Leading Innovation

A Simple Framework

Describe your company or idea here

Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.

William Pollard

What leaders already know

The Question is...

innovation calls for a different set of skills, metrics, methods, mind-sets, and leadership approaches

Among alpine racers of the past 50 years, none have match the record set by Jean-Claude Killy

How do you align your organization on the critical, but competing, behaviors and activities required to simultaneously meet the performance requirements of the current business—one that is still thriving—while dramatically reinventing it?

creating a new business and optimizing an already existing one are two fundamentally different challenges

Jean-Claude Killy

Alpine Skier

The real problem for leaders is doing both at the same time

Ambidexterity

But what’s missing is a simple and practical way for managers to allocate their organization’s energies across the competing demands of managing today’s requirements and tomorrow’s possibilities.

PRESENT

PAST

FUTURE

But the challenge goes beyond these two demands. There is a third, and even more intractable, problem

LETTING GO OF YESTERDAY'S BELIEFS THAT KEEP THE COMPANY STUCK IN THE PAST

an organizational capability of fulfilling both managerial imperatives at once.

WHAT'S NEEDED IS A NEW APPROACH - A DIFFERENT FRAMEWORK

The Three Box Solution

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FUTURE

The Three-Box Solution is a simple framework that recognizes all three competing challenges managers face when leading innovation

It starts with the realization that time is a continuum. The future is not located on some far-off horizon, and you cannot postpone the work of building it until tomorrow. To get to the future, you must build it day by day

That means being able to selectively set aside certain beliefs, assumptions, and practices created in and by the past that could become a wall between your business of today and its future potential

The Three Box Solution

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PAST

FUTURE

By balancing the three boxes, leaders can resolve the inherent tension of

innovating a new business while running a high-performing one at the same time

PAST

FUTURE

Create the Future

Invent a new business model

Forget the Past

Let go of the values and practices that fuel the current business but fail the new one

PRESENT

Manage the Present

Optimize the current business

The Three Box Solution

PRESENT

PAST

FUTURE

1

2

3

Why do organizations place such a dominant emphasis on the present, while failing to invest wisely in their futures ?

Box 1 (present) is the performance engine. It both funds day-to-day operations and generates profits for the future

Box 1 is the comfort zone, it's based on activities and ideas that are proven, well understood, and firmly embedded in the business.

Most firms’ organizational structures were built on the successes of the past, refined over time to support the priorities of the present core business, and focused on maximizing cash flow and profit generated by the core

The Three Box Solution

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PAST

FUTURE

1

2

3

Box 1 is the place of tranquil refuge...

The rewards of focusing on the present are immediate, easy to forecast, and easy to measure

The skills/expertise needed to thrive in the present are known and abundantly available, whereas ten to fifteen years out is a big

question mark

Even though the long-term risks of neglecting the future are immense, they are too distant and abstract to provoke a sense of motivating urgency

The risks of the present are relatively low

The Three Box Solution

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PAST

FUTURE

1

2

3

By comparison, the Box 2 (past) work of avoiding the traps of the past is difficult and painful

It may require abandoning entrenched practices and attitudes that are unwelcoming or even hostile to ideas that don’t conform to the dominant model of past success

Moreover, Box 3 (future) steps for creating the future consists of leaps of faith and experimentation that are fraught with uncertainty and risk

The Challenge of

Balancing Three Boxes

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PAST

FUTURE

The Success Trap

• The Biggest Challenge!

• The greater your success in Box 1, the more difficulties you are likely to face in conceiving and executing breakthrough Box 3 strategies

The Challenge of

Balancing Three Boxes

PRESENT

PAST

FUTURE

Understanding the Difference Between Linear vs Nonlinear Innovation

• Leading innovation calls for fundamentally different management approaches in the boxes 1 and 3

• There are many typologies used to classify innovation:

sustaining or disruptive; incremental or radical; competency

enhancing or competency destroying; relate to product or

process

• However, all innovations can be divided into two categories:

LINEAR and NONLINEAR

The Challenge of

Balancing Three Boxes

PRESENT

PAST

FUTURE

LINEAR

• Linear innovations improve the performance of your current business model. So which box do they are operate in?

• Box 1. This type of innovation builds on the present core, making use of box 1 knowledge, systems, and structures.

• Linear innovation is thus straightforward, unambiguous, and nonthreatening to the status quo.

