Why Your Business Plan Just Killed Innovation

 Unless you are a fortune teller, long term business planning is a fantasy.

Why don’t we call plans what they really are: guesses.

Start referring to your business plans as business guesses , your financial plans as financial guesses and your strategic plans as strategic guesses.

Now you can stop worrying about them so much.

Jason Fried and David Heinemeier Hansson – “Rework”

Turtles

One of the reasons that your organisation or sector has largely stuck to “business as usual” is the great little idea that you , your customers or colleagues have in your heads has stayed there.

You might be worried that your suggestion of a different way of doing things may be dismissed as fanciful , naive or even WTTOIDW (“We Tried That Once It Didn’t Work”).

But supposing you take the plunge and your idea lives beyond its first breath: You now have something far worse to contend with.

The business plan.

One of the reasons why innovation fails to take hold in many organisations is our relentless focus on long term business planning.

Your great idea is going to get mortally wounded the moment it hits a 20 page project initiation document. And if it does survive that it has to go through a series of internal approvals culminating in the trial by fire that is the 30 page Board Report.

The odds of a turtle hatchling reaching adulthood are said to be 1 in 1,000. But in most organisations the chance of an idea reaching maturity has significantly worse odds.

But why is this?

Most businesses would agree that innovation is vital for future success –  but very few can articulate how they protect new ideas from becoming an endangered species.

And this is one of the problems we have: Innovation is treated the same way as everything else – whether it’s forecasting how much coffee people drink or estimating annual sick days.

We seek certainty where this is none and assurances of success where it can never be assured. We have grown afraid of failure.  And if there’s one thing we all know it’s – if you fear failure you cannot innovate.

There are very simple and easy ways to reintroduce the creative capacity in our organisations.  One is to skip the business plan altogether and start backwards. Literally. 

A company who do it well are Amazon.

After an idea is generated they start by writing a press release as if the product or service is ready for launch. They bring it to life.

It’s mocked up with pictures of the product and quotes from (imaginary) customers about how life changing it has been.  It’s passed around internally at the company, so that they can get feedback on the product, and to solicit any questions.

After getting an initial response (did it create a buzz?) and people adding their own ideas (building ideas – never destroying) it’s passed to a product development team to work it up.

But the team are fairly small – in fact they have to conform to the Two Pizza Rule. That is , there can’t be more of them than can be fed on two pizzas.  If you have to buy more than two large pizzas – the team is either too large … or the team members are. (There’s an important point here – large groups often become an average of themselves – they can kill innovation.)

Only when a shared vision is produced does the actual design stage begin. And guess what?  It happens quickly. As the idea has matured more people have contributed to it , bought into it,  and are dying to see it take its first steps.

It’s no longer an idea. It’s happening.

I’ve used the starting backwards approach on a few occasions and feel its a great way of introducing new concepts. In the past year I can think of at least two projects that have reached Board level – without a paper ever being written. I’ll be sharing how this can work in the context of non-profits over the next few weeks.

But what do you think? Do you agree that business plans and risk assessments can stifle innovation?

(Note: You can read a fascinating insight into the Amazon working backwards approach on the Werner Vogels blog from all the way back in 2006)

23 Comments on “Why Your Business Plan Just Killed Innovation

  1. Absolutely, great blog Paul. New ventures and new markets always entail the biggest risks, because they are untested by your business and sometimes by your competitiors. Therefore you have no choice other than to take a risk and trust your business instincts as well as your people. And if your not making misakes then youre not actually doing anything! This doesn’t need to send shivers down your finance directors spine though. The key is in taking a test and learn approach, or Amazon like approach. I love the idea espoused by the Thing Big Act Small book by Jennings, get the market thinking right and then develop mini test runs. To often orgs Think Small and Act Big, a recipe for disaster! Great stuff!

  2. Great stuff, and a really interesting approach. I remember spoke to Helen Reynolds at Participation Cymru’s All Wales Residential Network about innovation and issues around getting things done. She suggested that we ask people who are stopping innovation to write business cases for why things could not happen, instead of organisations writing lengthy business cases every time we want something done. I thought that was a great way of addressing the ‘idea bottle necks’ that many organisations have. I think linking that with the press release and 2 pizza approach is a very powerful way of taking ideas forward.

