Swotting up to find gaps in the market

Finding a space in the market that is unchallenged by competition is the Holy Grail of positioning strategy. Unfortunately these spaces – known as market gaps – are often illusive, and the benefits of finding one are often equally illusory. Although competition is a fact of life, it makes business difficult, contributing to an ever-downward pressure on prices, ever-rising costs (such as the funding of new product development and marketing), and an incessant need to outmanoeuvre and outsmart rivals.

In contrast, the benefits of finding a market gap – a small niche segment of a market that is unfettered by competition – are obvious: greater control over prices, lower costs, and improved profits. The identification of a market gap, combined with a dose of entrepreneurial spirit, is often all that is needed to launch a new business.

In 2006, Twitter founder Jack Dorsey combined short-form communication with social media, providing a service that no one else had spotted. Free to most users, revenue comes from firms who pay for promotional tweets and profiles: Twitter earned advertising revenues of $582 million in 2013.

Not all gaps are lucrative, however. The Amphicar, for instance, was an amphibious car produced in the 1960s for US consumers who wanted to drive on roads and rivers. It was a quirky novelty, but the market was too small to be profitable. This was also true for bottled water for pets – launched in the USA in 1994, Thirsty Cat! and Thirsty Dog! failed to entice pet owners.

Snapple, the manufacturer of healthy tea and juice drinks, is a firm that has successfully found a sustainable and profitable niche. A glance at the beverage counter of any supermarket reveals that dozens of brands compete for sales. Many firms have failed in this ultra-competitive market: for example, Pepsi tried to capture a non-existent market for morning cola with its short-lived, high-caffeine drink, AM.

Success for Snapple came from positioning the product as a unique brand – Snapple was one of the first firms to manufacture juices and drinks made completely from natural ingredients. Its founders ran a health store in Manhattan, and the firm used the slogan: “100% Natural”. Snapple targeted commuters, students, and lunch-time office workers with a new healthy “snack” drink, combining its Unique Selling Proposition (USP) with irreverent marketing and small bottles that were designed to be consumed in one sitting. Distribution was through small, inner-city stores where customers could “grab-and-go”. These tactics helped to secure a profitable and sustainable niche, distinguishing Snapple from its rivals in the 1980s and 1990s. In 1994 sales peaked at $674 million.

Unoccupied market territory can present major opportunities for firms, but the challenge lies in identifying which gaps are profitable and which are traps. During the 1990s, many firms became excited about the potential of the “green” market, across a whole range of goods. But this market has failed to materialize in any profitable way. This marks one of the potential pitfalls in identifying market gaps based on market research: consumers often have strong attitudes or opinions on trends or issues – such as ecology – that they are disinclined to consider when purchasing products, especially if they affect cost. Many market gaps, it seems, are tempting, but illusory.

Whether a firm is long established or in its start-up phase, a key strategic issue is its competitive advantage – the factor that gives it an edge over its competitors. The only way to establish, understand, and protect competitive advantage is to study the competition. Who is competing with the firm for its customers’ time and money? Do they sell competitive products or potential substitutes? What are their strengths and weaknesses? How are they perceived in the market?

For Ray Kroc, the US businessman behind the success of fast-food chain McDonalds, this reportedly involved inspecting competitors’ trash. But there is a range of more conventional tools to help firms to understand themselves, their markets, and their competition.

The most popular such tool is SWOT analysis. Created by US management consultant Albert Humphrey in 1966, it is used to identify internal strengths (S) and weaknesses (W), and to analyse external opportunities (O) and threats (T). Internal factors that can be considered as either strengths or weaknesses include: the experience and expertise of management; the skill of a workforce; product quality; the firm’s financial health; and the strength of its brand. External factors that might be opportunities or threats include market growth; new technologies; barriers to entering markets; overseas sales potential; and changing customer demographics and preferences. SWOT analysis is widely used by businesses of all types, and it is a staple of business management courses. It is a creative tool that allows managers to assess a firm’s current position, and to imagine possible future positions.

When well-executed, a SWOT analysis should inform strategic planning and decision-making. It allows a firm to identify what it does better than the competition (or vice versa), what changes it may need to make to minimize threats, and what opportunities may give the firm competitive advantage. The key to strategic fit is to make sure that the firm’s internal and external environments match: its internal strengths must be aligned with the external opportunities. Any internal weaknesses should be addressed so as to minimize the extent of external threat. When undertaking SWOT analysis, the views of staff and even customers can be included – it should provide an opportunity to solicit views from all stakeholders. The greater the number of views included, the deeper the analysis and the more useful the findings. However, there are limitations. While a firm may be able to judge its internal weaknesses and strengths accurately, projections about future events and trends (which will affect opportunities and threats) are always subject to error. Different stakeholders will also be privy to different levels of information about a firm’s activities, and therefore its current position. Balance is key; senior managers may have a full view of the firm, but their perspective needs to be informed by alternative views from all levels of the organization. As with all business tools, the factor that governs the success of SWOT analysis is whether or not it leads to action.

