Author: George Day & Paul Schoemaker|November 20, 2019

How Vigilant Companies Gain an Edge in Turbulent Times

When uncertainty increases, top performers stay ahead by knowing where to look for warning signs and how to explore their environment.

See Sooner Act Faster BookcoverThe costs of being slow to sense threats and opportunities on the competitive horizon can be devastating. Just ask RadioShack, a pioneer in catering to electronics hobbyists. After jumping into mobile phone distribution in the 1990s, the U.S.-based retail chain with more than 4,000 stores didn’t respond quickly enough to the rigors of e-commerce and failed to find a way to connect with the new generation of electronics tinkerers and makers.1 Following multiple attempts to regain its footing, the once-thriving company filed for bankruptcy in 2015 and never recovered.

Businesses can avoid such perils by spotting directional shifts ahead of their rivals. In our research on 118 companies in the past decade, we found that what sets the most vigilant ones apart are not the tools and methods they use but their systematic approaches to determining where to look and how to explore. They tend to take four basic steps. First, they strategically scope the environment, often scanning beyond their comfort zones, to begin identifying where relevant signals may come from. Second, they formulate guiding questions that direct the organization’s scarce attention to the places most likely to spawn threats or opportunities. Third, they conduct targeted analyses to better understand the sources and meanings of any weak signals they pick up. Finally, they track the most intriguing signals, amplifying and clarifying them sufficiently to act decisively when the fog clears.

Embracing this process doesn’t mean that organizations will identify every important signal; many signals remain weak or ambiguous for some time, and some may just be missed. But in our experience working with dozens of companies, organizations that are actively engaged in sensing are better prepared for things that might happen and are able to bounce back faster. Their attentiveness to faint stirrings both inside and outside the business allows them to take timely action when threats or opportunities emerge.

Step One: Scope to Decide How Widely to Look

The Analysis
• As part of their research for their new book, See Sooner, Act Faster, the authors conducted exploratory case studies of vigilant versus vulnerable companies, using published sources as well as their own industry connections.

• From there, they developed various hypotheses about sensing practices at both the organizational-process and top-management levels.

• They tested their conceptual framework in a survey of senior leaders of 118 global companies, assessing their capabilities to see sooner and act faster.

In most companies, managers limit their scanning to familiar places and sources within their comfort zones. This approach generates a wealth of data — everything from the fuzzy impressions of industry rumors to detailed evidence from sales reports, technology trend studies, and trade association alerts. Having all this data can instill a sense of control, but that’s an illusion, because weak signals of transformative change often enter from left field, outside management’s focus. This happened to IBM when it failed to anticipate the rise of personal computers. And it happened more recently in the lighting industry to General Electric, Philips, and Sylvania, which were slow to see the full impact of LED technology. All three of these companies recently announced they are getting out of their legacy lighting business due to low margins.2 They might have been able to avoid this fate had their leaders used a more expansive scanning process.

An effective strategy for detecting change early is assembling a diverse team of independent thinkers from both inside and outside the company who can, as one of our clients phrased it, “tap into the organization’s paranoia” and invite everyone to voice hunches, concerns, doubts, or intuitions that would otherwise remain dormant. The leadership team can then shine a spotlight on issues that seem negligible now but may emerge as serious over the next few years. Adopting a three to five-year time frame will allow leaders to peer further ahead than rivals, especially when few clouds are visible yet on the horizon.

For example, consider the global chocolate confectionery industry. It seems relatively stable at the moment. Beneath the surface, however, there are important questions related to, among other issues, use of child labor by suppliers, the effects of climate change, and geopolitical instability in cocoa-growing regions. For instance, hazelnuts, a popular ingredient in chocolate bars, are sourced from turkey, which has lately become politically unstable due to internal unrest and its geographic proximity to Syria and Iraq. By highlighting looming issues, leadership teams can begin to identify potential threats before they wreak havoc. (See “Where to Look for Weak Signals.”)

