Why businesses often miss obvious risks despite warning signs

{ "articleTitle": "Why Businesses Miss Warning Signs of Strategic Risks", "articleDescription": "An analysis of organizational failure suggests that strategic surprises are rarely unexpected, as internal warning systems often detect threats early but fail to trigger action.", "articleBody": "

The Illusion of the Strategic Surprise

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Most strategic surprises are not real surprises, according to an analysis published by Fast Company. The publication notes that someone inside a company usually sees the signal early, but the organization fails to act on those insights while there is still time.

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The article posits that an organization’s early warning capacity consists of three distinct parts: sensing, discipline, and acting. Sensing refers to picking up leading indicators while signals are still weak. Discipline involves having a consistent process with dedicated time and people to attend to these signals. Acting is defined as moving during the \"window of optimal warning,\" which occurs late enough that the signal is credible but early enough that the company can still shape the outcome.

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Depending on how well-developed each of these three factors are, an organization can anticipate where it is likely to get into trouble. One specific model identified is the \"Cassandra organization,\" which describes a scenario with high sensing, weak process, and low acting. In this model, people see the change and raise the alarm, but nothing happens until it is too late.

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Kodak’s Digital Camera and Internal Warnings

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Kodak serves as a primary example of this dynamic. The company invented digital photography; engineer Steve Sasson built one of the first digital cameras in 1975. An internal market intelligence study in 1981 concluded that digital would eventually displace film and that Kodak had roughly a decade to prepare.

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While the sensing was excellent, the organization failed to reshape its core business in the face of this digital inflection point. The company later went all-in on printing under CEO Antonio Perez just as screens became good enough that people no longer needed to print.

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Criticism of Leadership Decisions

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Perez built the printer business at Hewlett-Packard before being passed over for the CEO job at Kodak. His strategy has faced criticism from investors regarding the company's direction.

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Ken Luskin, a disgruntled Kodak investor who runs Intrinsic Value Asset Management, said Perez’s turnaround strategy was the story of how “a company has been run into the ground by one guy’s ego needs.” Luskin alleged that Perez