Adopting a Market Mindset: Overcoming Hidden Barriers to Innovation

ROTMAN Magazine

Does your organization really understand how its market is changing?

If not, we have bad news: you might get left in the dust.

by Carlos García Pont and Paulo Rocha e Oliveira

“WE ALL KNOW WHAT THE CUSTOMER WANTS,” yells the president and CEO of a business-to-business plastics manufacturer. “Of course we do,” agrees the sales director. “We deal with them every single minute of every day. We couldn’t sell a dime otherwise.”

The company’s senior managers are gathered for an all day meeting to discuss the findings of an external survey on how the firm uses market information. The survey was requested by the general manager following growing concerns that the company was simply catering to clients’ everyday needs without actually putting together a clear, organization-wide, customer based strategy.

Needless to say, emotions in the meeting are running high, as many of the board members reject the survey’s findings.  This is perhaps unsurprising, given that they call into question the market information systems being used. Still, the general manager is struck by the knee-jerk defensiveness of many of his colleagues.  “Isn’t it true that all we ever do is respond to day-to-day pressures, constantly adapting our manufacturing operations to the next set of customer orders?” he asks. “So what? That’s what the customers want, isn’t it?” fires back the sales manager.

“But how can we be proactive as an organization? How can we possibly learn and improve if all we ever do is react to daily pressures?” Admittedly, strained boardroom relations are a common occurrence. But so, too, is the problem that prompted the row—namely, the failure of companies to share market information and use it effectively.

The sad truth is, while companies tend to do rather well at accumulating relevant market information, they are not as good at sharing it across the organization or agreeing on its broader implications. Our latest research indicates that companies are insufficiently attuned to the ebb and flow of their respective markets, and often fail to process the market information they gather adequately. As we will show in this article, these two problems represent major barriers to innovation. After all, if you don’t properly understand your market, how can you possibly know what it wants or needs, never mind deliver it?

Companies must continuously question their purpose, their raison d’être, by asking themselves, Why do customers buy from us? Why do we want customers to buy from us? What is it that makes us different?  These are the questions that each manager should have at the forefront of his or her mind, and that must be asked daily across the entire organization. Indeed, they must be so deeply ingrained in your operational and management culture that ‘being different’ becomes the main driver of your activities.

This article is based on our research on information-sharing processes at 20 multinational firms from a broad range of sectors.  In it, we will describe some of the hidden barriers to innovation, and then propose some practical ideas for managers to innovate more successfully.

Differentiation: The Key to Survival

Management thinker Peter Drucker once asserted that any business enterprise has two — and only two — basic functions:  marketing and innovation. Although some may quibble with that statement, most would agree that innovation is absolutely vital to success. Without it, there can be no differentiation; without differentiation, there is no customer; without customers, there is no profit; and without profit, there is no firm. To support an ongoing cycle of innovation, a company must develop an organizational structure and culture that allows it to function as a well-oiled ‘differentiation machine’.

Companies that ignore the need for constant differentiation do so at their own peril. Remember Amstrad or Commodore?  We rest our case. Many of today’s companies are equally at risk of failing to read the writing on the wall. For example, after years of leading their respective markets, tech giants Nokia and BlackBerry are suddenly struggling to reposition or reinvent themselves.  Economists may point to such rise-and-fall sagas as living proof of Schumpeter’s theory of creative destruction. Yet while Schumpeter’s model may serve as a neat economic explanation for why some firms must die out while others live on, it is of absolutely no use to managers struggling to avert the collapse of their own floundering firms.

Instead, managers should ask themselves, Why was the management of such thriving firms unable to adapt to change?  What stopped them from looking beyond the immediate successes of today to the risks and challenges of tomorrow?

As a vast body of research confirms, firms that are more market-oriented have higher levels of innovation, introduce more products and services that are new to the market, and tend to be more successful with the innovations they launch. Yet sustaining a flow of successful products and service improvements over time requires more than just policies, committees, radical innovation projects and generous R&D budgets. It requires a special organizational mindset.

