As I write this in 2016, Hurricane Matthew is crashing into Daytona Beach. It is a monster storm, and far from over. But there already is a great lesson we can learn.
Shockingly, after passing nearly half of Florida, including densely populated areas like Miami, Fort Lauderdale and Palm Beach, only one person has died. Even as northeastern Florida awaits Matthew’s fury, damage assessments are underway in south Florida. Even though 600,000 homes are without power, utility companies are already restoring power to over 50,000 homes, and that number is growing. The Florida highway system is open, with all roads passable and people are able to reach safety, while realistically expecting they may soon be able to return to their homes. By all accounts, damage is considerable. Yet, few lives were lost and repair is already underway – long before the storm is ending.
Photo by Drew Angerer/Getty Images
The lesson here is that scenario planning is incredibly valuable. Florida’s leaders have been preparing for this storm for years. The many agencies, federal, state, county and municipal, built their scenarios, and prepared action plans. They talked about “what if” various things happened, and thought through the impacts – and actions they would take.
The result is a remarkable demonstration of capability and leadership. Even as the storm progresses, continuing to put more people in harm’s way, the leaders are simultaneously helping those folks prepare and beginning the recovery for those dealing with Matthew’s aftermath.
Then, there’s Brexit. The British currency has fallen to 30-plus year lows. This morning a “flash crash” happened with the currency falling 10% in minutes. Even though the pound recovered much of that loss, the crash left traders and those who do international business shaken. This was just the latest reaction to the British vote to exit the EU.
JUSTIN TALLIS/AFP/Getty Images
This week people in all parts of the international business community were trying to figure out how to react to Prime Minister May’s speech saying Britain would seek a “hard exit.” This seems to imply a faster, more drastic break from Europe. But as David Buik, market commentator at Panmure Gordon & Co. said, “The media decided very quickly what interpretation to put on the term ‘hard Brexit,’ when most of us are none the wiser as to what Brexit means yet.”
The key word here is “reacting.” It is clear that almost nobody had any plans for undertaking Britain’s departure from the EU, even as the effort to create a vote, and implement a vote, occurred. While there was a lot of talk, nobody in government or business had a plan for what to do if the vote to leave actually passed. Now everyone is reacting, and the consequences are significant fear, uncertainty and doubt (FUD), and wild swings in everything from currency values to equity values and even real estate.
Proper scenario planning separates leaders from wanna-bes, and winners from losers. Those who consider what might happen, and prepare for events, inevitably do far, far better than those who react. Lacking a preparedness plan, based on careful consideration of “what-ifs,” it is impossible to implement good decision-making, because you have no idea what markers, or metrics, to watch – and no idea of what actions to take as those metrics vary.
I observed a scenario-planning meeting where the head of planning was asking questions – “what-if…regulations go in this direction…technology accomplishes this level of performance…customer adoption of a substitute increase.” After a series of these propositions were discussed, the CEO said “This seems to be a waste of time. We don’t know what will happen. What if pigs could fly?” Given a lack of facts about the future, he proposed building a future plan based upon the market as it existed at the time, and reacting to changes only after they occurred.
The planning lead responded, “Whether or not pigs will fly has very little to do with the future performance of our company. And that is why we aren’t discussing flying pigs. These variables in the scenarios could have a major impact on future performance, and if we prepare for them we most likely will improve competitiveness, sales and profits.”
Scenario planning is not a wild exercise of imaginary happenings. Scenario planning uses known trends to identify key variables which can be measured. By looking forward on the trend, it is possible to predict possible outcomes – and prepare.
For example, famously, the leadership of Apple in 2000 looked at the trend toward high-speed internet implementation, including WiFi. They started tracking high-speed implementation, and realized that as bandwidth expanded and improved the desire to work on-line would grow as well. They began preparing products for much greater on-line use (iMac) and products based on widely available, low cost internet access. The result was a shift from near bankruptcy to the most valuable traded equity in America in just one decade.
