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Strategy Development is creative process. However, creativity is not a natural process and, therefore, it isn't easy for an organization to incorporate creative thinking into its Strategy Development process. This document details various ways to foster creative thinking within Strategy Development.

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Creative Thinking in Strategy Development Presentation Transcript

  • 1. Business Framework Creative Thinking in Strategy Development Strategy Development is creative process. However, creativity is not a natural process and, therefore, it isn’t easy for an organization to incorporate creative thinking into its Strategy Development process. This document details various ways to foster creative thinking within Strategy Development. Problem Idea A Idea B Weak Solution Idea C Idea Idea Idea Idea Idea Idea Breakthrough Solution Idea Idea Reproductive thinking Productive thinking Find our other documents at http://flevy.com/seller/learnppt
  • 2. 3 Contents • Introduction - Strategy Development - Creativity • Creative Thinking - Obstructions to Creative Thinking - Opportunities for Creative Thinking • Opportunity 1: Conditions • Opportunity 2: Pushing Conventional Thinking • Opportunity 3: Collaborative Thinking • Summary
  • 3. 5 Companies are often disappointed with the outcome of Strategy Development efforts There are two close manifestations of the same strategy development challenge: designing and getting buy-in into new opportunities. There is a lot of dancing, waving of feathers, and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it – VP of Strategic Planning, Leading U.S. Utility Company Lack of innovative/creative solutions is a frequent criticism—more subtle is the lack of acceptation of innovative ideas.
  • 4. 7 Creative thinking is not a natural process EE KK 44 77 Source: William Poundstone, ‘How would you move Mount Fuji’, Little Brown Ed. Each card has a letter on one side and a number on the other. How would you verify the following rule: “if a card as a vowel on one side, then it has an even number on the other side”. You are allowed to turn over a maximum of two cards in order to determine whether the rule is correct as stated.
  • 5. 9 Contents • Introduction - Strategy Development - Creativity • Creative Thinking - Obstructions to Creative Thinking - Opportunities for Creative Thinking • Opportunity 1: Conditions • Opportunity 2: Pushing Conventional Thinking • Opportunity 3: Collaborative Thinking • Summary
  • 6. 11 There is no silver bullet for creativity, but at least three areas of opportunities Ensuring the right ‘conditions’ are in place Pushing the limits of ‘conventional’ thinking Leveraging the power of ‘collaborative thinking’ 1 2 3 Enabling Creative Thinking
  • 7. 13 To enable creative thinking, first, we must ensure the right “conditions” are in place Ensuring the right ‘conditions’ are in place Pushing the limits of ‘conventional’ thinking Leveraging the power of ‘collaborative thinking’ Enabling Creative Thinking
  • 8. 15 A diverse team bringing complementary vantage points will deliver better results Key Roles within Innovation SWAT Team BUILDING ORGANIZING LEARNING Activity Building internal and external awareness through compelling narratives that communicate human value or reinforce specific cultural trait. Storyteller Building on metaphor of healthcare profession to give customer care in manner that goes beyond mere customer service. Caregiver Creating a stage on which innovation team can do their best work. Set Designer Designing compelling experiences that go beyond mere functionality to connect to a deeper level with customer latent or expressed needs. Experience Architect Gathering cast and crew to spark creative talent.Director Bringing eclectic groups together.Collaborator Overcoming and outsmarting roadblocks for innovation.Hurdler Exploring other industries and cultures searching for cues. Cross-pollinator Prototyping new ideas continuously, learning by a process of trial and error. Experimenter Bring new learning and insights by observing human behavior and developing a deep understanding of how people interact physically and emotionally with products, services, and spaces. Anthropologist RoleProfile Source:Thomas Kelley et al., ‘The Ten Faces of Innovation : IDEO's Strategies for Defeating the Devil's Advocate and Driving Creativity Throughout Your Organization’, Reed Business Information • More is better. • Diversity/mix quality. • Intimacy with issue at stake. Each specific situation will require a different mix of skills.
  • 9. 17 Sources/Analysis Mix Diversifying the mix of sources and analyses increases the odds for a creative outcome Casting new light Area of low creative opportunity Generating brand new insights Expanding horizons Existing New Existing New ANALYSIS SOURCES OF INFORMATION Understand where client is at prior to designing analysis plan (e.g., Focus Interviews identifying situation and disconnects): • What has been proven/how • What is assumed • What is unknown Openly question assumed and unknown areas: • Potential implications on current strategy if discovered/proven wrong Diversify sources of information: • Alternate secondary sources • Primary research (even qualitative, at least at the beginning) • Outside of the industry • Internal perspectives Target a 25-25-25-25 mix.
