Category Archives: Innovation

Optimize to be Wrong, not Right

Let’s be honest. We have no idea what is going to happen a year, a week, or even five minutes from right now. And what’s worse, believing we do means we are not only kidding ourselves, but it’s almost certain we will not achieve our desired result.

Rarely do predictions come true. We live in a complex world that frequently and without warning changes around us. It’s a system of constant flux, shape shifting and randomness. Yet still the prevailing approach to deal with this uncertainty is to seek and expect statements of assurance, predictability and guaranteed success. Why? We all know the numbers, facts and figures served up are fiction.

We need to change our mindset.

It’s time to optimize to be wrong, not right.

Invest in information

Imagine, if you will, how a financial trader operates. With $100 to invest and many funds from which to choose, a trader would never bet their entire $100 in one single fund. Instead, they use a system that allows them to explore many possibilities while continually developing options for better investment decisions based on what they discover from exploring each possibility.

The strategy is to limit investment and spread the risk across a number of funds where the potential for a great reward is offset by the potential for a small loss. Instead of investing $100 in one fund they invest $1 in five different funds to find out which is the best investment. It’s a quick, inexpensive way to test the market. From there the trader can pull out of weaker investments with little money lost and increase investments in higher-performing funds. They are paying for information, as information has value.

Antifragile by Nassim Nicholas Taleb

Figure 1: Antifragile by Nassim Nicholas Taleb

This system and strategy embraces the principle of optionality. The majority of options will turn out to be bad options but the point is that those options are now visible as such. This means they can be abandoned before we commit major financial, time or emotional investment in them. If it becomes clear that the investment is not going in our desired direction, we still gain value information for that investment plus we’ve narrowed our cone of uncertainty.

Accepting that the majority of your ideas and/or methods aren’t going to work out as expected is liberating, but more important it’s advantageous. Yet, counterproductively, the majority of business organizations, teams and individuals resist the reality of the world, seeking certainty before making a move, or worse, believe their Industrial-Age governance process to serve up scope, time and budget is a proven approach to predict success. If anything, they invest more time, money and resources refining and refining it.

So, why do people behave this way? Why do we frame the certainty of result when we have little evidence to support it aside from experience, case studies and statements of “<insert famous tech company> does it” to back up our claims? Furthermore, why do we continue to use processes that are biased to predict the undeniable success of our idea and seek to validate our hypothesis rather than test to invalidate it?

Most companies and individuals are stuck in an unhelpful rut of scrambling to prove our ideas and methods right rather than prove them wrong, or at least find their weaknesses so we can strengthen them and build something better than what existed at the start.

People tend to forget that the measure of progress for innovation is not how many “good” ideas you validate, but actually how many you invalidate quickly and inexpensively. Not over-investing in ideas and/or methods with little or no traction frees up investment and time to pursue alternatives based on valuable information we obtain from invalidated experiments. This optionality is what helps us all make better decisions when dealing with conditions of extreme uncertainly, which is of course inherent in any innovation activity.

Optionality works on negative information, reducing the space of what we do by gaining knowledge of what does not work. For that we need to pay for negative results. The information collected through board experimentation helps to narrow the cone of uncertainty, and inform our next best step, action or newly discovered options. The more options you have, the more you are able to explore different opportunities, meaning you can test quickly a variety of ideas without investing in an entire product launch and committing to it too early.

Counterintuitively, for most organizations the management of unpredictable innovation requires providing certainty of the results. High-performance organizations crave unpredictable results, but certainty in the management of innovation.

A rigid business plan, product roadmap and/or set of requirements forces people to do whatever it takes to prove that the idea or method is a good one. If we are determined to convince others that a certain result is possible, we will lose sight of all of the alternative possibilities and potential options available along the way.

Success doesn’t happen in a straight line, which is why it’s important not to let our business idea tie us down too hard, too early. The market may change, customer needs fluctuate and ideas evolve. If we cling too tightly to an idea or method that doesn’t work, then we’ll go down with it.

When a large amount of effort is required to just get an idea off the ground, it’s easy to become overly invested (time, money or emotionally) in that first idea. Similarly, simply hoping you’ll iterate your way to the answer is its own death march and time sink to excessive investment. Writing the funding documents, roadmaps and dates, schedules and scope slowly starts to close your mind to alternative exit ramps to get off the highway to hell.

Instead, making multiple small investment to experiment—to dig deeper and find out whether your hypothesis is true or false (or somewhere in between)—means at worst you’ve lost a small amount of time, money and resources but learned a lot. From there, you can synthesize what you have learned and feed it forward into your next round of experiments while continuing to run relatively inexpensive experiments with small risk that cover a broad base of hypotheses. Now, you’ve created a recoverable situation and one with which you can work. Even better, we can scale this method up to match our appetite.

