You Can't Find What You're Not Looking For

Ask the right questions

Smoke detectors are programmed for early warning. But they don't detect CO2, equally as dangerous.

With a specific threat - or opportunity - identified, designing a system or capability to capture and process the relevant signals and issue an alert is pretty straightforward.

The challenge for companies is to articulate the potential business threat or opportunity. But in a dynamic marketplace, these are everywhere. Organizations simply can’t monitor every Bill and Dave or Steve and Steve in their garages or Jeff in his warehouse.

It is exacerbated when organizations obsess on collecting reams of customer data or developing in-depth competitor profiles, especially when these focus is on what the customers wanted or what the competitor did. The often-unstated assumption – the mindset – is that the future will be largely like the past and, circuitously, the historical facts support the prevailing view.

But there are no “facts” about the future.

Creating the necessary insight requires asking the right questions:

• How will new technologies and business value propositions impact our customers, products, services, and business growth?
• Which industries, customer segments and offerings categories offer the best likelihood of future business growth?
• Who are the most threatening traditional, emerging and potential competitors? Why?
• Where are the greatest long-term profit streams according to the capital markets?
• What is required for future competitive success?

How many organizations have good answers to these questions? How many have the leadership that asks them?

You can’t find what you’re not looking for.

Next: Creating Crises

Avoiding "Surprises"

Early Warning

Early Warning

Had these experienced commanders and executives (see the prior post, "Surprise") known what was coming, they could have redeployed assets and avoided catastrophic “surprises.” Today, of course, we can see that the available information provided sufficient early warning of clear threats - hindsight is 20/20.

But why is it these leaders couldn't see the signs at the time?

In retailing, it is not as if amazon.com and its offshoots were unknowns by the late 1990s. However, the prevailing view of traditional retailers was that marketplace success required opening as many stores as possible to both gain share and blunt competition. These built vast organization structures around site location, logistics, inventory, HR and downstream (promotional) marketing. And the most successful developed sophisticated information systems that reported operational performance variation in increasingly exacting detail. Have a hot selling item in one location? Easy - find excess inventory and load it on the next shipment. Poor performance in another? Schedule a performance review with store management to isolate and fix the root cause.

What they didn't have was an information system to warn of emerging strategic threats. No doubt these executives received information about the impact of Internet business models. But, unlike the internal information, it was unstructured, arriving initially in dribs and drabs. By the time clear trends emerged, the successful early Internet movers had learned from their mistakes and established defensible niches.

Caught in the daily exigencies of running an enterprise, these leaders simply weren't programmed to evaluate the nature of the available early warning intelligence within the context of their brick-and-mortar operational mindset and information expectations. And, eventually, when they did assess the threat, they were constrained by the amount of investments required to overcome the first-mover advantage, which would have required diverting significant resources from successful operations.

Waiting until information is absolutely certain (right hand side of the chart) results in a crisis, forcing leaders to rapidly rethink critical assumptions: maintaining outdated mindsets when bombs are falling or bankruptcy looms is suicidal. But it may be too late: they have very little flexibility in how to respond – you can’t re-position a fleet immediately or turn a brick and mortar operation into an e-commerce one overnight.

On the other hand, way back in relative time (the left hand side), leadership has more leeway in deciding where to deploy assets. However, the uncertain and often conflicting information makes it difficult, if not impossible, to challenge the existing organization mindset.

Avoiding “surprise” requires speeding up the processing of relevant information, moving the information certainty line upward and the intersection of the two lines to the left, when there is more decision-making flexibility.

Creating the intelligence necessary to challenge assumptions earlier requires choice and focus – every startup or new technology is a potential threat. And, perhaps perversely to some, the solution is not simply amassing and sorting through vast amounts of data. 

It requires asking the right questions.

Next: You Can't Find What You're Not Looking For

"Surprise"

December 7, 1941

Nothing frustrates executives I speak with more than a crisis caused by surprise: a new competitor product or unexpected price cut, unexpected loss of a key bid or long-held account, or new technologies or shifts in buyer behavior that obsolete current offerings. And heads roll when these cause a miss in quarterly earnings or, worse, bankruptcy.

The question that always arises is how could we have avoided surprise?

Lack of knowledge is not the problem. “We now live in a world where knowledge transfer and information exchange are tremendously efficient, and where there are numerous organizations in the business of collecting and transferring best practices. So, there are fewer and smaller differences in what firms know than in their ability to act on that knowledge.”*

Said another way, surprise rarely occurs due to a lack of signals. Information on the Toyota Production System was available to the US auto industry for decades, and traditional retailers certainly had time to absorb intelligence on amazon.com’s business model well in advance of having to declare bankruptcy. In the military sphere, “an analysis of surprise attacks suggests that the intelligence community seldom fails to anticipate them owing to a lack of relevant information.” And a US Congressional Subcommittee that examined several critical US political crises pointed out that “in no case had lack of data been a major factor in the failure to anticipate the crisis.”**

Take Pearl Harbor – why did the US navy fail to detect anytime in advance the movement the most powerful fleet in history? It was not as if Japan’s blue water fleet was a surprise – in 1905 it destroyed the Russian Pacific fleet. Nor were Japan’s expansionist intentions a secret – it invaded Manchuria in 1931. And it’s not as if the US Pacific Fleet wasn't concerned about the Imperial Japanese Navy: it knew it was the only real threat to those intentions. Finally, beginning in early in 1941, there was a slew of signals that the Japanese navy was targeting Pearl Harbor.

