mortgage Account), demand innovation, which involves addressing the hassles and issues that surround the product (e.g. General Motorss redefining OnStar), adjacent customer experi- ence innovation businesses (e.g. Dells move (e.g. Progressive into networking, around strategic Insurances concierge claim service), market inno- vation (e.g. eBay), or storage and services). A radical ethos unde rpins much of the thinking innovation given its power to transform customer expectations, the rules of competition, and indust ry economics. Pioneers, notes Gary Hamel (2003, p. 20), do not make minor adjust- ments to established business concepts, they rethink them from the ground up in unco nventional ways to create entirely new models. Strategic innovation is crucial to the short-term performance and long-term survival of the enterprise. As Hamel (2003, p. 20) admonishes, a company that is not experi menting with new business concepts is probably living on borrowed time. The evidence, however, shows that most strategic breakthroughs are competitors, not launched by newcomers, the so-called nontraditional an established industry player who is

industry incumbent s. Mar- kides (1999, p. 40) points out, it is rare to find

Strategic innovation in mature organizations 29 also a strategic innovator. Think of Canon versus the incumbent Xerox, First Direct versus Natwest, Barclays, and International Harvester and John Deere. Notwithstanding this imperative, why then is strategic innovation so two person-environment factors in of difficult to achieve in mature organizations? The answer, we believe, may lie in the dynamic inter- play between mature organizations: organizational orthod oxy. cognitive complexity and the invisible hand Lloyds, and Komatsu versus

Cognitive complexity Strategic innovation is by nature a cognitively complex process requiring sophisti- cated ways of knowing and higher-order learning capabilities. As Larry Huston (2003), Vice President of Knowledge and Innovation at Proctor and Gamble, points out, the scarce resource is rarely money, brand, technology, or distribu- tion . . . its cognitive. Although there is a vast body of research on creativity and innovation, less has been written about the cognitive demands of innovation at the business concept level, let alone how to develop these capabilities. As Hamel (2003, p. 20) notes, few people [are able to] think creatively and holistically about an entire business concept. Much of the literature on creativity (see Koestler, 1964; Arieti, 1976; Boden, 1990, Csikszentmihalyi, 1990; Sternberg, 1999) focuses on the mind of the creative genius or the aesthetic rapture (Csikszentmihalyi, 1990) of the creative experience, or alter- natively, the highly technical perspective of cognitive science, or brain physiology. The literature on innovation focuses largely on product-le vel innovation (see Cooper,

1983; Crawford, 1983; Gatignon & Robe rtson, 1985; Doughe rty, 1996). A number of applied business-oriented writers (Humphre y, 1997; Mauzy & Harri- man, 2003) distinguish connectors for new ideas (Mauzy between creativity and innovation. & Harriman, 2003, p. 6) and Creativity is about break- ing down prior assumptions and making new generating ideas that are both novel and valuable (Boden, 1994), while innovation is doing new things or turning a new idea into a business success (Humphre y, 1997, p. 137). Another definition of creativity that is especially relevant to the argument in this article is the process of destroying ones gestalt in favor of a better one (Wertheimer, 1945, cited in Florida, 2002, p. 31). As Picasso noted, every act of creation is first an act of destruction (cited in Mauzy & Harriman, 2003, p. 22). Schumpeter s (1942) perennial gale of creative destruction is also grounded in this ethos (cited in Florida, 31). Richard Florida (2002) in The rise of the creative class, describes creativity first and foremost as the ability to synthesize. Einstein (cited in Florida, 2002, p. 31) coined this combinato ry play, the ability to come up with combinations that are new and useful. Creativity is also multidimensional and experiential. Psychologist Dean Keith Simonton (1999, cited in Florida, 2002, p. 33), finds that creativity is favored by an intellect that has been enriched with diverse experiences and perspectives . . . a mind that exhibits a variety of interests and knowledge. 2002, p.

30 J. S. Kuhn and V. J. Marsick Jeff Mauzy and Richard Harriman (2003) in Creativity, Inc. view divergent thinking, the ability to make mental connections between unrelated matters, . . . [as] one commonly accepted indicator of creative capacity (p. 12) and the breaking and making connections [as] where most of the work of creativity gets done (p. 22).

Figure 1. The cognitive dimensions of strategic innovation

Strategic innovation in mature organizations 31 Apple founder Stephen Jobs sums it up: Creativity is just connecting things. When you ask creative people why they did something, they feel a little guilty because they didnt really do it, they just saw something. It seemed obvious to them after a while, thats because they were able to connect experiences theyve had and synthesize new things (Wolf, 1996, p. 11). Strategic innovation, however, requires much more than simply being creative. Conceptualizing models model language baseline and new sources of customer value, business 1. This of the revenue streams in a complex, dynamic environment requires as highlighted in Figure enterprise-level business acumenmaste ry that these

sophisticated cognitive capabili- ties assumes

and logic of business irrespective of indust ry sectoras a competenc y. We argue capabilitiessensemakin g,

strategic thinking, critical thinking, divergent thinking, conceptual capacity and a malleable learning orientationcharacte rize the developmental aim of the action learning approach described in this article. Although positioned as a cognitive framework, this model is grounded in a whole person (Yorks & Kasl, 2002) perspective of learning that encompasses various ways of knowingcognitive, strategic breakthroughs are affective, extra-rational. Most

beyond reasonthe product of a deeply intuitive, visceral feel for the market that often defies rationalit y. We have observed that leaders in action learning programs who acquire these capa- bilities begin to think differently about the business. They learn how to spot the trends that are already changing, but have gone unnoticed (Hamel, 2002, p. 5) and over time, develop the ability to see whats next (Christensen et al., 2004).