Although the specific concerns will differ by product segment and by industry, leaders need to stay on top of the full range of forces and undercurrents that will collectively shape their future. Different teams can be assigned to surface weak signals in various “zones” (for example, the socioeconomic and political forces, shifts in customers or channels, behavior of competitors and complementors, emerging technologies, and actions of media and influence shapers), some of which may at first seem peripheral to the company.

In addition to looking outside, leaders must also remain alert to risks within their own organizations, such as misguided sales targets and rocky relationships, to prevent small problems from becoming major crises. As companies like Wells Fargo, Volkswagen, and Boeing have learned the hard way, ignoring festering internal problems due to negligence or willful blindness can cause as much damage as external blind spots.

In today’s era of continual data generation and selective signal amplification in our polarized media world, the sheer volume of warning signs can easily overwhelm an organization’s ability to absorb them properly. The purpose of strategic scoping by leaders is to start drawing the organization’s attention to the most pressing matters so that relevant inputs can be garnered from employees at all levels.

Step Two: Focus Attention With Guiding Questions

Deciding which looming issues merit close attention and why requires curiosity. Leaders must pose questions that reveal the limits of the company’s current knowledge so that they can flag areas of collective ignorance and sensitize the organization to emerging issues. For example, Google co-founder Larry Page challenges the company’s development teams to anticipate the future not by thinking about what’s true or what’s likely to happen but by asking themselves what could be true, even if it’s totally unexpected.3 Such inquiry pushes managers to look broader and deeper. We’ve found that it’s helpful to organize the questions into three categories: learning from the past, interrogating the present, and anticipating the future.

Learning from the past. The past may not be a reliable predictor of the future, but it can help organizations identify persistent blind spots and systemic weaknesses. A medical diagnostic company we worked with, for example, makes a point of systematically cataloguing missed threats and opportunities that might have led to growth. In the CEO’s view, managers used to be too narrowly focused. Although they were good at spotting technological trends, they were slow in detecting shifts in consumer sentiment and threats from potential rivals in adjacent markets. For example, because they were focused on higher-end applications, they failed to see the potential for disposable endoscopes. Once managers saw patterns in past hits and misses, they began regularly conducting wider scans, asking themselves deeper questions about what nontraditional competitors were up to and what disruptive technologies they were overlooking, hoping to avoid repeating errors from the past. They looked at new technologies but also paid close attention to what distributors and end consumers were saying and the level of profits downstream players were able to reap.

Studying the past can also be helpful in identifying relevant analogies or precedents from another industry or geography where issues of concern may have already been tackled. A nanotechnology company, for example, was trying to envision how growing social resistance to such applications as superstrong fibers or precision-guided smart drugs might evolve. The company’s leaders speculated that the earlier public controversy over genetically modified organisms (better known as GMOs) might give some useful insights. With GMOs, there had been early concern about possible health hazards created by faceless public corporations, and then opposition grew significantly, especially in Europe.4 In many instances, the proponents of new approaches were viewed with suspicion, and there was real skepticism about the benefits versus the risks.5 Examining parallel cases can help leaders see their situations in a broader context and develop better ways to track and interpret additional early warning signals.6

Another good method is to use past successes to create watching and listening outposts in other markets by asking, “Who there has a consistent record of seeing sooner and acting faster?” and “What is their secret?” A U.S.-based packaging technology company we know maintains a small office in Japan, staffed with a handful of employees, to be on the lookout for early innovations there. It created this outpost after noticing that many important breakthroughs in packaging shapes and materials appeared first in Japan. Other companies are finding that it pays to have ears and eyes across the globe. Procter & Gamble, for example, retains retired executives on a part-time basis in its major markets to report on noteworthy developments in consumer goods.

Interrogating the present. Sometimes the signals are right in front of you. However, even smart leaders can fall victim to rationalizing away warning signs of impending problems. Indeed, entire organizations have been known to engage in defensive routines that systematically filter out such signals in order to protect the status quo. Fortunately, many surprises have antecedents that appear initially as deviations from what’s expected — for instance, an alliance partner starting to recruit a different kind of talent, a customer complaining about a tightening of labor supply, or a rumor that a competitor is cutting its prices. Many signals are there waiting to be discovered, as if the future is whispering to you. All you need to do is ask what they are and listen.

