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Multiplicity

Introduction to Disruption Resilience: Agile Scenario Analysis

This the second in a series of posts. Find the first post in the series here: Rethinking the Value of Innovation.

In the world of innovation, the word “disruption” is often thrown around when referring to the potential threat of an incumbent when a new technology enters the market. However, in light of global COVID-19 state of emergency lockdowns, another definition of “disruption” has come to mind, the disruption of operations. Regardless of the cause of disruption, either from a new market entrant or a black swan event (i.e. pandemic, terrorist attack, natural disaster etc) the result is the same — a paradigm shift in which the rules of engagement have changed the way the business or industries operate.

In a previous venture, I spent some time around Emergency Managers and attended the International Association of Emergency Managers (IAEM) conference in Clark County, Nevada. I spent time with a former combat medic who served in the Vietnam War, a former Deputy Administrator of FEMA, an Emergency Manager responsible for one of the largest universities in the United States and a US Navy Commander. They all shared the same ‘mantra’: preparation (planning) was essential in preventing and mitigating disaster.

In my current role as Head of Operations for Multiplicity, an Innovation Consultancy based in Toronto, Canada, I spend my time working with Start-ups to help them coalesce and scale as well as with our corporate innovation teams to design innovation strategies and execute on corporate objectives. Over these last months during the pandemic, disruption has been a common thread that has emerged linking that ‘previous life’ to today.

Just like the taxi industry didn’t see Uber coming, very few of us saw COVID-19 coming, mainly because it is not in our job description to create a WorldWide Threat Assessment that, in 2019, on page 21, stated the following:

‘We assess that the United States and the world will remain vulnerable to the next flu pandemic or large- scale outbreak of a contagious disease that could lead to massive rates of death and disability, severely affect the world economy, strain international resources, and increase calls on the United States for support.’

We had all accepted the status quo and collectively decided we didn’t need to have a conversation about: “what would happen if?”. I would argue that some of the C-Suite’s main responsibilities are strategy, risk mitigation and communication. So why, even in the face of this research, did COVID-19 pandemic catch almost all of us flat-footed? In a future post, I’m going to explore the concept of ‘Psychological Inertia and Loss Aversion’ (Gal, D. 2006) and the ways in which we can attempt to prevent it or, at the minimum, mitigate it in this context. We need to change our collective mindset from reactive: “Oh shit! What do we do now?” to proactive: “What would happen if…and what might we do if that were to occur?”. But, back to Agile Scenario Analysis.

Mike Tyson said “Everyone has a plan until they get punched in the mouth.” Essentially, he was paraphrasing Field Marshal von Motke, the architect of Germany’s Wars of Unification (1864–1871), who said; “no plan survives first contact with the enemy.” Does this mean that one shouldn’t go through the exercise of planning? No. But, rather, explore how Scenario Analysis and Advanced Innovation Activities can collaborate to drive corporate strategy and seek to ‘future proof’ your company. In other words, “Plans are useless, but planning is everything” (Eisehower D. 1957).

Herman Kahn was a defense analyst in the 1940’s at the Rand Corporation and is widely credited with developing Scenario Analysis as we know it. He suggested Scenario Analysis as a thought experiment tool to explore a nuclear exchange between nations and, more famously, was the model for Dr. Strangelove in Stanley Kubric’s classic film. Most famously, he was sought out by the Shell Corporation to develop potential scenarios for the company that allowed it to emerge from the 1970’s OPEC oil embargo much stronger than most of its competitors (they moved from 8th in market share to 2nd).

There is an opinion shared by many that scenario analysis is ineffective and might be informed by a concept put forward by McKinsey & Company: The Three Horizons of Growth. This model suggests that innovation occurs on three time horizons:

  • Horizon 2 ideas extend a company’s existing business model and core capabilities to new customers, markets, or targets.
  • Horizon 3 is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption.

McKinsey & Company suggests that each time horizon requires separate management, tools and goals — effectively siloing innovation activities. This rigid, ‘time-based’ segmentation made more sense in the 20th Century when new ideas took years to research, design, build and market. Now, with the commoditization of computing power, we have essentially extended the function of Bell Labs to our basements with two people and a couple of laptops. This development has exponentially increased the size of the group able to create new technologies and the speed with which they do it.

As described previously as Principle #6 in Principles of Innovation Actually Applied in Practice, innovation functions best when you maximize the frequency of iteration to adjust strategy and increase the rate of learning. A rigid planning model reduces the optionality a business is equipped with to pivot and choose an alternate path or solution when presented with new facts and rapidly iterate. For me, this lack of optionality explains the reason why Scenario Analysis has not achieved broad-based acceptance: planning, if done in a traditional format (5 year plans) tend to restrict this optionality and might explain this justifiable criticism. So, I like to use the term Agile Scenario Planning whereby plans stay flexible within frequent recursive loops. Build 5 interrelated, sequential 1 year plans rather than a single 5 year plan. There are two very important differences between traditional planning and Agile Scenario Analysis: 1) While these 1 year plans are correlated, they are not dependent on each other. If an event in year 1 drastically changes a key input, years 2 through 5 are not as dramatically affected which makes it much easier to iterate on strategy, and; 2) this structure forces C-Suite to perform this function on a more Agile basis (yearly) rather than a 5 year basis.

This post is not intended to throw the C-Suite under the bus but rather, it is intended to highlight the symbiotic relationship that needs to exist between the Executive and Innovation Teams in the strategy and innovation process. The next function in an Advanced Innovation model deploys the Innovation Department as a special operations team to engage the rest of the business in solution sourcing, validation, competitive analysis and threat mitigation — a corporate experimentation, learning and solutioning function.

Look out for my next post that will further explore how to activate your Innovation Team and deploy them as your internal threat mitigation function. Please reach out if you’d like to have a chat. sean@multiplicitylabs.com or sean@kanata.vc

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Sean Kondra

COO of Multiplicity and Partner, Operations at Kanata VC, Sean has over two decades of experience in innovation and finance