Early Warning System for Highly Dynamic Business Environment

published in: Leadership

05 Jan
2010

In the article "Challenges of the XXI century managers" we talked about the high turbulence in the business environment and the additional challenges that it poses to current and future managersTurbulence, like any other phenomenon, is preceded by many warning signals.  Creating a system to capture these signals, an early warning system (EWS) in business organizations will benefit substantially their management.

Paul Schoemaker and George Day, in their book "Peripheral Vision: Detecting the Weak Signals That Will Make or Break Your Company" describes the following eloquent example reveals the consequences when lacking an early warning system (EWS):
"Mattel, the toys manufacture leader, that produces the world famous "Barbie" dolls, lost 20% market share of fashion dolls segment in the period 2001-2004 year.  These impressive 20% were taken by smaller competitors, such as MGA Entertainment - that created a new line of dolls called "Bratz" dedicated to world famous pop stars.  "MGA" saw something "Mattel" missed - nowadays the ten-year-old  girls mature earlier than their coevals 30 years ago.  This accelerated maturation had shrank the "Barbie" target market from girls aged 3-11 to aged 3-7.  "Bratz" sales boosted on the account of of the "Barbie" dropdown.  "Barbie" - the queen of the dolls for 40 consecutive years, lost 20% of her kingdom.  In 2004, "Mattel" finally took measures to recover its market share in the dolls segment through the introduction of new fashion doll line, but the damage had already been inflicted.

In the same book, Day and Shoemaker, outlined 8 contours of an EWS.  Philip Kotler and John Caslione in their book "Haotics. The Business of Managing and Marketing in The Age of Turbulence" provided a simple, but very interesting example based on these 8 contours:
     1. What important signals were neglected?
Answer: The Americans would prefer to purchase cars manufactured in the United States under conditions that they correspond to a greater degree of the consumer needs. 
The pension funding problem can be solved by increasing productivity and sales.
     2. What omissions we had in the past? What is happening today with what we have missed? early warning system, business environment, busiess
Answer: The steady growth of foreign automobile manufacturers undermined the market share of "Big Three" (Ford, Chrysler, General Motors) due to the increasing preference of the Americans to foreign design and value for money. 
U.S. pension funds are increasing the labor costs, especially in the rapidly aging workforce.
     3. Can we find analogy in another industry?
Answer: The USA has lost market shares in favor of Asian manufacturers of televisions, computers, audio and video equipment, and huge share in the steel industry.
     4. Which companies in our industry react before everyone else?
Answer: Japanese, Korean and European manufacturers of cars and trucks.
    5. What do "the experts" on market see?
Answer: More and more Americans are interested in environmental issues and finding alternative energy sources.
"The green movement" is gaining ever greater power.
     6. Which new technologies could change the rules of the game?
Answer: All technologies for the extraction of alternative energy.
Honda has been selling in the U.S. hybrid electric vehicles since year 2000.
     7. What future surprises could help or harm us?
Answer: The price of a barrel fixed at $ 100 per barrel, and customers forced to buy smaller, more fuel efficient cars. 
Pension obligations of the "Big Three" grow faster than sales.
     8. Is there any possible scenario that has not occurred to us?
Answer: Oil price reaches 160 dollars per barrel. 
USA enters into a deep recession and car sales dropdown.

From the position in year 2010, it is easy to blame the "Big Three" that they failed to notice these early warning signals during the last 10 yearsSimple fact remains that if they were focused on the many signs and signals and the general economic situation the "Big Three" would perform much better and avoid the huge financial problems.

Market feedback is extremely important for any company, including the "Big Three".  Early warning system (EWS) in its essence is a well-structured profound relation with the market that allows us to better understand and interact with the market.  In connection with the growing turbulence in the XXI century business environment, understanding and interaction with the market (the EWS) will play an increasingly important role in the success of the company.

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