Saturday, June 30, 2012
Lessons for Business from Defense & Security Planning... (2/2)
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 Executives often lament that business environment has changed and their plans are no longer valid.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.
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.