A staggering 88% of companies listed in the 1955 Fortune 500 are nowhere to be found in the same list today. They have gone bankrupt, merged, or simply shrunk off the list. Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years.
If we want our companies to last, we must excel at the “Three Box Solution.” This is a framework I have developed over the course of 35 years of working with and doing research in corporations around the world. I found that the companies that survive and thrive are good at aligning their organizations around three critical but competing activities:
- Box 1: Manage the present at peak efficiency and profitability.
- Box 2: Escape the traps of the past by identifying and divesting businesses and abandoning practices, ideas, and attitudes that have last relevance in a changed environment.
- Box 3: Generate breakthrough ideas and convert them into new products and businesses.
To endure, companies must excel at all three boxes, or their success could be very short-lived. In our work, many leaders tell us that Box 2—destroy the obsolete—is the most challenging; they find it hard to let go of the past. And yet without Box 2, organizations don’t truly transform; they persist in limiting ways of operating.
So, how do you build Box 2 muscle? How do you build a company that’s able to routinely toss what no longer works? One effective way is to work on culture. Box 2 muscle requires a culture where honest Box 2 questions are encouraged. Here are three things leaders can do to create a culture that is good at escaping the traps of the past:
Create a collective narrative that helps people understand why shedding the past (Box 2) is part of doing business and how to do it.
On the first day of his new job as CEO of Microsoft, Satya Nadella sent a powerful message to his employees. The message was intended to inspire new energy in the company at a pivotal time:
“While we have seen great success, we are hungry to do more. Our industry does not respect tradition—it only respects innovation.”
Nadella was sending a clear message to look past the “sacred cows” of the organization and pursue an agenda of innovation over orthodoxy. Later that year he reinforced the message:
“We must each have the courage to transform as individuals. We must ask ourselves, what idea can I bring to life? What insight can I illuminate? What individual life could I change? What customer can I delight? What new skill could I learn? What team could I help build? What orthodoxy should I question?”
In these two emails, Nadella introduced a new Box 2 narrative into Microsoft’s culture by openly calling into question the status-quo.
Looking at Nadella’s communications, you may consider what new narratives could you introduce to create a Box 2 culture in your company?
Role model Box 2 decisions, implicitly giving permission for others to do the same.
The CEO of a prominent Silicon Valley company, let’s call him Peter, got to unexpectedly act as a role model for Box 2 decision making at a recent off-site. In the middle of passionately advocating the development of a line extension for a current product, we’ll call Product X, Peter was interrupted by a colleague: “Given that we’re phasing out Product X and launching a much better product, Product Y, does it make sense for us to now develop Product X version 2?” The tension in the room was palpable.
Peter paused and looked down at the table. The room quieted even more. A moment later Peter looked up and smiled. “Yes, you’re right, that doesn’t make any sense.” He continued, “let’s not launch Product X version 2 and instead focus all our efforts on Product Y.”
There was a collective sigh of relief with the realization that no further effort would be directed towards a product that was seen as obsolete. After the meeting, one colleague pointed to Peter’s decision as a key turning point: “Peter’s willingness to change his mind in public was huge progress for us in establishing a strong Box 2 culture.”
What decisions could you make that set a Box 2 tone in your organization?
Make symbolic bets to remind people that the Box 2 culture is here to stay.
Some innovation leaders make Box 2 symbolic bets that send powerful ripples throughout their organizations. Symbolic bets are highly meaningful and visible actions that touch people’s hearts, let them know the new way of doing business is here to stay and have real business impact.
Former GE boss Jack Welch was a master at using symbolic bets to coach GE to have the culture he wanted to achieve his strategic goals, to be #1 or 2 in every market they were in. He recounts one such example in his autobiography Jack: Straight from the Gut:
“In those days I was… trying to blow up traditions and rituals that I felt held us back. In the fall of 1981, [I challenged] the Elfun Society, an internal management club at GE….It was a networking group for white-collar types.”
In his characteristic style, Welch blasted the Elfun Society at their leadership conference. He saw the club as a symbol for “superficial congeniality.” In his address he described them as an “institution pursuing yesterday’s agenda” and told them “he could never identify with their recent activities.” His Box 2 speech had an impact within Elfun and its turnaround became a symbol of transformation for GE as a whole:
“…Today  Elfin has more than 42,000 members, including retirees. They volunteer their time and energy in communities where GE has plants and offices. They have mentoring programs for high school students….Elfin’s self-engineered turn around became a very important symbol [of reducing bureaucracy]. It was just what I was looking for.”
As humans, we remember symbols—Jack Welch was a master in creating them that inspired many to think and be bigger. Imagine Jack looking at your organization. What symbolic bets would he make to remove unproductive vestiges of the past and create a powerful Box 2 culture in your organization?
It’s important to remember that Box 2 is part of a road that is endless. Innovation leaders are fascinated with that road. We can call it a hero’s journey: mindfully maintaining what serves, courageously letting go of what doesn’t, and purposefully creating what will.