Standard product development wisdom says use a Phase Gate process, but is that always the best practice? Reinertsen is appropriately suspicious of methods and best practices, and offers principles in his Lean Product Development. In general I side with Reinersten, but are there circumstances where even Lean Product Development principles dare not go? Let's take a look at a special case of product development: products created by entrepreneurs.
According to Saras D. Sarasvathy at University of Washington, entrepreneurs use effectual reasoning as opposed to causal reasoning:
Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal - fastest, cheapest, most efficient, etc - alternative to achieve the goal.
Effectual reasoning... begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.
The contrast between the two forms of reasoning is shown in the following diagram from Saravathy:
The causal model starts with markets, and ends with segmentation. This approach is very similar to Phase Gate approaches to product development. The standard PDMA stages are:
- Opportunity Identification
- Concept Generation
- Concept Evaluation
Opportunity Identification selects markets and segments. At the end of Concept Evaluation the business case is complete and it is time to execute the Development and Launch. The Phase Gate framework assumes causal thinking.
Lean principles begin with an economic model that quantifies four economic objectives:
- Cycle Time
- Product Cost
- Product Value
- Development Expense
The goal is to be able to trade off each objective to maximize economic gains. The remaining principles are about maximizing economic outcomes. This works well with causal thinking, because causal thinking is about goals and how to reach them. Lean is about the goal of maximization of economic results by achieving flow.
Effectual thinking turns causal thinking on its head. Rather than plan then execute, one executes and then plans. Start with the customer, even selling what you don't yet have, then figure it out as you go. One is never sure what market they will end up in. Phase Gate is irrelevant in this context, because you Launch first, develop the product, then define your market as you go.
With Lean one can sell an undeveloped product, develop an economic model, and then apply Lean principles. However, in general effectual thinkers are in playing with new products in new markets. Saravathy describes the situation using the term Suicide Quadrant. It is very difficult to build an economic model in Suicide Quadrant.
Nonetheless, other Lean principles apply. According to Saravathy effectual thinking operates on three principles:
- Effectual reasoning emphasizes affordable loss
- Effectual reasoning is built upon strategic partnerships
- Effectual reasoning stresses the leveraging of contingencies
Lean has similar principles:
- Reduce loss from bad outcomes via fast feedback
- Exploit unplanned economic opportunities
- Use fast feedback to make learning faster and more efficient
Effectual reasoning and Lean both rely on feedback. This commonality makes Lean Product Development a better match for effectual thinkers than Phase Gate. Most entrepreneurs would reject Phase Gate simply because it represents causal thinking, which they reject outright. Saravathy points out that companies tend to shift from effectual thinking to causal thinking as they mature. Applying a limited form of Lean Product Development during the early life of an entrepreneurial company should allow a smooth transition to causal thinking. As the shift occurs Lean principles can be applied as appropriate until the foundational economic model becomes practical.
Phase Gate is more appropriate for a very mature company that wants to minimize risk at the expense of cycle time. Trying to force Phase Gate on an entrepreneur will result in an immediate immune response. So if you find yourself working for an entrepreneur and want to put some process in place, I suggest avoiding Phase Gate and take a look a Lean Product Development. Look up Reinertsen on Amazon and buy a couple of books or give me a jingle.