Q 382. Michael Porter introduced 'Blindspot Analysis' for effective decision making. Explain it along with types of blindspots in decision making. Support your answer with examples.

 

 

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Blind spot analysis is means to identify and deal with incorrect and outdated assumptions that could potentially influence decision making. The term “blind spot analysis” was first coined by Michael Porter, well known for his research on competitive strategy and Porter’s Five Forces. He believed that in business, outdated ideas or strategies had the potential to stifle modern ideas and prevent from success.

 

A blind spot is also known as conventional wisdom is an area in the range of vision that one is unable to see or unable to understand.

• A common example for drivers is the area that one cannot see while looking at rear view. One has to turn his/her head to see if there is a vehicle, now we have better solutions: split rear facing mirrors, sensors etc.
• Other example is psychological – This blind spot occurs when we allow our emotions and thoughts, mostly unconscious to influence our behaviours. We are wired to make cognitive shortcuts based on experience and assume outcome. This mostly sets us on autopilot.

 

Blind spots manifests in several ways due to following cognitive biases:

• Anchoring bias – Rely on pre-existing information no matter how reliable that information is. For ex. For ex. We check out a handbag for 4000, and then look at one that costs 800. Prone to see the 2^nd one as cheap.
• Availability Heuristic bias – Assumptions based on information, news stories. These days social media is mis-educating people on many choices that they can make
• Bandwagon effect – Following the rest of the world. Common example – Stock market investment, Business meetings – If most people agree on an idea then most likely one would be quiet if he/she does not agree
• Choice Supportive Bias – Usually leaders defend own choice, ignore downside of their own bad decision,
• Confirmation Bias – Choice made based on confirmation that we already believe, or we already know.
• Ostrich Bias – Subconscious bias to ignore negative information. For ex. Looking at amount of work left, instead procrastinate hoping it will go away
• Outcome Bias – Evaluating performance only on outcome even if it was mere luck
• Overconfidence – Based on opinion or gut, mainly people make this mistake in stock market
• Placebo bias – Belief that it will help recover
• Survivors Bias – judging based on surviving information, for ex. Building in old city have strong foundation, but what we don’t see is how many buildings collapsed. We only see what’s still standing, (a few)
• Selective Perception – Perceive message owing to frame of reference
• Blind Spot Bias – One believes he/she is less bias than others

 

Common examples at organisations that affects decision making process:

 

1) Organisational blind spots –  Usually resulted out of defence to unrealistic strategy or problems resulting from policy, goals, expectations. Organisational blind spots arise when leadership and/or management is unable to acknowledge outcome of unworkable strategies leading to splitting, blame and idealisation.

 

This results in distorted organisation overview with many many blind spots. A few factors to consider are:

·       Employees/managers bringing best version to the bosses, hiding the gaps/skills that they lack

·       Telling boss only what they want to hear instead of what needs to be said

·       Problems not brought up to leadership immediately, managers afraid of appearing to not be in control

·       Measures do not represent reality, and leaders making decision out of data and not feedback

 

2) Leadership Blind Spot - Leadership blind spots are the specific areas that a leader lacks attention to or does not acknowledge gap (this could be skill). Leaders can be successful in certain areas but could have a weakness that gets offset and never acknowledged. A progressive and good leader would self-analyses and take this as an opportunity to grow. Common blind spots we see in leaders:

·       Doing it alone – not involving honest feedback or discussions

·       Being unaware of the behavior exhibited

·       “I Know” attitude

·       More and more data driven and time spent in meetings instead of meeting real people and talking

·       Actively avoid uncomfortable conversations

·       Blaming and playing victim – commonly blaming predecessors

·       Surrounded by Inner circle – Lacks diverse thinkers

·       Impulsive triggers – decisions made of experience or perception

 

3) Competitive blind spots - This is critical as failure to analyse competition leads to wrong strategic decisions, slow response to competition, weakening in its ability to seize the opportunity and many more. A simplified framework for competitive blind spot below:

 

Industry Misjudging industry boundaries and trends, critical technologies	Customers Misjudging customer’s changing needs, customer segmentation and buyer behaviour
Competitors Poor identification of competition & their strengths, not analysing competitors’ strategy, Advertising, branding, expansion, pricing	Organisation Weak organisational culture and structure, lack of skills, brand positioning, failure to capitalise own strength

 

Performing blind spot analysis:

 

Common approach used by many organisations is to check the various ways that unconscious bias could manifest.

