INTRODUCTION

In late May, one of the world’s top marketing minds, Professor George S. Day,
visited Australia to present his recently completed work at a breakfast presentation
hosted by Forethought Research. His topic “Peripheral Vision: Detecting the Weak
Signals That Can Make or Break Your Firm”, was an important new perspective for
anyone with the responsibility for generating or applying market insight.

Professor Day describes the periphery as the fuzzy zone at the edge of an
organisation’s vision where early signals of major threats and opportunities can first
be sensed. His recent study of 130 firms found that fewer than 20 percent had
sufficient ability to sense, interpret and act on these signals. So why are some
companies better than others at seeing these threats and opportunities?

The key is interpretation – to make sense of what you're seeing. Day cites the
catastrophic circumstances of 9/11 as a failure of peripheral vision. There were
innumerable signs and warnings which were ignored or misinterpreted. Failing to
connect the dots is one of the key issues here – if you are early to see threats, then
action can be taken. If an organisation is late to identify what is happening on the
periphery, its position is compromised.

THE LOW-CARB OPPORTUNITY

THE NEED FOR PERIPHERAL
VISION
Most managers are good at focusing
on the immediate task. As such, they
have good focal vision (such as what
is occurring in the next quarter).
However, most threats and
opportunities hover just outside the
area of current focus. Best practice
firms with complex peripheries are
able to offer insight into this issue.
Andrew Grove, Former CEO and
Chairman of Intel, states that, 'snow
melts first at the periphery because
that's where it's most exposed'. This
metaphor captures the true meaning
of peripheral vision.
FAILURE TO IDENTIFY WEAK
SIGNALS
There are numerous reasons as to
why managers fail to detect threats
and opportunities that lay in the
periphery. On reason is that
managers tend to find themselves
caught up in running the business,
which can cause them to retreat internally and lose their external focus entirely.
Another reason is that managers can be compensated in such a way that they are
only focused on short-term performance.
The low-carb diet was not a fast-moving trend. It
began in 1972, and by 2000, the Atkins book was a
best-seller. Interestingly, it wasn't until the peak of
the low-carb fad that 80% of all low-carb products
were launched. Yet each of these experienced
losses with food executives calling it a painful
experience. However, those companies that
launched products in 2000-2001 (before the
peak in 2004) experienced enormous
profitability. They saw how they could gain
a competitive advantage in an emerging
segment.
Anheuser Busch, maker of Budweiser, was
asked to explain its process for capturing the
low-carb opportunity at the right time. It had
been monitoring the trend since 1999, and in
2000 started to build a manufacturing facility.
After undertaking proof-of-concept for a low-
carb beer, its marketing campaign was ready
to go in 2001, along with market testing. The
product had enormous success soon after. As
such, getting ready for opportunities at the right time is
of great importance, so that a full product campaign can
be launched at the peak of the trend's popularity.
Anheuser Busch is a best-practice company and
identified the opportunity much sooner than its
competitor Coors, which invested heavily in a new beer
brand, but needed to rush through its development. The
Coors product was launched in March 2004, and only hit
0.31% market share at its peak.
So, why did Coors lag behind Anheuser Busch in getting
into the market? Possibly, it sought to ensure the trend
was profitable before taking a risk. Ultimately, Anheuser
Busch had decided to invest in order to gain access to a
possible opportunity – a decision that gave it the
flexibility to act at the time of its choosing.

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This can then play out in a number of ways: senior managers who are rotated every
few years may only address issues and implement changes that will reflect well on
them whilst they are in that role. Conversely, actions that may not have an
immediate impact can be left to their successor. Jack Welch understood this
dilemma and set in place a 4-5 year rotation, so that his senior managers were in the
position long enough to be held accountable.

A further reason that companies fail to recognise what lies in the periphery is that
they are simply focused on their nearest competitor. As such they are blindsided by
other organisations that are seeking a point of differentiation. In most cases,
organisations are acutely aware of the competitor that most resembles them.
However, nowadays markets are difficult to define and therefore organisations need
to expand on their definition of what a competitor is. In addition, organisations tend
to interpret signals based on previous experience and focus on what they know and
expect.