Planning systems are biased toward using historical data, and do not consider big changes. Leadership must constantly fight the urge to assume the future will look like the past, and invest time building scenario plans. Building the skill to predict the future, using trends to build scenarios and plans, is a hallmark of the most successful companies.
Florida’s leaders could have assumed another big hurricane would not hit their state, and simply waited to react when it happened. By thinking through possible outcomes, they have shown an amazing level of preparedness. In contrast, Britain’s leaders did not think through the impact of a British exit, pushed for a vote prematurely, and now are lurching from point to point, reacting to events, unprepared for any outcome – and trying to create and implement a plan “on the fly.”
How prepared is your company? How often do you discuss future scenarios, and actually plan for them? Or do you plan based on history, hoping the future will look like the past? Are you going to use scenarios to be effective in future markets?
Or are you going to wait for events to unfold, react and hope you don’t drown?
Before there was Facebook, the social media juggernaut which is changing how we communicate – and might change the face of media – there was MySpace. MySpace was targeted at the same audience, had robust capability, and was to market long before Facebook. It generated enormous interest, received a lot of early press, created huge valuation when investors jumped in, and was undoubtedly not only an early internet success – but a seminal web site for the movement we now call social media. On top of that, MySpace was purchased by News Corporation, a powerhouse media company, and was given professional managers to help guide its future as well as all the resources it ever wanted to support its growth. By almost all ways we look at modern start-ups, MySpace was the early winner and should have gone on to great glory.
But things didn’t turn out that way. Facebook was hatched by some college undergrads, and started to grow. Meanwhile MySpace stagnated as Facebook exploded to 600 million active users. During early 2010, according to The Telegraph in “Facebook Dominance Forces Rival Networks to Go Niche,” MySpace gave up on its social media leadership dreams and narrowed its focus to the niche of being a “social entertainment destination.” As the number of users fell, MySpace was forced to cut costs, laying off half its staff this week according to MediaPost.com “MySpace Confirms Massive Layoffs.” After losing a reported $350million last year, it appears that MySpace may disappear – “MySpace Versus Facebook – There Can Be Only One” reported at Gigaom.com. The early winner now appears a loser, most likely to be unplugged, and a very expensive investment with no payoff for NewsCorp investors.
What went wrong? A lot of foks will be relaying the tactics of things done and not done at MySpace. As well as tactics done and not done at Facebook. But underlying all those tactics was a very simple management mistake News Corp. made. News Corp tried to guide MySpace, to add planning, and to use “professional management” to determine the business’s future. That was fatally flawed when competing with Facebook which was managed in White Space, lettting the marketplace decide where the business should go.
If the movie about Facebook’s founding has any veracity, we can accept that none of the founders ever imagined the number of people and applications that Facebook would quickly attract. From parties to social games to product reviews and user networks – the uses that have brought 600 million users onto Facebook are far, far beyond anything the founders envisioned. According to the movie, the first effort to sell ads to anyone were completely unsuccessful, as uses behond college kids sharing items on each other were not on the table. It appeared like a business bust at the beginning.
But, the brilliance of Mark Zuckerberg was his willingness to allow Facebook to go wherever the market wanted it. Farmville and other social games – why not? Different ways to find potential friends – go for it. The founders kept pushing the technology to do anything users wanted. If you have an idea for networking on something, Facebook pushed its tech folks to make it happen. And they kept listening. And looking within the comments for what would be the next application – the next promotion – the next revision that would lead to more uses, more users and more growth.
And that’s the nature of White Space management. No rules. Not really any plans. No forecasting markets. Or foretelling uses. No trying to be smarter than the users to determine what they shouldn’t do. Not prejudging ideas so as to limit capability and focus the business toward a projected conclusion. To the contrary, it was about adding, adding, adding and doing whatever would allow the marketplace to flourish. Permission to do whatever it takes to keep growing. And resource it as best you can – without prejudice as to what might work well, or even best. Keep after all of it. What doesn’t work stop resourcing, what does work do more.
