www.hbr.org TOOL KIT The biggest dangers to a company are the ones you Scanning the Periphery don’t see coming. Understanding these threats—and anticipating by George S. Day and Paul J.H. Schoemaker opportunities—requires • strong peripheral vision. With compliments of... www.thinkdsi.com 610.717.1000 Reprint R0511H The biggest dangers to a company are the ones you don’t see coming. Understanding these threats—and anticipating opportunities— requires strong peripheral vision. TOOL KIT Scanning the Periphery by George S. Day and Paul J.H. Schoemaker Between 2001 and 2004, Mattel lost 20% of its and other environmental changes that seem to share of the worldwide fashion-doll segment to come out of left field. How can they see these smaller rivals such as MGA Entertainment, cre- changes sooner and capitalize on them as ator of a hip new line of dolls called Bratz. MGA MGA Entertainment did? How can they avoid recognized what Mattel had failed to—that being blindsided as Mattel was? The chal- preteen girls were becoming more sophisti- lenges faced by companies like Mattel often cated and maturing more quickly. At younger begin as weak signals at the periphery, the ages, they were outgrowing Barbie and increas- blurry zone at the edge of an organization’s vi- ingly preferring dolls that looked like their sion. As with human peripheral vision, these teenage siblings and the pop stars they idolized. signals are difficult to see and interpret but can As the target market for Barbie narrowed from be vital to success or survival. girls ages three to 11 to girls about three to five, Managers are used to interpreting data the Bratz line cut rapidly into the seemingly un- that are set before them, but they also need to assailable Mattel franchise. Mattel finally be able to recognize when part of the picture moved to rescue Barbie’s declining fortunes, is missing—to answer the question, “What launching a brand extension called My Scene don’t we know that might matter?” Drawing that targeted older girls, and a line of hip dolls on research in strategy, organization and deci- called Flavas to compete head-on with Bratz. sion theory, and other disciplines, as well as But the damage was done. Barbie, queen of our decade-long study of emerging technolo- dolls for over 40 years, lost a fifth of her realm gies at Wharton’s Mack Center for Technolog- almost overnight—and Mattel didn’t see it ical Innovation and our work with organiza- coming. tions around the globe, we have developed a Companies often face demographic shifts, “strategic eye exam.” It serves as a diagnostic new rivals, new technologies, new regulations, tool for evaluating and sharpening compa- OPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. OPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. C harvard business review • november 2005 page 1 This article is made available to you with compliments of DSI. Further posting, copying, or distributing is copyright infringement. To order more copies go to www.hbr.org or call 800-988-0886. Scanning the Periphery•••TOOL KIT nies’ peripheral vision. We have administered cess, the organization’s executive committee the exam to senior executives in more than and members of a strategy task force asked 150 companies around the world and have themselves, What will the demographics of consulted with companies across industries— 2010 look like? What will a typical doctor’s of- including agricultural equipment, media, en- fice look like? What role will governments ergy, and software—to help them bring the play? What role will payers play? periphery into focus. The following questions can help guide As this article shows, improving peripheral scarce scanning resources to those places most vision begins by asking the right questions. likely to reveal hidden opportunities or threats. The questions, tested in more than 50 Defining Scope strategy development sessions and strategy How good does a company’s peripheral vision postmortems globally, are organized around need to be? For many businesses, the status quo the past, present, and future. This has proved isn’t good enough. Our survey of global senior to be a natural and thorough way to cover the managers found that 81% perceived their fu- vast terrain. ture need for peripheral vision to be greater Learning from the Past. While the past than their current capacity. A survey of 140 cor- may not be the most reliable predictor of the porate strategists conducted by the Fuld-Gilad- future, it can point out blind spots in your Herring Academy of Competitive Intelligence company or industry, as well as lessons from found that fully two-thirds had been surprised other industries. Those who fail to learn these by as many as three high-impact competitive lessons will be slow to see future opportuni- events in the past five years. In addition, 97% of ties and threats. the respondents said their companies lacked an What have been our past blind spots? What