How to Read and Respond to Weak Digital Signals
In the digital age, when competitive landscapes can be transformed overnight, the need to spot and react to changes early has never been greater.
One of the most difficult challenges companies face is knowing when the environment they’re used to operating in is shifting. Often, identifying the change requires reading and acting upon ambiguous, inconclusive bits of information that are mixed into the “noise” of everyday activities and therefore easy to overlook.1 The “weak digital signals” may emerge initially as blips, but they can grow swiftly to transform the very foundations of an industry.
To companies in the packaged software industry in the 1990s, a weak digital signal would have been the idea of software as a service delivered over the cloud. Senior managers at Oracle and SAP may not have comprehended the scale and speed of which software would migrate to the cloud, but they could have imagined the shift and understood its meaning. Similarly, big-box retailers like Best Buy might have detected signs in the early 2000s that a company like Amazon might one day become a competitor for appliance sales.
In the digital age, when a competitive landscape can be transformed in the blink of an eye, the pressure to spot and respond to weak signals is greater than ever. Some companies, such as P&G and Walmart, have responded to weak digital signals by revamping their current business processes.2 However, companies have opportunities to use these signals more expansively to help redefine their offerings and the scale and scope of how they compete. Companies that can’t do this in a timely manner put themselves at a competitive disadvantage, in part because they have to invest in additional resources to catch up.
Adapting to Change
Based on my research of more than 30 companies facing the challenges of responding to digital shifts, there are three steps companies need to follow to successfully adapt to changes in their environments.3 First, they need to search for weak digital signals that indicate things are shifting. Second, they need to assess the potential impacts of the changes. And finally, they have to develop a coherent response.
1. Search for Weak Digital Signals
Every company faces a future where digital technologies will play more critical roles, so the starting point is to scan the environment for early indicators as to where and how changes are emerging. Companies should be on the lookout for signals that enhance their current business models as well as signals that will challenge and disrupt them. Being able to identify digital signals is a critical capability, and it involves searching in areas beyond one’s normal field of vision. For example, the use of smart sensors is increasingly commonplace in fields like manufacturing and logistics. But the appearance of such sensors in those industries could serve as an important weak signal for companies in other industries (such as health insurance) to recognize. By now, moreover, most retailers are quite familiar with mobile apps. However, what may be the next wave of technology affecting retailers (enabled by computer vision and deep learning) is barely on most companies’ radar.
Automakers and key suppliers in the automobile industry now recognize self-driving cars as strong digital signals. But one can argue that they could have noticed the weak digital signals more than a decade earlier, just as they should now be considering the impact of driverless taxis and mobility subscription services. In media and entertainment, content streaming and personalized recommendation engines are strong signals for incumbent companies such as Disney and CBS. But the same companies also need to be scanning their environment for weak signals, such as augmented reality and virtual reality, and the potential effects of artificial intelligence and blockchain.
How should companies go about identifying the weak digital signals? Managers are finding that it’s critical to encourage everyone in the company to imagine how different digital technologies could influence the business, both positively and negatively. Companies should invite people to use a wide lens and consider weak digital signals that may seem far-fetched and distant. They should systematically review patent applications and recent venture capital investments to identify possible developments that might trigger new ideas. The goal should be to engage the collective curiosity of people at all levels to contemplate how digital technologies could influence their business models.
For many companies, the list of emerging technologies that could enhance or disrupt their business model is continually changing. A company such as Nike, for example, needs to assess, among other things, the broad implications of 3-D printing on areas as wide-ranging as its product offerings, how customers engage with the business and the brand, and the overall design and structure of the global supply chain. A fashion business like Gucci will want to consider the effects of using digital technology to personalize products beyond niche segments and how this capability — if and when it is scaled up — might alter the fashion sector.
One important part of the exercise is studying how other companies (including direct competitors and even startups) could exploit new technologies to change the basis of competition. This analysis will help a company understand how their competitors could redraw the competitive landscape and help tune into the most important weak signals. This is how former GE CEO Jeffrey Immelt came to zero in on what GE termed the “industrial internet.” In Immelt’s view, many established consumer companies were too slow to recognize the transformative potential of e-commerce, mobile apps, and social networking, thereby opening the door to companies such as Google and Amazon. This was something he wanted GE to avoid.4
2. Assess the Potential Impacts
Early identification of weak digital signals gives companies more time to assess and seize competitive advantage against companies that might be evaluating how to react to the same set of weak digital signals. To an extent, a company should study the various signals as if using a zoom lens, trying to detect how, when, and where the signals might affect its business models. How, for example, might 3-D printing change the economics of aircraft maintenance in specific situations? In other words, managers need to go beyond an understanding of the emerging technology and consider the business impacts. How might a company be able to take advantage of voice computing and digital chatbots to differentiate its customer service? Different companies will have different answers. The only way to figure out what the weak signals mean is to conduct experiments.