Unhappy customers — especially the ones who take their business to other companies — can be a rich source of guiding questions. Postmortems on missed sales deals or on contracts won by competitors can be very revealing — but only if the people doing the follow-up ask point-blank why they are losing these business opportunities and are open to learning the truth and sharing what they learn.

Many companies monitor blogs, social media sites, and chat rooms for signs of brewing trouble with customers, with an eye toward timely remedial action. Vigilant organizations pay special attention to customers’ evolving behaviors and needs. One way to do this is by studying “edge cases” that could suggest opportunities or threats. (In engineering, the term edge is used to describe situations that purposefully push the limits.) For example, a client recently pointed out some of the new jobs that have surfaced in recent years — jobs that address new sets of customer needs. Among them are indoor farmer, synthetic tissue engineer, and virtual fashion designer. This observation led him and his colleagues to ask themselves what other jobs are about to emerge and why (for example, a bot wrangler, to manage online services accessed through conversational interfaces such as smart speakers).

Anticipating the future. To prepare for what’s ahead, leaders can develop different scenarios that reflect how today’s uncertainties might play out in years to come.7 When they engage in this kind of activity, they are less likely to see a weak signal in isolation and dismiss it as mere background noise. If competing scenario narratives are developed, it will be easier to connect potentially important weak signals to some of them and thereby place them in a broader context.8 For example, a rival’s decision to reduce prices may not seem particularly noteworthy, but in a scenario where it’s linked to new regulations or customers switching to another brand, it may become highly relevant.

To stimulate scenario planning, leaders should pose guiding questions about the future such as “What surprises could really hurt us (or help us)?” and “What might be some future surprises as big as those that we saw in recent decades?” Financial services companies, for example, should ask, “What future surprises might be as big as PayPal or Apple Pay?” And companies in mature manufacturing sectors should consider if a technological advance (such as LED lighting) might disrupt their business and in what ways and how quickly.

Step Three: Actively Scan to Deeply Explore

The choices organizations make concerning scope aren’t set in stone — they will evolve as priorities and issues change. The specific explorations managers launch should change, as well, as new insights about the competitive environment emerge and give rise to new opportunities. For example, an auto insurance company we know noticed that its customers were not renewing their contracts as often as they had in the past but returned as customers later. Why were they leaving in the first place? Contrary to management’s initial assumption, it had nothing to do with pricing. Rather, the company learned by listening closely to lapsed customers that some competitors were becoming more flexible about their coverage and terms, and some prospects had short-term coverage needs that weren’t being met. Those probing conversations, being a form of active scanning, challenged the belief that pricing was the issue and prompted the company to develop competitive short-term policies.

Active scanning is built on the scientific method: It starts with a set of hypotheses, which are then tested and revised based on the availability of new data. It’s rooted in a deep sense of curiosity and exploration. R. Buckminster Fuller, the American architect and futurist known for popularizing the geodesic dome (a structure modeled after the beehive), approached problem-solving in a similar way. He found many of his ideas by studying nature and asking questions about the world around him. Wherever he traveled, he picked up magazines and forced himself to read them from cover to cover, whether the articles were about basket weaving, fly-fishing, electronics, or politics. He tried to escape information bubbles and echo chambers by exposing himself to divergent thinking and by examining ideas from the outside in. Business leaders who adopt these same two behaviors—and cultivate them in their organizations—are able to see the world with fresh eyes and make surprising connections.

Encouraging divergent thinking. Divergent thinking — wide-ranging, and often opposing, ideas from a variety of inputs — can lead to deeper insights provided that the intellectual conflict it generates is well managed.9 To do this, leaders need to set a norm of tolerance and openness, even when the contributions are clearly contradictory.10 Hala Moddelmog, the former president of Arby’s Restaurant Group, liked to surround herself with colleagues of different races, geographies, and personality styles. As she explained, “You really don’t need another you.” Staying open to different viewpoints can help leaders escape their own blinders and turn their eyes to information or solutions that weren’t previously considered.11

