By David Matheson, SmartOrg
Every planning process in the company involved her setting a goal and the business units (BUs) responding with how they were going to meet them. Then she would hold the BUs accountable to their promised results. If you promised $50M in new revenue, you were expected to deliver.
But much of this company’s growth relied on innovation. While she had promises from her organization that they indeed would deliver on the growth goal, she knew that these promises were based on hopes and dreams. The uncertainty level in innovation was too high to make a reliable promise.
Her R&D organization had also been asking for money to explore new options and to find new sources of upside potential. Her inclination was to give them a little funding—this type of exploratory innovation was always good—but not too much, because they couldn’t promise anything, not even a hope. To her, these efforts were speculative longshots and counted for nothing in the growth promises.
From Hopeful to Reliable
In her question, “Will I meet my growth goals,” she was asking me where these growth promises in aggregate across the portfolio stood on the scale from hopeful to reliable.
“Let’s take your question in two parts,” I replied. “First, what three-year revenue growth level do you have a 90% chance of hitting—what’s reliable that you can plan on?” We added up the reliable promises across the BUs and it totaled $250M.
“But our goal is $300M! They all said they could deliver their share. I’ll have to go push harder,” she replied, with some frustration.
“Before you start pushing, let’s look at the second part of your portfolio. The upside, what your BUs could deliver with a 10% chance, is $550M.”
Her face brightened. “Great, let’s go for that! Which projects exactly should I fund?”
“The upside isn’t coming from a single project or two,” I told her, “although many projects have significant upside. Your organization has line of sight to results at that higher level, with real evidence to support it. However, it is not proven: the weight of evidence isn’t enough to promise it. The business case is optimistic at this point. So, don’t fund the specific projects—you can’t pick the winners—but fund learning and experimentation to test these upsides. A few will prove out, and fund those aggressively.”
She started to get encouraged again, “Excellent! I’ll direct my phase-gate managers to push projects on more aggressive deliverables. That will soon separate the good projects from the bad.”
Focus on Learning, Not Delivery
“Sorry,” I replied, “but I think that may backfire. The more forcefully you ask people to deliver, the more they feel the need to retreat to what they can reliably promise. The key to upside is well-placed efforts focused on learning, not delivery. If the experiments don’t prove out, encourage them to move onto some other big thing quickly. Your goal is to discover the unreasonable and unlikely, not deliver on reasonable expectations.”
“I see,” she concluded. “It’s a challenge in differential management—learning for upsides and delivery for reliable promises.”
“’Indeed. And your business units have some differential challenges.”
I showed her a chart of portfolio power calculations. “Unit B is doing well. The reliable growth they can promise, at a 90% level, is more or less at their growth goals. Business unit A has a reliable growth well above its growth goal. Here you can turn up the heat, consider raising the goal even.”
“Business unit C has the opposite issue. Their reliable growth is well below their growth goal. Indeed, their upside is barely adequate. They are set up for failure.”
“They have been squirming a bit. I’ve known there was a problem and have been pushing them hard to sort it out.”
“Actually, they need a reset. Lower the pressure on the reliable goal and encourage them to learn. Focus their innovation efforts on two things. First, seeing if the upside they do see is real—learning. Second, scouting to find new ideas that might increase the upside.”
“Got it,” she said. We adjourned the meeting, and agreed to review her progress at a later date.
Converting the Upside
About a year later, we touched base. She showed me a graphic. “We’ve been tracking the portfolio power based on growth goal, reliable delivery, and upside”. The monthly shifts on the tracking chart showed the impact of using the portfolio process to seek growth.
I could see that their overall reliable delivery was now well above the growth goal. She had raised the goal for Unit A and they had continued to rise to the challenge. And Unit C was doing well scouting and finding more upside.
I congratulated her on converting the upside. She had guided her business units in learning where to find new sources of growth and how to turn them into reliable promises.