“The dilemma that CFOs face is that you have to make investments in new initiatives with less information than you would like,” says Paul Huck, senior vice president and CFO of Air Products and Chemicals Inc., an $8.4 billion international seller of gases and chemicals for industrial applications that has applied McGrath’s ideas to its growth ventures. “By using discovery-driven planning, you look at the available options and the decisions you make along the initiative’s journey.” McGrath adds that, “A CFO’s role is to architect rich discussions around what has been learned and what that implies for the next stage of investment.”
Innosight client Procter & Gamble followed this “test and learn” approach as it developed Align, a product for the relief of irritable bowel syndrome. “The team first had to determine if their formula worked to relieve symptoms, since there’s no sense spending money on naming or packaging [a product] until its efficacy is proven,” Bolen says.
When the efficacy was established, the team addressed the next “deal-killing” issue: Would consumers follow the necessary 30-day regimen? “Limited trials with doctors and online sales validated this,” Bolen says. “The team continued to test critical assumptions, learn more [it found, for example, that a planned tie-in to Metamucil, a well-known product, would not resonate well with users of the new product, and dropped the idea], and redirect the approach as needed.” The product is now available at retail chains nationally.
One important attribute of discovery-driven planning is that it provides companies with a way to overcome a common pitfall of most corporate cultures: the tendency for champions of ideas to insist that they are right and that success hinges on upping the ante. “My definition of learning is that you don’t know something until you do,” says McGrath. “And you won’t learn until you have a structure that permits the flow and acquisition of knowledge” one step at a time.
Or, as Gerald J. Kochanski, CFO and treasurer of Nephros Inc., a privately held manufacturer of medical equipment, puts it, “Stuff happens, but few companies have a process in place to learn from it. Instead, they base everything on the premise that if you develop a well-defined recipe, all you need to do is put in the right ingredients and it will come out as planned. Life rarely happens that way, so why should a multi-million-dollar venture?”
Then, why don’t companies cook up a better way? “Part of it is ego, some of it is arrogance, and the rest is the political nature of organizations,” Kochanski says. “People are afraid they’ll get their necks snapped off for saying, ‘We got to this checkpoint and things didn’t turn out the way we’d hoped.’”
Pulling the plug is never easy, but it’s exactly what Air Products and Chemicals did to a planned venture in the automotive-coatings market, once it applied discovery-driven principles. “We needed to test how big the market would be before we’d invest in it, and this gave us a template for doing that,” says Ron Pierantozzi, the company’s former director of new-business development. “The licensing investment was significant and we didn’t want to risk it until we were sure. We made some assumptions about the market and our projected revenues and then tested them. They failed, and we quickly killed the project.”