The Nine Processes of Adaptive Management
There are nine key processes, which are based on the principles listed in the first chapter and in the first appendix. These are things we do to create a business plan that’s designed to evolve and adapt to its environment. These processes can be added to your current strategic planning process to make it more adaptive and the process more evolutionary. They’re applicable to a five-man shop or a Fortune 500 company.
The scenario-planning process is our form of forecasting. Business operates in a chaotic environment, one in which unforeseen events can trigger unforeseen changes in the environment. Backward reasoning, the hindsight bias, and the confirmation bias all make us think that we are better at forecasting than we really are. We overcome these biases by developing multiple scenarios and use these as inputs into the long-term strategic planning process. It depends on your business model and the maturation of the model, but this should be an annual process.
The tactical inventory process is an annual or semiannual cataloging of our tactical solutions. It includes the tactics we’re currently using as well as a list of possible new tactics. In my first book, Borrowing Brilliance, I suggested a methodology for developing new ideas that is easily adaptable to this process. Put simply, it is a three-step process itself: defining the problem, looking at places with a similar problem and borrowing the solutions, then making new combinations of this stuff to come up with new ideas. When I was working for GE Energy, for example, we studied the problem of centralized versus distributed business models. This forced us to study other industries, like the computer industry, which started as a centralized processing model (mainframe computers) and evolved to a distributed model (the personal computer), and now looks like it may evolve back to a centralized model (cloud computing). We also looked at corporate farming (centralized) versus organic farming (distributed) and noted the different tactics that drove this evolution. We then used this material, these tactics employed by other industries, to construct an inventory of new tactics that GE could use to evolve their business model in anticipation of the coming evolution.
The learning process is a cultural thing as well as a specific event. Every year we put together a formal strategic plan. It’s based on a forecast (the most likely scenario), a set of problems, and a hypothesis for solving them. Before we begin the new year’s planning process, we need to stop and review the plan from the previous year and ask ourselves, what have we learned? What has the data of implementation taught us? Do we need to adjust our theory? If so, then how? I like to consider this a separate process from the construction of a formal plan because it often gets overlooked. This is how we become smarter.
Defining the problem(s) should be considered separate from the overall strategic-planning process. The management and leadership team needs to define the hierarchy of problems so that the line managers are able to make adjustments to the plan as it unfolds without having to be micromanaged by the CEO. Without a clear understanding of what problems we’re solving we get “feature creep”: our line people start solving “other problems” that undermine the solving of our “primary” problem. At Intuit, Quicken was designed to solve a “check balancing” problem, but over time the line managers started solving other problems with it and the software became so loaded with other features that it became difficult to balance your checkbook.
The strategic alignment process is the process we use to make sure that our tactics fit together and actually form our overall strategy. It’s part bottom-up process and part top-down. The concept of “tactical briefs” is used to facilitate the alignment of strategy and tactics. A tactical brief is like a creative marketing brief, and describes how each particular tactic works to solve the specific problem it’s designed to solve as well as the problems “above it” including the primary problem that determines the overall strategy. At Wal-Mart, for example, a tactical brief would include a description of how this particular tactic helps to drive down the shelf price of the various products Wal-Mart sells.
The strategic planning process exists at most companies. It is the formal process of writing your strategic plan. Writing is important because it educates you and your team. It helps you to understand the holes in your logic (if there are any) and to define the cascading objectives for the organization. Remember, it’s these objectives that give your managers the ability to creatively solve their problems. And, most important, it helps you to define the metrics and dashboards that your managers will use to implement the strategy.
Tactical optimization is the process we use for implementation. We measure the effectiveness of our tactics by monitoring the metrics (using the dashboard). When a tactic becomes more effective, we try to make it even more effective by hypothesizing as to why. When a tactic become less effective, we also ask why and try to determine the reasons. This ultimately leads to the optimizing of our tactics and our business model, while at the same time it teaches us what works and why it works. Some business models are better suited to optimization than others (like online or direct marketing) but this process can be applied to most models.
The alteration process is a subset of both the planning process and the implementation process. We need to set aside the time to consider strategic alterations (questioning whether we are solving the right problem, or asking ourselves if there is another problem we could be solving with the resources and tactics we’ve perfected) as well as tactical alterations (which leads us to both the tactical optimization process and the tactical inventory process).
The debating process should be both formal and informal. It’s important to challenge our forecasts, theories, and means of implementation. This doesn’t mean that we are in a constant state of argument, we still need to make decisions and make things happen. We need to step with confidence and trust our feet the way a rock climber does, while at the same time be wary of and even paranoid about what’s just around the corner. An adaptive management culture is one in which debate is encouraged.