  • 10. 19 Contents • Introduction - Strategy Development - Creativity • Creative Thinking - Obstructions to Creative Thinking - Opportunities for Creative Thinking • Opportunity 1: Conditions • Opportunity 2: Pushing Conventional Thinking • Opportunity 3: Collaborative Thinking • Summary
  • 11. 21 Behavioral economics flaws, such as overconfidence, sunk cost fallacy, and the herding instinct … One would rather spend an additional $10M for an uneconomic $110M project instead of writing off $100M (loss aversion + anchoring). Participants to an experiment will overestimate value of object given to them by 100% compared to what other participants would be ready to pay. Participants to an experiment receiving investment portfolios in low- return bonds will maintain initial allocation instead of rebalancing portfolio. Gamblers who lose their winning typically feel they have not lost anything although they would have been richer had they stopped when they were ahead. When asked for a range estimate providing 90% confidence, one tends to respond with a narrow and wrong range instead of playing safe. Illustration Not challenging existing assets according to their true value. Overestimating the value of owned property. Endowment effect Keeping on investing on overrun projects event though original case does not make sense any longer. Being more concerned about the risk of losing than the prospect of gain. Categorizing money differently depending on where it comes from, where it is kept, and how it is spent. Preferring precisely wrong rather than vaguely right estimates. Assessing capabilities above average in general. Being over-optimistic in the face of uncertainties. Representative symptoms Not challenging the relevance of past decisions made. Sunk cost effects Rationalizing status quo. Discounting upside opportunities of change. Gain discounting Not challenging past or planned resource allocation decisions based on their nature. Mental accounting Underestimating costs or benefits of status quo. Overconfidence Impact on creativity Behavioral economics flaws Source: Charles Roxburgh, Hidden Flaws in Strategy, McKinsey Quarterly 2002 Number 2
  • 12. 23 Effective analysis will be constructed in order to overcome them Analysis Guiding Principles • Make seeking the new and the unusual the goal of the strategy development effort – systematically encourage drawing insights outside of the core industry. • View all assets and businesses as up for sale - keep things in perspective. • Focus strategy development on providing a detailed refutation of existing strategy instead of its validation. • Subject status quo options to a risk analysis as rigorous as the one change options are subject to. • Enforce the simple rule that every dollar is worth a dollar whatever category it belongs to – use cash flows as the universal benchmark. • Apply the full rigor of investment analysis to incremental investments looking only at incremental prospective costs and revenues. • Watch strategic experiments closely and subject them to rigorous gate funding. • Test opportunities against a wide range of scenarios (2 or 4 in practice to avoid systematically choosing the middle-ground option) – Add 20-25% downside to most pessimistic scenarios. Source: Charles Roxburgh, Hidden Flaws in Strategy, McKinsey Quarterly 2002 Number 2
  • 13. 25 To drive shifts in mindset, we can use uncertainties to plan out various scenarios … Developing Scenarios Each axes of uncertainties are expressed in terms of its most extreme outcome. Scenarios are developed, combining various possible extreme outcomesa. Strong GreenWeak GreenEnvironmental InterventionistFree market Political influence UnregulatedRegulatedOpenness Moderate-highSlow Global economic growth UnstableStable Producing country stability Limited (<100% reserves replacement) Good (>125% reserves replacement) US opportunity potential B (Unfavorable)A (Favorable) Potential Outcomes B B A A B B Global Instabili ty/Local Protect. A B B A A A Base Case AB Environ- mental BA Political influence BBOpenness AB Global Eco. growth BA Producing country stability AB US opportunity potential US Growth Gas Blood Bath Scenarios a Usually starts by producing all possible scenarios and then select the 2-5 presenting the most: consistency (plausible), relevance (realistic), challenge (posing a challenge), distinctiveness (presenting different enough configurations).
  • 14. 27 Uncertainties can also be leveraged by evaluating the 4 levels of certainty and … Representative example of strategic decision Description Major discontinuity. Markets just beginning to form. Extended timeframe required to evaluate potential strategy. Customer demand for completely new product or service. Relative preference for new competitive services. Unstable macro- economic conditions impacting underlying demand. Unpredictable move of competitor (e.g., entering or not entering into market). Regulatory change (e.g., happening or not). Establishment of a new industry standard. Retailer store footprint expansion. Marketing decision on well established brands in stable markets. Acquisition of competitor in stable, mature market Limitless range of possible outcomes. Wide enough range of possible outcomes. MECE set of possible outcomes, one of which will occur Outcome predictable enough to identify a clear confident solution Level 4 True ambiguity Level 3 Range of futures Level 2 Alternative futures Level 1 Clear enough future Level of uncertainty reducing over time Source: Courtney, H. et al. (1997), Strategy Under Uncertainty 1 2 3 ? Majority of strategic decision making options falling in this range Categorizing Uncertainty
