Monitoring External Changes and Wiring Market Signals to Strategy: The Case of Unlucky Financials
By Doug Paradis,
Vice-President, Products, DSI
Business executives currently employ several approaches to develop sound strategies, such as scenario planning, competitive analysis & market research, and core competency assessments. Despite the importance of these broadly accepted strategic approaches, many planners discount the ongoing need to monitor changing markets and to track external signals relevant to their strategy. Specifically, as the market evolves, business strategists must continue to weigh the importance of future scenarios, their organization's portfolio of options and initiatives, market segments (including both those they should target as well as ignore), and the capabilities they need to achieve organizational goals. Employing a fictional firm-"Unlucky Financials"-we focus on the challenge of connecting peripheral vision in direct and measurable ways to strategy.
Peripheral Vision techniques involve gaining the capacity to see beyond the immediate horizon, to perceive the significance of events unfolding at the edges of one's business and area of expertise, including the weak signals that may suggest opportunities and threats to an organization. For example, if a rumor about new competitors emerges, perhaps you should take it seriously particularly when combined with other "weak signals," such as a newspaper article about some new gadget that could influence your business strategy (even tangentially), or a blog site gaining momentum on complaints about your industry's products or services. In their recently published book Peripheral Vision: Detecting the Weak Signals That Will Make Or Break Your Company, George S. Day and Paul J.H. Schoemaker provide both a diagnostic "eye exam" to test an organization's peripheral vision as well as strategies to broaden organizational vision. As the following figure suggests, most organizations fall prey to market competitors because they suffer from myopia and tunnel vision-driving straight ahead without looking in the rearview mirror or to the right and left.
Thus, most organizations face the challenge of developing peripheral vision capabilities, but they also need something else-a direct and measurable way to connect their peripheral vision capabilities to their strategy and each of its elements.
Let us assume that Unlucky Financials has committed to a diligent strategy process using scenario planning. They also undertake some form of market and competitive research. To reach this stage, they established a corporate strategy team, conducted scenario planning workshops, developed a peripheral vision capability, and performed options analysis based on priorities.
With all of this realized, Unlucky Financials' executive team buried themselves in deep execution toward the company's objectives. As part of their overall strategy, they had identified several critical uncertainties that could shape four very different futures. These uncertainties included changes in federal and state legislation that might influence consumer savings outside traditional employer retirement plans, changing consumer sentiment toward using large financial institutions in rural markets, and changes in the ability of technologies to advance targeting capabilities at the individual level. The Unlucky team had also developed a collection of required organizational capabilities, target segments, and possible options and initiatives, not only to survive, but also to thrive in the four different scenarios. Diligently, they drove forward-focusing upon the top priorities they had identified at the time they established their strategy. And yet, something went terribly, terribly wrong; and executives at Unlucky Financials ultimately learned that survival, never mind success, would depend upon shifting strategy.
What went wrong? Unlucky strategists failed to notice that the market had shifted beneath them, making some portions of their strategy unnecessary. This meant that implementation of the strategic plan began to drain valuable resources from other areas and into the original strategy's high-priority initiatives. Moreover, traditional market research had failed to unearth the connection between simultaneous changes in a number of market forces, and the ways in which those forces would influence the industry, and hence Unlucky's position within it. Indeed, market research at Unlucky Financials had focused on financial performance and typical sales numbers. Unwisely, the firm only employed internal viewpoints and review of market data rather than seeking input from trusted customers, suppliers, and others. They also forgot to employ a methodology that could help them to connect their research effort to strategic initiatives, which caused them to miss signals that would have made for a more robust strategy.
As the following diagram suggests, "Wiring"-a technique that allows firms to monitor market forces and weak signals that can influence elements of a strategy, including the ways in which those signals influence scenarios, capabilities, market segments, and initiatives downstream-can help with communicating changes to the management team so that they can adjust the firm's strategy before they get blind-sided by market change. This is ideally part of a broader monitoring service.
Wiring requires an on-going commitment, not only to the methodology, but also to service and external expert networks. Some executives find it difficult to take that step and remain unconvinced that they need to develop monitoring techniques to scan the periphery. Without taking the steps to convert planning exercises into on-going and dynamic "living strategies," however, they run the risk that rapidly changing market conditions will make it extraordinarily difficult to respond. Unfortunately, Unlucky succumbed to that fate.
What should executives do to avoid a fate similar to Unlucky Financials'? Some possible actions include:
