Summary of The Three Box Solution by Vijay Govindarajan

Summary

The transcript emphasizes the importance of balancing three types of projects for strategic success: 'Box 1' focuses on improving current operations, 'Box 2' involves selectively abandoning past practices, and 'Box 3' is about creating the future through innovative projects. It stresses that while organizations often prioritize 'Box 1', true strategy lies in effectively managing all three to intersect with the future. The speaker highlights the need for different thinking and execution methodologies for each box, especially the challenges of fostering 'Box 3' breakthrough innovations amidst the demands of 'Box 1' operations. The talk concludes with three key principles for successfully balancing these initiatives.

Takeaways

• 📈 **Three Box Model**: Companies should categorize their projects into three boxes: Box 1 (Manage the Present), Box 2 (Selective Forgetting of the Past), and Box 3 (Create the Future).
• 🔍 **Focus on Strategy**: While Box 1 is crucial, strategy is more about Box 2 and Box 3, which involve innovation and future planning.
• 🚀 **Future is Now**: The future isn't just about what you'll do later; it's about executing projects today that intersect with the future.
• 💡 **Innovation and Improvement**: Box 1 is about incremental improvements and responding to clear signals, while Box 2 and Box 3 are about breakthrough innovation in response to weak signals and nonlinear changes.
• 🌐 **Internet as a Nonlinear Change**: The internet was a nonlinear change that led to new business models like eBay, Amazon, Google, Airbnb, and Uber.
• 🏆 **High Jump Metaphor**: The evolution in high jump techniques (scissors, Western roll, straddle, Fosbury flop) illustrates the necessity of breakthrough innovations to surpass performance limits.
• 💼 **Leadership Challenge**: Leaders must balance resources between improving current operations (Box 1) and investing in future-oriented projects (Box 2 and Box 3).
• 📊 **Resource Allocation**: Companies should allocate and ring-fence resources for Box 2 and Box 3 to ensure they are not redirected during tough times.
• 📝 **Different Evaluation Criteria**: Box 3 projects should be evaluated on learning and assumption testing rather than traditional financial metrics.
• 📚 **The Three Box Solution**: The book 'The Three Box Solution' delves into how companies can create the future while managing the present, emphasizing the importance of balancing the three boxes.

Q & A

What are the three boxes mentioned in the script and what do they represent?

The three boxes represent different strategic focuses for companies: Box 1 is about managing the present and improving the performance of current businesses, Box 2 is about selectively forgetting the past, and Box 3 is about creating the future.

Why is it important for organizations to focus on Box 2 and Box 3 in addition to Box 1?

Organizations need to focus on Box 2 and Box 3 to create the future, as these boxes involve activities that are about selectively abandoning the past and creating new innovations, respectively. This is crucial for long-term success and staying ahead of competition.

What does the speaker mean by 'selectively forgetting the past' in the context of Box 2?

The phrase 'selectively forgetting the past' refers to the strategic decision to abandon certain past practices, technologies, or business models that may no longer be relevant or advantageous in the evolving market.

How does the speaker define 'competition for the present' and 'competition for the future'?

'Competition for the present' refers to Box 1 activities focused on improving current business performance, while 'competition for the future' refers to Box 2 and Box 3 activities aimed at innovation and preparing for future market changes.

What is the central leadership challenge according to the script?

The central leadership challenge is balancing the need to manage the present (Box 1) with the need to create the future (Box 2 and Box 3), despite the inherent conflicts and differences in thinking processes and execution methodologies required for each box.

Why are Box 1 projects considered 'competition for the present'?

Box 1 projects are considered 'competition for the present' because they involve incremental improvements to current business models in response to clear signals and linear changes in the industry.

What is an example of a nonlinear change in an industry that could lead to Box 2 or Box 3 projects?

The Internet is an example of a nonlinear change that has led to the creation of new business models like eBay, Amazon, Google, Airbnb, and Uber, which would not have been possible without this fundamental shift.

How does the speaker use the high jump metaphor to explain the difficulty of Box 2 and Box 3 projects?

