Operating successfully within complex systems requires optionality – a rather random example being building a space ship when the future mission environment is uncertain. The intuition is that if the external environment is prone to change unpredictably, options that allow exit from a particular course of action, a change in parameters or increased investment will be valuable. Furthermore, as with most option valuation, the more volatile the external environment (i.e. the more likely a significant change will occur), the higher the value of the option becomes (and therefore the more you should be willing to spend on creating optionality). This in turn is related to emergent strategy and organizational learning.
This topic came up today in relation to a recent post by Ross Dawson about pilots (as in pilot programmes or small-scale trials of an idea). One way of building real options into an investment is to find efficient ways of piloting projects instead of going all-in for a full-scale launch. As Ross points out, routinely piloting ideas and investments allows you to consciously adopt an emergent approach of “iterate and refine” – something he has been pushing as a framework for his ideas around “Enterprise 2.0“.
One interesting example of how the web can help you pilot ideas and options comes from Ian Ayres‘ “Super Cruchers”: using google adwords to test the attraction of names of books, projects etc to an audience. The idea is to create a series of adword entries in relation to identical keyword searches and with the same text below the title. You then measure click rates for the different titles, with the most popular giving you at least an indication of whcih title is relatively more attractive to people searching for the keywords you have selected. Cool, huh!?
From a more academic perspective, it would be interesting to examine a) whether proficiency with pilot programmes are empirically a source of competitive advantage, and b) how organizations can improve their use of pilots to increase optionality and learning at the same time.
The latter requires a method to evaluate the success of pilot programmes on both the potential of the activity piloted (was the activity pass success thresholds for further investment, what lessons have been learned for scaling up), and the success of the piloting methodology itself (was the pilot design, timing, management, evaluation etc up to scratch).
For entrepreneurs and entrepreneurial organisations, the “iterate and refine” model and meta-success measures for piloting might be interesting ways to both create and test options. And with more and more people engaging with projects online, the web is undoubtedly fertile ground for improving pilot programmes. Do you know of other suggestions how to use the web to create fast-failing pilots and as a testing ground for ideas?