Three Box Solution

VG customizes his presentation on Three-Box Solution to fit a given audience and situation.

We now live in an era of constant change, driven by the dynamic forces of technology, globalization, the Internet, changing demographics, and shifting customer preferences. As a result, companies find that their strategies need almost constant redefinition—either because the old assumptions are no longer valid, or because the previous strategy has been imitated and neutralized by competitors. Rooted in these premises, the strategic and organizational challenges become:

• How do we identify the market discontinuities that could transform our industry?
• How can we create new growth platforms that exploit new market realities?
• What are our core competencies and how can we leverage them to generate growth?
• What new core competencies do we need to build?
• What organizational DNA will allow us to anticipate and respond to changes on a continual basis?
• How do we execute breakthrough strategies?

Setting the Stage: Managing the present while creating the future

Organizations must continually reinvent themselves in order to be successful. In many industries, they must do so in order to survive. VG's discussions about Strategy is Innovation begin with this premise, plus the observation that everything that executives do fits into three boxes.

Despite the necessity of reinvention, executives allot their time overwhelmingly to Box 1. His presentation motivates and energizes participants to shift focus to Box 2 and Box 3. It also introduces concepts to guide successful management of Box 3 activities. Creating the future involves identifying possibilities, selecting winners, and implementing innovative ventures.

Topic One: Market discontinuities and industry transformation

An effective illustration of discontinuous change is the history of the high-jump event at the Olympics. In the chart to the right, it is clear that there have been four distinct "business models" in the high-jump. Each enabled athletes to achieve breakout performance.

Early on, the Scissors style dominated—it was much like hurdling. As all high-jumpers were using the scissors approach, the name of the game was being the best at Scissors. The high-jumpers were operating in Box 1. If they were businesspeople, they would have been competing on cost, market share, and margins.

One day, someone changed the rules of the game, by inventing the Western Roll. (Highjumpers launched and landed on the same foot, and kept their backs to the bar.) The Western Roll was the style for 25 years, until someone changed the rules again, introducing the Eastern Roll, a.k.a. the Straddle. (Now high-jumpers launched and landed on opposite feet, and faced the bar.) Then in the 1968 Olympics, former gymnast Dick Fosbury broke the Olympic record by three inches, creating a third discontinuous change. (The "Fosbury Flop" involved a straight approach, jumping with both feet, and twisting the body 180 degrees—like a gymnast—looking away from the pole.)

These non-linear shifts exemplify Box 3 thinking. Each transformed the high-jump "industry." In each case, the inventive high-jumpers were not managing the present, they were creating the future.

Topic 2: New business models and organic growth

The universe of opportunity is tremendous, but not every opportunity is right for your company.

Box 3 initiatives have the potential to create discontinuous change in an industry. The most suitable Box 3 initiatives also leverage the core strengths of your organization.

For example, Honda changed the rules of the game by leveraging their expertise in small engine design. Ultimately, Honda achieved a vision of putting "six Hondas in a two-car garage." The snowmobile and lawn mower suppliers, who monitored only their "current" competition, were caught off guard. Honda entered their markets with a powerful brand and formidable small engine capability.

Topic 3: Organizational DNA of the rule changers

How can an organization become a rule changer? As shown in the diagram, Box 1 organizations are very adept at exploiting today's business—making the most of existing products, markets, assets, and technologies. Organizations that are successful over the long term balance exploitation with exploration.

Senior leaders can create a suitable mix by focusing on a handful of elements that constitute an organization's DNA. These elements include: staffing and promotion policies, incentives, leadership styles, culture, performance measures, and resource allocation processes. Organizational DNA determines individual and collective motivations, abilities, and behaviors. An effective DNA promotes initiative, encourages risk-taking, and enables motivated managers to pursue new opportunities.

Box 3 organizations generate a variety of ideas, encourage pervasive experimentation, apply intelligent selection mechanisms, and rapidly scale up successful efforts. Promoting this level of initiative creates an effective balance between exploitation and exploration.

Topic 4: Managing corporate entrepreneurship

Implementing Box 3 breakthrough innovation projects is the triple-flip-with-a-quadruple-twist of general management. No matter how talented and experienced the leader, chances are that this is a new and unfamiliar challenge. VG can help you understand the three fundamental challenges faced by Box 3 strategic experiments, and can offer several specific recommendations to help you overcome them.

Even world-class companies with successful business models eventually hit the ceiling on growth. That’s what makes emerging industries so attractive. These markets represent huge opportunities for capturing long term growth and competitive advantage. But because they lack a proven formula for making a profit, they are risky and expensive–with dire consequences for failure.

Vijay Govindarajan argues that every organization’s survival depends on Box 3 breakthrough innovations that target such untested markets, but few firms understand how to implement them successfully. Too many managers think that a great idea is enough to get them from business plan to profitability, but somewhere in the middle of the innovation process, most organizations stumble. Govindarajan reveals where firms go wrong on their journey from idea to execution—and outline exactly what it takes to build a breakthrough business while sustaining excellence in an existing one.

Based on an in-depth, multiyear research study of innovative initiatives at over 50 large corporations, Vijay Govindarajan identifies three central challenges to strategic innovation:

• Forgetting some key assumptions that made the current business successful
• Borrowing assets from the established organization to fuel the new one
• Learning how to test critical assumptions about the future.

Govindarajan explains how to overcome these challenges by rewiring the “organizational DNA” across four main areas: staffing, structure, systems, and culture, in order for a promising new venture to succeed. He also spells out the critical role senior executives must play in managing the inevitable tensions that arise between today’s business and tomorrow’s.

Breakthrough growth opportunities can make or break companies and careers. Govindarajan can present a guide to execution in unexplored territory.