February 2021 | Point of View

How to prioritize the right innovation projects

The Three Box Solution helps you think differently about your organization’s innovation efforts

How to prioritize the right innovation projects

Every company is an entity built for the future. Its purpose is to continue creating value for its customers, users, or clients. To do that, its leadership must constantly reimagine what the future will hold, preparing and planning for the most advantageous outcomes. 

The process of envisioning the future, forming hypotheses, and testing new ideas is the heart of innovation — and businesses need it like you and I need oxygen. 

No executive team at any organization of any size in any sector would say innovation is less than a top priority. But in order to create a successful culture of innovation, it takes more than a few slides in a PowerPoint deck or a one-time app launch. Many organizations will take a shallow approach to innovation or let the events of the present overshadow the need to invest in the future. 

Innovation, the practice of looking ahead and making bets on the future, is something that too many business leaders struggle to make a part of their regular, ongoing business practice.  

It’s the aspiration of all business leaders to invent products, systems and models, and be first-to-market. But how do we actually get there? How do we move from aspiration to intention to execution?
We’ll share the framework we use to keep our consultancy moving forward; it has steered us through new product development, game-changing acquisitions, and unparalleled returns for our clients. 

The Three-Box Solution powers organizations to think differently about innovation

Surprising and successful corporate innovation transformations are all around us — from Amazon buying Whole Foods in 2017 to Hasbro going from a toy manufacturer in the 1990s to a much larger brand-licensing and media conglomerate business today. 

How do organizations know how to make these types of moves? 

For many, the answer comes from an influential business school professor named Vijay Govindarajan and his Three-Box Solution. The Three-Box Solution is a framework that describes how firms must divide their attention into three time zones, or boxes: 

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Box 1

Managing the present

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Box 2

Selectively shedding the past

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Box 3

Creating the future

This insight has helped shape the growth trajectory of some of the top corporations around the world. Indra Nooyi, CEO and chairman of PepsiCo, has said, “at Pepsi, we practice what VG preaches.” 

What exactly is he preaching with the three boxes? 

Box 1 is the category of activities an organization undertakes to manage the present — to make the business as it exists today more efficient. Strategies such as reducing production costs or improving logistics fall into this category. Box 2 contains the activities specially carved out to examine the past and intentionally shed previous assumptions and strategies that no longer serve the future. Strategic pivots are the result of Box 2.

To be successful, a company must be engaged in meaningful activity in all three boxes, but perhaps none is as vital as Box 3 — where innovation happens. As VG told Fortune Magazine (2016), “The basic idea here is the future is now. The future is not what you have to do in the future. That means if you are a corporation and you want to be a leader in the year 2020, the job does not start in the year 2020. The job starts today. The future is now. Your future is now.”

Box 3 or Bust 

And yet in our experience the leaders at many organizations direct more attention at Box 1 than on Boxes 2 or 3. That is a recipe for disaster. A company that spends the majority of their attention on initiatives and meetings dealing with the business today or on responding to real time events is a company that won’t stand the test of time. 

Companies that are not regularly spending time in Box 3 are vulnerable to the competitive forces of the market. They might fall victim to “Death by 1000 startups” where a proliferation of technology companies make inroads in an area where the company has failed to innovate. Startup companies can be a particularly effective market threat because they are set up from the beginning to be focused on Box 3 initiatives — there is no legacy business for them to manage. 

Falling behind the curve on innovation affects market narratives and the ability to attract and retain top talent - thus creating a negative feedback loop effect. According to a survey by Fast Company, 91% of workers said it was important to work for a company they thought of as innovative, and 30% said they would accept less money in exchange for more time spent working on innovative projects. 

The pages of The Wall Street Journal are full of examples of companies that fell down on the job on Box 2 and 3. One of the most famous case studies is the story of Kodak. Despite early patents on digital cameras and continued investment through the last decades of the 20th century, they were never fully able to grasp that the future of digital photos would be shared online, not printed out. To this day, they are still oriented around a print business that continues to shrink.

