Experimental excellence

Certainty and predictability are nowhere to be seen in the horizon, and that is why we see the current economic climate as the perfect invitation to introduce experimental excellence – a new, highly needed capability as a means of embracing uncertainty and keeping ROI high.

At a glance: Most leaders do not want to take more risks in times of extreme uncertainty, yet we need more resilient leaders with a risk appetite to fight the major challenges we face. To take more risks, you need a better de-risking system, especially if you are part of a risk-averse culture. So if you face a lot of uncertainty and want to manage risk better, this is for you.

We live in times of extreme uncertainty. However, what is certain is that our earth’s resources are finite, that we will exceed the 1.5° C limit and climate tipping points will be reached, that we will be impacted by more pandemics and new military invasions and that people will slowly realise that our next generations will enjoy our planet less than we do. The list is not endless. It is manageable yet hard to grasp. It is worthwhile yet complex to solve. It is paradoxical – and, still, it is time for all of us to take responsibility no matter what position we are in. Our leadership and solutions will play a catalytic role in serving a more sustainable future for both the people and the planet.

Of course, being opportunistic and seeing the need for change and innovation in times of uncertainty is not the same as being ready to act. Most companies are not calibrated for the high degree of uncertainty we face today. More than 80% of executives are concerned about the impact the economic downturn could have on their company, and very few feel confident that they are prepared to address the changes they see coming (“Growth during turbulent times”). Yet leaders find themselves in situations where they try to evaluate choices with high uncertainty using classic forecasting, often considering the world incrementally. Will we get better at predictive choice making? Will it become easier? Can we trust the data in the reports handed to us when we are faced with more and more “unknown unknowns”? The answer is no. Still, most modern management mechanics are about forecasting – often with a hockey stick effect at the end of it to make sure choices and projects are prioritised. This management model has time and time again proven to produce unreliable results, causing loss in revenue potential, low ROI and wasted hope among people in the organisation. One of the most famous examples is probably Microsoft’s former CEO Steve Ballmer’s prediction in 2007 that “there’s no chance that the iPhone is going to get any significant market share”. Fast-forward only five years, and the iPhone commanded 42% of the US smartphone market share and 13% worldwide.

The unpredictability calls for a new management system, a more entrepreneurial model for methodically vetting, shaping and de-risking choices – one that holds the potential to infuse leadership with entrepreneurship and challenge the rigid structure of classic management. We call it experimental excellence. It is the ability to de-risk investments and choices by performing low-cost, low-risk yet high-impact experiments to provide evidence that can carry million-dollar decisions. It builds on the experience that what cannot be forecasted can often be unfolded through experimentation. Yet for most companies, it is a missing function and weak muscle at best, and if they experiment, it is often costly and time-consuming.

Even though experimental excellence is probably more critical to master than ever before, it does not only apply to times of economic turbulence. It is a systemic change to any organisation that will make it improve decision-making when going through peaks as well as valleys. Moreover, the mindset and tools that follow can be applied to a broader range of strategic thinking, i.e. any discipline that contributes to a more resilient organisation. Often, the focus has been on product and service innovation, but even business models, strategies and operational innovation can be de-risked using experimentation far more broadly. Procter & Gamble (P&G) is an interesting case. They have developed a virtual toolbox, including a 3-D virtual store and online test communities, to run experiments faster and cheaper than traditional market tests. In more than 80% of P&G’s new business ideas, this toolbox and mindset are now applied.

Why build experimental excellence as a capability?

"The only way to win is to learn faster than anyone else."
- Eric Ries, entrepreneur, investor and thought leader

Industry leaders across verticals have one thing in common: they learn and de-risk faster than competition. Therefore, the journey to outperforming peers entails building and sustaining best-in-class experimental capabilities and empowering leaders to act like investors with real evidence – not someone with a crystal ball forged in the fire of predictions. For those leaders specifically, it reduces the odds of placing bad bets through better decision-making processes. Often, this is heavily inspired by the way entrepreneurs work in constant de-risking loops to provide evidence of progress to unlock more funding and gain further traction.