This is not to understate the critical importance that formal systems have on both radical and incremental innovation, but rather to emphasize that their impact can be significantly amplified or nullified by a firm’s ability — or lack thereof — to understand the subtler, human forces that drive innovation.

Consider the warehouse manager who learns to put a given set of products on top of the pallet when he realizes that it would simplify a particular client’s logistic processes. Or the supermarket cashier who processes large items first in order to make it easier for the customer to pack his shopping bags. Such improvements are usually not motivated by cost, despite their obvious implications for efficiency. Rather, they are rooted in employees’ keen observations of the customers they are seeking to satisfy.

To reach and maintain a cycle of innovation, everyone who works in an organization must place the market — and with it, the customer — at the centre of their thoughts and actions. Some might equate this with customer-centricity, which purports to put the customer at the heart of everything the organization does, aiming to give them exactly what they want. But this is a recipe for disaster. Of course any successful firm must give customers what they want, but only to the extent that it is possible or profitable.  Firms should also seek to provide customers with what they don’t yet realize they need, by anticipating or even precipitating changes in their behaviour and tastes.

Viewed in this light, what does it mean to have a market mindset? At its core, it means using market information to make decisions that improve your competitiveness. In order to do that, the entire company must itself be oriented to the market and innovatively minded, and this depends on three critical factors.

1. KNOWING WHAT’S GOING ON IN THE MARKET

You’re never going to be able to foster a market mindset unless you start gathering information on what’s happening in the market.

2. UNDERSTANDING WHAT’S GOING ON IN THE MARKET

Having information is not enough: market information must be digested and interpreted, and your organization must reach some level of collective agreement on its implications for your business.

3. USING THAT MARKET INFORMATION

Firms must act on the information. Market-minded organizations do not follow market trends, nor do they strive to deliver everything customers want. Instead, they seek to grasp what’s happening in the market and use this information for decision making and action.

So why don’t firms develop a market mindset? Our research turned up several barriers that often stymie the ability to know, understand and use market information. We will examine each in turn.

Knowing What’s Going on in the Market: Three Barriers

1. OVER-RELIANCE ON A SINGLE SENSE. Far too often, the exclusive source of market information within a company is its Marketing department, which is often described as ‘the eyes of the organization’.  Other departments are freed from all information gathering burdens, and managers stop tapping the knowledge or insights they’ve gleaned from their interactions with suppliers or customers.

In the course of our research, we came across several companies where most employees felt that “Sales and Marketing should care about the market.” However, relying exclusively on one department for information significantly narrows a company’s sensory capacity. Just as blind people develop heightened senses to compensate for their loss of sight, so, too, must companies amplify their perceptive faculties in order to gain a more complete picture of the market.

Ask yourself, “Who are the eyes — and ears — of my organization?”  The simple answer should be, “Everyone.” The person in charge of purchasing should have close relationships with suppliers; the supply-chain manager should know the logistic practices of both clients and suppliers; the IT person should know what information systems your competitors have in place. In reality, each and every employee has the capacity to remain on the lookout in one area — no matter how small —of the market.

2. A BELIEF THAT “WE ALREADY KNOW IT ALL.” As the saying goes, “If you want to make enemies, try to change something.” Resistance to change is a natural tendency. Even in forward-thinking organizations, there will always be those who fight change. When this infects senior management, problems ensue as the organization systematically blocks any information that challenges established practices.

This problem had reached critical levels at one electronics manufacturer we studied. As one corporate marketing director complained, “New information is often presented at special meetings, but very few managers or employees actually bother to attend. We then send the information by e-mail, but nobody bothers to read it. They just don’t have the time or simply don’t care.” This often happens among firms that are overly focused on their competitors: they think they know what they have to do, so they spend all their time discussing how to beat the competition on prices and special offers, for example, instead of focusing on finding out what they don’t know.