Fortunately, most organizations do have some independent thinkers. But the problem, as Intel’s legendary co-founder and former CEO Andy Grove noted, is that they’re often uncomfortable sharing their deep-seated concerns and feelings with leadership.12 For example, when unexpected events occur within an organization, usually at least a few people aren’t surprised — but didn’t say anything. Maverick insights seldom come to the surface without explicit encouragement. Leaders need to create safe spaces for people on the fringes to voice their views. In addition, vigilant organizations should solicit involvement from employees at multiple levels. Together, these tactics will help foster an inquisitive culture that is primed to spot opportunities and defuse problems before they blow up.13

Although the dangers of groupthink are widely recognized, many leaders continue to wrestle with it. For example, Amazon CEO Jeff Bezos has sought to fight what he calls the “cloying tendency of people who like to agree with each other and find consensus comfortable.” He has attempted to build a culture where leaders challenge ideas they disagree with “even when doing so is uncomfortable or exhausting.”14 Ray Dalio, the founder and co-chairman of Bridgewater Associates, one of the world’s largest and most successful hedge funds, tries to create a similar environment and puts what he calls “radical transparency” at the top of his list of priorities.15

In practice this means not speaking behind other people’s backs, while being sure to record meetings for those unable to attend, share emails broadly, and air disagreements openly and constructively. Of course, promoting transparency is easier said than done, because aversion to conflict and offending others often gets in the way of honest discussion. In such situations, Dalio doubles down on radical transparency. When he learned secondhand that a senior-level colleague had questioned his commitment to a management succession plan, Dalio publicly called out the colleague for not speaking to him first directly.16

Thinking from the outside in. Vigilant companies also know how to step outside the boundaries of their organizations and view things through the eyes of customers and competitors. They continually ask critical questions such as, “How are our customers changing?” “What new needs are they likely to have, and how will those needs be met?” They might then do some role-playing to shift perspective — for instance, contemplating how a new market entrant might launch an attack on their own business. A good way to do this is to establish a cross-functional team with some outsiders added to provide fresh perspectives. This variant of the “red team” exercise used by the military 17 can sensitize people to threats they might otherwise miss.

The logic of surveying markets from the outside in and then using the market insights to test hypotheses about the possibilities is compelling. But it goes counter to what many organizations do. Indeed, most companies operate from the inside out, believing that salespeople know what their customers want, R&D people know what’s possible, and leadership has its finger on the pulse of the business. These are dangerous assumptions when times are changing and turbulence abounds.

Step Four: Decide Which Signals to Amplify and Clarify

Through active scanning, organizations frequently identify many more signals than they can possibly digest. So leaders need to develop ways to highlight the most interesting signals. Useful approaches include canvasing the wisdom of the crowd and soliciting input from your network of partners and collaborators.

Canvasing the wisdom of crowds. Studies have shown that groups are often better than individuals at making accurate judgments. 18 That’s because individuals have only partial information while groups of people with different skills are collectively smarter than the smartest people in them. Assuming the group doesn’t have a collective blind spot that points everyone in the wrong direction, a diverse crowd will reflect the varying experiences and views of numerous people.

Leveraging the extended network. Organizations’ networks of partners, suppliers, distributors, researchers, and consultants allow them to extend the reach of their sensing systems without the risk of overloading their own capacity to absorb weak signals. 19 A good example of sensing broadly is Hong Kong-based supply chain manager Li & Fung, which generates revenues of more than $8 billion per year from the sales of garments, toys, and other assembled products without making any of the products itself. Similarly, Apple maintains relationships with more than 1 million software developers, thousands of accessory makers, and myriad content suppliers, each with the ability to pick up weak signals such as early warnings about software problems, latent concerns about data collection procedures, and trends among early adopters. 20 The supply chains of most companies can be used to gather intelligence about industry dynamics, competitor behavior, or impending supply shortages.

Clarifying by triangulating. Leonardo da Vinci extolled the virtue of system thinking and trying to look at things from different vantage points. 21 Just as a GPS uses three coordinates to place a vehicle on a map, managers can develop sharper insights by using multiple inquiry methods and different viewpoints. You will trust a signal of an impending threat or opportunity if it is verified from different sources. This is the essence of good journalism and good science. The aim is to avoid possible biases and misleading signals arising from a single source of information, and to build confidence in the interpretation.

