From Assumptions To Business Critical Knowledge

I’ve recently read ‘How Will You Measure Your Life?’ by Clayton Christensen, one of the leading thinkers on business innovation.

The basic idea is that you can usefully apply business theories (developed for organisations) to individuals as well as all aspects of their life. The claim is that doing this will increase the probability of delivering better outcomes. This premise is rather ambitious of course and the book’s got mixed (although generally very favourable) reviews in the press. See eg the FT (you may need to register – free – to read this article).

One of the business theories mentioned in the book was ‘discovery-driven planning’, an idea developed by Rita Gunther McGrath and Ian MacMillan in 1995 (there’s free preview in HBR and an interview with MacMillan here).

Here’s the (fairly common) problem – say you have a number of exciting but imperfectly understood opportunities, what’s a smart way of figuring out which ones are best to invest in?

From the above book (my emphasis in bold):

When a promising new idea emerges, financial projections should, of course, be made. But instead of pretending these are accurate, acknowledge that at this point, they are really rough. Since everybody knows that numbers have to look good for management to green-light any project, you don’t go through the charade of implicitly encouraging teams to manipulate the numbers to look as strong as possible.

Instead, ask the project teams to compile a list of all the assumptions that have been made in those initial projections. Then ask them: “Which of these assumptions need to prove true in order for us to realistically expect that these numbers will materialize?” The assumptions on this list should be rank-ordered by importance and uncertainty. At the top of the list should be the assumptions that are most important and least certain, while the bottom of the list should be those that are least important and most certain.

Only after you understand the relative importance of all the underlying assumptions should you green-light the team—but not in the way that most companies tend to do. Instead, find ways to quickly, and with as little expense as possible, test the validity of the most important assumptions.

In my experience, in the absence of reliable numbers, bids and business cases are often driven by politics (power) as much as anything else. The above method could be a good antidote to this. More ambitiously, you might even be able to apply this method to decision-making in your life!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: