Vi) A Discovery-Driven Method Of Managing The Emergent Strategy Process

Sustaining innovations: deliberate planning*i

Disruptive innovations: discovery-driven planning

(note: decisions to initiate these projects can be based on numbers and rules)

(note: decisions to initiate these projects should be based on pattern recognition)

1. Make assumptions about the future (usually based on the past performance, eg financials) and revisit assumptions, if required

1. Make the targeted financial projections, ie income statement and return on investment

2. Find a strategy based on those assumptions, and build financial projections based on that strategy and assumptions

2. What assumptions must prove true in order for these projections to materialize Rank assumptions*ii

3. Make decisions to invest based on those financial projections

3. Implement a plan to learn - to test whether the critical assumptions are reasonable

4. Implement the strategy in order to achieve the projected financial results

4. Invest to implement the strategy (including investment)

Notes

i) For disruptive innovations this process is of limited use as assumptions used are based on past experience

ii) Assumptions relate to

- possibility of low-end or new market disruptions

- target customers will utilize new product/service for the outcome they are trying to achieve

- new venture will lead the organisation to the point in the value chain where the money will be in the future, etc

Both processes of developing a strategy are filtered through the resource allocation process which determines which initiative gets resourced and implemented. There needs to be clear guidance to help prioritise decisions in resource allocation. It is important to remember that the outputs of the resource allocation process are more important than the inputs, ie you need to pay attention to what is done, rather than what they say.

Remember: strategy is never static and the strategy development process should not operate on auto pilot. Entrepreneurs rarely get their strategies exactly right the first time. It is a process of trial and error, with much learning about what works and doesn't work. There is a need to match the strategy-making process with the stages of business development.

In the resource allocation process, it is middle management which decides which ideas are promoted. Their criteria are based upon past experience with applications to senior management. Two factors have an important impact, ie

i) the organisation's cost structure (this determines the desirable gross margin)

ii) the threshold size that the new opportunity must meet in order to get through the resource allocation process, ie needs to be big enough to be interesting. The more successful an organisation becomes, the higher the threshold. Other factors may have an impact, such as

- internal management turnover (with short tenure appointments) in any assignments that results in the recommending of projects that have short-term playoff, ie

"...they want to produce improved results that will merit effective promotions..."

- sales incentive systems can result in pushing products/services that give the most compensation quickly

- customers, by their preferences, can impact on the resource allocation process

- competitors' actions, especially when they threaten to steal customers for growth opportunities

In other words

"... the resource allocation process......is a diffused, unruly, and often invisible process..."

Clayton Christensen et al, 2003

 

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