Businesses Can Detect Signs of Strategic Risks

Senior executives could overcome some of the obstacles to “staring reality straight in its face” if they assumed responsibility for the active management of industry dissonance. The mere admittance that this risk is a strategic issue—their issue—and requires specific attention, resources, system, and culture to handle can bring many companies to do a better job of identifying and reacting to early signs of change. The system approach outlined below provides an effective relief for most companies. It replaces an empty slogan of “external focus” with specific activities aimed at bringing the outside world inside.

Middle managers can do even better. Because the convictions that trap most large organizations and their powerful leaders do not usually apply to the individual manager in a mid-level position, the tool offered in this book can serve to substantially improve his or her performance on the job. Free of many of the limitations confronting senior executives, such as large egos, insularity from negative intelligence, and a public commitment to a “vision,” and equipped with a tool to assess and track risk to their products, areas, or projects, individual managers can largely avoid nasty surprises and the resulting performance disasters. Since the signs of risk are out there, and since the problem is a mindset, a systematic approach that attacks “fixated” mindsets head-on can save jobs, wealth, and the mental health of many managers.

Mind you, I do not offer a panacea. Many powerful decision makers are prisoners of their own convictions and proud history, and no method will change their view of the future or their unshakable belief in the validity of their strategy. No book and no system would have made Mike Armstrong of AT&T admit he was wrong as his vision for an integrated phone-cable company crashed about him, bringing AT&T’s stock tumbling down and sending its debt skyrocketing. But for most readers and most companies, following the straightforward process suggested in this book, which has been tested in high-risk environments for many years, will mean a better preparedness to face the future. As the French scientist Louis Pasteur once said: “Luck favors the prepared mind.”

The toolbox presented in this book is based on a sophisticated and tested military doctrine of early warning. Just as the U.S. Air Force can detect missile launches thousands of miles away and warn of an impending attack on the United States, businesses can detect signs of strategic risks (and opportunities) years ahead of time and prepare to act on them. A few leading corporations, such as Citigroup, Shell, Daimler’s DASA, Astra-Zeneca (United States), and Visa, facing changing environments and markets, have in recent years applied this approach to create a line of first defense against nasty market surprises. Their systems quickly interpret intelligence from the market about emerging trends that pose substantial future risk to the company and in a feedback loop bring this intelligence to bear on their company’s planning. The essence of these systems is the seamless marriage of planning, intelligence, and action, integrating them across products and markets, coordinating and systematizing them all the way to the top. In many cases, the output of the early warning system forces action upon senior management.

These experiments offer companies and individuals a method for fighting future uncertainty and the risk associated with industry changes better than existing methods of planning. Short of having a crystal ball, cultivating a culture of early warning can be companies’ best defense against performance decline.

At times, managers may be able to compensate somewhat for the failure of risk management in their company’s executive suites. Using their own early warning process, managers can prevent surprises in their corner of the world despite an inferior organizational early warning system, blinded leadership, and a growing industry dissonance. They may not be able to forestall an eventual decline if their company does not address the risk they expose, but at least they will be regarded as smart enough to have identified it early on. If they do it five minutes before everyone else does, this book will pay for itself many times over.

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