Think of founding principles to avoid losing focus

In 2001 the list of companies with the highest market caps was dominated by blue chips. General Electric, Microsoft, ExxonMobil, Walmart, and CitiGroup — all were businesses led by managers who were experts in efficiency and optimization and who grew their businesses by making them work better than they had previously.

Fast forward to the present, and the list looks strikingly different. Apple, Alphabet, Microsoft, Amazon, and Berkshire Hathaway now top the list, with Alibaba, Facebook, and Tencent close behind. They are for the most part young firms led by founders and their teams, bold leaders who continually prioritize new growth over efficiencies to their core businesses.

Many things have happened in the intervening years to contribute to this shift, but the signal is undeniable. The market now rewards the long-term vision and continual investment in new growth represented by these younger enterprises.

Large enterprises have been responding to these developments for some time, mainly by applying the methods of startups such as lean experimentation, design thinking, and agile development. While these tactics are necessary and useful, when used alone they serve merely as Band-Aids to the problem.

The change that enterprises need to undergo in order to regain their growth trajectories is more profound, and it must start at the very top. To generate new growth, CEOs must stop thinking of themselves as chief managers and start thinking of themselves as refounders.

Refounders are leaders who, despite not having started the company, think with the mindset of a founder. They do not focus their energies on incremental growth through endless optimization, but instead look to leverage their company’s assets to build new offerings, move into new markets, and create next-generation solutions.

Satya Nadella of Microsoft is a great example of a refounder. When Nadella took over the CEO role in 2014, he immediately began refocusing the company on growth. “If you don’t jump on the new,” he proclaimed, “you don’t survive.” Nadella challenged the company to see beyond its legacy products like Windows, invested heavily in new technologies like AI and SaaS, purchased LinkedIn to plug Microsoft services into the company’s social graph, and more. Through it all, he has emphasized the importance of long-term thinking, taking a test-and-learn approach, and obsessing over customer satisfaction, among other values. The market has rewarded Nadella’s moves and his mindset: Since he took the helm, the company’s share price has more than doubled, and in 2016, after years of stagnation, Microsoft regained its place on the top-five market cap list.

You don’t need to be Satya Nadella to be a refounder, though. We work with CEOs of large enterprises who are in the process of refounding their companies, and while coaching them on this process we’ve seen firsthand what works best for them. Based on these experiences, here are five actions that leaders can take to move from a manager mindset to a refounder one.

Shift Your Mindset

Strategists in mature businesses think in terms of total addressable markets (TAM), which allows them to size a potential business and plan accordingly; refounders think in terms of total addressable problems (TAP). They ask, How many people have a problem that this solution could address? Besides exposing existing markets, a TAP mindset uncovers potential opportunities before there’s a market for them.

For example, in the 1980s a standard TAM view of cell phones would have suggested a modest market consisting of mainly lawyers, business leaders, and doctors — after all, they were the demographic using the first generation of phones. A TAP view, by comparison — asking “Who has problems that a mobile phone could address?” — would have suggested larger potential markets, ranging from everyone trying to make ad hoc plans with friends to entire populations without landlines looking to get their first phone connections. A TAP worldview allows you to discover future markets instead of playing only in developed ones.

Don’t Seek Consensus

When it comes to decision making, big-to-bigger enterprises look to gain consensus as a way of minimizing the risk of failure; in contrast, refounders recognize that new opportunities lie outside of the realm of consensus. As Marc Andreessen, of venture capital firm Andreessen Horowitz, says, “If something is already consensus, then money will have already flooded in and the profit opportunity is gone.”

Knowing that, refounders seek, as Jeff Bezos says, to disagree and commit — acknowledge differences of opinion and move forward together anyway, recognizing they are making a bet on a conviction and may ultimately be wrong. Grounding decisions in evidence-based conviction allows them to move faster while arriving at potentially great ideas before the rest of the consensus-driven world.

Making your business survive in a changing world

All businesses start from the same point: an idea. It is what happens to that idea that determines business success. According to Entrepreneur magazine, nearly half of all new start-ups fail within the first three years. Beating the odds at start-up is tough. First and foremost an idea, no matter how good, must be combined with entrepreneurial spirit, defined as the willingness to take risk. Without entrepreneurial spirit a great idea might never be pursued. Not all ideas are good ones though; it would be a foolish entrepreneur who rushed a product to market without careful thought, research, and detailed planning. Risk might be inherent in business enterprise, but successful entrepreneurs are those who are not only willing to take risks, but are also able to manage risk.