WHY ARE ORGANISATIONS SO OFTEN SURPRISED?

Day undertook a study of fifteen best-practice organisations, as well as ongoing

analysis of two hundred global firms. He concluded that there is always someone in
the organisation who knew about the “surprise”, but that they didn’t know who else in
the organisation needed to know. It is here Day says that marketing research needs
to play a strategic role, specifically by asking the right questions.

Metronomic is an example of a company with very good peripheral vision, which

asks the right questions. Metronomic is a major medical device manufacturer that
produces a heart rate control device. It recognised that a pharmaceutical drug that
obviates the need for a pace maker could seriously threaten its business. As such,
Metronomic acknowledged this weak signal and created a task force to probe on any
products that could displace its business.

CAPTURING WEAK SIGNALS FROM THE PERIPHERY

Unlike the human eye where most cells are devoted to recording information from
the periphery, the 'organisational eye' dedicates most of its resources to focal vision.
So, what is an appropriate balance? How can managers increase capacity for
peripheral vision? Day suggests there is an argument for investing in competitive
intelligence such as scenario planning. Such activity can reveal what should be
monitored and can speed up the rate of market evolution.

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Source: Day, George S., & Schoemaker, Paul J.H., “Peripheral Vision: Detecting the Weak Signals That Will
Make or Break Your Company”, Harvard Business School Press, 2006.

Best practice companies examined as part of Day's study demonstrated a track

record of making such investments. Further, some CEOs had 'instinctively' noticed a
weak signal and acted accordingly. As such, peripheral vision is very much about
leadership, culture, structure and knowledge systems. So how do companies deal
with that level of complexity?

As the outlook extends to the periphery of competitors and emerging technologies

the picture becomes increasingly unclear. In addition to these two factors, the
periphery contains influencers such as blogs – a major source of weak signals – as
well as customers, and political, legal, social or economic forces. Further, there is an
entire area of weak signals within the organisation itself that needs to be considered.
So how can an organisation best structure itself to act on these signals?

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Source: Day, George S., & Schoemaker, Paul J.H., “Peripheral Vision: Detecting the Weak Signals That Will
Make or Break Your Company”, Harvard Business School Press, 2006.
THE VIGILANCE GAP
In a survey of two hundred senior
executives, Professor Day found that the
anticipated need for peripheral vision
outstripped current capacity. He also found
that this 'vigilance gap', as he terms it, was
growing due to the dynamism of the
markets in which these senior executives
operated. In order to stay ahead of
competitors, the vigilance gap needs to be
closed, and any company (best-practice or
otherwise) can improve and develop in this
area.
Firstly, the capability to improve peripheral
vision depends on a vigilant leadership
team. Of the organisations surveyed Day
discovered varying degrees of peripheral
vision however; one of the main predictors
of superior peripheral vision was the
presence of a vigilant leader. Vigilant
leaders are market orientated, open to
diverse perspectives and generally curious
people. They network in an interesting
fashion and spend as little time as possible
in 'comfortable' situations. They talk to
legislators, visit allied associations and are
generally more sweeping in their approach. Further, they are much more prone to
BARBIE VS BRATZ
In the 1980s the Barbie phenomenon
appealed to girls aged between 3
and 11. By 2004, the target market
had dropped to ages 3-5. There were
people within Mattel that saw this
happening, but failed to act. An
internal crisis had narrowed the
focus within Mattel, resulting in
the appointment of a new CEO
who did not know the doll market.
Its strategy at the time was about
keeping Barbie at the cutting
edge of fashion and avoiding
cannibalisation at all costs.
It produced a 100-page
manual on how to protect the Barbie
brand and was not willing to listen to
scouts who knew there was a problem.
This defensive, product driven and
reactive culture placed Barbie in a weak
position. Thanks to vigilant leadership,
MGA the makers of Bratz Dolls, reacted to
this and picked up 30% of the market
before Mattel was able to respond.
Mattel was not short of data, but did not
have the knowledge systems to share that
information. Further, teams within Mattel
did not interact, and these shortfalls meant
that an enormous opportunity was lost.
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use scenario planning, marketing research, and are open to 'profiting by uncertainty'.
Unlike operational leaders, vigilant leaders are keen to experiment and are open to
new ways of thinking.