Contrarily, at NewsCorp the leaders of MySpace had a plan. NewsCorp isn’t run by college kids lacking business sense. Leaders create Powerpoint decks describing where the business will head, where they will invest, how they will earn a positive ROI, projections of what will work – and why – and then plans to make it happen. They developed the plan, and then worked the plan. Plan and execute. The professional managers at News Corp looked into the future, decided what to do, and did it. They didn’t leave direction up to market feedback and crafty techies – they ran MySpace like a professional business.
And how’d that work out for them?
Unfortunately, MySpace demonstrates a big fallacy of modern management. The belief that smart MBAs, with industry knowledge, will perform better. That “good management” means you predict, you forecast, you plan, and then you go execute the plan. Instead of reacting to market shifts, fast, allowing mistakes to happen while learning what works, professional managers should be able to predict and perform without making mistakes. That once the bright folks who create the strategy set a direction, its all about executing the plan. That execution will lead to success. If you stumble, you need to focus harder on execution.
When managing innovation, including operating in high growth markets, nothing works better than White Space. Giving dedicated people permission to do whatever it takes, and resources, then holding their feet to the fire to demonstrate performance. Letting dedicated people learn from their successes, and failures, and move fast to keep the business in the fast moving water. There is no manager, leader or management team that can predict, plan and execute as well as a team that has its ears close to the market, and the flexibility to react quickly, willing to make mistakes (and learn from them even faster) without bias for a predetermined plan.
The penchant for planning has hurt a lot of businesses. Rarely does a failed business lack a plan. Big failures – like Circuit City, AIG, Lehman Brothers, GM – are full of extremely bright, well educated (Harvard, Stanford, University of Chicago, Wharton) MBAs who are prepared to study, analyze, predict, plan and execute. But it turns out their crystal ball is no better than – well – college undergraduates.
When it comes to applying innovation, use White Space teams. Drop all the business plan preparation, endless crunching of historical numbers, multi-tabbed Excel spreadsheets and powerpoint matrices. Instead, dedicate some people to the project, push them into the market, make them beg for resources because they are sure they know where to put them (without ROI calculations) and tell them to get it done – or you’ll fire them. You’ll be amazed how fast they (and your company) will learn – and grow.
"Strategic Plans Lose Favor" is a recent Wall Street Journal headline. Seems like some big companies, and big consulting firms like Accenture, McKinsey and the Boston Consulting Group are rapidly learning what this blog has been pushing for a few years. That flexibility trumps traditional approaches to strategic planning.
When Office Depot's strategic plan was leading to revenue struggles, the company set up a situation room to track key indicators and adjust to market shifts much quicker.
"Strategy as we know it is dead" according to Walt Shill, head of strategic planning at Accenture. "increased flexibility and accelerated decision making are much more
important than simply predicting the future." (Do you think he's been reading this blog and my book?)
"business leaders will start to rely less on static five-year strategic
plans and more on rough "adaptive" strategies that consider multiple
scenarios" according to Martin Reeves, Senior Partner at BCG. (Where'd he read that – on this site?)
""The rate of change and width of volatility is much wider and faster
than what we would have assumed coming into this," Jeff Fettig, CEO at Whirlpool
McKkinsey has opened a "Center for Managing Uncertainty." Really.
As this recession has come on, and lingered, businesses are clearly starting to realize that market shifts happen fast, and businesses cannot be slow to change. Adaptability is one of the most important capabilities to compete in the post-2000 business world.
And the real market leaders are incorporating this kind of thinking into their organizations. While the earlier quotes show how, caught on the defensive, organizations are finding new ways to react, the best performing organizations are taking market leadership by being Disruptive. Like Apple. In a Harvard Business Review blog Roberto Verganti, professor at Politecnico di Milano tells us "Apple's Secret: It tells us what we should love."
