What do the following corporate leaders have in common:  Microsoft's Bill Gates;  Intel's Andy Grove;  Compaq's Eckhard Pfeiffer;  Enron's Ken Lay;  and SAP's Hasso Plattner? 

The answer is that they - as well as corporate giants such as Procter & Gamble, Motorola, Samsung, and Johnson & Johnson - see market creation and recreation as their central strategic challenge. 

With good reason.  From 1975 to 1995, 60 per cent of Fortune 500 companies disappeared from the list.  The main reason for their demise:  in industry after industry, companies building innovative businesses were whizzing ahead by replacing established groups focused on improving existing businesses. 

We studied more than 100 new business launches and found that 86 per cent were me-too launches or incremental improvements - but they generated only 62 per cent of launch revenues and 39 per cent of profits.  By contrast, the remaining 14 per cent of launches - those that created markets or recreated existing ones - generated 38 per cent of revenues and a whopping 61 per cent of profits. 

The challenge for chief executives is how to drive their organizations to create the businesses of tomorrow.  A priority should be to devise a new approach to portfolio management. 

Traditionally, corporate portfolio models have been built on two indicators:  industry attractiveness and market share.  These two indicators have served as the yardstick by which investments for the future have been made. 

Businesses operating in high-growth industries with strong market positions usually serve as the targets for large capital infusions, while those in low-growth industries with marginal market share are the last investment priority. 

In thinking about how to invest a company's money for the future, however, does it make sense to base decisions on how well a business has done in the past?  Hardly.  Changes in the environment are too rapid.  Today's market share is a reflection of how well a business has performed historically.  Think of the strategic reversal and market share upset that occurred when innovative CNN entered the US news market.  ABC, CBS, and NBC - all with historically strong market shares - were devastated. 

At the same time, companies cannot take the industry for granted.  Even in declining industries, there are companies that are rising. 

Think of Dyson vacuum cleaners, which achieved phenomenally profitable growth in the ostensibly low-growth UK vacuum cleaner market.  Companies that take industry conditions as given drive their organizations to adapt, not to innovate. 

 Instead of industry attractiveness and market share, chief executives should use innovation and value as the important parameters for managing their portfolio of businesses.  Innovation - because without it companies are stuck in the trap of competitive improvements;  value - because innovative ideas will only be profitable if they are linked to what buyers are willing to pay for. 

In studying the best portfolio management practices of chief executives worldwide, we have developed the Pioneer-Migrator-Settler map as a way to assess companies' portfolio of businesses based on these two parameters. 

    Settlers are businesses offering me-too value;  Migrators are businesses with value improvements over competitors';  and Pioneers are businesses that represent value innovations.  Examples are Sony's Walkman, Dyson vacuum cleaners, Chrysler's minivan and SMH's Swatch - these are the businesses that hold the key to renewing a company's portfolio for the future. 

    What chief executives should clearly be doing is getting their organizations to shift the balance of their future portfolio toward pioneers.  That is the path to profitable growth.  The map depicts this path, showing the scatter plot of a company's portfolio of businesses where the gravity of its portfolio of 16 businesses, expressed as 16 dots, shifts from settlers and migrators towards pioneers. 

    A useful exercise for chief executives is to plot where their company's present portfolio of businesses falls on the map.  Is their portfolio settler-heavy - as is the case with a majority of declining companies?  Has a business that was in the past a pioneer, generating huge profit and growth, recently become a settler, suggesting that the company's growth is likely to be slow if a pioneer is not launched?  The key is to challenge continuously the company to shift its portfolio out of settlers. 

    By employing the map, chief executives can also gain insight into the reliability of current numbers such as market share, customer satisfaction, and profitability.  These numbers may be good today because of past performance, but if a company's portfolio of businesses has become settler-heavy a warning should be sounded that they may not hold up in the future. 

    Procter & Gamble is only one example of a company managing its portfolio out of settlers and migrators and toward pioneers.  Using corporate communications, senior management retreats, and a clearly articulated strategic aim to double the 160-year-old company's $35bn business in the next 10 years, it is making a sustained effort to create and recreate markets. 

    Forward-thinking chief executives understand that the real business they are in is not cosmetics or foods or chemicals.  It is the business of creating.  Only sustained creation will sustain compelling profitable growth in the 21st century.  The question is:  how much of your organization's time and talent is lined up behind building pioneers versus managing settlers?