Benjamin Gilad, Psychologist and philosopher developed a systematic 3-step method:

• Step 1: Refer to the previous strategic decisions, its context of the decision, various factors involved and system of solution agreed. Conduct Michael Porter’s 5 Force analysis to identify change drivers and if organization overlooked any important aspects.
• Step 2: Collect competitive intelligence on the target company. Sources may include annual reports, letters to shareholders, interview in the press, public appearances, industry meetings etc.
• Step 3: Compare result of Step 2 with analysis of Step 1, Any contradiction with the analysis on Step 1 is a potential blind spot.

Top executives/leaders are smart, capable people yet exposed to several decision biases that comes with situation they are in. Objective analysis of blind spots could greatly help leaders in identify the potential blind spots and treat them.

 

A few ways to overcome blind spots is by cultivating

·       Diverse networks – Embrace diversity and inclusion for diverse opinions, grow inner circle to include others

·       Building deeper connection in the organisation with the employees and not get blinded with results

·       Feedback loop – encourage telling truth versus what’s more convenient

 

Self reflection helps identify where are our blind spots and then accordingly manage them.

The Blindspot Analysis uncovers incorrect ,incomplete, dangerous and outdated assumptions which can effect decision making within an organisation.

 

Blindspot analysis is a systematic decision making and evaluation process. Most of the other decision making frameworks favor rational and objective action where as blindspot analysis uncovers process of flaws caused by bias or misinterpretation.

 

Below are the some of the types blindspots in decision making

 

• Invalid assumptions – Example:- Corporate myths, corporate taboos, or other unchallenged assumptions.
• Escalating commitment – Example:- when a company doubles down on a particular plan to its detriment.
• Constrained perspective – Example:- When gains and losses are assessed individually, and not as part of a larger picture.
• Over-confidence – Example:- Encompassing confirmation bias, an illusion of control, or a belief that past performance is a predictor of future success.
• Information filtering – Example:- When failure is not seen as a learning experience.
• Groupthink or herd mentality – Example:- An effect where a group makes a safe and conservative decision which is sub-optimal.

 

Blindspots analysis is a method to surface out the old, partial, or wrong assumptions in a decision maker’s mental scheme of the environment. Michael Porter used the term "blind spots" for referring the conventional wisdom which no longer holds true, but which still guides the business strategy. This concept / technique was further explored and popularized by Barbara Tuchman, in her book The March of Folly (1984), to describe political decisions and strategies which were clearly wrong in their assumptions.

 

 

How to uncover the Blind Spots ?

Despite the fact that organizations do careful research before making any decisions, it can still go wrong. Often, something important is missed or alternative options are not considered and, as a result, wrong / not best decisions are made. In many cases, so called 'blind spots' are not taken into account while making the decisions.

Ben Gilad  proposed 3 step "Gilad method" to identify the blind spots in his book named Business Blindspots.

Step 1 : Conduct a Porter’s Industry Structure i.e. 5 force analysis on a given industry or market, augmented with identification of possible change drivers, which are defined as trends with the potential to have considerable effect on the balance of power among the five Porter forces.

Step 2 : Collect competitive intelligence on the target company’s top executives assumptions regarding the same industry structure as in Step 1. Sources of the information may include annual reports, letters to shareholders, autobiographies, interviews in the press, public appearances and speeches, industry meetings, conference calls with security analysts etc. and all other statements regarding vision.

Step 3 :  Compare the results of Step 2 with the analysis in Step 1. Any contradiction with the analysis in Step 1 may be a potential blindspot.

Also, Johari Window concept also touches upon these blind spots as depicted below and describes the blind spot as an area which is unknown to you but known to others.

 

 

Why blind spots occurs and examples ?

 I. Top leaders are completely ignorant of strategically important issues. E.g. Yahoo Search Engine vs Google Search Engine, IBM Failure to capture Personal Computer Market.

 

II. Top management may be aware about the strategically important issues, but they do not interpret them correctly. E.g. Ebay merger with Skype, Blackberry Phones failed to capture touch screen market, Macy’s failure to move to digital selling space, Failure of Polaroid Cameras to move from Print to Digital Photography, Motorola failed to sense the 3G movement / upgradations required in their phone softwares.

