Vigilant organizations excel at seeing looming threats and embryonic opportunities sooner than rivals, which prepares them to act faster when needed. Four drivers distinguish vigilant from vulnerable organizations, which can be used to design a roadmap to improve organizational acuity and preparedness. The fulcrum of these changes rests with the leadership team by demonstrating a strong commitment to vigilance at all levels, and reinforcing this by making targeted investments in foresight capabilities. These strategic moves also need to be supported by corresponding changes in the strategy-making process and by ensuring accountability and coordination of vigilance activities throughout the enterprise.
To achieve faster organic growth, firms need to change their prevailing narrative about innovation from growth denying to growth enabling. This requires changing the system through which the work of innovation gets done. This article describes the work systems model of organizational change and shows how a leadership team can select the most influential elements of the system to make a desired narrative a reality. Four elements of the work system are especially effective at encouraging a growth-affirming narrative: leadership commitment to innovation talent, prudent risk-taking, customer-centric innovation, and aligning metrics and incentives.
In an increasingly complex world, the scarcest collective resource of the modern leadership team may just be the most important one: attention. In vigilant organizations, executive attention is leveraged for greater agility and advantage, whereas in vulnerable ones, misdirected attention creates blind spots, myopia and delayed reactions. In an excerpt from their latest book, the authors show that a deeper awareness about our own decision biases due to cognitive, emotional and social factors is critical in managing attention in any organization-and ensuring it is vigilant rather than vulnerable.
Companies seeking to lead organic growth in their industry should start with a coherent, positive innovation narrative and reinforce it with action. Four innovation levers that organic growth leaders use to stay ahead of competitors are: (1) investing in innovation talent, (2) encouraging prudent risk-taking, (3) adopting a customer-centric innovation process, and (4) aligning metrics and recognition with innovation.
Haas School of Business Professor David Teece and his colleagues created the Dynamic Capabilities Framework, showing that three capabilities-sensing, seizing and transforming-enable firms to sense opportunities sooner than their rivals, seize them more effectively, and support the organizational transformation that this entails. The authors take this theory a step further by adding two 'sub-capabilities' to each Dynamic Capability, including 'peripheral vision', experimentation and vigilant learning. They then provide a case study on DuPont's biofuel initiative, showing how all six sub-capabilities manifest themselves in strategy.
The dynamic capabilities framework identifies three components as critical for successful organizational adaptation: sensing, seizing and transforming. By contrasting two distinct business cases, a long-term biofuel investment by DuPont and Novartis's rapid deployment of digital technologies in marketing, this article assesses the managerial implications of each of these components. It develops an embryonic contingency model that illustrates why the relative importance of dynamic capabilities varies across firms. The article also highlights the critical role played by strategic leaders, who must selectively adapt and refine dynamic capabilities and also serve as a last line of defense in times of rapid change.
This is an MIT Sloan Management Review article. Talking about "green technology"gets people excited. It's thrilling to think that a new wave of inventions and discoveries will revolutionize the way we live, halt the degradation of our planet, and conserve resources for future generations. And it's more than just talk: investors are committing real dollars. As the level of activity increases, however, discussions about green technology raise as many questions as they answer. Addressing the key questions is complicated by the fundamental uncertainties that are at the heart of the green technology market. The evolution of this market space depends on forces that are beyond the control of any individual entrepreneur or investor: government policies; availability of capital; and wild cards such as oil price volatility, geopolitical conflicts, the rate of economic growth, and public attitudes toward warnings of global climate change. History shows that the road to technological innovation is a long and winding one. Between 2005 and 2007, runaway enthusiasm led to the proliferation of hundreds of new green technology ventures, many of which ran into trouble during the great recession. Green technology companies need to develop staying power. In addition to understanding the opportunities, they need to get ahead-and stay ahead-of competitors.
This is an MIT Sloan Management Review article. Managers will never be able to predict the future as clearly as The Amazing Kreskin. But by making a deliberate effort, they can develop the clairvoyance they -and those around them -already possess into a potent competitive weapon. Because their antennae are always aloft, executives naturally detect weak signals as they drift in and out of range from the outer edges of their marketplace. How they find, keep and make sense of those faint clues can make all the difference when it comes to getting an early start on confronting a threat or exploiting an opportunity. In this article, the authors draw from their research into companies that learn from the future. They outline the specific skills managers need to develop--and those they had better lose--to correct their fuzzy vision of what's ahead. First, the authors identify the different breeds of biases that most managers don't even realize they have, and provide them with the tools to rout out such distortions. Then they outline nine proven and practical strategies managers can use to find, understand and make use of the most meaningful distant data. Confronting reality isn't as straightforward as hushing hunches in favor of high-minded analysis; there has to be room for both. Finally, the authors encourage executives to consider new information within the context of as many wider views of the future marketplace as they can find -tapping the farsighted folks at their company and in their industry. By learning how to extract meaning, managers will grow to understand that the future is plainly ours to see, no matter what the song says. What takes work is piecing those glimpses into a plausible panorama so that managers can see where their company strategy fits -before anyone else does.
