When the Trend Is Not Your Friend

A cable snaps. A scientist makes a breakthrough. A virus spreads. A regime is toppled. Such unforeseen events, such breaks in patterns or trends, can instantly spark game-changing discontinuities. Sometimes these changes are for the better, sometimes for the worse. We can either cling to the familiar or prepare for and accept abrupt change in advance. We study, follow and believe in trends, but the trend is not always our friend.

It's part of human nature to find patterns. We try to discern trends, in part, to predict the future; but game-changing discontinuities can bring an abrupt about-face. They can come in any form—acts of God or of nature, such as a hurricane or an epidemic illness; new inventions or breakthrough technologies; an individual, such as a trend-setting celebrity or a dictating ruler; or socioeconomic forces, such as financial crises or civil wars. Whatever the source of the discontinuity, the result is the same: Tomorrow suddenly looks nothing like you thought it would.

Discontinuities and Your Business

In the wake of even minor discontinuities, fortunes can be won or lost. Consider Clarence Saunders, a grocer from Clarksville, Tennessee. In 1917, Saunders developed the first self-service grocery retail store. It hardly seems a revolutionary concept today, but it was so novel at the time that it earned a United States patent. Before Saunders, shoppers gave their lists to grocers who gathered the goods from behind the counter. Saunders' self-service concept included turnstiles, checkout counters, shelf diagrams and a strict cash-only policy. Shoppers suddenly had more freedom to choose from an assortment of products on the shelves—and they loved it.

Within five years, Saunders' Piggly Wiggly chain had 1,200 stores. Competitors fought against the change, but the retail landscape had been unalterably transformed. With shoppers choosing products from shelves, packaged goods marketers could build their brands by advertising directly to consumers. Thus arose the entire consumer packaged goods and retail industry as we know it today.

Almost all business forecasts involve some permutation of the continuity theme: extrapolating the past over time will show us the future. In service to that principle, many of us participate in arduous business planning sessions designed to forecast the future by category, SKU or any other variable with widely accepted measurements. We parse census data to grasp demographic changes. We ask consumers questions about their preferences to understand why, how and when they shift to value brands. We chart the rise of private-label brands, guessing at how much more they will rise in coming months. In other words, we spend a great deal of time mapping out trends that, while important, typically have merely incremental effects on our businesses. Most companies pay precious little attention to events that may be less likely to happen—but would have far greater impact if they did.

Figure 1: Most resources are dedicated to managing likely events—with low impact

The matrix in figure 1 examines the probability, rising from inconceivable to certain, against the impact, moving from negligible to game-changing. The upper-left quadrant covers events that have high probability but are likely to have only marginal effects on business. Most corporate managers employing mainstream planning processes spend almost all of their efforts on this quadrant, in a focus we call large investment, short odds and low return. By contrast, the lower-right quadrant covers the events that seem highly unlikely but which, if they did happen, would have a profound effect. Business-planning processes that also address this quadrant—what we call the discontinuous mindset—represent small investment, long odds and potentially exponential return. To achieve a discontinuous mindset, you need not turn your back on the many forecasting activities in the upper-left quadrant—but you do need to balance them, intellectually, with considerations of longer-term uncertainties.

We're not saying you should expect a particular unlikely event. Every poker player knows you can't expect to be dealt a flush, just as every golfer knows you can't expect to sink a hole-in-one. Yet a good poker player has envisioned scenarios for what to do on those rare occasions when a flush does come along.

We believe that a similar approach can help organizations rebalance their perspectives on potential future events—to ensure that, given a discontinuity, you can play the flush rather than getting flushed. Operating with this discontinuous mindset need not require a dramatic increase in resources. What it requires is a bit of time and some altered thought processes, which can be handled by a few simple tools. Figure 2 shows five tools that A.T. Kearney has found useful in helping our clients achieve a discontinuous mindset.