One option is not a real option

So, how could you even start to test ideas quickly, discover information and determine whether your innovation is on the right path? There are many ways of getting there. But one I like is Toyota’s Set-Based Concurrent Engineering, or SBCE for short. Toyota uses SBCE at the concept stage for new-product development when there is extreme uncertainty regarding potential new solutions. Therefore, they plot a path to explore numerous sets of solutions in parallel to test, inform and discount potential options of the final solution. This process is used for everything from new steering wheels to suspension systems for cars.

In SBCE, cross-functional teams design, develop and test sets of conceptual solutions in parallel. As the solutions progress, teams build-up understanding, knowledge and evidence about the sets. Each iteration allows the team to gradually narrow these sets by eliminating bad and/or infeasible solutions based on the outcomes of their experiments.

Even as they narrow the sets they are considering, teams commit to staying within them so that others can rely on the sets to continue to remove further uncertainty from the overall problem space. At the end of a cycle, designs are compared, cut and/or progressed with improvements based on learning from the other teams. SBCE enables deferring commitment until the last possible moment and optionality.

Toyota's Set Based Concurrent Engineering

Figure 2: Toyota’s Set Based Concurrent Engineering

Toyota appears to judge uncertainty based on experience and simple (often unwritten) rules such as, “If there’s only one solution and we have not established what it will cost to produce, then the set is too small.”

While the Toyota SBCE standard process provides guidance, the chief engineer is empowered to customize the standard to their particular situation. For instance, failures to reduce uncertainty at the proper time or cycle turn into emergencies. Not having enough options to explore is in itself an emergency, with all effort focused on resolving the problem.

When design happens in large batches and/or increments, we can’t explore all the different possibilities and the system may fail. Simultaneous small experiments enable us to experience many small options, outcomes and failures, each of which gives more information about how the design should be modified. In essence, the system becomes more resilient with each failure, which aligns to Nassim Nicholas Taleb’s definition of Antifragility.

Embrace opportunities

Optionality is a portfolio of de-risked opportunity, meaning it can be applied features, products, even portfolios of products for businesses.

The trick is to change our exposure to rare events in a way that we can benefit from them. When uncertainty is high, maximizing your exposure to exploring many possibilities while investing a relatively small amount to test a broad range of hypotheses yields large amounts information to inform better decision-making of what to invest in next—all while simultaneously limiting risk.

New product solutions emerge by feeding forward the information collected from multiple experiments that did not lead to success. Remember…

References

Antifragile: Things That Gain from Disorder by Nassim Nicholas Taleb

http://sloanreview.mit.edu/article/toyotas-principles-of-setbased-concurrent-engineering/

http://seedcamp.com/resources/be-nimble-keeping-milestone-optionality/

http://www.slideshare.net/MarkHart2/antifragility-in-new-product-development

https://whatsinnovation.com/2016/06/06/the-time-tested-value-of-optionality/

https://25iq.com/2013/10/13/a-dozen-things-ive-learned-from-nassim-taleb-about-optionalityinvesting/

https://en.wiktionary.org/wiki/optionality

 

Stop Typing. Start Testing.

dsc04714“If I knew where all the good songs came from, I’d go there more often”, so said Leonard Cohen when asked how he wrote classic hits like Suzanne and Hallelujah. Formulating the ideas behind timeless hits is not an easy task – serendipity, stimulation and skill all equally play their part.

Yet in large organizations, a lack of ideas is rarely the problem. Business leaders and executives are inundated with suppositions, proposals and pitches on how to increase, invent and imagine new revenue streams for their organization. Most often, the biggest challenge is not conjuring up the concept… it’s killing it as quickly and cheaply as possible.

In The Principles of Product Development Flow, Don Reinertsen’s research concluded that ~50% of total product development time is spent on the ‘fuzzy front end’ i.e. the pitching, planning and funding activities before an initiative starts formal development. In today’s fast paced digital economy the thought of spending half of the total time to market on meetings and executive lobbying with no working product to show isn’t just counterproductive and wasteful – it’s ludicrous.

lean_enterprise_master_workshop-002

 

Furthermore, the result of all this investment is often an externally-researched, expensive and beautifully illustrated 100-page document to endorse claims of certain success. The punch-line presented through slick slide transitions is “All we need is $10 million, two years, one hundred people and we’ll save the business!” Science fiction, theatre and fantasy rolled into one.

What is really needed is a systematic, evidence-based approach to managing the uncertainty that is inherent at the beginning of any innovation process. Our purpose when commencing new initiatives is to collect information to help us make better decisions while seeking to identify unmet customer needs and respond to them.

New business possibilities are explored by quickly testing and refining business hypotheses through rapid experimentation with real customers. Our goal is to perform this activity as early, quickly and cheaply as possible. Lengthy stakeholder consensus building, convoluted funding processes and hundreds of senior management sign off sessions is not.