The invisible hand orthodoxy

of organizational

The ability to think in ways that achieve strategic innovation self-imposed

can be

hampered by the invisible hand of organizational orthodoxy. Orthodoxies are beliefs and theories of success about the business, the bounda ries of the industry, the business the firm is in, how customer value is created, the basis of competition, how the value chain is structured, etc. There are both industry-level orthodoxies (the way to do business in this business) and company-level orthodoxies (how we do things around here). A wellknown example is Ken Olsons (founder of the now defunct Digital Equipment Corporation) comments to the World Future Society in 1977, there is no reason anyone would want a computer in their home. Orthodoxies that include: . This is a mature industry . . . theres no room for innovation in this business. . This is a commodity business . . . its all about scale . . . not innovation. . This is a cyclical business . . . the art is in riding the pricing cycles. . This is a highly-regulated industry . . . our hands are tied. . Innovation equals new products . . . there is no value in being the first mover . . . our innovative products will be imitated by the competition the day they hit the market. . Our intermediary is our customer . . . we have no access to the endcustome r. we have often encountered in our consulting work

32 J. S. Kuhn and V. J. Marsick Chara n and Tichy (1998, p. ix) refer to orthodoxies as the genetic code of the organ- ization, a pervasive set of signals and cues that shape how people think and behave . . . from how they look at oppo rtunit ies to how well they learn from other people. C. K. Prahalad (2004, p. 172) refers to orthodoxies as the dominan t logic of the company, an implicit theory of competitio n and value creation which is embedde d in standar d operating pro- cedures , shaping not only how the members of the organization act, but also how they think . . . the lens through which managers see all emerging opportunities. So how do orthodoxies, the so-called genetic code or dominant logic of an organ- ization, and their suppo rting systems actually come into existence? And how do they impede (Sigmoid Curve) strategic innovation? The classic S-curve illustrated in Figure 2 provides a framework for

unde rstanding this phenomenon. Organizations of all shapes and sizes undergo a series of life-cycle changes as they evolve from nascent start-ups to established enterprises intent on defending their hard-earned market share. As an organization matures, an entrepreneu rial spirit of discovery gives way to complacenc y, risk aversion, inward focus and incrementalism. The gravitational pull of the past and forces of equilib rium make it difficult to contem- plate alternative Core competencies futures. turn into core rigidities (Leonard- Barton, 1995).

As a result, companies devote much more energy to optimizing what is than to imagining what could be (Hamel, 2003), leaving the job of strategic innovation to nimble newcomers. As Foster and Kaplan (2001, pp. 16 18) note, cultural lock-inthe inability to change even in the face of clear market threatsresults from the gradual stiffening of the invisible architecture of the corporation . . . the numbing of its sensemaking capabilities . . . and mental models as they become the ossification of its self- reinforcing, self-sustainin g, and

self-limiting. Markides (1999, p. 40) adds, com- pared to new entrants or niche players, [indust ry] leaders are weighed down by structural and

cultural

inertia,

internal

politics,

complacenc y, fear of cannibalizing

existing products, satisfaction with the status quo, and a reluctance to abandon a certain present for an uncertain future.

Figure 2. The S-Curve (Source: adapted from the work of Foster (1986), Tushman et al. (1986), Tushman & OReilly (1997), Handy (1994), Morrison (1996) Grove (1996) and Pietersen (2002))

Strategic innovation in mature organizations 33 Greiner (1972) suggests that organizations move through five phases of develop- ment: evolutionary revolutionary 32) write, most successful firms evolve through long They periods of convergence this as an to punctuated process by frame-breaking change. fine tuning characterize creativity, and direction, delegation, coordination periods periods by and of of collaboration. Each phase is characte rized growth by prolonged

equilib rium punctuated

change, often triggered by market discontinuities.

Building on Greiners work, Tushman, Newman and Romanelli (1986, p.

ongoing cycle of convergence and upheaval. Convergence is an ongoing of organizational and incremental adaptation environmental shifts: Convergent periods are a double-edge sword. As organizations grow and become more successful, stabilit y. Organization they develop internal forces for become so structures and systems

interlinked that they only allow compatible changes. Over time, employees develop habits, patte rned behaviors begin to take on values . . . and employees develop a sense of competence in knowing how to get work done within the system. These selfreinforcing patterns of behavior, norms, and values cont ribute to increased organizational momentum and complacenc y, and a sense of organizational history. (Tushman et al., 1986, p. 35) Richard Pascale, whose work is grounded in complexity theory, regards this kind of equilib rium as the precursor to death. Pascale (2001, p. 130) suggests, companies that achieve homeostasis in their environment may enjoy a period of time when equi- librium really works. But it makes them increasingly vulnerable to the moment when the game changes. Their winning formula from the previous period becomes enemy. Tushman et al. (1986, p. 36) add: their own worst

when faced with an environmental threat, organizations with strong momentum complacency do best. This phenomenon is known in common parlance as the curse of success. The net effect of this curse, write Tushman et al. (1986, p. 36), may be heightened organiz- ational complacenc y, decreased organizational flexibility, and a stunted ability to learn. Tushman and OReilly (1996, 1997), Foster (1986), Handy (1994), Morrison (1996), Pietersen herald the importance (2000), and Christensen and Raynor (2003) an ambidextrous organizationan of being may not register the threat due to organizational . . . or if the threat is recognized, the response is

frequently heightened conformity to the status quo . . . and what we

organization that can attack and defend, sustain and disrupt, and harvest today while creating tomorrowas a way to manage the convergence and upheaval of long-term success. This is no easy feat given the primordial organizational forces at work.