Some new technologies — for example, drones — are likely to affect multiple industries. However, companies need to make sure that their inquiries and experiments are specific enough to give them useful insights. An airline, for example, might want to look at how different types of drones can be used to increase the efficiency of safety inspections. While data collection and analytics for agriculture are already available through drones from companies such as PrecisionHawk, managers must adjust their internal processes and their relationships with other companies in their ecosystems to make the data useful.
Rather than working by themselves, companies sometimes find it’s productive to conduct experiments with partners that have expertise in areas they don’t. Levi Strauss, for example, recently worked with Google to design a jacket that used a touch-sensitive fabric that allows users to control their mobile phones while, say, commuting by bicycle. The initial version gave Levi Strauss an early indication of customer reaction; the jacket was then introduced as a commercial product. Similarly, when Verily, Alphabet’s health care unit, demonstrated its version of Google Glass as a contact lens with embedded sensors and wireless communication capability, it partnered with Novartis to explore the potential short- and long-term impacts. Neither Levi Strauss nor Novartis had the internal expertise to interpret the weak signals on their own.
Eventually, of course, companies need to make choices about how to allocate their resources. In 2005, under former CEO Mark Fields, Ford launched more than two dozen experiments to explore weak signals in automobility and to probe factors that could affect the future of transport (including, for example, new models for insurance and the rise of shuttle services, shared vehicles, and e-bikes). Based on insights gleaned from such experiments, in 2018 Ford announced the formation of a new subsidiary named Ford Autonomous Vehicles to spearhead the transformation of its business beyond designing and delivering cars and trucks.
The ability to understand the potential impacts of digital signals is critical. While GE’s Immelt saw the need for an “industrial internet,” the company didn’t fully appreciate the effects digitization would have on its core business units, and it didn’t invest the financial resources required to realize the vision.
3. Develop a Coherent Action Plan
Over and above developing capabilities to identify weak digital signals and assess their effects, companies must also be able to follow up with smart implementation plans. These plans should be flexible and allow companies to shift scarce resources from areas of past success to those that are essential for winning in the future.
Some companies have found it useful to think of implementation as a process that takes place over multiple time horizons: short-term activities to support the existing business; medium-term activities to adapt current product offerings to new technology; and a long-term effort to remake the core of the business. Although the different stages may not have precise time periods, the organization’s ability to scan and sense weak digital signals should provide direction. Daimler, for example, is currently deploying digital technologies to enhance the safety and driving performance of its current crop of internal-combustion cars. Over the next few years, it plans to transition to electric cars and trucks with self-driving capability. Eventually, it anticipates moving further afield from the established business, offering driverless cars connected to the cloud as well as mobility services. In preparation for becoming a digital company, it is allocating its resources along the three different time horizons. Identifying the signals early should help companies such as Daimler and Ford line up the right partners to scale up their initiatives.
Although digital technologies are sure to play a huge role in the future of business, today’s business leaders need to develop ways to separate the signals they need to listen to from the noise. With all the opportunities digital technologies open up, the options can be confusing and daunting. For established companies that succeeded in the industrial age, competing against digital upstarts can be unnerving. However, the ability to read the signals, interpret their likely business impacts, and pursue a smart implementation program can enable companies — even the most traditional players — to find ways to become market leaders in the digital world.
Venkat Venkatraman (@nvenkatraman) is the David J. McGrath Jr. Professor of Management at Boston University’s Questrom School of Business. He is author of The Digital Matrix: New Rules for Business Transformation Through Technology (LifeTree Media, 2017).
References
1. In a 1975 article, Igor Ansoff referred to these as “weak signals.” See H.I. Ansoff, “Managing Strategic Surprise by Response to Weak Signals,” California Management Review, 18, no. 2 (winter 1975): 21-33.
2. In 2017, P&G reported that its e-commerce sales were around $3 billion, the highest among its peers; it has been aggressively shifting its advertising spend from traditional to digital channels. Walmart has been experimenting with emerging technologies such as blockchain, self-driving cars, and artificial intelligence and machine learning to support both the current supply chains and also to envision a future shaped by digital technologies.
3. V. Venkatraman, The Digital Matrix: New Rules for Business Transformation Through Technology (Vancouver: LifeTree Media, 2017).
4. J. Immelt, “GE’s Jeff Immelt on Digitizing in the Industrial Space,” McKinsey & Co. interview, October 2015.
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