Decisions to stop, continue or change course must be based on the ‘real world’ findings from the experiments we run, not subjective HiPPO (Highest Paid Person’s Opinions) statements supported of how they’ve “been in the business for thirty years and know better”.

Imagine a world without costly executive innovation retreats, and where the practice of pitching business cases at annual planning and/or budgeting cycle meetings is extinct. Instead, a similarly sized investment is assigned to small cross-functional teams to explore given problems, obstacles or opportunities throughout the course of a year. Over a short fixed time periods a team creates a prototyped solution to be tested with real customers to see if they find it valuable or not.

We are investing to reduce uncertainty and make better decisions. You are paying for information. The question is really how much do you want to invest to find out?

In his book, How To Measure Anything, Douglas Hubbard studied the variables that hold the most information value when making investment decision is software projects. The results showed two important insights, how much a project cost and how long a project is going to take held little significance in terms of understanding if a project would be successful or not. What really matter was (1) will the project be cancelled, and (2) will anyone actually use it.

Now, let’s compare how investment decisions are made in the traditional and experimental worlds.

A traditional business case is a set of untested hypotheses and assumptions, backed up by subject matter experts, case studies and market research. In an experimental approach to innovation, real data is collected from working product prototypes that have been tested and informed by feedback from real customers. Which of these strategies do you believe will most effectively provide answers to Hubbard’s most valuable variables?

Similarly, what happens next? In a traditional world once a business case is signed off, detailed requirements are created and a project initiated to build, integrate, test and hopefully, release the entire recorded product requirement backlog – only once all the requirements have been captured, built and release will we find out if our customer will use any of it. With an experimental strategy, we already have validated or invalidated our early working product prototype upon which we can stop, pivot and/or immediately build new features and enhancements based on the customer feedback we collected through our early testing cycles.

Finally, and the most telling and critical piece, the most expensive way to find out if a product works is to build the entire product and then release it. The key to rapid experimentation is not to prove that all our ideas are winners, but to kill losing ideas early to cut out wasted effort, time and further poor investment.

Summary

Not all our ideas will have a positive impact on the business. By testing early and often with the real people we are designing for – our customers – we can use their feedback to make more informed and evidence-based investment decisions for the future success of our business.

Like Cohen said, “I think you work out something. I wouldn’t call them ideas. I think ideas are what you want to get rid of… [they].. dissolve into deeper convictions”.

Next time you have a new initiative in your organization remember these six principles:

  1. Stop typing documents. Start testing with real customers as soon as possible.
  2. Our mission is to discover as quickly and cheaply as possible the most valuable information to base further investment decisions on i.e. will the project get cancelled or will anyone use it. Optimize for this.
  3. Define success before you start experiments. You need to hold yourself accountable to the results of your experiments to make decisions to stop, change course or continue with your activities. Doing that after the fact isn’t an experiment. It’s “Experiment Theatre“.
  4. Form small cross-functional teams and equip them to explore problem domains at speed.
  5. When uncertainty is high favour shorter, faster feedback cycles to generate information to make the next decision.
  6. Remember true progress is as more about killing bad ideas early than proving you’ve discovered the next unicorn idea.

References

Leonard Cohen: ‘All I’ve got to put in a song is my own experience’

How To Measure Anything, Douglas Hubbard

The Principles of Product Development Flow, Don Reinertsen

A Retrospective On Entrepreneurship

One year ago today I quit my job, leaving my comfort zone to start a new business. The thought had been circling in my mind for some time, but I’d always silenced it with self-doubt and a perceived sense of security from my regular paycheck. But last October I finally stepped into the unknown, thanked my fantastic colleagues for their inspiration and encouragement, and moved from London to San Francisco.

Entrepreneurship (and in fact any new venture) is never really what you expect. In many ways that’s the point. It’s a voyage of personal and professional discovery — about yourself, your customers and your business model. There isn’t a linear trajectory toward success or failure. It’s an experiment, and a challenging one at that.

I spent today at Ryōan-ji in Kyoto, a Zen temple with a famous rock garden where only fourteen of the fifteen stones are visible at any one time. It is said that only through attaining enlightenment can one view all fifteen stones at once. I thought it was the perfect place to run my own personal retrospective of the last year. Here’s what I’ve learned so far.

Clarity of vision matters.

A clear vision sets the context for all the other pieces of the venture to fall into place. How well I communicate my vision matters — and maybe it even matters the most. Being able to clearly articulate my vision helps people connect with it, and if people can connect with it they can buy into it. My vision also informs what matters most and helps me to prioritize what and where I invest my most valuable commodity — time.

I constantly ask myself, ‘Is this helping me move towards my vision or not?’. If it is, do it. If not, don’t.

Define success over multiple time horizons and perspectives, and review it regularly.

In conditions of extreme uncertainty I need a mechanism to make difficult decisions. Without anything to be accountable to, it’s easy to continually spin wheels, burn time and convince myself that I’m making progress.