 

 III.  Leaders are aware of problems being caused by outdated assumptions and interpretations but discovers these problems too late and as a result of it they also acts too late. E.g. Kodak, Nokia, Xerox etc. failed to sense the changes in market trend at earlier stages and which caused huge loss to their businesses.

 

 

Companies who understood the Blind Spots quite early and build upon it to gain the huge success :

 

 

Underlying assumptions:

Blindspots Analysis is an assumption about biases of decision making at top of the organizations (business, government etc.) exceeding views / thoughts of their subordinates or outsiders. While the top executives in business and government organizations are smart, intelligent, and capable people, they are also vulnerable to several decision biases that come with powerful positions, including cognitive dissonance, overconfidence, and sometimes ego-involvement. The impaired ability of leaders to see reality for what it is, and the more objective analysis of analysts and mid-level planners means that Step 3 of the Blindspots Analysis can be very effective and powerful method for pointing to potential blind spot.

 

What are the sources of Blindspot ?

i) Invalid assumptions – such as corporate myths or other unchallenged assumptions E.g. If my cost is low, I will get the more business. (Quality is not important)

ii) Winner’s curse – or a belief that investment will always be valuable. E.g. If I buy a new property in a particular area, prices will always go up.

iii) Escalating commitment – when a company doubles down on a particular plan to its detriment. E.g. Company doubles the manpower thinking it will yield more profit and ignoring the other angles say skills, machines, efficiency etc.

iv) Constrained perspective – Where gains and losses are assessed individually, and not as part of a larger picture. E.g. If I take up the new job, I will get these many benefits and If I don’t take I will loss this much money but ignoring the future growth and evolution points.

v) Over-confidence – encompassing confirmation bias, an illusion of control, or a belief that past performance is a predictor of future success. E.g. If I work for 9 hrs, I will get the good rating but same may not be true in new normal and you may need to work more and learn new things too.

vi) Information filtering – where failure is not seen as a learning experience. This also occurs when a diverse range of opinions is not considered when making decisions. E.g. You started a project late in past and that’s why you were not able to deliver the same to your customer ontime and again this time you are repeating the same mistake.

vii) Reasoning by analogy – or decisions based on a limited sample set or anecdotal evidence. E.g. You are predicting the performance of a QA with 2-3 samples out of 100 samples which may not be true replica of his / her performance. Sample size may needs to be increased.

viii) Groupthink or herd mentality – an effect where a group makes a safe and conservative decision that is sub-optimal. E.g. As a group, sometime we decide not to change and stick to old way of driving the things say Appraisal ratings on excel with limited criterion which may not work in environment / workforce dynamics changing at a faster pace.

“Blindspot Analysis” is a method of uncovering obsolete, incomplete, or incorrect assumptions in a decision making in an organization. Michael Porter used the term "blind spots" for old-fashioned wisdoms and assumptions within organizations that still guides business strategy and prevent new ideas.

 

Benjamin Gilad described 3-step method to identifying blind spots in an organisation:

Step 1: Look at the previous strategic decisions from a historical organisational perspective. What were the arguments for these decisions, what were the factors played a part and what was the context of that decision?

Step 2: Look at the organisation from an external perspective using information publically available. Sources for this information may include annual reports of the organization, public communication to shareholders, public interviews, speech or appearances and autobiographies

Step 3: Compare the results of step 2 with those of step 1. Every contradiction with the results from step 1 is a potential blind spot.

 

Typically, Blind Spots can be categorized in following eight categories:

Invalid Assumptions: The assumptions which are unquestioned and unchallenged or the Myths can be included in this. For example it is an invalid assumption or a common myth that company culture and company performance are not linked.

Winner's curse: It is a belief that investment will always equal value. For example If a company paid too much in an auction, or won a contract by offering prices that were too low, the company could end up being the loser, even though in theory it’s a winner.

Escalating commitment: It covers the condition when a company doubles down on a particular plan to its detriment. For example, an investor might hold onto a stock too long because she made the initial decision to buy.

Constrained Perspective/Limited Frame of Reference: Looking at particular gain and loss decision as stand alone, not part of larger picture. For example an organization is eliminating experienced and high skilled but high cost resources for immediate gain on cost cutting but ignoring the confidence of client on the organization due to high quality output by the experienced and skilled resources.

