Near-Sighted Corporate Intelligence Can Ruin You
Rival firms aren't the only force that can take your company apart.
Political movements, societal pressures, economic shifts and technology breakthroughs can sneak up to derail even a longtime market dominator, according to George Day, a marketing professor at the University of Pennsylvania's Wharton School.
Companies that have ruled their markets for years are especially at risk for overlooking "peripheral" forces that change the familiar landscape, says Day, who co-wrote a forthcoming Harvard Business Review article, "Scanning the Periphery."
For example, Anheuser-Busch, SABMiller Brewing and Molson Coors initially missed the growing popularity of microbrews. In 1984, beer drinkers sucked up small-batch beers from Samuel Adams in Boston, Pyramid Breweries in Seattle and dozens of others in between. The big brewers didn't realize that 1980s narcissism was a societal trend that would touch their business: Beer drinkers in the all-about-me decade wanted a beverage as distinctive as they thought they were.
When the number of microbreweries jumped from fewer than 50 in 1980 to 764 by 1996, the mass producers had to respond. They bought stakes in small brewers or acquired them outright. Anheuser-Busch, for example, paid $18 million in 1994 for 25% of Redhook. Independent brewers continue to appear, with an estimated 1,400 in business today.
Toyota and Honda, on the other hand, skillfully considered how U.S. environmental politics would touch them. The Japanese automakers picked up on consumers' increasing interest in fuel-efficient hybrid cars, even before the Iraq war. Because they pushed ahead building their Toyota Prius and Honda Insight gas-electric cars, which get 60 miles per gallon, they were ready when car buyers en masse wanted hybrids. General Motors and Ford, meanwhile, continued making gas-gulping sport-utility vehicles. In May, Standard & Poor's said sinking SUV sales helped convince it to downgrade the bonds of GM and Ford to "junk" status.
As Day explains, "scanning the periphery" for growing threats means actively looking for bad newssuch as early backlash against once-popular SUVs on Web sites such as idontcareaboutair.comand then bringing it back to managers who may not want to hear it.
One way to pick up on this intelligence is to designate an executive to "collect the paranoia," he advises. That person must be senior enough to be able to see the impact of controversial information and appraise it properly. At chipmaker Intel Corp., it was Andy Grove. "It takes a particular kind of curious leadership and processes and systems to be able to make sense of streams of incoming data," he says. In the 1980s, Grove heard and saw that Japanese chip companies were swarming into memory chips and decided to shift Intel into computer microprocessors, where it eventually ruled the market.
Day also suggests that companies mount scouting parties of two or three people from different departments to focus on one question. An example: "What's the worst thing that could happen to our new product line this year?" Draw up a list, then go out and look for signs of those things happening. And then, after envisioning the worst, fantasize about the best.
For example, in the 1970s, Day says, scientists at AT&T's Bell Labs pretended the phone system was wrecked and that they had to build a new one. What wild features and functions would they put into it? Voice mail and voice-activated commands, among many ideas, according to Day. Although the then-industry giant didn't know how to add them into its phone system immediately, those concepts became ideal design points for future projects. Today, we take them for granted.
Another technique: Look at the same data in new ways. Rather than market share, a consumer products company might delve into "wallet share." Mattel's Barbie may still be the No. 1 fashion doll in terms of worldwide market share. But wallet share showed that girls are spending increasing amounts of money on music CDs, hip-hugging jeans and karaoke setsindicating that Barbie's traditional customers are no longer dreaming about princesses, but about becoming stars on American Idol. That intelligence could be exploited to develop new products like American Idol Barbie, which Mattel did this year.