Every well executed experiment begins with defining success before it starts. I have a regular cadence to set and evaluate target conditions over multiple time horizons (one week, one month, three months, six months, two years) and perspectives (personal, business, customer, market). This designs rigor, discipline and good governance into my operation rhythm.

If business partner(s) aren’t  100% committed, don’t continue together.

If the team has misaligned expectations or if someone discovers that the reality isn’t what they thought it would be, it’s best to accept the situation, part company and move on. Team members who aren’t fully committed can cause friction, poor decision making and negatively impact others.

Entrepreneurship is a learning experience, most of which you’ll only discover once you start doing it.

Just as no business plan survives first contact with customers, the same goes for personal assumptions and entrepreneurship. They’re hypotheses that only get exercised when tested. Failing fast, cheaply and early is as successful and validating that you’ve found a willing team.

Work hard to be self-aware.

I’ve learnt to understand what I like and don’t like. Where do I need help? What are my gaps, and how can I plug them? No one excels at all aspects of life or business. The trick is to enhance strengths and manage weaknesses. If you struggle with accounting, get an accountant. If your enjoy writing blogs, write them. Don’t ignore what needs to be done because you don’t like or understand it, it will come back to bite you – it’s only a matter of time.

Accept self-doubt and trust yourself.

I constantly ask myself questions like ‘Why me?’, ‘Do I have what it takes to make this work?’, ‘Should I have left my job, friends and city?’ or ‘Was this a bad idea?’ These thoughts run through more people’s minds than you would think. Questioning yourself can be healthy, but over-analyzing less so.

I remember that the reason I decided to get out of my comfort zone was because that’s where the real magic happens. I remember to trust myself, the decision I make and my ability to get there. I’ve never met anyone who said they wouldn’t hire me because I tried to start my own company, regardless of whether it worked out or not. Actually they admire it, often sharing how they wished they had tried it but never did. Remember that.

Entrepreneurship is about embracing uncertainty as a lifestyle.

There will always be ups and downs. To deal with this I have what I call an emotional control chart. I celebrate the wins, but don’t get too drunk on them. Similarly, when failures happen I don’t get down, but gather the lessons learnt and keep working. Persistence is what breeds success.

Entrepreneurs Lean Enteprise

From Kryo Beshay Jul-31-2015 https://twitter.com/kyro/status/627250292116078592 It’s in my office to constantly remind me and keep me focused on what matters. Thanks Kryo!

Not many other jobs offer the same level of experiential and exponential growth.

I moved to a new country, started a business, immersed myself in a new work culture and learned a new tax system along they way! I’ve done aspects of business I’ve never had to do before – digital marketing, accounting, business operations, procurement processing, company legislation and healthcare policies. The list is endless, but so has been the growth.

I’ve learnt new skills, and learnt by doing. I’ve discovered new things about myself I never knew existed (good and bad) but it’s been great. I’m more self-aware, confident and humble. No other job has offered me this level of experience. That alone has been worth the investment.

Do everything manually, then decide what to automate.

When I was a developer I learned the hard lesson of automating too early. Automating removes you from the process and prevents you from learning more from it. When you experience how each aspect of a business operates you understand how it works. By feeling the pain you develop context to make better decisions on what to outsource, automate, or stop doing altogether.

Doing expenses still sucks but I have a much better insight into where expenses come from and go to. Doing things manually helps me to build that context and understand the process. Then I can decide how to handle it going forward.

Find a mentor, or even better find a few.

I’ll never have all the answers. No one does. Mentors won’t either, but the best ones know that. Their role isn’t to provide me with answers, it’s to help me ask better questions – of myself, my direction and business purpose.

I’ve been lucky to have a lot of great people share words of encouragement and advice with me over the last year – my late cousin Philip J. Moore specifically. Thank you to everyone who made time to help me. The list is long. I hope it continues to grow and I give a little back in return.

Entrepreneurship can be a lonely existence. Don’t be afraid to reach out to people for support and advice. And try to share what you’ve learned with someone you know who is starting out. Mentoring other people is as powerful, if not more, than receiving guidance from others.

Have a small trusted group of people for collaboration, discussion and support.

Having a group of people I respect and admire to test crazy ideas, hypotheses and thoughts with has been invaluable. Their social, emotional and operational support is essential. My group started with a few people in a Slack group. We help and encourage one another, and collaborate on all sort of initiatives. It’s a community I never would have discovered without changing my circumstances, and I couldn’t be happier with the result.

Your network is a great source of business opportunity and growth.

My personal network is a source of hidden strength and has rescued me at least twice. Building and nurturing that network is one of the best investments I’ve made. Seek out interesting people, with a growth mindset and appetite for learning. The future belongs to folks like that.

