Note: This article was previously published in Compass Points in October 2001.
In 1996 Apple lost $816 million, but in 1997 they launched an initiative that was to transform how people bought, sold and listened to music. There was no clear path for how this would happen, no easy technology solutions – just a lot of questions and a vision.
Strategic planning teams are often confronted with investment decisions as they select the “few” things that need to move forward. It is often easier to select product enhancements, product line extensions with low risk and short term payoff, rather than investing in the high risk “dream” alternative. The “dream” alternative can require significant investment, time and often has a lower probability of success – but if successful, it is often transformational for both the company and the industry.
What should you do?
It is important to select the few projects that need to move forward – but they should be looked at as in a portfolio:
- Short-term: often product line extensions and enhanced features. These have clearly definable direction and lower risk and offer short-term return.
- Medium-term: often new platforms that offer significantly enhanced performance/lower cost/greater ease of use. These require higher investment, more time and have higher risk because the outcome is less certain – but the benefit of a new platform that offers significantly enhanced capabilities is typically rewarded in the marketplace.
- Long-term: often the dreams – a problem with no clear solution, but if one is found will allow your company to leapfrog the competition.
What mix is right for your company? Well, there is no easy answer – some companies, particularly technology companies must invest heavily in the “dream” – look what has happed to RIM, with its Blackberry being eclipsed by Apple’s iPhone. RIM once provided the new platform that leapfrogged its competitors, but that advantage did not last long. Other industries, slower to move, can still be transformed – look how Amazon changed the way we buy and read books with its Kindle. Yes, Barnes & Noble has copied and even has a color version – but Borders, unable to keep up, is out of business.
How do you ensure that investments are made for the long-term “dream” projects?
Many companies take their long-term projects and earmark a certain percentage of their development budget to be spent on “dream projects”. This way the projects are not “voted off the island” because their returns are far into the future and uncertain at best. But once you set the money aside, how do you decide what projects to fund? Some companies look at a technology and think of ways to commercialize it – but this often results in a solution looking for a problem. A better way to manage the long-term portfolio is to define the problem(s) to be solved. Don’t provide the solution – this will stifle the creativity. Instead nurture the ideas and let them grow. “The fastest way to kill an idea is to criticize it,” Scott Crump, CEO of Stratasys. Stratasys leads the world in 3D printing – taking CAD drawings and turning them into functional prototypes, assembly tools (jigs, fixtures, patterns) and production parts enabling their customers to accelerate their time to market. Crump credits Stratasys’ investment in long-term projects for developing transformational platforms/technology that places Stratasys in the leadership position in this market. These projects reaped rewards after traveling through a maze of twists, turns and dead-ends – and finally victory.
For short and mid-term projects, quantifiable selection based on risk and reward makes sense. For longer term “dream” projects, you should consider putting a certain amount of money aside to work on clearly defined problems. Finding these solutions will allow you to leapfrog your competition. But keep in mind the journey will not be straight and will require perseverance.
For more information on innovation please read: Innovation: Where to Look for It. If you are looking for ways to add more innovation to your strategic planning process please contact me at email@example.com
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Denise Harrison is a senior consultant for the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org.
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