These days, organizations need all the help they can muster to maintain a slim second and a half lead over the competition and navigate around or through the unprecedented number of environmental threats that loom in the business environment.  In the November 2011 article, How Your Competition Affects Your Strategic Plan, we explored the threat of new entrants, the power of buyers, the availability of substitutes and the power of suppliers. Even in a seemingly successful business enterprise, it doesn’t take long to lose your competitive edge. Threats can and do emerge from every direction. This article focuses on threats from competitors as well as other parts of the business ecosystem.

Threats To Business Well-Being

Look at the case of Kodak. This was a company that dominated in its space for over a century, yet was essentially done in by its own invention. Although the company pioneered digital technology, it chose not to capitalize on the invention. It was in 1975 that Kodak prototyped the first digital camera. From that time, and up through the 1990s, Kodak invested $4 billion on developing the photo technology utilized inside most of today’s popular smart phones and digital devices. Unfortunately, Kodak misread the real threat they were facing at that time. Buyer preferences were changing as a consumer appetite for digital technology was growing by leaps and bounds. Instead of recognizing the threat this trend posed to Kodak, the company decided to protect their stake in analog film. It turned out to be a text book misread of a major environmental threat. By deciding not to surge into the digital product arena with their own offering, Kodak allowed rivals like Canon and Sony to achieve dominant market positions built on top of powerful brands in the digital arena. The immensely lucrative analog business Kodak concerned themselves with protecting was virtually erased a decade later by the “filmless” photography that they invented.

They Come In All Shapes and Sizes

Staying a second and a half ahead of trouble requires businesses to continuously survey the landscape. Businesses must be thoroughly familiar with their market’s terrain in order to detect environmental threats or predict the actions of competitors, as both can quickly reverse their fortunes and put them out of business.  Leadership is accountable for instilling the processes and rigor needed to maintain a system of environmental surveillance. The trends this surveillance detects, when juxtaposed against the business’s bedrock key outcomes (as defined in the strategic plan), serves to correctly guide decision making and promote the right strategic initiatives needed to protect the business’s interest. The very process of strategic planning helps identify many threats, while operational measures serve as additional protection to the organization – via governance that tracks and monitors the key metrics of the business that signal trouble as it approaches.

Threat surveillance is more important than ever in today’s complex environment because business is tethered to an ever-increasing amount of regulation. Just maintaining compliance poses a real conundrum to businesses in all industries. The EPA and FDA are examples of two powerful bureaucracies that sometime confound business leaders with complex and often vaguely written policies that must be studied and interpreted. In the banking industry, Basel III requirements, proposed by the Basel Committee on Banking Supervision threaten to reduce the ROE of some banks by as much as five percentage points, but the long-term effects are still uncertain as industry experts try to interpret exactly what the legislation will mean to the world of lenders.

The regulatory threats keep coming. The newly formed Consumer Financial Protection Bureau is taking on multi-billion dollar industries within the financial services sector and preparing to sue companies that offer unfair or deceptive mortgages and credit cards. The payday lending industry is one that is squarely in CFPB’s cross-hairs.

While no one questions the need for fair lending practices and industry oversight, new regulations from federal agencies have a massive industry impact. Regulatory compliance cost companies money, and companies pass those costs on to consumers. In banking, that means the average cost for loans will go up in the form of interest rates and fees. For the industry, that means that some products may become so expensive and so over-regulated, that financial companies must abandon them altogether. To those in the financial services industry, such regulation poses a real threat to entire markets and associated services currently providing viable revenue streams.

Surviving Threats

A robust planning process and discipline are the keys to surviving. Businesses will always face threats. They may come in the form of cheaper imports being available from China, new legislation that forces business model changes or game-changing and disruptive technologies that alter the buying trends of a core market. Long-term survival is dependent on environmental surveillance connected to good strategic planning. Change happens and successful businesses adapt and prosper. Winning businesses have incorporated forward-looking planning combined with operational execution that is dialed-in to key metrics attenuated to their strategic objectives. Strategic planning that includes environmental threat surveillance helps any business to navigate choppy waters, plan accordingly and signal the alarm when plans are no longer working.