Mitigate Investment Risks with Discovery-Driven Planning

 








Discovery-driven planning (DDP), or Discovery-Driven Growth, is a strategic methodology designed to manage uncertainty and foster innovation. It shifts the focus from traditional detailed forecasts and linear execution plans to a more flexible, learning-based approach. DDP emphasises experimentation, validation of assumptions, and iterative learning, making it particularly useful in environments where the path to success is not clearly defined, such as new markets or innovative product development.

I was first introduced to DDP in 2020 when I helped deliver a digital strategy and a technology capability roadmap for a digital transformation program. At the time, we lacked certainty about our technology choices. DDP provided us with a plan that could be executed in parallel with the delivery projects, allowing us to track our progress toward the business goals, change direction or pivot all together when needed. Since there I became a fan of the approach and applied DDP in other situations.

The Creators

The concept of discovery-driven planning was introduced by Rita McGrath and Ian MacMillan in the mid-1990s. Their work was published in the Harvard Business Review in 1995 (and reviewed and improved a few times later) where they highlighted the need for a planning methodology that accommodates uncertainty and encourages adaptability. McGrath and MacMillan's approach has since become a cornerstone of strategic planning for many organisations facing volatile and unpredictable environments.

Benefits of Using DDP

Enhanced Flexibility

DDP allows organizations to remain agile and responsive to changes in the market or technological landscape. This flexibility is crucial in environments characterised by high uncertainty.

Reduced Risk

By validating assumptions through incremental experiments, DDP mitigates the risk of large-scale failures. Decisions are based on real-world data rather than speculative forecasts, reducing the likelihood of costly mistakes.

Focused Innovation

DDP fosters a culture of learning and innovation. Teams are encouraged to think creatively and test new ideas without the fear of committing to a single, unproven strategy.

Resource Efficiency

Resources are allocated more efficiently as they are directed based on validated learnings rather than upfront predictions. This approach minimises waste and maximises the impact of investments.

How to Use Discovery-Driven Planning

Define the Desired Outcome / Define Sucess

Start by clearly articulating what success looks like. This could be a specific market share, revenue target, or customer adoption level. The desired outcome serves as the guiding star for all subsequent activities.

Once you have defined the desired outcome, frame and communicate it to everyone involved. This frame should guide you forward.

Prepare a Reserve Income Statement

Preparing a reverse income statement is crucial to defining the return you expect from the investment in the initiative, product or project.

A reverse income statement is a financial tool that is usually used for planning and decision-making, particularly in strategic management and business development, but it can be used in a smaller scale to help determining the desired and probable ROI for our project.

Unlike a traditional income statement that starts with revenues and subtracts expenses to determine profit, a reverse income statement begins with the desired profit and works backward to determine the necessary revenues and allowable expenses to achieve that profit.

In the reverse income statement, you must define all the operational requirements to build and maintain the product, technology or whatever your project is delivering, along with the cost assumptions.

I will write an article talking specifically about how to build a reverse income statement.

The output of this exercise will be part of your desired outcome.

Document Assumptions

Identify and list all critical assumptions underlying your plan. These assumptions might include market demand, customer behaviour, technology capabilities, or competitive actions. Recognising that these are assumptions, not certainties, is crucial.

Your document should include also the assumptions made on the reverse income statement around the revenues and allowable expenses

Design Key Checkpoints

Establish checkpoints or milestones that allow for periodic evaluation of progress and reassessment of assumptions. These checkpoints are opportunities to learn and adjust the plan based on new information.

Develop Learning Plans

Instead of detailed execution plans, create learning plans that outline the experiments and tests needed to validate your assumptions. Each learning plan should include a hypothesis, experiment design, expected outcomes, and success metrics.

Allocate Resources Flexibly

Resources (time, money, personnel) should be allocated in a manner that allows for adjustments based on the results of your learning plans. This ensures that you are not overcommitted to a single course of action and can pivot as needed.

Track and Document Learning

Systematically track the results of your experiments and document the learning. This cumulative knowledge base helps refine future assumptions and plans.

Discovery-driven planning is a powerful approach for navigating uncertainty and fostering innovation. By focusing on learning and adaptation, businesses can make informed decisions, reduce risks, and remain agile in dynamic environments. This methodology has proven effective in a variety of settings, from entering new markets to developing innovative products. Implementing DDP requires a cultural shift towards continuous learning and flexible resource allocation, but the benefits make it a valuable tool for strategic planning in today’s rapidly evolving business landscape.

Andre de Godoy Nunes

Location: Australia

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