The speaker uses the high jump metaphor to illustrate how breakthrough innovations (like the Fosbury Flop) are necessary to surpass the limitations of traditional methods (like the scissors technique). This analogy highlights the challenge of transitioning from known, incremental improvements to radical, industry-changing innovations.

What are the three principles for successfully managing Box 1, Box 2, and Box 3 initiatives as outlined in the script?

The three principles are: (1) Ask for separate plans for Box 1 and Box 2/3 initiatives, (2) Allocate resources separately and protect them for Box 2/3, and (3) Evaluate Box 3 projects on learning and assumption testing rather than just financial metrics.

Why is it suggested to ring-fence resources allocated for Box 3 projects?

Resources for Box 3 projects should be ring-fenced to ensure that they are not redirected to Box 1 during tough times, as Box 3 projects are crucial for the company's future and require dedicated focus and investment.

Outlines

00:00

📈 Managing the Present, Past, and Future

The speaker introduces a strategic framework for companies to categorize their projects into three boxes: Box 1 for managing the present, Box 2 for selectively abandoning the past, and Box 3 for creating the future. The emphasis is on the importance of balancing these three areas for sustainable success. Organizations often focus too much on Box 1, neglecting the strategic importance of Box 2 and Box 3, which are crucial for long-term growth and innovation. The speaker stresses that while managing the present is vital, the real strategy lies in how companies approach Box 2 and Box 3, which involve breaking away from past practices and innovating for the future. The challenge is to execute projects across these three boxes in a way that intersects with the future, requiring different thinking processes and methodologies.

05:01

🏅 The High Jump Metaphor for Strategic Innovation

Using the evolution of high jump techniques as a metaphor, the speaker illustrates the difficulty of transitioning from incremental improvements (Box 1) to breakthrough innovations (Box 2 and Box 3). The high jump styles, from scissors to the Fosbury Flop, represent nonlinear changes that allowed athletes to achieve higher performances. The speaker argues that just as high jumpers had to abandon old techniques to reach new heights, companies must also be willing to let go of past practices and embrace new, innovative approaches to stay competitive in the future. The analogy highlights the necessity of allocating resources to both improve current operations and to experiment with new ideas that could revolutionize the industry.

10:02

🛠️ Balancing Performance and Possibility Gaps

The speaker concludes by emphasizing the need for organizations to balance their focus on closing performance gaps (Box 1) with closing possibility gaps (Box 2 and Box 3). He suggests that while linear innovation is essential for improving current operations, nonlinear innovation is required to explore new possibilities and create the future. The speaker outlines three key principles for achieving this balance: separate planning for Box 1 and Box 2/3 initiatives, separate resource allocation with a focus on protecting Box 2/3 investments, and different evaluation criteria for Box 3 projects that prioritize learning and experimentation over immediate financial results. The speaker's message is that organizations must be strategic in their approach to innovation, managing the present while also investing in the future.

Keywords

💡Box 1

Box 1 refers to managing the present, focusing on improving the performance of current businesses as they are structured today. It is about executing projects that maintain and enhance the status quo. In the script, the speaker emphasizes that while Box 1 is crucial, many organizations overemphasize it at the expense of innovation, which is critical for future success.

💡Box 2

Box 2 is about selectively forgetting the past, which means abandoning practices, processes, or business models that are no longer relevant or effective for future growth. The speaker suggests that to create a future, companies must be willing to let go of past successes that may hinder innovation, as strategy is not just about the present but also about preparing for the future.

💡Box 3

Box 3 represents creating the future, which involves projects that are aimed at innovation and breaking new ground. It's about responding to weak signals and nonlinear changes in the industry that could lead to breakthrough innovations. The speaker argues that companies must balance their focus on the present (Box 1) with a significant effort on Box 3 to ensure long-term success.

💡Strategy

Strategy, in the context of the video, is not just about future actions but also about the projects being executed today that intersect with the future. It's about balancing the improvement of current operations (Box 1) with the innovation required for future success (Box 2 and Box 3). The speaker stresses that strategy is a leadership challenge that requires different thinking and execution methodologies for different boxes.

💡Competition for the Present

Competition for the present, or Box 1, involves incremental improvements and responding to clear signals in the industry. It's about operational excellence and continuous process improvement. The script uses the term to highlight the importance of maintaining competitiveness in the current market while also preparing for the future.

