8
BORROW
The borrow challenge is figuring out how many of Box 1’s assets you must use for Box 3’s success, how to optimally structure the talent and resources across both boxes, and, given the conflicts and trade-offs involved, how to successfully manage the links.
There must be some assets that Box 3 can leverage from Box 1. After all, the question is, Why would the initiative succeed within the company instead of outside of it? For example, consider that assets from the New York Times benefited NYTD—brand, content, and relationships with advertising. These are assets that no Silicon Valley startup can compete with.
However, when assets from the performance engine go to benefit Box 3, significant conflicts are likely to arise.
Anticipating Potential Conflicts
Suppose you have a common sales force that is selling advertising for both the New York Times newspaper and NYTD. This shared staffing could raise several conflicts.
For example, the sales force might not have time to sell NYTD’s advertisements. Maybe you assumed the sales force has 10 percent slack, but in practice it doesn’t. Now you’ve asked the salespeople to do two jobs when earlier they were doing just one job. The sales force is overworked and unlikely to help Box 3.
But let’s assume the sales force does indeed have 10 percent slack and that this is all that’s needed to support Box 3 advertisement sales for NYTD. Looking closely, you’ll see that this 10 percent slack is not evenly distributed throughout the day. It is entirely possible that the moment Box 3 requests time from the sales force is the moment the staff members are 100 percent busy. Hence, they cannot cooperate with the Box 3 request.
A third conflict is the fear of cannibalization. Sales reps may be afraid that opening the door for a Fortune 500 company to advertise in NYTD, when that company currently advertises with the printed newspaper, will cannibalize sales. The fear is greatest when there is a very high margin with that Fortune 500 company’s full-page printed ad.
Finally, consider a scenario in which Box 3 is scaling splendidly. But unfortunately, the shared staff members from Box 1 are pushing back because they have no way to execute to their own Box 1 successful outcome. Through the shared arrangement, Box 1 has been shortchanged on talent. In fact, the more successful Box 3 becomes, the greater the conflicts.
There can be all kinds of conflicts—for resources, time, management attention, and so forth. These conflicts are real and legitimate. They will happen because of the shared nature of borrowed resources (figure 8-1).
FIGURE 8-1
The innovation team: The partnership between the Box 1 shared staff and the Box 3 dedicated team
If you ignore the conflicts that begin with minor tensions, they will turn into major rivalries. If you ignore the major rivalries between Box 1 and Box 3, those rivalries will ramp up to significant hostilities. And ignoring those hostilities will turn into outright warfare.
In a tug-of-war between the small dedicated team and the huge performance engine, the dedicated team will lose every time. Why? There are more people in the performance engine, and it is a powerful force to reckon with, particularly given that it brings in near-term profits.
However, if you can foster a healthy partnership between Box 1 and Box 3, the picture changes. How do you cultivate this partnership? That is the essence of the borrow challenge. There are three common mistakes to avoid if you want to build a healthy partnership.
Borrowing Too Much
A rule of thumb is that the performance engine should lend no more than three assets to Box 3 initiatives. The question you must ask is, What strategic assets are a must for Box 3 to borrow from Box 1? For instance, cost reduction is not a reason to create a borrowing link between Boxes 1 and 3. Whatever Box 3 borrows must have a strategic advantage, as every borrowing relationship creates conflicts. Thus, borrowing relationships must be kept to a bare minimum. That said, Box 3 must not be totally isolated, with no borrowing from Box 1.
Ignoring the Performance Engine’s Legitimate Concerns
There are three types of legitimate concerns the performance engine might express. First, Box 1 might complain and ask for additional resources to help the Box 3 project. This request could be a legitimate concern since you are asking Box 1 to do more work. In such cases, it is advisable to give the Box 1 performance engine additional resources.
Second, the performance engine might complain that it has not been given the right incentives. For instance, if there is a common sales force between Box 1 and Box 3, the sales staff is less likely to devote time to Box 3 if the sales commission is the same for all products. Selling Box 3 products requires more time and effort since it involves new customers and new value propositions. You can address this disparity by offering a special commission to the common sales force to sell Box 3 products. Another way to redesign incentives is to have the Box 3 dedicated team pay for what it gets from the shared staff by establishing a transfer price. In this scenario, the performance engine views the dedicated team more as a customer than as a partner.
Third, it is not uncommon for the Box 3 leader or team members to come across as condescending toward Box 1 because Box 3 usually is the shiny new object getting management’s attention. One way to mitigate such conflicts is to choose a dedicated team leader who demonstrates humility.
Ignoring Tensions between the Performance Engine and the Dedicated Team
Even if you avoid the first two mistakes, you may still have conflicts. Therefore, avoid the third mistake, which is that if you are a CEO, you begin to ignore those conflicts, hoping Box 1 and Box 3 leaders are adults and can work it out themselves. Conflicts are real, and they can happen every day. CEOs must roll up their sleeves and get down to operational details to resolve conflicts. Here are some ways to resolve such conflicts:
Include insiders on the dedicated team in roles that demand heavy coordination with the performance engine.
Formally allocate resources for Box 3 projects through a unified budget for both the dedicated team and the shared staff.
Actively adjudicate operational conflicts.
Articulate strategic intent that includes both Box 1 and Box 3 in creating the future.
Emphasize common and core values that apply to everyone and bind them together.
Avoiding the aforementioned common mistakes will ensure that you have a healthy partnership instead of a tug-of-war between the dedicated team, the shared staff, and the performance engine.
PROCESS
To conquer the borrowing challenge, you’ll want to set up a half-day to full-day meeting with the relevant Box 1 and Box 3 stakeholders, including the Box 1 and Box 3 leaders. Here, you’ll look at potential conflicts from both a Box 1 and a Box 3 perspective, and you’ll create mitigation strategies in advance. Finally, you’ll use a checklist to ensure you are on the right track in terms of setting up a healthy partnership between Boxes 1 and 3.
