Collection of Thought Pieces on Learnings from Three Box Solution: Number 4; A revolutionary competitor threatens

My work with companies is to implement Three Box Solution. That is to say, helping to give a promising new venture inside a large corporation the best possible odds of success.

Briefly, the approach is to build a NewCo (Box 3) distinct from CoreCo (Box 1), but not isolated from it. When the design works, NewCo is able to forget CoreCo’s success formula, borrow CoreCo’s resources, and learn how to succeed in its emerging and uncertain market. The approach allows NewCo to thrive while minimizing the distraction for CoreCo, so that CoreCo can continue with its main task of sustained excellence in its proven business.

My writings in this area has caught the attention of a number of executives who are currently in, or were once in, distressed companies. Their stories go something like this: We’re under siege. A new competitor has arrived on the scene and has completely changed the rules of the game in our industry.

(Think about what Microsoft and Intel did to IBM and Digital Equipment, or what Wal-Mart did to Sears and K-Mart or what Amazon did to Wal-Mart) We need to build a new business, operating by a different set of rules, so that we can compete. CoreCo will have to be completely transformed in the process. CoreCo is dying.

As consultants to corporate leaders engaging in experimental new businesses, our response is that you needed us about a decade ago. At this point, you’re behind the curve, not ahead of it. You should have been creating something new. Instead, you’re trying to overhaul something old. Instead of needing our recommendations for preventive care, you need emergency surgery.

A company that tries to redefine how its industry operates by launching a new business needs a balanced organizational approach. This method must nurture NewCo’s unproven possibilities while sustaining CoreCo’s proven operation at peak performance. A company trying to adapt a new, already proven, way of business that’s thriving under the competitor’s roof needs a wrecking ball and reconstruction crew.

One of the organizations we studied is The New York Times Company. Some time ago, the company launched a new business, their on-line operation known today as New York Times Digital. It is doing well. It’s making a profit and remains a promising growth platform. The company was ahead of the curve because they launched NYTD back in 1995, as the internet was just arriving on the scene.

Someday, possibly even soon, internet media will catch on to the extent that it will quickly erode the business of printed newspapers. The New York Times Company is well positioned for this possibility: It invested in preventive care. Many of its media brethren, though, are less prepared. They may soon need emergency surgery.

Are you facing an emerging technology or a new competitor that will fundamentally change how your industry operates? If so, you have two choices: try to make it go away or launch your own answer to the threat that is a better version that leverages your company’s strongest assets and capabilities.

Emergency surgery is difficult, and dangerous. Mortality rates are high. That’s not to say that launching a new venture is easy or risk free. It is not. More often than not, new ventures fail. But which would you rather lose little NewCo or massive CoreCo?

Note: This article was originally published in The Economic Times, March 10, 2006.