Willful Ignorance

Stop me if you’d heard this one.

“[COMPANY] is in the final stages of preparing a bankruptcy filing, clinching a long fall for a company with humble beginnings that helped change the way Americans buy [PRODUCT], but failed to keep pace with the [CHANGE] rocking every corner of the [INDUSTRY] landscape.”

Today (February 12, Wall Street Journal) the missing words are ‘Borders’, ‘books’, ‘digital transformation’, and ‘media’, respectively.  Tomorrow there will be another company in another industry that pays the ultimate price for not “seeing” what has been going on for some time.

Borders

I put seeing in quotes because seeing has two major dimensions—perceiving what is happening at an organic level on the one hand, and incorporating it into a world view and subsequent actions on the other.  Social scientists have long documented that cognitive dissonance, the human mind’s ability NOT to perceive what it finds contradictory or threatening, is a powerful force.

We like to think that organizational intelligence is the eyes and ears of the organization, and in a very literal sense it is just that.  But what the eyes and ears capture—physical sight and sound—must be processed by the human brain in order to yield meaningful images.  Likewise, so must relevant signals in the competitive environment not only be swept in by the organization’s eyes and ears, but also processed and analyzed by a sense-making and action-taking capability.

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Competitive dynamics: a basic typology

“I love you, you’re perfect…now CHANGE.”  That’s what the market in effect continually tells high-achieving companies—because the world always changes around them.

Companies tend to do best today what they did best yesterday…not what they’ll need to do best tomorrow.

In working with companies of various sizes, in various industries, I’ve noticed that the most significant strategic challenges are those brought on by some fundamental type of industry change.  Anticipating and adapting to industry change is at the heart of what competitive strategy is.

I’ve also noticed that not all industry changes are of the same magnitude or carry the same degree of strategic implications.  I’ve begun informally categorizing these changes with regard to their impact on industry players.  We’ll call these—in ascending order of how difficult they are to manage successfully—Levels 1, 2, and 3.

Level 1 industry change – “New kid in town”

In a Level 1 industry change, a major player enters or leaves the industry.  This could be a major buyer, a major competitor, or a major supplier for the industry.

WB recardsExamples of Level 1 change abound, and you can usually pick up a financial journal at random and find one.  I just now did exactly that, and find two pages into my search an article reporting that Warner Music Group is selling its music publishing business (leaving one less player there), in hopes of clearing anti-trust to be able to buy the foundering EMI (leaving one less player there as well).  EMI owns, among other assets, the master recordings by my all-time favorites, the Beatles.

Level 1 changes can require significant adjustments in any industry.  However, relative to other types of industry change, the impact of a Level 1 change on existing other players is low.

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