This is the concluding part of the topic discussed in last post. In this post, an attempt is made to outline application of Capability based planning in business environment.
Applying Capability
Based Planning to Business World
Now,
we shall return to business world and map the learnings from an equally if not
more complex defense world. Like defense, business too at earlier times had to
deal with a limited set of threats like that from a competitor, or a substitute
product or a new entrant. Porter's 5
forces was a great tool to examine the possible threats. Once threats were identified, the appropriate
response plans were drawn up. Earlier, Pepsi
and Coke had no threats except each other and were busy fighting their Cola
wars.
But
times have changed. The business environment is now far more complex. New
sources of threats have emerged. Many of them being non-market. The pace and
impact of events have increased tremendously. Bad news spreads like wildfire.
Nike and the 'Sweat Shop' incident is a case in point. Also one cannot predict
how an event might affect. Executives often lament that business environment
has changed and their plans are no longer valid.
In
such an uncertain and volatile business environment, traditional threat based
planning often falls short. A capability based planning approach in business
world would imply accepting the uncertainties as fundamental driver and
concentrating on scenarios of how threats materialize irrespective of their
source. Following graph illustrates various scenarios of how threats can
materialize for a business.
Under
Capabilities based planning for business, the first step is to build a menu of
various detail scenarios of 'how ' threats will materialize. Then, each
scenario needs to be analyzed on following three dimensions and prioritized.
Severity: Scenarios which may have adverse effects and are
to be planned for adequately. For instance, a natural calamity can disrupt
supply and kill the production.
Probability of Occurrence: Scenarios whose possibility of
occurrence is high need to be given priority. For instance, high frequency of
competitive product launch and marketing campaigns are a norm in various
industries.
Detection Ability: In some case detection itself is
difficult for a given scenario. For instance, it is not easy for a company to
detect the negative sentiments in viral media and how they might coalesce and
snowball. In such cases, capabilities are to be developed for early detection
and warning or quick response plans must be put in place.
Similar
to Risk Priorities Number of FMEA (Failure Modes & Effects Analysis) a
priority number can be worked out against each scenario.
Next
step would be to define actions (either offensive or defensive) to counter each
scenario. One may have a combination of actions or alternate actions for a given
scenario. This is an intermediate but an important step before we arrive at
capabilities. It’s in this step, an executive needs to tap their business
acumen, management thinking and emerging trends to devise effective actions. For
instance, in response to a scenario of 'Diverse and Un-predictable customer
preferences for fashion goods' a retailer can choose to build its forecasting
and S&OP process or go for daily replenishments to stock higher variety of
SKUs and turn them faster.
Once
the actions are decided against each scenario, then comes defining and listing
capabilities to execute those actions. One may find similar capabilities
addressing various scenarios. One would also notice that there can be various
levels of a capability to choose from. For instance, to have a capability to
address supply disruptions, a company can go for higher inventory or take a
bold step to diversify its supply base. Both have different cost implications
and impact. Hence a judicious mix of capabilities and its level needs to be
worked out.
Conclusion
Defense
and Security is perhaps the only area which rivals the complexity and
volatility of the business world. With some of the best minds working in
Defense and Security planning, it’s prudent to learn from them. The principles
of Capabilities based planning are equally valid for a business and the
methodology can be adapted with some tweaking. Capabilities based planning is a
paradigm shift for business planning which would give a business, the
confidence to not only survive but excel in an uncertain environment.
