Adopt an ‘Invest to Test’ philosophy to quickly abandon, pivot, or continue…

To give and deepen our discussion on digital disruption (see our last post around the idea of Future Surfing), let’s look at how to leverage digital technologies and mind-sets to produce start up business opportunities within highly complex environments.

We’re surviving in a so-called “VUCA world”: characterised by Volatility, Uncertainty, Complexity and Ambiguity. Across almost all industries, we’re seeing product lifecycles shortening, technology change accelerating, and customers demanding ever-greater value from businesses.

In studying decision-making in VUCA environments, British organisational theorist Professor Ralph Stacey notes that with longer product cycles and little technological change, you can be rational and measured with their investments. We’ve time to construct comprehensive business cases, and run proof-of-concept and proof-of-value programmes, once we develop standardised services and products in fairly static markets. We are able to “prove” the job before we start.

In VUCA environments, where product cycles are short and technological change is fast, taking a traditional approach to decision-making actually turns into a liability – potentially costing time, money and lost opportunity. Variables replace constants as our decision-making factors.

On this complex environment, decision-makers require to use Invest to check.

Invest to try can be a dynamic approach… Focus on some well-founded assumptions, but don’t forget that however confident you could be, they are still only assumptions. Invest the smallest viable quantity of resources (financial, human capital, intellectual etc) in building real-world prototypes and services that may reliably test these assumptions. Here you’re seeking to make variables “constant” (a minimum of for some time).

Let’s assume, for instance, that the customers i would love you to quote competitor prices when presenting quotes in their mind. Don’t immediately dismiss this as irrational or despite best-practice. Test the belief: build a prototype experience and provide it to 50 of one’s most loyal customers. Require their feedback… Can it be as useful because they believed it might be? Will it increase trust and loyalty within the brand? Will it improve the customer experience? Would they be also prepared to purchase this kind of service?

It’s necessary to ask the proper questions, to stress-test your assumptions and choose whether they’re valid.

From here, there are three options: to abandon the product or feature, to pivot it (re-cast it as something slightly different and test again), or continue with further incremental investments and cycles of user feedback.

The fast answer is ‘not necessarily’. In everything that your small business does, we have to draw a pointy distinction between two approaches:

Future-Proofing… fast-following your competitors start by making sure you’re aware and prepared for industry change, positioned to quickly adapt to new demands, but not being the catalyst for change.
Future-Surfing… once we introduced in our last blog, this is about actively using the battle to your competition and inventing entirely new approaches to solve customer pain points.

Interestingly, in McKinsey’s ‘The case for digital reinvention’ report, the analyst firm showed that fast-followers (future-proofers”) saw a typical 5.3% revenue uplift in comparison to the competition. digital business transformation (“future surfers”), however, enjoyed a 12.3% revenue improvement.

But the real goal is to unite both strategies into your organisation, using each one where it can make one of the most sense. For instance, you might apply future-surfing for the core regions of differentiation, and future-proofing for those more commoditised areas where you’re not planning to tell apart yourself. Adopting both strategies, and executing them well, `could generate revenue uplifts up to 18.6%, based on McKinsey.

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