Peripheral Vision: Detecting the weak signals that will make or break your company

In this new post, I am going to comment the last seminar where I could assist at my Business School. The lecturer was George S. Day, marketing professor at Wharton School of Business and consultant to numerous corporations, such as AT&T, Eastman Kodak, General Electric or IBM.

The first thing that surprised me was that George Day came to speak to me before the seminar, maybe because I was one of the few guys who did not seem Irish, and we asked me where was I from. It was curious for me that we knew Galicia because of Way of St. James, but this was only an anecdote.

Let’s talk about the seminar. The first that I want to highlight about George Day was his way to communicate and express. It was evident that he works for one of the world’s best business schools only for the way we maintained the attention of the audience on an enjoyable way all the time, combining pure theory with many examples and interesting anecdotes.

In the seminar we explained how many firms have problems when they have to detect future problems, which if they detect them on time they could have avoided high damages in their profits. These problems, detected on time, could have been great opportunities. The first example that we gave was the widely commented Subprime Crisis. Some experts detected the possibility of this kind of crisis long time ago, but big investment banks obviate all these dangerous peripheral signals, and these meant losses of billions that could be avoided.

Barbie vs. Bratz

Another clear example about the lack of peripheral vision was the one that the toy company Mattel with its star doll, the famous Barbie. Despite its huge investment in market research and R+D+I, they couldn’t forecast the change in the likings of their objective clients, girls between 4 and 13 years old approximately. Another company, MGA Entertainment, could forecast the new market conditions much better than Mattel and they created Bratz dolls, which destroyed Barbie’s market share reducing its objective clients to girls between 4 and 9 years old and finishing with a hegemony which lasted many decades. They problem of Mattel was its inability to see these signals that other companies could see. This was not caused by its lack on investments in market research; it was caused because they did not know to ask themselves the adequate questions. Another problem was the lack of flexibility of Barbie doll (Mattel had a manual of more than 100 pages with the characteristics that Barbie doll has to obey). Currently, it seems that Mattel is going to try to recover its market share, but this is going to be much more difficult and costly than if they had a good peripheral vision.

How can we improve peripheral vision?

The first thing that we have to know if we want to improve our peripheral vision is where to look. We have to get rid of everything that could hinder our peripheral vision, such as overconfidence, mental filter (such as discarding some scenarios), or confirmation bias (which consist of looking for data which confirm that we think).

Once we discarded these peripheral vision blinders, we have to ask us the adequate questions, such as:

- What surprises could damage or benefit the company?

- What technological innovations could change completely the industry?

- Is there an unthinkable scenario?

Then, it is important to deeply analyze the answers using different points of view without discarding any of them. George stressed the importance of blog when we have to detect these future problems and find a solution as soon as possible. Nike, for example, searchs daily on the Internet in order to find articles and comments about the company and everything related to it. The firm analyze all this data carefully, looking for clues and signs that could help them to improve its brand.

Peripheral vision and Value Investing

A way to make money in the stock market is seeing what the market haven’t seen jet. This is a very complex task, often almost impossible, but sometimes could happen and became very profitable. For example, Willian O’Neill knew how to anticipate to the market investing in Syntex’s (this company was the first mass manufacturer of the birth control pill) shares just before the “sexual revolution”. The market could not discount the real potential of this company before to know its earnings, and William could take advantage of this. Syntex’s shares rose from $100 to $550 in less than 6 months.

Another factor that could be interesting for value investors is the preference to invest in companies whose managers take into account these peripheral danger signals and know to adapt to changes in market and industry conditions. Finally, I want to conclude with the same sentence that George Day used in the conclusion of his seminar.

“It’s not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change”. (Charles Darwin)

This article is also available in Spanish

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