Why didn’t Microsoft create Google?

Why didn’t Kodak create Instagram? Why didn’t Facebook create WhatsApp? Why didn’t the Intercontinental Hotel Group create AirBnB?

Once they reach a certain scale and age, even the most innovative businesses can find themselves outflanked by smarter, nimbler upstarts who make one-time disruptors move with all the grace of the corporate dinosaurs they themselves once outfoxed. The anti-establishment becomes the establishment, made redundant by the very forces that once were their lifeblood.

Looking for enlightenment to these fundamental questions of innovation and insight, last week I attended a great talk at the London School of Economics, staged by the Harvard Business Review and delivered by a poor boy from rural India. Well, he was that once – 40 years ago – but this self-identified poor boy has, through genuine vision and flawless execution, grown up to become a global authority of strategy, GE’s chief innovation consultant, and a professor at both Harvard Business School and the Tuck School of Business at Dartmouth. Say hello to the plain-talking (and very funny) Vijay Govindarajan.

The professor’s thesis went something like this.

Leaders of business today can’t guarantee being the leaders of tomorrow. 100 years ago, six of the world’s leading universities were in Germany and two in the UK. Today, almost all are in the USA, largely because they’ve innovated with the future in mind and really harnessed the financial power of the alumnus. A topic so taboo that even today, Oxbridge and UCL hold their noses when asking for donations from former students.

In Govindarajan’s model, there are three boxes where organisations should focus when building a strategy for leading innovation.

Box 1 is all about managing and competing in the present. It’s focused on market share gain, closing performance gaps and linear innovation. Box 1 innovations are driven by admirable but marginal-gain philosophies such as Six Sigma, Lean, Total Quality Management and operational excellence. Performance management is all very well, but these approaches are really just table stakes; best practices in benchmarking. What they’re not are strategies, least of all strategies for the future.

Box 2 is all about selectively forgetting and abandoning the past. It’s the halfway house between the first and the third box, and a critical step that many find incredibly difficult, including emotionally. It’s like choosing between one’s children.

Box 3 is all about creating the future, closing the possibility gap, and non-linear innovation. The future is where the really interesting and exciting and exponential stuff happens, but to get there requires a greater leap of imagination.

Importantly, activities undertaken in Boxes 2 (and particularly) 3 are made in response to weak signals – signals that could easily turn out to be just noise. But it’s only by taking a punt on weak signals that breakthrough, leapfrog, exponential, non-linear innovations can be made.

The trouble is, currently successful organisations focus almost exclusively on Box 1, whereas they should invest much more time and resource than they do currently in Boxes 2 and 3.

Govindarajan was good enough to point out that this is much easier to say than to do, although it is simple common sense. He used the brilliant analogy of record performance in the high jump since the modern Olympiad restarted in 1896. This discipline which has gone through three, non-linear innovations in that period, from the Scissors to the Western Roll to the Straddle (or Eastern Roll) and ultimately to Dick Fosbury’s eponymous flop. At each innovation, records have been smashed where linear progression could make only very marginal differences. Advances in high jump records are the very epitome of non-linear innovations …

… non linear innovations like eBay, amazon, Google, AirBnB and Uber. And like the $100 EEG machines developed by GE that weigh less than a can of Coke, can do 750 scans on a single battery charge, require no training to use their red and green buttons, and are preventing deaths following suspected heart attacks right across rural India.

Rural India. A market where GE’s standard $20,000-dollar, mains electricity EEG machines are useless, even if they are the first point of diagnosis for heart attacks for most American citizens, with health insurance and access to big teaching hospitals stocked with the latest kit. That’s strategy in action. Thinking about and acting on the future.

In terms of annual priorities, the recommendation is that 40-60% of resources should go to Box 1 initiatives, supporting the core business. 25-35% of resources should go on Box 2 initiatives, so called “growing adjacencies”; projects targeting products, consumers and geographical spaces adjacent to current core business. Box 2 innovations are not terribly risky, but they’re riskier than Box 1 and are a step away from core business. And 10-20% of resources should go into the most risky initiatives in Box 3, two or more steps away from an organisation’s core competencies.

What’s stopping this type of prioritisation is that Box 1 thinking dominates organisations. It’s familiar, it’s the known world, and it puts limits on people by using techniques like goal-setting and budgeting. To be great in the future – and genuinely strategic, argues Govindarajan – organisations and individuals first need to envisage greatness. And they can only do that by thinking in Boxes 2 and 3, not Box 1. Competition for the future is not about what to do today for 2025, it’s about where you focus your resources for the future. The future is not about what you do for the future, it’s about what you do for now.

In his refreshing simple, honest and funny delivery, Govindarajan rounded out his talk at the LSE with a list of the top 11 things you can do with a dead horse, his metaphor for how organisations – like most organisations on the planet – that are held back by Box 1 thinking only.

  1. Whip the horse a little harder
  2. Change the rider
  3. Harness two or more dead horses together
  4. Emulate other riders of dead horses
  5. Proclaim it’s cheaper to feed a dead horse
  6. Shorten the track
  7. Say “we’ve always done this”
  8. Say the horse isn’t dead
  9. Have lawyers bring a lawsuit contesting the health and wellbeing of the horse
  10. Hire a consultant
  11. Promote the dead horse to the CEO

And his last words of encouragement were for individuals to run their own lives on Box 2 and Box 3 thinking at every turn, not just their business lives. And he’s living testament to the strength of this argument. Otherwise, how could the poor boy from rural India ever have addressed an audience at the LSE while simultaneously holding chairs at Harvard and Dartmouth.

Beguiling stuff. Beguiling because of its simplicity, its humour, and its evident truth. The perfect shot in the arm at the start of the new year.

Thank you, VG.