xiii There is a process that brings management closer to external focus. It is called competitive
early warning. It helps companies decipher early signs of trouble before they mushroom into a full-scale crisis and
identify early signs of opportunity before everyone else sees them. It makes planning more realistic and raises the prospects
of success for strategists.
xiv This book... is a must for reasonable companies and smart managers who deal with uncertainty and competition.
The competitive early warning process is a minimum insurance against strategic surprises.
p.3 "Man's basic vice, the source of all his evils, is the act of unfocusing his mind,
the suspension of his consciousness, which is not blindness, but the refusal to see, not ignorance, but the refusal to know."
-Ayn Rand
p.4 How come... large, sophisticated organizations were surprised by events that posed a strategic threat?
The answer is not for lack of signs. Signs for emerging risk are almost always out there.
p.5 Academic research into surprise military attacks... found that surprise attacks were successful
because the other side was the captive of obsolete assumptions and beliefs that led, in the absence of countermechanisms,
to ignoring signs of risk.
p.5-6 defending against surprise is... a matter of having an effective mechanism to identify early signs
of risk and forcing the decision makers to heed the warning.
p.6 If you were a decision maker, wouldn't you like to have an early warning capability at your
fingertips?
p.6 Performance failure is a direct result of bad surprises.
p.6 Obsolete internal convictions - blindspots - lead to the adherence to wrong strategies, ignoring market
evidence that they should be modified or replaced, and then the company's sales or profits or market share "surprisingly"
declines.
Ignoring signs of risk is a substantial problem facing all those planning for the future.
p.6 If those whose duty it is to act on signs of risk look at the wrong things - or fail to look at
the right things - disasters follow.
p.7 powerful leaders evoke powerful mechanisms to explain away the facts, sustain denial, and dismiss the
signals from the outside world that reality is changing.
p.7 When a company's strategy no longer fits market reality, I call the situation "industry dissonance."
...Inevitably, when industry dissonance arises out of changing industry conditions, new competitors, or more agile ones, take
advantage of these changing circumstances to offer customers a better deal or a new route to serve their needs.
p.8 Industries do not stay static, and companies that fail to see the dynamics of change and adapt
to it are overrun by others who do.
p.8 Executives who are trapped in their obsolete assumptions often refuse to believe the intelligence flowing
from their own people
p.9 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.
p.10 for most readers... 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.
p.10 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.
p.22 The three legs of [Yahoo! CEO Tim] Koogle's definition of external focus were as follows: paranoia,
no surprises, and revisiting strategy often.
p.56 Q. Does your company have a systematic approach (an early warning process) to mitigate or reduce
risk (risk to your strategy)?
p.56 Prioritizing risk must be the first step in ensuring rational managerial action to address
threats, given a company's limited resources and management attention.
p.58 risks must be managed proactively, at the first sign of a problem, or at least reacted to quickly
when the loss is not yet substantial.
p.58-59 Our survey shows that only 5 percent of the respondents rated their companies as proactive, and
13 percent rated them as action-oriented... The approach I detail in this and the next four chapters calls for strengthening
exactly these two qualities: proaction, before the events unfold completely or, at the least, quick response to occurring
events. To accomplish this lofty goal, I prescribe a powerful integration of competitive intelligence activities,
strategic planning, and management action in a systematic, seamless, organizationwide effort to make a difference in the future
of the company. I term this approach broadly as competitive early warning (CEW)... It... Calls for management attention
in a specific form and substance... Advances new thinking on the way strategy should be formulated... Calls for speeding
up action through "action triggers" in high-risk/high-opportunity situations. In return, it offers executives and companies
unprecedented protection from competitive surprises and performance decline
p.59 CEW relies on three interlocking steps that move continuously toward a better and better refinement
of strategy as signs of early risk, as well as opportunities, appear... The three steps in the CEW framework begin
with identification of broad areas of strategic risks (and opportunities), proceed through monitoring
for early signs, and end up with inducing management action. Each of these three steps is crucial:
I know of companies that excel in one or two of the steps but not all three, and the result is that performance still falls
short.
p.71 What creates risk? Uncertainty... Uncertainty implies that future events can move
in different directions, and no one knows for sure which one... what creates uncertainty? Change. Identification
of change is therefore at the core of the assessment of the potential for risk... change identification must start
with industry change drivers.
