Leaders already know that innovation calls for a different set of skills, metrics, methods, mind-sets, and leadership approaches: They understand that creating a new business and optimizing an already existing one are two fundamentally different management challenges. The real problem for leaders is doing both, simultaneously. How do you align your organization on the critical, but competing, behaviors and activities required to simultaneously meet the performance requirements of the current business—one that is still thriving–while dramatically reinventing it?
Managers need a simple tool–a new vocabulary, if you will–for managing and measuring the different sets of skills and behaviors across all levels of the organization. They need a practical tool that explicitly recognizes–and resolves–the inherent tensions of asking people to innovate and, at the same time, to run a business.
What’s more–as anyone who has tried to lead innovation knows–the challenge goes beyond being ambidextrous in order to simultaneously manage today’s business while creating tomorrow’s. There is a third, and even more intractable, problem: letting go of yesterday’s values and beliefs that keep the company stuck in the past. What leaders need now is the Three-Box Solution. The ability to achieve significant nonlinear change starts with the realization that time is a continuum. The future is not located on some far-off horizon, and you cannot postpone the work of building it until tomorrow. To get to the future, you must build it day by day. That means being able to selectively set aside certain beliefs, assumptions, and practices created in and by the past that would otherwise become a rock wall between your business of today and its future potential. This basic idea is behind what I call the Three-Box Solution.
The Three-Box Solution is a simple framework that recognizes all three competing challenges managers face when leading innovation. It’s a powerful guide for aligning organizations and teams on the critical but competing activities required to simultaneously create a new business while optimizing the current one. In the three boxes, companies must do the following:
• Box 1: Manage the present core business at peak efficiency and profitability.
• Box 2: Escape the traps of the past by identifying and divesting businesses and abandoning practices, ideas, and attitudes that have lost relevance in a changed environment.
• Box 3: Generate breakthrough ideas and convert them into new products and businesses.
By balancing the activities and behaviors associated with each box, every day, your organization will be inventing the future as a steady process over time rather than as a onetime, cataclysmic, do-or-die event. Simply put, the future is shaped by what you do, and don’t do, today.
Tool 1: Assess Your Business
Crafting Three-Box Solutions will require you to look at the way your business operates through a new lens. The starting point is to understand the way things operate now:
• How easy or difficult is it for your business to generate, refine, incubate, and launch new business ideas?
• Has your company, business unit, or functional department developed ongoing processes for identifying emergent trends, based on weak signals, that are likely to affect your business in the coming years?
• Describe your current planning process. Does it incorporate the voices of maverick thinkers? Does your population of mavericks feel empowered or, conversely, stifled?
• Describe your current method for resource allocation. Does it earmark funds for high-risk projects?
• Describe your current performance management system. Does it support experiments with unknown outcomes?
• Describe your current approach to talent acquisition. In addition to keeping Box 1 well stocked, do you also recruit talent that would support tomorrow’s business?
• What particular factors and conditions does your current success depend on? Which of these factors might change over time, thus putting current success at risk? Do you have formal processes to anticipate and prepare for these possible changes so as to cushion or even exploit their impact?
• How much time does your management team currently spend on Box 1 vs. Boxes 2 and 3?
• What barriers prevent your management team from spending more time on Boxes 2 and 3?
Tool 2: Identify Weak Signals
After diagnosing your current situation, initiate conversations around Box 3 thinking. As a management team, identify the weak signals that potentially could transform your industry in the future. In particular, reflect on:
• Customer discontinuities. Are today’s biggest, fastest-growing, or most profitable customer segments likely to be the same ones in ten to fifteen years? Who will be your customers in the future? Are there small or emerging customer segments today that are using or even customizing your products or services in unconventional ways? Which non-consumers today could potentially become consumers in the future? What would be their priorities?
• Technological discontinuities. What disruptive technologies can open up new opportunity spaces?
• Nontraditional competitors. Are today’s most potent competitors likely to be the same ones in ten to fifteen years? Who will you be competing against in the future? And on what basis?
• New distribution channels. Will there be fundamental changes in your go-to-market approach in the future? What possible supply-chain economies (or diseconomies) might your business face?
• Regulatory changes. What are the potential regulatory reforms? What new opportunities might they open up for you?
Vijay Govindarajan is the Coxe distinguished professor at the Tuck School of Business at Dartmouth College and Marvin Bower fellow at Harvard Business School. Reprinted by permission of Harvard Business Review Press. Excerpted from The Three Box Solution: A Strategy for Leading Innovation. Copyright 2016 Vijay Govindarajan. All rights reserved