An Open Mind

The key in planning for discontinuities is having an open mind. Amedeo Peter Giannini had just this: a willingness to examine ideas out of the mainstream, to "unlearn" the conventional wisdom and ponder how new ideas might lead to new opportunities. He first showed his open mind when he established the Bank of Italy in the North Beach section of San Francisco in 1905. Bucking conventional wisdom, Giannini lent directly to working class tradesmen who were judged unworthy of credit by other bankers.

Figure 2: Five "tools" to a discontinuous mindset

In 1906, San Francisco experienced a dramatic discontinuity—an earthquake and firestorm that killed 3,000 people and left 75 percent of the city's population homeless. It also paralyzed the city's bankers, who —fearing another quake—kept their funds sitting securely in their vaults. However, the city was filled with merchants and businessmen eager to resume their operations. As no public assistance was available, demand for private funds was urgent. Giannini saw immediate opportunity. Although his building was destroyed, Giannini set up shop in the street, offering handshake credit to local tradesmen. While every other bank was closed, the Bank of Italy was putting its assets to work. Business boomed in the months following the quake. All the loans were repaid, sparking the growth of his bank, which, several years and a few acquisitions later, became known as Bank of America.

Which conventional wisdoms need to be unlearned by today's executives? It may take a discontinuity to reveal. In recent years, for example, most retail executives thought of stores as fixed, concrete and desirable assets. Yet some successfully "unlearned" the rules of brick and mortar, resulting in innovative new formats ranging from online shopping to pop-up retailing. Similarly, most packaged-goods executives were taught that brands, mass marketing and major media were an unbeatable formula for moving packaged goods; but open-minded executives are taking advantage of the rise of private-label brands, viral media and social networks.

Innovative Planning Techniques

In the late 1990s, the general manager of Cadbury Stani S.A.I.C., the Argentine division of Cadbury Schweppes, was Jorge Stern, a seasoned decision-maker with decades of local experience in packaged goods. Although Stern was not an economist or political scientist, he did notice that roughly every decade, Argentina underwent some sort of major economic or political discontinuity. As such, he didn't believe that the trends he saw every day in the marketplace were sufficient. In formal scenario planning sessions with Cadbury Stani's senior management, Stern and his team envisioned several big discontinuities that could conceivably occur in the country—and how the company should react to each one. Stern was most certainly operating with a discontinuous mindset.

In January 2002, responding to deteriorating economic conditions that had led to public rioting and governmental collapses, Argentina ended a decade-long policy of pegging its peso to the dollar. The peso immediately plunged 40 percent, and prices of imported raw materials skyrocketed. But thanks to their prior discontinuous scenario planning efforts, Stern and the team at Cadbury Stani knew just what to do, because the improbable (but now occurring) situation resembled one of the scenarios envisioned by his team.

Cadbury Stani's scenario plan for the peso devaluation had shown Stern's team that the business' survival depended on cash flow. Cold hard cash, they had decided, was far more important in this scenario than even volume growth or market share—two of the industry's standard competitive yardsticks. So almost overnight, Cadbury Stani raised prices and tightened payment terms to its trade customers. Not surprisingly, it just as quickly lost market share. Competitors, who held pricing and payment terms constant, temporarily prospered— then ran into a cash crunch as they were squeezed by high raw-material costs and overwhelming customer defaults.

Within a few short months, Cadbury Stani rebuilt profitable volume growth as its competitors struggled. It reconfigured pack sizes to yield acceptable margins at the original price point. The company also achieved a leap in market share that persists to this day. Scenario planning is a proven technique to help companies anticipate possible—if improbable—futures.

Another tool is diversity planning, which aims not at consensus (as in traditional planning efforts) but instead at creating as many diverse answers as possible. Another approach is reverse-engineering the future: beginning with a vision of life five or 10 years from now, then working backward to see what actions would be required to achieve it. Then there are the 25-year business plans—not because the process is needed only four times a century (indeed, ongoing revisions are mandatory), but because of the value that long-term perspective brings to planning processes once bound by incremental steps.