is early warning system. happening in these areas now? Start a few de- This doesn’t mean, however, that every cades back and systematically list all the social, company needs to boost its surveillance of technological, economic, environmental, and the periphery. It’s important to match capa- political changes that occurred in and around bility with need. Companies in complex, rap- your industry. Which ones did management idly changing environments require well- miss that have had major consequences for the developed peripheral vision; those in rela- organization? The purpose of this profiling is tively simple, stable environments have less to see how well your company has responded of a need. In fact, companies that have too to external changes (were you behind, abreast much peripheral vision can end up being of, or ahead of them?) and to identify persis- neurotic, wasting resources by focusing on tent blind spots in certain areas. Maybe you unimportant signals. (To assess your com- were well attuned to political changes, for in- pany’s need and capability for peripheral vi- stance, but repeatedly missed key competitive George S. Day (dayg@wharton sion, see the exhibit “How Is Your Peripheral developments. .upenn.edu) is the Geoffrey T. Boisi Pro- Vision? A Strategic Eye Exam.”) Consider DuPont’s experience in the 1990s. fessor of Marketing and codirector of Once an organization has defined the scope Early in the decade, DuPont executives began the Mack Center for Technological In- of the peripheral vision it needs, it then must seeing a disturbing pattern of slowed growth novation at the University of Pennsylva- determine how to scan within this field of vi- across its businesses, in the old stalwarts like nia’s Wharton School in Philadelphia. sion. What are the questions it should address? Dacron polyester and in newer businesses such Paul J.H. Schoemaker (schoemaker@ as nylon engineering resins. As sales declined thinkdsi.com) is the founder and chair- Asking the Right Questions and competition intensified, large segments of man of Decision Strategies Interna- When a company examines its main areas of the markets for these businesses were unwill- tional, a consulting and training firm focus, its questions are targeted and the an- ing to pay a price premium for DuPont’s supe- specializing in strategic management, swers precise: What is our market share? What rior products. Each of DuPont’s businesses in- and the research director of the Mack are our profits? Have our sales volumes in- dependently decided to focus on the more Center at Wharton, where he teaches creased? What is our employee turnover? profitable high ends of their markets, conced- strategy and decision making. Their What are our rivals up to? ing the low-price markets to new rivals emerg- book, Peripheral Vision: Seven Steps to But the questions used to examine the pe- ing from the periphery. These low-end en- Seeing Business Opportunities Sooner, riphery need to be much more open-ended trants were able to parlay increased volume is forthcoming in the spring of 2006 and the answers far less precise. For example, into ever lower costs. from Harvard Business School Press. as part of Johnson & Johnson’s strategy pro- DuPont’s systemic myopia about the signifi- harvard business review • november 2005 page 2 This article is made available to you with compliments of DSI. Further posting, copying, or distributing is copyright infringement. To order more copies go to www.hbr.org or call 800-988-0886. Scanning the Periphery•••TOOL KIT cance of low-end competitors, and its resulting lative, and ethical issues raised by nanotech- strategic retreats from markets, led to sagging nology have some similarities to those that capacity utilization and increased unit costs. have bedeviled GMOs. This, in turn, made the company even more Preliminary toxicity studies, for example, vulnerable to low-price competition. To learn have already raised alarm about the possible from the past and better prepare for further at- health hazards from nanoparticles. What’s tacks from below, a group of business manag- more, the potential use of nanotech-based sen- ers got together to evaluate this new threat sors and tracers for food labeling raises privacy and the company’s successful and unsuccessful concerns. And nanotech developers are large, responses. As they came to understand the global firms whose motives are often regarded threat and why the multiple business units had with suspicion—a fact that could be exploited missed it, they developed processes for antici- by activists trying to attract media attention pating low-end competitive threats early and and financing. Finally, there are no uniform for developing preemptive strategies. This rules governing the release and control of na- group of managers became the nucleus of an nomaterials, which could invite scrutiny and organization-wide learning network that went regulatory oversight.