The people who placed classified advertisements on Craigslist, the online advertiser, collectively saved $5 billion from 2000 to 2007, according to a recent study by Robert Seamans (New York University) and Feng Zhu (Harvard Business School). Those $5 billion in lost revenues for other advertisers caused major turmoil for local newspapers, which are struggling to find a sustainable revenue model. How many of the newspapers saw this coming? How many of them had developed strategic plans that anticipated this sea change in their revenue structure? In terms of business planning, this new use of the web was a true blind spot for many local newspapers. They had failed to look outside their industry for this new and threatening substitute offering.
This example gives me a perfect opportunity to discuss strategic blind spots. Blind spots have been an ongoing challenge for organizations since the term was first introduced in the Baldrige Criteria for Performance Excellence nearly a decade ago, in the 2005 Criteria. Criteria users are frequently unsure of what we mean by blind spots and how they can attempt to avoid them. The newspaper example provides a simple illustration of a blind spot and what it can do to an organization's business model.
Let's start with a definition. The Oxford Dictionary of American English defines a blind spot as "an area in which a person lacks understanding or impartiality." The same definition can be applied to organizations that lack understanding or impartiality when it comes to unanticipated changes. The challenges are to avoid the pitfalls that encourage blind spots, to proactively understand your environment, and to build this understanding into your strategic thinking and strategic alternatives. I will focus on these three challenges.
Pitfalls that Encourage Blind Spots
I characterize common pitfalls that lead to blind spots into four categories:
Blind Faith: This pitfall is frequently seen in well-established organizations with a rich set of experiences. Such organizations are frequently hierarchical in structure and full of rules to guide actions. Faith in authorities (especially organizational leaders) and in tried-and-true organizational rules can lead to missing key opportunities or not even seeking them.
Quick Dismissal: Is "no" the first response in your organization when new ideas are proposed? We all tend to too quickly dismiss ideas that are counter to our current beliefs or concepts. We also have a tendency to process new information in a way that fits a preexisting belief or solution. Warren Buffet said, "What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact." In an HBR blog, John Dame and Jeffrey Gedmin refer to dismissal of seemingly irreverent assertions as a common cause of quick dismissals.
Hindsight Bias: This pitfall is based on an overreliance on history to guide current judgment and actions. We rely on traditions to frame future actions. We use past success as a guide to our future. This pitfall is particularly dangerous in times of economic uncertainty, technological change, and shifting competitive environments.
Group think: Organizations develop a culture and a rhythm for conducting their business. Part of this rhythm can lead to common or "accepted" thought patterns. When this happens, whole organizations can "think" like one individual, shutting out other insights and opinions. "Groupthink" symptoms can include stereotyping competitors as less effective, censoring individuals to conform, believing that you are the industry leader and therefore always will be, and requiring new ideas to "fit" the mission, culture, or product line.
While avoiding common traps that lead to blind spots is important, organizations must also understand their current environment as a prelude to more-open strategic thinking.
Proactively Understand Your Environment
Your current environment, when well understood, should help prevent your being surprised by blind spots.
Porter's Five Forces: The best-known approach to avoiding blind spots through understanding your environment is Michael Porter's analysis of five competitive forces. Those five competitive forces are current industry rivals, customers, suppliers, potential entrants, and substitute products. According to Porter, the rivalry that results from the five forces defines your industry structure and the nature of your competition. Understanding industry rivals means understanding the underpinnings of profitability among your competitors. Customers with power can force down prices; can demand better quality and more service, customized to their individual desires; and can threaten to do themselves what you currently do for them. Powerful suppliers can capture more of your profits by charging higher process, can limit their supply to you, or can possess intellectual property that you require for incorporation into your products. Potential entrants will be evaluating your profitability, their barriers to entry, and your preparedness for industry changes. Substitute products are the most challenging blind spots to detect. They may well include entrants for totally different industries (e.g., digital technology replacing film, fax replacing overnight delivery, and Craigslist replacing newspaper advertising).
Gilad's Method:Benjamin Gilad builds on Porter's analysis by following it with collecting information on competitors' and potential substitute company leaders' assessment of the industry. This could include reverse engineering competitors' strategies to understand their underlying assumptions in strategy development. Comparing the latter analysis with the five forces analysis yields differences that are potential sources of blind spots.