This is an MIT Sloan Management Review article. Vigilant leaders are those who make a practice of being abundantly alert and deeply curious so that they can detect, and act on, the earliest signs of threat or opportunity. They seek to nurture equally vigilant employees by modeling such behavior and by providing incentives for managers to look for -- and interpret -- weak signals. While such icons as Andy Grove and Jack Welch exemplify vigilant CEOs, the trait remains in short supply. That is a conclusion the coauthors reached after surveying 119 global companies about their overall capacity for diligence. Among their findings: Just 23% of the businesses were run by CEOs who tried to pick up weak signals from the periphery. Most leaders, they theorize, rise to the top by demonstrating superior operational skills. To help leaders recognize and develop the habit of vigilance, the researchers examine in detail the three traits that characterize vigilant executives: focusing externally, applying strategic foresight and encouraging exploration by others. They also capture such leaders in action and provide examples in which a distinct lack of vigilance has led companies such as The Coca-Cola Co. to "miss the boat" by overlooking big opportunities. Companies like General Electric Co. and Johnson & Johnson have instituted systematic programs to instill employees with the qualities of vigilant leaders. The CEO of Denmark-based Novozymes A/S is curious, fast and enterprising, an attitude he nurtures in his workers. Organizations may encourage vigilant leadership by hiring specifically for it or by openly rewarding displays of it. Whatever strategy CEOs choose, the authors find that it is critical for them to set an example. After all, it is only through vigilance that companies can avoid hidden dangers -- and discover opportunities ripe for innovation.
Minor innovations make up most of a company's development portfolio on average, but they never generate the growth companies seek. The solution, says Day--the Geoffrey T. Boisi Professor of Marketing and a co-director of the Mack Center for Technological Innovation at Wharton--is for companies to undertake a systematic, disciplined review of their innovation portfolios and increase the number of major innovations at an acceptable level of risk. Two tools can help them do this. The first, called the risk matrix, graphically reveals the distribution of risk across a company's entire innovation portfolio. The matrix allows companies to estimate each project's probability of success or failure, based on how big a stretch it is for the firm to undertake. The less familiar the product or technology and the intended market, the higher the risk. The second tool, dubbed the R-W-W (real-win-worth it) screen, allows companies to evaluate the risks and potential of individual projects by answering six fundamental questions about each one: Is the market real? explores customers' needs, their willingness to buy, and the size of the potential market. Is the product real? looks at the feasibility of producing the innovation. Can the product be competitive? and Can our company be competitive? investigate how well suited the company's resources and management are to compete in the marketplace with the product. Will the product be profitable at an acceptable risk? explores the financial analysis needed to assess an innovation's commercial viability. Last, Does launching the product make strategic sense? examines the project's fit with company strategy and whether management supports it.
This is an MIT Sloan Management Review article. Responding to competitive pressures, a growing number of corporate managers are dismantling organizations and cultures that were built on selling particular products and replacing them with new structures designed to be more responsive to customer needs. The push to restructure around customers is more than a new management fad. It is supported by success stories at companies including IBM, Cummins India, Fidelity Investments, and Imation. Companies transitioning from product-oriented to customer-centered organizations progress along a continuum. They begin with informal coordination to overcome the deficiencies of product or functional silos, adding integrating functions (such as key account managers and customer segment task forces) as needed. The market logic for becoming customer focused is often compelling. In surveying 347 companies, the author found that companies that embraced this approach saw accountability for customer relationships improve, and information about customers was more readily shared. These companies were also easier to do business with, according to customers. However, the author found that transforming product-centered cultures can be difficult and that the potential benefits do not necessarily translate into superior performance.