Alternate Sources of Input

In early 1845, potato farmers in the northeastern United States sent a shipment of seed potatoes to some farmers in Belgium. The potatoes were infected with Phytophthora infestans, a fungus that causes a devastating blight. Thanks to a warm, damp spring, the blight quickly became epidemic across Europe; by October it reached Ireland, a country where eight million people ate mostly potatoes. Over the next seven years, one million of those people died and another million emigrated, cutting the Irish population by 25 percent. Perhaps the worst part is that it could have been prevented: the fungus had already devastated North American potato crops from Virginia to Nova Scotia, yet European traders simply didn't know.

Maybe a pathogen could have a similar impact today, maybe not—but let us assume temporarily that a company's business depends on knowing the risks of unloading a remote shipload of seed stock. What are the chances that executives of that company will learn those risks by reading their usual daily dose of The Wall Street Journal, the Financial Times or the same few trade websites that all of its competitors also read? Discontinuities are, by their very nature, unexpected. To prepare for them, you need to get away from the conventional wisdom and seek a slightly different twist on events.

Alternate sources of information are useful in identifying not only threats but also opportunities. For example, imagine how much more prepared a packaged goods or retail business would have been for the challenges and opportunities associated with the sustainability movement had its managers been reading up on the subject over the past 20 years. To gain insights into potential discontinuities, savvy managers encourage staff members to attend conferences outside of their immediate field or discipline, read blogs, journals or magazines that stretch their sphere of knowledge.

Creative Ideation Processes

When the ballpoint pen was introduced in New York in 1945 it became a discontinuity blockbuster. In a matter of hours, 10,000 units sold out at a price of $12.50 apiece (that translates to $148 in today's money). Marcel Bich, a Paris entrepreneur, however, had a far different notion of what a ballpoint pen could do. Bich looked at the pen-making equation and decided to solve it for lowest cost. In 1950 he produced the first Bic disposable pens—which sold for 19 cents each. Since then, Bic has sold more than 100 billion pens and paved the way for entire categories of other disposable products.

Can you imagine Marcel Bich making that suggestion in one of today's typical planning meetings? You know the type: they begin with free-wheeling ideation, thinking aloud, and writing down all sorts of crazy ideas. The group searches for consensus—and the best, brightest, most innovative or most potentially transformational concepts rarely survive. Instead, the winning ideas are the ones with so little

actual content that nobody in the room can attack them. "Gee, Marcel, that's a creative idea, but why should we sell pens for 19 cents apiece when people are emptying their bank accounts to buy them at $12.50?" "Gosh, Marcel, factories are at full capacity already; how could we meet increased demand?" "Wouldn't your cheap disposables erode the lofty status of a ballpoint pen—and isn't status the main reason people buy ballpoints?"

In short, had Marcel been working for a traditional company, his idea would have been discarded by the ideation process—with plenty of seemingly logical, backward-looking rationale. As an entrepreneur, Marcel didn't have to suffer through such indignities. However, if a big company wants to find a new big idea, harness the power of entrepreneurialism and adopt a discontinuous mindset, then it needs to disrupt the traditional ideation process.

A discontinuous mindset celebrates unconventional thinking. A successfully creative ideation process doesn't automatically eliminate outliers—the organization may even run an oddball audit to identify them. Of course, unconventional thinkers can have plenty of bad ideas, too, so the process needs a structure that can keep them on a short leash—often kept separate from the rest, but still rewarded for their input because, as the next section examines, their perspectives need to stay within the organization.

Customized Rewards and Incentives

In 1945 the Raytheon Company faced a tremendous demand for magnetron tubes to power the new radar system used to detect enemy aircraft. One day when a Raytheon engineer named Percy L. Spencer stepped too close to a magnetron tube, he noticed that the chocolate bar in his pocket had melted.

Other engineers had noticed the same thing, but didn't give it much thought. Spencer, on the other hand, despite having only a grammar-school education, was intensely curious. He tried placing popcorn kernels in front of the tube—and a few minutes later, for the first time since cave-dwellers tamed fire, human beings cooked food in a new way.