3. INFORMATION IS GATHERED, BUT NEVER PROCESSED. In one fast-moving consumer goods company we studied, the Marketing department had once carried out research into the firm’s brand architecture, revealing a number of inconsistencies. A summary graphic showed how these inconsistencies were undermining the company’s growth efforts, indicating that some brands required certain modifications to fit with the firm’s architecture.  This graphic was trotted out at nearly every marketing and business strategy presentation over the next four years, to the point that it attained near-celebrity status. Even so, absolutely nothing was ever done to address the problems highlighted.

This illustrates that gathering information is just the first step in developing a market mindset. Having a report containing information is all well and good, but serves no purpose whatsoever if no effort is ever made to interpret it or act upon it. We came across numerous companies that were mere information gatherers.

Understanding the Market: Four Barriers

1. INFORMATION POSSESSIVENESS. “I prepared the information, so it’s mine and mine alone to use” is a common attitude in many companies. This often results in a breakdown of information flows, as managers and employees refuse to share the valuable knowledge they possess. This may be partly because people believe information is power, so they guard it carefully; but more often it’s because people believe information is only for those who ‘really need it’.

A case in point was the Operations unit of one of the world’s largest electronics manufacturers. The unit’s director told us that, in the absence of information-gathering processes, the only way he could receive relevant market information was to go directly to the information source and demand to be included in the next round of communiqués. A business manager working in the same company’s Corporate Marketing division said that if anyone had the time and energy to share information, they could.  However, in the absence of any formal system to support information sharing, it was usually more trouble than it was worth.

Such attitudes are common in organizations that adhere to a Taylorist division-of-work perspective, where tasks are clearly assigned, there is no need for individual initiative and information sharing functions on a purely need-to-know basis. These organizations tend to neglect the role of contextual information, which, while not strictly necessary to carry out one’s tasks, is nonetheless essential for contributing to organizational excellence.  Contextual information enables employees to understand why a certain task should be carried out, why it is carried out in a certain way and, in some circumstances, how it might be performed differently.  Having a system of cross-divisional information sharing, to make extensive use of contextual information, is vital.

2. OVER-CENTRALIZATION. In many of the firms we studied, collaboration efforts and knowledge sharing more often took place within departments rather than between them. One sales manager reported that informal communication between departments was all but non-existent. “We are organized on a floor-by-floor basis,” he explained. “We don’t even cross paths with co-workers from other departments in the cafeteria.” While that may be extreme, weak interdepartmental interaction and lack of communication are common problems for many companies. When organizations are loosely integrated, and ideas come exclusively from within and not across departments, innovation stimuli are significantly reduced.

In these kinds of bubbles, employees start to feel cut off.  The slightest hint of outside intervention or collaboration makes people defensive, and they become averse to change. These organizations tend to be run by highly visible gatekeepers who are wary of too much transparency and see it as their job to preserve the established hierarchy and protect certain senior managers.

To address this problem, companies sometimes set up innovation teams or task forces responsible for implementing internal operational processes aimed at facilitating information sharing. However, if all they are doing is introducing yet another top-down process run by another set of managers, this will only make the problem of over-centralization worse.

Instead, responsibility for inter-departmental interaction must be delegated to members of each department, encouraging those peers who need to interact to actually begin to interact with each other. Moreover, information sharing must be integrated into employees’ daily operational processes, not specially designed or instituted as a discrete process or activity.

3. LACK OF COORDINATION. The next barrier to innovation arises when employees do try to seek information from other departments, but then find insufficient coordination to do anything meaningful with it. Despite having multi-division initiatives in place, the lack of coordination between departments was turning into “a nightmare,” said one senior manager of new business and market intelligence.

Another senior director added that, “company-wide decision making can sometimes grind to a halt, simply because too many people are involved. It’s hard to get things moving. For example, it can take up to four months to get approval for a product return—a process that should take no more than 15 days.” If interdepartmental information sharing is poorly coordinated for the most basic of administrative procedures, just imagine the effects on company-wide innovation.

