Entrepreneurship and large companies don’t mix. That assertion overstates the case while identifying a real problem. Authors Govindarajan and Trimble, recognizing that it has never been more crucial for corporations to explore emerging opportunities through strategic experiments set out a clear alternative to the traditional planning process. This alternative, which they call “theory-focused planning”, differs from the traditional approach in six ways.

The authors define a strategic experiment as “a risky new venture within an established corporation”, thereby distinguishing from the outset their approach from that of the literature on “corporate venturing”. The focus of this piece in not on technological innovation. Making a point we emphasize here at ManyWorlds, restricting innovation to products and technology is a drastically limiting approach. Strategic innovation as they see it departs from historical practice in one of three ways: The design of the entire value chain architecture, conceptualization of delivered consumer value, and identification of potential customers. Strategic innovation avoids betting the company, instead strategically experimenting to test the viability of new business ideas.

For these kinds of exploratory ventures the traditional planning approach works poorly and needs to be replaced by an emphasis on learning. The gold standard here, as the authors explain, is the scientific method. They sketch this method as having five criteria. The bad news is that strategic experiments meet none of these criteria since “feedback may not be available for years, results are ambiguous, key variables cannot be isolated, and experiments are too expensive to repeat”. This not mean that there’s a better way. It means that learning through strategic experiments is difficult.

After briefly noting the aspects of conventional planning that make it problematic for strategic experiments, the authors devote the remainder of this paper to explaining six essential ways in which strategic experimentation or theory-focused planning differs from the traditional approach. The first three relate to the process of building a theory to make predictions: Rather than requiring heavy detailed plans, this approach focuses on a small number of critical unknowns; it focuses on the theory underlying the predictions rather than the predictions themselves (influence diagrams helps to communicate expectations); and it looks for trends rather than numerical benchmarks.

The remaining three ways in which theory-based planning differs from traditional planning relate to testing of the theory: The critical unknowns that shape the strategy are reviewed more frequently, especially in response to significant new information; current-period outcomes are reviewed in the context of the strategic experiment over time and by looking at long-term trends; and leading indicators are preferred to financial indicators. Strategic experiments don’t exempt managers from responsibility for performance, but performance should be gauged according to ability to learn,

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