External Assessment and The Imperative of Reality

Key Insight

An effective external assessment involves seven key areas: industry/market trends, technology trends, competitor assessment, social and regulatory environment, macroeconomy and demographics, international threats and opportunities, and overall threats and opportunities. Direct input from customers is essential, as they are the market and can inform about evolving needs, company performance, and competitors; annual customer surveys are a wise practice. Understanding the industry's stage of evolution and its future implications, along with key driving forces, is also vital.

Technology trends impact all industries, even 'low-tech' ones like banking which was transformed by computer technology (e.g., back-room processing, ATMs); companies must strategically leverage these changes. Competitor assessment requires vigilance and never underestimating rivals; companies must identify current and potential competitors, their strengths, weaknesses, anticipated moves, and differentiate their own position. Gathering competitor information, through ethical means like public records, trade shows, salesforce feedback, and customer insights, is crucial, avoiding unethical or illegal practices that can lead to lawsuits, such as the consulting firm successfully sued for misrepresenting itself to obtain proprietary cost information.

Furthermore, companies must stay abreast of social, regulatory, and political forces, using astute anticipation to create opportunities or avoid disasters. Macroeconomic and demographic trends, such as the United States's 'baby boom' affecting industries for decades, demand attention. International forces are relevant for all companies, even those not currently selling abroad, as opportunities arise unexpectedly, and foreign competitors are pervasive. Throughout this assessment, it is paramount to 'see reality' as it truly is, not as wished, as ignoring unpleasant truths leads to catastrophe, exemplified by the Allies' initial failure to confront Hitler's aggression before World War II. Leaders must surround themselves with objective truth-tellers, stay personally connected to ground reality, and never punish those who deliver bad news.