By Tristan Kromer

Strategic decisions should be made by data.

Not by guts, not by opinions — by data.

If you are holding a pair of queens and you think your opponent might have three kings, that’s one thing. If you know your opponent had three kings, that’s a different story.

But who has the evidence?

 

It's dangerous for one person or organization to determine what Lean Startup is.

 

Most of the time, we don’t have that kind of certainty. We don’t know much at all. But there are those that do.

Unfortunately, those who know aren’t always those that make decisions.

Who Makes Strategic Decisions?

In large organizations, and even in small ones, hierarchy is the norm. The boss makes the calls.

Don’t believe the BS from organizations that say they don’t have titles or business cards. Human beings are social animals and are quick to create a pecking order in the absence of clear signals. Hierarchy is the norm.

We can buy and sell social capital, we can politic and maneuver, but at the end of the day the hierarchy wins out too often.

In more recent times, innovation resources are controlled by an innovation board —  sometimes called a growth board or steering committee. It’s the job of this board to allocate resources (time, people, and money) to innovation projects. So they are the ones making strategic decisions.

This board is often composed of seasoned executives with 20 years of experience who are well versed in making critical business decisions. But experience can be a handicap when it comes to disruptive, or even adjacent, innovation.

So should they be making these decisions?

The Dangers of Experience

Experience may say “We tried this before!” Or “The customers will never go for that.” But those are the voices of the market 20 years ago, not today.

Markets are changing rapidly in the 21st century, far faster than they used to. In the consumer space, trends are imported from across the globe at the speed of Instagram. In the B2B world, open source technology is making existing players obsolete, and AI algorithms are eliminating what used to be the job of highly educated university graduates.

We may think that a B2C model will be a better approach than B2B, we may think that the price is too low, and we may believe blue would be a better color logo, but those are all opinions. They are not facts.

We are allowed to have opinions and can contribute them, but we should be suspicious of them.

Experience tells us what has happened, but not what will happen in a chaotic environment. Therefore we must rely on evidence and make data-based decisions.

Keep Strategic Decisions Close to the Information

The person with the most information should always make the decisions. In most cases, this is not the board members, but the innovation teams.

While the innovation team can (and should) be reporting the insights they’ve gained from experimentation to the board, there will always be a loss of fidelity. It’s very easy to tell C-level executives “After interviewing 40 people, we believe our early adopter target should be single dads working 9-5.”

But that simple bit of information is not as rich as having interviewed those customers ourselves, gained empathy for those single dads, and honed an understanding of the problem those single dads are facing. Not everything can be communicated in a PowerPoint slide.

Therefore the innovation board should almost never decide that the team should persevere when the team has evidence that they should stop. The board should never tell the team what business model to pivot towards.

In a football game (aka soccer for us Americans), we would never tell the center forward to kick with their left foot instead of their right, so why would we do so in an innovation context?

The only time we feel justified in criticizing players on the field is when we, in our privileged position on the couch, with an omniscient view aided by every ESPN camera, see something that the players themselves cannot.

Most of the time, the person who truly has the most information is way down the hierarchy and close to the actual customers. The best decisions are made at the bottom and supported by the top.

Strategic Portfolio View

The only information that innovation boards have that the innovation teams generally do not is an understanding of the portfolio and strategy.

(Note: I hesitate to mention an understanding of the strategy here because I believe that all innovation teams should be well versed with the strategy. However, most organizations don’t have a well articulated strategy, so I can’t blame the teams for not understanding it.)

The innovation board knows how much money has been invested, in which projects, in which regions, what the status of each project is, and how much money is left. The team might ask for $500,000 USD, but the board knows that there isn’t enough money left to fund all the projects.

The project in question might look like a good bet, but if resources are scarce — and they are always scarce — then every choice is a tradeoff. We may have to pass on a good bet to put our money on something better.

Learn to Say No

Because of this, executives and innovation boards really have only one job: To say “No.” It’s not a fun job, but that’s the job.

We can’t tell teams to pivot — we don’t have enough information to tell them where to pivot.

We can’t tell teams to persevere when they have data that indicates they should stop.

But we can tell them to stop when they think they should move forward.

We should explain why. We should make sure the team understands that they didn’t fail, they succeeded in bringing valuable information to the board. But we must make the tough call when needed and redistribute resources to the most promising innovations.

(Note: There are some circumstances where boards would tell a team to persevere when they want to stop. E.g. When there is a strategic rationale to continue a project despite a non-viable business model. However, if a team is properly informed of the organization strategy, the team should be able to make that decision themselves.)

Decentralize the Decisions

This is not bottoms-up decision making by consensus. It’s not making a decision that makes everyone happy (or everyone equally unhappy).

This is not a change in the hierarchy. People at the top will still be at the top and need to bring their strategic perspective to the table.

These are data-driven decisions made by the people with the most information.

That often means the person on the bottom makes the decision, and the top supports them by getting the rest of the organization aligned.

 

Lessons Learned

  • Experience may not be relevant to the present market conditions.
  • Keep decisions close to the information.
  • Contribute a strategic portfolio view to the decision.
  • Never tell a team to pivot or persevere over their recommendation.

Special thanks to Sam McAfee for reviewing and giving feedback on this post.

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