Three Box Solution for Sustainable Innovation

By: Hylke Faber

“Before you can create, you must forget,” writes Vijay Govindarajan (VG), one of the world’s leading experts on strategy and innovation in his latest book “The Three Box Solution – A Strategy For Leading Innovation.” Why does VG say this and what can we learn from him?

Three Box Innovation

VG grew up in India where he learned from Hindu philosophy about the continuous cycle of creation-preservation-destruction in life that is without beginning or end. In his over 30 years of working with leaders of companies, and researching and teaching at Harvard and Tuck, he noticed that successful innovation leaders are conscious of this cycle and disciplined about managing it. He calls it Three-Box leadership and translates this ageless cycle into business practices as follows, starting with preservation:

• 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 changed environment;
• Box 3 – Generate breakthrough ideas and convert them into new products and businesses.

The challenge and promise in Box 2

Which of these the Three Boxes do you find most challenging? Working with executives as culture transformation facilitator and coach, I noticed that Box 2 is by far the most uncomfortable for most of us. Who wants to let go of what has worked so well in the past? Who wants to let go of ways of being, believing and leading that have gotten us to our current success?

We have been deeply conditioned to want to succeed and never fail.

As it turns out, most of us hold onto the past too long and shy away from timely decisive action. Why? One answer lies in how our mind works. When asking hundreds of leaders about their top fears, guess which one consistently comes out on top? No, it isn’t the fear of poverty, abandonment or uncertainty. It is the fear of failure. We have been deeply conditioned to want to succeed and never fail. This makes sense. Reflect on how most of us grew up. What did our parents say when we finally managed to utter the words ‘mommy’ or ‘daddy’ correctly? “Yes, good, Johnny.” And when did we get good grades in school? Not when we failed but when we gave the right answer. And when did we get promoted? When our manager believed we had done a good job. It is still rare for people to move up the corporate ladder because of their failings and what they have learned from them. We have been conditioned to be ‘good girls’ and ‘good boys’ who don’t fail. And good boys and girls typically shy away from any bold decision and its inherent risk of visible failure.

From the vantage point of this good boy/good girl mindset, letting go of a business, belief or habit can be seen as an admission of failure in the past and worse, it opens us up to new ways of failing in the future. Of course what this fear-based conditioning doesn’t allow us to see that letting go also opens us up to new ways of succeeding.

Consider GE’s recent Box 2 divestiture. Writes VG: “GE took bold Box 2 action in April 2015 when it announced it would sell off most of the assets of its GE Capital unit [in 2000, more than half of the company’s revenues] to focus on its high-tech industrial businesses. The company expected to reap $26.5 billion from the sale…, cash that could fund Box 3 initiatives in healthcare, energy and transportation…In his public announcement, chair and CEO Jeff Immelt said that in considering the move, GE’s board and management team “asked some key questions: What is going on in the world? Is this the right time? Is this good for customers and investors? What will GE look like going forward?” If Immelt and his colleagues had been driven by a fear-of-failure-mindset, they would have probably held onto the business they knew so well – financial services and not opened themselves up to the trial-and-error-and-sometimes-succeed-nature of these new businesses. Box 2 decisions are not for the faint-hearted.

Two levels of Box 2 decisions: tangible and intangible

VG focuses the section of the “Three Box Solution” that is about Box 2 decisions on mindsets and behaviors, “because as hard as it can be to divest tangible business assets, it is harder still to take the knife to the less obvious but more insidious menace of organizational memory.” Of course it is helpful to have collective memories – they help organizational efficiency and alignment, so important for effective Box 1 optimization of the current business. However, as soon as our collective memory becomes ‘dominant logic’ that gets in the way of Box 3 creation, it needs to be looked at and transformed, VG consults.

Box 2 decisions that transform a corporate culture are not for the faint-hearted.

Louis Gerstner, CEO of IBM from 1993 until his retirement in 2002, was a Box 2 master – helping his organization quickly forget those beliefs and habits that were no longer serving it. “He changed the corporate narrative rapidly when he took office. In Gerstner’s early tenure at IBM, one of the first things he noticed was that senior executives were accustomed to making brief cameo appearances at IBM-hosted customer events and then disappearing without bothering to spend time actually engaging with customers, creating the impression that executives had better things to do with their time. Gerstner, who liked nothing more than to pick customer’s brains was appalled…when Gerstner learned of an upcoming two-day conference for three hundred North American CIOs, he told his executive staff, “These are your best customers…I’m going to the whole conference. I’ll be there the first night. I’ll have dinner with them. I’ll have breakfast with them. I’ll have lunch with them. And any IBM executive who wants to attend will stay for the whole two days…during the conference…Gerstner opened a dialogue with the customers and started to single IBM executives out. “This executive will fix that and get back to you this afternoon.” It was unheard of. “’The CEO’s siding with the customers!’ That was like a rocket through the company!”” Box 2 decisions that transform a corporate culture are not for the faint-hearted.

