Create Early Warning Systems to Detect Competitive Threats
Eighteen months ago, a massive earthquake struck off the northeast coast of Japan. The tsunami it unleashed caused devastating damage whose effects are still being felt. But it could have been even worse. Instead, a mere three seconds after the earthquake struck, a sophisticated early warning system kicked in. The system then triggered a series of messages via TV and cell phone warning about the impending tsunami that came about nine minutes later — which, as a Time magazine reporter noted, “can be just enough time to take cover, drive a car to the side of the road, step back from getting on an elevator or stop medical surgery.”
Corporations should have early warning systems to detect emerging competitive threats that have long-term potential to affect their business. Just as seismologists used research to determine what to watch for and then distributed networks of sensors to identify the right signals, strategists can look back at past transformations to inform their own analyses.
Strategists need to understand how tomorrow’s industry could be structured. The work of two of the most important scholars in the field, Clayton Christensen and Richard N. Foster, suggests considering five questions:
1. How willing are customers to continue to pay for further improvements in performance that historically merited attractive price premiums? One of the key tipping points in a market occurs when a company, in Christensen’s language, overshoots a given market tier by providing them performance that they can’t use. Your television remote control probably serves as a daily reminder of overshooting. Each of those buttons can do wonderful things, but would you pay extra monthly fees for yet another button? Probably not. When overshooting begins to set in, industries can change rapidly.
2. Are customer preferences and habits changing due to enabling technologies and/or changing social norms? Companies often miss important shifts because they start not among mainstream customers, but at people at the fringes of the market. But remember, the quirky behavior that teenagers follow today (100 text messages an hour!) becomes mainstream just a few short years later.
Scott D. Anthony is managing director of Innosight Asia-Pacific.