The

Chu bb

Global

Executi ve

Pro gram Despite these barriers, under the right conditions, we believe that action learning can be used to develop the individual and collective capability for strategic innovation. At the heart of this action learning model is provoking and then managing the tension of discontinuit y, which in turn thrives on divergent thinking. Divergent thinking, as Foster

34 J. S. Kuhn and V. J. Marsick and Kaplan (2001, p. 19) point out, focuses on broadening . . . it is initially more con- cerned with questions . . . than answers. Action learning is question-driven, but not all action learning models lead to strategic innovation. We draw on experience with a single case, the Chubb Global Executive Program, to identify and illustrate the design features of action learning that create divergence and catalyze strategic inno- vation while developing the requisite project s. The Chubb Global Executive Program (GEP) was co-developed in 2000 by Jeffrey Kuhn, President of Executive Learning Associates, and Bettina Kelly, Manager of Chubb Global University, and is offered annually to 28 senior vice president (or higher) participants on an invitation-only basis. Chubbs chief operating officer is the executive sponsor. Founded in 1882, the Chubb Corporation is a holding company for a family of spe- cialty property and casualty (P & C) insurance carriers headqua rtered in Warren, New Jersey, USA. The firm has 12,000 employees serving custome rs in some 130 field offices throughout the Americas, Europe and Asia. Core offerings include both off- the-shelf and customized risk management solutions for middle-market commercial and high-net- worth personal custome rs. The company has three core Strategic Business Units (SBUs): Chubb Commercial Insurance, Chubb Specialty Insurance, and Chubb Personal Insurance. Annual revenues are US$11 billion. As a specialty P & C carrier, Chubb competes on a differentiated, value-added basis. The companys business model is predicated upon strategic innovation to drive organic growth (growth derived from internal sources) and maintain healt hy margins in a mature, relatively commoditized indust ry. The US property and casualty insurance industry was a relatively stable, protected industry for most of the twentieth century as a result of cognitive capabilities in the course of the

Depression-era laws that barred other financial institutions (e.g., banks) from entering changed the risk transfer business. The competitive in the 1990s landscape dramatically with the advent of globalization,

deregulation, the Internet, multi-channel distribution, indus- try convergence and consolidation, chronic price erosion and an evolution from productbased to knowledge-based competition.

Program architecture

focus

and

The program is designed to build the individual and collective capability for strate gic innovation as a key driver of profitable organic growth. Program aims include: (1) develop enterprise-level business and strategic acumen; (2) master processes for achieving strategic innovation; (3) generate new business among (Yorks & Marsick, 2000) in which to examine industry dynamics, emerging business models and complex strategic issues. models, the new sources of competitive advantage, and and new revenue streams; (4) create social capital and group learning capability high-potential executive population; (5) foster organizational learning by providing a forum and liberating structure

Strategic innovation in mature organizations 35

Figure 3. Global Executive Program architecture (Source: Jeffrey S. Kuhn, Executive Learning Associates)

GEP features a modular design architecture involving three week-long residency sessions delivered at eight-week intervals and an end-to-end strategic innovation- oriented action learning project. The program has two phases: Phase One focuses on strategy creation, and Phase Two on strategy implementation, as illustrated in Figure 3. The three residency sessions feature a series of dialogue sessions with thought leaders transfo rmation, in the areas of global competiti veness, industry organic growth, strategic innovation and transformational

leadership to provide the macro- economic context for the program, as well as concepts, frameworks and tools for the teams to use on their projects. The thought leader sessions are tightly integrated with the project work.

Project

work Working with the project sponsor, Chubbs chief operating officer, the

projects were framed using criteria consistent with the program purpose: (1) external focus (i.e., involves custome rs, competitors and markets), (2) potential to identify new sources of customer value and revenue streams, (3) entrepreneu rial, and (4) potential for stra- tegic innovation and new sources of competitive advantage (i.e., changes the rules of the game and is difficult to imitate). Additionally, the projects were to: (5) provide a viable economic model, and (6) be commercialized within a one-to-two year horizon. The action learning projects (referred to as business impact projects) focused on identifying new growth engines outside the USA, reflecting a corporate directive to aggressively grow revenues generated from non-US operation s. The teams were charged with identifying emerging market new opportunitiesnew customer segments, new distribution channels, engines for their assigned SBU or geography. Four

offerings, or new businessesthat would serve as next-generation growth separate projects (involving seven-person teams) were organized under this common theme. Three of the teams conducted their market analyses from the perspective of a specific SBU. The fourth team examined long-term growth oppo rtunities in China. diversity. The project teams were self-organized to reflect maximum

36 J. S. Kuhn and V. J. Marsick

Figure 4. Project flow (Source: Jeffrey S. Kuhn, Executive Learning Associates)

Strategic innovation process.