💡Competition for the Future

Competition for the future, associated with Box 2 and Box 3, is about embracing nonlinear changes and breakthrough innovations. It requires a different mindset and approach compared to improving current operations. The speaker uses this concept to illustrate the need for organizations to innovate and adapt to stay ahead in a rapidly changing world.

💡Nonlinear Changes

Nonlinear changes refer to significant shifts or disruptions that can dramatically alter an industry. The script mentions the internet as an example of a nonlinear change that gave rise to new business models like eBay, Amazon, and Google. These changes require organizations to think and act differently, often leading to the creation of new products and services.

💡Breakthrough Innovation

Breakthrough innovation is a term used to describe the development of new products, services, or business models that disrupt the market and create new opportunities. In the context of Box 3, the speaker discusses the necessity for companies to pursue breakthrough innovation to create the future and stay competitive.

💡Experiments

Experiments, particularly in Box 3, are about testing new ideas, hypotheses, and business models. The speaker suggests that companies should allocate resources to experiments that could lead to significant innovations. These are not judged by traditional financial metrics but by the learning and knowledge gained from the process.

💡Accountability for Learning

Accountability for learning is a concept where the focus is on the process of learning and knowledge acquisition rather than immediate financial results. This is especially relevant for Box 3 projects, where the goal is to explore and innovate, and the speaker emphasizes that success should be measured by the insights and lessons learned rather than short-term outcomes.

💡Three Box Solution

The Three Box Solution is the overarching framework presented in the script for balancing current operations with future innovation. It involves managing the present (Box 1), selectively abandoning the past (Box 2), and creating the future (Box 3). The speaker discusses the importance of this balance and provides principles for how organizations can successfully implement it.

Highlights

Encourage companies to categorize projects into three boxes: managing the present, selectively forgetting the past, and creating the future.

Box one focuses on improving the performance of current businesses.

Box two is about forgetting the past to make room for innovation.

Box three is dedicated to creating the future through strategic foresight.

Strategy is not just about future actions but also about current projects that intersect with the future.

Leadership must balance competition for the present and competition for the future.

The central leadership challenge is managing inherent conflicts between maintaining the status quo and fostering innovation.

Box one projects are typically incremental improvements in response to clear signals and linear changes.

Box two and three projects require breakthrough innovation in response to weak signals and nonlinear changes.

The internet is an example of a nonlinear change that necessitated new business models.

Future nonlinear changes may come from technology, customer behavior, or new competitors.

The high jump metaphor illustrates the difficulty of transitioning from one style to another for higher performance.

Scissors technique in high jump represents maintaining the status quo.

Western roll and straddle techniques were breakthrough innovations that improved high jump performance.

The Fosbury flop was a box three breakthrough that changed the high jump game.

Leaders must allocate resources to both improve current operations and experiment with future innovations.

Box one is about closing performance gaps through linear innovation.

Box two and three are about closing possibility gaps through nonlinear innovation.

The importance of the three-box balance for future leadership is emphasized.

The difficulty of achieving the three-box balance and how to do it is discussed.

The three-box solution provides a framework for companies to manage the present and create the future.