The president of a company we worked with realized that his executives were missing a lot of potential insights about how markets were changing. He encouraged them not only to study the customer’s ecosystem of consumers, competitors, suppliers, joint venture partners, and strategic alliances, but also to draw on a variety of perspectives to create what-if scenarios that anticipate possible moves in the competitive environment. The intent was to “triangulate” the available information and to uncover relevant market developments that executives and even their customers hadn’t fully considered.

To conduct this exercise, the company formed diverse customer teams, with representatives from different regions, functions, and divisions; added non-traditional data sources such as blogs and online chats to more conventional ones such as feedback on annual reports and investor presentations; and mapped key stakeholders and influencers in and outside the organization, engaging as many of them as possible to capture comprehensive data. Team members within the individual regions were now able to see their customer accounts in their totality and share insights with colleagues from other parts of the world. Account plans were now based on inputs from multiple vantage points and thus more complete. This allowed teams to connect dots in real-time during regular teleconference meetings. 22

Hone Your Sensing Capability

When environments are changing and filled with uncertainty, companies asking good questions have an edge. Yet vigilant leaders need to balance their eagerness to find answers to these questions with a recognition that they can’t do everything at once. Here are some tested guidelines designed to help leadership teams better navigate turbulence and sharpen the sensing capability of their company:

• Sense actively, with an open mind and a mix of directed hypothesizing and exploratory journeys into the unknown. Rather than treating this as a one-time event, it should be woven into a continuous learning process that engages the entire organization.

• Lack of data is seldom as big a problem as the overload from distracting and noisy signals that can squander the scarce attention of the leadership team. Use the guiding questions to help focus the collective attention.

• Practice empathy and use outside-in approaches to deeply understand your customers, competitors, and collaborators, and where they are likely to be in the future.

• Activate the collective curiosity; look for ways to stimulate people’s natural curiosity. Be open to exploration, chance discoveries, random walks, and experimentation.

Individual members of the leadership team can further enhance the collective vigilance of the organization by fostering the following personal habits:

• Create “balcony moments” to gain distance from problems (as if you are looking down on a group of people engaged in an animated discussion).23 This lets you step away from the intensity and emotions of the moment and reframe the issues from a broader perspective.

• Invest in broader personal and professional networks to extend your personal strategic radar system and to maintain links with the changes that are occurring around you.

• Encourage colleagues to admit when they don’t have answers. Rather than guessing or rushing to conclusions, ask them to generate hypotheses and then explore the possibilities further with others.

Judicious sensing allows for timely, flexible decision-making and deeper probing. That, in turn, enables vigilant organizations to see threats and opportunities sooner and act with confidence when the time is right.

Where to Look for Weak Signals

Leaders need to stay on top of the full range of forces and undercurrents that will collectively shape the future.

see sooner act faster

About The Authors

George S. Day is the Geoffrey T. Boisi Professor Emeritus at the University of Pennsylvania’s Wharton School and senior fellow of the Mack Institute for Innovation Management. Paul J.H. Schoemaker, founder and former CEO of the management consulting firm Decision Strategies International, recently founded Q2 Tech, a digital tools company. This article draws on ideas in their book See Sooner, Act Faster: How Vigilant Leaders Thrive in an Era of Digital Turbulence (MIT Press, 2019).


References

1J. Brusten, “Inside RadioShack’s Slow-Motion Collapse,” Bloomberg Businessweek, Feb. 2, 2015; and “Lessons from RadioShack: To Stay on Top, Figure Out What Got You There,” Knowledge@Wharton, Feb. 15, 2015, https://knowledge.wharton.upenn.edu.

2M. van Tartwijk, “Philips Sells Majority Stake in LED Components, Automotive Business,” The Wall Street Journal, March 31, 2015; and M. Egan, “GE Can’t Get Rid of Its Light Bulb Business,” CNN, May 22, 2018, https://money.cnn.com. Osram Sylvania has refocused its lighting business on opto-semiconductors, automotive, and digital applications; see “Annual Report of Osram Light Group Fiscal Year 2018,” 2018: 5.