Having an idea is the first step – the next hurdle is finance. Some start-ups require very little capital, and a few require none at all. However, many require significant backing, and most will need to seek funding at some stage in the growth process. An entrepreneur must be able to convince financial backers that the concept is valid and that they have the skills and knowledge to turn the original concept into a successful business.

It follows that the idea must be profitable. Sometimes, an idea may look great on paper, but turn out to be uncommercial when put into practice. Determining whether an idea has potential requires a study of the competition and the relevant market. Who is competing for customers’ time and money? Are these competitors selling directly competitive products or possible substitutes? How are competitors perceived in the market? How big is the market? Most markets are increasingly global, crowded, and competitive. Few firms are lucky enough to find a profitable niche – to succeed, firms need to do something different in order to stand out in the market. The strategy for most firms is to differentiate; this means demonstrating to customers that they offer something that is not available from competitors – a Unique or Emotional Selling Proposition (USP or ESP).

Such attempts to stand out are everywhere. Every business, and at every stage of production, from raw-material extraction to after-sales service, tries to distinguish its products or services from all others. Walk into any bookshop, for instance, and you will see countless examples of books, often on the same topic, using design, style, and even size (large or small) to stand out from the competition.

Gaining an edge often depends on one of two things: being first into a new market niche, or being different from the competition. For example, in 1995 eBay was first into the online auction market, and has dominated it ever since. Similarly, Volvo was first to identify the opportunity for luxury bus sales in India, and has enjoyed healthy sales. In contrast, Facebook was by no means the first social network, but it is the most successful; its edge was having a better product.

Once a firm is established, the challenge shifts: the objective now is to maintain sales and grow in the short- and long-term.

Long-term business survival depends upon the firm constantly reinventing and adapting itself in order to remain ahead of the competition. In dynamic markets, which are growing and evolving all the time, the idea on which the firm was originally founded may become irrelevant over time, and competitors will almost certainly copy it. The ecosystem in which a business operates is rarely, if ever, static. Corporations exist in these ecosystems as living organisms that must adapt to survive. In their 2013 book, Reinventing Giants, Bill Fischer, Umberto Lago, and Fang Liu noted that the Chinese home appliances firm Haier had reinvented itself at least three times in the past 30 years. In contrast, Kodak, a US giant of the 20th century, was slow to react to the rise of digital photography, and went bankrupt.

Moreover, just as the enterprise must adapt, so too must the owner. Most businesses start small, and remain small. Few entrepreneurs are willing or know how to take the second step of employing people who are neither family nor previously known friends. This is the start of a move from entrepreneur to leader, and it requires a new set of skills, as new demands are placed on the business founders. Where once energy, ideas, and passion were enough, evolving businesses require the development of formal systems, procedures, and processes. In short, they require management. Founders must develop delegation, communication, and coordination skills, or they must employ people who have them.

As Larry Greiner described in his 1972 paper, “Evolution and Revolution as Organizations Grow”, as a business grows, the demands on it change. The Greiner Curve is a graphic that shows how the initial stages of growth rely on individual initiative, and that evolving ad-hoc business practice into sustainable and successful growth can only be achieved by experienced people and rigorous systems. Professional management, as opposed to entrepreneurial spirit, becomes essential to business evolution.

Some leaders, such as Bill Gates and Steve Jobs, for example, are able to make the transition from entrepreneurial founder to corporate leader. Many others, however, struggle to make the necessary changes; some try and fail, while others decide to remain small.

Determining how fast to grow is, therefore, a balance of the founder’s skills and desires. But in order to survive, the idea must be unique enough to define its own niche, and the individual or group behind it must demonstrate entrepreneurial spirit. They need the flexibility to adapt the idea – and themselves – as business and market pressures demand. Luck will play a part, but it is the balance of these factors that determines whether a small start-up becomes a giant.

Go beyond inner fears

Fear is a natural and universal human phenomenon, affecting top executives as much as anyone else. The majority of management literature is focused on helping leaders conquer their fears. The problem is that stifling fear doesn’t make it go away. In fact, failing to address it can lead to highly unproductive and dysfunctional behaviors.

Through our firm’s work with thousands of executives over 30 years, we have come to believe that unrecognized or unacknowledged core fears are almost always a root cause of professional distress and unattained potential. Yet those fears are not necessarily bad. We have met met many leaders who have chosen to understand and learn from their fears, turning them into fuel for performance. If you are willing to take a hard look at your fears and where they’re coming from, you can channel them productively. If, for example, deep down you’re afraid that you don’t measure up (a common executive fear), you can find ways to engage that desire to be your best without driving your team into the ground.