Overconfidence: Overconfidence is being unaware of what one does not know. It may lead to underestimating of risks. For example Individual’s faith in ability to control situations by own competence which may supported by selective information may result in big losses.

Blindspot Analysis

What is a Blindspot Analysis?

The Blindspot Analysis is a means that uncovers dangerous, incomplete, incorrect and outdated assumptions that can impact decision making within an organization. This was first used by American economist Michael Porter, he argued that in business, outdated ideas or strategies had the potential to affect modern ideas and prevent them from succeeding in the longer run. In Addition to this, decisions that business thought were made with care caused projects to fail because major factors had not been duly considered.

 

Understanding a Blindspot Analysis

The Blindspot Analysis begins with a question asking: how can a business identify those factors if they are, by all accounts, hidden?

 

Blind spots typically manifest in 8 ways:

1.       Invalid assumptions – corporate taboos, corporate myths, or other unchallenged assumptions.

2.       Winner’s curse – or a belief that investment will always equal value.

3.       Escalating commitment – when a company doubles down on a particular plan to its detriment. 

4.       Constrained perspective – where gains and losses are assessed individually, and not as part of a larger picture.

5.       Over-confidence – encompassing confirmation bias, an illusion of control, or a belief that past performance is a prediction of future success.

6.       Information filtering – where failure is not seen as a learning experience and it also occurs when a diverse range of opinions is available but not considered while making decisions.

7.       Reasoning by analogy – or decisions based on a limited sample set or anecdotal evidence.

8.       Groupthink or herd mentality – an effect where a group makes a safe and conservative decision that is sub-optimal.

 

How do blind spots occur in business?

Blind spots can only occur in business in one of three ways, with management themselves playing a key role in each:

1.       Ignorant of strategically important issues.

2.       Aware of strategically important issues but does not interpret them correctly.

3.       Aware of the problem and how to address it correctly, but it is discovered too late. Any action taken, no matter how significant, it is too late and ineffective.

 

 

Performing a Blindspot Analysis

Many businesses just simply run through the list of above eight primary causes before making decisions.

Psychologist and philosopher Benjamin Gilad developed a simple three step method for those who want a more methodical approach

Step 1 

Look at a previous strategic decisions taken from the organizational perspective. Which factors played a primary role? How was the solution argued? What was the context of the decision?

Is the company overlooking one or more important aspects? Businesses can use Porter’s 5 Force Analysis to identify change drivers that have a structural effect on the five competitive forces.

Step 2 

By doing research with the publicly available information look at an organization from the outside (preferably in a similar market or industry). 

This competitive intelligence information can be found in interviews, speeches, public appearances, shareholder communications, and industry meetings. What conclusions or inferences or assumptions do executives from these organizations make? 

Step 3 

In the third and final step, we will compare results. A blindspot is occurred when the analysis of Step 1 is contradicted by the results of Step 2. 

Application of the Blindspot Analysis

The Blindspot analysis is primarily a solution for making strategic decisions that impacts the entire organization and is spread over a longer time period. This leads to approach that includes other groups and colleagues to see whether or not important factors in the decision process are overlooked.

This way, many different perspectives are used in making decisions and top management can question whether they have applied a thorough risk analysis to all options. As many options as possible should be considered to make a decision. As soon as a single one is excluded, this leads to a blind spot.

The Blindspot Analysis discovers hazardous, inadequate, inappropriate and obsolete conventions that can hinder decision making within an organization.

Recognizing and eliminating Blindspots is of vital importance for effective strategic decision making to minimize the chance of making wrong decisions.

Definition: Blindspot Analysis means identifying outdated and incorrect assumptions across various decision making levels in an organization, that can harm a decision making process and therefore evolving into a systematic decision making process.

 

History: Michael Porter is considered as the father of Blindspot Analysis. According to him, in any organization, the outdated ideas & strategies, preconceived notions and assumptions, create a big hindrance in implementing modern ideas and strategies. Since the decisions are made based on this, a lot of projects ended up in a failure.