The people I’ve enjoyed working with are the people I want to continue to work with in the future. Value great working relationships when you find them because they are difficult to find.

There isn’t just one shot, there are many.

Many people mistakenly believe that you only have one shot at success. That introduction, that meeting, that deal. There’s nothing further from the truth.

Entrepreneurship is about life, and life is about growth through learning experiences. Sometimes things I’ve tried have worked, other times they haven’t. The trick is to pick yourself up, dust yourself down and ready yourself for your next shot when it comes around, because it will come around.

As my cousin Philip always said, “If you are still breathing, you haven’t failed. Make sure you learn something for the next spin. Take the night off, send your special someone some roses and go out and see something to inspire you.

Today, I found myself at a rock garden in Kyoto. Tomorrow I’ll start year two.

Talks At Google: How ExecCamp is tackling Business Transformation

I was recently invited to Google to share my experiences of working with executives from leading global organizations who have taken part in ExecCamp.

ExecCamp is an ‘intervention program’ where executives leave their regular roles for 4-8 weeks with the goal of launching new businesses to disrupt their existing organizations.

The purpose of ExecCamp is to provide executives with a deeply immersive experience in which they can develop new skills and capabilities to transform themselves and their organizations.

By embracing Lean Enterprise principles and learning by doing, ExecCamp helps business leaders explore the intersection of business model innovation, product development, organizational design and culture transformation.

The most important metric you’ll ever need

How fast do you learn? How fast does your team learn? What about your organization’s speed of learning? Is it faster than your competitors?

Jack Welch famously said “if the rate of change outside your organization is faster than the rate of change inside you’re already dead”. But I would argue that this statement needs revision.

If the rate of learning outside your organization is faster than the rate of learning inside you’re already dead.

In the information-age the organization that can most effectively accumulate new knowledge, and leverage that insight to make better decisions wins.

OECD data from 2015 (reproduced in the Harvard Business Review) shows the difference between productivity levels of high performing organizations. In the services industry, this gap is almost double!

hbr-productivity

What enables these “frontier firms” to tear ahead is an ability to quickly discover better solutions to address customer needs, product gaps or process improvements. They make it economical to run multiple small experiments and to work in small batches.

When you experiment, you learn.

The more frequent, faster and cheaper your organization can run experiments, the more and quicker it too will learn.

In his 2011 talk “Velocity Culture, The Unmet Challenge in Ops”, Jon Jenkins, former Amazon engineering lead for eight years, shared that Amazon was performing 1,079 software deployments an hour. That’s 1,079 opportunities per hour to learn; what works, what does not, how should we adapt our approach based on this new information?, and that speed was in back 2011.

If your organization is only deploying software once a month, you’re only creating 12 opportunities each year to learn in the market. And because deployments are so difficult to perform and loaded so many features it is impossible to link effort to outcome (signal to noise). If numbers go up, everyone claims the victory. If numbers go down, no one claims defeat. Similarly discovering issues is a myriad of time and effort.

Amazon posted their latest profit statement, and effectively pronounced Jeff Bezos as the third richest person in the world. The Amazon Web Services business now accounts for 28% of Amazon’s profit. Not only are they orders of magnitude ahead of Google and Microsoft in the cloud race, they’re making more sophisticated and complex mistakes too!

So What?

The good news is that you do have options even if you don’t have a capability of Continuous Delivery in your organization. You can start improve your rate of learning straight away by getting out of your seat and talking to the customers and users of your products, services and processes. New insight is only a few quick questions away.

Secondly, ask your team what their rate of learning is. Nine out of ten? Six out of ten? Lower?

Could you set an aspirational target condition for the rate of learning for the team? Ask yourselves how you could to achieve it? What would be the first step? Introducing early customer testing with prototypes? Implementing Continuous Delivery to deploy software more frequently and faster? Engaging business stakeholders more regularly to showcase your work for feedback and improvement throughout development? It’s your team – develop your own experiments and start learning today.

Finally, make the economic argument to your CFO, CEO or Board of Directors as to why working in smaller batches is a quicker, less risky and more effective way to deliver. Show how it will create new knowledge, improve decision-making and lead to better overall investments. If they ask for more evidence point them to the economics, growth speeds, and mathematics (and because Donald G. Reinertsen said so).

The goal of business experimentation is to make new discoveries quickly, cheaply and to improve decision-making. By increasing the rate of testing we increase the knowledge we create. We can then leverage that knowledge to capitalise on positive signals or change course to mitigate poor investments.

Knowledge is the currency of the information-age. In the race to thrive or survive, whoever can create knowledge the quickest, most cheaply and to the best fidelity will win.

So make your personal, team and organization’s rate of learning the one metric to rule them all.

Overcome creative destruction by anticipating the future

The acceleration of change impacts technology, consumer expectations and economic models. The lifespan of companies is tumbling, from a 67 year average in the 1920s to 15 years today.

