Thinking I might find some fodder for my business architecture research, I read The CEO’s role in Business Model Reinvention in the current issue of Harvard Business Review. While I didn’t find my “CEOs are the Business Architects” smoking gun, the article’s central point stuck with me: “Before you can create, you must forget”.
In the article, co-authors Vijay Govindarajan and Chris Trimble discuss three equally important areas of responsibility for CEOs to ensure business success in the immediate term and relevance over time.
“For companies to endure, they must get the forces of preservation (box 1), destruction (box 2), and creation (box 3) in the right balance. Striking that balance is the CEO’s most important task, but most companies overwhelmingly favor box 1. Forces of preservation reign supreme. Forces of destruction and creation are overshadowed, outmatched, and out of luck.
To be sure, the work of preservation—the day-to-day execution of the existing business model—is vitally important. CEOs must get box 1 right or their tenures will be short. They must concentrate daily on performance excellence and continuous improvement, as companies such as Wal-Mart and Southwest Airlines have done for years. The best box 1 companies are sleek and efficient, like a well-designed automobile. They coordinate an astonishingly complex array of human actions like so many gears, pistons, and camshafts.
But CEOs are not just responsible for box 1 [preservation]. They must also get boxes 2 [destruction] and 3 [creation] right. Sadly, most chief executives ignore destruction and creation until it is too late. They bow to a myriad of short-term pressures: intense demands for quarterly earnings, risk aversion, discomfort with uncertainty, resistance to change, linear extrapolation from past experience, and unwillingness to cannibalize established businesses. As a result, many companies fail to transform themselves.”
This tendency to win-the-day at the expense of tomorrow isn’t unique to CEOs. It’s a common trait across professions and roles. And while it might not be your trait, as a forward-thinker, it certainly becomes your obstacle as you navigate an organization.
What’s the answer? As the authors share, CEOs (and everyone else) need to operate in all three boxes simultaneously. More importantly,
“They must recognize that boxes 2 and 3 are not about what the business will be doing in 20 years; they are about the preparations it must make today…The CEO must also know exactly what to destroy and what to create.”
In regards to destruction (box 2) the authors emphasize the need to go beyond product, line-of-business and general portfolio pruning. An even greater inhibitor of creation is organizational memory:
“It’s harder to take a knife to a less-evident box 2 menace: organizational memory. As managers run the core business, they develop biases, assumptions, and entrenched mind-sets. These become further embedded in planning processes, performance evaluation systems, organizational structures, and human resources policies. Organizational memory is particularly powerful in companies that tend to promote from within and to have homogeneous cultures, strong socialization mechanisms, and long track records of success. Such deeply rooted memory may be great for preservation (box 1), but if it is not tamed sufficiently (box 2), it gets in the way of creation (box 3). That’s why all box 3 initiatives must start in box 2. Bottom line: Before you can create, you must forget.”
As the new year starts — and you contemplate the flood of (additive) predictions and watch lists — ask yourself the following:
- What am I willing to forget, in order to create long-term value and success?
- What preparations do I need to make today, to achieve the longer view?
- How can I free up organizational memory to embrace creation and change?