Most companies are basically zombies. They don’t know it yet, but they’re walking dead because they’re obsessed with today. They’re polishing the silver on a sinking ship. If you’ve ever wondered why giant, "unbeatable" brands like Blockbuster or Kodak just evaporated, it’s not because they were lazy. They worked hard. They just worked on the wrong things.
That’s where Vijay Govindarajan comes in. He’s a professor at Dartmouth’s Tuck School of Business, and he came up with a framework that sounds almost too simple to be useful: The Three Box Solution. Honestly, when you first hear it, you might roll your eyes. It’s three boxes. Big deal, right? But the depth here is what separates the companies that last a century from the ones that get disrupted by two kids in a garage.
Box 1: Managing the Present (The Cash Cow Trap)
The first box is where 90% of your energy probably goes right now. It’s the "Manage the Present" phase. This is your core business. It’s the product that pays the bills, the current marketing strategy, and the existing customer base. It’s about efficiency. Linearity. Optimization. You want to do what you’re already doing, but just a little bit better, faster, and cheaper.
Companies love Box 1. It feels safe. It’s measurable. You can put it in a spreadsheet and show your boss a 3% increase in margin. But here’s the kicker: Box 1 is also a trap. If you only live here, you’re perfecting a business model that has an expiration date. Think about it. Every product has a shelf life. Every service eventually becomes a commodity. If you spend all your time optimizing the present, you’re essentially getting really good at doing something that might not matter in five years.
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The Three Box Solution isn't about ignoring Box 1. You need the money it generates. You just can’t let it consume the oxygen in the room. Govindarajan argues that the skills needed for Box 1—linear thinking, rigorous data analysis, and risk aversion—are actually toxic to the other two boxes. You have to be able to switch gears, which is way harder than it sounds.
Box 2: Forgetting the Past (The Hardest Part)
This is the one everyone misses. Box 2 is "Forget the Past." It sounds counterintuitive, doesn't it? We’re told to learn from history, to value our heritage. But in business, your "heritage" is often a set of golden handcuffs. Box 2 is about identifying the habits, the beliefs, and the assets that worked yesterday but are actually holding you back today.
It’s about "selective forgetting."
You have to let go of the practices that made you successful in the first place. This is incredibly painful. It might mean cannibalizing your own product. It might mean firing the department that used to be the star of the company. It might mean admitting that your "proven" business model is now a liability.
Look at Netflix. They were the kings of DVD-by-mail. They had the logistics down to a science. But they knew that if they clung to that physical infrastructure, they’d never dominate streaming. They had to "forget" their identity as a mail-order company to become a tech giant. They actively moved away from the very thing that made them famous. That’s Box 2 in action. If they hadn’t been willing to let go, they’d be sitting in the graveyard next to the local video store.
Box 3: Creating the Future (The Wild West)
Then there’s Box 3. This is the "Create the Future" box. This is where you experiment. It’s messy. It’s non-linear. It’s full of failure. While Box 1 is about "doing it better," Box 3 is about "doing it differently." You’re not looking for a 5% improvement here; you’re looking for a 10x breakthrough.
In Box 3, you aren't trying to predict the future with 100% accuracy. That's impossible. Instead, you're running "low-cost experiments." You’re testing hypotheses. You’re trying to figure out what customers will need before they even know they need it. This requires a totally different mindset. You need people who are comfortable with ambiguity. You need a budget that doesn't demand an immediate ROI.
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The problem is that Box 1 usually "eats" Box 3. When the quarterly numbers look a little soft, the first thing leaders do is cut the "R&D" or the "innovation lab" budget to save the core business. It’s a survival instinct, but it’s actually a suicide pact. By starving Box 3 to feed Box 1, you’re trading your long-term survival for a short-term bump in the stock price.
Why the Three Box Solution Is Harder Than It Looks
It sounds easy on a PowerPoint slide. Divide your time. Put some people in Box 1, some in Box 3, and have a team dedicated to Box 2. Simple.
In reality? It’s a nightmare.
The Three Box Solution requires "ambidextrous leadership." You have to be able to run a tight ship in the morning (Box 1) and be a visionary dreamer in the afternoon (Box 3). Most people can’t do both. We are wired for consistency. We want one set of rules. But Box 1 and Box 3 require completely different rules, different KPIs, and different cultures.
If you judge a Box 3 project by Box 1 metrics, you will kill it every single time. A Box 3 project won't have "proven market demand" because the market doesn't exist yet. It won't have high margins because you’re still figuring out the supply chain. If the CFO walks in and asks for a five-year projection for a Box 3 experiment, the experiment is already dead.
Real World Evidence: Hasbro and the Pivot to Play
Hasbro is a great example of this. For decades, they were a Box 1 powerhouse—making plastic toys and board games. They were great at it. But they realized that kids were moving toward digital screens and storytelling.
They didn't just try to make "better" plastic toys. They moved into Box 2 and Box 3. They started "forgetting" that they were just a toy manufacturer and started seeing themselves as an "entertainment" company. They moved into movies, digital gaming, and licensing. They created a "Future Now" team that looked at things like augmented reality and e-sports. They balanced the cash flow from Monopoly and My Little Pony (Box 1) to fund the risky, uncertain world of cinematic universes and digital platforms (Box 3).
The Psychological Barrier
Honestly, the biggest hurdle isn't money. It's ego.
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Leaders get to the top by being masters of Box 1. They are the ones who optimized the systems, cut the costs, and delivered the results. Asking them to value Box 3—where they aren't the experts and where failure is common—is a huge ask. It requires a level of humility that is rare in the C-suite.
You have to be willing to look stupid. You have to be willing to invest in things that might never work. And you have to be willing to dismantle the very thing you spent your career building (Box 2).
How to Actually Implement This Without Losing Your Mind
If you're sitting there thinking, "Okay, this sounds great, but I have a business to run," here is how you actually start. You don't need a massive reorganization. You need a shift in how you allocate your most precious resource: time.
First, do a "time audit." Look at your calendar for the last month. How much of it was spent on "Optimizing the Present"? How much was spent on "Building the Future"? For most people, the ratio is 99 to 1. You need to claw back at least 10% to 20% of your time for Box 3 activities.
Second, create a "Stop Doing" list. This is your Box 2 strategy. What are you doing out of habit? What meetings are you attending that no longer provide value? What products are you supporting that are barely breaking even? Kill them. It will be uncomfortable. People will complain. Do it anyway. You need the space.
Third, isolate your Box 3 experiments. Don't let the "Box 1" people manage the "Box 3" people. The cultures will clash and the Box 1 people will win because they have the data and the money. Give your Box 3 team their own space, their own budget, and their own set of rules. Let them fail fast and cheap.
Actionable Next Steps
- The Three-Box Audit: Map out your current projects. Be honest. Which box does each one fall into? If you have 20 projects and 19 are in Box 1, you are at high risk of disruption.
- Define Your "Forgets": Identify three things your company does because "that’s how we’ve always done it." Challenge their validity. If you were starting the company today, would you still do them?
- Fund the Outliers: Take a small portion of your Box 1 profits—even just 2%—and put it into a separate "Box 3" fund. This money is for experimentation only. It is okay if this money is "lost." It's the price of insurance against the future.
- Change the Language: Stop talking about "innovation" as a vague concept. Start using the language of the boxes. Ask your team, "Is this a Box 1 improvement or a Box 3 experiment?" This clarity changes how people think about their work.
- Reward the "Right" Failures: In Box 1, failure is a mistake. In Box 3, failure is data. Start celebrating the team that ran a smart experiment that proved a market didn't exist. They saved you millions in the long run.