Hello, Uncertainty!

Like so many of us, I had a well-crafted plan for what I’d be doing right about now. In between traveling, speaking, and teaching at Columbia, I’d work on picking a sector of the economy that was poised for an inflection point and use some of the tools from my book Seeing Around Corners to help people put the concepts to work, for real.

So much for those plans. I mean, interesting as it is, does anyone really care right now about the great wealth transfer to women that was supposed to be reflective of International Women’s Month? (If you do, by the way, let me know!)

Back to the drawing board. In 2020, I’m going to focus on practical ideas that you, dear readers, might find to be useful right now.

Context: Welcome to My World!

When I first started my career in the field of strategy, all the cool kids were doing research mainly at the industry level of analysis. I looked at individual teams and decisions; they looked at order-of-entry and first mover advantages. I pondered how you can plan under conditions of high uncertainty; they looked at relative industry positions and strategic groups.

The field of strategy at the time was looking at situations about which a great deal was known. The industry had already come into being. The business models that work had been discovered. The customers had been trained on how to buy and what to pay. And the technology existed.

In my world, the world of innovation, none of those things existed. Instead, what you had was a very high ratio of assumptions you’d need to make, relative to knowledge that you had. The challenge, therefore, was learning about your sector, business model, customers, technology, and everything else as fast and as cheaply as you could. It’s quite common for people to make this distinction — exploration versus exploitation, defending the core business while simultaneously investing in new businesses or growth businesses vs. stable or declining ones are common dichotomies.

But here’s the thing: As the inflection point that is COVID-19 sweeps across our economic, social, health, and political spheres, previously held assumptions about what is true have been invalidated. The existence of entire sectors that depend on humans being comfortable in close proximity with strangers is threatened. Our homes have become the school cafeteria, the beauty salon, the office, the video production studio, the movie theater, and the warehouse. A simple bus ride is an anxiety-inducing experience.

We are all now in a high assumption : knowledge ratio situation.

What then, can we borrow from the world of innovation that might be broadly applicable to where we all are now? I’ll go through practical ideas in this and future newsletters.

Start With Tidying Up Your Portfolio — A 5 Part Process

One of the dilemmas with classical innovation programs is that the resources to innovate have to come from somewhere. Ending unproductive operations, killing off “zombie projects,” and otherwise deciding what to stop is a key aspect of innovation. At a time of crisis, a similar logic applies — with business changing quickly, you’re going to need both resources and bandwidth to take the business to wherever its future lies. Here’s an overview of the path through the process. For those who want to take a deeper dive, chapters 2 and 3 of my book Discovery Driven Growth go into detail.

1. Do a portfolio inventory.

A good point of departure is to conduct an inventory of what your organization is working on right now, bearing in mind that parts of the business you thought were predictable have now, through no fault of your own, been pushed into a highly speculative space. What you are after is a quick and good enough analysis, not a lot of deep detail. Go around your organization and do an inventory of what people are working on, what the spend is on those things, and what their status is. What you are trying to get a feel for is what projects, programs, or initiatives might no longer be relevant. It’s also useful to establish whether they are high, medium, or low on uncertainty — I like to use the dimensions of uncertainty about markets vs. uncertainty this post and video.

2. Revisit your strategy

While it may seem that in the midst of a struggle for survival, spending time on strategy makes no sense, it is actually crucially important. A good strategy statement is enormously clarifying and helpful as everyone in the organization will be needed to make and support tradeoff decisions. Appliance maker Dyson, for instance, follows a strategy of solving big everyday problems through innovation — sort of the Apple of the appliance world. This meant that the creation of an electric car was in scope — as the industry was poised to electrify, it could represent a once-in-a-lifetime opportunity for the firms that got it right and set the standard.

3. Create your screening statements

With the strategy articulated, develop a set of screening statements. I like to try to turn the strategy into specific attributes that would make a project or line of business more or less attractive. To continue with the Dyson example, two elements of the strategy might be problem size (the bigger the better) and underlying economics, as represented by potential for profitability. Note the skewed ranking — if an attribute is really desirable, it gets a disproportionately high score. If it has a really undesirable dimension, it gets a 1 or even a negative score.

Dimension Exceptional Acceptable Unfavorable Score Total Size of Problem Huge potential problem, felt by global population 9 Huge potential problem, but not globally universal 3 Limited problem that affects only a few potential customers 1 or negative Potential for Profitability Earns significant premium price, margins of 25% or better 9 Earns premium price, margins of 15-20% 3 Margins below 15% 1

In 2015, when Dyson conceived of a from-the-ground-up electric vehicle that his superb engineers could create, the only competitor was Tesla, and the project was well within the wheelhouse of redesigning everyday objects to make them uniquely desirable. A success in this area could reduce pollution and be environmentally friendly, another Dyson passion. And yet… by 2019 competitors had poured into the market and, Dyson observed, were unlikely to price the cars at a level that would allow the company to make its traditional margins. Toward the end of that year, the car project was discontinued. A screening scorecard review would have flagged this. Scorecards are also helpful to articulate in advance to avoid the jockeying and politics that so often throw a portfolio review into disarray.