Industry change drivers are events or variables that drive the evolution of industries.
p.74 Change drivers are so fundamental to understanding risks that an early warning system lives or dies
depending on its success in compiling an agreed-upon list of the most significant change drivers.
p.75 Scenarios are by definition hypotheses about how the future will turn out... As a
tool for dealing with massive uncertainty, scenarios are superb. A scenario set is a small group of scenarios
that offer contrasting views of the future and can serve as a management tool for decision making. The scenarios
in a scenario set are selected to maximize contrast, which enables a company to decide which strategies will best fit the
evolving future.
p.76 Imagination, not computing power, is the true limiting factor in scenarios.
p.81 CEW is not a panacea, but it helps control strategic risks
p.88 One of the hottest and most effective managerial tools for assessing competitors' responses
to a changing industry landscape is the war game... Whether the industry's future landscape is drawn using scenarios
or just by imagining the evolution of significant changes in one's industry, a war game brings order and discipline to the
process and practicality to the outcomes. Without a serious attempt to assess competitors' most likely moves in light
of changes in the industry, one is left with interesting hypotheses but misses out on the force that makes it all happen -
competitors' moves. The future industry landscape will be determined by competitors' (and potential
competitors' - new entrants') actions and interactions.
p.89 A war game allows a company to distinguish likely from unlikely futures and risky from less risky developments...
A war game is the quickest, most elegant, and most practical way of bringing the number of relevant scenarios down
to a manageable quantity and getting a quick buy-in from management to one's prioritizing scheme.
p.90 A war game... is the most effective form of preparing for major initiatives, testing them against potential
response.
p.93 Since the objective of the strategy war game is to investigate strategic options, a detailed
examination of areas of greatest uncertainty is a necessary step, and the result is the identification of strategic
risks. A strategy war game that does not involve mapping uncertainty and identifying specific risks is
worthless as a "war game" since its conclusions are bound to be overly optimistic... Out of competitors' likely moves
participants can identify the high-risk environments for which a monitoring effort should be deployed. This is the most effective
methodology known today for minimizing nasty surprises.
p.94 The prediction of competitors' likely moves in the face of the evolution of the industry leads to the
identification of highest risk environments.
p.103 Their assumptions about cause and effect will guide them toward certain choices. These choices may
only look irrational to other people because they hold different assumptions.
p.116 The method can be to derive indicators from... clearly identified change drivers in the marketplace.
p.116 indicators are specific questions or targets for collection, assigned to specific employees identified
as gateways to this information, that signify a particular scenario is emerging.
p.136 the test of the effectiveness of CEW is "zero surprises," not management action.
p.142-143 Management alerts are short... concise statements of significant risk or opportunity...
These are creative syntheses based on observed indicators which provide insights into the future...
Management alerts may deal with any subject that was part of the strategic "risk list" agreed upon between the CEW team and
management... if an urgent issue emerges that requires management attention, the team may elect to issue an alert.
p.157 Strategic options are where creativity exhibits itself.
p.158 Alerts should never be composed of mere data. They must include analysis, interpretation of reality,
and prediction of things to come.
p.237 it is rather safe to say that top executives who love listening to themselves more than they love
listening to the truth will not be ardent supporters of a reality check tool such as a CEW.
p.244 But when it comes to future assessments of the competitive landscape, strategic risk looming ahead
or strategic opportunities opening up, very few people are even aware these can be made available, and are so much more critical
to their decisions than past-present statistics.
p.248 The strategic risk analyst must be able to paste together a puzzle of emerging reality from
a variety of unrelated bits, a strategic picture made up of many tactical details... a risk analyst must
be able to break down a complex issue and see its components during various stages of the risk identification process,
but more important, she must see the whole. The skill of seeing the forest from the trees is called synthesis.
Some call it insight, or creativity.
p.253 "What we see depends mainly on what we look for." -John Lubbock
p.254 business units' executives tend to surround themselves with "yes" people, or people who share their
visions of the external world. No one is told, "Your job is to poke holes in our strategic thinking about the competitive
landscape, making sure we do not fall into the trap of industry dissonance and do not get strategically surprised."