The project teams utilized the principles

of strate gic learning (Pieters en, 2002) developed by Willie Pietersen, a former CEO turned strat- egy professor at the Columbia Business School, as a guiding framework. Strategic learning emphasizes strategic questioning and dialoguewhich we regard as the alchemy of strategic innovationto generate insight into market oppo rtunities and foster critical reflection and awareness of assumptions, mental models, and cognitive barriers in order to catalyze breakthrough thinking. Pietersen was also the lead facil- itator and strategist in residence for the program. Kuhn and Kelly served as learning coaches, each working with two teams. The project flow is illustrated above in Figure 4. The Oppo rtunity Scanning and Oppo rtunity Definition workstreams addressed the overarching question: Where are we going to play? The Business Model Development workstream addressed the ques- tion: How are we going to win? The Expe rimentation workstream addressed the question: How do we test, refine, and commercialize our business model? The Implementation workstream addressed the question: How do we enter the market and profitably scale up the business? Project launch. The projects were launched by the executive sponsor during Session

One

via a highly-charged

entrepreneurial

message: . . . think differently about the business . . . dont come back with incremental, play-it-safe stuff . . . get out of the weeds . . . think expansively about the market . . . look for unique ways to grow the pond . . . the executive team will want to see new ideas and revenue oppo rtunities . . . bold ideas that will change the rules of the game . . . a word to the wisedont come back with business as usual, or something that we should already be doing . . . The CEO and other visiting executives reinforced this message

throughout the week, and the program. Each team was provided with a one-page scope document highlighting the project s back ground, mission, success criteria and deliverables. With the exception of the China team, which was bound to a specific geography, the three SBU teams could select any geography outside the USA for their growth project. Following the launch, the teams worked for two days, including a workplan, and grow as a team an in afternoon with the executive sponsor, to further scope their projects, identify key strategic questions, develop preparation for eight weeks of out-of- session project work that would be conducted on a part-time, virtual basis. Session two. The teams reconvened for Session Two following eight weeks of virtual project work. Session Two included a full-day midpoint review with the

Strategic innovation in mature organizations 37 executive sponsor, a series of thought leader sessions related to strategy implemen- tation, organizational transfo rmation, executive leadership, and several days of project work. The mid-point review provided a particularly rich learning experience for partici- pants. dialogue The sponsor used a skillful blend of questioning and insights and help participants reframe to drive out fresh

elements of their projects. Here are some examples from his dialogue with the project teams: . How do you define the oppo rtunity space? What are the boundaries? How are the boundaries likely to evolve? In what imaginative ways can we redefine the opportu- nity space? Whats happening at the periphery? . What are the key discontinuities in this space and how do they create opportunities for new growth? How ripe is this space for strategic innovation? How long will the door remain open? . What is the level of unce rtainty in this oppo rtunity space? How might these uncer- tainties impact the economic viability of the opportunity? What are the likely future scena rios? . What are your underlying assumptions conce rning this opportunity? What is your hinge assumption [the make-it-or-break-it assumption that the entire venture rests upon]? How do you plan to test your assumptions? . Which segments present the greatest potential for profitable growth? How can the segments be redefined in a creative and imaginative way? As one participant noted: Our team would work for hours analyzing the market oppo rtunity from every possible angle, only to be greeted by one of those insightful Tom [the executive sponsor] questions that opened up a whole new way of looking at the situation. Nowadays, I do much less telling and much more asking as a result of this experience.

Session three. Following Session Two, the teams worked for eight additional weeks on a virtual basis before returning for the third and final residency session, which included an engaging full-day strategy session with senior management, facilitated by Willie Piete rsen, to review project outputs and identify next steps for commercia- lizing several of the venture s.

Program outcomes The three SBU-related teams developed game-chan ging business

concepts

that offered superior customer value and an attractive economics

for Chub b. The Chubb Commercial Insurance (CCI) project team developed a bluep rint for a new business concept which they coined the global reach alliance. The alliance would companies partner with Western European domestic coverage insurance and related to provide international insurance

services for their middle-market

38 J. S. Kuhn and V. J. Marsick clients with international exposures. Their analysis revealed that the evolving macro- economic environment in Europe, namely the globalization of European considering middle- market the limited businesses, reach was rife with oppo rtunity insurers. of single-count ry domestic