Transcripts

whenever I work with companies I always

ask them think about all the projects

you are doing and put them in three

boxes how many of the projects you're

executing today will be in box one and

box one is about manage the present

it's about improve the performance of

your current businesses the way they are

constructed today how many of your

activities are in box two and box two is

about selectively forgetting the past

and how many of your activities are in

box 3 and box 3 is about create the

future manage the present box 1

selectively abandon the past box 2 and

create the future box 3 and what I find

working with organizations is

organizations way whoa or focus on box

one and then they think they're doing

strategy well box one is terribly

important strategy is really about box

two and box three and the challenge for

companies in box three is how are you

going to create your future ten years

from now and if you want to create your

future ten years from now you have a job

to do in box two namely you have to

selectively forget and let me clarify

one thing right away strategy is about

leadership in the future but strategy is

not about what you have to do in the

future strategy is very much about the

projects you are executing today across

the three boxes so that you intersect

with the future another word for box one

is competition for the present another

word for box two box three is

competition for the future as leaders

you know competition for the present is

just as important as competition for the

Futurists therefore strategy is really

about how do you create your future

while managing depression and the reason

why this is a challenge is the thinking

process and the execution methodologies

you need in box one are fundamentally

different than the thinking process and

the execution methodologies you need in

box two box three yet today

you better have box 1 projects but today

you better have box two box three

projects targeted at that future yet

there are inherent conflicts inherent

paradoxes inherent tensions between the

two this is the central leadership

challenge in fact what I'm going to tell

you is a very simple message because it

is simple to say does not mean it is

easy to do and the simple messages

future is now future is not about what

you have to do in the future

and the reason why this is so hard is

today you have two jobs to do one job is

in box one another job is in box two box

three inventing the future yet they

require different people different

capabilities different structures

different processes this is the central

strategic challenge let me take a minute

and highlight what the fundamental

difference is between box 1 projects on

the one hand and box two box three on

the other competition for the present

projects box one projects are always in

response to what I call clear signals

and linear changes in your industry

because you are responding to clear

signals and linear changes in your

industry the organizational response

would be incremental improvements in

your current business model call it Six

Sigma quality call it continuous process

improvement call it operational

excellence these are all powerful ideas

but they are box one ideas competition

for the future projects box two box

three projects are always in response to

weak signals and nonlinear changes in

the industry because you are responding

to nonlinear changes the organizational

response has to be breakthrough

innovation exponential innovation

nonlinear business model now what might

be an example of a nonlinear change in

the industry which gave rise to

nonlinear business model if you want to

take a look at the last two decades I

would say the intranet itself was a

nonlinear ship why because non mean

your changes will drive nonlinear

business models concepts like eBay

amazon.com Google air B&B uber would not

be possible without a discontinuous

shift called the internet now what maybe

some of the nonlinear changes that may

impact your industry say in the future

which can give rise to box two box three

ideas certainly technology will

transform every industry for sure but

technology is not the only source of

nonlinear ships there could be huge

customer discontinuities customers of

the future could be fundamentally

different than the customers of the

present if they are fundamentally

different they will demand box three

innovation there could be

non-traditional competitors who could

come into your space and force you to

remake yourself by the way everything

that I'm describing to you looks so

simple when you sit them so hard to do

one way I can explain why box two box

three is so hard to do is by taking a

metaphor from sports what I have here is

the gold medal winners in high jump

envelope picks Olympics I suppose

started in 1896 so we have got about 100

plus years of data here when you plot

the hundred years of data of gold medal

winners in high jump in balloon picks

what you immediately see is there have

been four box two box three nonlinear

business model changes and only when

there was a nonlinear change in the

style in high jump could the high jumper

go to the next level of performance the

first style in high jump but scissors by

the way even today if someone asked you

to do high jump I bet you you will use

scissors think about it suppose you are

walking on the road and you find a

little rod what do you do you can jump

over it just like the way a hurdler

would jump inside every organization

today you have lots and lots of scissors

then scissors is the style in the high

jump industry and if you are a high

jumper you have a job to do what is the

job except the rules of scissors and

become the number

one person in the scissors in the world

this is what I call box one challenge

this is about continuously improving the

performance of scissors is this

important to do absolutely critical why

because the scissors you have inside

your organization still has many years

of useful life left but what I'm saying

is 100% of the resources you allocate

today cannot be about improving the

efficiency of scissors you can do that

only if you are absolutely confident

there will be no more nonlinear changes

in the world ever unfortunately whether

with you or without you non consumers

will become consumers in the future and

demand box free innovation disruptive

