Did you know that the average CEO only spends about 2% of their time on long-term issues? Maybe you expected it to be more since factors like volatility, uncertainty, complexity, and ambiguity (VUCA) has made it so much more difficult to make decisions that leads to success in the markets of the future?
All our decisions are about the future and therefore they have to tackle the fundamental problem of its unpredictability. To make matters worse, the unpredictability increases exponentially with the length of the timeframe due to two drivers:
- The number of factors to consider and the number of interconnections between them simply grows too large, creating so called “wicked problems”.
- The long series of interactions make minimal changes in initial conditions cause very different outcomes due to the so called “butterfly effect”.
This may discourage investing more effort into future thinking, but at the same time research is showing that this is exactly what is needed! The positive effect of future orientation has been confirmed in several studies. One research project, for example, finds that only 6% of firms have a time-horizon longer than 5 years, but nearly all of these ranked high in their performance.
Keys to Forward Thinking
Adam Gordon argues that, for long time horizons, it is better to aim for being vaguely right than being exact but wrong, as would be the result of quantitative prediction methods. The value of foresight does not primarily come from prediction, although it aims to help us play in the right future ballpark (rather than finding an exact spot in the one that is unlikely to be right). It is more a matter of making firms future oriented by helping individuals think about possible futures in ways so they arrive at shared views that support decision-making. Based on this co-constructed view, a variety of strategies can be explored under different assumptions for which the organization can develop a range of possible responses. This is the secret to foresight’s effect on performance, because it reduces reaction time, lead to better decisions, made in broader context and with greater confidence.
Our founding partner Prof. Dr. René Rohrbeck investigated in-depth with over a hundred interviews how major firms work on future preparedness. The result showed that the best-practice activities necessary for benefiting from foresight can be summarized in three sub-processes. These processes form a chain of activities, so is important to understand that overall effectiveness will be limited by its weakest link. The processes are:
- Perceiving – to capture signals of change, preferably before competitors. Today, however, filtering and interpreting information is usually a greater challenge than obtaining it. The understanding of unfolding trends needs to guide investments in technologies for the future and inform the next process step.
- Prospecting – means seeing forward, imagining what could be and form appropriate strategies that are robust (works in many different futures) and agile (easy to change as the firm learns more during execution). Only the best firms have embedded and structured methods for prospecting!
- Probing – is taking initial exploratory actions, such as working with selected start-ups, building a test facility, or launching probing ventures to learn more about new business fields. Many firms have formal practices for innovation and business development, but a common weakness is the degree to which they are directed based on the outputs of the preceding steps.
Many managers feel that prospecting is the most challenging part. Nevertheless, it is of key importance for connecting insight to action. They would also do well to aim for strategies where goal focus intensity is balanced with measures reducing the consequences of being wrong. Robustness and agility are two good ways for addressing the vulnerability of strategies that does not interfere with maintaining direction towards a promising future.
Foresight includes a variety of methods, formats, and tools that may help managers to take action despite VUCA, which is far better than inaction in a turbulent world. So take some time to lift the gaze, look forward and think about what could be! Keep options open and avoid painting yourself into a corner. Go on expeditions! Foresight is not only inspiring, it also pays off!
This is a repost of the original post at the KTH Executive School blog.
If you want to read some more:
- Bennet, N. and Lemoine, J. G. (2014a), “What VUCA Really Means for You”, Harvard Business Review, Vol. 92 No. 1.
- Beinhocker, E. D. (1999), “Robust Adaptive Strategies”, MIT Sloan Management Review, Vol. 40 No. 3, pp. 95–106.
- Dreborg, K. H. (1996), “Essence of Backcasting”, Futures, Vol. 28 No. 9, pp. 813–28.
- Gordon, A. (2009), Future Savvy – Identifying Trends to Make Better Decisions, Manage Uncertainty and Profit from Change, AMACOM.
- Hamel, G. and Prahalad, C.K. (1994), “Competing for the Future.” Harvard Business Review, Vol. 72 No. 4, pp. 122–28.
- Rohrbeck, René. Corporate Foresight: Towards a Maturity Model for the Future Orientation of a Firm, New York: Physica-Verlag, Springer, 2010.
- Slaughter, R. A. (1997), “Developing and Applying Strategic Foresight”. ABN Report 5, pp. 13-27.
- Vecchiato, R. (2012), “Environmental Uncertainty, Foresight and Strategic Decision Making: An Integrated Study”, Technological Forecasting and Social Change, Vol. 79 No 3, pp. 436–47.