The advantage of building experimental capabilities is that you become significantly better at (download as a visual one-pager):

• Embrace and resolve uncertainty in a highly volatile and ambiguous world.
• Make choices fast and de-risk the investment and resource allocation.
• Improve the return on investment in new revenue and operational efficiency innovation.
• Avoid unnecessary resources spent on building something nobody wants.
• Adapt to shifting customer needs and change market dynamics to stay relevant and open up new opportunity spaces.
• Evaluate and adjust strategic choices and initiatives, ensuring effective resource allocation and cross-pollination.
• Avoid the strong curse of sunk cost through a “learning fast, failing fast” approach.
• Reinstall lost engagement in the talented individuals often demotivated by the predictive and subjective nature of classic management models.
• Circumvent weak evidence and data points by running fast and cheap experiments in a real-world environment.
• Build the foundation for post-crisis agility and growth.
  

For the financial services company USAA, an improved decision-making process goes through a truly customer-centric approach that serves as a way to de-risk investments in all product development. They have had the best NPS score in the financial industry in the US for more than 10 years. A large part of USAA’s success is to be found in its customer experience excellence. USAA has a customer-oriented organisation and mission, but what truly stands out is the business architecture: all customer-facing decisions must go through USAA’s Member Experience unit, which is responsible for creating a seamless integrated experience to members across products and channels. It is a validating unit built to confirm the desirability of customer-facing product development to de-risk the investment.

Based on learnings like these and our own experience from working with organisations facing uncertainty, we have developed a blueprint for how to build experimental excellence.

Quick start

Try out an experiment-based decision process that can de-risk an investment, in particular choice or initiative, by:

• Identifying a choice or initiative with high uncertainty and high impact. Make use of a few agreed criteria for the identification process if necessary.
  
• Carving out the most critical assumptions that the decision to invest in the choice/initiative is based on. Prioritise by asking about degree of uncertainty (1-5) and degree of impact on the decision (1-5).
  
• Designing and conducting an experiment that will create results that can carry the investment. Experimentation is a new area of excellence – not a side hustle for your commercial function. Make it count.

The blueprint for building experimental excellence

To emerge as an experimentation leader, organisations can rely on the following blueprint and build it into the business architecture for faster learning and improved decision-making.

The blueprint contains a set of main actions (download as a visual one-pager):

1. Build experimental excellence across core functions – a cross-functional decision-validating unit consisting of world-class experimenters equipped with an extensive repertoire of fast-paced, low-cost experiments.
   
2. Adjust the decision-making process and governance, allowing to kill decisions fast and accelerate choices and initiatives that are validated.
   
3. Set up a structured intake process and clear criteria for what deserves an experiment. Make it as short as possible – preferably two weeks from input to outcome – and design clear metrics and thresholds for validation/invalidation of the choice at hand.
   
4. Align the financial planning process with a persevere/pivot/kill mindset, aiming for a metered approach where funding of ideas, initiatives and projects are chopped up so tranches can be unlocked as choices are being validated.
   
5. Design strategies to account for uncertainty and base them on validated assumptions monitored and tested.

This blueprint for building experimental excellence needs backing from new behavioural principles, institutionalised across the organisation and especially among top management. To make a difference, the behavioural principles need to materialise in established anchor points, e.g. meetings. Therefore, the principles should be considered in the context of the management model and designed around a new set of conversations taking place in either existing or new interactions.

The principles supporting the new behaviour are:

• Habituate experimental behaviour to build a system that fosters experimentalists and corporate entrepreneurs rather than demotivates them since these people are excellent at experimenting and creating learning at speed.
  
• Expand the management model to cater for and value experimentation, stating learnings and earnings as equally important in the organisation.
  
• Celebrate learnings and reward kills since it is a natural part of any de-risking process.
  
• Embed experiments in critical decision-making processes and make sure that choices, especially those that come with high uncertainty, are subjected to experimentation.

In total, the principles and actions described here are the road map towards an experiment-oriented organisation and an embedded de-risking system that learns faster than competition and enables leaders to focus on the few bets worth the investment. The blueprint for building experimental excellence