 

Blind spots typically happen in one of the following 8 ways
 

 

Winner’s curse – a invalid understanding that investment will always result in a specific value
Making Invalid assumptions – Unchallenged assumptions, preconceived notions, myths
Restricted or Constrained perspective – incorrectly evaluating gains and losses individually, and not looking them as a big picture
Escalating commitment on a plan/initiative – Undue or irrelevant stress on a particular initiative by an organization
Undue Over confidence – e.g. assuming past performance as a future of success
Using filtered information – Hiding information and not taking all the relevant options into consideration before arriving at a decision
Reasoning based on limited data – decisions taken based on limited information or sample data
Groupthink or herd mentality – just believing that if a group is moving in one direction, it is a right direction, instead of finding right direction and moving in that way. 

 

Why do blind spots occur in any business?

 

Blind spots can only happen/occur in business owing to one of the three ways:

1. If the Management is ignoring strategically essential/much need attention issues.
2. Management is aware of key issues, but fail to interpret them or analyze them correctly
3. Management is aware of the key issues and how to address them, but those issues are uncovered very late in the game.

 

How to perform a Blindspot Analysis in any Organization?

 

General process that any business will adopt is to a quickly check on whether any of the 8 issues that have been listed above are currently occurring in the organization, while making any critical decision

 

But there is a more methodical approach that was developed by Benjamin Gilad. It is three step method.

 

Step 1: Inside view: Review how an old strategic decision was made
Review an old, but similar strategic decision which was taken in the past. In what context was that decision made? How did we arrive at the solution/decision then? Which primary factors played a key role in helping arrive at the decision?

To help, we can use Porter's 5 force Analysis to identify primary factors that will have an impact on the decision making process

 

Step 2: Outside view/perspective: Identify a Benchmark (a company or an industry decision)  across similar industry 
Identify an organization to consider as a benchmark preferably across the same industry or sector and see how the decision was made when that company was in similar situation. 

In this step we are using competitive intelligence from the industry 

 

Step 3: Lastly compare, find gap and plug it. 
In the last step, we should compare results found and identify if our step 1 and step 2 are having contradictory results and where is the gap occurring and going ahead with fixing it.

 

Examples of Bindspot analysis:

 

Telecom sector:

Jio used Blindspots Analysis and used it to it's own benefits.. At that time the telecom sector was only focusing on ARPU and data + call usage was the main source of revenue..

 

Jio questioned that basis and completely disrupted the telecom market, pushing a lot incumbents into either bankruptcy or closure.

 

Space Sector:

 

Virgin Galactic used Blindspot Analysis to challenge the status quo that Space travel is only limited to Astronauts and countries who can afford it.. and with the recent flight Richard Branson proved everyone wrong and has paved the way for space tourism, which many earlier considered as a marketing gimmic

 

 

 

The BLINDSPOT analysis is a strong decision making tool which is primarily used as a solution for strategic decisions and has the long term impact on entire organization. This analysis is actually uncovers dangerous, incomplete and outdated assumptions that can prevent organization from wrong decisions.

 

Even though every organization do very well pre framework to make company level decisions but still decisions found wrong or can say not in favor or company / employees / clients. Some important and basic factors have been missed or we can say “blind spots” were missed while making the correct decisions.

 

Blindspot analysis can expose inadequacies and make it easier to highlight all old ideas. Blind spot can patent in below 3 ways:

1. Management ignores the strategic important issues.
2. Management know the important issues but interpret them incorrectly
3. Management knows the critical issues and interpret correctly but discovers it late and as results also acts as late.

Identifying the important and crucial factors before making important decisions is a very vital exercise.

Following are the 3 Ways to identify the blind spots in an organization:

1. History Data: Find out the history data which lead to reach out the decisions has been taken. All the arguments need to be read thoroughly with the intention / context behind it.
2. External perspective: Organizational decisions need to be overlooked from an external perspective. It should be done by using public information, social media to understand how organization has outlined itself. It gives understanding how outsiders think on the decisions made.
3. Comparison: Results of Step 2 and Step 1 are compared and whatever gaps / contradictions are seen are potential blind spots

 Blind Spot Analysis benefit the business in:

• To identify flaws in decision making
• To improve strategic thinking
• It involves third eye from external party (similar industry kind of) to know what others think on the decisions

While all published answers are correct, the two answers that are detailed and very well written are from - Sai Kotari and Rahul Garg. Both the answers have been declared as winners.