technologies will open up all kinds of

box three possibilities non traditional

competitors will enter your space that

is why in addition to allocating

resources to strengthen your current

scissors you must allocate resources

also for box two box three breakthrough

innovation experiments which will

transform the scissors by the way if in

the high jump industry we have never

done any breakthrough innovations high

jumpers cannot achieve the performance

they are achieving today in 1896 when

scissors was invented in the high jump

industry the very first high jumper did

four feet two inches suppose in the last

100 years we didn't do any breakthrough

innovation all that we did was to simply

continuously improve the performance of

scissors high jumpers cannot achieve the

performance they are achieving today

today they easily go over eight feet

that is impossible with scissors why you

see scissors is hurdling motion if you

use a hurtling motion the centre of

gravity will define how high you can

lift your body that is why if you want

to beat the center of gravity you have

to change the business model that's what

somebody did and came up with a Western

drawl if you don't understand the

picture what happens in the Western

drawl is you run up to the pole

you kick off of your right foot you

clear the bar

but unlike scissors you still land on

your right foot

so you're going to kick off of your

right foot and still land on your right

foot that means your back is to the pole

when you clear the pole that was some

work for about 25 years until someone

invented the eastern roll which came to

be called the straddle again as the

picture shows what happens in the

straddle is you run up to the pole you

kick off of your right foot

you clear the bar but unlike Western

roll you'll land on your left foot so if

you're going to kick off of your right

foot but land on your left foot that

means your belly is to the pole when you

clear the pole that was in work for

about 25 years until someone invented

the false berry flop to no one's

surprise it was invented by dick Fosbury

again as the picture shows what happens

in the flop is you run up to the pole

then you launch with two feet straight

up in the air and once you launched

yourself like that then you twist your

body honey 80 degrees just like the way

a gymnast might twist his body the

twisting motion was a box-to-box 3

breakthrough idea the twisting motion

allow dick Fosbury to break out of the

center of gravity and Yeley wait quite a

bit high again imagine what happens in

the flop you are running up to the pole

you're launching straight up then you

are twisting your body that means you

are still straight up therefore as the

picture shows the very first thing that

crosses the bar is your head if you stop

to think about it faster a flop is the

most illogical way to do a jump why for

one thing you're not even looking at the

bar you're looking away from the bar for

another head clears the bar first for

100 years in the high jump industry we

were tall leg must clear the bar first

because leg lands first whereas in the

flop actually hit clears the bar first

then it is your neck then it is your

back in fact the leg clears the bar the

last you literally land on your head so

to speak this is the central leadership

challenge today you must allocate

enough resources to make your current

sisters perform even better but today

you must also allocate enough resources

to do some box two box three experiments

so that you can transform the scissors

into a false berry flop

what have I said so far what I am saying

is go back to your organization's and

take a look at how many projects you are

executing today which will be in box 1

and box one is about closing performance

gap and how do you close performance gap

through what I call linear innovation

you can call it Six Sigma total quality

management operational excellence these

are all powerful ideas but their box one

ideas at the same time ask yourself the

question how many projects you have

which will be in box two box three and

box two box three is about closing

possibility gap you cannot close the

possibility gap by using the same

principles that you used to close the

performance gap the way the cost

possibility gap is through what I call

nonlinear innovation but this is what I

am trying to tell you for your

organization to be a leader in the

future your possibility gap is a lot lot

bigger than your performance gap if you

really believe that then ask yourself

the question how many projects am i

executing today which will address that

possibility gap in the 3 mark solution

book we go into depth as to how can

companies successfully create the future

while managing the present how can they

cause the possibility gap when they are

managing the performance gap I will list

all three important principles number

one as a CEO and the leadership team you

must ask your business units and their

departments and the functions to give

plans separately for box 1 and box two

box three the initiatives should be

identified as a box-to-box 3 initiative

or a box 1 initiative that's number one

number two you must allocate resources

separately for box two box three as

compared to box one not only you should

allocate resources but you should

ring-fence them sometimes I find

companies allocate resources for box

three projects but then when times are

tight they redirected to box one and the

third principle is you must not evaluate

box three on the same criteria by which

you evaluate box one box one it is okay

to evaluate them on financial metric but

box three is a bet on the future it is

just an experiment therefore the right

way to evaluate box three is not

accountability for results but

accountability for learning and

accountability for learning essentially

means is can the Box tree be set up as

an experiment testing hypothesis trying

to convert hypothesis into knowledge

trying to convert assumptions into

knowledge try to evaluate them on a

rigorous assumption testing methodology

the three box solution book goes into

great depth on these three important

principles but the book essentially

highlights three very important points

that I want you to take away one why is

the three box balance so important - why

is the clean box balance so hard and

plea how do you do it all the best in

reviewing the whole book

you