Collection of Thought Pieces on Three Box Solution: Number 1 Forget, borrow, learn

Sherri: John, you seem to think we can succeed in this business without discipline, and without a relentless focus on costs. We can’t chase every creative idea. Your hero is an engineer with a good story to tell. But we have to make our numbers!

John: Sherri, this company will never achieve greatness doing what we have always done. This is exactly the thinking that will eventually make us obsolete. We must support innovation. You just want to get in the way with bureaucracy and single-minded pursuit of efficiency.

We’ve followed several innovation stories, each a tale of a new business (NewCo) within an established and successful organization (CoreCo). Think of General Motor’s gasoline powered car (CoreCo) versus its need to create the future at the intersection of electrification, self-driving cars, and ride sharing (CoreCo). And in every tale, the tension illustrated here between John and Sherri is present from beginning to end. That is too bad, because it is only healthy at the very beginning of an innovation journey. Beyond that point, the tension between John and Sherri becomes unproductive. The instincts on either side are equally misguided.

Before explaining why, let us look at why these tensions are productive at the beginning of NewCo’s life. In the early going, entrepreneurship and efficiency truly are opposites in almost every way. To optimize one, you reverse everything you do to optimize the other. You break all of the rules and that creates stress. For example, for efficiency, you focus and execute. For entrepreneurship, you search and experiment.

For efficiency, you enforce accountability. For entrepreneurship, you allow freedom. For efficiency, you create structure and routine processes. For entrepreneurship, you allow flexibility and encourage new interactions. For efficiency, you attend to the needs of todays customers. For entrepreneurship, you anticipate the needs of future customers. For efficiency, you stick to the knitting. For entrepreneurship, you think outside the box. For efficiency, you plan. For entrepreneurship, you experiment and pivot.

Let us call the management approach to efficiency Formula A, and the approach for entrepreneurship Formula B. Formula A is about discipline. Formula B is about creativity. The problem is, the need for creativity is high only at the beginning of NewCo’s life. Once a business plan is in place and the company is committed to making a go of it, the need for creativity begins to decay rapidly. As this happens, NewCo goes through a critical period in which neither Formula A nor Formula B works.

What is needed is Formula C. But Formula C has little in common with either A or B. You could think of A as white and B as black, but it would be a mistake to think of C as grey, simply a mix of the two. That is why the tension between John and Sherri is detrimental.

Formula C focuses on three distinct challenges faced by NewCo: a forgetting challenge, a borrowing challenge, and a learning challenge. NewCo must break down some successful CoreCo practices, borrow CoreCo resources, and learn how to succeed on their own terms.

Forgetting : NewCos business model is invariably different from CoreCos. The answers to the most fundamental business questions Who is the customer? What value do we offer? How do we deliver it?? are dramatically different. The essence of the forgetting challenge is ensuring that CoreCo’s success formula is not imported to NewCo.

Borrowing: NewCo’s biggest advantage over its competition is the wealth of resources and assets within CoreCo. The essence of the borrowing challenge is gaining access to these resources, and doing so in a way that does not damage CoreCo’s own commitment to excellence.

Learning: NewCo’s business is highly uncertain. It must systematically resolve the specific unknowns as quickly as possible, and zero in on the best possible approach.

All three challenges naturally create tensions. To forget, NewCo must be distinct from CoreCo. At the same time, to borrow, NewCo must be linked to CoreCo.

At points of interaction, stress naturally arises directly because of the differences in business models, values, styles, and priorities.

Learning also leads to stress, because it requires an analytical discipline, much different from the operational discipline of execution and performance.

These are the types of tensions that are healthy for NewCo. Framing NewCo’s needs as either like CoreCo’s or not, black or white, A or B, is easy. But it misses entirely the real challenges that NewCo faces.

COVID-19 has reminded us how volatile and unpredictable the future can be. In the next decade, leaders must rigorously execute NewCo while sustaining excellent in CoreCo.