Customer needs were growing, yet moving the business to a global broker or insurer was an unattracti ve option given their strong national loyalties. Utilizing an outside-in lens that carefully mapped customer needs at each point in the value chain, the project team prototyped the global reach alliance concept to leverage Chubbs integrated global platform and deliver superior value to both alliance partners and their custome rs. The Chubb Specialty Insurance (CSI) team was driven by a clear mission: identify the next big thing that would drive profitable growth in Europe. The team proto- typed a business model and product /service offering for accessing, generating demand, and growing the burgeoning market for management liability insurance among middle-market firms in Europe. A number of interrelated forcesEU compli- ance, Americanization of the legal and financial systems, IPO fever, and the pan- European (and beyond) expansion of operations were working in concert to create a market for management liability insurance among Europes four million middle-market firms. Europes two-tiered competitive structure, consisting of large multinational insurers and small, single-count ry domestic insurers with limited capa- bility and reach, created a significant oppo rtunity for anyone who could deliver an integrated pan-European solution tailored to the needs of the middle market. The Chubb Personal Insurance (CPI) team prototyped a business model and product /service offering for growing the ultra-high-net- worth (UHNW) segment, a lucrative, multi-billion dollar market. Their analysis revealed that the globalization of personal wealth throughout the 1990s had spawned a new class of globally mobile custome rs with a distinctive set of risk management needs. The team ident- ified a set of common

customer characte ristics: considerable concern for privacy, and,

net

worth,

multiple

prope rties risk by a

around the world, significant amounts of valuable articles, an utmost most of all, a desire for best-in-class that are often pieced together management sol- utions professionally and

staffed family office through a network of trusted advisors. to successfully compete in this space. Chubb could

The teams analysis revealed that few compe- titors had the global reach capabilities provide an integrated global solution that addressed the risk manage- ment needs of this segment. These project snapshots elucidate the cognitive capabilities needed for strate gic innovation Teams highlighted in Figure 1. To illustrate, the CCI examination of the evolving macroeconomic enviro nment in

Europe, namely the globalization of middle market businesses, and the CPI Teams insight that the globalization of per- sonal wealth through the 1990s . . . spawned a new class of globally mobile custo- mers, is an example of sensemakingscanning and interpreting the external environment to generate rich insight, and divergent thinkingseeing things from many perspectives and making new connection s. The CSI Teams gestalt that a number of interrelated forces . . . were working in concert is a good example of strategic thinkingseeing underlying patterns and

Strategic innovation in mature organizations 39 discontinuities. Their ability to connect the dots at the macro level (i.e. the globaliza- tion of wealth) and then unde rstand how this discontinuity created new customer needs (micro-level analysis) is an example of the dialectical dimension (Brookfield, 2000) of strategic thinkingthe ability to move between universalistic and particular- istic modes of thinking. The CCI Teams development of a reverse value chain via their global reach alliance is a good example of critical thinkingthe ability to examine and transform assump- tions, mental models and orthodoxies. The global reach concept challenges the pre- vailing orthodoxy or dominant logic (Prahalad, 2004) of how insurance carriers go to market, compete, and create customer and economic value. The teams use of rapid prototyping to develop the strategic architecture and economic model of the global reach alliance provides a good example of conceptual capacitythe ability to conceive and think in terms of concepts and model s. The ability of each of the project teams to see the interaction of dynamic properties in the external environment (e.g. value migration, industry convergence and market evolution) and use fast conceptual prototyping is illustrative of a malleable learning orientationthe ability to learn through experi mentation and go back to the drawing board on an iterative basis.

Post program: championing the cause Following the successful strategy session with senior management, the three SBU- related project teams remained intact for three-to-six months after the program for- mally ended to experiment further with their business

models and ensure a successful handoff with their respective SBU. As one participant noted, Great ideas rarely get adopted overnight. Theres a whole

incubation process thats required to gain traction and move an idea from concept to cash, particularly in a mature organization. We had an ironclad belief in the business oppo rtunity and made a team commitment adopted. to champion our ventu re plan until it was

Discussion: considerations

key

contextual

and

design

The Chubb program illustrates key contextual and design elements of an action learn- ing model that catalyzes strategic innovation by: (a) developing a set of cognitive capa- bilities that, combined with core business acumen, engender the requisite strategic, conceptual, and generative thinking skills; and (b) provides challenge, oppo rtunity and support for overcoming organizational orthodoxy that can otherwise hamper innovation.

An environment that is ripe for strategic innovation Strategic innovation programs are best suited for dynamic competitive environ- ments fraught with discontinuity (e.g., new technologies, new entrants and dereg- ulation) and fundamental shifts in the broader PEST (political, economic, social

40 J. S. Kuhn and V. J. Marsick and technologi cal) environment. Action learning programs that foster strate gic innovation sharpen the ability of executives to make sense of their changing environment in fundamentally new ways that the organization is not always ready to receive. Executives are challenged not only to scan the environment through their projects, but to also shape the environment by introducing market. The program helps executives develop a high degree of situational awareness of the competitive environment (i.e., an outside-in view of the business) and to engage in divergent, challenges deep assumptions that often unorthodox thinking are embedded in current that business game-chan ging business models in the

models. But the organization must also be at a teach- able moment (Tichy, 1997) and ready to receive the new thinking engendered by the program. A trigger event (e.g., industry consolidation) or discontinuity (e.g., the Internet) may unfreeze the organization, but this alone does not guarantee a readiness or capacity for new thinking as the firm may choose to ignore these clear market threat s. Action learning programs designed to produce strategic innovation as a core program outcome have three unique differentiators which flow from their purpose: (1) the nature of projects, (2) the quality of executive quality and sponso rship and top team invol- vement, and (3) cohort selection. First, as illustrated in the Chubb case, strategic innovation-oriented action learning programs involve the creation growth engines. bring their concluded. ideas The of real, commercially viable The project output moves beyond mere analysis and to market projects must well after the program has formally

