A successful strategy for the long-term growth and prosperity of a business involves envisaging the future while forgetting the past and, at the same time, managing the present. While this may seem a paradoxical challenge too far, it is the only way businesses can respond to the rapidly changing global business landscape, according to leading strategy and innovation expert, academic and author Vijay (known as VG) Govindarajan.
"As an organisation, your future weaknesses are actually embedded in your current strengths and you need to develop the discipline and the structures to see beyond that," he tells The Irish Times. "It's only when you imagine the future that you can see that some of the things that you are doing are not relevant in that future."
VG has developed a simple framework to overcome this challenge, based on more than 30 years consulting with Fortune 500 corporations. The three-box solution, explained in a new book by the same title, shows how businesses can “move beyond the orthodoxy and assumptions that have made them successful”, as he puts it.
According to Govindarajan, by balancing three boxes, managers can resolve the inherent tension of innovating a new business while running a high-performance company at the same time. This involves simultaneously managing the present core business at peak efficiency and profitability (box one), while at the same time escaping the traps of the past by identifying and divesting businesses and abandoning practices that have lost relevance in a changed environment (box two). The third leg of this model, or box three, involves generating breakthrough ideas and converting them into new products and businesses.
Changing a winning formula is a tough challenge but corporate history is littered with examples of once successful companies whose complacency costs them dearly. Think Kodak, Blockbuster video, RIM and Sears to name but a few.
By contrast, he says, look at toy company Hasbro, a classic adopter of the three-box strategy. Twenty years ago, it saw itself as physical products company distributing toys such as Transformer, My Little Pony characters and board games such as Monopoly through bricks and mortar stores. Its focus was very much on its core market in the US.
Today, it's a self-styled global "branded play company" with brands across multiple platforms such as online game and fan sites, movie and television shows, digital gaming systems and comic books and magazines in collaboration with the likes of Disney.
“They were making a ton of money in the 1990s but for them to be successful in the future, they had to forget about being an American company that distributed only through bricks and mortar stores. They had to forget assumptions.
“The problem is that what you need to forget will help you in the future are the very things that are helping you today. What you need to forget requires having a vision of the future. The question is, how do you know what is going to happen in the future? What will the industry look like?”
In this scenario, moving to the future is a balancing act and VG says that it requires different teams and different disciplines with a strong over-arching management structure. Managing the present is very different from moving towards an imagined future.
“It’s more a question of being prepared for the future as much as predicting the future. You need a hypothesis for the future but not one that is formed in a vacuum and you form that based on what I call weak signals. In box one, where you are maximising the present, you are responding to clear signals, whereas in box three you are responding to weak signals.”
The classic mistake that management make is thinking about the future as a far-off time. As VG notes, “the future is actually now because you are building it day by day. If you want to be successful in 2025, it’s not about what you do that year, it’s about what you do now. ‘I’ll worry about it when I get there’ is not a formula for success.”
VG is the Coxe Distinguished Professor at the Tuck School of Business at Dartmouth College and Marvin Bower Fellow at Harvard Business School. His impressive CV includes a spell as the first chief innovation consultant and professor in residence at GE. He is credited as one of the pioneers of the idea of reverse innovation, the adoption of initial adoption of innovative practices by developing countries.
The influential Thinkers 50 list currently ranks him as the number one Indian management thinker. He believes that India is a better longer term bet than China because of three Ds – democracy, demand and demographics.
"Democracy slows things down but you get better decisions with it. We have 1.2 billion people who have very little so we have to create just about every product in India, so there's huge pent-up demand and you have a very young population with an average age of just 24 years, so that gives you energy, the skills, the hope, the aspiration. You need youth to build a strong economy and India has that in abundance." The Three Box Solution by Vijay Govindarajan is published by Harvard Business Review Press