Vijay Govindarajan does not believe in failure, though he thinks your company should try it.  

Govindarajan, a business professor, student of corporate innovation, and occasional sports buff, recently released his eighth book, a veritable how-to guide for CEOs and entrepreneurs titled The Other Side of Innovation: Solving the Execution Challenge.

As the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth College, Govindajaran has spent decades analyzing how companies make mistakes, grow, make more mistakes, and grow more. "You call it failure," he says. "I call it a knowledge-building exercise." 

Fostering innovation is a topic on the tongue of every CEO in America, but how do leaders implement this somewhat loosely defined idea into their companies? Govindarajan puts it simply: Dream big. Really big. Govindarajan recently spoke with Inc.'s Eric Markowitz.

What should a leader do to facilitate innovation within his or her organization?

I think the most important thing the leader can do is dream. And dream big. Big ideas and big concepts lead to major change. Innovation is about bringing out something new, like Apple's iPod or jet engines. When I say dream big, I'm talking about John F. Kennedy. Of course, we've all heard about the early '60s, when he said we'll put a man on the moon and bring him back before the end of this decade. That was a dream. And that big idea led to so many innovations that we're still benefiting from. Dreaming is what creates legacy.

It seems that the most innovative companies are those that are able to attract the smartest creative thinkers. So how does an organization attract these types of workers?

I think it is important for leaders to create a true sense of empowerment in an organization—an empowerment where people feel free to pursue their natural instinct to explore. As human beings, we are a species that does not like boundaries. If you put a human in a two-by-two-foot cell, it will only take five seconds before that person pushes the boundaries. And if you put that same human being in Hanover, New Hampshire, they may be happy for one week, but then they want to go out. If you give the same human being the entire state of New Hampshire, they might be happy for one month, then they want to go out. And if you give that person the entire United States, they might be happy for 12 months, but then they want to go out. This is the nature of the human spirit. We push boundaries.

Unfortunately, most employers put their employees in a two-by-two-foot cell. That is why innovation does not happen. If you want to attract creative people, you must give them the opportunity to express their voice and express their feelings. And you have to respect them. People have to feel free.

You have spoken about poverty in the American work force. What do you mean by that?

We define poverty incorrectly. The World Bank defines poverty as anyone who makes $2 or less per day. I define poverty as anyone who is marginalized, anybody who is voiceless, anybody who is nameless. According to that definition, there are lots of people in the U.S. who are poor. They may make $30,000 a year, but they may feel marginalized.

Think about how many poor people you have in your organization. You may pay them well, but do you really listen to them? Do they really have a voice? If you want to attract creative people, you must truly create a climate where their voices are heard. Most leaders marginalize their employees, and that's the problem.

Some companies allocate a certain percentage of their employees' time for focusing on their own endeavors. What does this do for their pysches?

Essentially, what that means is that you don't have to tell your boss what you're working on, and so your boss won't know if you fail. And if your boss won't know if you're going to fail, you'll try to push the envelope. That's true of academics, too. Today I am home—my dean doesn't know that, though. He doesn't even know where I am!

We have to create entrepreneurs inside these companies. An entrepreneur is someone who defines his or her space. That's why the dream is so important, because it gives you cohesion. And with that comes freedom, but freedom without responsibility is dangerous.

You mentioned the word failure there, which I think is interesting. Can you talk a little about the importance of failure in innovation?

You call it failure; I call it knowledge-building exercises. Innovation is always an experiment. It is an experiment with a lot of unknown outcomes. You're trying to create a new technology, a new space. That means you don't know the answers. And when you conduct 10 experiments, nine of them will fail. And that is the nature of experimentation. It's done to better understand the unknowns. So when you're converting assumptions into knowledge, certain assumptions you make about the future, some will be true, some will not be true. So some experiments will tell you an assumption is wrong, which is useful information. That is knowledge. Organizations should reward failure, because if you don't reward failure, people will only do the safe things.

What is a good example of pushing those boundaries?

The interesting thing is that when you dream, you are not concerned with your competitors. You define your level of excellence. You don't benchmark yourself against competitors; you create a new space. For example, in the 2008 Winter Olympics, Shaun White had already won the gold medal before he went for the third try. He had the gold medal in his back pocket. The coach tells him, "Shaun, we got what we came here for. Don't go for the third try." And he told him that because there were endorsements at stake and he could potentially injure himself. So what does Shaun White do? He tells the coach, "You know what? I want to go for 50 out of 50." Now, that's what I mean by dream. He was setting his sights higher. If he benchmarked himself against his competitors, he shouldn't have gone. But he didn't do that.

You have spent decades studying innovation in large organizations. What draws you to this subject? Why does it fascinate you?

It fascinates me because in this world there are eight billion people. Unfortunately, corporations have divided these eight billion into two groups. There are three billion who can afford the products these companies make and five billion that we have left to charities, governments, and nongovernmental organizations to take care of. That's outmoded thinking. We have to bring the five billion poor into the consuming base. If you want to bring them into the consuming base, you can't give them the same products that you offer to the three billion. So the only way you can make them consumers is through innovation and new solutions. And out of the five billion poor, one billion of them are from India. I am from India, and I was always frustrated by this. There were only 200 million rich people in India that could afford these products, but what about the one billion poor? And just because they're poor, it doesn't mean they don't have aspirations. They want to give their kids access to education, health care, transportation. They have the same aspirations as everyone else. They want quality products.

So, this is probably the biggest opportunity for business. How do you bring the five billion poor into the consuming base? That requires innovation. Let's think radically differently. I really believe in capitalism, and I really believe in profit motive. But companies so far have focused too much on making money. There's nothing bad about making money, but let's make a difference as well.