INNOVATIVE THINKING: When to Think Inside/Outside the Box

By Carl Burch, MBA, CMA, CIA, FCCA

Undoubtedly, businesses are more challenging today than in the past. On the consumer side, businesses are challenged to keep prices low but improve quality. On the management side, businesses are challenged to improve profitability but do so with increased competition. To a great extent, the advent of the Internet has driven these challenges by allowing companies the ability to compete globally, not just locally. This increased competition leads to increased challenges.  

At this time, I am doing some freelance consulting for a textile manufacturing company, located outside of Moscow. What’s interesting is that the company’s competitors are not Russian - they are the Italians, the Chinese, the Serbians, the Pols, and the Belarusians So, how is it that this Russian textile company can compete against these larger (up 4 times larger), better financed foreign firms? 

To compete successfully, the company needs to do things differently. In other words, out with the “old” and in with the “new” and I am not simply talking about purchasing new equipment. You need to remember that all processes and systems can be improved - made more efficient and effective. This is what innovation is about. Innovative thinking is where a company’s workforce and individuals remain open to new ideas, processes, and opportunities. 

Usually, when people think of innovation, they home in on one very popular aspect of innovation, which is referred to as “thinking outside the box.” However, in some cases, people have to think to “think inside the box”, not outside it. Now, this is where it can get tricky, because to have successful innovation, you have to know when thinking outside the box is needed and knowing when thinking inside the box is needed. This is critical, because if you don’t know what type of thinking is needed, then you could end up wasting valuable time and resources on ideas that are completely useless. 

The difference between thinking “inside” and “outside” the box” 

So, what is the difference between the two? Well, when you think of innovation, you probably think of doing something completely new and different. This means you take your existing known framework of thought and attempt to discard it. Most people relate this to thinking outside the box; however, that is not entirely true. 

Thinking outside the box has to do with having no constraints as to what the possible options are. The best example of this is Steve Jobs and Apple. When Steve Jobs was creative, he had no constraints. The only constraint Steve Jobs had was Steve Jobs. Anything was possible. No idea was either too small or too big. 

As an example of this, there is the story of Steve Jobs throwing an iPod prototype into an aquarium and watching air bubbles float to the top to make the point to his engineer that it could be made smaller. When Steve Jobs saw the air bubbles, he snapped to his engineers “Those are air bubbles.” “This means there’s space in there - make it smaller.” The point was not lost on the engineers. When the first iPod came out, it was 19.8 mm thin. The most recent iPod is 6.6 mm and there are no more air bubbles. Steve Jobs simply did not accept the premise from his engineers that the iPod could not be made smaller. Guess what? He was right. 

On the other hand, thinking inside the box is where you have real boundaries that limit your possible options. You still need to be innovative, but the boundaries keep you from wasting thoughts on ideas that are not practical. Your boundaries may be the limitation of material, manpower or something else that constraints your options. 

A good example of thinking inside the box is the Apollo 13 incident. The Apollo 13 mission was headed for a lunar landing in April 1970 when there was an explosion on board which caused the spacecraft to lose oxygen, electricity and water 200,000 miles from earth. They could not simply turn the spacecraft around and head back to earth. They knew that unless they could utilize the material on board the spacecraft to fix the problem, the crew would die of asphyxiation before they made it back home. 

So, the first thing the astronauts did to conserve energy was to turn off all non-essential systems. The engineers back at the Houston control center then got to work in the Apollo simulator to recreate the situation that caused the explosion. They experimented ways to fix the problem given what was available on board the actual Apollo spacecraft and the constraints of limited power and water. To bring the astronauts safely back to earth was truly an inspiration of creativity and ingenuity. 

It would be hard to argue that the level of creative thinking was not increased because the engineers trying to solve the problem were forced to think within the box. Thanks to the engineers, the astronauts made it safely back to earth. 

When to think “inside” or “outside” the box” 

Applying the idea of thinking inside/outside the box to the textile company, there are two issues the CEO has to deal with – the underutilization of its capacity and the cost of its utilities. 

Capacity underutilization 

Capacity underutilization is not an uncommon problem facing most manufacturing companies. The textile company is a relatively new company and sales are growing, but sales are still not at a breakeven level. 

Why is capacity utilization important? 