A year earlier, anyone might have laughed at the idea of Raytheon selling ovens driven by magnetrons to restaurants and, eventually, households. "Absurd!" "Ridiculous!" "We're in the defense business!" The Raytheon organization took a chance and listened to Percy Spencer. He wasn't just a resident weirdo providing comic relief—on the contrary, Spencer's input was constantly solicited, and he eventually served as a senior member of Raytheon's board. In this case, his idea was rewarded with a shift in production, and within two years the company took the first Radarange® to the market.

History books rightly credit Percy Spencer with the invention of the microwave oven, but in fact his story also includes dozens of unsung heroes, starting with members of Raytheon's management. They'd hired and promoted Spencer despite his lack of education. They didn't chastise him for playing with his food in the middle of a serious engineering laboratory. They listened to him and built the Radarange—and then they searched within that market for new discontinuities.

Raytheon tried licensing the technology to other companies, such as Tappan Stove. (Its $3,000 refrigerator-sized microwave ovens were sold to customers with gigantic commercial kitchens, such as on ocean liners, that had to heat a lot of food quickly.) Raytheon then purchased its own domestic-appliance distributor, Amana Refrigeration, in 1965. In addition, Raytheon continually encouraged engineers to tinker with the magnetrons. Finally they figured out that an expensive, military-grade magnetron unit was somewhat over-engineered for the task of thawing frozen steaks and popping popcorn. They developed a smaller, cheaper, simpler, safer and more reliable oven for household use. Amana's first countertop microwave oven, sold for $495 in 1967, represented a serious discontinuity in household kitchen behavior. In taking risks, Raytheon and Amana were uniquely prepared to take advantage of the huge societal discontinuities of the 1960s: urbanization, women entering the workforce and families devoting less time to meal preparation. Again, it seems obvious in retrospect: cheap and ubiquitous ovens, microwaveable food categories representing $75 billion in annual sales based on the premise of quickly thawing and cooking food. But at the time, the discontinuous mindset at Raytheon and Amana gave them long-term dominance in the home microwave oven business. There are plenty of other examples of unconventional thinkers thriving within traditional companies: Art Fry and Spencer Silver invented the Post-it note while working at 3M, and teams at Apple, amazon.com and General Foods invented the iPhone, Kindle and Tang, respectively. On the other side of the coin, there are also plenty of examples of people like A.P. Giannini—mavericks and free spirits who made their fortunes as entrepreneurs because they were not rewarded in traditional organizations. To encourage a discontinuous mindset, companies must have the proper reward structure to make the maverick's suggestion of new ideas worthwhile.

Even today, many companies claim to encourage creativity and innovation, but their measurement and reward systems rarely support it. Creativity is messy. It leads to mistakes. (In Raytheon's case, it took nearly 20 years of mistakes and "not-quite-enoughs" before the microwave's big payout.) However, measuring results, rather than effort—and rewarding certainty, rather than potential—forces out the unconventional thinkers. It promotes those with modest aspirations, those who are slow and plodding. Reward mediocrity and you never exceed the mediocre.

How Will You Respond to Tomorrow's Discontinuities?

How long will today's trends continue? What will tomorrow's game-changing discontinuities be in the consumer products and retail sectors? Nobody can say for certain. Maybe science will discover a "fountain of youth" regimen that will double our lifespan. Maybe advances in smart phones will transform the shopping process as significantly as Clarence Saunders' first Piggly Wiggly. Maybe legislation will ban food products containing sugar or corn syrup.

Maybe some—or all—of these ideas are ridiculous. There also exists the possibility that some of them are on the way. What is important is not so much knowing the exact future as knowing how you might react to various outcomes. Developing a discontinuous mindset can help you move from thinking that constrains to thinking that liberates. So when the next unforeseen event occurs—the next cable snaps or the next scientist develops a breakthrough—you'll be ready.

Consulting Authors

Jim Singer is a partner in the firm's consumer industries and retail practice. Based in the New York office, he can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Jeff Piluso is a principal in the firm's consumer industries and retail practice. Based in the New York office, he can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .