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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.
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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.
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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.