Definition of three box strategic thinking

Strategy used to be about protecting existing competitive advantage. In a fast changing world, it is about finding the next advantage.  In fact, strategy starts to decay the day it is created.  The three box thinking is a way of developing strategies.  Actions that companies take belong in one of three boxes:

• Box 1 - managing the present
• Box 2 - selectively abandoning the past
• Box 3 - creating the future

Box 1 is about improving current businesses; Box 2 and 3 are about innovation, breakout performance (big changes), and growth.

Many organisations restrict their strategic thinking to Box 1, as leaders emphasise cost reduction and margin improvements (smaller changes) in their current businesses.  But strategy cannot be just about what an organisation needs to do to secure profits in the short term.  Strategy must include Boxes 2 and 3.  It must be about what a company needs to do to sustain leadership in the long term.

Apple created the personal computer industry in the late 1970s and enjoyed record-setting sales. However, as their PC business started to slow down, Apple built a new growth platform by transforming the music-recording industry through a radical business model: mass customisation of music in a cool, attractive product: the iPod. After introducing the first model, Apple regenerated the product by maintaining balanced efforts across Boxes 1, 2, and 3.

The iPod moved through several generations during 2000-2006 (Nano, Video iPod), each new product destroying the old model but allowing Apple to remain in the lead. Apple then went on to revolutionalise the telecommunication industry with the iPhone in 2006 which has gone through many improvements. Apple introduced the iPad in 2010 to transform the Netbook field. The results are instructive.  Apple’s sales were about $12 billion in 1995. Over the next six years, the company’s sales gradually declined, leveling to about $5 billion in 2001, when it introduced the iPod. As of 2010, Apple’s sales are about $45 billion, thanks to the Box 2 and Box 3 initiatives. [1]

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