March 14, 2017

Designing the Office of Strategic Need

By Kevin McDermott, Founder of Collective Intelligence and FSG Associate, and Charles Thomas, FSG Managing Principal

Not long ago we visited the dentist to have a crown rebuilt. Instead of taking a mold the dentist “painted” the inside of the mouth with a laser. She sent the digital image to a device in the back of her office. It manufactured the crown with a 3D printer. What used to take weeks of to and fro with a specialty manufacturer was now controlled entirely in-house.

The dentist managed quality herself. She owned the entire client relationship and all the revenue from it. She added value to her business for the day she sells her practice. Meanwhile, the specialty manufacturer lost a customer and gained a nontraditional competitor. Both experienced what might be called an “exogenous” event in their operating environments—the introduction of a competitive phenomenon probably neither imagined ten years ago.

It happens all the time.

Organizations are managed by people who acquired expertise from experience—a knowledge base built for an existing operating environment. But operating environments change unrelentingly. Every business, every life, is marked by turning points nobody saw coming.

US car manufacturers, for example, breathe easier today because they survived a near-death experience ten years ago. They may be so focused on their renewed profitability that they completely misinterpret the meaning of a startup developing a 3D-printed car with fewer than 50 parts instead of 6,000. In a generation we may be designing our own automobiles online and having them built in the next town three days later. Auto manufacturing might become an industry not of giants but of small businesses.

Most of us look at the world and sort events into boxes we’ve already constructed. Or we see right past events because they don’t fit the boxes. Think Google’s in the ad business? Think again. Google doesn’t want to compete with ad industry incumbents. It wants to rewrite the rules so incumbents can’t survive.

This is not about technology. This is about business models. In every company it should be someone’s job to perpetually assess the business model’s readiness for exogenous threats and opportunities. There ought to be an Office of Strategic Need.

ERM it’s not.

Most large organizations have some sort of enterprise risk-management function, usually under the aegis of the chief financial officer. There’s a logic to this. CFOs look for trouble, vet subcontractors, establish insurance levels, plan for unfortunate events. In that respect they compel an organization to think about its future, usually its near-term future.

ERM is a misnomer for the work of identifying nontraditional threats and opportunities. The way ERM is usually practiced overlooks the opportunity hidden in the unexpected. ERM is typically all operational, not strategic. It is largely defensive, risk-averse by nature and not opportunistic.

CFOs are trouble managers working to mitigate surprise. The job is necessarily tactical. Even when CFOs manage to identify a surprise, it is still treated as something happening within conventional categories, not something outside the boundaries of experience. They manage surprises of degree, not surprises of kind.

By comparison, an office of strategic need would be the place where senior talent is assigned to discover surprise and describe its meaning for the core business. The OSN would be a place with a dynamic understanding of strategy, which is to say a place that brings business rigor to identifying demand signals from the future.

The work of the OSN should be explicitly business-model innovation. It is not a market-research job. Running the OSN would be a C-suite role, testing activity that appears operational, yet is in fact rich with strategic implication.

The OSN would have budget authority. It would appraise budgets for the strategic point of view senior leadership might not even know they imply. To the OSN, budgets will mean not “here’s what we’re doing” but “here’s how we’re preparing for whatever might happen.” This makes strategy the driver, not the budget.

We are not idealists. We understand the potential for conflict between the OSN and the CFO. If the functions are designed correctly the conflicts will be more apparent than real.

Opportunity spotting

This would be radically different from the organizations we’ve encountered that employ someone to think big thoughts. Without rigor, without real authority these individuals are regarded as court jesters—people who need not be taken seriously. Their job will die when they leave or when the CEO tires of them.

A job becomes a capability when it outlives the person who temporarily holds it. So should it be with running an OSN.

Our view derives from our experience using a form of scenario planning called “alternative futures,” which employs multiple scenarios as a coherent tool for opportunity spotting and risk-management. Alternative futures are especially good at illuminating nontraditional factors bearing down on an operating environment.

One international drug client, for example, filtered critical strategic choices through its set of alternative futures and the robust strategies developed from the scenarios to see how well those choices suited multiple possible operating environments. They were “stress testing” their decisions against future operating conditions.

Another client required that all budgets be submitted with a description of their implication for the strategic opportunities and threats derived from its alternative futures. The logic of these descriptions could get a bit tortured at times, but that was all right. The requirement made business units alert to present mindedness. It drove strategic reflection throughout the organization.

Expansive

Our prediction is that, in time, a tour in the OSN will acquire the same prestige as working in the executive office for strategy had a generation ago. High-potentials will compete for a chance to cycle through the OSN. It will be the place where executives learn to shed the tyranny of the present and manage uncertainty—the perfect stepping stone to a chief executive’s role.

People who succeed in an OSN job will be agile, expansive thinkers. Their management style will be collaborative, not command and control. Running an OSN will be a job of leadership at its purest.

Must that person be an expert in the industry? Or would it help to be a bit of an outsider? We could argue either way.

The more central qualification is that the OSN be directed by someone who divorces their ego from ideas, someone who knows they won’t always have the right answer. Someone who can be strategically flexible and alert to the ways some current events are strategic while the rest is noise.

Kevin McDermott, Collective Intelligence, LLC

Charles W Thomas, Futures Strategy Group, LLC

Thoughts?