recommendation s. Executives con- tinue to learn by experimenting as they be framed to reflect the outside-in

nature of strategy, meaning that they must focus almost exclusively on external elements: custome rs, competitors, and other factors that shape

markets and create new growth opportunitie s. By doing so, executives hone skills in sensemakgrowth ventures. Second, executive sponsors and top team leaders must be seen as having or acquir- ing the strategic capabilities they wish others to develop. Sponsors who have difficulty thinking strategically and creatively beyond the boundari es of the core business can pull the projects into their tactical comfort zone, creating a major disconnect in the program. It has been our experience that executive sponsors of strategy-based pro- grams need to be progressive and forward-looking; have a penchant for strategic inno- vation and changing the rules of the game; demonstrate enterprise-level business and strategic acumen; and model strategic questioning and dialogue skills. Senior leaders may need coaching in this role as part of the program. It may take several program cycles to develop a critical mass of leaders and sponsors, some of whom may them- selves be graduates of the program, who can model leadership needed for strategic innovation. Third, participants must be chosen for their potential to engage in divergent think- ing and innovative action. homogeneous pool of so-called high potential talent may have a vested interest in the future, but often have an equally significant investment in the past. Homogeneity breeds intellectual Participants drawn from a ing, but they also grapple with high-risk, high-gain

Strategic innovation in mature organizations 41 convergence, the archenemy of strategic innovation. Strategic innovation requires leaders who strike an optimal, often discordant, balance between convergence and divergence. To overcome the challenge of intellectual homogeneit y, Chubb pushed the general guideline for action learning programsthat of maximum and new diversityto its limit in order to create a cohort of highly diverse participants who would bring new questions, new perspectives, conversations to the program. The GEP cohort was diverse in every

sense of the wordcross-organizationall y, geographically, and in gender, age, seniority and learning style.

Learning innovation

that

powers

strategic

Learning that powers strategic innovation must be: (1) integrated into the strategy development process, (2) transfo rmative in nature, and (3) go beyond individual learning to develop a critical mass of leaders who engage in group and organizational lea rning. First, action learning programs of this type are grounded in strategic realities. In fact, learning drives the business. Pietersen (2002) demonstrates that fresh insights and learning are essential to breakthrough strategy. When achieving strategic inno- vation, the task is learning. Key to learning is strategic questioning and dialogue. Leade rs develop the capabilities groundwork capabilit y. Second, transfo rmative learning, particularly perspective transformation, is argu- ably the underlying engine of breakthrough thinking and strategic and mindset for building in this form of action strategic innovation learning that lay the as a deep organizational

innovation. This theory of learning (Mezirow, 1991, 2000) involves the examination and transfo rm- ation of deeply-held assumptions, mental models, paradigms, and other blind spots that impede divergent thinking and strategic innovation via a process of critical reflec- tion involving deep questionin g, reflection and dialogue. Critical reflection, question- ing and dialogue in action learning programs can be instrumental in bringing mental models and perspectives into awareness so they can be examined, reframed and trans- formed. This perspective transfo rmation is at the heart of strategic innovation, a para- digm shift that allows participants to overcome the mental models of the core business and see the market through a transfo rmed lens. Transfo rmative learning can be brought about through the Questioning Insight process of action learningRevans Q learning (Pedler, 1997) when its focus is honed primarily on strategic innovation. But not all action learning programs are able to support such critical questioning. Yorks, ONeil and Marsick (1999) critical reflection. through critical Deep devel- oped a typology of action learning programs that shows how organizational noise increases with questioning around task, goals and outcomes can lead to transfo rmative learning and reflection

organizational culture change, but only if the organization is willing to support the deep change. Action learning designed to produce strategic innovation requires critical reflection to be successful given the emphasis on creating a new growth curve that often chal- lenges the orthodoxies and dominant logic of the core busines s.

42 J. S. Kuhn and V. J. Marsick Third, leaders must use their own learning to develop organizational capacity for strategic innovation. In an interview study of strategic learning, the J. M. Huber Insti- tute for Learning in Organizations (2001) found that when innovation is a companys primary business strategywhich is the case for Chubblea rning does not translate into successful business results unless leaders also change the organization. They need to change rewards and incentives, support innovation as a core company value, and help others learn how to function in the new culture of innovation. Action learning can create a liberating structure to develop leaders capacity and jumpsta rt this process by fostering the right mix of individual transfo rmation and organizational learning (Yorks & Marsick, 2000). Action learning does not have to be focused on strategic innovation to create con- ditions for good peer learning. But such learning is different in three ways in strat- egy-based project groups. First, participants must learn to work collaboratively and share knowledge or ideas within the project or else they will not maximize the diversity of their cohort. Without divergent thinking, they will not achieve strategic break- throughs. Second, the program must support experimentation that extends out into the organization during the course of the program. Leaders need to experiment with innovation in a climate where they can learn from their mistakes. Such experimentation ideally surfaces barriers in the organization that will impede divergent thinking and suc- cessful strategy implementation. The cohort then can learn to address these barriers and bring them to the attention of senior leaders who need to be engaged in their res- olution before the program ends. Third, members must find ways to replicate their own experience with those they lead and manage. This is essential for building capacity outside of the program to carry out innovative projects because, to be successful, employees also need to take on characteristics of strategic innovators.