    Cheers for the brill blog!

    Dyfrig

  3. Great post but I think you give the project initiation document and the business case a bad name. It is not the documents that stop innovation it is having committee’s making or not making decisions.

    The business case is the most important document companies produce as it ensures that the right thing is being worked on. Unless an organisation has unlimited funds and resources it is critical that only those ideas that have a biggest return are worked on.

    What you need is a really slick (short) way of getting from idea to execution that still ensures your doing the right thing at the right time with the right resources.

    I believe this is how you add on the topping to the pizza and aid innovation and not stifle it.

    Have the small short idea session as suggested above; I can not fault it.

    Then you need someone to make the idea happen. If the idea person does the work it is very hard to stand back and make sure the vision is being correctly implemented. Someone else implements it also gives the idea person time to evaluate.

    The delivery team does not need a 20 page project initiation document if anything 20 lines on a page is too much. They need to know what is the issue that needs fixing/ or gap that needs addressing. Then what would a successful solution look like (the vision). Finally who is going to champion the idea (in other words who will be accountable for spending the money) known as the sponsor. That is it anymore and it is just waffle.

    Then you need a business case to ensure the right project is being worked on not just the first idea that we have come up with.. For example two people have two great ideas each idea will cost £10,000 to do. The organisation only has £10,000 to spend; who should it give the money to?The first idea will make the organisation an extra £11,000 per year when complete and the second idea will make £20,000 per year.

    The business case only needs to include:
    Tangible Benefits – This is real measurable terms of what will be achieved by delivering the project. For example is the company going to save money by doing this project? If so how much?

    Intangible Benefits – sometimes referred to as the soft benefits. For example will the project lead to improved employee engagement. These benefits tend to be harder to measure but need to be included

    Cost / Resources – How much and what is it going to take to implement the project. Include external and internal resources as well as any capital costs.

    In the document summary the costs should be less than the tangible benefits to make the project viable otherwise you are just wasting money.

    (The above is a lift and shift from my blog on http://projectnewstoday.com/business-case/ and a shameless plug 😉

    The document only needs to be a page long and should only take a few hours. The key to get a quick approval and start to deliver the project is one person in the organisation giving the approval to proceed not a committee.

    If the ideas are not getting through to execution then the approval process is wrong. With the right process and well put together templates then there is no reason why ideas should not be delivered quickly.

    • Thanks Barry for such an informative response. I think we probably agree on this actually.I’m not intending to denigrate the concept of PID’s or the Business Case – just how they are often used.There are many organisations who are doing great things to ensure a flow of idea’s and others who have a problem stemming the ideas and getting anything done! The tools you mentions are vital – particularly in the latter case. Project management in the public sector has got a fairly poor reputation – some of which is a hangover from heavy regulation. I think your blog is a great example of showing project management can support innovation rather than act against it.

  4. Great post Paul. I’m sure your familiar with Nordstrom Innovation Labs but in case you aren’t here’s a video. They are doing a good job of mixing innovation and scale.

    Bob

    PS – thanks for the link back!

  5. Super-informative blog post, Paul, thanks very much for sharing it.

    Sorry to rain on the parade – I just wish that the pizza case study hadn’t been Amazon. Yes, they’re hugely successful, highly innovative, a great model for good customer service with low interaction required etc, but with shady workplace practices in distribution centres: zero hours contracts, hire & fire etc; plus massive tax avoidance, there’s a predatory side to Amazon which isn’t so inspiring.

    I can’t help but combine the two: set out a vision where the company pays practically no tax anywhere, where staff costs are the bare minimum, and can be tightly controlled and linked to sales…

    It’s still a great blog post. Combining innovation and ethical work practices will create a powerful hybrid, and nothing wrong with cherry-picking the best bits.

  6. Hi Paul, great post.
    The analogy of the turtles is great one for illustrating just how few ideas actually make it to the sea.

    You are right that business plans can kill off ideas, particularly if they are used as low risk, heavy handed tools of compliance.
    Barry Hodge makes a good point that business plans can, and are useful tools to help make decisions, prioritise and think carefully about why you are doing and have a really good ‘guess’ / estimate about what you are aiming for.

