A Framework for Leading Innovation
It’s an age-old problem for business: succeeding today while preparing for the future. One might think that today’s success lays the foundation for the future, but in business such thinking is a guaranteed path to failure. Just ask Kodak. Or Blockbuster. Each dominated their categories only to find themselves in bankruptcy court. While they were winning in the present, they were laying the groundwork for failure. In sum, what you do today to succeed has less relevance on what you’ll need to do tomorrow than you might think.
From Linear to Non-Linear
Hindsight is always 20/20, especially in strategy and innovation. In real-time, however, how to allocate attention and resources to maintain the present while building the future is far from obvious. Enter Vijay Govindarajan, a professor at Tuck School of Business with a number of best-sellers on strategy and innovation to his name. In his new book, The Three-Box Solution, Govindarajan offers a framework, based on three boxes, that is both methodology and mindset for attacking the dual and often conflicting imperatives of succeeding today and preparing to succeed tomorrow.
Box 1, according to Govindarajan, is about managing the present — implementing the strategies, tactics and approaches required to operate at “peak efficiency.”
Box 2 is about forgetting the past — divesting businesses and letting go of practices and assumptions that are becoming obsolete.
Box 3 is about creating the future — developing new business models to ensure long-term success.
Companies must pay attention to all three boxes at once, which means, Govindarajan explains, focusing on both linear and non-linear innovation. Linear innovation is extrapolated from a company’s current activities. Non-linear innovation doesn’t build on current activities but, instead, targets new and old customers with new business models and products. Linear innovation is vital for success in Box 1; non-linear innovation is at the heart of Box 3.
It is perhaps Box 2, however, that holds the key to the entire framework. In order to transition from present to future, Govindarajan explains, you have to deal with the past. Toy- and game-maker Hasbro offers one example of how The Three-Box Solution works. Launched in the 1920s by three brothers, Hasbro was known for its traditional products such as the Monopoly game. Its distribution model was simple: toy stores. With the arrival of the Internet, it’s distribution expanded to the web.
To keep customers coming back for more, Hasbro maintained its Box 1 linear innovations — for example, developing Star Wars-themed versions of its classic Monopoly and Mr. Potato Head.
However, it is Hasbro’s Box 3 non-linear innovations that have positioned the company for long-term success. As detailed by Govindarajan, Hasbro has expanded its business model far beyond selling toys and games through retailers. Today, its toys and games (think Transformers, for example) have also become online games and fan sites, movies, television shows, digital gaming systems, comic books and even theme park rides. These new offerings are not product extensions; instead they are manifestations of Hasbro’s new business model and mission: to become the world’s leading “brand-play” company. This is Hasbro’s Box 3, driven by non-linear innovations.
There would be no Box 3 success, writes Govindarajan, if Hasbro had not first successfully “filled” (in his terminology) Box 2 by taking steps to let go of its long-held assumptions and strategies. Assumption number one: We are a product company. Hasbro had been a very successful product company for many years. Preparing for the future, however, meant preparing for moving beyond the product. Examples of other long-held assumptions that needed to be abandoned included assuming that its customer base was under the age of 15 and that brick-and-mortar stores were the foundation of the customer interface.
Govindarajan uses in-depth case studies from a variety of industries to explain the principles and behaviors needed for each box. Practical, relevant and comprehensive, The Three-Box Solution is another important contribution to strategy and innovation from one of the most creative thought leaders in the field.
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