Are you responding? How? Innovation Labs that never produce or deliver? Training courses to certify teams in the next great method? Talking a lot of theory, yet showing next to no action. It’s time to stop doing the same things and expecting a different result.

Are you ready to challenge your ideas and embrace uncertainty to win? If so, ExecCamp is the experience for you. Founder and CEO, Barry O’Reilly explains why.

Discover more at ExecCamp.

Think BIG, Learn fast, Start now!

lean-enterprise-book-think-big-start-now (1)

Your competitors have the freedom to see the world different because they’re programmed to THINK BIG,  Learn Fast, Start Now!

They don’t care about your legacy systems and mindset, how you operate your business, or the numbers you need to hit.

Your business is already dead. You just don’t know it yet.

How do you unlearn to relearn the skills you need to keep your business relevant?

In this keynote I share how we helped the largest organizations on the planet reinvent how they approach new product development and innovation in ExecCamp.

We take executives out of the boardroom and back on the streets to learn at light speed, and learn by doing.

You will learn how to:

  • Start new businesses inside a large enterprise
  • Train executives to recapture their entrepreneurial spirit
  • Blow up legacy mindsets and see opportunity through new lenses
  • Establish killer teams to conquer new territory
  • Create a culture of continuous experimentation
  • Test strategy through execution in minutes not months or years.
  • Launch winning products by starting small and acting now to make decisions based on evidence not conjecture

Find out how to turn your 50 year business into an adaptive, resilient entity ready for the fight for survival that lays ahead.

Lean PMO: Managing The Innovation Portfolio

One of the first exercises I run with executive teams is mapping their business portfolio to visualize current work in progress and how it aligns to the overall business strategy. Without exception, every time I run this exercise the gap between current state and desired state is far wider than every executive believed, hoped or even imagined.
lean portfolio mapping

Portfolio mapping requires taking an end-to-end view of the lifecycle of initiatives in your organization. Lean Enterprises’ consider four main domains:

  • Explore early stage initiatives that are bets for the future with high degrees of uncertainty
  • Exploit initiatives that have achieved product-market fit and the organization wants to grow and scale
  • Sustain initiatives that have become repeatable and scalable business models, products or services that drive the majority of revenue for the organization
  • Retire initiatives that are long lived, no longer beneficial (even limiting) to the organization future success or strategy and should be sunset from the portfolio

Lean Enterprise

Initiatives that do not achieve desired outcomes in any domain should be killed, and their investment transferred to other initiatives.

High performance organizations focus on building capability to continuously move initiatives through the model from Explore to Retire. They understand that using the same strategy, practices and processes across the entire portfolio will result in negative outcomes and results.

Poorly managed organizations tend of use the same standardized approach for all domains. They fail to recognize the need to adapt their analysis, evaluation and control mechanisms to design a system that will provide the correct amount of governance and measurement to enable business leaders make high quality decisions based on learning outcomes and data derived from executing the work in each domain.

Typically these companies portfolios are orientated solely toward high revenue generating initiatives. Valuable cash cows that become prized assets, protected and milked dry. Lean Enterprises’ however know that one day the milk will run dry.

Explore

New initiatives are inherently risky. When aiming to explore a new business model or product it is imperative investment is limited by setting boundaries around time, scope, financial investment and risk. We do this not because we are cheap. We do this to create ‘safe to fail’ experiments and build in quick feedback loops to understand if we are achieving the desired outcomes.

Lean Enterprise portfolio

In the Explore domain our goal is to test the business or product hypothesis at speed using a cross-functional team to experiment with the customers the solution is targeted at. By designing fast and frequent feedback loops into the team’s exploration we can limit investment, maximize learning and avoid creating ‘bet the business’ scenarios that are too big to fail.

Also, by limiting investment into smaller bets allows us to make more bets, enabling us to test many ideas to discover what works and what doesn’t. This is the principle of optionality applied to business model innovation and product development.

Lean Enterprise Book

Most of the ideas that we believe are great aren’t actually that great at all. By creating optionality in how we design our testing process we can create many opportunities to learn, not just one.

Yammer used a concept of 10×2 to design feedback loops and limit investment in early stage ideas. Their approach constrained teams to no more than 10 and no fewer than 2 people when exploring ideas. Also their iterations could be no longer than 10 no shorter than 2 weeks before teams had to demonstrate their achievements designing feedback loops directly into the development system.

Principles and capabilities of Explore

  • Cross-functional multidisciplinary teams
  • Make lots of small bets
  • Boundaries of time, scope, financial investment and risk
  • Design experiments are safe to fail (the only true failure is the failure to learn)
  • Create a sense of urgency
  • Demonstrable evidence of value to proceed

Exploit

For those few initiatives that achieve escape velocity and exit the Explore domain, teams can continue with a sufficient level of confidence that they are building the right thing, now they must embrace building it the right way.