It may be that outside help is in order — an executive coach, a good therapist, supportive family and friends. But there is a lot of work leaders can, and should, do on their own.

Fear is a natural and universal human phenomenon, affecting top executives as much as anyone else. The majority of management literature is focused on helping leaders conquer their fears. The problem is that stifling fear doesn’t make it go away. In fact, failing to address it can lead to highly unproductive and dysfunctional behaviors.

Through our firm’s work with thousands of executives over 30 years, we have come to believe that unrecognized or unacknowledged core fears are almost always a root cause of professional distress and unattained potential. Yet those fears are not necessarily bad. We have met met many leaders who have chosen to understand and learn from their fears, turning them into fuel for performance. If you are willing to take a hard look at your fears and where they’re coming from, you can channel them productively. If, for example, deep down you’re afraid that you don’t measure up (a common executive fear), you can find ways to engage that desire to be your best without driving your team into the ground.

It may be that outside help is in order — an executive coach, a good therapist, supportive family and friends. But there is a lot of work leaders can, and should, do on their own. From our work, we’ve created a four-step process of rigorous self-reflection that countless executives have used to understand their fears and become better leaders.

  • Fear of being wrong. People harboring this fear are extremely focused on rules, ethics, standards, and “right vs. wrong.” They are deeply afraid of making a choice that will later prove to be “objectively” wrong. These perfectionists put a lot of pressure on themselves and their coworkers.
  • Fear of not being good enough. Those with this fear tend to be insecure, intensely focused on their image, and desperate to prove their worth. This may come at a cost to their authenticity, not to mention their capacity for joy. What’s more, because their core motivations relate to how they are seen by others, they tend to fudge facts.
  • Fear of missing out. This drives leaders to constantly seek new opportunities and experiences. The downside? It can scatter their attention and muddy their decisions. As they pursue multiple interests at once, they leave their teams frustrated and confused. Deep down, executives with this fear are afraid of being alone.
  • Fear of being victimized or taken advantage of. Those suffering from this fear push for truth and justice; they are afraid of being seen as weak. They feel the need to win every battle, and can be defensive and controlling.

Protecting oneself from the imagined consequences of these fears can be helpful — pushing you to work harder and achieve more. But there is also, often, a sizable cost.

The experience of Suzanne (not her real name, but indeed a real person), a highly successful strategy consultant we met 10 years into her career, illustrates both the costs of unacknowledged fear, and the benefits of reconciling it.

Suzanne was a shining example to her peers — a top-performer known for delivering solid results on every project she’d taken on. Nonetheless, she believed her career had stalled, and some feedback she’d received gave her a clue as to why. A 360-degree review revealed her team didn’t trust her. That hit Suzanne hard because she’d considered herself a good boss, which was very important to her. What’s more, her personal relationships were suffering. Eager to always make a good impression, she had become an expert in putting a positive spin on clearly questionable events. No wonder her team was wary. Those two revelations were sufficient motivation to take on the hard job of change.

What others didn’t see — and what Suzanne had to contend with — was her underlying anxiety that she might fail, and how that anxiety was crippling her emotionally. She suffered from the fear of not being good enough. While many admired her, they said she seemed more interested in her own image than anything else, and lacked the capacity to care about others. The truth was that she had failed to make true connections because she was overly committed to protecting her own reputation.

Step 1: Acknowledge the fear. As a high achiever, Suzanne cared deeply about how her colleagues saw her. True to her nature, she set about to rectify her behavior. Her first step was to understand and admit her fear — not an easy thing to do. After all, she had done a great job of covering it up for years. On the surface she was very polished and put together, and extremely smart and successful. But cracks were beginning to appear.

In the acknowledge phase, we suggest that people take a close look at their history and examine the choices they’ve made and the reasons behind those choices. In Suzanne’s self-examination, she reached back to the most meaningful times of her life, beginning with high school and onwards through college and her professional life. Looking at the activities she’d chosen, she realized she had not put much effort into pursuing her own interests but rather activities in which she was certain she could excel.

Desperate to project an image of excellence, she lost her sense of self along the way. Recognizing this was a real awakening for Suzanne. She needed to reconsider who she was and what she wanted. Only then would she be able to let her true self come through and make genuine connections.

Step 2: Interrogate the fear to better understand it. Suzanne had to critically assess her current reality and look at the costs of her fear. After learning her team didn’t trust her, she had to face the fact that by constantly comparing herself to others and trying to look good above all, she’d lost touch with what actually mattered to her and how her behavior affected others.

So she spent time considering what it would mean if she failed at something. Who would she be? What would happen if she took on a project that didn’t play to her strengths? What if she delivered B+ work? Her instinct told her that failure would leave her with nothing, so she had to acknowledge that instinct but move past it. Other people make mistakes and they move on. They didn’t walk around with a scarlet F on their chests. As Suzanne began to see how her unfounded fears were worsening her behavior, she began to understand she didn’t have to meet an unattainable ideal.

