The Five Traps of High Stakes Decision MakingAn unrealistic search for silver-bullet solutions. Most business problems are complex. But many executives badly want a silver bullet — a simple action that will leapfrog the competition or supercharge an organization’s performance in one fell swoop.
Failure to consider alternatives explicitly. Business is a game of choices, and you can’t make good choices without good alternatives. But most organizations do not explicitly formulate and evaluate alternatives in making big decisions.
Too many people involved. Important decisions are hard to make in large groups. Sensitive issues don’t get thoroughly discussed. Personalities interfere with reasoned argument. In fact, our research highlights the “Rule of 7″: for every individual you add to a group beyond seven, decision effectiveness declines by 10%.
Failure to consider opportunity cost. The decision to start doing something new is only one form of high-stakes decision. Another—often with equally big consequences—is to keep doing something you’re already doing. The decision not to shut down an uncompetitive product line or exit an unprofitable market can consume as much scarce management time and other resources as any merger. Yet few executives appreciate the opportunity cost associated with continuing with a losing venture.
Underestimating the challenges involved in execution and change management. The complexities associated with a big-stakes decision rarely end with the decision itself. Indeed, recent Bain research indicates that only 12% of large-scale changes are executed as intended.
Leading Your Team into the UnknownDon’t Dictate a Vision—Set a Grand Challenge
Innovation is at heart a process of discovery, and so the role of the person leading it is to set other people down a path, not to short-circuit it by jumping to a conclusion right at the start. To lead innovation, you don’t have to be the next Steve Jobs, nor do you need to guess the future. Rather, you must carve out the mental space within which the innovation process can be carried out.
Don’t Make Decisions—Design Experiments
The innovator’s method reduces the risk involved in bringing innovations to market by offering a better tool for making tough choices—a process for systematically testing critical assumptions with customers. The tool has powerful implications for leadership: It requires the leader to change from being the chief decision maker to being the chief experimenter.
What does that mean? Essentially, the leader’s role shifts from providing answers to posing questions. When a manager or anyone else on the team says, “I think we should do X,” it’s the leader’s job to ensure that the next question is, “What’s the fastest way to run an experiment to help us know whether we should do X?”
Don’t Just Ignite Ideas—Prepare the Organization to Accept Them
Educating the wider organization: It’s tempting to downplay the importance of something so basic as establishing a common language. But dozens of innovators we’ve interviewed have cited a common language as critical for communicating the logic of what they’re doing. That being said, there are elements of the language that appeal more than others to people with responsibility for core operations.
Building expertise: Many people have an innate desire to innovate, we’ve found. They just haven’t been given the opportunity and don’t know how to begin. To tap into their potential and build deep expertise, they need immersion in the innovation process.
Don’t Just Give People Time—Provide the Resources They Need to Act Quickly
Innovation requires devoted time blocks because the associational thinking that leads to new insights is more apt to happen when the mind is totally absorbed with a particular challenge, whether through observations, conversations, experiments, or meditation. You might be able to focus this way by devoting 30 or 40 minutes a day, but you’re more likely to do so by setting aside a half day a week. Devoting a day or two each month to innovation “jams” can be a particularly good way to help people use time effectively
Trap One: Seeing Market-Creating Strategies as Customer-Oriented Approaches
Generating new demand is at the heart of market-creating strategies. It hinges on converting noncustomers into customers, as Salesforce.com did with its on-demand CRM software, which opened up a new market space by winning over small and midsize firms that had previously rejected CRM enterprise software…..Growth comes from converting nonusers. EXAMPLE:Sony focused on improving e-readers’ legibility to please current customers. But Amazon’s Kindle addressed the number one concern of non-buyers: too few available titles. Amazon won.
Trap Two: Treating Market-Creating Strategies as Niche Strategies
The field of marketing has placed great emphasis on using ever finer market segmentation to identify and capture niche markets. Though niche strategies can often be very effective, uncovering a niche in an existing space is not the same thing as identifying a new market space….EXAMPLENiche marketing can be treacherous. Delta’s Song targeted too narrow a segment of fliers—stylish professional women—and didn’t last. But Pret A Manger thrived by “desegmenting” different customer groups—figuring out what they had in common—to create a new market space.
Trap Three: Confusing Technology Innovation with Market-Creating Strategies
R&D and technology innovation are widely recognized as key drivers of market development and industry growth. It’s understandable, therefore, that managers might assume that they are also key drivers in the discovery of new markets. But the reality is that market creation is not inevitably about technological innovation.. Technological breakthroughs don’t necessarily create new markets. EXAMPLE: Segway was a marvel but never found a wide customer base. New markets arise from value innovation, not tech innovation.
Trap Four: Equating Creative Destruction with Market Creation
But does market creation always involve destruction? The answer is no. It also involves nondestructive creation, wherein new demand is created without displacing existing products or services.
Trap Five: Equating Market-Creating Strategies with Differentiation
In a competitive industry companies tend to choose their position on what economists call the “productivity frontier,” the range of value-cost trade-offs that are available given the structure and norms of the industry. Differentiation is the strategic position on this frontier in which a company stands out from competitors by providing premium value; the trade-off is usually higher costs to the company and higher prices for customers. We’ve found that many managers assume that market creation is the same thing….In reality, a market-creating move breaks the value-cost trade-off. It is about pursuing differentiation and low cost simultaneously.