  • 15. 29 Pushing Options Depending on Each Situation (2 of 2) Level 2Level 2-4Level 2-4Level 2-4Level 1Applicability Contract cancellation clause (e.g., airplane purchase) Short term sourcing contracts Outsourcing Launching small scale pilots (e.g., eCommerce retail channel) Acquiring a small player and making an alliance to learn about the market Delaying launch of patented product Supporting alternative standards when cost permits (e.g., software versioning) Implementing training/HR programs enabling better handling of alternate outcomes Deploying technology to reinforce ability to adapt Providing unique incentives to early adopters to help establish a standard Anticipating investment in capacity to preempt competitors from doing it Taking control of part of a value chain to preempt competitors for entering a market Introducing radical innovation Replicating model in new geographic markets Examples Action contributing to reduce potential downside impact of market shift Highly leveraged investment (compared to full-scale commitment), providing the flexibility (not obligation) to conduct future full scale investment later while gaining a competitive advantage Making the organization more flexible and adaptive to potential market shifts Action contributing to influencing the outcome of uncertain futures towards a favorable position Action contributing to changing the nature of the game and disrupt the order in place Description Insurance options Real options and hedging bets Building flexibility Influencing future outcomes Introducing discontinuity Source: Courtney, H. et al. (1997), Strategy Under Uncertainty
  • 16. 31 Here is an example using qualitative assessment to evaluate a level 3 uncertainty scenario Assessing Options – Level 3 Uncertainty Example Launching full production or taking 5 year license on block of land in the face of uncertain reserves and oil prices $100MPurchase option costa ($100M)Full commitment cost 5%Risk free interest rate (risk-less security for same duration) $15M/year to keep reserve active Dividends (costs during duration of option to maintain it) 5 years (duration of license)Option duration (period of availability of investment) 30% standard deviation (based on geology tests) Uncertainty (standard deviation of per period growth rate of cash flow from investment opportunity) $600M (development required to put field into production) Exercise price (PV of all sunk costs that will be necessary to capture future cash flows) $500M (expected barrel production and margin per barrel) Stock price (PV of future cash flow on which option is purchased) ExampleEvaluation criteria Qualitative assessment of option validity HighLow Risk-free discount rate LowHigh Direct and opportunity costs to maintain option (compared to full scale commitment) LongShort Duration of option without threat of competitive preemption HighLow Level of uncertainty of expected cash flows from full commitment investment Option Full commitment a. Applying Black and Sholes model for evaluating options. Source: Adapted from Courtney, H. et al. (1997), Strategy Under Uncertainty
  • 17. 33 Collaborative thinking is a tremendous enabler to a creative output Ensuring the right ‘conditions’ are in place Pushing the limits of ‘conventional’ thinking Leveraging the power of collaborative thinking Enabling Creative Thinking
  • 18. 35 Various techniques can be applied and combined to achieve different goals Use client (or segments), competitor, and leading class companies as alternate vantage points. Provide sufficient details on how solution applied in comparative situation (idea generation). Impose quota on lessons learned. Reformulation. Idea generation. Metaphors Vantage points Expand thinking outside of actual context to identify lessons applicable to current situation Parallel PMI (Plus-Minus- Interesting) Design challengeTake-a-panel, share-a-panel Fishbone diagram Lotus Blossom Force field analysis Example Impose quota (especially on pluses and interesting). Can be systematically employed at each step. Contrast scenarios. Build scenarios around key ‘debated’ alternatives (one at a time). Do not strive for realism. Provide relatively detailed picture of the future state. Incorporate bold quantified targets in future state (e.g., doubled sales, profit improved by x%). Ensure broad coverage by asking questions covering a broad spectrum of topics (e.g., people, process, organizational). Impose ambitious quota (e.g., 100 ideas). Put time constraints. Comments Idea refinement.Idea refinement.Problem formulation. Idea generation. Reformulation Idea generation Application Build from unpractical ideas to generate new opportunities. Explore alternative approaches for a same problem under extreme constraints. Work from an ideal future state to retroactively identify elements of a solution. Connect ideas to foster explorative thinking. Objective ExtrapolationChallengeProjectionMapping
  • 19. 37 Several guiding principles need to be considered when using workshops in Strategy Development Make the executive team the sponsor team of the workshop—nobody else Assess/challenge executive team appetite for inclusion Shift emphasis from ‘acceleration’ to ‘creativity and mobilization’ Allow sufficient time for executive team to set directions in the course of the session Plan on a 3-day session ideally Send fact-book sent prior to session – 20-to-30-page max. Beware of invitee list – maturity-level of participants Beware of exercises that may not work well with senior-executives (e.g., reading exercises, team-building exercises) Engage appropriate participants (good strategists and facilitators, rather than subject matter experts) Engagement team engaged to support event design and execution Allow for sufficient time/iteration between workshop output and actual conclusion of Strategy Development process (2 weeks minimum)
  • 20. 39 In summary … Strategy development is a creative process. Bringing creativity to the strategy development process is fundamentally about driving productive, not reproductive, thinking. Groupthink, reliance on what our clients know, discounting uncertainties, and relying too much on what has worked in the past significantly impair the creative process. There is no silver bullet to creativity but at least three areas for opportunities. • CONDITIONS: From a set-up standpoint, the timing, choice of the team, quality of the problem formulation, adequacy of the sources employed, and design of the engagement itself can improve the creative outcome of the process • PUSHING CONVENTIONAL THINKING: Analytical rigor is essential to overcome behavioral economics flaws and extract the most out of uncertainties (whether to trigger mindset shift through scenario planning or to invent new solutions) • COLLABORATIVE THINKING: Creative techniques can be employed to foster collaborative creative thinking – the workshop is an important tool to be considered, but not the only vehicle to drive collaborative thinking 1 2 3