Thursday, 8 November 2018

The Planning Fallacy and the Innovator’s Dilemma

Scott D. Anthony

August 01, 2012

“You have to deliver $300 million in incremental growth by 2015,” the business unit head told the leader of his innovation team. “That’s less than 5 percent of our revenues, so that should be quite doable.”

While $300 million might sound like a ridiculously large number to small business owners or entrepreneurs, leaders in many global giants consider the amount a drop in the bucket. But anyone with near-term innovation targets with nine (or six or even four) digits in them should ensure they are familiar with the concept of “planning fallacy.”

The basic concept, first presented by Nobel Laureate Daniel Kahneman and his partner Amos Tversky in an influential 1979 paper, is that human beings are astonishingly bad at estimating how long it will take to complete tasks. As recounted in Kahneman’s recent book, Thinking, Fast and Slow, one study found that the typical homeowner expected their home improvement projects to cost about $19,000. The average actual cost? $39,000. Despite ample available information, 90 percent of high-speed railroad projects have missed budget and passenger estimates, with an average overestimation of passengers of about 100 percent and underestimation of budget of about 50 percent.

Entrepreneurs often underestimate how long it will take them to produce revenues, and wildly miss how much they will have to invest to commercialize their idea. As investor and pundit Guy Kawasaki notes, “As a rule of thumb, when I see a projection, I add one year to delivery time and multiply revenues by 0.1.”

The same challenge makes it difficult for companies to escape the innovator’s dilemma. To get through the corporate approval gauntlet you have to project big numbers. Then early results disappoint. Often projects or even divisions get shut down. And the company is staring at an even bigger growth gap. (Innosight cofounder Clayton Christensen memorably termed this the “growth-gap death spiral” in his 2003 book The Innovator’s Solution).

One way to avoid planning fallacy is to get — and use — data from comparable efforts. A simple starting point can be historical projects. Few companies look back to see how well past forecasts panned out, let alone seek to understand the markers that identify successful projects. Or consider looking at easily accessible public data. A few years ago I started a small database of disruptive companies, tracking revenue from day one. Consider the data for 10 of the fastest growing companies in recent history: Google, Netflix, eBay,, Groupon, Zynga, LinkedIn, Facebook, Baidu, and Remember, these are the best and fastest growing startups. (The number in parenthesis represents the number of companies in each year of the sample.)

How about new product introductions? There are certainly outliers. Apple’s iPad $10 billion in first-year revenue, for instance, would make it about the 250th biggest company in the United States, around the same size of Whole Foods, GameStop and Avon Products. But the basic pattern continues. Out of more than 11,000 consumer product launches in North America between 2008 and 2010, Nielsen found only 34 that were distinct, generated more than $25 million in first-year sales, maintained at least 90 percent of sales volume the next year, and had faster sales velocity than the category average. Only six of those 34 had two-year cumulative sales that exceeded $200 million. That’s only 0.055 percent of all launches.

If hitting your growth targets relies on a once in a lifetime success, it is at least worth considering the following three questions critically:

  1. Are we following best in class approaches to ensure that we identify and accelerate our best ideas?
  2. Do we need to increase the amount of resources (both human and financial) we are investing in growth?
  3. Do we need to increase focus on acquisition as a growth strategy, at least as a way to “buy time” for organic efforts to develop?

It does turn out that uninvolved outsiders often offer more realistic (if somewhat negatively biased) projections than involved experts, so consider having select outsiders help to answer these questions to help balance the unrealistic inside view.

For innovators, careful consideration early helps to avoid death spirals later.

Saturday, 3 November 2018



At the turn of the millennium I was doing my MBA (Management Consultancy) and chose Transactional vs Transformational Leadership in Change Management as my dissertation topic. I was fascinated by the what I saw as the hype of charismatic leadership versus the more operational and steady approach to process improvement. I saw it as a battle of style over substance.

I have learned a lot since then and having been part of the team leading the Incorporation of Jersey Post Office from government department into company, been Operations Change and Sales Support for RBSI and NatWest and then again having led Incorporation of government department into company: this time Ports of Jersey.

I have had the opportunity to see, use and learn from both Transactional and Transformational Leadership in Change Management.

So it is with this interest, knowledge and experience that I am very interested in the SoJ Chief Executive plans to transform Jersey’s Government.

Below is a nice summary (by someone else) of Transactional vs Transformational Leadership in Change Management. I don’t actually agree with everything in the article, but in the interests of balance it is important to acknowledge different views.

My reservations include

1. I disagree that a Transactional Leader is not concerned about the futuristic vision or strategies. The difference in my experience is that the Transformational Leader exerts change by charisma (often lasting only as long as their tenure) whereas the Transactional is more systemic (with the result that the Leadership element may be difficult to discern.)

2. I would contend that a Transactional Leader is very capable of “the key functions” list outlined below. Indeed the whole idea of having a systemic list of how to go about change is Transactional.

3. Finally I’d say the “best practices of transformational leaders in business” are actually Transactional tasks (driven by the head) rather than charismatic persuasion (engaging the heart)

What do you think?


Original Source

Leaders play a crucial role in steering organizational change and inspire or stimulate people for achieving excellence at work by realizing the pre-defined goals. Effective leadership provide a direction and vision to the people from top to bottom, develops a conducive culture, climate and values for enabling certain expected code of conduct or behaviour out of employees.