Lean Enterprises understand the project paradigm is broken only further propagating organizational silos, conflicting priorities and measures of success. They understand the importance enabling cross-functional teams to experiment directly with their customers and users. Effort and measures of success are tied to business outcomes not output.  

As the team collects data from experimenting with real customers and users it improves its understanding of how the business model, product or service is performing. The team can then develop more targeted and sophisticated hypotheses based on the knowledge created from genuine user feedback.

Lean Enterprise pmo

Amazon designed the concept of Two Pizza teams – independent, long lived customer facing teams that were small enough to be fed by two pizzas. This enables context to be held within the group as the business model, product or service grows, while also allowing the team to become autonomous and learn together at speed. Leadership can then continuously evaluate how the initiative is performing based on frequent feedback loops, and can help to make further investment decisions on how to scale it up, down or to kill it based on the outcomes achieved.

Principles and capabilities of Exploit

  • Create end-to-end customer facing teams, not project teams
  • Continuous evaluation funding model
  • Target condition is to achieve break-even point
  • Data-driven, fact-based decisions based on accumulated knowledge
  • Maintain a sense of urgency
  • Set a vision, trust the team to get there, clear blockers and support as they proceed
  • Make knowledge sharing and organisational learning easy

Sustain

The majority of large organizations have built their entire business on a single business model and/or supporting products that achieved product-market fit and continued to grow beyond early expectations. They have extended their market, region, and/or sector to achieve exceptional financial success and achieve wide customer adoption and reach.  

Lean Enterprise program

The challenge they meet is how to avoid ‘feature fallacy’ – the fallacy that simply adding new features will add more value. This manifests itself as overloaded products with features, tools and customizations that customers often never use or are even aware of.

Think of a product you have used for a number of years. Are you aware of all the new useful additions to it? Adding new features does not equal adding more value to customers and users. The feature fallacy often represents wasted effort and investment that could be spent elsewhere.

Etsy design for continuous experimentation. Teams at Etsy work closely with product, marketing, and engineering to scout, build, instrument and improve Etsy’s product portfolio to make sure that they are improving business outcomes for all their stakeholders – customers and users included.

The goal is to use data-driven decisions based on usage and profitability to enhance what customers desire – not just copy what competitors release or what HIPPOs (HIghest Paid Person’s Opinion) want to have.

By continually adding more and more features to existing products, organizations end up with huge monolith applications that are difficult, slow and costly to change or build upon.

The trick is to break out new ideas,  implement them as an Explore initiative and drive them through the end-to-end lifecycle flow again. This provides all the benefits and rigor of each stage while building the capability to continually create new business opportunities for future on-going success.

Principles and capabilities of Sustain

  • Beware of the feature fallacy
  • Focus on what is valuable – where can we win?
  • Don’t get lazy. Success hides suboptimal issues
  • Keep discipline with fact and evidence-based decisions
  • What is being used, improved or removed?
  • How could we disrupt or get disrupted?

Retire

All good things must come to an end. The difficulty for most organizations is that many systems in their portfolio are not well understood. Often the people that built the original system long ago on a ‘project’ have left the company. No one knows how to change, adapt or turn off the system or what impact it may have. Fear runs through the organization because the entire company’s business model is dependent on a COBAL program running on a 486. It may sound like a joke, but this is the reality for most organizations.

High performance organizations continuously seek to reduce the complexity of their systems to free up people and investment to Explore new opportunities. By simplifying their systems they are able to innovate faster, cheaper and more frequently.

Ask yourself the question “When was the last time we sunset a system, product or feature in our team?” If you can’t remember then it is a smell. Over time the weight to legacy systems and technical debt will grind your innovation capability to a halt. Keep it within control. Remember that effort not spent on keeping legacy systems alive frees up opportunity to focus on new initiatives.

Principles and capabilities of Retire

  • Has it served its purpose? Can we sunset it?
  • It is providing value? Kill it if it is not.
  • Are there better opportunities to invest in?
  • Continually look to reduce product and system complexity
  • Simplifying helps to support further innovation
  • Free up funds and capability

Conclusion

Business models are transient and prone to disruption. If your organization is reliant on a single business model, product or service to guarantee its on-going survival then safe to say it is in a precarious state. You’re only one technology innovation, customer loyalty switch or economic decision from irrelevance.

Lean Enterprise Disrupt

To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both kinds are needed simultaneously.

Lean Enterprises know that building the capability to continuously seek out new business models, products and services is the key to ensuring their future business relevance, growth and evolution.

If your executive team is unclear on how your portfolio is performing and what initiatives you are exploring, exploiting, sustaining and retiring, get a cross-functional group together and map out your portfolio to visualize your work in progress. Ask if it is achieving the desired outcomes and aligned to your business strategy and objectives.
Share the results of the exercises with your teams and business leaders. Then starting getting deliberate about investment of time, effort and people in becoming the business you want to be.

