Woody Allen once said, “If you want to make God laugh, tell him about your plans.” Though God probably isn’t paying much attention to the PowerPoints and business planning documents that corporate strategists use to chart the course for their organizations, many of those plans are driven by views of the future that become comedic material within months. So, how can we plan strategies in new or unstable markets? In their newly released book Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity, Columbia’s Rita Gunther McGrath and her co-author, Ian MacMillan, give us a step-by-step strategic planning process that doesn’t require divine inspiration.
BNET: So, we’ll start with an obvious question: What is “Discovery-Driven Growth”?
McGrath: It’s an approach to getting into new and uncertain areas and it operates by milestones or checkpoints. So you go step by step into new areas. What that allows you to do is to limit your downside risk exposure while still grasping for opportunities on the upside.
BNET: The book looks very accessible and actionable for a manager who needs to develop a strategy for his or her organization. How should people think about using it?
McGrath: This book, unlike our previous book Marketbusters, is meant to be followed from the beginning to the end. It starts off by explaining that [people in business today] have inherited a lot of planning devices and organizational structures from an era that had a lot more predictability. Therefore, a lot of our management tools assume greater levels of certainty than is actually practical in the world. So, the first part of the book introduces people to the notion that when you have a lot of uncertainty it is foolhardy to plan as if you had a platform of facts to work from. Then we walk you through — at the corporate level — how you should frame what an attractive future would look like. In the case of many businesses, when you look two to three years out and ask “What do we want to be as a company?” and then you look at your current capabilities, in many cases, they’re not gonna get you there. That sets up a discussion of “What are our gaps? What do we need to explore? How can we better approach the future?”
We recommend breaking that future goal into specific project areas. You might have a production-cost goal, you might have a growth goal or a geographic expansion goal. We encourage senior teams to be as specific about it as they can…it helps orient the rest of the organization. Then we start to look at specific initiatives. If you really think about it, your strategy is really the initiatives you are doing. You can talk about whatever you want to, but if it doesn’t get translated into projects, initiatives, and areas of focus, it’s not really your strategy.
BNET: What are the main elements of the process you recommend people go through, so they don’t create plans that are immediately outdated by events in nascent or unstable markets?
McGrath: You take the framing of the company, developed at the senior level, and then work backward into a plan. The plan basically asks, “If we are going to reach this future state two to three years from now, what would have to be true now?” As an organization works through this, there are essentially five pieces that go together. The first is framing, as we already discussed. The second part is benchmarking. Is the demand in the market sufficient for what we need to do? Are competing organizations likely to do this better than we could? Then, the third piece is laying out what needs to happen in the company’s operations. This is where a lot of otherwise good plans toddle off into a complete vacuum of reality. People will do things like count on cash from a venture within two years — before they would have even had their sales force developed. At this point, it’s also critical to settle on your “unit of business” — what it is exactly that you are going to sell…what you bill people for. With the advent of the Internet, the number of ways in which you can sell things has exploded almost exponentially. If you sell “content,” that could be in book form, subscription, audio clips…it could be a freebie. People need to think hard about what that unit of business is, because it sets in motion the rest of your plan. Then, the fourth step is documenting your assumptions. This is really critical to the whole process, we argue, because in these highly uncertain environments you just don’t know. The facts don’t exist yet, and so trying to be data-driven is kind of foolhardy. When you embed assumptions in the plan, you need to recognize that they are assumptions. In conventional planning, when you have to divert from your assumptions is a bad thing. There’s a notion of “Good managers have the right answer from the start.” In a discovery-driven plan, you don’t worry about that because you know you’re wrong going in! Then fifth, you drive the whole plan through your series of checkpoints. A checkpoint is a point in time at which you are going to learn a lot. Creating a prototype and having a customer play with it…finishing a technical feasibility study. You plan very diligently up to the next checkpoint. You get as much mileage as you can out of the data that you know, but you stop at the next checkpoint and say, “What have we learned? Are we on the right track or is a change in direction needed?” Plan only up to the limits of your knowledge. That’s what helps you contain the risk.
Next week, we’ll learn more about the discovery-driven growth process and hear how it was implemented in a Fortune 500 company.