Leaders conceptualize and administer suitable strategies for driving continuous improvement in the existing processes, motivating employees for superior performance and facilitating change across various functionalities.

Leaders play both transactional as well as transformational roles depending upon the organizational context, environmental factors and the long term objectives.


Transactional Leaders work in accordance with the predefined modes of operation and are more concerned about ensuring a continuity in the day to day functioning, ensuring seamless operations by establishing systems and processes in place and focused towards achievement of set targets. Such leaders can enforce disciplinarian actions, establish a systemic framework and define a road map of action, formulate & implement policies and motivate superior performance through a systems of rewards and incentives.

A Transactional Leader is not concerned about the futuristic vision or strategies for acquiring market leadership, but is more concerned about ensuring that the tasks assigned are completed on priority by meeting the quality benchmarks.


It would be more appropriate to say that the Transformational Leaders are the real champions of change. They are the visionaries who influence or motivate teams for achieving excellence in business performance. Transformational leaders give more importance to the development of cohesive teams and facilitate an environment of collaboration for achieving the next best level of performance, instead of ensuring the completion of day to day organizational duties/tasks. The focus is more on team building, empowerment of employees, alignment of individual-organizational goals and culture building for motivating individuals to embrace the change for the better.

Given below are the key functions performed by the Transformational Leaders:

1. Creating a Vision: Transformation Leaders are responsible for envisioning and ensuring that the vision is shared and communicated across all the levels to inspire and motivate people for driving excellence at work.

2. Setting Examples or Modelling: Transformational Leaders inspire employees through Modelling or exemplification of good behaviour or a desirable code of conduct.

3. Establishing Standards: Well defined standards and norms, guide the employees in following a desirable pattern of behaviour and working towards the fulfilment of common goals through a collaborative approach.

4. Culture & Climate Building: Building a facilitating climate and a culture of mutuality, interdependence and flexibility are the major functions of Transformational Leaders. A conducive organizational culture can motivate individuals for delivering performance excellence and exceed expectations by achieving newer milestones at work.

5. External Communication and Liaising: Transformational Leaders establish a connect with the external world and are the main point of contact for communicating with the key stakeholders for the resource support, technological assistance and acquire knowledge regarding the best business practices of leading organizations. This function essentially involves strengthening relationship with the stakeholders or business partners.

6. Team Building or Synergy: This is one of the most important functions of leaders who follow transformational leadership style by building a motivational climate and creating a positivity in the work environment for completing tasks collaboratively.

7. Talent Acquisition & Development: This is the key responsibility of the transformational leaders, which involves identification of the best of the talent pool and nurturing them with adequate training & development support.



1. Transformational Leadership style encourages innovation and creativity in the workplace by creating an enthusiastic and a challenging work environment. This kind of leadership provides ample opportunities to the individuals for growth and achieving newer performance milestones.
2. New Leaders may evolve out of a several followers.

3. Transformational Leaders are visionaries and they possess an extraordinary capability of communicating the vision to the followers. Since, such leaders are more skilled in visualizing the bigger picture, they can address challenges much efficiently.

4. The team members work for the achievement of a common goal or vision by being influenced or inspired by their leaders, thus driving excellence at work.

5. Transformational leadership encourages mentor buddy relationship between the leader and the follower, thus creating a conducive environment for innovation and improves organizational preparedness for any kind of change process.

6. Transformational Leadership brings reforms in the existing processes, creates higher expectations in followers and motivates the followers to deliver beyond the pre-defined expectations or the set framework.

7. Transformational Leadership surely guarantees high performance of the teams as well as superior productivity and growth.


1. Though Transformational Leaders can see the bigger picture, but they lack detailed orientation for which they require the support from the transactional oriented people who are more organized and detailed oriented. Lack of detailed orientation may result in a major oversight, which may ultimately affect the organizational interests in the long term.

2. Transformational Leaders rely too much on inspiration, passion and emotional aspects, which may lead to a neglect of the facts or realities through research, investigation or information gathering.


Transformation in Technology: Various Technology giants like Apple, Microsoft, Intel, IBM and many others, revolutionized the computing world through technological innovation by introducing state of the art quality software applications and microprocessors. Even the world of internet has witnessed a change in the contemporary scenario with Google enjoying its leadership as the most effective search engine and Amazon & e-Bay leading the e-commerce platform.

Transformation in Financial Services Industry: Due to the internet revolution, the financial services industry is undergoing a sea change with the availability of online platforms for the investors for planning their investments independently, researching, trading stocks and investing in various financial products by being in any part of the world. Pioneers like Peter Lynch, proponent of Mutual Funds and John Bogle, proponent of Index Funds, changes the attitude and preference of the investors on various financial portfolios. Today, Mutual Funds and Index Funds have become the most preferred choices for the investors because of the low costs involved and diversified benefits.

Diversification: In the era of globalization and liberalization, the organizations follow diversification strategy for business expansion across the globe and maintaining a leadership edge in the competitive market. Leaders like Jack Welch, the CEO of General Electric during 1980s, restructured the entire organization from the traditional bureaucratic set up to a more agile and lean framework.

Other Examples include Business Process Outsourcing and Knowledge Process Outsourcing which has resulted in generation of cost advantages for the organizations and enhanced business efficiencies, increased job opportunities for millions of people across the world and revolutionized organizational functioning as a whole. Again quality tools and processes like TQM, Kaizen, Six Sigma, etc have led to continuous improvement in business operations and achievement of superior quality benchmarks in manufacturing practices.