Which is better – sense and adjust or optimize and innovate?
I believe it’s the latter. More further down.
Sense and adjust
I read “It makes sense to adjust” in the summer edition of Strategy+business. Basic premise is that business transformation happens faster than ever (due to market events) but few companies are competent at it. They suggest 3 typical responses:
1. Reactive – a short term response that may improve things in the present, but typically fails to deliver lasting results.
2. Programmatic – a structured sequence of activities designed to achieve specific goals within a specific period of time.
3. Sense and adjust – a dynamic approach which aims to constantly and consistently smooth out volatility in areas of business subject to swift and dramatic change.
The problem with the second response is that it requires an organization to step back, analyze the situation, create multiple scenarios, prepare a plan then deploy resources (people, money and technology) - after the event – typically during an annual planning cycle. It has a higher success rate (for lasting change), but given the increased frequency of market change – takes too long.
Sense and adjust attempts to embed elements of the programmatic approach ahead of the game. The authors propose this is the most sustainable strategy, but few have implemented it.
It goes like this:
• Synthesize key performance data that will deliver key insights into future business outcomes – constantly
• Stream this data into dashboards of decision makers so that it may be considered for course corrects - ahead of an event
• More in the complete story
The approach relies on robust business analytics, specifically: pattern recognition, econometric and time series forecasting techniques for the sensing or analytic part; dashboarding and alerts for reporting; then function specific solutions that allow decision makers to create scenarios and predict which will provide the best option moving forwards.
The key is proactive decision making. The assumption is that you will have sufficient time to adjust. The problem from my perspective is fourfold:
• You are still reacting to an event, all be it one sitting on the horizon
• You may not have the resources to effectively respond
• You are gambling you can act faster than competitors in order to secure an advantage
• You are effecting incremental change which may not be enough to make a difference
Don’t get me wrong, using predictive analytics is the way to go. If you aren’t utilizing it, chances are your competitors are, or soon will be – which means you have less time to react if you want to maintain or create a competitive advantage. And it isn’t something you can leverage overnight. Predictive analytics will become the “new normal” faster than you might imagine.
I propose another response – one far more proactive:
Optimize and Innovate
It’s nothing new. Peter Drucker might not have used the words “optimize and innovate”, but I see it in everything he wrote. His message to leadership was simple:
• Make the present business effective
• Identify and realize the potential of the business
• Make the present business into a different business for a different future
The first 2 bullets speak to “Optimize”. Tor Dahl (a productivity expert) claims that only 8 percent of what we do is perfect - meaning 92 percent can be improved. Automating tasks, improving quality, removing barriers and optimizing how we deploy resources/ strategy all fall under this umbrella. “Sense and adjust” fits in this camp but may be considered “incremental” over time. One could argue it talks to bullet 3, but that’s a huge assumption. Creating a different business for a different future is a major shift requiring innovation – radical change, not incremental.
That position was reinforced when I had an opportunity to get a sneak peak of “How Stella saved the farm: A wild and wooly yarn about making innovation happen” by Vijay Govindarajan and Chris Trimble. It’s loaded with simple, yet deep insights about innovation and change management. The key take away is that you cannot transform your organization by leveraging current practices or resources because the future demands different practices and resources to make it a success – change is required.
Solution: Optimize and Innovate - one powers the other – freeing up talent and time to influence the future – not simply react to it.
The secret as explored by Geoff Moore in “Dealing with Darwin”, is that you need a conveyor belt of innovative ideas, with staff to pick them up. By providing staff with the time and tools to explore future patterns they can rethink the future and innovate instead of constantly reacting to it.
No matter how great the innovation, your competitors will catch up - when that happens you’ll have to optimize the current offer to reduce costs and stay competitive. Sooner or later, there will be no gains from further optimization and you will have to kill the offer, outsource it or become a “me too” with zero margin – or worse. Before that happens, if you have followed the advice, you’ll have newer offers to compensate.
Geoff has some excellent advice on how to manage that, but for the purpose of this blog I want to emphasize an insight provided by a rooster called Einstein in Stella Saved the farm – “Innovation can be considered an experiment”.
Innovation is a journey based on a hypothesis. And as I have commented in many posts, a hypothesis needs to be tested. Prove or disprove that it works. Do it sooner rather than later to cut your losses early, adapt your execution, or push forward faster and more confidently. For more thoughts on "innovation" check out my post "innovation simplified" on my "Beyond Business" blog.
When I think of Business Analytics, I think of it in terms of discovering patterns that will enable me to leverage opportunity, manage risk and execute towards a positive future with confidence. But few can afford to employ hundreds of Einstein’s to crack the complex and prove what works.
Fortunately, with a business analytic framework, you don’t have to. Einstein has powerful, general purpose tools to tackle the unknown. For everyone else, those insights have been simplified, made repeatable and embedded into business solutions that make responding almost as simple as child’s play. As Einstein and vendors crack the next hot topic or innovation – those insights are moved into the business solutions for more economical and consistent execution at scale.
It’s a never ending cycle of optimize, innovate, optimize, innovate. Make it part of your culture and you’ll be influencing the future, not reacting to it.
What do you think? What am I missing?
How do you rate your own organizations strategy for optimizing and innovating?