Balanced Box 2 leadership: roots & chains

To innovate an organization’s culture to support the next level of success, it sometimes makes sense to take bold, rocket-like Box 2 action. And this can send shockwaves as those IBM executives at the CIO conference experienced firsthand. So how do we wisely discern which mindsets to let go of and which ones to keep? These are big decisions that have big impact on people. VG suggests we reflect on the distinction between roots and chains. “For a tree, roots sustain life. Cut the roots and the tree will die. Chains, on the other hand, create limits, constricting freedom of movement and threatening potential.”

Look at the roots and chains in your organization right now. What potentially limiting mindsets and behaviors do you see that could get in the way of Box 3 success (chains)? Which mindsets are critical to keep to enable Box 1 prosperity (roots)?

We applied VG’s thinking to our organization, a culture facilitation and coaching business. Upon reflection on roots and chains we realized that one mindset we had clung to was that we had to be in-person in the same room with executives for deep personal transformation to happen. This turned to out to be a chain – more than half of all education worldwide is happening online these days and some of our own most profound moments of inner growth had happened online.

Online leadership development is not time-bound to a few workshops but rather curates ongoing practice and interaction over an extended time.

Before you can create, you must forget. The Box 3 innovation that emerged from undoing this chain was to start hosting leadership journeys on coaching and culture change online. Some of those programs have turned out to be more transformative than our in-person programs. We now see why. Online leadership development is not time-bound to a few workshops but rather curates ongoing practice and interaction over an extended time. Clearly, many leaders get deep insights during an in-person workshop. And in those moments they become what is called consciously unskilled – they gain awareness of a blind spot. Yet few of them take the time to practice their insights enough to become unconsciously skilled in their learning – where a new mindset and behavior become a natural part of their leadership style. Online courses allow for ongoing support of embedding practices in a cost-effective way.

Three Box leadership for everyday vitality & prosperity

Once we become familiar with Three Box leadership, we start to see its application everywhere. According to VG, “Pope Francis has been changing the narrative of the Catholic Church by loudly and publicly challenging the dominant logic of its entrenched old guard. He has turned the church’s culture in the direction of tolerance, openness and communication.” And in the same section of “The Three Box Solution” VG quotes Satya Nadella, CEO of Microsoft: “Nothing is off the table in how we think about shifting our culture to deliver on this core strategy. Organizations will change. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New hires will be made. Processes will be simplified. And if you want to thrive at Microsoft and make a world impact, you and your team must add numerous more changes to this list that you will be enthusiastic about driving.” Satya, whose name means ‘truth’ in Sanskrit, encourages his colleagues to inquire with deep honesty – what must we let go of now? What must we create?

Every page I read in VG’s latest book made me reflect more deeply: what is essential to preserve? What else can I let go of now? What do I really intend to create? Interestingly, the reflection on these questions is energizing in itself. This may be because preservation, destruction and creation are inherent to nature. When we reflect on these questions we may come more in harmony with our true selves. And when we are more in harmony with our true nature, we start to realign with our inborn vitality.

The Three-Box solution is as practical as it is deep. It suggests we cultivate balance in the time and attention we spend on each of the three boxes. “The three boxes, managed together, and given the requisite ongoing attention, achieve a level of balance that in the long run helps organizations avoid self-inflicted crises and respond opportunistically to unavoidable ones.” Brian Goldner, CEO of Hasbro is spreading attention on the three boxes with conscious discipline. “I quite literally review my calendar every week to make sure I’m allocating enough attention to Boxes 2 and 3.”

When we read “The Three Box Solution” and hear VG describe the experiences from leaders of Hasbro, Tata, IBM, United Rentals, Mahindra & Mahindra amongst others, we get inspired to find our own balance between these three innovation areas: preservation, destruction and creation.

And we’ll get a sense of the infinite cycle of the three boxes. Every day becomes a new opportunity to discover: what is essential to maintain? What must I let go of now? What do I want to create? “The Three Box Solution” helps leaders come into harmony with an ageless rhythm, that creates sustainable prosperity.

By Hylke Faber

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