Strategic surprises are often not truly unexpected. Someone inside the company may already have noticed signals pointing to a market shift or an emerging problem. Rita McGrath argues that detecting information is not enough. An organization also needs a process for evaluating it and turning it into a decision.

Rita McGrath divides a company’s ability to respond early to strategic change into three parts. The first is sensing weak signals while they are still ambiguous. The second is discipline: a regular process, named people and dedicated time for evaluating those signals. The third is the ability to act when a warning is credible enough to matter but there is still room to shape the outcome.

One problematic pattern is an organization that sees the change but cannot act on it. McGrath uses Kodak as an example. The company did not miss digital photography: engineer Steve Sasson built one of the first digital cameras in 1975, and an internal study in 1981 concluded that digital would eventually displace film. In the author’s account, the failure was not a lack of information but the inability to reshape a highly profitable core business in time.

McGrath contrasts Kodak with Fujifilm, which faced the same decline in chemical film processing. Under Shigetaka Komori, Fujifilm cut costs and redeployed parts of its chemistry and imaging expertise into medical imaging, pharmaceuticals, cosmetics and display materials. The same technological signal therefore did not automatically lead to the same outcome.

A practical tool is to define triggers in advance. Leadership agrees before a crisis on several indicators whose combined movement means that a particular scenario is emerging and a predetermined action should follow. The point is to have the difficult debate about consequences and priorities before time pressure sharply narrows the available options.

A second risky pattern is a company operating on outdated assumptions and noticing change only when it reaches the financial results. McGrath recalls Toys “R” Us, which handed its online sales to Amazon under a long-term exclusive arrangement at the start of the century. In the author’s account, the move also weakened the company’s direct visibility into changing customer shopping behavior; later high debt further constrained room for experimentation.

As a minimum viable early-warning system, the author recommends writing down five assumptions on which the current strategy depends and assigning one leading indicator to each. Those assumptions should be reviewed on a schedule rather than only after a crisis has emerged.

If the system is not working, leadership should not automatically buy more data. It should first determine whether the weak point is sensing signals, the regular process for evaluating them or the ability to act. McGrath also recommends asking people far from headquarters. Frontline employees may detect change earlier than senior leaders because they are closer to customers and day-to-day operations.

Decision-making also cannot wait for complete certainty. The clearer a signal becomes, the less time usually remains for a low-cost response. A company can therefore reserve a small budget for experiments that test an important signal before it commits to a much larger move.

KEY TERMS

• Strategic early warning: A systematic process for detecting and evaluating signals that may point to a future change or threat.
• Weak signals: Early and ambiguous information that may indicate an emerging change.
• Decision-making process: The process by which an organization turns information and alternatives into a concrete decision.
• Strategic assumptions: Key conditions on which the current strategic plan is based.