Decision support requires looking into the future
Recently I was asked to write a column on decision-making in the dutch Business Process Magazine, and in the final publication the editor had picked the following sentence to highlight: “The focus must be on the future instead of the past. That is where the decision-making can make a difference !” (my translation). So decision support tools (such as portfolio management tooling) should support presenting the impact of decisions in terms of alternative futures.
Now, if I had a dime for each discussion along these lines led to a question such as “How can your tool predict the future?”
Predicting the future or creating it?
In innovation, it is hard to imagine the future as fixed, with just a good prediction mechanism required to be able to foretell it. Maybe if we had a really good tool, not like the ball in the figure, but a sophisticated extrapolation algorithm on top of a pile of really big data. The range of philosophical views is wide-ranging (see e.g. Wikipedia’s topic). For the economical perspective, the ongoing search for a model that can explain the past and then be used also to extrapolate (predict) the future from just past data appears to cause as much problems as it solves.
From the practical perspective, innovation roadmapping and portfolio decisions must be based on a view of the potential futures and the impact our decisions can have on them. Since innovation (by definition) includes newness, the impact of the decisions will be uncertain. Even deciding not to do anything will leave uncertainty about the future. So, if the future is uncertain, why bother?
Building a shared view of the future
In the context of a decision, the following decision quality properties directly require sharing a view on the future:
- alignment with objectives: in a likely future, the decision is likely to contribute to the objectives (such as value creation);
- feasibility: there must be likely futures in which the decision can be executed;
- robustness: the decision should make sense across a range of likely futures (indicated along with the decision);
- trust: those involved in implementing the decision should somehow share the above three points.
For the latter to happen, a shared view is needed of the future and its possibilities, constraints, and the underlying logic must be shared. This requires building a common model of the future, sometimes a simple extrapolation, but sometimes as rich as a set of scenarios (as put in practice by Shell).
Role of the future in portfolio management
In innovation portfolio management, there are two more reasons for paying attention to sharing a view of the future:
- consistency: comparing portfolio alternatives (and projects) according to the same forecasts (apples with apples), which is non-trivial when assumptions about the future are hidden in project business cases;
- breakthrough innovation: are we looking for ways to impact the underlying drivers of the future, referred to as “breaking the industry logic”, “disrupting business models”, etc.
As a best practice, the assumptions about drivers fo the future (technology and market trends, economic context, and the impact of our own projects) together provide a rich context for innovation portfolio management. At the minimum level, making these assumptions explicit will open them up to debate to improve them where possible.
In our FLIGHTMAP solution for portfolio management, we implemented market and technology trend models to share these across projects in the portfolio. The original motivation was to make sure projects in the same market (or technology) are compared like-for-like, regardless of the moment the project was planned. It turned out that the same mechanism also helps to answer the question how robust a portfolio is (how certain market or technology changes will impact the portfolio cash flows, revenues, or value).
In addition, monitoring them will create sensitivity to these drivers and their change along the ride, and help to update decisions if needed. In a nutshell, I think the above captures innovation portfolio management as a process. What is the role of forecasts in your portfolio process?