The good professor of design and management points out that Apple does not ask customers what they want. Instead the company designs products which take customers to new levels of performance beyond what they imagined. Instead of being reactive, Apple uses scenario planning to understand future market needs and create shifts with its products. This approach leads to breakthrough performance, such as the success of Nintendo and its Wii product line.
To be successful businesses can no longer try to Defend & Extend their old strategies. They have to be market focused, and flexible to manage through market shifts. And to earn superior rates of return they have to be market leaders that use scenario planning and White Space to launch new solutions meeting emerging needs which attract customers and grow sales.
As we enter 2010, is your business expecting a very different future – and have you started planning to implement new approaches based upon a different future? For example, how do you plan to acquire new customers, employees and vendors in 2010 and beyond? Do you still rely on traditional advertising? Do you use a web site? Is most of your on-line IT budget still dedicated to web site development? How much of your plans for 2010 are extensions of what you've been doing on 2009 – or maybe an ongoing trend from much earlier in the decade?
According to the Wall Street Journal in "Linked In Wants Users to Connect More," the number of Linked in users almost doubled in 2009, from 31.5M to 53.6M. And to drive additional user traffic the site is working hard to add applications which can help companies with recruiting, marketing and other business functions. With users jumping, and time on site increasing, is your company blocking access? Or is it figuring out how to leverage this leading web site to find new customers, recruit aggressive new employees and build a stronger business?
But Linked-in is considerably less successful than Facebook. Do you still think of Facebook as a site for college kids to plan drinking parties? If so, you've missed a tsunami in the making. Facebook's user base, at 350 million, is over 6 times Linked-in. According to ReadWriteWeb.com "It was a Facebook Christmas; Site Hits #1 in U.S. for First Time." On 2 days Facebook actually had more site hits than search giant Google! And Facebook was the #1 Google search in 2009. Facebook use is exploding. The average Facebook user spends over 3.5 hours in a session. Many Facebook users log in daily to keep up with their network and what's happening in markets of interest to them.
Increasingly, people don't do web searches to find out about restaurants, movies, products, services – or even jobs. They go to social media sites like Linked-In, Facebook and Twitter. If you depend on people to use your web site to learn about your business – that may be too late. When referred by a friend, what is the first impression a potential customer (or recruit) gets when reaching out to your LInked-in, MySpace or Facebook page? What applications or groups do you support to demonstrate your business and your ability to grow? How are you reaching out through these environments to meet the people who should be a customer, employee or vendor?
Increasingly, people don't even make their first touch with your business via your web site. iPhone users, and the soon-to-explode Android phone users, as well as all the other "smartphone" (or mobile device) users learn about your business from a very small screen that brings in small bits of information that is largely text. They often go to a PC and search a traditional web site only every few days. So how is your information presented? Is it largely graphical, with embedded objects that don't show up well (or at all) on a mobile device? Is it lengthy HTML pages that requires scrolling on a phone?
Increasingly, people looking for you will blow off traditional web pages in favor of easier to access and read information. You may hate the 140 character Twitter limit – but it's becoming a standard (the new "elevator pitch.") So is your on-line impression being driven by web developers, or by mobile device developers? Is your on-line environment all about driving people to your web site – which may never happen – or are you effectively connecting with them via Facebook, et.al. and informing them without asking them to go to your environment? Are you letting users control their access to your information, making it easy for them, or are you trying to control their behavior — and putting off many?
There are many reasons to think that in 2010 how people acquire business information will shift from traditional web sites to social media sites. First impressions, and a lot of the decision making process, will come from Facebook, Linked-in and Twitter. Is your business positioned for this shift?
