For more than 30 years, Vijay Govindarajan, a professor at Dartmouth's Tuck Business School and an expert in strategy, has drawn upon his Hindu faith to help companies gain a clearer understanding of innovation.
In Hinduism, the three main gods are Vishnu (the god of preservation), Shiva (the god of destruction), and Brahma (the god of creation). In his new book, The Three Box Solution: A Strategy for Leading Innovation, Govindarajan distills how Hasbro, Keurig, and other companies look to these three cycles--preservation, destruction, and creation--to develop new ideas while maintaining their core businesses.
If you're unfamiliar with Govindarajan's methodology, here it is in a nutshell.
First, think of innovation as a process of balancing three figurative "boxes."
- Box 1 is managing the existing core business. Think of it as preservation.
- Box 2 is escaping the past by abandoning ideas that are no longer useful. Think of it as destruction.
- Box 3 is the act of generating new breakthrough ideas. Think of it as creation.
In Hasbro's case, the three boxes helped it transform from being a toy maker in the 1990s to a versatile creator of popular brands sold across multiple platforms: movies, television, online games, comics, and, indeed, toys.
The most relevant example is Hasbro's "Transformers," which in 1984 were strictly action figures. Today, Transformers are to Hasbro what the X-Men are to Marvel: A line of characters you can find in a seemingly endless array of branded manifestations. There's the Transformers ride at Universal Studios in Hollywood; there are Transformers lines of clothing; there are Transformers costumes, comic books, films, and video games; and there are Transformers in every form of merchandise: sheets, comforters, backpacks, lunchboxes.
How did this happen? Hasbro CEO Brian Goldner logs the amount of time he devotes to all three of the boxes. "I quite literally review my calendar every week to make sure I'm allocating enough attention to Boxes 2 and 3," he tells Govindarajan in the book.
One thing Hasbro has going for it is a long history of successful Box 2 execution. It was founded in the 1920s as a textile remnants business. Later it became a manufacturer of school supplies. It wasn't until the late 1940s, in the postwar plastics boom, that Hasbro began making toys: Doctor and nurse kits with play stethoscopes, thermometers, and syringes. Mr. Potato Head debuted in 1952. The point is, Hasbro has had plenty of business model pivots. Baked into its history and culture are the Box 2 disciplines of evaluating whether--and when--to shed old identities and product lines.
How does Hasbro know when to seize upon a new idea? According to Govindarajan, the key to Hasbro's creation skills--call it their Box 3 discipline--is an ability to read signals about the emergent changes in technology, culture, markets, and customer behavior. For example, 20 years ago, Hasbro was asking itself the following questions:
- How quickly would the Internet become a potent channel?
- How could companies combine physical and virtual realms for their consumers?
- Who would be the new competitors in this space (Electronic Arts? Nintendo? America Online? Sony?)
- Who might be potential new partners (Marvel? Pixar?)
- Would the PC remain the predominant platform for home technology or would a new one (mobile phones) or an old one (television) supersede it?
- What would be the new economic model when the industry moved from analog to digital?
When faced with unknown questions about the future, the best approach, says Govindarajan, is to conduct low-cost experiments to learn about embryonic markets. "Place a small bet before you place a larger bet," he says. For example, Keurig, the coffee-brewing-technology company, tested its system in the office market in 1998. It worked out the mechanical kinks and pricing structure for six years before rolling it out to the household market.
Hasbro, for its part, conducted several low-cost experiments in the mid-1990s. For instance, it created Star Wars-themed versions of Monopoly and Mr. Potato Head (aka "Darth Tater.") These experiments made it clear that the heart of the company was the power of its brands.
Which meant that Hasbro had a lot of work to do when it came to Box 2. Specifically, Hasbro realized that it had to practice destruction--and abandon many of its old notions about itself. Those notions included: We make analog games with long product life cycles and sell them for premium prices. We distribute through brick-and-mortar retailers. Our consumers are age 15 and younger.
All of the above notions were now less important than a far simpler one: Hasbro was a company full of powerhouse brands.
The next step for Hasbro was to reorganize around its newer, more accurate self-identity. Traditionally, Hasbro's employees were siloed, depending on whatever product they were making. Goldner recognized that this old organizational structure also had to enter Box 2. He reorganized the company around brand platforms, so that each of its major brands (Transformers, My Little Pony, Monopoly, and many more) has a global leader.
In the end, all of Hasbro's moves paid off. It became a brand colossus. In 2000, Hasbro's top eight brands delivered 17 percent of its revenues. By 2015, they accounted for more than 50 percent. Over the 15-year span, Hasbro's market capitalization grew dramatically, with a compounded annual growth of 14 percent.
Today, Hasbro's Box 3 thinking continues. An internal team called Future Now focuses exclusively on the future of all Hasbro brands. It has no Box 1 or Box 2 responsibilities. Yet Goldner makes certain that all employees are aware of the ways the boxes are interrelated. He regularly convenes brainstorming meetings at which employees begin by speaking of "out there" Box 3 possibilities--before narrowing their way back to Box 1 ideas which need to be implemented in the present.
Ask Govindarajan if he ever expected his three-box methodology to be so impactful--considering how easy it is to explain--and he replies: "I've always believed in simplicity. If it's going to take someone five hours to understand what you're saying, they're never going to use it."