Hasbro

• Hasbro developed Star Wars–themed versions of two of its classics: the game of Monopoly and Mr. Potato Head (“Darth Tater”).
• How is this a a linear innovation?

• Both were brand extensions within an essentially unchanged business model

The Challenge of

Balancing Three Boxes

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PAST

FUTURE

NONLINEAR

• Create new business models by dramatically...

1) redefining your set of customers,

2) reinventing the value you offer them, and/or

3) redesigning the end-to-end value-chain architecture by which you deliver that value

Hasbro example

The Challenge of

Balancing Three Boxes

PRESENT

PAST

FUTURE

Hasbro - Toy Giant

Chairman and CEO Brian Goldner told Yahoo Finance that the company’s success draws largely from its transformational focus on content.

“We began to surround our consumers with stories and characters around our brands and began to tell those stories, which enabled us to engage with consumers to build more innovative product lines.”

Brian Goldner, CEO Hasbro

The Challenge of

Balancing Three Boxes

PRESENT

PAST

FUTURE

Hasbro

20 years of strategic shifts in family entertainment, 1995–2015

Technology

• Proprietary gaming systems/platforms
• Robotics
• Rapid growth of internet and wireless, evolving to dominant entertainment channel
• Handheld digital devices and media (cameras, smartphones, tablets, etc.)
• Shrinking product life cycles plus rapid technology advances put intense downward price pressure on technology-based games.

Demography

• Children “grow older younger,” lose interest in traditional toys at an earlier age.
• Aging population makes grandparents a powerful buying segment; they often “own” play activities with grandkids.
• Adults find opportunities for play in social and/or work settings (gaming as a strategy or simulation tool).
• Growing minority populations soon gain majority status.

Family entertainment concepts

• Families spend less time playing together; play is thus more age segmented.
• Parents in two-income households spend less time with children but have more money to entertain children.
• Parents prefer toys and games that offer enrichment value.
• Many children are hyper-scheduled and have less leisure time; when they play, they are often by themselves and prefer fast-paced video games.

Globalization

• Potential growth in emerging markets, where concepts of play are different and disposable income is low. But …
• … in emerging markets, new approaches to product design, manufacturing, and marketing will be needed to overcome cultural, market, and logistic barriers.
• Thus, Western firms need to build new competencies.
• Growth potential in developed markets can be pursued through existing competencies.

Retail channels

• Big-box stores drive retail consolidation, crowding out small mom-and-pop and boutique outlets.
• Large retailers drive economies of scale, demand high levels of supply chain integration.
• Big players offer private-label products.
• Bankruptcy of “traditional” competitors leads to further consolidation.

• It was very unlikely that the Hasbro of twenty years ago could have predicted all of these changes?



• To do that would have required a level of insight formed in part by what futurists call “weak signals.”

Brian Goldner, CEO Hasbro

Preparing for Futures You Cannot Predict:

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PAST

FUTURE

Planned Optimism/Opportunism & Weak Signals

Planned Opportunism

• Planned opportunism is about a set of leadership behaviors and actions that prepares you for the futures you cannot predict

• In practice, it means building an assortment of forward-looking competencies and embracing the disciplines of experimentation that create the flexibility to both pursue and shape the unexpected opportunities that come your way

• It is a way to compensate for unpredictability of all kinds—good and bad

Preparing for Futures You Cannot Predict:

PRESENT

PAST

FUTURE

Planned Optimism/Opportunism & Weak Signals

Success in each box requires a different set of skills, attitudes, practices, and leadership

STRATEGY

Run core business at peak efficiency; use linear innovations within existing business model to extend brands and/or improve product offerings.

PRESENT

CHALLENGE

Keep focus on near-term customer needs; optimize operations for high efficiency/lowest reasonable cost; reduce variance from plan; align rewards and incentives with strategy.

LEADER BEHAVIOR

Set challenging goals for peak performance; analyze data to quickly spot and address exceptions and inefficiencies; create a culture of doing everything smarter, faster, cheaper.

Preparing for Futures You Cannot Predict:

PRESENT

PAST

FUTURE

Planned Optimism/Opportunism & Weak Signals

Success in each box requires a different set of skills, attitudes, practices, and leadership

STRATEGY

Ability to build the future day by day begins here; create space and supporting structure for new nonlinear ideas; let go of past practices, habits, activities, and attitudes.

