The crisp winter air can bring forth happy holiday visions: dancing sugarplums and hanging mistletoe. Yet for a few hardy souls the vision is of something altogether different: thick decks of strategic planning slides. Long-term strategic planning season is about to commence at many companies. Deck the halls!
While endless meetings in drab conference rooms can quickly squelch the holiday spirit, the process actually has the potential to be energizing and liberating. Bringing key staff together to peer into the future and unite behind a plan can help teams rise above day-to-day differences and embrace a common purpose. This year, large companies have record levels of cash on hand (a 50-year high), so the challenge for many firms will be how to spend funds wisely given big uncertainties about the economy, rapid changes in many industries, and a frequently disappointing track record of embracing new forms of growth. This is possible.
Innovation is the obvious answer to worries about how to grow organically, yet strategic planning and innovation tend not to mix. Too often, strategic plans are really financial plans with a thin veneer of competitive analysis on top. Views of competitors are inherently backward-looking, and financial projections assume a degree of certainty which is unrealistic in the current economy. To avoid downside surprises and to convey the clarity that many expect of strategic plans, the process biases thinking toward small initiatves that risk little, but which also offer scant rewards.
Imagine an alternative. When a Venture Capitalist plans how to spend money, he begins with a portfolio plan. How much will be invested in which types of businesses, at what levels, and with what degree of risk? Some funding will often be reserved for small, highly-speculative early stage investments in lonely fields, while other money may go to less risky mezzanine financing for hot companies in fast-emerging industries. The VC will also create several investment theses -- what big opportunities will changes in the next 5-7 years create? Then he will think through how to develop options for exploiting those opportunities. He has not created a military-style plan for marching into battle (which, by the way, is a fiction of civilians -- the military is the first to acknowledge that good plans focus on options and contingencies rather than assume certain execution). Rather he has created scenarios for industry evolution, small bets to open up room for future big investments, ways to learn more about key inflection points, and a plan that is actionable immediately.
Given that VCs are the world's experts in generating growth from new sources, corporate planners should leverage their accumulated wisdom in adopting these disciplines. They can also benefit from a further benefit of this process unique to larger firms -- it is terrific at creating collective buy-in. The way to grow is not through re-visiting the Ghosts of Strategic Plans Past. By acting more like the world's best planners for uncertain situations, companies can create rigorous and exciting plans for their futures.
For a term with over 88,000 Google results, "business model innovation" remains a remarkably opaque concept. It is used to describe everyday cost-cutting initiatives (perhaps as a euphamism) as well as fundamentally new ideas like Groupon or microinsurance.
In new research with the global consulting firm Monitor, I have co-written with Geoff Tuff an article on what this concept means, how two simple tools can point to the highest potential areas for business model innovation, and how companies can get started on such a seemingly amorphous challenge. The article also profiles 20 types of business models that can be applied by analogy to a wide range of industries.
One key finding is that business model innovation must be linked to a profound re-thinking of customer experience. Done right, this can make target customers embrace the new business model even if it lowers a company's costs. Without taking a customer-centric view of a new business model, a firm risks alienating key partners, causing internal dislocation, and losing its competitive differentiation.
Research on over 5,000 companies shows that business model innovation should also involve at least 6 of 10 types of innovation that Monitor's Doblin unit has defined in previous work. This thorough approach helps to ensure that a new business concept is not embedded in an old business model, and it makes the idea tough for competitors to mimic.
Business model innovation is seldom easy. Yet there are clear ways to start without taking undue risks. The imperative is to get moving, because the quickening pace of change in most industries means that companies have to re-examine their business models to defend against asymmetric threats while reaping the upside of change.
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