Disruption Resilience: Executive & Innovation Teams Joint Planning
This the third in a series of posts:
- Find the first post here: Rethinking the Value of Innovation
- Find the second post here: Introduction to Disruption Resilience: Agile Scenario Analysis
Dual Definition of “Disruption” Should Bring Innovation & Executive Teams Together
In previously published posts noted above, we discussed two key concepts:
- Pre-COVID, the word “Disruption” was primarily associated with the Clay Christensen, Innovator’s Dilemma definition of a new low-cost technology entrant. Post-COVID, “Disruption” is now also associated with the result of black swan events (Pandemics, Natural Disasters, etc.). Regardless of the cause, the result of disruption on operations and business models are the same.
- A key role of Leadership’s responsibilities is anticipating what their industry will look like in 5 or 10 years, and setting long-term strategy for the business. Thinking about and preparing for how an industry will evolve over a long period of time is, similarly, also the Innovation team’s responsibility.
“77% of fastest growing firms say their innovation strategies are highly aligned with their business strategies”
At Multiplicity, we see the convergence of these two concepts as an opportunity for Innovation Teams to shine through further alignment and integration with the Executive Team via a joint planning framework and exercise we call Disruption Resilience. Ideally, the Innovation Department should be seen as a Special Operations team at the disposal of the Leadership to help achieve corporate strategic objectives. At its core, an Innovation Department’s role should be to:
- Interface with the Executive Team and internal departments to align on strategic objectives and potential disruptive threats
- Collect assumptions about the core business operations from the Executive Team, and internal departments.
- Create and run experiments that solve business problems, test those core business assumptions, new technology, and ways of working.
- Capture and accumulate learnings gathered from completing those experiments.
- Communicate those learnings and results to the Executive Team and broader company, which should inform future strategic planning.
An Innovation department should be viewed as both a team to solve problems and also a team that accumulates organizational learning, by running experiments and testing key business assumptions.
Disruption Resilience Planning Framework
The following Disruption Resilience exercise should be run by Executive and Innovation Teams jointly. The goal of the exercise is to facilitate a series of thought experiments in which some form of disruption (the cause is irrelevant at this point) strikes different parts of the business, and to anticipate the end result to the business model and operations.
This series of thought experiments helps Executive and Innovation Teams zero in on, and prioritize potential key disruption risks in the business. The innovation team then plans out and executes a series of experiments to test and prepare the business in case this disruption ever happens, hence Disruption Resilience.
“Companies that govern innovation extensively delivered 2x revenue growth compared to those following a haphazard approach”
Step 1: Mapping the 9 Pillars of the Business
We start by using Alex Osterwalder’s Business Model Canvas (BMC), to distill and define the business into the nine main pillars. We appreciate that the BMC is an overgeneralization for complex multinational businesses. However, for this exercise the BMC provides the appropriate granularity required at this stage.
While we know that laying this out for the entire enterprise is no simple task, it is an essential one. Start from a 100,000 foot view and once that view has been mapped, we get more and more granular until each key element of the nine pillars has been identified along with each sub-element. This allows for a visual representation of interdependencies in the business model. Define the nine pillars of the business:
- Key Partners
- Key Activities
- Key Resources
- Cost Structure
- Value Proposition
- Customer Relationships
- Customer Segments
- Channels
- Revenue Streams
Now the thought experiment begins with what we have dubbed, “The Light Switch Experiment”.
Step 2: “The Light Switch Experiment” — Turn off a Pillar, Element or Sub-element
As mentioned at the beginning of this post, disruption can come in many causes and forms, for example a pandemic, natural disaster, political unrest, new market entrant, regulatory changes, all of which are very difficult to predict. Regardless of cause, we can attempt to anticipate the result which is disruption of operations or impairment to pillars of the business model.
In this thought experiment we intentionally only focus on the result of the disruption and don’t try to anticipate the cause. We want to anticipate what would happen if each pillar in the Business Model Canvas was disrupted, impaired or just simply turned off, like a lightswitch. We will identify potential causes in Step 4. For this step, we are only concerned with flipping the switch and seeing what happens. Document a list of theoretical results from mentally turning off the pillars off one by one.
During this ‘what would happen if’ part. In ‘The Light Switch Experiment’ we will see how a disruption to any pillar of your business will affect the rest of the enterprise. We’re looking to explore not just how revenue and margin are affected but, also, channels, supply chain, customer relationships, brand and customer experience. This step will highlight those dependencies and second order effects that might need to be bolstered, innovated upon or acquired to reduce risk and maintain continuity during a crisis.
Real-World Lightswitch Experiment Examples
Below are a few real-world examples of disruption across a few different industries and how either a Black Swan event or innovation could have caused the same disruption result.
Once the Light Switch thought experiment is completed and all potential disruption results are catalogued, we will then explore potential causes of each and rank them by gauging their potential impact and the likelihood of each occurrence.
Exploring Causation Using Scenario Analysis
This is the point in the exercise where we explore potential causes of each disruption result. As noted in the examples above, many disruption results can have multiple potential causes stemming from either black swan events or market innovation.
We find using Scenario Analysis a helpful framework when brainstorming what potential causes look like. In situations where the scenario analysis is ambiguous, the team lacks information or can be challenged as ‘ridiculous’, then research analysts can be deployed to scour third party datasets and reports created by those organizations (i.e. Worldwide Threat Assessment, Gartner Hype Cycle, Mary Meeker’s Internet Trends) whose main purpose is threat identification to enrich their processes. After compiling all necessary resources then these threats can be properly ranked and validated.
Quadrant Mapping & Prioritization
Once a list of all disruption threats, causes and results are listed they need to be prioritized to focus innovation attention and resources. All disruption threats should be ranked for impact and probability. When assigning a probability to the cause of an event, there are two important cognitive biases to keep in mind:
- Amara’s law states: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”
- The definition of a black swan event is an event that comes as a surprise, has a major effect and is often inappropriately rationalized after the fact with the benefit of hindsight.
Both concepts are great reminders that we tend to underestimate the probability of something happening that potential carries a high impact.
Step 4: Innovation Team Activation
Now that we know where the high risk disruptions, potential causes, dependencies, and second order effects are, the innovation team is then engaged. Armed with a force ranked list, the innovation team moves out to the business groups to validate the risks and assumptions, and refine these potential problems. Have the business unit managers already explored these risks? Have they identified solutions and found internal efficiencies to mitigate the problems? Does the business unit manager agree with the ranking of risks? This is important because, if the Innovation Team brings them a wonderful solution but the risk isn’t ranked high enough on their action list, there will be no resources or commitment from the business unit?
Once the disruption risk and assumptions are validated and refined, the Innovation Team embarks on their competitive analysis research to determine: 1) if there are solutions present in the market, and; 2) which solutions are best of breed and best fit. This research is then brought back up to the Executive team to determine which innovation projects should proceed to the next stage or those that should be archived for future consideration.
If solutions have been found, the Innovation Team moves to what we call Collaborative Scoping — the process we created to most efficiently and effectively stand up pilots and PoCs and ensure optimal project delivery and will be covered in a later post. If no solution has been found, we move to a Foundry model to develop a custom solution, where the first question is. “Are we going to build it internally or engage with an external partner to satisfy the requirements?” A “Buy Versus Build” decision making framework will be covered in a later post.
Ultimately this process ensures continuity between Executive and innovation strategy, and the needs of the business units.
Look out for my next post that will explore how to activate your Procurement Team. Please reach out if you’d like to have a chat. sean@multiplicitylabs.com or sean@kanata.vc