Design

that

supports

strategic

innovation Key differentiators of design that supports design team. First, the program architecture must integrate content and process, and provide for adequate project time to engage in all steps of strategy creation and implementation. All action learning programs benefit from work on a strategic innovation center

around the nature of the programs architecture, roadma p, facilitation and

over time. But some action learning programs are concentrated

into two-to-four week blocks. Because of time constraints, project teams are often limited to producing high-level analysis and recommendation s. To overcome organizational orthodoxies, leaders must help the organization to break out of past ways of thinking and actingand this requires time and space. Repeated cycles of action and reflection help leaders unfreeze mental models and see the business in new ways. Time is required to conceptualize and incubate new business models. As such, an extended modular architecture is recommended. As illustrated by the Chubb program, it is also useful to extend action on projects beyond the program so that maximum benefit is derived through their implementation.

Strategic innovation in mature organizations 43 Second, although serendipity certainly plays a major role in strategic breakthroughs, more often than not, participants require some type of process or roadmap to guide the project. Notwithstanding the popular jazz metaphor of innovation, it is unlikely that participants will simply show up from all corners of the globe and jam without a modicum of structure and process. The Chubb program used Pietersens (2002) strategic learning process as a roadmap for the projects, which is a transfo rmative, secondcurve process, unlike some strategy creation processes which are designed to optimize the core business, an incremental, first-curve emphasi s. Third, these programs generally involve a lead facilitator, typically a strategy expert from a business school or consulting firm, to provide the backbone (e.g., core content, methodolog y, process and tools) for the program. Other facilitators comp- lement the core content and methodology provided by the lead facilitato r. A special type of learning coach is also needed who has: (1) strategy development exper- tiseenterprise-level business and strategic acumen, experience with an array of strat egy models and processes, familiarity of the concept-to-ca sh business incubatio n life-cycle; (2) executive presence and relationshi p managemen t skills; and (3) expertise in individ- ual, group, and organizational learning, innovation and enterprise transformation. In a strategic innovation program, coaches must be aware of their own mental models so that they do not fall into the trap of their own comfort levels (ONeil, 1999). coaches For example, depending on their professional background, might focus primarily on learning, group dynamics or business among such

issues. Coaches in strate gic innovation-oriented programs need to surface and play with the creative tension that arises from disharmony in enabling participants to take advantage perspectives. For that they need a healthy toler- ance for conflict and skills of differences rather than

submerge them so as to fashion new thinking about strategic possibilitie s. Fourth, as in any successful action learning program, the design team must weave together design, development the various parts of the program to create a executive relatively seamless learning system. They need end-to-end expertise in the and delivery of complex, strategy-based development programs, including action learning design and facilitation skills. But for this model, skills needed are the same as those needed by coaches. The design team must understand and model the strategic process and the kind of transformative breakthrough thinking and acting that they wish participants to achieve. They need to be alert to ways that experimentation in the program is affecting the system as a whole. The designers must help leaders surface and address the creative tensions and noise that such a program will inevitably produce.

Outcomes that businesses

grow people and

Show me the money is the operative phrase in strategic innovation progr ams, since these programs bring the spirit and many of the practices of Silicon Valley to executive learning. The projects must produce a significant economic impact to be sustainable, and be taken seriously by program participants and sponsors of future programs. The first question posed by new participants is invariably, What was

44 J. S. Kuhn and V. J. Marsick the result (i.e., the economic impact) Despite of last years program? What got

implemented? They rarely ask, What did people learn last year? this dual program missionpeople development and business impact, no future impactthe bottom line is very clear: no economic programs. However, this is a two-way street, and the corporation must also show me the money by agreeing up front to fund any ventures warranting corporate seed money. Use of an internal venture capital fund and board is one way to provide cor- porate funding and oversight of projects that present significant commercial potential. Action learning programs of this type require a commitment to action that extends beyond the program itself. It takes time to see results from a nascent commercial venture, given the timeframes involved in taking a new business model from concept to cash. A year or more may be required to gain intellectual acceptance and a modicum of traction. Several more years may be needed to operationalize the business plan. Products have to be developed, technology built, distribution channels created, and organizations staffed before the cash register starts to ring. Any consequences will therefore be felt several years later, by other people. As such, its best to think of action as an upstream !mid-stream ! downstream continuum. Upstream action involves the collective process of strategy creation. Mid-stream action involves translating strategic intent (Hamel & Prahalad, 1989) into an operational plan. Downstream action involves hands-on tactical implemen- tation. designed though to produce strategic innovation Action learning programs are in the upstream space,

they may move into the mid-stream space if the project team

remains intact after the program has ended. A framework is needed to suppo rt learning by experi mentation throughout this lengthy process, which calls, in turn, for an organization development mindset. Both partiesthe project team and the organizationmu st show me the

money for

these

programs

to

move

beyond

analysis

and

recommendation.

The project team, the sponsor, the organization and the

business unit that will ultimately run the business must be committed to action, for example, taking the initial venture plan developed by the project teams from concept to cash. In this form of action learn- ing, there is no economic impact without action, and without economic impact, there are no subsequent programs.

