« The Importance of Strategic Innovation | Main | Non-Linear Change: An Example »

Strategy as Transformation

Senior executives need simple, but very powerful frameworks that help them to think strategically, and to align people in the organization through the use of a common strategic language.

The three box thinking model is an example of a framework that I use to facilitate strategic thinking and alignment.

Actions companies take belong in one of three boxes:

Box 1 -- manage the present;
Box 2 -- selectively abandon the past; and
Box 3 -- create the future.

Box 1 is about improving current businesses. Box 2 and Box 3 are about breakout performance and growth.

Many organizations restrict their strategic thinking to Box 1. This tendency has been particularly acute in the past two to three years, as most leaders have emphasized reducing costs and improving margins in their current businesses.

But strategy cannot be just about what an organization needs to do to secure profits for the next year. Strategy must encompass Box 2 and Box 3. It must be about what a company needs to do to sustain leadership for the next ten years. In fact, the central task of an organization’s leaders is to balance managing the present with creating the future. Examples of successful Box 2 and Box 3 initiatives include: Dell’s direct model in the PC industry, Wal-Mart’s transformation of the discount retailing industry, Apple’s introduction of iPod, and Southwest Airlines’ revolution in the airline industry.

Organizations that operate within a short timeframe base their actions on the assumption that their industry is stable and static. But it takes years for large organizations to change directions. If you take this into account, change is rapid and nonlinear. For instance, nanotechnology and genetic engineering are revolutionizing the pharmaceutical and semiconductor industries. Globalization is opening doors to emerging economies, such as India and China, and billions of customers with vast unmet needs. Once-distinct industries, such as mass-media entertainment, telephony, and computing, are converging. Rapidly escalating concerns about security and the environment are creating unforeseen markets. And other, more subtle changes are important as well, such as the trend toward more empowered customers, the aging population in the developed world, and the rising middle class in the developing world.

As a result of these forces, companies find their strategies need almost constant reinvention because the old assumptions are no longer valid, or the previous strategy has been imitated and commoditized by competitors, or changes in the industry environment offer unanticipated opportunities. The only way to stay ahead is to innovate.

Part of the job of executives is to make money with the current strategy. That is the challenge in Box 1. Part of their job is to make up for the decay and commoditization of strategy. That is the challenge in Box 2 and Box 3. Too many companies ignore these two boxes until it is too late.

My hope and goal is to help companies transform their industries and reinvent their strategies. In my next post, I'll provide an effective illustration of nonlinear change to help you think about how we identify non-linear shifts and market discontinuities.

TrackBack

Listed below are links to weblogs that reference Strategy as Transformation:

» Non-Linear Change: An Example from Vijay Govindarajan's Blog
Richard Pascale has given us an effective illustration of nonlinear change: the history of the high-jump event at the Olympics. There have been four distinct “business models” in the high jump. Each enabled athletes to achieve breakout performance.... [Read More]

» Innovation In A Reset World from Vijay Govindarajan's Blog
In a recent Forbes article, I suggest that for companies to succeed in the new order, our "reset" world, they must invest in the future. Here are three characteristics of this "reset" world: 1) Corporate reputation is at an all-time... [Read More]

» Obama's Challenge: Communicating a Framework for Change from Vijay Govindarajan's Blog
One of the most difficult tasks for a newly appointed CEO is effective communication of his change agenda. How does a change agent like Obama layout his vision in a simple and straightforward manner? How does he cut through... [Read More]

» Introducing: Vijay Govindarajan's Innovation Quarterly from Vijay Govindarajan's Blog
Register here for Vijay Govindarajan's Innovation Quarterly - "next practices in innovation and execution in a reset world." The overarching purpose of Vijay Govindarajan's Innovation Quarterly is to build and sustain a community of executives and aca... [Read More]

» Misplaced Priorities: Six Strategies for CEO Failure? from ChristianSarkar.com
American style management has been under some considerable stress these last few years. Now the nerds at Bain have some advice for the CEO. Apparently there are six dilemmas CEOs must face and - surprise! Bain has uncovered six strategies... [Read More]

» The Voice of the CIO: IBM study reveals a New Normal for IT from The BSM Review Blog
I don't generally tell people that a report from a vendor is a "must read," but in this case it is.  I'm referring to IBM's The New Voice of the CIO report, a global study of more than 2,500 Chief... [Read More]

» Back to School from Vijay Govindarajan's Blog
I am returning to the Tuck School after a two year assignment with General Electric as their first Professor in Residence and Chief Innovation Consultant. It has been a transformative experience indeed! First, I got a front row seat... [Read More]

Comments

Dear Govind,

Your last two posts outlined a very interesting thought process. However, most of the ideology behind strategic innovation is often discussed in the context of large organizations. Is this because the adaptability of a smaller company is quicker and easier than a large organization?

I feel that a small or mid-sized organization might bear a larger inertia to pursue the change/innovation process. A major focus for the smaller companies is to improve margins and cut costs. Just like a large organization, a smaller organization also has its processes and services well defined and entrenched in its modus operandi, though the universal set of offerings might be smaller when compared to that of large companies. However, instead of a strategy based on innovation and identifying future direction vis-a-vis industry dynamics, small companies usually pursue a short-term goal spanning two to four years, with a greater focus on replicating the existing processes and offerings.

A larger organization might be able to shift focus or include innovation in the larger picture, but does it make 'strategic' sense for a smaller company to shift focus and strive to create new markets? Does it make sense for a smaller company to ignore short term profitability, and allocate resources towards innovation? And that too at a stage, where year-on-year growth for a smaller company is more critical for survival compared to a large organization that can afford to bear a few downturns.

I have been thinking about this of late. Would love to hear your thoughts on this.

Regards,
Gagan.

I am reminded of the old Lets Make a Deal show where contestants had to pick one of three boxes. The audience was always screaming their suggestions leaving the contestant to say "Help Me Monty I can't decide! It seems that businesses always pick box number 1 unless they are facing extinction. Perhaps companies need to do R&D for new business models the same way they do R&D today for new products or technologies. They should be experimenting with better ways to deliver customer value so that they will be better positioned to launch new business models. Experimentation is the key to opening box 2 and box 3.

Dear Prof.Govind

This is an excellent way for executives to understand how they should focus their energies. However, coming from the middle management, things get more complex. I am wondering if there is a framework or a methodology that can help companies translate this focus into goals and objectives througout the organization structure, that will effectively create this focus without losing track. I feel that the middle management and below often lose track given multiple priorities of present, past and future. Creating different groups to deal with the situation does not help as there will be multiple people competing for resources, causing difficulties for management etc. There needs to be a way to educate the rest of the management of this focus and thus create more momentum for the change.

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)