Which Box is the CEO Living In?
The most basic question, when I think about the CEO’s role, is how he or she spends their time.
If you have 100 points, how much time do you spend in the here and now; how much in the adjacent two to three years; and how much time do you spend thinking further out than three years. Everyone has three boxes, or three horizons, in their framework. My colleague Vijay Govindarajan calls them Box 1, Box 2, and Box 3.If they say, “I’ve never thought about it,” I view them as a lost cause.
For a CEO today, particularly in a public company, the job is much more complex than it has ever been before. We’ve always talked about the tension between the short run and the long run, but public marketplaces today think about a quarter out. And the rise of the hedge fund is a new phenomenon. Sometimes they’re pushing the company to do something that leadership just doesn’t want to do, or they’re pushing the company to move faster in the here and now than the company has been willing to do. Very little of that has to do with the long-term positioning of the firm. If a CEO is talking to the media, he or she would likely say they spend 70 percent of their time in Box 1, 20 percent in Box 2, and 10 percent in Box 3. But I think the reality for most CEOs is 90 percent Box 1, seven percent Box 2, and three percent Box 3. And if the CEO is not spending time focused on a certain box, it’s very unlikely that anyone in the organization is going to be successful working on projects in that box.
‘Very Few of Us are Jeff Bezos’
Spending time in Box 2 and Box 3 doesn’t absolve you of delivering results in Box 1. Very few of us are Jeff Bezos, so very few of us are blessed with a market relationship that allows us to experiment as much as he does. We don’t all have an Amazon Web Services that pays so many of the bills. Bezos has the explicit flexibility as a manager focused on the long haul to allocate revenues in ways that allow him to make money in one space, and lose money in another space at the same moment. Amazon makes for great stories, but it’s not the norm.
Why is Apple investing so much energy and money into autonomous automobiles, which is a Box 3 project? Fundamentally, there’s a belief that the automobile can exhibit many of the same characteristics strategically as the telephone, and Apple’s business throws off lots of cash. But you see that the company is beaten up badly when they’re not meeting their numbers in the here-and-now.
At GE, Jeff Immelt’s inability to deliver productive, predictable earnings eliminated their ability to spend a lot of time in Box 2 and Box 3. For managers responsible for new ventures and innovation, it really is a simple “managing your boss” problem. If my boss is getting the crap kicked out of him or her in Box 1, I need to demonstrate my profound understanding of that set of problems, and work on helping the organization in Box 1. A Chief Innovation Officer could actually, on behalf of the CEO, work to create an environment that makes the average employee more capable of innovating in their job on a day-to-day basis. The more you do that, the better off you’re going to be.
We spend most of our time talking about disruptive innovation, and Box 3 innovation, but it occurs rarely. The reality is, breaking down walls and getting people who have better solutions to problems to speak up is a big deal. Can you create a group of self-selected volunteers to engage on substantive problems in new and different ways, and just give them space to do that? There are a bunch of simple, behavioral, cultural opportunities that don’t require lots of labeling and reporting out, that recognize fundamentally that it is people who innovate, and people who are creative. You just need to give them the space. If we look at the work of innovation at an organization that is spending a disproportionate amount of time in Box 1, it’s really boring work. It’s getting a group of people to sit down and say, “What are three different ways to organize ourselves? How could this process that we spend eight hours a day in be more efficient?” It’s licensing and endorsing that work.
Is This Administrivia, or Innovation?
I sometimes like to tell a really old Jack Welch story, from when he was CEO of GE. This happened at Crotonville. I was working [as a consultant and Harvard Business School professor] with one operating division of GE, which included NBC. One of the problems that the NBC employees had tackled was expense reports. We got some folks from David Letterman’s show to do a two-minute video about expense reports, asking, “Isn’t there a better way?” They wanted to give people back some of the time they spent on expense reports. We showed the video, and Welch blew up. “This is administrivia! I’m looking for the next generation of innovation for our company!”
I was thinking, “This didn’t go so well.” I bumped into Welch in the men’s room. I said, “I hear you, and I disagree. You’re talking about wanting large-scale innovation in an organization where people feel completely powerless. How do you expect them to innovate if they have no voice?” And Welch says, “OK, when we go back in, I want to continue this discussion.” I repeated what I said to the whole group, and eventually Welch said, “You know, he’s right. You can’t have self-confidence unless you can take a step and trust that you’re not going to get beaten up. And you can’t do anything to innovate, to have speed, or to simplify things, unless you have that self-confidence.” This was around the time that Welch developed the three S’s: speed, simplicity, and self-confidence.
That was 1989, and the vast majority of organizations still have that problem. The work people do every day is over-engineered and over-designed. People don’t have enough of a voice in rethinking their work. The notion that engagement continues to be highlighted as a new managerial technique leads me to conclude that there’s a lot of Box 1 work to be done to build your innovation muscles so you can move on to Box 2. If you can’t do [the work] in Box 1, the likelihood that you’re going to do Box 2 or Box 3 work with the existing workforce is low.
Now, many people, including Clay Christensen here at Harvard Business School, suggest that if you really want to do Box 2 or Box 3 work, you hive it off and put it in a skunkworks or a separate facility. We couldn’t disagree more. It’s almost impossible to bring those innovations back [into the core business.] The reality is, there’s very little evidence that these hived-off situations ever have the capacity to be integrated back into the organization. There are books that were written as far back as the 1960s that show that the greater the amount of energy you put into differentiating the agenda of this separate innovation enterprise, the less likely it is that you’ll be able to bring it back. The innovation they are doing will get ignored.
How is the Boss’ Score is Being Kept?
A large part of how the CEO views the world is shaped by his or her interactions with the board. If the board overreacts to the day-to-day [movements] of the marketplace, don’t be surprised if that translates into the CEO’s behavior. But other boards [are more] understanding of their major roles, which are to hire a CEO and to engage in debates and discussions about the long-term strategy of the firm.
If it’s clear to you how your boss’ score is being kept—what the boss is hearing from the board about which box to be focused on—and the direction your boss is providing to you, those ought to be the primary data points you use to decide your strategy as the Chief Innovation Officer.