One of my favorite futurists, Ian Pearson from British Telecom comes through with another insightful prediction.
[Also see April 15, 2006 37 reasons why strategic plans fail (V 3.0) ]
The death of the 5 year plan > Ian Pearson, BT Futurologist, June 2006
The 5 year plan has been stock and trade for corporate planners and strategists for decades. We are already increasingly used to them being revised every year though. Could it be that these plans are reaching the end of their usefulness? I believe so. Let's take a look at what's happening first and see why the 5 year plan is no longer an asset and quickly becoming a liability.
We are in an age of very rapid change. Old industries are dying, new ones are starting. Most importantly, industries are converging. In the 1990s, we saw the convergence between telecomms and computing. Companies on both sides of the IT world have seen enormous changes, their old business shrinking and new parts of their business growing. For example, BT has seen its old voice telephony business shrink to less than a third of its revenue. Not so long ago it was the only service. The company has successfully adapted to shrinking phone service profits by developing new services. What is more interesting about the proceeds of this convergence is that the real winners are companies that came from neither industry, but are totally new. Google, Amazon, Yahoo, E-Bay and so on. These new businesses are huge. They are doing things that everyone in the IT industry could have predicted in the early 90s, (and in many cases did) but the important thing is that in spite of that, none of those IT companies took advantage of that foresight. So the real value of the convergence between two industrial empires went to new companies that sprung up from nothing to take advantage of the opportunity explosion where the industries collided. The sad fact is that the old industries either hoped that change might go away or that they could hide in the corner and rely on their expertise in the old world to keep them going, concentrating on what they knew best.
Convergence between IT & health care - big pharma, biotech, medicine, diagnostics, nanotech.
The same is happening again now, but the new convergence is between IT as a whole and other industries. In particular, the whole of the health industry - big pharma, biotech, medicine, is converging with IT, and simultaneously with nanotech. IT is also converging with nanotech. These two-way convergences are all happening in parallel. Just as in the IT convergence era, there will be massive new opportunities. New green fields to lay claim to. And there will also be new competition, much of it from companies that used to be in totally different sectors. I think it is highly likely that most companies on each side of this new convergence will do exactly what IT companies did in the 90s, and to respond to increasing competition by concentrating their efforts on what they know best. In doing so, they will be trying to preserve a dying empire. The real money is not in continuing old industry, but in being adventurous and moving into new fields.
- " New techniques in IT are increasingly taking ideas from nature. [see examples Biomimicry in Smart Economy]
- " New security systems may be inspired by biological immune systems. [see examples Biomimicry in Smart Economy]
- " Self organisation of sensor networks and processor scheduling may rely on natural techniques too. [see examples Biomimicry in Smart Economy]
- " Meanwhile, drugs are becoming smart, no longer just simple chemicals, but advanced compositions that may include quantum dots that can communicate with the outside world so that they can communicate medical condition outwardly to external IT, or control gene expression on external command.
- " Drugs and IT are converging.
IT companies could move into medicine. Biotechs can move into IT.
But mostly, they won't.
So what of the 5 year plan? It exists to give companies some means of continuity, to steer investment decisions. But in doing so, it locks down the identity of the company for a 5 year period ahead. It states the business that the company will be in, and makes it difficult to migrate away from this. Unless the company has first rate foresight, and can see all the opportunities and threats ahead, it is putting up a strong barrier to capturing opportunities that arise, many of which will appear with short notice. In most cases, the 5 year plan is based on an historical perspective of what the company did, not what the company could be doing in the future. The temptation to stay in the traditional business and not venture out too far is often irresistible.
The evidence of this is the multitude of blue chip computer companies and telcos that didn't' get rich in spite of the dot com boom. They were not stupid companies, it is just very hard indeed for big companies to move out of their comfort zone when they have been so successful in it for so long. The 5 year plan is a tool that works well when the business environment is changing very slowly, but when new opportunities and threats appear with high frequency, it is much less valuable and can actually be an impediment to change.
So here is the advice. The 5 year plan is useless. If you are any good, you will see new opportunities arising very frequently over that period and you need to be agile enough to capture them. Having a 5 year plan that you must adhere to will be a millstone around your neck, holding you back.
In practice, this means more than just not making too rigid plans too far ahead. It also means taking a new approach to investment decisions.
There is no point in investing expensively in long term business infrastructure projects if the whole nature of the business is likely to change beyond recognition. Making shorter term, more decentralised decisions will undoubtedly be a little more expensive, but will come with a benefit of greatly increased business agility. Planning only a little way ahead allows rapid deployment of resource to capture new areas, or to close down areas that are becoming unprofitable.
Agility is everything, and it is worth sacrificing a little on price and efficiency to achieve it.
If a company can do this, and be in a position to fight for new green fields as soon as they appear, then there is no reason why they couldn't capture the new Googles and Amazons.
Alternatively, they can sit in the corner, protecting their old business as long as they can while they see it slowly decline and watch as new, more lucrative businesses spring up all around them, in territory that should be theirs.
[To add agility to the stategic thinking and business development, the process needs to morph into an ongoing reiterative excercise vs a once-a-year executive get-together event--Walter Derzko]
[Also see April 15, 2006 37 reasons why strategic plans fail (V 3.0) ]
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