Step 3: Choose a different course of action. This is about deciding what to do next and making commitments —understanding what truly matters to you. Some questions to ask yourself:

  • If I objectively evaluate my actions and behavior right now, what would the evidence say that I’m committed to?
  • How does this differ from what I say I want?
  • Practically speaking, if my desires and actions are not fully aligned, what does that indicate?

Suzanne held honesty as one of her core values. But as she asked these questions, she realized her behavior didn’t always match up with it. Similarly, she cared about relationships with colleagues. But in her desire to impress, she’d become less trustworthy, which pushed people away. She made a conscious choice to work hard on aligning her values and behaviors more closely.

Step 4: Act on that choice — in a way that aligns with your values. The last step is to deliver on your commitments. For Suzanne, part of this was taking on projects that weren’t a slam dunk — challenging herself to learn from a place of uncertainty. She also made efforts to get in touch with what sheliked, rather than choose things that other people admired. One useful exercise she did was to walk through museums and identify paintings that she liked and why, without asking anyone else’s opinion. It sounds simple, but it was no easy task for Suzanne, accustomed as she was to pleasing others.

Suzanne’s arduous self-examination of her fears has turned her life around. It drove her to make positive changes, both personally and professionally. Ten years on, her career has taken off. She received a series of promotions, taking on bigger and more important projects.

She eventually went on to form her own successful firm, and is regarded as a highly effective and genuine leader. Her employees love her. In the last decade, she’s evolved her leadership style to the point where she is now known for being trustworthy and selfless.

When leaders are controlled by fear — or when they pretend it’s not there — they can be crippled by it and become powerless. None of us will ever be free from fear, and it’s unrealistic to expect that we can always put our fears in their place. But even when the stakes of admitting their fears feel high, leaders are always more effective when they are candid and do the hard work to right-size their fears.

What’s more, when executives open up about their fears, it makes them much more relatable and approachable as leaders. That will make any executive team far more cohesive and effective, and ultimately the business they run stronger and more successful.

m our work, we’ve created a four-step process of rigorous self-reflection that countless executives have used to understand their fears and become better leaders.

We’ll explain the process and how one leader used it to turn around her career. But before we do, here are the fears we’ve found that most commonly plague executives. (These fears are generally tied to personality types as defined by the Enneagram personality model; you can find a more complete discussion of the fears and personality types in our whitepaper on the topic.) They are:

  • Fear of being wrong. People harboring this fear are extremely focused on rules, ethics, standards, and “right vs. wrong.” They are deeply afraid of making a choice that will later prove to be “objectively” wrong. These perfectionists put a lot of pressure on themselves and their coworkers.
  • Fear of not being good enough. Those with this fear tend to be insecure, intensely focused on their image, and desperate to prove their worth. This may come at a cost to their authenticity, not to mention their capacity for joy. What’s more, because their core motivations relate to how they are seen by others, they tend to fudge facts.
  • Fear of missing out. This drives leaders to constantly seek new opportunities and experiences. The downside? It can scatter their attention and muddy their decisions. As they pursue multiple interests at once, they leave their teams frustrated and confused. Deep down, executives with this fear are afraid of being alone.
  • Fear of being victimized or taken advantage of. Those suffering from this fear push for truth and justice; they are afraid of being seen as weak. They feel the need to win every battle, and can be defensive and controlling.

Protecting oneself from the imagined consequences of these fears can be helpful — pushing you to work harder and achieve more. But there is also, often, a sizable cost.

The experience of Suzanne (not her real name, but indeed a real person), a highly successful strategy consultant we met 10 years into her career, illustrates both the costs of unacknowledged fear, and the benefits of reconciling it.

Suzanne was a shining example to her peers — a top-performer known for delivering solid results on every project she’d taken on. Nonetheless, she believed her career had stalled, and some feedback she’d received gave her a clue as to why. A 360-degree review revealed her team didn’t trust her. That hit Suzanne hard because she’d considered herself a good boss, which was very important to her. What’s more, her personal relationships were suffering. Eager to always make a good impression, she had become an expert in putting a positive spin on clearly questionable events. No wonder her team was wary. Those two revelations were sufficient motivation to take on the hard job of change.

What others didn’t see — and what Suzanne had to contend with — was her underlying anxiety that she might fail, and how that anxiety was crippling her emotionally. She suffered from the fear of not being good enough. While many admired her, they said she seemed more interested in her own image than anything else, and lacked the capacity to care about others. The truth was that she had failed to make true connections because she was overly committed to protecting her own reputation.