Superior peripheral vision capability relies on such leaders, and their ability to
engender a culture that drives knowledge systems for detecting and sharing weak
signals. This, as well as an inquisitive approach to strategy, a flexible culture and an
organisational configuration that allows exploration of the periphery are the key
factors that contribute to early detection of signals. Due to a concentration of
resources, smaller organisations are 'bitten' by a lack of peripheral vision more so
than larger organisations. Yet due to this vulnerability, they are the organisations
most in need of peripheral vision.

CLOSING THE VIGILANCE GAP

In order to close the vigilance gap, Day suggests that organisations begin with a self-
diagnosis. Day terms this a 'strategic eye exam' and of the organisations, who
undertook the exam for his study, close to 72% classed themselves as ‘vulnerable’
but lacked the capability to respond. Ten percent were considered to be 'vigilant',
and these were all best-practice organisations. Very few companies were overly
'relaxed' and few were 'obsessive' in their approach to peripheral vision.

Source: Day, George S., & Schoemaker, Paul J.H., “Peripheral Vision: Detecting the Weak Signals That Will
Make or Break Your Company”, Harvard Business School Press, 2006.

Following self-diagnosis, an organisation needs to learn about the periphery. In

learning about the periphery, the problem is not so much a lack of data as it is a lack
of good questions. What can we learn from the past? Who is really good in this
industry? Can we learn from another industry? These are the questions to be
asking and marketing research can provide many of the answers. Peripheral
customers and competitors are valuable sources of insight and marketing research
can help identify what they are saying. Marketing research can also assist in
envisioning the future; identifying future surprises that could hurt or help an
organisation and encourage managers to consider ‘unthinkable scenarios’.

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SCANNING THE PERIPHERY

Scanning the periphery needs to be managed actively. Resources need to be

allocated so that guiding questions come to the fore and accountability needs to be
assigned accordingly. Everybody needs to know who to send information to, and
many perspectives need to be gathered (maybe through ad hoc issues groups or
outsourcing arrangements). Just as the FBI uses 'splatter vision' in identifying
threats in a crowd, an organisation needs to intensely focus on different parts of the
domain and set up an iterative program to actively scan sources of potential insight.

INTERPRETATION

Once signals are identified and information gathered, the next step is to establish
what it all means. Interpretation can often involve the difficult and important role of
marketing research. Day cites an example of a window manufacturer, supplying
windows to ‘McMansions’ that experienced a decline in market share. Management
assumed that the decline was due to its product offering no longer meeting
consumer preferences, and consequently then spent millions on designing and
manufacturing new products. However, this had no impact on market share, and the
organisation belatedly concluded that it might be interpreting the data incorrectly.
Marketing research was able to reveal that customers typically purchased ‘good’
windows for the front of the house but purchased the ‘cheaper’ windows for the sides
and back of the house. As such, interpretation is often about overcoming bias and
what Day terms ‘blinders’. Managers tend to look for that which confirms what they
already believe; highlighting the need to engage external resources such as
marketing researchers, to gain a fresh perspective.

As Charles Darwin said:

'It’s not the strongest of the species who survive, nor the most intelligent,
but the ones most responsive to change.'

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About the presentation

Unquestionably George Day is amongst the top marketing minds in the world. In late
May, this most distinguished author and academic from the Wharton School of the
University of Pennsylvania introduced his recently completed work at a breakfast
presentation hosted by Forethought Research. His topic “Peripheral Vision:
Detecting the Weak Signals that Maker or Break Your Company”, is an important
new perspective for anyone with the responsibility for generating or applying market
insight.

The CUB theatre at Melbourne Business School was overflowing with marketing
researchers and buyers from a broad spectrum of organisations, including Australia
Post, AFL, GlaxoSmithKline, GE Money, ANZ, HBA, Coles, NAB and Myer.
Professor Day demonstrated how firms win by asking the right questions, scanning
widely, interpreting what the signals mean and acting ahead of their competitors.

Professor George S. Day presents Peripheral Vision to Forethought guests in the CUB
theatre at Melbourne Business School, May, 2008.

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