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Discovery Driven Planning

Published Jan 31, 2013 in Business & Management
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Discovery Driven Planning

Why can’t you tell what competitors are thinking?
Planning to learn when uncertainty is high
Assessing your project as it unfolds
Ideatoons (Practicum) 


Discovery Driven Planning

How do you plan and manage an initiative whose outcomes are not yet known?
You can’t be sure that your competitors will react as you expect
Your assumptions are just that (assumptions)
You can’t be sure that technology, markets, etc. will pan out as you hope (or promise)
You don’t want to be responsible for meeting ‘the numbers’
In this extreme uncertainty

Discovery Driven Planning
Classical planning is good in well understood businesses
You extrapolate to the future from the well-understood and predictable platform of past experience
Definitely NOT technology businesses

Assumption to Knowledge Ratio
In any highly uncertain venture
You make considerable numbers of assumptions
Relative to the knowledge you have
Assumptions about

Six Components
Of Discovery Driven Planning
Competitive specification of deliverables
Assumption testing
Managing to Milestones

Articulating The Business Model and its Objectives
Know what will make the business worthwhile if things work out
Be hard-nosed
Any new initiative must be worth the effort, expense and risk
What is your Objective?
What is your Vision? (1, 3, 5, 10 years out)
Reverse Financial Statement:
Start with profit and revenue targets and work to the pro forma financials
E.g., p. 247, Tables 10-1 ; 10-2 ; 10-3

Reality Specification
Make sure your expectations are realistic
Specify the market reality
Acknowledge that competition will force you
To uphold benchmark standards for basics
And to differentiate on others (the Attribute Map)
Understand the key ratios in your area / industry
E.g., Table 10-4 (p. 252)

Precise understanding is not necessary here
You need to always keep in mind the key ratios, attributes and objectives that characterize your business

Specification of Deliverables
Translate broad strategy
Into daily operating activities
Everybody understands operations
No one understands strategy
Create a focus for competence creation
The most dangerous assumptions reside in the operations
The more integrated your deliverables
The harder it is for a competitor to copy them

E.g., Table 10-5 (p. 253-5)
… which leads to revised reverse financials Table 10-6

Assumptions Testing
In discovery driven planning
the whole plan is organized around
converting the maximum number of assumptions
to knowledge
at minimum cost

Document and test each assumption
The assumptions checklist

Figure 10-2 (p. 257)

Managing to Milestones
Critical identifiable points in time at which key assumptions are tested
Usually these are events, e.g. complete design
Sequence these to minimize cash burn and corporate expectations while you are learning
No Milestone should occur without triggering a test of assumptions

Case Study: Box 10-3 (p.242)
Assumptions to Milestones: Figure 10-1 (p. 244)

E.g., for the Kao Floppy Disk Business
Figure 10-4 (p. 261) based on the assumptions of figure 10-3 (p. 259)
And see Milestone/Assumption map fig 10-5

An outgrowth of Real Options reasoning
Philosophy: The last milestones to pursue
Are those that make you commit to assets
And lose flexibility
Assets should be bought only as a last resort
Fixed commitments should be kept variable
By paying per use, or by subcontracting

Rate of Discovery
How fast you need to process information about your market

It depends on inherent industry change rate

Different Industries; Different Rates of Change
Past is indicator of Future
Future is Volatile

How Sustainable is your Business?
Now that you have devised an innovation strategy

Tell us if it is sustainable
What phase are you in?
Fluid phase
Mainly lab based or custom applications of technology
Transitional phase
Standardization of components, and consumer-producer interaction lead to dominant design
Specific phase
Products built around the dominant design proliferate; innovation is incremental

What disruptive innovations are predicted?
When will they replace your invention and undermine its commercial value?

Sustainable Business Models face Low Risk of Technological or Market Disruption

Ferment vs. Stability
Lab based or custom applications of technology; competition for dominant standard
Products built around the dominant design proliferate; innovation is incremental

S-Curve (Foster and others)
Eras of incremental change terminate with a ‘discontinuity’
We look for limits on the technology’s life cycle using knowledge of the technology's physical limits
E.g., Moore’s Law will run out on current platforms at 2013
Advance of a technology is a function of development effort

Case Studies on Successful Discovery-Driven Planning
(with some ex post Ideatoons analysis)

… And today’s Ideatoons Practicum

What is it?
Model T Stock Footage
Factory Row
Starting up
1957 rebuild

1913 Green

Ford and Model T

1925 Model T

1903 Model T

Detroit’s ‘knowledge cluster’
Detroit had grown to become America’s premier motor and machine tool center over the 19th century as a result of the Great Lakes shipping industry.
Ships laden with iron ore from Diluth would travel through the St. Lawrence seaway delivering it to smelters in Pittsburgh (next to Pennsylvania’s coal fields).
They stopped halfway at Detroit, where a burgeoning industry built up around steam, then diesel engines on the ships.
‘Portable’ versions of these engines was a natural development in Detroit.

Disruptive Innovation
Nearly 300 different cars were made and marketed in 1908 (often little different from each other)
in 1909, eighteen new firms began building cars
in 1910 eighteen went bankrupt.
By 1914 there were only 50 auto companies;
by 1925 (the year that Walter Chrysler started his company) over half of cars sold were either Ford or GM
the bursting of the stock-market bubble in October, 1929 winnowed the automotive field to these three.