Companies often face new rivals, technologies, regulations, and other environmental changes that seem to come out of left field. How can they see these changes sooner and capitalize on them? Such changes often begin as weak signals on what the authors call the periphery, or the blurry zone at the edge of an organization's vision. As with human peripheral vision, these signals are difficult to see and interpret but can be vital to success or survival. Unfortunately, most companies lack a systematic method for determining where on the periphery they should be looking, how to interpret the weak signals they see, and how to allocate limited scanning resources. This article provides such a method--a question-based framework for helping companies scan the periphery more efficiently and effectively. The framework divides questions into three categories: learning from the past (What have been our past blind spots? What instructive analogies do other industries offer? Who in the industry is skilled at picking up weak signals and acting on them?); evaluating the present (What important signals are we rationalizing away? What are our mavericks, outliers, complainers, and defectors telling us? What are our peripheral customers and competitors really thinking?); and envisioning the future (What future surprises could really hurt or help us? What emerging technologies could change the game? Is there an unthinkable scenario that might disrupt our business?). Answering these questions is a good first step toward anticipating problems or opportunities that may appear on the business horizon. The article concludes with a self-test that companies can use to assess their need and capability for peripheral vision.
The boom-to-bust cycle for Internet start-ups has been remarkably compressed. This article reports on a longitudinal study of eight industries that found that only 43% of independent B2B exchanges survived in the two years following Spring 2000. Most of these start-ups failed because they misdiagnosed their advantage over existing ways of doing business. In reality, the Internet is mainly about reformed applications that facilitate interactions and squeeze costs but do not change the basic structure and functioning of existing markets. Incumbents prevail when a technological disruption reforms an existing market rather than completely redefines industry boundaries and norms. Building on the lessons of past industry shakeouts, this article suggests that the prospective winners in digital markets will be found in three camps: adaptive survivors who find a protected niche by retooling their strategy for reformed markets; acquisitive incumbents who acquire the assets of pure-play companies at steep discounts; and pure-play start-ups that capitalize on their early-mover advantages in breakthrough markets.
This is an MIT Sloan Management Review article. Three forces are changing the customary rules of distribution channel management: proliferating customer needs, shifts in the balance of power in channels, and changing strategic priorities. Many firms are outsourcing the distribution function to third parties. Others, using IT, direct marketing, database marketing, and other variations, contact customers directly, so the roles of the distributor or dealer are evolving. And some firms are simultaneously experimenting with a number of distribution options before committing to one system. Firms are also dealing through specialists rather than generalists, because specialists tend to be more focused and nimble than the manufacturer in a turbulent environment. The authors propose a strategic approach to planning for future channel configurations, control of the channel, and resource commitment. The channel must address customer needs, ensure that the customer sees the value in the company's offering, be cost efficient, and handle any new products and services that emerge. The authors suggest that a company first assess its current distribution channels, each channel's profitability, its market coverage, and the cost of each channel function. Next, a company should choose a channel arrangement based on sound design principles that recognize that the distribution strategy must contribute to the business' overall objectives.
Shakeouts are a fact of life in almost every industry--witness the shrinking number of players in areas as diverse as banking, software, and hospital supply distribution. The key to survival is sensing your industry's shakeout before the competition does. And the first hurdle for managers to overcome is the belief that it can't happen to them. It can and it probably will. This article outlines how companies can detect the early warning signs of a shakeout. Explains how adaptive survivors, such as Dell Computer, successfully adjust their businesses in the midst of a bust, and how aggressive amalgamators, such as Arrow Electronics, cut costs and acquire smaller rivals in order to remain standing after a seismic shift. But the fact remains that most companies will get squeezed out during a consolidation. Although it is enormously difficult for executives to come to terms with the grim news, the sooner they do so, the better. All is not necessarily lost: with the right timing, also-rans can make a profitable exit from an industry.
Market-driven firms stand out in their ability to continuously anticipate market opportunities and respond before their competitors. The market learning processes in these firms are distinguished by: open-minded inquiry based on the belief that all decisions are made from the market back; widespread information distribution that ensures that relevant facts are available when needed; mutually informed mental models that guide interpretation and ensure that everyone pays attention to the essence and potential of the information; and an accessible memory of what has been learned. However, mastery of all the steps in the learning process is rare. Most firms suffer disabilities at one or more stages. Overcoming these learning disabilities and enhancing market learning competency is an important management challenge.
Shareholder value analysis (SVA) is the subject of much debate. Some managers herald it as a great contribution to corporate planning; others say it is too restrictive, too easily manipulated, or too dependent on subjective forecasts. The shortcoming is not in the technique itself but in the way companies apply it. SVA can lead managers astray in three ways: by undervaluing a strategy, by overvaluing a strategy, or by excluding strategy alternatives.