Using Weak Signals to Manage Change

 

Real-time detection of strategic issues increases the time available for response. But, as the speed of surprising changes increases, the predictability drops. This means that by the time information about the change becomes sufficient to permit a well considered response, the time remaining may be inadequate to complete the response before the threat strikes, or an opportunity is missed.

 

Thus, there is an apparent paradox: if the firm waits until information is adequate for a decisive response it will be increasingly surprised by crises; if it accepts vague information, the contents will not be specific enough for a thorough analysis and a well considered response to the issue.

 

A solution to this paradox is to change the approach to the use of strategic information.  Instead of waiting for sufficient information to accumulate, a firm should determine what progressive steps in planning and action are feasible as strategic information becomes available in the course of evolution of a threat/opportunity.

 

Early in the life of a threat, when the information is vague and its future course unclear, the responses will be correspondingly unfocussed, aimed at increasing the strategic flexibility of the firm.  As the information becomes more precise, so will the firm's response, eventually terminating in a direct attack on the threat or opportunity.  But the prior build up of flexibility will make this attack occur earlier, and the attack will be better planned and executed.

 

The first task, however, is to explore the range of weak signals that can be typically expected from a strategic discontinuity.

 

The information typically required in strategic planning for evaluating the impact of threats/opportunities (T/Os) gives the impression of being imperfect because of the uncertainties in both their occurrence and probable course.  A closer look shows that, while uncertain, this is very content-rich information: the threat has to be well enough understood to compute the possible profit consequences, the responses well enough developed to estimate both their costs and their counter effects on the threat.

 

It is reasonable to expect this much knowledge from a T/O which arises from a familiar, prior experience.  This will be the case when a competitor introduces a new marketing approach, a new product, or a new pricing strategy.  But when the T/O is discontinuous (such as the impact of laser technology on land surveying, or of large-scale integration on electronic components), then, in the early stages, the nature, impact, and possible responses are unclear.  Frequently it is not even clear whether the discontinuity will develop into a threat or an opportunity.

 

Thus, when a threat/opportunity first appears on the horizon, we must be prepared for very vague information, which will progressively develop and improve with time.  This progression may be described by five states of knowledge.  These are illustrated in Table below where level 5, the highest state of knowledge, contains, exactly the information required for strategic planning.  Enough is known to compute both the probable profit impact of the discontinuity and the profit impact of the response.

 

At the other extreme, level 1 is the highest state of ignorance that can be of use to management.  All that is known is that some threats and opportunities will undoubtedly arise, but their shape, nature and source are not yet known.  In today's `fog of uncertainty' many firms find themselves in exactly such a state of ignorance.  Having experienced shocks of change in the recent past, managers are convinced that new ones are coming, but they cannot identify the source.

 

 

State of Knowledge   Information Content	(1) Sense of threat/ opportunity	(2) Source of threat/ opportunity	(3) T/O concrete	(4) Response concrete	(5) Outcome
Conviction that discontinuities are impending	Yes	Yes	Yes	Yes	Yes
Area or organization is identified which is the source of discontinuity	No	Yes	Yes	Yes	Yes
Characteristics of threat, nature of impact, general gravity of impact, timing of impact	No	No	Yes	Yes	Yes
Response identified: timing, action programs, budgets	No	No	No	Yes	Yes
Profit impact and consequences of responses are computable	No	No	No	No	Yes

 

Table:  States of Knowledge under Discontinuity.

 

State of knowledge on level 2 improves matters somewhat.  For example, in the early 1990s, it was generally recognized by many that Internet has great potential for information sharing among universities.  But the impact of Internet on everyday life was unknown.  The source of the T/O was clear (state 2), but not the T/O itself.  When the Internet went out of universities domain, the knowledge was raised to level 3, but at the outset the ramifications of this were unclear, as were the defensive and aggressive responses that different firms were eventually to make. Even Microsoft dismissed it as a fad.

 

When the firms developed and made the initial responses and knowledge was raised to level 4, the eventual investments and profits were not yet visible.  Pioneering firms were investing boldly in the new technology with little experience to guide them, in high hopes that their entrepreneurial risks would pay off. The dot com bubble was the result of this Level 5 is now being reached and knowledge is now sufficient to make reasonable predictions of the ultimate technology and its profitability.  But by now many leaders are entrenched, and those who originally held back may have to pay a high cost of entry into the industry.

 

As shown by the growing number of `Yes's' in Table above, ignorance is reduced by information is increased as a T/O evolves from level 1 to level 5.  A variable of crucial importance is the time remaining at level 5 before the full impact of an unarrested T/O will be felt by the firm.  For a threat, this is the time remaining before maximum loss of profit has occurred; for an opportunity it is the time before competitive responses by other firms will have progressed to a point at which an attempt by a new competitor to `climb on the bandwagon' is doomed to be unsuccessful and/or unprofitable.  The time remaining must be compared with the response time required by the firm to avert the threat or capture the opportunity.

 

If the time remaining at level 5 is insufficient, the firm can try to start its response at a lower knowledge level.  Below level 5 there is not enough information to make reliable estimates of the impact and of the effectiveness of response to permit a commitment to an irreversible unambiguous response.

 

Thus, the nature of the problem changes when, at level of knowledge 5, the time remaining is smaller than the response time.  Instead of making a definite commitment to a course of action, management must choose actions which prepare the firm for the ultimate response and, at the same time, keep the options open.