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What are minimum-viable, experiment-based, and option-based strategies?

Ready to get technical (well, theoretical)? In other blogs, we’ve taken a critical look at the traditional strategic planning process and lamented its inherent lack of responsiveness. Today, we're exploring how you can introduce an ingredient of responsiveness into your strategic thinking.

Whether looking to start, scale, or optimize your business, minimum-viable, experiment-based, and option-based strategies are effective ways to implement responsive plans.

In this blog, we give an overview of what each means and how to create your own, turning our attention away from the strategic plan to explore how your strategy can benefit from a fresh perspective and promote this higher level of responsiveness we aspire to reach.

We’ll look at three complementary strategy theories, none new but all timely as we wrestle with constant and rapidly changing conditions.

  • Experiment-based strategy
  • (Real) option-based strategy
  • Minimum viable strategy

When we say timely, we refer to today’s imperative to build resilience into strategic planning during heightened uncertainty and volatility.

That resilience will enable organizations to predict future market behavior better and respond as market conditions change.

 

"We don’t like their sound, and guitar music is on the way out"

Decca Recording Co. rejecting the Beatles, 1962

 

 

Experiment-based strategy

Uncertainty leads to unpredictability. Strategic outcomes are no exception, and previously predictable strategic outcomes (in terms of size and timing of impact) are rendered less certain in a volatile world.

An experiment-based strategy is a plan of action based on data gathered from experiments.

This type of strategy allows for the refinement and improvement of plans as new information is obtained.

In order to make effective use of an experiment-based strategy, it is important to have a clear goal and to be able to analyze data accurately.

With this research method, the researcher manipulates one or more independent variables and observes the effect on a dependent variable.

 

Business planning expirments to validate their strategyExperiment-based strategies remove some uncertainties before a plan is fully-invested

 

Using an experiment-based strategy, you remove some of this uncertainty by testing ideas before investing more significant resources.

Using strategy experiments, organizations can test ideas and challenge hypotheses – in the real world but at a reduced scale. And any number of competing ideas or approaches can be trialed (either variation of the same idea or different ideas entirely).

 

“Emergent strategy requires that the company continually generate a broad range of hypotheses, testing them in small-scale experiments, and feeding the more successful experiments while pruning the failed ones. In order to innovate in a sustainable way, a company should have ongoing bets of all sizes, at all points in the power-law curve–a thousand small, a hundred medium, and one or two large–at any given point in time.”

Experimentation Is The New Planning, Dave Gray, Fast Company, Sept 2012

 

Example experiment-based strategy

Think of catalog selling as a simple example to illustrate the principle (yes, hard to believe catalogs still have a role to play in internet eCommerce).

Retailers develop and distribute multiple versions of the catalog, and each version might have slightly different product mixes, pricing, imagery, or even paperweight.

Correlating customer responses with these catalog variations provides these organizations with invaluable insight from which to refine their strategy.

Such experiments deliver valuable insight with which to further refine ideas before increasing investment in pursuing an idea or plotting a different course entirely.

 


(Real) option-based strategy

“To thrive in a volatile world, executive leaders should explore a real options approach to better describe, quantify,  and prepare for the future opportunities and threats to their customers, services, and value propositions”

Digital Business Acceleration Requires Real Options-Based Strategy, Gartner Research, Aron et al. 9 December 2020

 

When the impact of a strategic outcome is known and its timing is uncertain, real option-based strategies might prove useful.

 

Investment banking and option-based strategy

An option-based strategy is a type of trading strategy that uses options to speculate on the movement of the underlying asset. An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.

The term “real” reinforces that while the principles of option-based strategy have their roots in investment banking, in this context, we’re referring to applying these principles to strategy.

As part of an option-based strategy, a limited early investment secures the ability to respond fast later when faced with the need to change.

The full capability is not needed in an option-based strategy; just enough of a foundation to enable a rapid response in the future should the need arise.

There are many options, and the chances are high that you already employ this thinking today in some shape or form.

 

Phasing options

For example, phasing (or staging) a strategic investment or platformization where new products can be rapidly introduced in the future, leveraging an earlier platform investment for new growth.

 

Hedging options

Less obvious, perhaps, are hedging or exit options.

Hedging options are like buying an insurance policy for when plans go awry.

Business continuity planning is a common example. Investing in exit options, on the other hand, makes provision for a future event, such as exiting a market, retiring a product, or even divesting a business unit.

Doing helps guarantee that a future event of this type is effective and efficient.

 

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Minimum viable strategy

A minimum viable strategy is the smallest effort you can put into executing a strategic plan necessary to achieve your goal.

This can range from developing a new product to launching a sales campaign. It may include only the most essential tasks, or it may be a basic plan that can be improved upon as more information is gathered.

To determine what's necessary for a minimum viable strategy, it's important first to understand the goal and identify any potential risks or roadblocks. Once these are understood, it's possible to create a plan that focuses on addressing these issues while also delivering on the overall goal.

Crucially, a minimum viable strategy allows for flexibility and enables the team to make changes based on feedback. It also helps to ensure that the goal is achievable with the resources available.

Borrowing from the Lean start-up concept of the minimum viable product (MVP), minimum viable strategy thinking can be interpreted in at least three different ways.

 

1) Deliver core strategic value first

Invest initial resources in the core of your strategy.

Just like an MVP, focus on the core customer value delivered first by the product.

Identify where in the strategic plan lies the critical value generation and implement that core first.

In such a scenario, the balance of the strategic plan can be refined in parallel with implementing the core.

 

2) Invest in ‘quick-start’ strategic workstreams

Focus less on the strategic core and more on identifying which strategic workstreams or activities can start straightaway and investing resources in these areas.

A new parallel activity starts to refine any remaining activities in the strategic plan.

 

3) Focus on core strategic elements

Define and communicate, at a minimum, a clear strategic definition comprising a shared purpose (vision, mission, and values) and a small number of strategic objectives.

This empowers different parts of the organization to interpret these objectives locally and align their investment.


Incremental investment minimizes risks

In all these cases, the key principle is that strategic planning need not be “all or nothing.” 

It is more about incremental investment, often to minimize risk while maximizing return.

 

“Minimum viable strategy is, simply, a means of building strategy with the recognition that failure at something new is more likely than not likely and that, to be successful, one must build a strategy that takes that into account”

Minimum Viable Strategy: Winning in business inch by inch, John L. Childs

 

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Expand your strategic thinking

Hopefully, this whistle-stop tour of but three strategy theories is useful as you explore ways to make traditional annual strategic planning more responsive and agile.

Like any best practice, one size does not fit all, and for you, these theories may range from inspirational to vaguely useful.

Regardless we’d encourage you to research these theories further and explore how they might be adapted to fit your organization’s strategic approach.

 

Learn more about continuous strategy and strategy execution

Take the next steps in your journey to embracing continuous strategy by exploring our strategy execution resource hub or any of the below:

About the author

James Davies is i-nexus’ Chief Product Officer. As an experienced software executive with 20 years of experience working in Silicon Valley, USA, James has held senior leadership roles in three venture capital-backed software start-ups (including CEO, CPO, and Chairman). He has delivered management consulting services to some of the world’s largest technology companies.

If you’d like to talk more about the future of strategy execution, reach out to him at james.davies@i-nexus.com or connect with James on LinkedIn for the latest insights