    The problem comes down to how they are used which is ultimately a reflection of the climate in the organisation. The greater the focus on rules compliance and control the more ideas get killed I’m guessing. Ultimately the control structure just gives the ‘nay-Sayers’ the opportunity to say no.

    As an alternative one of the best ideas I’ve heard is about Trojan Mice or safe to fail experiments. Dave Snowden from Cognitive Edge talks about this a lot. The idea is that you have many small safe to fail projects running in parallel. Some will have been introduced because it looks like they will fail. If some don’t fail you’re doing it wrong.
    The critical aspect of this safe to fail pilots appoach is monitoring and evaluation. You need a really robust approach to know what’s working and what has failed.
    This then gives the opportunity to scale up or amplify the desirable stuff and stop what isn’t.
    Ironically there is some process and ‘paperwork’ attached to this, but I think it’s absolutely necessary for this approach to work.

    I did write a bit about Troan Mice a while ago. http://whatsthepont.com/2011/07/31/what’s-eating-the-trojan-mice/ . It needs some updating to talk about the need for monitoring and evaluation, but does link to Dave Snowdens source material.

    You’ve sparked quite a discussion.
    Thanks
    Chris

  7. couldnt agree more. in large organisations I hsve worked in – any innovation happened under the radar. If senior management got hold of it the development you write about took place around management meeting tables and the product was adapted in accordance with the power of individual msgaers and designed to enhanced their kudos -things were mangled beyond recognition

    now i jointly run a small social enterprise and we can just get on with meeting customer needs ..some times thats in new ways but the mission and values not a plan drives us.

      • Hi Paul , I would say yes because particularly in smaller social enterprises they are mission driven. In larger organisations the career aspirations of the managers are the principle driver. Some research into drivers of why people come to work show that younger people come to work for the social scene, middle managers tend to be performance orientated and senior managers are motivated by status income and power. If your structure is flat and small there isnt the room for all that.

  8. Hi Paul – Interesting post. First off, I’m certainly biased as my company makes business planning tools. That said, business plans can be dangerous documents if they are used incorrectly.

    Jason Fried is correct to call business plans “guesses” but I think it’s better to think about business plans as collections of assumptions that need validation. If you use your business plan not as a roadmap to blindly follow to grow your business, but instead as a list of assumptions that need testing to be provide right or wrong, you are much more likely to be successful.

    For example, when you have an idea for a new product, you are making some assumptions about what the market need is and what the solution to that need is. You are also making assumptions about who is going to buy your product. The business plan is a great place to outline who you think is going to buy your product, why they are going to buy, and how you think your customers will pay you.

    Once you have your assumptions documented, it’s a great time to go out and start talking to potential customers to find out if your assumptions are true. Based on potential customer feedback, you can refine your plan to ensure that you are targeting the right customer and discover the best ways to reach them. From here, the plan is revised until it is a true roadmap to success. In working with entrepreneurs, this step of validating assumptions is the one that is most often skipped and is the most critical to business success.

    The other important aspect to planning is to figure out if you can create a financially viable company. Sure, financial forecasts are all guesses, but you need to know at the end of the day if you can build a profitable business. If you figure out that it’s going to cost $20 to acquire every customer and each customer is going to only spend $10 with you, you have a loosing proposition on your hands. Without financial forecasting, you’ll never know if your business has a chance of being financially viable.

    Business plans are a critical step in the innovation process. But, as you point out, used incorrectly they can lead entrepreneurs to chase unrealistic dreams.

    • I think that’s a very valid comment Noah – and I think you nailed it – business plans “used incorrectly’. The practical use of business plans and project initiation documents sometimes doesn’t encourage innovation and considered risk taking. But this is often a fault line in the culture of the organisation itself rather than the a problem with the tools. Great point – thanks.

  9. This has a debatable point of view because others prefer to have such business plan as a guide towards your goal but I also believe in innovating ideas in a unique way. Finding your way through narrow paths in order to become successful is the hardest thing to achieve. Why not cut my way short in order to attain such personal achievement would be a better road. It will always vary on every decisions we make in our daily lives. Choose wise and enjoy life to its max!

  10. Pingback: Three Ways Organisations Kill Ideas (And How You Can Remove Them) | Paul Taylor

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