The Selden Cartel
Henry Ford’s technology was not radically different from his 300 competitors
What catapulted him from relative unknown to kingpin was his defiance of the Selden Cartel.
In 1895, George Selden, a Rochester, New York lawyer who had never built a car, applied for and received US patent number 549,160 for an internal combustion engine
The patent was purchased by a consumer watchdog group ‘The Selden Patent Group,’ which operated as a trust
It used the patent to collect royalties, and to decide who could build cars, and how many they could build if permission was granted.
Henry Ford refused to pay their royalties, or to let the Selden Cartel regulate their production,
prompting a lawsuit in 1903 which Ford eventually won in 1910.
The trial made Ford an immediate folk hero.

The Model T
It was not only a better car in 1915 than it was in 1908 – it also sold at half of the original price.
There was no obvious increase in material, labor or overhead invested in each car
Instead, Ford’s systemization and automation of production followed the principles of Fred Taylor’s scientific management.
In Ford’s ‘Taylorized’ Highland Park plant, one man could now do what three or four had done before. This knowledge leaked off to his competitors in no time.
Within 10 months Willie Durant (again with the help of Taylor) adapted the assembly line to assembling Chevrolet’s in Flint.
Despite his popularity as a ‘business guru,’ Taylor continued to provide such services at his customary fee of $35 per day.

Tech Advances
A Ford Model T
originally painted in red, green, blue and grey varnishes,
but in black after Henry Ford discovered in 1914 a superior Japanese paint which only came in black
cost $850 (a teacher’s salary) in 1908
It came without speedometer, windshield wipers or even doors,
and the gas gauge was a long thin stick that the owner had to find for himself and insert into the tank
By 1915, assembly lines had allowed Henry Ford to incorporate speedometers, wipers and doors and still lower the price to $440.
It was down to $295 by 1925.

‘Taylorized’ mass production made Henry Ford so rich
that, in 1914 he took 20% off of the retail price of a Model T
When the result was even more sales,
he announced that if 300,000 Americans bought Model Ts in 1914 he would return $50 to every buyer
a gesture which ultimately cost him $15 million
Next he raised the pay of his 13,000 workers from $2 per day to $5 per day.
The New York Evening Post exclaimed it ‘a magnificent act of generosity.
The Wall street Journal accused Ford of ‘economic blunders if not crimes’ by injecting ‘spiritual principles into a field where they do not belong.’

Model T Ford: Questions
Describe parallels between the early automotive industry the early personal computer industry.
Why do you think that the automotive industry developed up in a “knowledge cluster”?
How might this drive the pace, and provided investment for the new auto companies?

Model T Ford: Questions
How was the U.S. patent system was used to stifle creativity?
Why do you think Ford as a company prevailed despite the fact that it did not possess better technology. How did it benefit from a combination of good marketing, good technology, sound production, and luck?

Model T Ford: Questions
Efficiency improvement through automation was largely a procedure of standardizing parts and processes – in other words, making transactions routine. How does routinization bring about reduced costs, faster and more efficient production?
Ford's substitution of technology for human effort was not a 1-to-1 replacement of man by machine; rather, the more subtle three people can now do the task formally allocated to four. Is this typically the way automation impacts firm economics, or is it unique to Ford?

Model T Ford: Questions
Much of Ford's success resulted from replacing materials, labor, and machines with knowledge. Describe this process.
The benefits from the technology accrued mainly to customers (in better quality and lower prices) and workers (in higher wages). Why?

Who invented the lightbulb?
Not Thomas Alva Edison
Humphry Davy, an English chemist, invented the first electric light in 1809
Joseph Wilson Swan, an English physicist, was the first person to invent a practical and longer-lasting electric lightbulb in 1878

But new technology
Offered new customers
Substituting for gas and arc lighting
… and a new competitor

So What did Edison Do?
“all parts of the system must be constructed with reference to all other parts,, since in one sense, all the s form one machine part
1878 - Thomas Alva Edison, referring to an electrical grid in his article on the phonograph in the North American Review

Edison and his team of engineers in Menlo Park, N.J., spent years building the entire electric system, from light sockets and safety fuses to generating facilities and the wiring network.

Edison beat all his predecessors at one crucial task: managing the whole process of innovation, from light-bulb moment to final product

Edison’s Strategy
Develop the working DC system
Protect it with patents

When George Westinghouse introduced a superior AC system
He attacked with a smear campaign

He eventually switched to AC systems when customers demanded

Microsoft’s O/S Innovation
The most profitable innovation in history

Linking & Leveraging Strategy
Get the business
Create the standard
Leverage the business
Crush the competition
An Early Competitor

Case Study in MS-DOS
MS purchased Seattle Computer Products' QDOS
for Quick and Dirty Operating System (written by Tim Paterson)
Written as a version of CP/M, with 4000 lines of assembler.
IBM tested Gates’ cleaned up MSDOS 1.0, finding well over 300 bugs, and decided to rewrite the program
This is why PC-DOS is copyrighted by both IBM and Microsoft.
Gates locked up the IBM deal with the help of his father’s law firm
est. value of services $250,000

Case Study in DOS
You could order one of three operating systems for your original IBM PC:
Digital Research's CP/M-86 for $495
UCSD p-System for several hundred dollars
this was a souped-up BASIC operating systems like that used by the Commodore 64
but portable like Java
DOS 1.0 for $39.95

Case Study in DOS
Microsoft’s OEM brochure touted future enhancements to DOS:
Unix-compatible pipes, process forks, and multitasking, as well as graphics and cursor positioning, kanji support, multi-user and hard disk support, and networking
None of these was ever added

Innovation = Invention + Commercialization!