Step 1: Acknowledge the fear. As a high achiever, Suzanne cared deeply about how her colleagues saw her. True to her nature, she set about to rectify her behavior. Her first step was to understand and admit her fear — not an easy thing to do. After all, she had done a great job of covering it up for years. On the surface she was very polished and put together, and extremely smart and successful. But cracks were beginning to appear.

In the acknowledge phase, we suggest that people take a close look at their history and examine the choices they’ve made and the reasons behind those choices. In Suzanne’s self-examination, she reached back to the most meaningful times of her life, beginning with high school and onwards through college and her professional life. Looking at the activities she’d chosen, she realized she had not put much effort into pursuing her own interests but rather activities in which she was certain she could excel.

Desperate to project an image of excellence, she lost her sense of self along the way. Recognizing this was a real awakening for Suzanne. She needed to reconsider who she was and what she wanted. Only then would she be able to let her true self come through and make genuine connections.

Step 2: Interrogate the fear to better understand it. Suzanne had to critically assess her current reality and look at the costs of her fear. After learning her team didn’t trust her, she had to face the fact that by constantly comparing herself to others and trying to look good above all, she’d lost touch with what actually mattered to her and how her behavior affected others.

So she spent time considering what it would mean if she failed at something. Who would she be? What would happen if she took on a project that didn’t play to her strengths? What if she delivered B+ work? Her instinct told her that failure would leave her with nothing, so she had to acknowledge that instinct but move past it. Other people make mistakes and they move on. They didn’t walk around with a scarlet F on their chests. As Suzanne began to see how her unfounded fears were worsening her behavior, she began to understand she didn’t have to meet an unattainable ideal.

Step 3: Choose a different course of action. This is about deciding what to do next and making commitments —understanding what truly matters to you. Some questions to ask yourself:

  • If I objectively evaluate my actions and behavior right now, what would the evidence say that I’m committed to?
  • How does this differ from what I say I want?
  • Practically speaking, if my desires and actions are not fully aligned, what does that indicate?

Suzanne held honesty as one of her core values. But as she asked these questions, she realized her behavior didn’t always match up with it. Similarly, she cared about relationships with colleagues. But in her desire to impress, she’d become less trustworthy, which pushed people away. She made a conscious choice to work hard on aligning her values and behaviors more closely.

Step 4: Act on that choice — in a way that aligns with your values. The last step is to deliver on your commitments. For Suzanne, part of this was taking on projects that weren’t a slam dunk — challenging herself to learn from a place of uncertainty. She also made efforts to get in touch with what sheliked, rather than choose things that other people admired. One useful exercise she did was to walk through museums and identify paintings that she liked and why, without asking anyone else’s opinion. It sounds simple, but it was no easy task for Suzanne, accustomed as she was to pleasing others.

Suzanne’s arduous self-examination of her fears has turned her life around. It drove her to make positive changes, both personally and professionally. Ten years on, her career has taken off. She received a series of promotions, taking on bigger and more important projects.

She eventually went on to form her own successful firm, and is regarded as a highly effective and genuine leader. Her employees love her. In the last decade, she’s evolved her leadership style to the point where she is now known for being trustworthy and selfless.

When leaders are controlled by fear — or when they pretend it’s not there — they can be crippled by it and become powerless. None of us will ever be free from fear, and it’s unrealistic to expect that we can always put our fears in their place. But even when the stakes of admitting their fears feel high, leaders are always more effective when they are candid and do the hard work to right-size their fears.

What’s more, when executives open up about their fears, it makes them much more relatable and approachable as leaders. That will make any executive team far more cohesive and effective, and ultimately the business they run stronger and more successful.

How Innovation Really Works

Sales and marketing were once disciplines ruled by emotions. But somewhere along the way, we recognized that they were based on definable pipelines and applied technology to manage those pipelines. Today you can put a corporate dashboard in place to manage them and tweak the settings to try to boost your results.

What if we applied the same thinking to innovation? After all, innovation, like marketing and sales, is a pipeline. In one end go raw concepts and notions. Out the other end come actionable ideas that can move the business forward. With the right technology, could you manage this pipeline the way you manage a sales pipeline?

Research shows that you can.

Dylan Minor, assistant professorship at the Kellogg School of Management, has analyzed five years of data from 154 public companies covering over 3.5 million employees that have used an idea management system called Spigit. For the millions of employees of these companies, the idea management system functions a little like Facebook – people can post ideas, get votes, deliver or respond to feedback, and develop the ideas into innovations that make a difference to the company. The innovation teams at these companies use them to track and process all the ideas and whether the company committed to putting them into practice. Some companies use this software for process innovation; others develop new products; others seek efficiencies and cost savings.

