HBS Working Knowledge has an article by Scott Anthony who writes that “the best companies at weathering fundamental industry upheaval are those that spot and act on early warning signs.”
Anticipating the need to make bold strategic shifts is one of the most pressing tasks facing CEOs and investors. And missing the appropriate window for an effective strategic shift can be dire: A generation ago, Digital Equipment Corporationthen a leader in the minicomputer businessmissed the personal computer era, fell into decline, and was acquired by Compaq in 1998. Currently, telecommunications giants such as Verizon are trying desperately to ensure they don’t miss similar shifts toward new technologies such as wireless data and voice over Internet protocol (VoIP).
Managing this transition requires solving a two-part equation. First, a company must spot the early warning signals from the market that indicate it needs to shift strategies. Second, it must react appropriately to those signals. Companies that accomplish this can weather industry transitions while creating strong competitive advantages. Similarly, individuals who can discern which companies in their investment portfolios understand this and which do not can manage their assets more prudently.
Companies need to take action before the signs are readily apparent, when faint signals are just a glimmer in and around their market. Specifically, companies should pay close attention to three things: a looming growth gap, signs of overshooting, and the emergence of disruption in adjacent markets.