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In many conversations on strategy using the 3 horizon approach, I infer that corporates relate long term focus to new market opportunities, projects or new product development that take a long time to accomplish or to their goals relating to the future of 5 years or more.
I find this a narrow view of long term thinking. Long term focus is not about what will take long to achieve, it’s about what do I need to do now that will protect the future. When it comes to long term focus, there is a need to distinguish between activities that have fewer unknowns and activities that are futuristic.
Activities that have fewer unknowns but long gestation time are planning challenges. They depend on risk evaluation, assumptions, execution efficiency etc. Such activities have known factors, technology, markets, business model, networks and customers. These projects or initiatives tend to have predicted ROI, IRR and other financial metrics
Activities that are futuristic have more unknown factors and can’t have traditional financial metrics associated with them. The output metrics for such activities include patents, IP filing, research papers, concept, technology demonstrators, etc. A very useful business metric would be number of concepts, patents converted to prototypes and pilots.
Your chance of disruptive growth is dependent on the activities that are futuristic rather than projects that will come onstream in the future.
Kim and Mauborgne in their book Blue Ocean Shift defined a growth model of market creating strategy. They identified growth strategies as
Offer a breakthrough solution for an industry’s existing problem
Redefine an industry’s existing problem and solve it
Identify and solve a brand new problem or seize a brand new opportunity
It's quite possible that your strategic market expansion or new business initiative is taking you to a new red ocean that you wanted to avoid in the first place.
Let me give you an example
Everyone has heard about Moser Baer, the optical disk manufacturer. In 2005, the company was amongst the few world class manufacturing outfits in India. It’s management couldn’t do anything wrong then. In 2005, Ratul Puri got the board to approve investment in photovoltaic space. This was touted as a long term visionary thinking.
Puri was known for his execution capability and investors funded him. But he forgot the old maxim, a bad idea executed beautifully will bring disaster faster.
While, there are many things that went wrong (including the global financial crisis), there was one standout decision, what should you do for long term success?
In the case of Moser Baer, the entry into PV business followed by expansion into power business didn’t relate to technical capabilities save for coating a substance on a flat surface. But then the rest of the capabilities required for success weren’t the core skills of the organization. A company that was built on incremental and sustaining invention was actually branching out into a new business where they had no technology, financial or operation leadership.
Did Moser Baer have a future outlook that was focussed on the unknown drivers of future growth or did they bank on projects that will come up in the future?
I believe they took a bet on a risky project that had favourable ROI and IRR projections and jumped into a new red ocean. The technologies were known, the markets were known and projected. There was no innovation value in power projects, solar technology had known risks associated with them. The risks were probably under estimated and disruption in PV technology wasn’t anticipated. The execution was more complex than they planned for. And many more.
The PV business as well as the power business were no blue oceans, they were red oceans, fiercely competitive and dominated by incumbents.
Alas, Puri hadn’t read Clayton Christiansen’s book either, the innovators dilemma. In the book, Christiansen examines exactly Moser Baer’s industry, the data storage industry, to illustrate upon disruptive innovation thinking.
When evaluating new market / new business creation strategies, ask the question is it disruptive or non disruptive creation? Are we entering a Blue Ocean or Red Ocean?
The strategy of every large organizations must factor in innovation and disruption. This requires a 3 horizon approach;
Horizon 1: What incremental and sustaining innovations / improvements are needed to drive the current business.
Horizon 2: What are the proof of concepts, pilots and development work that will result in new business opportunities to expand existing business and build new business.
Horizon 3: What are the new experiments, concepts and research work that are likely to result in patents, Ips or prototypes that can become future offering, drive future growth and disruption.
Are you invested enough on initiatives that are exploring the future? Are you avoiding entry into new business that are red oceans?
If you would like to discuss developing your innovation strategy as part of your strategic planning, do get in touch with me for a discussion.
Krishnan Naganathan
Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 25 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: krishnan@thinkhorizonconsulting.com