Manish Tangri has spent more than fifteen years executing entrepreneurial innovation activities in Fortune 500 organisations such as Microsoft and Intel. These experiences, which include recognising external trends and nonlinear shifts and amplifying them to create their future, were critical in developing his book The Three-Box Solution. Manish breaks down the Three-Box solution and talks to us about how companies can apply this situation to their business models to scale successfully and protect themselves from competitors and disruptions.
Q. What is the three-box solution?
Manish: The three-box solution is a time tested strategic framework that my co-author Vijay Govindarajan has been using with companies to help make them or retain a future leadership status. Just because an organisation is a leader today, it doesn’t mean that the organisation can assume it will be a leader tomorrow.
To be a leader in the future, you have to adapt and innovate. The question facing organisations is: of all the projects you are executing today, how many of them will make you a leader in the future? If you think about all the projects in your organisation that you’re implementing today, you can put them into three boxes.
Box-one is about managing the present. This box includes projects that are about improving the performance and efficiency of your current business model and focuses on the customers you serve today, the value you offer to those customers, and the way you deliver that value.
Box-two is about selectively forgetting the past. This box is about projects that do not fit the company’s vision for the future and inhibit its ability to be a leader in the future, and therefore they need to be divested.
Box-three is about creating the future. It’s about innovations to respond to developments such as technological disruptions, customer discontinuities, nontraditional competitors coming into the marketplace, and regulatory changes. Box-three is the most complicated box to manage because it requires new business models outside your organisation’s current box-one business model.
Q. Can you give us an example of a box-three innovation?
Manish: GE, in their healthcare division that makes medical imaging equipment, innovated the ECG machine, which is the first point of diagnosis for a heart attack. This ECG machine costs $20,000 and typically sits in a sophisticated imaging centre in a US hospital.
In India, GE sells this $20,000 machine to the top 10% of the economic pyramid. The remaining 90% of Indians are non-consumers of this machine, and the question is, why?
The first and most apparent reason is affordability. On this $20,000 machine, a single scan costs $200, and a bulk of the 90% of Indians live in rural areas on $2 or less a day. Another problem is there are no hospitals in these rural areas, which means that someone has to take this machine that weighs 500 lbs door-to-door. Another problem is that the machine needs electricity to run, and much of rural India is not electrified. Finally, even if you could solve all these problems, the machine comes with a 500-page user manual and can only be operated by trained doctors, who are in short supply in rural India.
GE needed a three-box innovation to convert this 90% of Indians with the same healthcare problems from non-consumers to consumers. In 2008, GE innovated a $500 ECG machine. On this machine, a single scan cost 10 cents. Besides being affordable, this $500 ECG machine is extremely lightweight and weighs less than a Coca-Cola can. It operates on batteries, and on a single battery charge, it can produce 750 ECG scans. And finally, this $500 ECG machine is so simple to use that it has only two buttons. There is a green button and a red button. If you push the green button, it works. And if you push the red button, it stops. Anybody who knows how to read traffic signs can operate this machine.
GE has opened a whole new market with 90% of India with this $500 ECG machine. This is an example of a box-three innovation, where you can convert non-consumers into consumers.
Q. How can the three-box solution help a company achieve its long-term goals?
Manish: Ambitious companies want to be relevant industry leaders ten years from now. They are grappling with two different challenges today. One is competition for the present or box-one, and the other is competition for the future, which is box-two and box-three. Leaders know that competition for the present is as important as competition for the future. The challenge for leaders is how do you create the future in 2031 while managing the present in 2021?
This is a challenge because the thinking process and execution methodology for box-one projects, which are efficiency-based, are fundamentally different from the thinking process and execution methodologies you need in box-two and box-three projects, which are breakthrough innovation projects.
Our book lays out a step-by-step process on executing box-three innovations in established companies so leaders can assess their company’s box-one business model and understand the gap between their company’s growth ambition and the growth that this current box-one business model can provide. Once you know that gap, you can articulate why box-three, why now, and which box-three ideas to execute to get buy-in and resources from the stakeholders- executives, board members, and investors. This then allows you to allocate resources across all three boxes appropriately so that you can set up your company to achieve its long-term goals.
Q. Box-two says selectively forget the past, and box-three says to look into the future. The future informs what you forget about the past, so how do you identify what goes into which box?
Manish: Let me explain with an example of a box-two innovation. When the offshore call centre business boomed in India many years ago, Tata Consultancy Services (TCS), a top Indian tech services company, made a counterintuitive move to divest all its call centre operations.
This was a box-two move because although outsourced call centres were a fast-growing piece of its current business, TCS leadership realised that this would soon be burdensome for them. They had exceptionally high employee churn that forced the HR department into round the clock efforts to hire and train as many as 500,000 reps annually. This drained resources and distracted the company from its fundamental goal of developing more sophisticated capabilities and service offering for its clients.