Setup
Here are some rules of thumb for the meeting.
Make sure the attendees are cross-disciplinary—for example, engineering, sales, finance, manufacturing, and marketing representatives.
Have a dinner or happy hour the night before the meeting so that people are familiar with each other.
Distribute name tags with individuals’ names and roles on the day of the meeting.
Have people sit in diverse functional teams, encouraging those who don’t know each other to sit together.
Assign the role of a meeting scribe—someone who will capture the various discussions promptly in the meeting. This is a critical role, so make sure that whoever is assigned this role has good operational skills.
Proposed Agenda
Introduction (sixty minutes, including Q&A): Open the meeting by having the Box 3 leader articulate Box 3’s business plan so that all attendees, from Box 1 and Box 3, share the same foundational understanding. The presentation should include the context of why winning is important for the entire company.
Team assembly: Break the group into three teams, with each team including Box 1 and Box 3 members. Generally, about five members per team is ideal. If there are more members, feel free to create additional teams.
Team task (about twenty minutes): Each team should work on listing up to three Box 1 assets that give significant competitive advantage to Box 3. If you were the NYTimes, for example, those borrowed assets could be brand, advertising relationships, and content. Note: fewer assets is better, and stress that teams should list no more than three.
Debrief (fifteen minutes): Each team presents its list to all the others, highlighting why each borrowed asset can be leveraged for the benefit of Box 3. The Box 3 leader will pick the top one, two, or three assets to borrow.
Team assignment: At this time, assign team 1 to the first listed asset, and ensure that the team has an expert for this asset. For instance, if this asset 1 is brand, you need to have somebody from the brand team on team 1. Similarly, assign team 2 to asset 2, and so forth, making sure to have at least one domain expert pertaining to the assigned asset on each team.
Hat switching (thirty minutes): Have each team think about all the conflicts that may arise when those assets are borrowed. First, the entire team wears a virtual Box 1 hat to identify concerns or conflicts that Box 1 might have when the assets are borrowed. For instance, for brand, Box 1 might be concerned that the Box 3 experiment will harm its own brand’s reputation.
Next, have the entire team wear a virtual Box 3 hat to identify concerns Box 3 might have regarding the assets it is borrowing.
Debrief (twenty minutes each, for a total of sixty minutes for three teams): Each team presents to the others the Box 1 and Box 3 anticipated conflicts for each of the borrowed assets. For example, the performance engine—the New York Times newspaper—might be concerned about any changes to the look and feel of the NYTD website that make it inconsistent with its New York Times brand positioning. One of the by-products of doing this exercise—wearing Box 1 and Box 3 hats at different times—in a mixed team of Box 1 and Box 3 individuals is that it enables each attendee to see the other group’s perspective and not lock themselves into one way of thinking. This more open mind-set helps build the trust people need for managing conflicts when the teams have to work with each other.
Resolution plan: Finally, assign joint owners from Box 1 and Box 3 to look at the conflicts listed. Their job is to come up with mitigation or resolution strategies to manage the conflicts. Encourage them to come up with creative win-win solutions.
Checklists
As leaders for the initiative—you and the general managers, the seniormost Box 1 and Box 3 members—will want to ensure that adequate actions have been taken to foster a healthy relationship between Box 1 and Box 3.
The three of you will do this in a number of ways while bringing along the team, as follows. If you notice that a checklist item hasn’t been completed, then take the time to make sure it gets done by scheduling or resolving it in near future. First, make sure that resource allocations have been coordinated. To do this, list all performance-engine leaders who make formal and explicit resource allocations that affect your initiative. For example, the head of manufacturing makes explicit allocations to production capacity, choosing whether to manufacture performance-engine products or a new product that the Box 3 initiative is bringing to market.
Then, confirm that you have completed the following actions:
You also need to ensure that Box 3 gets sufficient time and energy from the shared staff. List below the groups of people (or functions) in the shared staff, and note the times they are under the greatest pressure to meet performance-engine imperatives. For example, you might note that salespeople are under extreme pressure to close deals at the end of the quarter:
Does the shared staff have any fears about the Box 3 initiative?
Next, confirm that you have completed the following actions:
Avoid disharmony in the partnership. Find out if the shared staff has any of the following resentments or unfavorable perceptions of the dedicated team:
The following steps must also be taken to reduce the likelihood of toxic tensions between the dedicated team and the shared staff:
Let’s imagine how the NYTimes would have conducted these exercises as it worked to build its successful Box 3 digital innovation, NYTD. The Box 3 team would have borrowed three assets from Box 1 to gain significant competitive advantage: brand, content, and advertising relationships.
Wearing their Box 1 hat, the team could have identified these concerns about the borrowed assets:
And wearing their Box 3 hat, they would have identified these potential issues:
To mitigate these issues, they could have come up with the following plans:
Wrap-Up
As a leader, you must strategically balance the potentially conflicting groups when you borrow necessary resources from your company’s performance engine. A few key points of understanding can help you and your team better face the borrow challenge:
The dedicated team, while distinct, cannot be entirely isolated from the performance engine. There are performance-engine assets that can be leveraged for the benefit of the dedicated team. We call them shared staff, and they remain within the performance engine but are used by the dedicated team.
The Box 3 innovation team is not the dedicated team but rather it is the dedicated team working in partnership with the shared staff.
The dedicated team consists of people who work full-time on the Box 3 project, while the shared staff works part-time on it. Such an arrangement inevitably will create conflicts between the performance engine and the dedicated team. Anticipating and mitigating conflicts is job number one for the success of Box 3.