Linking Intelligence to Strategy with an Early Warning Indicators Framework
This interactive session featured early warning expert Ken Sawka, Managing Partner of CI consulting firm Outward Insights, and Dom Bovalino, Senior Marketing Director of Deeley Harley-Davidson®, the exclusive Harley-Davidson® distributor in Canada.
The key take-aways are:
Steps for developing an early warning (EW) framework
Real-life examples of linking CI and strategy with EW
How to guide for building and implementing EW indicators
Indicators are signals of potential future activity which needs to be monitored. Indicators enable us to build the link to an early warning system which is pro-active and probably the earliest warning of factors that may affect the company’s interests.
Early Warning Indicators Framework
One of the presenters, Ken Sawka, was part of a military intelligence group that evaluated news and put it in context. Do not be a bearer of just news—include analysis.
• First build scenarios for your industry which are future descriptions of external operating environment
• Do multiple scenarios as you cannot know what the future will be
• Scenarios are not predictive, but they must be plausible
• Scenarios help develop indicators or pre-cursors
• Generate more scenarios than indicators (maybe 100)
• Prioritize on diagnosticity, or the highest linkage between indicator and scenario. The indicators that have the most diagnosticity and apply to the most scenarios are the most valuable
• They also should be MECE; mutually exclusive, collectively exhaustive
Implementation of Early Warning at Canadian Distributor Deeley Harley-Davidson®
Deeley Harley-Davidson® (DHD) is the exclusive dealer of Harley-Davidson® motorcycles for Canada. Before 2008, DHD had done little to understand the consumers and the competitors—the company did not have to. But the environment changed and in 2009, category sales plunged 50% in Canada. Actually, DHD’s revenue dropped less than 50% so the company gained market share.
The CI function provided good information to the organization, but no behavior changed. DHD decided to use scenario planning to change behavior and is in the process of rolling out scenario planning. The company held a driver workshop in December 2011 and a scenario development workshop in January 2012. The 14 participants (10% of DHD’s total employment of 140) discussed strategy more than scenarios.
The group defined categories of drivers:
• Consumer engagement
• Evolution of retail networks
Then the group created four scenarios:
Extension of current state
Retail network stronger
There for the taking – competitors weak
Best case – all category participants better and stronger
Developing SharePoint-enabled Effort
While DHD wanted leading, not lagging indicators, the company did not have any indicators that could have predicted the huge drop in its category. DHD believes that they have the right drivers now, but may need different indicators. The data comes from different sources and needs to be refreshed periodically.
Managers do not like uncertainty so EW alerts provide opportunity to evolve. Questions about “The assumptions on which our strategy was based” are an unwelcome message. You have to have good, strong CI team leadership, or CI may shut out of strategy development process. DHD has not integrated EW in its long range planning priorities yet.
DHD does share some CI with its dealers, and will probably share more in the future, but the company worries about key information getting to competitors when people switch jobs.
Sources for indicators are secondary and human, both internal and external. Then create a source matrix chart with the indicators on the left and columns for potential sources: secondary, human - external, and human - internal. This will provide an easy to understand visual for tracking sources.
EW alerts are not on a schedule; they are driven by important events or episodic. About 25% of an alert summarizes the data and 75% focuses on the implications: why and what should we do about it. Soften the internal user to the fact that EW is about being safe; not in predicting the future.
The closer you are to an event, the higher the degree of certainty, but the lower the ability to re-act so decision flexibility is high early on in the process.
Think of the EW process as “disseminate, discuss, decision” options. In addition,
• Do not publish too many alerts or management will be come numb and not respond
• Be careful about assigning qualitative factors in alerts; probabilities often reflect qualitative opinion
• If R&D is very separate from the commercial side of the business, you should have a separate EW effort for R&D
• Test your EW alerts to get feedback and train the user for EW alerts. Get them involved early on.