Implications practice

for

As the Chubb case illustrates,

action learning can be used to catalyze are benefits and limitations to this

strategic inno- vation in mature organization s. We offer the Chubb experience as a single case, noting that there approach in both similar and different contexts.

Benefit s This action learning model addresses the age-old challenge of integrating learning and work in a way that drives the economics Learning is no longer of the business.

Strategic innovation in mature organizations 45 a sideline activity. It is integrated right into the business with the express purpose of building strategic capability at the individual, group and organizational level. This makes it easier to build the business case for its use because it is a learning-based business initiative that delivers many forms of strategic value. This approach is also instrumental in fostering individual, group and organizational learning and transfo rmation. By bringing the ethos and practices of Silicon Valley to executive learning, these programs can function as incubato rs to infuse new, genera- tive thinking and innovative business models into the organization. Finally, by moving beyond analysis and recommendations and incorporating the end-to-end business incubation life-cycle into the program, this model provides a hol- istic, enterprise-level for participants geared developmental experience and toward strengthening baseline business

strategic acumen, and developing the cognitive dimensions of strategic innovation highlighted in this article.

Limitation s The approach described in this article has its limitations, many of which stem from the fact that the model involves organization development and change. Many things have to be just right (or otherwise addressed by the design team) projects, for these programs the participant to produce their desired the mix, the facilitators, outcomes: sponsor, the the competitive environment, organizational readi- ness,

the design team, the

learning coaches, to name a few. The industry in which the program is being held might have a slow metabolism rate. The client organization

might have an inordinate first-curve orientation or might simply prefer to put its head in the sand in the face of clear market threats. The organization may have a propensity for short-term tactics as opposed to long-term strategy. Critical thinking and divergence are unsettling. Resistance is a very common response, often expressed in the form of orthodo xies. Participants engage in intense dialogue with the top team, strategic assumptions often challenging core and mental models, and cross every conceivable

organizational boundary in the course of the projects. As Kelly noted: The first year was a bit dicey. The boundary crossing and challenging of assumptions was an entirely new experience for Chub b. The tide clearly turned in the second year (the focus of this article) when we incorporated a more entrepreneu rial, show me the money element into the projects. The business ventures developed in the program were a real attention grabber in the executive ranks. However, the show me the money factor can be problematic.

Participants can easily forget why they are participating in the action learning program in the first place without constant reinforcement of the dual mission of the program: people de velopment and business impact. Further, learning and business are so tightly inte- grated in this model that visiting executives may also lose sight of the program purpose and fail to maintain a developmental lens that balances challenge and support when working with the project teams.

46 J. S. Kuhn and V. J. Marsick Providing seed money for the projects can also be a dilemma. On the one hand, money must be available to fund early stage development of projects that show com- mercial promise. However, the mere presence of a venture fund can disrupt the balance between people development and business impact. Conversely, participants may use the lack of venture funding as an excuse for sub-par project work. This tension must be managed productively if the program is to be successful.

New world . . .new approaches ... The so-called new economy presents a competitive and cognitive

environment that is qualitatively different from earlier economic eras: a world where strategic innovation can be the road to riches but is also a highrisk road that can lead the organization out of business. throughout this article, strategic order learning capabilitie s. As the Chubb case illustrates, a number of critical design and contextual elements must be considered and carefully orchestrated to overcome the forces of equilib rium and create a learning environment and experience that is ripe and ready for strate gic innovation. The model we have laid out in this article is designed to develop sophis- ticated cognitive dimensions of strategic innovation, but executives who are selected to participate also need baseline business acumen, aptitude for strategic thinking, and an element of creativity, to take advantage of the oppo rtunities provided. Without these fundamental building blocks in place, the program will likely be too much of a cogniti ve stretch for participants, and will deliver marginal results, both develop- mentally and in terms of business impact. innovation is by nature As reinforced a cognitively

complex process requiring sophisticated ways of knowing and higher-

Just as the competitive landscape changed, so too must the way companies develop their executive talent. Accordingly, executive development professionals must also think differently about the business and develop innovative approaches to action learning, approaches that reflect the complexity, demands, and underlying logic of the competitive environment. The model of action learning laid out here is one such approach to developing global executives with the individual and collective capa- bility for achieving strategic innovationthe lifeblood of the ente rprise.

Ackn owledgemen ts The authors extend a special thanks to Bettina Kelly, Manager of Chubb Global University, for her pioneering spirit and valuable insights in shaping this article.

Notes cont ributors

on

Jeffrey Kuhn, Ed. D., is the President of GrowthLeaders, a strategy and executive development con- sultancy. He is a pioneer and expert in creating powerful action learning programs that build the individual, team, and organizational capability to innovate and grow. Jeffrey holds a doctorat e in Adult Learning and Leadership from Columbia University. He has served as an adjunct professor at Columbia Business School and Teachers College, Columbia University and is on the editorial board of People & Strategy.

Strategic innovation in mature organizations 47

Victoria J. Marsick is a professor of adult and organizational learning and co-director of the J. M. Huber Institute for Learning in Organizations at Teache rs College, Columbia Univer- sity. She has written extensively on informal learning, action learning, team learning and the learning organization, most recentl y, Facilitating the learning organization: making learning count Karen E. Watkins); and currently, (1999) with (co-authored with Martha A. Gepha rt, a

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