Even though demand was strong, TCS acted to prevent the right future from being swamped by the wrong one by moving out of call centres. This is what box-two is all about. It’s not about making predictions on future trends. The future is unknown, and nobody can predict the future. But you can look forward and imagine the future based on specific weak signals you see today.
Weak signals are early evidence of some emerging trends from which it’s possible to deduce important changes like demography, technology, customer tastes and other economic, environmental, regulatory and political changes. If you pay attention to these weak signals, it gives rise to fresh perspectives and non-linear thinking, which can help the organisation imagine and plan for various plausible futures.
TCS leaders had picked up on several weak signals. They saw technologies were moving to the cloud, allowing business services to be delivered as an online utility rather than through traditional enterprise-owned technology infrastructures. They believed that global businesses would eventually demand a higher level of strategically outsourced services. To do that, TCS needed to attract an increasingly sophisticated talent, which would require HR’s recruiting efforts. Thus they concluded that call centres would not lead the way of the future they wanted to pursue.
That’s how you determine what goes into box two and what goes into box three. You ask, what are the nonlinear changes in the industry? Who are the customers going to be in the future? What priorities will they have? What are the disruptive technologies, which can open new opportunities, spaces? Who will be our competitors in the future? What are the fundamental changes in our go-to-market approach in the future? What are some regulatory changes in the future? And when you try to respond to these nonlinear changes, you will develop nonlinear breakthrough innovation projects with box-three projects.
Q. When you are a company with a large number of your revenues coming from a present stream of business, which is in box-one, and you also want to look at the future, there is this inherent friction that happens between these two. How do you reconcile this between these two forces in a company?
Manish: Typically, organisations over-focus on box-one. The reason they do that is that not focusing on the future doesn’t hurt you today. If you don’t exercise today, the negative impact today might be minuscule. But it adds up in the end. Vijay and I like to demonstrate this execution challenge with an example from sports.
In the Olympics, the first style people used in the high jump was scissors, where you jump over the bar like a hurdler. Scissors was the dominant style, and if you are a high jumper, you have a very important job to do, which is you have to accept the rules of scissors and be the number one in scissors in the world. And you want to continuously improve the efficiency of your scissors. This changed when Dick Fosbury invented the Fosbury flop, which is the dominant style today where your run up to the pole, jump up in the air and twist yourself 180°. With the Fosbury flop, today, high-jumpers can clear eight feet which was hitherto impossible with scissors.
When your whole ecosystem and resources are built around a particular model, you’re burdened by your success. You validate your past, which can lead to you falling into traps like the complacency trap you’re investing in what has given you success this far.
Ultimately, it’s a leadership issue. If I have $1 to invest, I know what the return looks like if I invested in today’s business. If I invested in a box-three business, I might not get that $1 back at all or even if I get it back, it might be way into the future. The job of the leadership to communicate to the company that this is an important thing we have to do now because the future is now, and then come up with processes and tools that enable employees to do this.
Q. You talk about the whole innovation journey as three phases: ideation, innovation, and scaling. Can you unpack that for our listeners?
Manish: The innovation journey has three phases. The first one is ideation. This phase is about using weak signals to generate nonlinear ideas with a large total addressable market. Whatever ideas you generate, they have to be aligned with the company’s strategic intent and core competencies.
The second phase is incubation. This is all about testing the most critical assumption. A Critical assumption is one that if it’s proven false, it’s fatal to the project. Critical assumptions at the early stage are customer-centric assumptions, although they can be customer-centric, development-centric, or monetisation-centric. You could skip the incubation phase if you acquired a company already done this out in the market. And they’ve already got into a stage where they’ve figured out the product-market fit, and they have some paying customers.
The third phase is scaling, and this is the most challenging phase. This phase requires constant adaptation. At this stage company’s should focus on breakthrough execution over breakthrough innovation. You can have reasonable ideas, but running disciplined experiments to test out those box-three ideas and assumptions is where the critical focus should be. There are two possible outcomes one is a success, but the other is failure that comes quickly and cheaply, and the company spends a little but learns a lot.
In this stage, companies should ask questions like who are our future customers? What are some technology discontinuities that we’re seeing? Are there non-traditional competitors coming into place? And collectively come up with a box-three idea. And then pick one. You don’t want to pick a large number of them because if you choose one, and that scales and starts to become successful, it will take a lot of resources and investment. So pick one or two and then go with those and then fail fast to spend a little, learn a lot, and reduce your risk.
Q. If our listeners want to follow your work, how can they do that?
Manish: They can send me an email if they have questions to email@example.com. We also have a website for the book. There you can find presentations that you can use to educate your leadership teams, investors, board members about the things that I’ve talked about. I’m also on LinkedIn.