4. OPERATIONAL MYOPIA. An obsession with short-term performance prevents companies from seeing the greater scheme of things. They focus too much on the day-to-day, like production and sales, which tends to make them behave in a reactive rather than proactive manner, and they grow complacent. As a sales manager in a waste management and environmental services company said, “There’s no time to think about client concerns or innovating. The company has always made money from its daily operations, so what’s the worry?”

The worry is that if employees or managers don’t have the time or energy to manage and interpret the information they possess, they are more likely to miss out on new ideas, and thus new opportunities for innovation. And this is not something that applies only to certain companies, as one manager in our study believed.  “This market mindset is interesting,” he said, “but surely it is only for big firms.” Does anyone honestly believe that the need for innovation and differentiation somehow applies only to large firms? Make no mistake: having a market mindset is essential, regardless of the size of your firm.

Using Market Information: Two Barriers

1. PAYING LIP SERVICE. Many of the official company spokespeople we interviewed insisted that acquiring and using market information was common practice in their organizations. Yet, in our one-to-one interviews with specific managers and employees, many complained about the lack of sufficient information to truly understand their markets and clients.

The remarks of one European marketing director perfectly illustrate the frequent gap between talk and action. Asked if there was any customer segmentation, he gave the politician’s answer: “If anyone did it, it would be me. Segmentation is a defined part of the company’s strategic plan.” When pressed on how segmentation was being used, he said, “Well, culturally speaking, this is still very new to us.”

The fact is, companies may go to extraordinary lengths to amass huge amounts of information; but too often that information is left to languish, and no one ever considers its broader implications. One reason for this is that employees and managers have not been made fully aware of the potential value and relevance of the information, so their approach to assessing it ends up being lackadaisical. In going through all the right motions and paying lip service to the idea of market orientation, they convince themselves that they have ‘done their bit’.

2. ASSUMING SOMEONE ELSE IS DOING IT. In many organizations, employees

and managers mistakenly assume that customer and market information is already being used effectively. In reality what often happens is that new information is being exchanged, but it’s simply ‘washing over’ managers. Or perhaps the information is being used to make simple operational decisions, but rarely factors into more important, long-term decisions.

Managers often insist that market trends and data are regularly discussed in executive committee meetings. While vital information might be mentioned in passing, no one stops to think about its broader implications. If it is dealt with, it’s usually in bits and pieces, with each manager going off in a separate direction.

One senior manager of new business and market intelligence reiterated this point: “Our competitors are primarily focused on sell-in and sell-out tactics. This information has helped us define what actions we should take. The challenge is spreading the message throughout the organization. Who asks for the information? Nobody.”

Again, we see that, despite the obvious good intentions of management committees and task forces, others in the company who might benefit even more from certain information go without it.

In closing

Always remember, employees are the eyes and ears of your organization, and as such, they should be encouraged not only to seek out as much relevant information as possible from within and beyond the company walls, but also to relay that information to relevant parts of the organization. For that to happen, both employees and managers must develop a mindset that welcomes cross-divisional collaboration.

For its part, the organization must be prepared to forsake some of its centralized power structures in order to build a more collaborative, horizontal workplace. The key is to build more organic structures that allow much closer relationships among members of disparate departments.

The main challenge is overcoming the attitudinal and structural barriers to innovation highlighted in this article. Unfortunately, many large organizations tend to be risk-averse environments and are loath to sacrifice their centralized power structures to experiment with more organic, horizontal management systems — despite the overwhelming evidence that this is precisely what many of today’s most innovative companies have done.

Consider your own organization and ask yourself three simple questions: do you really know how your market is changing?  Do your disparate divisions work together to reach an understanding of what this implies for the business as a whole?  Do you then use this understanding to innovate accordingly?  With market trends and developments changing at unprecedented speed, those who fail to keep up will risk being left in the dust.

 

Carlos García Pont is an associate professor of Marketing at IESE Business School in Barcelona.

Paulo Rocha e Oliveira is an assistant professor of Marketing at IESE. This article

originally appeared in IESE Insight.