Once you put innovation into a system like this, you can track everything. We know how many innovation challenges the companies are running, how many people are suggesting ideas, and how many ideas they suggest. We know how many people are participating in other ways – by voting or making comments, for example. And we also know how many of those ideas get through the endpoint of the challenge, which is where the company’s management determines which ideas to pursue further. Linear regression was used to analyze every potential measure the system includes over every 3-month time period when the system was active within the company.

But what was learned from analysis of all this data is that innovation is, indeed, a science. And surprisingly, the variables that make for a successful innovation program are independent of whether the company is seeking disruptive or incremental innovations. It doesn’t matter whether they’re asking for process or product innovation, what industry the company is in, or even, for the most part, whether the company is large or small.

The key variable that we identified across all the companies in the analysis is the ideation rate, which is defineed as the number of ideas approved by management divided by the total number of active users in the system. Higher ideation rates are correlated with growth and net income, most likely because companies with an innovation culture not only generate better ideas, but are organized and managed to act on them.

After reviewing dozens of variables that could potentially affect ideation,  four factors that drove the ideation rate were identified.

Scale – more participants. To succeed, an innovation program needs lots of participants. It’s the wisdom of the crowd: a large mass of participants will always out-ideate a small group of smart people. On average, companies generate one idea for every four participants in the system.

Frequency – more ideas. To get to a set of promising ideas whose implementation would make sense, you need to sift through a lot of candidates. To succeed, a company needs to create frequent idea challenges for its employees. These challenges reinforce a culture of innovation and generate more ideas going into the pipeline. While there is a great deal of variation based on the types of ideas and the companies reviewing them, on average, it takes five idea candidates to generate one idea that the company judges to be worth implementing.

Engagement – more people evaluating ideas. It’s not enough to get some people suggesting ideas. You need lots of other people figuring out whether those ideas are worth working on, or what it will take for them to become better. A successful idea management system is a ferment of commentary, with lots of feedback.

Diversity – more kinds of people contributing. You might think the most productive innovation system would be full of engineers or other problem-solvers. You’d be wrong. A successful system needs contributions from all over the organization, especially staff who are close to the front lines: sales staff, support workers, or people in close touch with the company’s manufacturing processes, for example.

When a program like this is working, it churns out actionable innovations at a steady and predictable pace. What’s that like?

One large industrial manufacturer has put an innovation management system to good use. The company has mastered frequency and scale: it has run 15 challenges in the last year with over 2,000 active participants. Hundreds of ideas have poured in, generating thousands of comments. In 12 months, the company selected over 50 ideas to implement.

For example, the company challenged its employees to find ways to serve customers better. Among the problems that surfaced was the difficulty of inspecting a particular aircraft part overnight. The inspection process typically took eight hours. The company’s customers – airlines – found this frustrating because sometimes planes land late and need to take off early.

As the service techs understood, the problem wasn’t actually the inspection. It was the process of threading the camera inside the aircraft part to inspect it. That took seven hours. The subsequent inspection took one.

An administrative assistant at the company who was familiar with the airlines’ complaints responded to the challenge. She had recently seen the Tom Cruise movie Minority Report. She posted an idea, wondering, “Why can’t we send a robotic spider into the part, like the ones in the movie?”

While a lot of people reviewing her suggestion found it silly, the company’s Chief Technology Officer was intrigued. He tried putting a miniature camera on a remote control set of robotic legs and walking it into the part. It worked. He then turned the secretary’s idea into a standard practice. Now the inspections takes 15% as much time as they used to, and the airlines are a lot happier.

A single idea like this is impossible to predict or optimize for – just like a single sale is impossible to predict. But when you treat ideas systematically with an appropriately designed system, you can manage the pipeline of those ideas. That pipeline engages the employees who best know how to solve the problems of the business, and generates a predictable stream of innovations. Those innovations drive the business forward. Our research shows how to generate that steady stream of ideas.

Once everyone is thinking about ideas – and imagining that their cool concept might actually move the company – you get the while company effectively engaged in innovation. And in the Internet era, with the pace of innovation always accelerating, understanding the science of innovation could make all the difference in your ability to compete.

Avoiding disproportionate holiday sales

 

The retail industry has been disrupted in practically every way imaginable. It’s about time that retailers also rethink their approach to the holiday shopping season. It no longer makes sense to rely on disproportionate revenue from the holiday season to make up for softness in sales during the rest of the year.

Customers don’t want retailers to dictate their shopping schedule. Wealthier shoppers have become used to buying the products they want when they want them, whether that’s shouting out an order to Alexa, discovering an item while browsing through Pinterest, or using their mobile phone to buy a bunch of stuff during their morning commute. More price-sensitive shoppers are also changing their habits. RetailNext says that December traffic and sales are moving into January, which suggests that some shoppers are learning to wait for post-season sales. More and more shoppers across the retail spectrum are only frustrated by deals restricted to a certain timeframe (such as on Black Friday) or buying mode (such as in-store specials only).

