When it comes to innovation, it’s tempting to think in terms of inventing new ways of doing things.  Whilst that is partly true, it doesn’t represent the whole picture.  For some time now, organizations have struggled to create the so called ‘dual operating system’ that allows them to simultaneously maintain their profitable and efficient operations whilst also looking to innovate and create new revenue streams.

The importance of forgetting

This challenge has been discussed many times before, but Tuck’s Vijaj Govindarajan has taken a unique approach to tackling it.  In his three-box solution he has given pride of place to the importance of forgetting our past alongside efficiently earning money in the present and innovating the future.

This is important, because many attempts to innovate are shackled by the ‘way we do things’, with these chains bigger and stronger the more established that business is.  Without overcoming this dominant logic however, it’s going to be difficult to craft a new way of thinking and behaving.

Govindarajan outlines three distinct traps that undermine our ability to mould a new future for us and our organizations:

1. The complaceny trap, whereby we are lulled into thinking that the good profits of our cash cow will continue indefinitely
2. The competency trap, whereby we are lulled into putting all of our eggs into the profit generating side of the business, ignorant of the fact it will inevitably not last forever
3. The cannibalization trap, whereby we are prevented from investing in innovation for fear that doing so might cannibalize our cash cow

Whilst these are to a large extent natural thoughts to have, it’s equally fair to say that the challenge is larger in some organizations than others.

Assessing the size of the challenge

To help you assess your own propensity to stifle innovation by being too wedded to the present, Govindarajan has produced a simple test.  All you need to do is answer the following questions using a 5 point scale, with 1 representing ‘strongly disagree’, and 5 representing ‘strongly agree’.

• We usually promote from within
• Our culture is homogenous
• We have a strong culture
• Employees typically stick around a long time
• Hiring from the outside is usually limited to entry-level positions
• When people are recruited from outside, we have strong methods to indoctrinate them into our culture
• Our track record of success is a long one
• We strongly believe that you shouldn’t mess with a successful formula
• The senior management team have been around a long time
• They have also worked primarily in our industry
• The management team seldom has those from outside recruited into it
• Meeting short-term financial goals tends to drive performance

If you score higher than 36 on this simple test, then you have a major challenge in ‘forgetting’ well enough to be able to innovate.

Learning to stop

Of course, it isn’t just about learning to forget the past that’s important to innovation.  As important is an ability to know when to stop supporting a particular project, which whilst it sounds very simple is something that most organizations do incredibly badly.

Much of this is rooted in the sunk cost fallacy that means our investment decisions are not always as rational as they might be.  The fallacy is also called the Concorde Fallacy in honor of the supersonic jet that neither French or British governments ditched despite the all too apparent lack of financial case for it.

Indeed, depending on the particularities of the investment, the project can even attract an escalation of committment as the losses mount.

I quite like the 3 boxes approach as it explicitely reminds us of the importance of undertaking each role.  If you’d like to learn more about it, I can recommend taking the short MOOC on the topic from the Emeritus Institute of Management.