The point is, if you’re not making a regular habit of dedicating serious leadership attention to the types of questions Boxes 2 and 3 demand, you’re leaving room for your competitors to do just that. 

The Three Boxes In Practice 

Brian Goldner is the CEO of Hasbro and the leader who realized the growth opportunity was in leveraging the power of their toy brands for film, television, theme parks, and other media. How did he do it?  "I quite literally review my calendar every week to make sure I'm allocating enough attention to Boxes 2 and 3," he recounts to Govindarajan in the book, The Three Box Solution. 

You can also see the framework working when considering recent moves by Apple and Disney to get into the premium television content game. Apple’s core business today is broadly hardware manufacturing and retail. But Apple TV+ is not a strategic effort to sell more laptops. It’s a bet on how people will interact with technology in the future. 

But it’s not just consumer brands that benefit from thinking about innovation this way. It’s a framework that works for all manner of organizations. West Monroe is spearheading an innovative effort with healthcare institutions, with a first test in Minnesota, known as Open Source Healthcare Innovation (OSHI). The idea is that healthcare providers from smaller community centers to larger hospitals all want to innovate, but they’re all constrained by limited budgets and overworked talent. By creating an open-source framework that brings health organizations of different sizes together, the group of institutions can innovate faster together than they would developing their own proprietary technologies separately. Because it’s an open-source hub, any of the institutions can contribute to the code base, and any of them are free to develop and patent new ideas for their own entities. 

This open-source approach is a real departure from business as usual in the healthcare space. For West Monroe, it was a way to show the way we think healthcare technology development will work in the future. West Monroe is cultivating a culture of innovation alongside our clients and the community at large to not only co-invent solutions, but to develop a practice of collaboration. It’s important that we recognize that we can all benefit from this work, learning from each other while creating a broader sense of purpose that supports each organization’s missions and values. We all share in the risk AND reward; the biggest winners are the most vulnerable populations in our communities. It’s a new way of working, and the very definition of Box 3 innovation – not only for West Monroe, but also for the OSHI cohort members.

OSHI was set to launch just as the pandemic hit. The healthcare providers who expressed early interest found themselves underwater managing their response to COVID.  

Innovation efforts will always be under pressure and can change, for better or for worse, at a moment’s notice. For West Monroe, one of the key learnings was that targeting the right participants really matters. Smaller community health clinics turned out to have more acute innovation needs than larger hospital networks. By retargeting the participants and making the cohort groups smaller in size, we have been able to keep the program alive and keep learning — which is the most important success metric for Box 3 initiatives. 

Speed to Insight: Box 3 Basics

There are several guiding principles that will help elevate your innovation practice and get you flexing your Box 3 muscle. 

First, adjust your view of success when it comes to Box 3. What you’re looking for is “speed to insight” rather than “speed to market.” Whether or not a new program or idea “works” is all about whether you’re learning something from the effort. For example, with OSHI we learned there was more appetite during COVID from smaller community organizations, so we made adjustments to continue testing the open-source concept with that audience. It has already been successful from that insight alone. 

To achieve success via “speed to insight” you need intelligence gathering tools and processes. What do you want to learn from your Box 3 experiments and how will you gather that information? West Monroe has developed cutting-edge data capabilities through our Intellio® offerings that can be custom fitted to make sure any organization’s business engine is able to effectively learn from their future-oriented efforts.  

Understand that to do innovation well you must build a regular practice of it. Only with regular practice will the discipline and focus you need to make innovative, Box 3 thinking a regular part of your organization’s day-to-day operations. 

Start by asking yourself questions about the future: Who will my competitors be? What will happen to my business if digital currencies take over? What will my customers be looking for in 10 years? What if brick and mortar retail vanishes entirely? What happens if it comes back in a big way? What will happen if my primary source of revenue is disrupted by an unforeseen event? 

Like many other businesses, we find the Three Boxes framework to be a simple, highly effective methodology for making “creating the future” a key part of our business today. It helps leaders everywhere think about future planning as an ongoing, consistent practice instead of a one-time event.

Learn more about how West Monroe practices innovation and prepares clients for the future.

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