(via TNN, April 10, 2007) Neelima Mahajan writes:
Intel’s Andy Grove made paranoia fashionable way back in 1996. A few years back at a conference at the Wharton School of Business, Grove made a statement: “Snow melts at the edge,” he famously said. Those words struck a chord with Wharton professor George S Day, whose research is all about scanning the environment for potential opportunities and threats.
Says Day, "A snow bank always retreats at the edge because that’s where it is exposed the most.” It’s pretty much the same for organizations, he avers. There are enough weak signals at the periphery that most people choose to ignore. And that can make all the difference between success and failure.
Living on edge
But before we get into that, what does he mean by the ‘periphery’ or the edge? “It’s the blurred zone at the edge of the organization,” he says. To give an example, take an Indian company—say, one like Infosys—which is making moves in markets like Europe or the US. A weak signal from the periphery could mean that a sales manager in the US hears a rumor about a potential competitor in India.
But there are several problems with these signals. The first thing being that since they are weak anyway, it is hard for one to pick them up and understand their implications. Remember 9/11? After studying the tragedy, the 9/11 Commission said that they had all the data they needed to avert it, but they failed to connect the dots. “This is a consistent story with companies that miss an opportunity or are late to react to a threat,” says Day. “It’s not that they didn’t know about it, but that the information was scattered.”
The second problem is that weak signals are rarely brought to the notice of a leadership team. In his research with his colleague Paul J H Shoemaker which later culminated in a book titled Peripheral Vision, Day found that in almost all these cases, there were people in the organization or the network who knew about a past surprise, but the management didn’t know that they knew.” “The people didn’t realize that the management needed to know in the first place,” says Day.
Let’s take this American company that does a lot of work in advanced materials and has laboratories in Europe. Now Europe has regulation called Reduction of Hazardous Substances which impacts product design dramatically. “The European technologists knew all about this but just didn’t tell anyone in the US. When it came to design of a new generation project, they discovered that they do not comply with these new regulations,” says Day. They paid heavily for that: the company lost between $20 million to $30 million because they were late in picking up the signals.
Peripheral vision—or the lack of it—is an even more important issue in today’s globalized world. “Your potential competitors and markets are no longer regional or country level: they are global,” says Day. The communication revolution—especially the internet—also adds to this. “For instance, blogs are becoming a major source of customer information and complaints. With the development of new technology, markets are much more fragmentary and harder to understand,” says Day.
In a nutshell, peripheral vision is about scanning, interpreting and, most importantly, acting. Remember the low carb diet revolution in the US? The trend caught on like fire, lasted for a bit and then vanished. There were a clutch of companies that caught the trend early on and introduced products even before it had fully set in. But there were others who were less fortunate. “About 3000 new products were launched after the low carb diet started to decline in popularity. One particular company was ruined with losses in excess of $200 million. They did see the market early enough but they were late in capitalizing on it,” says Day.
The right filters
But clearly, just detecting weak signals is not enough. Because there are hundreds and millions of them, it is not worthwhile to focus on every blip, you see. “One of the things that people are concerned about is there is so much happening at the periphery that’s confusing and overwhelming,” says Day. “We don’t propose that you have to pay attention to each and every weak signal.”
Sure, it’s not easy: weak signals of threats and opportunities are pretty hard to distinguish in noise and clutter. “The best practice companies really look at the signals and then focus on a few key questions. They sculpt out where they are going to work,” says Day.
Take for instance, Medtronic, a company that makes pacemakers defibrillators. “It can always be at risk from drugs that could perform the same function as pacemakers. So they put together a taskforce of people that ask the same questions: what drug developments can impact our business? Once they get those weak signals, they can collect them, interpret them and be focused on them and then decide what to do,” says Day.
But for organizations that don’t have this capability, how can they go about developing it? It starts with the guys at the top, says Day. Vigilant leaders, as Day calls them, help put in place a warning system by encouraging people to talk to them.
Grove was very anxious that people in far-flung parts of the organization bring him their concerns. That’s not true of most other organizations,” says Day. Besides, they signal their commitment to this by continuously asking questions about the edge. They also encourage mavericks. “These are smart people who are not usually accepted by the organization because they are always challenging everything,” says Day.
Besides, by their very nature, such leaders are curious, imaginative and externally oriented. They go about seeking diverse viewpoints. “We as an industry spend too much time talking to mutual resources. So you go to the same trade meetings, read the same magazines. Vigilant leaders tend to have a much broader network and access to other parts of the environment,” says Day. “Such leaders are much better at figuring out uncertainity. They don’t avoid it. They work a lot at internalizing.”
Part of what such leaders do is that they provide a supportive climate. “They allow time for people to explore the periphery,” says Day. They do all sorts of things for that: like create a taskforce, create a small group to scan the environment, set up a council to look at the trends on a regular basis. So while a company like Medtronic creates taskforces focused on questions, others like IBM have a full time crows nest. In other words, some people sitting up in a crow’s nest high in a tree whose job is to continuously scan.
Yet other companies resort to scenario planning. All of us are familiar with Enron which was very successful in the late 1990s—and then went bust. Enron Federal Credit Union (Enron FCU is now called Star Federal Credit Union), which served Enron’s employees, was into scenario planning. Even before Enron’s collapse became imminent, they had explored several possible scenarios, including one called ‘starting over’, which meant that they would have to expand their member base. When the collapse happened, Enron FCU quickly sent out customized mails to reassure former and current Enron employees that their deposits were safe. Today Enron has vanished, yet Enron Credit Union is still going strong.
Clearly, the phrase ‘living on the edge’ seems to have acquired a whole new meaning.
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