References

Lean PMO: Explore vs Exploit

The challenge for organizations today is growing the capability to continually adapt, adjust and innovate. To be successful in an ever accelerating environment, organizations need to make continuous innovation a deliberate practice that is integrated into the fabric of the organization. For Lean Enterprises, this begins and ends at their portfolio.

In the last half century the average lifespan of a company listed in the S&P 500 Index of leading US companies has decreased by more than 50 years, from 67 years to just 15 years today. Professor Richard Foster from Yale University estimates that by 2020, more than three-quarters of the S&P 500 will be companies that we have not heard of yet. Since 2002, Google, Amazon, and Netflix have joined the S&P 500, while Kodak, RadioShack, Palm and Compaq have all been forced off, essentially by changing technology. General Electric is the only company that’s remained on the S&P Index since it started in 1926. Why? Simple. They have managed to constantly evolve.

In the future two types of organizations will remain. Those that continue ‘as is’ once they have found a business model or product fit by optimizing for that specific market. Their strategy will be efficiency and optimization to harvest as much profit as possible for a 5-10 year horizon. The trade-off will be their ability to adapt to change. When the industry business model changes, their business will slowly collapse.

Moore

In contrast, Lean Enterprises are companies designed to operate in an environment of continual change and on-going evolution. They develop a capability to adapt and evolve to meet new market opportunities and threats. They will survive for longer because their structure, strategies and processes support the continual search for new business models, products and services. Once identified they rapidly maximise and scale opportunities while embracing the creative destruction of their own portfolio before another competitor does.

Explore and Exploit: two competing organizational dynamics

Almost by definition, an enterprise’s primary business models are based on known and well-understood product or services offerings. Existing business models have been proven, and the domain in which they exist is well-understood. The primary role of business functions is to execute these business models, with the goal of incrementally improving efficiency over time to out-compete. Plans, processes and measures can be put into place to optimize and monitor the performance and health of the products and services offered. Forecasts are regularly created for capacity, revenue, growth and sales. Targets can be based on understood data accumulated and analyzed over time with a reasonable level of confidence.

When operating in the new economy, simply trying to improve existing initiatives and optimize efficiency is not enough to provide long term sustainability. Organizations need to be continually in search of new opportunities to stay relevant. Explore is fundamentally a different operating environment compared to Exploit. Organizations need to to leverage new technologies, customer insights and emerging trends to unearth new business models, products and services their customers and users desire.

Typically, existing organizational structures, strategies and processes for executing initiatives simply do not work in an exploratory context.For example, measuring return on investment during explore phases makes little sense and provides little insight as you are typically investing to reduce the uncertainty of building the wrong thing. Few new business models or products generate large revenue in the beginning hence will also fail to measure up to more mature initiatives that are in an exploit phase or later.  

ROI

There is a necessary tension between explore and exploit. In particular, as Clayton M. Christensen in The Innovator’s Dilemma brilliantly captures, successful enterprises win or lose on execution and thus tend to squash exploration in favour of harvesting a known working business model, product or service.

Exploring new opportunities and exploiting existing ones are fundamentally different strategies requiring difference structure, competencies, processes, and mindset. It is hard to overemphasize the key point: management practices that are effective in the exploit domain will lead to failure if applied to exploring new opportunities – and vice versa. The differences between to two domains are list below:

Explore vs Exploit

 

Conclusion

A key goal of successful portfolio management in the enterprise is understanding how to balance exploring new business with exploiting proven existing business models – and how to transition businesses successfully between these domains. Leaders must understand the difference between these domains and be able to design, implement and operationalize the required mindset, strategies and people that govern them. If it’s fallen to the CEO to manage the organization has not built the capability and will struggle to continually evolve.

References

Lean Portfolio Management is covered in our book, Lean Enterprise:How High Performance Organization Innovation At Scale.

Get in touch to run my workshop on Lean PMO at your company. 

What is ‘Lean Enterprise’ and Why it Matters

The acceleration of change impacts technology, consumer expectations, and economic models. Nowhere has this been so profound as in the decease in the lifespan of companies​ on the S&P 500​, from 67 years average in 1920 to 15 years today.

In order to survive​,​ organizations need to ​innovate at scale. Technology is now core to business​,​ but business is not only technology. Transformation in organizational structure​and governance​, financial ​management, product development and culture must accompany technical excellence to optimize innovation and ensure ongoing business relevance.

Will your organization be able to keep up with the pace of change?  Will you be a disruptor or disrupted? Lean Enterprise: How High Performance Organizations Innovate at Scale proposes a roadmap for competitive survival. In our new book, we share how leaders can create thriving ​organizational ​cultures​ required to build an adaptive, resilient Lean Enterprise ​that can survive the future.

lean enterprise