Thursday, January 27, 2011

The "Moving the Needle" Fallacy

In a discussion yesterday with senior leaders at a large consumer goods company, we discussed an important challenge facing managers who are trying to build new ventures or launch innovative new products in large organizations. Many managers face what I call the "moving the needle" fallacy. In many firms, senior executives will only endorse new ventures or products if they believe that they will "move the needle" in terms of top line revenue for the firm. In other words, they want the business to be big, not just a tiny increment to overall sales. They don't think small ventures are worth the time and effort.

What's the fallacy here? In my view, this requirement actually drives people to broaden the potential market for their innovative new product or service to the point where it becomes far too generic and similar to rivals' offerings. They essentially are pushing their managers to be less focused. Instead of tailoring a product to a very specific target market, managers end up trying to be all things to all people in search of a large enough target market to move the needle in terms of total firm revenue. In sum, to attract a broader range of customers, they offer a product that is far less distinctive. We get the opposite result from good strategy!

1 comment:

Jay Weinberg said...

Michael: Thanks for the insightful post. I'm going to respectfully a point. I'm a database marketer, so I deal in percentages, not absolutes. In my experience on all sides of the "move the needle" comment, here are some thoughts:
- Moving the needle is not just about top-line revenue. Many projects will cut costs or otherwise increase profitability. Each project has an objective, and it's usually to "move the needle" on a metric. Often, that metric is not sales.
- In reality, the cases that you reference are very much the minority. Breaking new ground, entering new markets, developing unique product, etc, are all valuable pursuits. However, they need to be sold in to management as "moving a different needle". If they will not impact short-term sales, how will they benefit the organization? Scarce budgets need to be optimized and managers need a consistent scorecard.
- Tangent to the point above, many new ideas are simply incremental and have a low propensity to move any needles. Most executives are actually fairly intuitive that way.

So, overall, I think the burden is on the managers to prove to executives that their venture will provide long term benefits that exceed the short term sales gains they are benchmarking against. If they can't, then the executives are probably making the right decision.

In reality, what I explained is a lot harder with public companies for obvious reasons. But that's a whole 'nother issue!

Jay Weinberg, Bryant '85