Thought Leaders I
Thinking Your Way to Growth
In this interview, Paul Schoemaker — an expert on decision making and scenario planning who serves on the faculty of Wharton's Critical Thinking: Real-World, Real-Time Decisions program — discusses his research on "peripheral vision" and why managers often fail to see the weak signals that can reveal new opportunities.
Why do companies miss critical growth opportunities or strategic threats?
Our research with senior managers in the U.S. and Europe found that less than 20 percent of global firms have sufficient capacity to spot, interpret, and act on weak signals of potential threats and opportunities.
–Paul J.H. Schoemaker, Chairman and CEO, Decision Strategies International, Inc.; Research Director, Mack Center for Technological Innovation; Adjunct Professor of Marketing; Faculty member, Critical Thinking
Often it is because they are not thinking broadly enough. They have narrowly defined their business and are working very hard to achieve objectives within this narrow space. They focus on today's customers and today's competitors rather than looking for tomorrow's. They are weak at developing what my colleague Professor George Day and I have called "peripheral vision." It is not that the opportunities don't exist, but they fail to see them.
For example, IBM, Unisys, and other mainframe computer makers were focused on the current mainframe market in the 1980s. But more of the total computing market was going to the personal computer. The incumbents failed to see the bigger picture until they had lost significant share and control in this broader market. Other companies such as Microsoft and Intel, which recognized the potential of this market sooner, achieved tremendous growth. And now, ironically, Microsoft is missing out on opportunities in the search space that Google is exploiting with vigor. Many companies just get stuck in a certain frame of mind that blinds them to new opportunities farther afield.
Given that their expertise and resources are focused on current business, how can companies see opportunities at the periphery sooner than rivals?
One way is through drawing upon multiple perspectives. For General Motors to develop OnStar, for example, it had to look beyond its comfort zone in producing automobiles. GM launched an early version of OnStar in its 1997 Cadillac line using "telematics," which integrates wireless communications, vehicle monitoring systems, and location devices. This is about as far out on the periphery of the automobile market as can be imagined. GM was helped in seeing this opportunity through its acquisition of Hughes (and later EDS), which gave it an early window on telematics technology. But technology was just part of the equation. The greatest unknown was not the technology but market adoption. GM especially drew upon a market study it commissioned in 1995 to look at the key factors influencing consumers' decisions to purchase an automobile. The study found that while customers were very satisfied with how GM's products met their need for "mobility," they identified four factors as unmet needs. These were: 1) personal attention, 2) limited time and energy, 3) privacy, and 4) personal safety. With these insights into the unmet desires of customers for personal attention and safety, as well as an understanding of the emerging technology, GM managers were able to recognize an opportunity at the intersection. By 2004, OnStar controlled 70 percent of the market with 2.5 million subscribers, generating an estimated $1 billion in revenue. It achieved success in a market with many failures. GM used a process that we call "triangulation" to see and realize this opportunity.
What do you mean, more specifically, by triangulation?
Triangulation is used in navigation or in astronomical calculations to compute distances by observing the triangles formed by two points of observation of a distant object. (To see this effect, close one eye and then another while looking at a distant object. The object seems to shift positions due to parallax, which is a special case of triangulation.) Similarly, in viewing the business periphery, multiple perspectives (we are not limited to two eyes) can add to depth and detail, helping to make better sense of what we are seeing. With OnStar, GM combined marketing insights and technology trends to realize a big opportunity at the intersection. New technologies are just one area where this kind of triangulation is vital. And our research at Wharton's Mack Center for Technological Innovation shows that companies are especially weak in this regard (see also Day and Schoemaker's book Wharton on Managing Emerging Technologies).
Using multiple methods is another way to detect and interpret weak signals. If you had tried to determine the demand for fax machines in the early 1970s by surveying customers, you would have found very little demand. But Xerox took a different approach. It analyzed the extent and frequency of urgent, written messages. It then contrasted the capability of fax machines to solve this need, compared with existing solutions such as mail, telephone, or telegram. Using this approach, the company foresaw a business market of approximately 1 million units in the early 1970s, a number that proved too low in hindsight but much larger than other methods predicted.
If Xerox saw this demand before others, why didn't it dominate the fax market?
This highlights another piece of seizing growth opportunities — execution. It is not enough to recognize the opportunity; you also need to develop a solution and bring it to market. In this case, Xerox bet on the wrong technology for meeting the need for urgent messages. It decided to focus on computer-to-computer transfers rather than specialty devices for sending faxes, and so it missed capitalizing on its powerful insight. As George Day and I explain in our book Peripheral Vision, there are multiple steps involved in profiting from the periphery. It starts with scoping and scanning, and concludes with sense making, probing, and positioning for opportunities.
But isn't there a danger that managers spend too much of their time chasing every weak signal that passes by?
There are two dangers. The first, which we have been considering, is that weak signals that don't fit the current picture are often ignored, distorted, or dismissed. This creates the risk of being blindsided or missing growth opportunities. The other risk — a management version of attention deficit disorder — is to focus on every passing wind, wasting time and resources. That is why managers need to think carefully about how best to collect the weak signals from the periphery and weigh which ones could be most important to the business going forward.
Which error dominates varies from case to case, and so we usually start by conducting an audit of missed signals in the past as well as overreactions to false signals (i.e., blind alleys). Generalizing across cases, the error of omission is far more serious than the error of commission. Our research with senior managers in the U.S. and Europe found that less than 20 percent of global firms have sufficient capacity to spot, interpret, and act on weak signals of potential threats and opportunities. These data support our view that most managers fall victim to the first mistake — paying too little attention to the periphery — rather than the second. A survey of why CEOs were fired by their boards found that 28 percent of the time it was due to noticing important external developments too late.
How does Wharton's Critical Thinking program help participants to better meet the challenge of recognizing growth opportunities at the periphery?
A variety of cognitive limitations restrict our ability to see growth opportunities in time and make sound judgments about them. In the program, we look at various decision traps that interfere with our perception and judgment, from frame blindness and overconfidence to anchoring and our tendency to look for confirming rather than disconfirming evidence. We teach a process for critical thinking. It starts by questioning whether you are solving the right problem — focusing on the framing of the decision. Then, we look at the quality of intelligence. What biases do you have? Are you sufficiently creative? We also examine how people reach conclusions (alone or in groups), and when to trust or distrust intuition. Finally, we examine feedback and learning challenges, since we want to build a dynamic feedback loop that keeps improving your decision making. What participants take away is a combination of specific tools and frameworks for better decision making, a process for critical thinking, and a heightened awareness of external signals for growth opportunitites and strategic threats.
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