Manufacturing companies have two types of costs – variable costs and fixed costs. Because fixed costs are fixed for a range of production, on a per unit cost basis, the more output a company produces, the lower the company’s per unit costs will become. The relationship between per unit cost and production output is diagramed below.

Note: Q₁ represents the company’s full capacity level. If the company wants to produce beyond this level, then it has to expand its production capacity that causes fixed cost to increase, which causes per unit cost to increase. 

For the textile company, the lower it can get its per unit cost, the more price competitive the company becomes. The more price competitive the company becomes, the more sales it has, and thus, the more profit the company earns. The issue of production capacity utilization is an extremely important issue for all manufacturing companies, not just for this Russian company. 

In deciding whether the issue of capacity takes thinking inside or outside the box, ask yourself whether the issue is more strategic, or is it more operational. In other words, what is the timeframe for solving the issue? If the timeframe is longer-term then it’s more strategic. If it’s short-term then it is more operational. 

Now, relating this to the idea of thinking inside or outside the box, generally, the longer the timeframe for solving the problem, the more options you have available to solve the problem. The more options you have the more you are able to think outside the box. On the other hand, the shorter the timeframe the fewer options you have (like the Apollo space mission). In this case, the company’s thinking needs to be more inside the box. 

If the company’s CEO decided that the company’s capacity utilization was strategic and its thinking can be more outside the box, what are some of the options the CEO has for increasing its capacity utilization? 

To solve this issue, bringing the right people together and having an “innovative thinking” session could be useful. This is, in fact, what the CEO did. 

The CEO and his team recognized that building sales of its brand product was its ultimate long-term strategic goal, but what does the company do in the meantime? The CEO and his team came up with many ideas, but the two primary ideas, which were suggested, included: 

• Subcontracting some of our excess capacity to another textile production firm, and/ or 

• Doing some private labeling for the large retail stores. 

Both of these ideas are practical and possible and are being pursued; however, it takes time to search for a partner, negotiate with the partner, and finally, get production going. This is why any issue concerning production capacity is considered strategic. It is something that is not done overnight. 

In pursuing these two options, though, the CEO clearly needs to understand how these options will influence the company’s ultimate strategic goal of developing its own brand. 

Excessive utility cost: 

The other issue faced by the company is its utility cost. The main production facility is open, which means there is no separation of the different departments within the facility. Within the confines of the facility, there are four production processes, including knitting, sewing, boarding and packaging. A critical quality issue for the company is that the temperature and humidity in the knitting room has to be tightly controlled. 

Is this a strategic or an operational issue? 

Because the company needed to do something quickly to get utility cost down, the issue was operational, not strategic. In this case, the CEO’s thinking had to be more inside the box – dealing with the constraint of cost and time. 

To solve the problem, the company came up with the idea of simply isolating the knitting room from the other departments. It did this by putting up a simple plastic wall between the two rooms (knitting and sewing departments). Now, the company is better able to control the temperature and humidity in the knitting room, saving a substantial amount of money. Unfortunately, putting up the wall now means there is less air circulation in the sewing department that makes it hotter and more humid than before. Based on this, the company needs to be innovative and think of a system to make the sewing department more bearable for its employees. 

Conclusion: 

In conclusion, management of the textile company understands that success depends on meeting today’s challenges of increased competition and squeezed profits. How to do this takes innovative thinking which means the company’s management team know how to get the most out of the company’s production capacity, and they know how to simultaneously cut costs without impacting quality, customer service, etc. 

This challenge means the management team must be very innovative in the way they approach their issues and problems. This is where understanding when thinking inside or outside the box can be very useful. If you know the issues are strategic in nature, it may be useful to bring the team together and do a Steve Jobs imitation. However, if the issues or problems are more operational, then you need to be like the engineers who got the Apollo spacecraft safely back to earth; be innovative but keeping your ideas limited to what you have in front of you. 

The idea of thinking inside and outside the box is shown in the diagram below. 

So, as a final word, whether thinking inside or outside the box is needed, being innovative is still the name of the game. So, when necessary, get those innovative juices going and be creative in ways you didn’t think possible.

NEXT: Coming in August, I am planning to republish an article on Integrated Reporting <IR>, so still tune! 

By Carl Burch, MBA, CMA, CIA, and FCCA

I am Managing Director of BURCH Business Services, based in Boston, MA. Contact me at carl.burch@burchbusinesservices.com