Smart business leaders know that as they manage today’s problems, they must keep an eye for competitive threats. But are there ways to predict threats before they fully actualize? Corporations should have what correlates to an early warning systems to detect emerging competitive threats that will impact their business.

Harvard Business School Professor Clayton Christensen and Richard Foster, Senior Faculty Fellow at Yale School of Management are at the leading edge of study surrounding how business and industry should be structured in the lightning-fast pace of our evolving social, economic, and business environment. Scott Anthony, in the Harvard Business Review blog, reviews Christensen and Foster’s five questions business should ask themselves, the answers of which can create the foundation of an early-warning system.

  • 1. How willing are customers to continue to pay for further improvements in performance that historically merited attractive price premiums?
    One of the key tipping points in a market occurs when a company, in Christensen’s language, overshoots a given market tier by providing them performance that they can’t use. Your television remote control probably serves as a daily reminder of overshooting. Each of those buttons can do wonderful things, but would you pay extra monthly fees for yet another button? Probably not. When overshooting begins to set in, industries can change rapidly.
  • 2. Are customer preferences and habits changing due to enabling technologies and/or changing social norms?
    Companies often miss important shifts because they start not among mainstream customers, but at people at the fringes of the market. But remember, the quirky behavior that teenagers follow today (100 text messages an hour!) becomes mainstream just a few short years later.
  • 3. How active are startups at the industry’s edge?
    For much of the 1980s and 1990s, many parts of the startup ecosystem focused on communications, technology, and health care. In the past few years, there have been significant investments in markets like data analytics, 3-D printing, renewable energy, and financial services. Executives in market leaders in those sectors need to watch these developments carefully, because the seeds of transformation are being sown as we speak.
  • 4. Are competitors with disruptive strategies having a material impact on portions of the industry?
    Christensen’s research shows clearly that transformation often comes in the form a disruptive innovator that makes consumption simpler, convenient, and more affordable. When a company with a lower-cost business model or one based around radical simplicity gains traction, it augurs significant change. Disruption is moving from a dream (or nightmare, depending on your perspective) to a reality in the financial services industry. Jack Dorsey’s Square is processing millions of dollars in payments a day with its simple but powerful solution. Wonga’s payday loan offering continues to grow rapidly. And companies like Google, Apple, and even telecommunications titans are eying the industry. Executives that dismiss these developments do so at their own peril.
  • 5. Will current or pending changes in government action shift the basis of competition or make life easier for entrants?
    The government is often portrayed as an inhibitor to innovation, but that’s not fair. Many commercial innovations, including the Internet, mobile technologies, and countless lifesaving drugs, have their roots in government research. When governments change the rules, or focus their ample buying power in new directions, executives need to stand up and take notice.

Beyond answering these questions, business leaders need to create an organization that has the capacity to react to the early warning signs and encourage a climate that will embrace rapid identification of these trends and respond accordingly. Much of the time companies will need to address the signs of change before they normally feel the need to respond to stave off the threat. Do not overlook the increasing importance of monitoring for signals of emerging threats in social media.the signs are always out there, but you need to be actively looking for and evaluating them.

- Bradley Fitzhenry, Brand Manager MJR Creative Group