More customers are in shopping mode all the time. In the book Absolute Value, Itamar Simonsen and Emanuel Rosen describe the new purchase decision process that has arisen from information about products being so ubiquitous and readily accessible. They argue that people no longer initiate shopping when they identify a need. Instead they now regularly engage in “couch tracking” — that is, keeping track of what they learn about products from reviews, friends, and news items on an ongoing basis. As such, customers’ preferences may be formed well in advance of any specific plan to purchase. Therefore it doesn’t make sense for retailers to try to influence product or brand decisions only during discrete windows of time.

For every person who is attracted by the excitement of shopping during the holiday rush is another who is turned off by the hassles and crowds. By insisting on driving traffic to stores on certain days when the customer experience is crowded, cluttered, and competitive, retailers are likely to drive some people to shop online where they end up more susceptible to distractions from other content and activities and lures from other retailers. And customers’ frustration with in-store shopping only increases at the end of the holiday shopping season, just when retailers want to prompt additional purchases or lock in last minute ones. Bain has found a clear drop in Net Promoter Scores in the second half of December from the first half of the month.

An over-emphasis on the holiday season doesn’t make sense from the retailer perspective either. The large fluctuations in demand wreak havoc on supply chain, labor management, and accounting. Anyone whose worked for or with a retailer knows the toll the holiday season takes on corporate culture, with employees expected to work long hours, endlessly trying to keep their finger on customers’ pulse and scrambling to make last minute changes. Given that demand can ebb and flow with uncontrollable factors like weather and other retailers’ actions, their efforts are often futile, thus increasing both frustration and costs.

Moreover, most non-price holiday promotions have become less effective. Retailers used to be able to bow special offers such as free or expedited delivery and free or reduced-price gift cards to entice purchases during the holiday period. But now that these incentives have become expected by customers, retailers have had to resort to price promotions only — and these only produce a race to bottom to see who can offer the lowest price which is neither sustainable or profitable.

With an over-dependence on the holiday shopping season, retailers are missing out on opportunities to generate demand over a longer period of time. According to Harris more than 3 in 4 millennials choose to spend money on a desirable experience or event over buying a product. And millennials aren’t the only ones trading dollars they once spent at retailers to other businesses. According to Fortune, Kevin Logan, U.S. chief economist for HSBC, notes that purchases of clothing and shoes as a share of discretionary spending has dropped overall, while spending on recreation, travel, and eating out has been trending up for more than a decade. A year-round approach would likely help retailers compete with restaurants and other experiences which people seek out throughout the year.

Also given that Millennials are just as likely to buy something for themselves as for someone else during the holiday season, retailers should encourage self-gifting year-round. They may be able to inspire more purchases than they would by waiting for the discrete holiday occasion.

The National Retail Federation reports that 54% of consumers start researching holiday purchases in October or before.  Although retailers might interpret this as a reason to start holiday marketing and promotions earlier, doing so unnecessarily limits the relevance of their outreach. Without a holiday-specific message during fall months, they might capture wider demand. And by delaying and scaling back their holiday promotions, they offset the chances of creating deal-fatigue.

For an industry that relies on news to drive store traffic, a reduced focus on the holiday season might seem risky.  The holidays predictably prompt shoppers to visit stores. But retailers can — and should — use other ways to create news and generate traffic, including promoting new products and brands, offering exclusive access or services, and celebrating other holidays. Different kinds of news will help retailers differentiate themselves, and as a result, they may pique even more interest than an expected holiday message.

Less emphasis on holiday season sales spikes may also concern analysts who rely on monthly comparable store sales to gauge retailers’ performance, since a longer-term, but less timely, measurement such as quarterly sales growth would be a more accurate indicator.   But moving away from monthly comp store sales reports makes sense regardless.  Since in the U.S., the “official” start of the holiday shopping season is dictated by the date of Thanksgiving – a holiday that is always celebrated on the fourth Thursday of November — a monthly approach to measuring holiday sales can be greatly skewed if the fourth Thursday is early or late in the month.  And comp store sales provide a limited view of performance, since they don’t account for store closures and the way e-commerce sales are factored into them varies among retailers.

The technology and analytics now exist for retailers to better predict what people want and when they want it, so they should use these capabilities to move away from the traditional seasonal approach.  It’s almost as antiquated as mono-channel retail — and just as limiting. By adjusting their marketing, sourcing, and inventory management, retailers can free themselves from the daunting task of fulfilling unpredictable demand during an intense period and instead provide a more customer-centered experience for their shoppers.