Objectives Versus Constraints

Mental models in some sense are statements of objectives and constraints. The objectives are set in terms of final or intermediate targets, and constraints result from either limited resources or the inability to meet the most desirable level of the objective even if reasonable resources were available. For example, a firm can have an intermediate objective, such as achieving greater than 95% satisfaction among current customers. Or it could have a terminal objective such as achieving the largest market share in a chosen product market within a specified period of time. It could also have a much more abstract objective such as sustainable development or balancing the interests of the internal and external stakeholders.

Strategic flag posts are intermediate markers or targets that help organizations test and diagnose the progress being made along the chosen path. Certain mental models directly lend themselves to a construct identification, measurement, and tracking system while others do not. For example, it is relatively easy to build flag posts around customer centricity–based models and measure and track customer responses to the organization’s own initiatives and competitive activity. On the other hand, it is relatively difficult to set flag posts around an innovation-centric mental model. It is relatively difficult to define innovativeness, classify it, measure and track it, and connect it to firm success. One of the most common challenges for companies seeking growth through innovation is that the metrics that these companies use to measure innovation can actually lead companies in the wrong direction. For example, if managers are rewarded on the percentage of revenues from new products—a terminal flag post—a brand manager might be highly tempted to promote a new incrementally innovative product that might actually cannibalize an existing firm offering, instead of investing in a longer gestation innovative product that can provide greater long-term incremental revenue to the organization. Similarly, a focus on inputs rather than outputs of an innovation, can lead a firm to focus on research and development (R&D) investments rather than the deliverables achieved from such investments. Some common examples are Ford and IBM that have huge R&D budgets and a large number of patents respectively, without corresponding market leadership.¹

The constraints could also be stipulated along multiple dimensions. There could be financial constraints such as those imposed by limited budgets or threshold levels of returns required on investments. There may be constraints on capabilities, such as those arising out of the capacity of the workforce and the ability to hire qualified people in the right numbers at the right time. Constraints may also result from the legacy of the organization. For example, the existing portfolio of brands held by the company may limit its flexibility in maneuvering in the product-market space. And certain choices, although feasible and maybe desirable in their own right, may be inconsistent with the overall strategy of the company. For instance, opportunities at the lower end of a market may conflict with the overall company strategy of focusing on higher tiers and may therefore be constraints.