The decision gate leading to advanced development – where new concepts are fully vetted and prepared for release and commercialization – is the most critical control point for innovation in any organization. In small firms, this can be the time between when the founder has an idea to when he asks his team to “make it happen.” In the mega corporation, it’s where the CTO sits with the management board and goes through the portfolio to help business leaders make bets on emergent technologies and services.
How do we make the best possible choices from the array of projects and programs under consideration for commercialization?
Making these decisions has been the topic of many research papers and studies over the years, with many different frameworks studied and applied. Recent work in cognition and decision making has cast new light on how we as humans make decisions, and it’s worth probing the intersection of this new research and organizational decision making.
In their book Decisive, Chip and Dan Heath do a nice job of pulling together the latest decision-making research to give us a framework that informs and improves this critical selection process. Their short answer would be to avoid narrow focus, confirmation bias, short-term emotions and over confidence in the future.
The topic of this series is to take the excellent advice that Chip and Dan provide and help you map it onto the prioritization of projects within your own business or enterprise. Each of these four areas provides a platform for rich discussion, so I’m going to take each one of them in a series of four posts — beginning with Narrow Focus.
4 Strategies for Avoiding Narrow Focus
Narrow focus refers to our tendency to get caught in a painful “either-or” decision-making position before all the options have been fully exposed; an issue which greatly reduces our chances of making a quality choice.
A commercially-based example of this can be seen in organizations when the market for their products begins to mature. The systems have all been set up to comparatively make product decisions within their known niche, so the business leaders are frequently presented with, “should we do variation X or variation Y.” Monte Carlo simulations are run, customers are surveyed and focus groups are organized. Many meetings are held and a decision is finally made – and then a competitor comes out of “nowhere” to upend the market leader.
A very good example of this happened recently in the yogurt market. While the incumbents were all deciding on whether to create a new flavor – out of nowhere came Greek yogurt. In 2005, Hamdi Ulukaya purchased a small yogurt factory that had been abandoned by Kraft foods. He built a new line of strained, or “Greek,” yogurt called Chobani that has since cost the incumbents billions in sales. The most recent press values this young company at something like $2.5 billion.
So, how do we avoid being the bug that is hit by the windshield? For this post, here are four of the tools Chip and Dan suggest for avoiding narrow focus and how they relate to making product-related decisions.
1) Make the opportunity cost tangible
In organizations, that which is done repeatedly tends to become undervalued. In large organizations that routinely release products, it is not uncommon for a new category launch to consume hundreds of millions of dollars in resources and hard costs, yet rarely does the product manager or business leader feel the gravity of this investment decision. This is a cost that has been budgeted for, and rather than showing up on any one person’s measurements, it is spread over many functional budgets from R&D to sales.
Making these costs visible and tangible can lead to many new alternatives – for example, should we do this new product or negotiate the purchase of a smaller competitor who already has a version of it on the market? Or, can we purchase this technology from another source and have it sooner?
2) Multi track
Keeping multiple parallel options open prior to down selection is a strategy that has shown itself to be very valuable in both services and manufacturing businesses. Advertising and creative teams routinely run “red teams” and “blue teams” around key customers’ needs, with careful combinations of sequestering, deadlines and reviews that push both teams to be more creative than either would have been on their own.
When a major shift in technology takes place, having two teams run with it – one chartered with the bleeding edge and one running a more conservative plan – can be very effective. Not uncommonly you will see this tiered approach when an incumbent must bring out a new technical product into a mature market. For example, when adding network technology to water meters, Badger Meter released both high and low end products.
3) Find an idea outside your industry
Rigorously scanning the horizon and adjacent industries is a core function of senior leadership. It is important for senior leaders to look at competitors and unrelated organizations that may have solved problems that are similar to those facing your firm.
A real-life example of this can be seen with Lexus, which recently borrowed the “Genius Bar” concept from Apple stores when faced with a need to introduce complex technologies to its customer base.
4) Toggle between “prevention” and “promotion”
This refers to the idea of maintaining two active viewpoints during the process of making portfolio choices – one of conservatism and one of boldness and expansionism. You see this done well in organizations, where they may be pruning one part of the organization, while making a strategic growth investment in another.
In the now famous work that Andy Grove and Gordon Moore undertook at Intel, the duo strategically used the proceeds from their memory chip business to increase funding in microprocessors, well ahead of a positive outcome.
Another view of this approach comes in the useful application of very firm funding gates on exploratory activity. By bringing each activity to a go/no go review meeting on an annual basis, you avoid the “walking zombie” programs that sometimes absorb good people and capital.
What is your experience with advanced development decision making? Which area would you like to see more information about? I’m interested in your thoughts and comments – please drop me a line or leave a comment below.
