While CEOs can rely on their own perspective and their personal learning to determine where they are, it's much more powerful to mobilize the thinking of the entire management team. By participating in periodic, informed discussions about the state of the business, the team stays focused on the big idea, shares a common understanding of the state of play, and identifies key issues to resolve. Successful innovators in the old economy typically met quarterly to discuss where they were; on Internet time, we recommend meeting at least monthly. The hierarchy-flattening Net, where everyone has a voice, can help facilitate this process, but be careful: Each team member's version of dead reckoning does not necessarily triangulate into an accurate GPS location.
Successful innovators must not only listen to, but also make sense of, opportunities in the world around them — the second strategic learning discipline. This requires a sensing network to scan and collect data, the filtering and clustering of the data into useful information, and action planning by the management team about the information's implications. When Charles Schwab & Company's customers complained about a pricing structure that gave some online traders bigger discounts than others, Schwab executives saw in the complaints an implied opportunity. They moved to a single pricing structure for all online customers, even those who wanted to use bricks-and-mortar services, and bet the business on an innovative business system that has all the earmarks of a strategic breakout.
A sensing network must address each element of the business system, sensing the market, the business model, and the economic model. Don't waste time with competitive intelligence. Companies leading their industries will create rules that others must follow. Too often, focusing on competitors dooms a would-be innovator to become a follower.
Market sensing is nothing more than systematically listening to customers (and, less often, to potential customers), generalizing from what they are saying, and taking appropriate action. In the old economy, market sensing was usually grounded in face-to-face contact. Senior managers at Harley-Davidson Inc., for example, spent time each month on a bike, on the road, with Harley enthusiasts. Information technology now enables more rapid collection of information on a larger scale, but even in the New Economy, direct contact with customers increases the likelihood that managers will hear the subtleties of what customers are saying. Intuit Inc., for instance, screens help-desk calls to target new functionality for its Quicken home-finance software.
Business-model sensing identifies opportunities to improve a company's processes and structures for delivering customer value. Wal-Mart's fabled Saturday morning meetings, where managers and employees representing stores in every region gather at headquarters, are a powerful example of business-model sensing. Managers review the details of performance, compare stores, identify concerns and opportunities, and offer solutions. Systematic postmortems can serve as the basis for business-model sensing in project businesses. Many companies today base their programs on the U.S. Army's "after-action reporting" system, in which troops in the field identify and record lessons learned after every operation, no matter how small. The lessons are transmitted to a central coordinator to update procedures or to use in real-time operations.
Business-model sensing combines two things: the internal data that helps tune and evolve the business model, and the external data that highlights major improvement opportunities. For example, by benchmarking, one e-drugstore discovered the need to reduce its 120 days of inventory to the 60 days of conventional retailers and the 30 days of wholesalers. Relationships with leading vendors can also help companies identify and capture major opportunities. For example, the British Petroleum Company partnered with Schlumberger Ltd. to gain access to experts and develop the horizontal drilling techniques needed to rapidly and cost-effectively exploit deep-water reserves.