Given this, “intelligence officers could perhaps have foreseen the attack if the US, years before, had…flown regular aerial reconnaissance of the Japanese navy, put intercept units aboard ships sailing close to Japan…or recruited a network of marine observers to report on ship movements.”***

Did the US Navy create its own surprise?

Next: Avoiding "Surprises"

*Pfeffer, Jeffrey and Robert Sutton, The Knowing-Doing Gap, Harvard Business School Press, 2000
**Kam, Ephraim, Surprise Attack, Harvard University Press, 1988
***Kahn, David, "The Intelligence Failure of Pearl Harbor, Foreign Affairs, 70, no. 5 (Winter 1991/1992)

A $3 latte worth $506,628???

It is if:

• You save that $3 a day and invest it weekly in the stock market
• You're in your 20s, and continue this for 40 years
• The stock market matches its historical average return of 10%

The power of compounding is amazing. Do the math, here; if you're not familiar with financial calculations, start with 0 for your Present Value (assume you have nothing now); enter 40 Years (if you're in your 20s), compound your interest rate Annually, at a 10% Rate, your Contribution is that weekly $21 saved by not buying the daily latte (discipline counts: you must do this each and every week; set up an automatic contribution into an index fund). Finally, push the Future button.

So, millennials, ask your self each morning, how much is that $3 latte worth?

Knowledge matters.

Oh brave new world: Re-imagining EVERYTHING

"After 244 years, Encyclopedia Brittanica announced the end of print editions in 2012," notes Kleiner Perkins partner Mary Meeker in what businessinsider.com terms an "incredibly insightful presentation."

While you may already know this, and that Kindle is replacing books, Pinterest is replacing scrapbooks, NetFlix and YouTube are replacing Blockbuster and, one of my personal favorites, Yelp is replacing the Yellow Pages, did you know about:

The next great technological revolution

I continue to be fascinated by Carlota Perez’ work on Technological Revolutions and Financial Capital. Briefly, she identifies 50 or so year periods of great economic advancement, followed by a bust which then creates the conditions for a period of steady growth and prosperity; each period goes through five phases:

1. Irruption, which inaugurates the surge through a technological big bang in a world threatened by stagnation and inflames the imagination of young entrepreneurs

2. Frenzy, a time of new millionaires, when financial capital takes over; the rich get richer at the expense of the poor (Engels works were inspired in this phase in the 1840s)

3. The turning point, generally a ‘panic’ or a crash, a time of fundamental changes required to move the economy from the Frenzy mode

4. Synergy, often a true golden age if the framework created during the turning point creates the conditions for a sustained build out

5. Maturity – gradual saturation of markets creating the conditions of the next irruption; those who reaped the full benefits of the golden age hold on to their beliefs in a complacent blindness in the face of increasing dissatisfaction and frustration

Here are Perez’ five great technological revolutions:

o The industrial revolution, which she dates from 1771 when Arkwright’s mill opens in Cromford, Britain; turning point 1793-1797

o The age of steam and railways, dating from the test of the ‘Rocket’ steam engine for the Liverpool-Manchester railway in 1829; turning point 1848-1850

o The age of steel, electricity and heavy engineering, starting with the opening of the Carnegie Bessemer steel plant in Pittsburgh; turning point 1893-1895

o The age of oil, the automobile and mass production when the first Model T rolls off the assembly line in Detroit; turning points: Europe, 1929-1933; US 1929-1943

o The age of information and telecommunications, with the quiet announcement (at the time) of the Intel microprocessor in Santa Clara; turning point 2001 - ????

The intriguing element of her work is her investigation of how a new technology, often misunderstood at the time, launches a sequence of events that over time gather steam (OK, that was intentional…) and eventually create whole new industries and economic structures completely beyond the power of the inventor to envision. She writes:

“Each technological revolution results from the synergistic interdependence of a group of industries with one or more infrastructural networks…The technologies and products involved are not only those where the major breakthroughs have occurred. It is often the interlinking of some of the new and some of the old that generates the revolutionary potential. In fact, many of the products and industries coming together into the new constellation had already existed for some time, either in a relatively minor economic role or as important complements for the prevailing industries.

"This was the case of coal and iron which after a long history of usage during and before the Industrial Revolution, were transformed by the steam engine into the motive industries of the Age of Railways. Oil was developed for many uses since the 1880s by an extremely active industry; the same can be said about the internal combustion engine and for the automobile, which was produced as a luxury vehicle for quite some time. But it is the conjunction of all three with mass production that makes them become part of a veritable revolution.

"Electronics existed since the early 1900s and in some ways was crucial in the 1920s; transistors, semiconductors, computers and controls were already important technologies in the 1960s and even earlier. Yet it is only in 1971, with the microprocessor that the vast new potential of cheap microelectronics is made visible; the notion of a ‘computer on a chip’ flares the imagination and all the related technologies of the information that come together into a powerful cluster.”

I'm desparately trying to determine what the next technology constellation is - what are your thoughts?