PAST

CHALLENGE

The past always fights back, so be prepared to make tough calls about values Box 3 needs to leave behind (remembering that some are still useful and needed in Box 1).

LEADER BEHAVIOR

Establish formal regime of planned opportunism (i.e., gathering and analyzing weak signals); champion the ideas of maverick thinkers; do not tolerate obstructionism—set an example for the enterprise by visibly and publicly penalizing foot-draggers; anticipate the need for an orderly process of experimentation.

Preparing for Futures You Cannot Predict:

PRESENT

PAST

FUTURE

Planned Optimism/Opportunism & Weak Signals

Success in each box requires a different set of skills, attitudes, practices, and leadership

STRATEGY

The nonlinear future is built mainly by experimentation that tests assumptions and resolves uncertainties, hedging risk; new learning either strengthens an idea or reveals its weaknesses.

FUTURE

CHALLENGE

It’s not always obvious which ideas to pursue first—you need a method to gauge relative value and priority; expand variance, knowing success rate in Box 3 experiments is low; do not trim sails on Box 3 projects in a downturn

LEADER BEHAVIOR

Measure progress of Box 3 efforts not on revenue development but on the quality and pace of learning from experiments; since many nonlinear ideas launch into embryonic markets, it’s important to test assumptions not only about the product but also the business model and the developing market.

Preparing for Futures You Cannot Predict:

PRESENT

PAST

FUTURE

Planned Optimism/Opportunism & Weak Signals

Weak Signals

• Weak signals consist of emergent changes to technology, culture, markets, the economy, consumer tastes and behavior, and demographics

• As the term suggests, weak signals are hard to evaluate because they are incomplete, unsettled, and unclear

• The process starts with three basic questions:

1. What particular factors and conditions does current success depend on?

2. Which of these factors might change over time or are changing already, thus putting current success at risk?

3. How can we begin to anticipate and prepare for these possible changes so as to cushion or even exploit their impact?

How Do You Balance The Three Boxes?

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PAST

FUTURE

Experiment to Grow Knowledge and Shrink Uncertainty

Experiment and Grow...

• The best way to address questions like those Hasbro faced is by conducting low-cost experiments meant to test critical unknowns en route to conceiving scalable new business models.

• Experimentation is all about learning, but if you can’t forget, you’re unlikely to learn.

• To succeed in Box 3 creation, you must first excel in Box 2 destruction

What Hasbro Had to Forget

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn. ”

Brian Goldner, CEO Hasbro

• We are a product company.
• We make analog-based games that have long product life cycles, command premium prices, and generate high margins.
• We distribute through brick-and-mortar retail outlets.
• Our consumers are kids fifteen years old and younger.
• We make board games that promote face-to-face social interaction in a physical setting.
• We are an American company.

And so on …

The work of Box 2 often comes down to making key distinctions between values that are timeless (enduring for the long run) versus those that are timely (ultimately perishable with the passing of time).

Basic Principles of

The Three Box Solution

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PAST

FUTURE

• You should engage in both linear (Box 1) and nonlinear (Box 3) innovations to ensure leadership in the future

• Success in Box 1 is the primary inhibitor of taking bold action in Box 3. You must develop the discipline of selectively forgetting the past (Box 2) or the past will prevent you from creating the future.

• Optimizing current business models in Box 1 and creating new business models in Box 3 must be pursued simultaneously, yet they call for different activities, skills, methods, metrics, mind-sets, and leadership approaches

• Managing the three boxes is a journey, not a project. Businesses fail when they are sporadic rather than continuous in seeking balance. ...each box requires ongoing attention

• Don’t think about the future as a far-off time. The future is actually now because you are building it day by day

PRESENT

PAST

FUTURE

Takeaways

Good Box 3 Hedging Strategies are Important

Box 2 is The Indispensable Element of The Three-Box Solution

Do Not Distract Those Who Work in The Core Box 1 Business From Their Demanding Performance Goals

• Most organizations ignore Box 2 as they try to innovate their way to a new model

• Box 1 cannot execute Box 3 innovations

• In a regime of experimentation and learning, not every step along the way will be successful. You need to develop a process for hedging risk

• Even as old ideas and practices choke off the new future they’re trying to create, organizations find it very difficult to overcome the power of the past

• Remember that Box 3 cannot exist without Box 1

• The more attention a company pays to Box 2, the more room there is for the Box 3 to achieve its goals

• Also, what must be forgotten for the purposes of Box 3 may still be vitally important to Box 1