Go back to your inventory of projects and initiatives and score them. This could be a quick-and-dirty analysis by your strategy group or executive team — the goal here is not perfection but directional correctness. Once each major initiative has a score, rank order them. The top ranked ones should get the highest priority. The second group can be maintained if you still have resources. The lowest group are candidates for discontinuation, and should go through a disengagement process (spelled out in detail in my book The End of Competitive Advantage, chapter 3).

4. Explore new areas that your capabilities may allow you to enter

The next step of the process is to learn — fast — where the capabilities that you’ve decided are strategically relevant might be useful, even if not in markets you currently serve. Companies are showing enormous creativity in pivoting into new spaces which they had not previously considered.

For example, Ionized, a company that used to make glow sticks, wristbands, and lanyards for major events found that, without major events, they had no business. Their capabilities, however, and the connections of Azim Maknojiya, their CEO, allowed them to quickly switch to use their capabilities to bring medical equipment such as masks and gowns from China to the United States, where they are in short supply. Electronics manufacturer Nomad is shifting its production in China to make protective equipment as well. Timberlane, a manufacturer of exterior shutters has likewise pivoted to manufacturing face and intubation shields and has even expanded its employee base. Contract manufacturer Nortech is increasing the supply of circuit boards and other ventilator parts and is even considering manufacturing them based on a design by Medtronic. The point here is to think like an entrepreneur and look to how you might match capabilities you have with things a market needs. At this point, these will be hypotheses, which you’ll test in the next step.

Oh, and Dyson? It has repurposed the location of its cancelled electric car project, designed an entirely new type of ventilator, and secured a major contract to produce 10,000 of the necessary machines for Britain’s National Health Service. Now that’s a pivot toward growth.

5. Use discovery driven practices for rapid learning.

In our just-published Harvard Business Review article, “Discovery Driven Digital Transformation,” Ryan McManus and I spell out an approach to highly uncertain endeavors, such as creating a digital strategy that emphasizes small bets and learning. Just as with innovation, we’ve seen that you are better off placing many, many small bets, many of which you will terminate quickly, than you are placing a point-forecast view of the future. My co-authored book Discovery Driven Growth offers a deep dive on this process.

In a nutshell, what you need to do here is document your assumptions (as in, why did Dyson think an electric vehicle made sense for his company to design) and then look at ways you might convert them to knowledge by market tests, experimentation, or other efforts. The period of learn-and-test concludes in what we call a checkpoint. At each checkpoint, ask yourself the question that my colleagues Alex van Putten and Ron Pierantozzi call “RACE.” Should we redirect? Should we accelerate? Should we simply continue? Or should we exit?

The core idea in an uncertain situation is to accelerate the conversion of assumptions to facts as rapidly as you can, being mindful that in a situation such as we are in, much will only be revealed over time.

Tools in the Works

While these approaches have been time-tested, I’ve noticed that people struggle with the actual tools needed to implement them. This has prompted Ryan and I to develop an uncertainty-friendly digital platform which allows you to rapidly identify projects or initiatives, define how uncertain they are, and capture the major assumptions you are making as you work through the portfolio choices you need to make. We’re in stealth mode at the moment, but if you would like to be considered for an early development partnership, let me know.

Friday Fireside Chats

With a wish to create some islands of positivity amidst all the anxiety and concern, I’ve started to have conversations each Friday with people who I think can help shed light on what is going on and offer some ideas of how to move forward. So far, Sally Helgesen, Alexander Osterwalder, Dave Ulrich, and David Kidder have generously shared their ideas and insights. View past recordings on YouTube.

Upcoming guests will include Rebecca Henderson of Harvard, talking about her new book Re-imagining Capitalism in a World on Fire which will be out on April 26 (and how much more timely could a book be?). We’ll also have my colleagues from SolveNext, futurist Amy Webb, my good jobs colleague Zeynep Ton of MIT, Jeff Pfeffer of Stanford, and the legendary innovation guru Geoffrey Moore.

Closing Thoughts

There is some good news about all the uncertainty we’re facing — the tools and frameworks developed over years of studying the innovation process are both germane and well understood. They don’t represent a lack of discipline or strategy at all. But they do require a discipline that is very different for many people than that with which they normally operate. But they can be learned, and like any other strategic practice, mastered over time.