How to See Change Before Everyone Else
January 2020 Prof. Antonio Davila / Joost Korver
Market and social forces are challenging long held beliefs about management. For more than a century, the focus of management has been execution. We have become excellent at being increasingly efficient.
Flawless execution was the source of competitive advantage and success was the reward of being more efficient than competitors. Execution is important, but it has become a commodity; leading organizations know how to do it. An organization cannot rely on efficiency only when markets and societies are rapidly evolving and opportunities emerge at an increasingly rapid pace. The new source of competitive advantage is seeing change before the dust settles and quickly going down the learning path.
Execution dominated management when the foundations of a market were stable. Organizations have always faced economic and political uncertainty; but market and social structures were clear and constant, competitive analysis relied on static frameworks. This setting is not the case anymore; Schumpeter’s prediction about market economies is happening; they are not about administering existing infrastructures, but about creating and destroying them. Three main reasons explain the new complexity that organizations face. The first is the increase in human ingenuity by a factor of three. Asia, from Korea to China, from India to Indonesia have embraced the market economy, these are more than three billion people looking for opportunities. The second is the increasing pace of technology development that allows for exponentially increasing opportunities to combine them. The third force is customers that are much better educated, more digitally savvy, and have access to an unprecedented amount of information. This fact has made them much more volatile in terms of needs and preferences.
How are companies adapting to this new environment? The answer that companies like Schneider Electric, Honda, and Hilt are exploring is to develop capabilities around sensing opportunities as they emerge. The end goal is to redefine cultures where every person has two hats, the traditional execution hat and the sensing hat. Every person in the organization (and even outside) observes, much like sensors do in IoT to create the Internet of People (IoP). To do so, organizations create new habits through processes that bring together people to make sense of what they are observing. These processes rely on new management systems that document and organize the information from these unstructured observations.
How do you create these new management capabilities? During the past five years we have been working with companies in a research project to design how to adapt to this new reality. The challenge is to create this new mentality where management means execution and exploration. To do so, we have developed a methodology that structures this sensing to have a constant flow of high quality opportunities opening up in the market. The foundation is an information system that supports a process that creates the habit of seeing opportunities. The outcomes that we have seen include having people report relevant events that before were lost, having discussions that did not happen before about opportunities opening up in the market, structuring high-quality opportunities, generating high-quality ideas for incremental innovation, influencing strategy at the executive committee level, and understanding how market and social forces are changing real-time.
The methodology is simple and easy to implement. Much like we do with internal processes, the starting point is agreeing on the forces shaping the environment of the organization. The first step is a map of the landscape. This map describes the actors that create opportunities through their decisions; typically it will include competitors, regulators, customers, technology, and partners. Each map is specific to the organization and its strategy.
The second step is crowdsourcing observations. We believe that the raw material of creation is observations. A group of people populate the map through their observations—events that they see from visiting customers, attending a trade show, or surfing the web. These native observations are very valuable because together they describe how the market is changing. In addition, we collect observations from external sources such as the internet.
The third step is preparing the Future’s meeting, inspired in Amazon’s meetings where top management meets with the only purpose of spotting emerging opportunities for the company. Before the meeting, each person in the team goes over the observations collected over the last few weeks, relating them to create insights. We have individuals doing so to avoid the drawbacks of group work. Right before the meeting, each person votes on the insights proposed; this voting can change during and after the meeting. At the meeting, the group discusses each insight to refine it and sharpen it. The outcome is an action plan for each insight. Some of these plans might lead to a project, while others might be to do a specific effort to collect more information, and still others might be kept for future discussion.
One of the first companies that we worked with was an insurance company. An initial team of eight people came together to explore the landscape with a monthly meeting to discuss the insights coming out of this proactive observation. Several interesting outcomes came out of the project such as having access to the corporate venture fund at corporate, listing startups meetups to have a person go to them and have firsthand information, exploring new services based on emerging technologies, and new regulation that allowed a safe environment to test new services. The exploration initiative encompasses 20 people, it supports strategy making, and the insights are part of the executive committee agenda.
This methodology structures a new capability that organizations need to face increasingly dynamic environments. Quickly spotting opportunities is the new source of competitive advantage, missing on them transforms them into potential risks that not only miss on creating value but threaten to destroy exiting ones. Sensing is crucial going forward and needs to be managed to create cultures that understand that the new management paradigm requires both executing and exploring.