3E. Schmidt and J. Rosenberg, “How Google Works” (New York: Grand Central Publishing, 2014).

4M.H. Bazerman and M.D. Watkins, “Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them” (Boston: Harvard Business School Press, 2004).

5D. Franklin, “Megatech: Technology in 2050” (London: Economist Books, 2017).

6Psychologists have studied why consumers often rank various risks very differently than experts who have studied the statistics. They found that risks over which people have little control (such as flying versus driving yourself) or those that people poorly understand (radiation versus slipping in the shower) are considered more threatening by ordinary citizens. The concentration of risks (airplane crash versus highway death) and whether the threat has a halo of dread (Ebola versus a broken leg) also shape consumers’ perceptions. See P. Slovic, “The Perception of Risk” (Abington-on-Thames, England: Routledge, 2000).

7P.J.H. Schoemaker, “Scenario Planning: A Tool for Strategic Thinking,” MIT SloanManagement Review 36, no. 2 (winter 1995): 25-40; and K. van der Heijden, “Scenarios: The Art of Strategic Conversation” (New York: John Wiley, 1996).

8V. Venkatraman, “How to Read and Respond to Weak Digital Signals,” MIT Sloan Management Review, Feb. 22, 2019, https://sloanreview.mit.edu.

9C.J. Nemeth, B. Personnaz, M. Personnaz, et al., “The Liberating Role of Conflict in Group Creativity: A Study in Two Countries,” European Journal of Social Psychology 34, no. 4 (July/August 2004): 365-374.

10R.L. Martin, “The Opposable Mind: Winning Through Integrative Thinking” (Boston: Harvard Business Press, 2009).

11J. Goudreau, “Eight Leadership Lessons From the World’s Most Powerful Women,” Forbes, March 21, 2013, www.forbes.com.

12A.S. Grove, “Only the Paranoid Survive” (New York: Currency, 1996).

13Diversity plays a key role in fostering outside-in perspectives. See S. Saeed, S. Yousafzai, A. Paladino, et al., “Inside-Out and Outside-In Orientations: A Meta-Analysis of Orientation’s Effects on Innovation and Firm Performance,” Industrial Marketing Management 47 (May 2015): 121-133.

14D. Baer, “Five Brilliant Strategies Jeff Bezos Used to Build the Amazon Empire,” Business Insider, March 17, 2014, www.businessinsider.com.

15R. Dalio, “Principles: Life and Work” (New York: Simon & Schuster, 2017).

16J. Gapper, “Bridgewater Is Troubled Over ‘Radical Transparency,’” Financial Times, Feb. 10, 2016.

17M. Zenko, “Red Team: How to Succeed by Thinking Like the Enemy” (New York: Basic Books, 2015).

18J. Surowiecki, “The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economics, Societies, and Nations” (New York: Random House, 2005).

19P.J.H. Schoemaker, G.S. Day, and S.A. Snyder, “Integrating Organizational Networks, Weak Signals, Strategic Radars, and Scenario Planning,” Technological Forecasting and Social Change 80, no. 4 (May 2013): 815-824.

20P.R. Kleindorfer, Y.Wind, and R.E. Gunther, “The Network Challenge: Strategy, Profit, and Risk in an Interlinked World” (Upper Saddle River, New Jersey: Prentice Hall Professional, 2009).

21See M. Michalko, “Cracking Creativity: The Secrets of Creative Genius” (Berkeley, California: Ten Speed Press, 2001); and see M.J. Gelb, “How to Think Like Leonardo da Vinci: Seven Steps to Genius Every Day” (New York: Dell, 2009).

22S. Krupp and P.J.H. Schoemaker, “Winning the Long Game: How Strategic Leaders Shape the Future” (New York: PublicAffairs, 2014): 104-105.

23W. Ury, “Go to the Balcony,” (2016 Dawson High school Graduation address, June 12, 2016).