Cynefin Framework for Innovation Portfolio Design

Innovation portfolio design across domains and time-frames

One advantage of using the Cynefin Framework to guide strategic decision-making is it allows people from different parts of an enterprise to share their perspective on the risks and opportunities within their domain. At the enterprise level, risks and opportunities for innovation and strategic change are invariably complex. At lower levels of granularity, there are often parts or functions that are in the Complicated, Clear, or even Chaotic domains. Cynefin can be used very effectively to facilitate diverse stakeholders to consider actions and investments as part of a coherent whole. Such a portfolio, by design, allows for the tension between order and exploration.

Uncertainty and risk/reward. Overall, portfolio design needs to recognize safe-to-fail experimentation that is coherent with the enterprise as a whole. For example, there is little point exploring a fast parallel safe-to-fail pivot, or a significant paradigm shift for a good or service, while simultaneously driving efficiency through continual improvement of lean processes in the same part of the business.

In his book Antifragile, Taleb describes a barbell strategy for investing. The authors adapt the barbell idea to enterprise strategy: protect what is already working while allocating a smaller share to speculative opportunities with potentially asymmetric benefits. Existing assets are not automatically safe, and the speculative side needs limits on what the enterprise can lose.

Executives using a portfolio design need to consider uncertainty, risk/reward, and a time-frame.

Timeframe:

• tactical or short-term often months or up to a year or so,
• strategic or medium term perhaps a year to five years, and
• horizon, which could be 5 to 10 year explorations, typically geared towards highly speculative or uncertain aspects of the business.

Let’s look at projects and programs in a balanced portfolio for a water utility. They might include:

1. Tactical projects that review approvals and regulations for developers. Often red tape and bureaucratic inefficiency can build up over time as regulations evolve, and utilities struggle with ongoing transformation programs. A review using lean principles of waste reduction might be appropriate in such a context to review the need for multiple touch-points for routine and well-ordered processes.
2. Strategic projects like a partnership with a university to improve cost, time, and precision in water quality testing methods. Lead times might be 4 to 5 years for new methods to meet regulatory approval, and multiple methods might need exploration in the early phases of evaluation.
3. Horizon projects or programs could include investment in a consortium with other utilities and several university groups to look at possible risks, opportunities and synergies from climate change, population growth, hybrid energy systems and emerging trends of how people wish to live in cities. At inception, many of these projects would have poorly defined benefits and pathways at the early stages of investment and design. It might take five years or more before emergent patterns and opportunities become sufficiently visible to warrant deliberate guidance into a complicated program of research and development that has a clear line of sight to operational benefit.