Adventure of Strategy

Blindspot analysis uncovers flaws in the process of strategic decision making that are caused by bias and misinterpretation. Most strategy models rely on rational and objective behaviour and ignore the mental filters through which individuals process information. This often results in the decisions made being flawed, perhaps fatally, without the firm even knowing it.

Blindspots manifest themselves in three ways:

a. Complete ignorance of strategically important issues;

b. Being aware of but incorrectly interpreting such issues;

c. Interpreting such issues correctly, but too slowly, so the response comes too late.

Obviously then, identifying and removing blindspots is critical for effective strategic decision-making.

Besides psychological defense mechanisms (in itself a fascinating topic for strategists,) there are seven primary sources of blind spots:

1. Invalid Assumptions

Assumptions that the firm or the strategist assumes to be correct, that are not. They may be beliefs about factual matters that are unchallenged, or less tangible (like corporate myths and taboos woven into the culture of the firm, that influence decisions and the way things are done but have no basis in fact or logic.)

2. Winners Curse

It is common at auctions for people to pay too much. The same often applies in business acquisitions or other issues of strategy such as geographic expansion, increasing market share or entry to new areas of business. It is falsely assumed that the long term advantage will outweigh cost.

3. Escalating Commitment

This form of bias appears when something does not meet expectations, but professional pride, fear of accountability or harm to peer esteem prevents the strategist from admitting that it is a mistake. Instead of cutting losses and exiting, or amending the strategy, resource allocation is escalated in the hope that this will solve the problem.

4. Constrained Perspective

This bias results from irrational behaviour towards risk. It explains why people often fixate on risk generally rather than relative to the potential reward, and the tendency to prefer to avoid losses rather than achieve gains. It is very common where the firm's focus is excessively internal, downplaying the likely reaction of competitors and clients.

5. Over-Confidence

It is natural for leaders in the firm to be confident in their own abilities and skill. Over-confidence leads to blindspots, though, without such leaders even necessarily being aware of it. It is especially dangerous for a leader who uses short cuts to keep focus on action in a complex and challenging everyday environment, to make superficial judgments in strategic decision making too.

6. Information Filtering

Raw data is naturally filtered as it passes through the organization, so that by the time it reaches decision makers it is fundamentally different; even wrong. The more levels of authority data has to pass through, the more severe this problem.

7. Educated Incapacity

This refers to the inability of a person with specific training, to understand things that it would have been able to understand, had the person not received that training. It is perfectly normal for people to frame incoming information according to their past experience, the rule-sets of their profession and their accumulated intellectual wisdom. Blindspots arise when:

a. the strategist interprets seemingly familiar old data that is in fact different but "looks, feels, tastes" the same, in the same way as before.

b. the new data seems to contradict beliefs or values that are strongly held, in which case the thinker will tend to discount it's importance, even if its accuracy is accepted.

The more expert a person is in a particular field, the less likely that person will be to see or accept a solution that does fit comfortably within the framework of what that person has been taught.

REDUCING BLINDSPOTS

By definition, blindspots are difficult to find even if they are hidden in plain view, by those that have them. There are a few basic tests or questions that can be asked to applied to determine how susceptible the firm is to blindspots, and assess the extent to which these are impacting on competitive intelligence and strategic decision making.

1.Is the firm REALLY in touch with its environment externally (clients, competitors, market) and internally (capabilities, limitations, potential?)

2.Is there an active competitive intelligence programme and does the firm benchmark itself regularly?

3.Does the firm actively include contingency planning in its strategies, to allow for a range of possible competitor and market reactions?

4.Does the firm actively engage in formal competitor analysis?

If objective investigation shows the answer to all of the above to be "yes," then there is a good likelihood that the firm's 'gut feel' about its environment reltively is accurate. (Ironically, highly successful firms often fail this test, because their success encourages complacency.)

If there are one or more "no's," then further digging is required. To do this, a "challenger" needs to be appointed who will have unconditional access to people and strategic processes and who has visible and unequivocal top management support. Because of the nature of the task, the person is often an outsider. In any event, it needs to be a person that is capable of thinking highly laterally and having the assertiveness to press a line of questioning that is required, without alienating people.

As a first step, the task of the challenger is to assess the answers to the four questions listed above, particularly at top management level.

Once this has been completed, the second step is to select a specific significant strategic decision that needs to be made. Then follows the following four-step process:

1.Interview experts inside and as appropriate outside the firm, to identify the information and the analysis that is required to make the best decision possible.

2.Identify the critical decision makers and key implementers of the action that will follow.

3.Ask each identified decision maker and implementer to rank each item of information or analytical requirement on the basis of (a) importance and (b) availability of accurate, relevant and timely intelligence.

4.Average the rankings across the group to determine those items or requirements where competitive intelligence is both important and only marginally available.

In almost all cases, this will reveal serious gaps between the competitive intelligence that is available, and what is required. Even where the competitive intelligence is adequate, though, decision makers may be flawed in how they translate these insights into action.

To conclude: the process of reducing blindspots has three specific facets.

Firstly: developing a culture of strategic challenge that is focused on awareness of the potential blindspots and eradicating them;

Secondly: determining where gaps exist and where competitive intelligence needs to be bolstered;

Thirdly: ensuring that leaders are aware of the pitfalls so that they can guard against them personally.

Comments, as always, are more than welcome