See Your Business from the Outside In
by Ram Charan

Posted on Thursday, April 26, 2007, 12:00AM

One of the great truisms of leadership success is that a leader must constantly keep an eye on "the big picture." But there's a serious flaw in this bit of time-honored advice -- the big picture keeps changing.

In its wake lie the best-made business plans and strategies of organizations that had planned for one future, only to see another emerge.

Pattern Recognition

New consumer buying habits produce fast-rising opportunities. A newly forged political coalition drives up the price of raw materials. Markets don't grow as planned. A dormant competitor gets reinvigorated. Promising product innovations don't translate into more sales. Population shifts redraw markets.

Given the dizzying array of possible developments, how can you keep your organization ahead of the game, knowing that tomorrow's reality is likely to end up looking a lot different than today's projections?

No one can predict the future. But you can improve your chances of keeping your business ahead of the curve by developing the critical know-how of detecting the patterns of external change.

If you learn to look at your business from the outside in and practice connecting the dots of seemingly unrelated trends and events, you'll be able to spot opportunities and threats before they become obvious to everyone else. You can put your business on the offensive and avoid unpleasant surprises.

The Consequences of Failing to Look Ahead

External forces and trends can rise quickly and have unforeseen ramifications. They also create winners and losers. Apple has sold 100 million iPods since November 2001. The greatest consumer product success story of the past decade, the iPod has made a winner of Apple.

But Apple's success has impeded the success of others who were caught off guard. Among those were leaders at XM and Sirius. They made long-term growth projections, not realizing that the fast-rising popularity of devices such as the iPod, which allows consumers to easily transport and listen to their own music libraries without paying a monthly fee (as satellite radio subscribers must do), would alter the competitive landscape. As a result, XM and Sirius are now attempting to consummate a merger amid some skepticism about the long-term viability of the satellite radio business model.

Similarly, the grocery store industry, after decades of competing with one another on price, has been hit hard by the incursion of discount retailers, especially Wal-Mart, that can meet or beat their prices. Industry leaders generally failed to detect the changing competitive landscape while also turning a blind eye to the growing importance of the "shopping experience" and the need for creative marketing as Americans make about 50 percent fewer trips to the grocery store than they did in the mid-1990s.

Emblematic of this failure, one of the major chains, Winn-Dixie, filed for Chapter 11 bankruptcy protection in 2005. On the other hand, Whole Foods Market, a chain known for its vast selection of natural foods and its marketing savvy, is thriving. The difference? Whole Foods' leaders have been more attuned and responsive to the external trends and forces acting on their industry.

How to Build an External Perspective

Not all leaders possess the broad cognitive bandwidth required to look far out onto the horizon, sort through the complexities of the external landscape, detect patterns, and determine what it all means for their business. Not all have the courage to form a point of view before all the evidence is clear.

But as the world becomes more complex and the rate of change grows exponentially, this know-how is essential for leaders to keep their businesses viable. Mastering this know-how requires that you:

• Cast a very wide net.

Keeping abreast of trends in your industry and area of expertise is not enough. If you aspire to high levels of leadership, you have to constantly push to broaden your perceptual lens.

A change in exchange rates might at first seem irrelevant to an engineering manager, but is it? It could be a key factor in determining where the company -- or its competitors -- will expand and where engineering talent might be in short supply.

Don't be daunted by the sheer volume of information that's available. As you practice, you'll become better at determining what is important.

• Continually search for the new and different.

Train yourself to be a keen listener and observer. Instead of thinking, "I've heard all this before," try to find the one fact, insight, or piece of evidence that's new to you.

Ivan Seidenberg, the CEO of Verizon, says in every conversation he has, he listens for the one thing he doesn't already know. This lifelong habit has kept him sharply attuned to the shifting mosaic of the telecom industry.

• Sift, sort, and select.

Given the incredible flow of information all around us, most business leaders today can learn what's going on in the external world in surprisingly simple ways. For instance, many people read the "What's News" column on the front page of the Wall Street Journal. Far fewer, however, stop to reflect on it.

Having made a commitment to broaden your lens and take in a wide range of information, you then must practice making sense of it. Make the time to reflect on what you're seeing. How does the new information connect to other things you've read about, and how might it impact your business, or your customers' business? What poses the greatest threats or presents the greatest opportunities? And how might trends or forces converge to create even more formidable threats or bigger opportunities? Are the trends you're seeing cyclical, or are they indicative of more permanent change?

Formulate your own hypotheses about a trend -- then watch for evidence that you were right or wrong and try to figure out what you missed so you'll improve

• Put yourself in positions where you can expand your view.

If you're at an early stage in your career, you would be smart to seek out jobs where you can witness firsthand the changes afoot beyond your company walls and begin building your own broad perspective. For instance, if you're in the retail industry, spending time as a regional manager would give you a ground-level view of consumer behavior, competitors, and community relations.

But don't be limited by your job. Nothing stops a regional sales manager from trying to identify which way the economy is headed or a manufacturing supervisor from trying to understand changes in consumer taste.

Going on the Offensive

Yes, the world is changing fast, but great leaders find the pathway through it. Listen, read, become a keen observer, and connect the dots to make sense of it all.

Keep your perceptual lenses open, act on your own curiosity, and be proactive in shaping your view of which way things are going. The spoils belong to those who can act ahead of others -- because they see things ahead of others.