Benchmarking: Identify best-in-class organizations inside and outside your industry and study their role-model practices that might be adopted or adapted to your environment. Of particular interest should be innovations they are considering.
Regulatory Environment: A clear understanding of the current and future regulatory environment is critical to understanding competitive pressures you will face. Is there pending regulation or legislation that could affect your business or that would favor new entrants?
Analyzing the environment is a critical step. But future success requires more than preventing blind spots and understanding the environment. It also involves turning environmental knowledge, plus your own innovative thinking, into a strategy that is successfully resourced and executed. Here is some guidance to move your strategic thinking in the right direction:
Devil's Advocate: Make sure your team has people who will challenge assumptions, present a different point of view, and defend outside-of-the box ideas. Avoid a strategic planning team or environment where people will not speak their mind. Accept and reward novel ideas, even if they do not move forward. The key is to encourage contributions of ideas and not criticize unusual ideas. Criticism will discourage future sharing of novel ideas.
Transformative Change: Regularly ask for ideas that will change the basis of competition. Look for ways to break the mold of competing along traditional performance dimensions, such as price, product features, or customer service. Look for opportunities to exploit new technologies or address a new or as-yet-unarticulated market need. Create new value for your customers. Some technology-driven approaches to transformative change are summarized in a report by the IBM Institute for Business Value.
Full Picture: Make sure you have a full and correct picture of situations before making important decisions. Look for minor contradictions in current understanding. Test assumptions for completeness.
Plan for Disruptions: Approach planning with the belief that there will be at least one significant disruption in your marketplace each year. Do you have a process for handling disruptive changes? Ask yourself why you were unaware or not the leader who caused a positive game change, when one occurs.
Capitalize on Diversity: Build a team of diverse thinkers. Incorporate people with different perspectives on challenges. Involve people with different technical, educational, ethnic, and generational biases. Build a diverse team in every aspect.
Speed and Agility: Make sure you can handle quick changes to your strategy, but don't react to every ripple without analysis. Build flexibility into your planning. Schedule regular reviews and updates. Make sure you are gathering relevant information in advance of each review.
Provide Growth Opportunities: Encourage ongoing learning for your organization and its people. Foster internal sharing and external interaction. Hire new talent with different perspectives to stimulate internal thinking and growth.
Don't Say "No" Too Soon: Give ideas a chance to succeed or fail before cutting them off. Provide resources to allow a fair trial or effort before reallocating resources. Determine where to set the fine line between wasting resources and providing sufficient resources for success.
Don't Say "No" Too Late: This is the flip side of saying "no" too soon. Have an evaluation process that allows you to curtail committed resources in favor of a new or more significant opportunity. Analyze past successes and failures for proper decision points for increasing or decreasing committed resources.
Prioritize: Recognize that there will be more opportunities than you can appropriately resource for a competent and thorough trial or research effort. Look for opportunities that will allow you to break away from the competition and become a clear market leader in your current or a new market.
The Baldrige Criteria can help you avoid blind spots and be holistic in your strategic thinking. In addition to specific questions tied to your planning process, Baldrige asks about your strategic challenges and strategic advantages. Identifying these marketplace pressures and influences are vital to building a strategic plan that prepares the organization for ongoing success. Closely aligned with these two concepts are your process for identifying strategic opportunities and selecting those you will pursue, those that are believed to be intelligent risks. After identifying your challenges, advantages, opportunities, and intelligent risks, you will be well prepared to identify needed organizational core competencies for the future.
For an in-depth definition and description of these terms and for a systems approach to placing all these concepts into a holistic management framework, download the Baldrige Criteria for your sector (business/nonprofit, education, or health care).
In a few months we will be issuing revised Criteria for 2015–2016. Those criteria will provide further guidance on change management and other concepts of growing importance to successful enterprise management. Add your name to our distribution list* now to receive notification of the availability of the revised Baldrige Criteria.
Now is a good time to pursue your journey to organizational excellence. You can start with avoiding blind spots and using the Baldrige Criteria in your strategic planning process!
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