Strategic Corporate Early Warning- Valutrics
Strategic Corporate Early Warning is the mechanism by which firms anticipate,
detect and where possible prevent, or at least mitigate, strategic surprise. The
purpose of early warning, in short, is to better prepare managers for possible
crises and competitive conflicts and at times help prevent them.
Early warning of impending competitor moves represents one of the most
difficult missions of the firm’s intelligence department, because in business, as in
war, ‘surprise is almost always unavoidable … despite all efforts to the contrary’. Whereas the company almost always knows the capabilities and
resources of existing rivals, managers frequently are ill informed about future
competitor intent or potential competitive threats posed by new industry and
market entrants. Indications regarding intent are often ambiguous, and are
unlikely to be deciphered in the absence of constant monitoring and analysis.
Warning is, of course, also time sensitive – a warning alert must be disseminated
to decision-makers in sufficient time to take action. Indeed, in practice early
warning of competitive threats and opportunities is often the only thing that
stands between competitive success and organizational surprise.
Ideally, a warning, or sometimes series of warnings, is issued early enough to
allow decision-makers to initiate countermeasures and thereby prevent the
warning threat from actually materializing. But the reality is often very different,
for example: a competitor’s unexpected product launch or entry into a new (and
previously ‘safe’) segment or territory; the surprise announcement of an alliance,
acquisition or merger between competitors; the collapse of a major customer or
supplier; or the introduction ‘overnight’ of commercially penal laws or regulations
in a key overseas market.
There are five central principles of early warning:
1. It is concerned primarily with the company’s strategic interests, essentially
future events likely to have a significant – and usually adverse – impact on
those interests. Useful warning intelligence is something that makes a
difference to decision-making. Conversely, tactical warning, which is very
short term, seldom permits decision-makers sufficient time to consider and
plan an effective response.
2. The focus is on the monitoring of pre-defined indicators of an approaching
change in ‘current state’. For example, if the CEO or, say, the director of mergers
and acquisitions of a rival firm is discovered to have made a series of visits to
the headquarters city of another competitor in a relatively short space of time,
does this indicate that merger or acquisition negotiations are underway?
Perhaps. Perhaps not. An indicator, by definition, signals the possibility, and
sometimes probability, of a likely future event taking place.
3. While no intelligence analyst wishes to gain a reputation for ‘crying wolf’,
overcoming analysts’ hesitancy to ‘sound the alarm’ when an indicator is
detected remains one of the toughest challenges in the intelligence environment.
Analysts are sometimes reluctant to issue warnings unless they are satisfied,
almost beyond doubt, that ‘something is up’. As Andy Grove, co-founder and
now Chairman of the Board of Intel, once observed, ‘only the paranoid survive’.
4. Warning involves ‘all-source’ collection and analysis, that is the monitoring
and interpretation of data and information – for the most part against pre-
defined indicators – from both ‘open’ and human
sources. Warning intelligence in particular requires centralized direction and
management. And because of the comparatively short ‘shelf life’ of any
intelligence warning, companies must have mechanisms in place to ensure the
efficient and rapid dissemination of warning intelligence to management.
5. Warning indications are often based on an assessment of capabilities only,
with intent implied. This is dangerous. While it is a comparatively simple
matter to quantify, say, the human, financial and other material resources of
an organisation – and therefore their operational potential – it quite another
matter to develop an actionable understanding of their thinking and often
changing intentions.
There are four critical elements in an intelligence warning ‘product’:
1. Information about the actor(s) involved: who are they? what do we know
about them?
2. Nature of the threat or opportunity: what indications are pointing to what
potential threat?
3. Probability of occurrence: terms such as ‘could’, ‘likely’, ‘might’, ‘possibly’,
‘probably’, ‘we believe’ or ‘we do not believe’ are typically used by analysts
when articulating their judgment of probability. Unfortunately, each of these
expressions is interpreted differently by different managers and is therefore
often meaningless.
4. Timing: when could it, or will it, happen? A week from now? Within the next
quarter?
The objectives of early warning are therefore simply expressed:
1. Where possible, avoid a ‘crisis’ situation.
2. If (1) fails, manage the crisis to enable the achievement of strategic objectives.
3. If (2) fails, undertake pre-emptive action or countermeasures to mitigate or
avoid a prolonged crisis.
4. If (3) fails, end the crisis on terms as favourable to the organization’s interests
as possible.
The responsibility of the company’s competitive intelligence unit is to manage
Strategic Corporate Early Warning against three criteria:
1. Timing – when to warn.
2. Selectivity – what to warn.
3. Style – how to warn.
Early warning, of course, is as much a question of policy-making as it is one of
intelligence. Few executives ‘act, strategize, or decide outside the limits of the known
world’, the industry and market environments with which they have become all too
comfortably familiar . It was not until Dell Computer – who do
not, after all, develop, make or sell anything new in the way of PCs or servers –
began to seize market share from the industry incumbents that managers at
companies such as Compaq, Hewlett-Packard and IBM began to reassess their own
business concepts and strategies. But it was too little too late. By early 2002 Dell
Computer had captured the number one worldwide market share position in terms
of PC shipments. This was accomplished by operationalizing a direct sales business
model that the leading industry players had simply ignored.
Unfortunately the history of business is littered with examples of decision-makers
failing to respond, or respond adequately, to warning. Warning and response
‘despite their close relationship, are not linked to each other either directly or
inextricably’. A warning may not be perceived as sufficiently accurate or believable
by decision-makers, and at times it may indicate the possibility of the ‘unthinkable’.
And at times decision-makers may simply fail to act on intelligence warning.