by Alison Bass

Creating an Early-Warning System for Competition

Sep 01, 20052 mins

The roll call of companies that failed to see the threat of competition in their rear-view mirror is long and illustrative. GM and Japan. Circuit City and Best Buy. Sears and Wal-Mart. Who’s to blame? The CEO, says Ben Gilad, a consultant and former associate professor of strategy at Rutgers Business School.

CEOs have trouble seeing and reacting to new competition because they don’t talk or listen to the right people, Gilad says. Once a year they might attend a conference where they play golf and talk to their peers. “So they’re taken by surprise when some new company comes and steals their customers,” he says.

However, executives can create an early-warning system for identifying and prioritizing strategic risks and then take action to counter them. For example, Gilad says, a pharmaceutical company such as Pfizer that relies on a few megabrands should keep a close eye on the science of genomics, which could give rise to medications that are tailored to a certain segment of the population. Pfizer needs to identify how fast genomics will become a commercial possibility.

Companies can do this by collecting information about signs of change from inside (rumors and ideas from employees) and outside (academia and experts), and use software to organize and tap into it. Gilad cites one package, from Coemergence, that helps companies build early-warning information into a database. When the data reaches a certain threshold, the system sends an alert to the appropriate manager.

That doesn’t guarantee companies will act on the information, but ignoring it carries a price. If Pfizer realizes genomics is about to make a breakthrough, it can create more tailored drugs. “If it doesn’t, Pfizer’s performance will decline,” Gilad observes. Just like GM’s has.