A framework for change

Building and sustaining an enterprise of the future requires a robust planning process. One of the challenges, especially with long-term strategic planning, is the tendency to focus on activities. Start with what needs to be done today and work toward a future goal. The problem with that approach is as soon as your plan goes into effect, many assumptions will have already changed.

This calls for a planning framework that’s stable with regard to the envisioned end state, yet agile enough to adjust along the way. That’s where “Theory of Change” comes in.

Theory of Change

ActKnowledge defines Theory of Change as “a rigorous yet participatory process whereby groups and stakeholders in a planning process articulate their long-term goals and identify the conditions they believe have to unfold for those goals to be met.”

In other words, it focuses on outcomes and specific programs or initiatives (i.e., interventions) needed to achieve those outcomes, along with measurable indicators of progress. This results in a causal framework that reveals, as ActKnowledge puts it, the “complex web of activity required to bring about change.”

We define outcomes as desired or necessary, plausibly achievable conditions. The pathway to an outcome consists of the many pre-conditions that contribute to it. Pathways are built using a technique known as “backwards mapping.” Instead of starting from where you are today and moving forward in incremental steps, you mentally “leap ahead” five to seven years and work back.

Theory of Change has been used successfully by a wide variety of organizations, including the Annie E. Casey Foundation, the Overseas Development Institute (ODI) and The Hunger Project, to name a few. For additional details, check out theoryofchange.org, which has a tool you can download for building visual representations known as “outcome maps.” For an example of a completed outcome map, visit the Hunger Project’s site at thp.org/our-work/measuring-our-work/theory-change.

Steps in the process

Step 1. Based on observed and anticipated trends in technology, society, politics, economics and other key areas, define the state of your competitive environment five to seven years out in terms of threats, challenges and opportunities.

Step 2. For the same timeframe, define the desired future state of your enterprise in a way that addresses the competitive environment envisioned in Step 1.

Step 3. Establish a timeline consisting of three phases: long-term (5 to 7 years), intermediate-term (3 to 4 years) and short-term (1 to 2 years). For each phase, define the outcomes needed to achieve the desired future state. Organize the outcomes into relevant strategic categories. Those include policies, business models, processes, technologies, standards and the like.

It’s important to start at the end and work back, rather than vice versa. This causes many organizations to discover that much of their energy is focused on responding to short-term “pop-up” requirements that have little to do with getting to where they want to be in 5 to 7 years.

How to measure progress

As we’ve said many times in this column, the global competitive environment is characterized by rapidly accelerating changes in speed and complexity. In a knowledge economy, the capacity to quickly access information and take effective action drives organizational performance.

The nature of such information-intensive activity can be measured by what is known as the five Vs: volume, veracity (including the reliability of the source), value, variety and velocity. Those measures are pretty much self-explanatory, and you can tailor them to fit your particular situation.

When properly formulated, they provide a basis to discern where current operations, activities or capabilities will fall short or put at risk the attainment of a future state. They also enable evaluation of the collective set of stakeholders’ pro-

gress. As such they are assessed at multiple points along the pathways from one condition (outcome) to another and ultimately to the final outcome, so that adjustments can be made as needed along the way.

An illustrative example

A current topic of discussion, even of grave concern, is the growing trend toward automation of a wide range of functions and tasks traditionally performed by humans. From cashiers to construction workers to lawyers, accountants and medical doctors, large segments of the workforce are in danger of being displaced.

Let’s say you’re in the retail industry. You’ve already been struggling with the move toward online shopping. To make matters worse, you’ve seen the entry into the market of Amazon (ama

zon.com) Go. That newly designed “bricks and mortar” store has no cashiers and no checkout counters. All items are electronically tracked and charged to your account via your smart phone as soon as you place them into your shopping cart. Given that backdrop, here’s how you might apply Theory of Change to your strategic planning process.

Step 1. In 5 to 7 years, key disruptions will likely include drone delivery systems, blockchain payment ledgers, Internet of Things (IoT) and models accurately predicting what customers will need before they even realize it.

Step 2. Taking advantage of some of the above disruptive technologies, your future state might be characterized by near-instantaneous response to social discourse (both positive and negative) and exploitation of the “maker” economy by allowing products to be manufactured as close to the customer as possible using 3-D printing.

Step 3. Long-term outcomes might include optimized pricing models that grow market share in an economic environment of stagnant wages and large segments of an aging population living on fixed incomes (business models).

Intermediate-term outcomes might include a tightly integrated supply chain with highly automated packing and shipping enabled by intelligent robots and drones (processes, technologies and standards) and community outreach programs to help retrain displaced workers (policies, processes).

Short-term outcomes might include establishing suitable partnerships and/or acquisitions to aid in positioning for the intermediate and long-term policies, processes, technologies and standards. That outcome particularly exemplifies the need for information with high levels of all five Vs to perform timely and effective due diligence.

We’ve covered several of those disruptions in this column in recent years. Many have already become reality. Others are not far behind.

Actions to take

Begin incorporating Theory of Change across your enterprise. Be sure to evangelize and involve as many key stakeholders as possible. Then brainstorm steps 1 and 2. At the very least, that will begin to align your current efforts with your intermediate and long-term goals.

Start formulating specific initiatives that will focus your resources by systematically moving toward the desired future state, rather than waiting for things to happen and reacting to them. Be sure to incorporate the five Vs into your key performance indicators (KPIs). The more information-intensive your enterprise, the more closely you’ll need to track them.

Finally, make this an annual process, even semi-annual, depending upon speed of change in your market. In a world that appears to be spinning out of control, applying Theory of Change will help direct your efforts in ways that will have the greatest positive impact. Best of all, you’ll enjoy the benefits of having a greater hand in creating the future, rather than continually reacting to it.