The resignation of India’s security chief raises a question that appears in almost every crisis: could we have avoided surprise? For companies, the answer has implications for a host of issues:

Ÿ How will new technologies and business value propositions impact our customers, products, services, and business growth?

Ÿ Which industries, customer segments and offerings categories offer the best likelihood of future business growth?

Ÿ Who are the most threatening traditional, emerging and potential competitors? Why?

Ÿ Where are the greatest long-term profit streams according to the capital markets?

Ÿ What is required for future competitive success?

Strategic surprise

How many organizations have good answers to these questions? Or better, how many have the leadership and culture and organization structure that encourages and enables the necessary open-minded inquiry?

Pfeffer and Sutton describe the problem: “We now live in a world where knowledge transfer and information exchange are tremendously efficient, and where there are numerous organizations in the business of collecting and transferring best practices.  So, there are fewer and smaller differences in what firms know than in their ability to act on that knowledge”  [The Knowing-Doing Gap, 1999]

Lack of data is not the problem – most companies have a wide variety of formal and informal source networks, including investor / analyst relations, market / competitive intelligence, corporate libraries, clients, R&D, technology forums, university relations, and ubiquitous news feeds from traditional and emerging media. Nor is analysis: they have a plethora of skilled business and technical analysts to process this data.

But very few organizations consistently transform external information into profit-producing assets.

So where can we look for help? The most devastating thing that can happen to a government or military involves surprise (think Pearl Harbor, the Yom Kippur War, 9/11 and now Mumbai).  In response, early warning capabilities emerged which, properly directed, can be stunningly capable: “an analysis of surprise attacks suggests that the intelligence community seldom fails to anticipate them owing to a lack of relevant information.” A US Congressional Subcommittee that examined the warning process of several critical US political crises pointed out that “in no case had lack of data been a major factor in the failure to anticipate the crisis.” [Kam, Surprise Attack, 1988]

Surprise rarely occurs because of lack of signals; it’s due to either misreading indicators or when an organization’s view of the environment, conditioned by past perceptions, prevents it from correctly seeking or interpreting indicators or emerging trends.

Take Pearl Harbor – why did the US navy fail to detect anytime in advance the movement the most powerful fleet in history? It was not as if Japan’s blue water fleet was a surprise – in 1905 it destroyed the Russian Pacific fleet; nor were Japan’s expansionist intentions a secret – it invaded Manchuria in 1931. Given this, “intelligence officers could perhaps have foreseen the attack if the US, years before, had…flown regular aerial reconnaissance of the Japanese navy, put intercept units aboard ships sailing close to Japan…or recruited a network of marine observers to report on ship movements.” [Kahn, “The Intelligence Failure of Pearl Harbor, Foreign Affairs, 70, no. 5 (Winter 1991/1992)]

In other words, you can’t find what you’re not looking for. Said another way, the US Navy created its own surprise.

Early warning

It is fair to ask how reasonable it is to anticipate ‘strategic surprises’ – this requires resources and organizations can’t monitor every Bill and Dave or Steve and Steve in their garages. Senior leadership must have both the right mindset, to allow challenges to conventional wisdom, then select the right talent to ask the right questions, and provide the necessary resources to get good answers.

Decision flexibility decreases as information certainty increases

Decision flexibility decreases as information certainty increases

With these preconditions, this chart provides a useful framework. In the ‘present’ (right hand side of the chart), the organization is fully cognizant of the threat (we hope!), as demonstrated by the high ‘Certainty of Information’ line but, alas, has very little flexibility in how to respond (e.g., you can’t turn a brick and mortar operation overnight into e-commerce).

Way back in time (the left hand side of the chart), our leadership has a lot more flexibility to decide how to take them on. The problem then is one of choice and focus –  every garage shop is a potential (v. credible) threat, and you can’t spend resources tracking all of them down. In terms of the chart, the certainty of information was very low (something that changes over time, for example in 1905 when Japan destroyed the Russian fleet in the Tsushima Strait…), but management has a lot of time to invest in getting the right assets in place.

The trick is to move the information line upward, i.e., speed up the collection and processing of information to have more certain information earlier in the strategy setting process, which enables the company to make better bets (investments…).

And the best way to do this is for the most experienced people in the organization to identify the most significant potential threats to their organization. Which requires the right mindset, to engage the right leaders to uncover potential blindspots and the resources to put in contingency plans.