Pepsi recently made a decision that appears forward-focused rather than following tradition. Pepsi is abandoning Super Bowl ads in favor of spending more on-line.MarketingDaily.com reports in "Compete: Pepsi's On-line Push a Smart Play" that Pepsi is reaching more people at a lower cost by investing in on-line marketing. Despite the historical role Super Bowl ads have played for big consumer products companies, Pepsi's decision is positioning the company to better connect with more users and drive more sales. Coke's decision to remain with traditional advertising looks increasingly expensive – and out of step with how people really make purchase decisions today.
Smart companies are already making changes to reach the tidal wave of people relying on social media. They are building a strong impression, and business applications, that help them grow using environments like Linked-in, MySpace and Facebook. And they employ people to keep their Twitter communications clear and strong.
So is your business taking actions – making implementations – that will support where the market is headed in 2010? Are you putting yourself where the customers and recruiting targets are? Or are you trying to do more of the same better, faster and cheaper?
My last blog highlighted a new book describing the need for White Space if a business is to implement innovation and grow. But lots of people still have questions about what White Space is, and how to get it working.
Here's the chart from Create Marketplace Disruption (FT Press, available on Amazon.com) that shows how White Space is positioned to move beyond Defend & Extend Management.:
Most companies spend the vast bulk of their energy trying to Defend sales of current products to current customers. After expending 80% of the planning time, and company resource, in that cell, they then will try to see "can we sell other products to our current customers?" Or, "can we sell current products to new customers, such as by moving into a new geography?" As a result, they do almost nothing in White Space.
"Adjacent market" analysis is Extend effort. "Dartboard" approaches which look to grow by moving in concentric circles away from "core" are Extend efforts. These approaches are based on efficiency notions, that the company will get the biggest "bang" by doing very little differently and hoping to grab a big "win" with a small effort added to the Defend behavior. They hope to grow a lot by largely defending their "base" and adding a few, low resource commitment products or customers to the mix.
When you adjust for resources, the planning effort looks like this:
If you want to really grow your business, you have to change the planning effort first. Instead of putting all the resources into multiple rounds of effort about the business you know best, you need to simply do less in this area of planning. Moving from 90% accuracy on the first round to 95% after months of effort is pretty low yield. Instead, business should dramatically reduce the effort on known customers and products – and invest considerably more time developing scenarios about future markets leading them to White Space.
Extend markets almost always are disappointing. While the effort looks simple, that's only a view of "the grass looks greener across the fence." Reality is that competitors exist in those markets, and when the company tries to extend into them with limited resources they run headlong into very stiff competition. The company retreats to Defend the "core" and the Extend opportunities produce very low sales and miss profit projections dramatically. Usually, the leaders start complaining about having taken the venture, feel burned by trying to innovate, and reinforce their desire to focus on maintaining the "base" business.
To get over this, businesses have to start by realizing that entering new businesses takes more planning than the base business – not less. You have to identify the critical Permission needed to allow the White Space team to operate outside the Lock-ins. Be clear about the new approach, and the goals. And identify the resources needed – as well as the source of those resources (people and money.) This doesn't happen automatically, because it isn't part of the existing planning process. It takes a lot of effort to develop market scenarios and plans – then follow-up on the experiences to understand what works and keep evolving toward achieving goals. And that is where the planning effort really needs to focus.
White Space is critical to success. All businesses MUST evolve to new products and new customers. The idea that this can happen with little effort is misguided. Instead of planning the "base" business, success starts by putting more resources into market scenario development, developing insight to know what permissions are needed to succeed and then establishing funding so the White Space project can succeed.
Think about Apple. As long as Apple focused planning on the Macintosh the company moved further toward a small provider to niche PC markets. Only by using market scenarios to understand that growth opportunities were much better in entirely new markets were they able to change resource allocation and move aggressively into the business of iTouch, iPod, iTunes and eventually iPhones. Apple is outperforming almost everyone in this recession – and a lot of that success is due to using scenario planning to identify new market opportunities, rather than spending all the planning resources understanding previously served, traditional markets.