• That typically means testing assumptions through iterative learning stages that, over time, resolve uncertainty and either produce growing confidence or reveal the need for a reboot or exit

• If Box 3 were an NFL quarterback, Box 2 would be the offensive line, providing time and flexibility in which to read the defense, execute, and, if necessary, improvise

Think of the Three-Box Solution as endlessly cyclical

Create Formal Processes That Serve The Goals of Box 3 and Increase The Likelihood of Achieving Balance Among All Boxes

The Three-Box Solution imposes on leaders a requirement for humility, because it is essentially a strategy for taking action through continuous learning

• Sustainable Box 3 activities require structure and accountability

• You are always preserving the present, destroying the past, and building the future

• Hasbro CEO inaugurated “martini meetings” and the "Future Now" team to keep Hasbro moving forward on Box 3 ideas

• Learning is intrinsically a humbling activity; to learn is to admit you don’t know everything

• In other words, the business models, products, and services you create in Box 3 will at some point become your new Box 1

• The martini meetings served the purpose of identifying situations in which the three boxes might intersect

• On a personal time-management level, Goldner audits the amount of attention he devotes to each box every week

Tools

Assess Your Organization

Identifying Weak Signals

Creating

The Future

PRESENT

PAST

FUTURE

Peter Dragone

Richard Sweeny

John Sylvan

Timeline

Keurig Coffee

Weak Signals

Lessons Learned

Collaboration

• Sylvan exemplifies a maverick sensibility that can is essential to Box 3 ideas - the thought that there has to be a better way.

• The Keurig team knew what it didn’t know...

• Emergence of gourmet coffee shops

• The cultivation of mavericks is an important aspect of the Three-Box Solution. Transformations begin with an understanding that there is a problem. Most people stop at the problem statement; but just shake their heads and move on.

• The success of these coffee shops change the consumer's expectation for coffee consumption everywhere (office, home, restaurants etc.)

• Box 3 ideas for the nonlinear future are built from wisps of insight known as weak signals.

• In late 1995, the team approached Green Mountain Coffee Roasters (GMCR) - a Vermont base company with a supreme reputation as a coffee roaster

• Know what you don't know - success often demands collaboration. The successful Box 1 company has to be willing to take a risk on the future

• John and Peter create Keurig Coffee

• They ask for an education in coffee roasting and one million dollars

• Box 1 and 3 progress must be measured differently. To emphasize the differences between Box 1 and Box 3—and to literally remind people of when they need to pass from Box 1 to Box 3 thinking— GMCR put signage at certain areas of the building.

The Journey

The Idea

Problem

• Mid 1980s - John has a entry-level job in Boston and is given the responsibility for the office coffee needs and sees a fundamental problem...

• Before investing in Keurig, GMCR operated a highly successful Box 1 company in the coffee-roasting and retailing industry. Now, with Keurig, it had a full-fledged Box 3 phenomenon on its books.

• The idea was that the only way to ensure a fresh cup of coffee is to brew it as you consume it - one cup at a time.

FUTURE

John Sylvan

• Although, places like Starbucks are growing, he recognizes that the world of gourmet coffee had simply skipped over the workplace

• Green Mountain made its initial investment in Keurig in 1996. In 2006, after increasing its stake in stages, GMCR owned 100 percent of Keurig.

• Large pots of mediocre coffee would sit for awhile. The first few cups might be OK, but within a few minutes it lost its freshness

• GMCR’s revenues grew at a compounded rate of 65 percent per year during 2006–2014 and reached $4.7 billion by 2014. .

• They had developed working prototypes for both the brewer and the portion packs, soon to be known as K-Cup packs. The one thing they lacked was a real understanding of coffee roasting and brewing.

• John's reaction to the problem - "there's got to be a better way to do this"

• 2014, Keurig accounted for roughly 25 percent of all coffeemakers sold in America.
• The company had sold over 45 million Keurig brewers and more than 30 billion K-Cup packs, or pods.
• GMCR had become Keurig Green Mountain, with a market capitalization of $26 billion.

Peter Dragone

Global Reach

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Meet The Team

Who are the creative minds?

Developer

CEO

Analyst

Sales

Bradley Sherman

Sue E. Marquez

Karla J. Walsh

Gerardo M. Oliver

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Single Person View

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Karla J. Walsh

Senior Data Analyst

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Contact Details

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