The business case for foresight.
In most areas of business, long-range predictions at a high level of accuracy are difficult due to global uncertainty and volatility. In static market situations, data points readily available from inside and outside the company may be valuable. However, in rapidly changing circumstances, past data is insufficient for planning.
The use of historical data to make informed decisions about future actions is a common practice in the world of business. However, past performance cannot always be used as an indicator of what will happen next because there are too many factors that can change without warning or reason-giving explanation beyond "this happened before."
Foresight isn't meant to be a substitute for historical data-driven forecasting. Rather, foresight is beneficial in managerial planning when the rate of change makes traditional data unsuitable as a predictor of future behavior. Foresight uses a range of techniques to create a vision of possible, probable, and preferable futures, allowing management to make decisions with more confidence and greater reliability.
Foresight differs from strategic thinking — it's more creative and inventive, and it considers a broader range of possible outcomes. Foresight also has a component that strategic thinking does not require: an action-oriented aspect. It supports leaders to become more comfortable with their capacity to anticipate what may happen next and take action across a wider range of futures.
How do we know foresight works? Let's look at some of the ways foresight has been shown to deliver results in business.
The top five.
In their 2014 research paper "What corporations do with foresight."(1) Hammoud, M.S., Nash, D.P. identified the top five ways that foresight helped organisations as:
1.You can shape your future.
Foresight, by examining a range of alternate futures, allows decision-makers to determine what they can influence, to determine the proper plans for moving forward, to ensure staff understand how they contribute, and to prioritise a course of action. In embracing foresight an organisation's ability to shape futures improves dramatically.
2.Becoming more agile in your work.
Foresight helps organisations push beyond conventional thinking. This allows the organisation to get a head start on (a) anticipating significant changes and/or (b) seeing change opportunities in a positive light. As a result, organisations are more agile and have a greater ability to anticipate and take action as alternate futures emerge.
3.Making your organisational alignment stronger.
Foresight planning helps to break down the barriers between different parts of an organisation. usually, different people and functions are tracking changes in society, technology, economics, the environment, and politics (STEEP). But because they are working in isolation, the insights that are generated remain disconnected. People who work in marketing keep track of the latest social trends to see how they are affecting consumers and markets. People in the IT department stay up to date with the latest technology trends. The people who work on legal issues stay up to date with political and legal issues. And people involved in strategic planning keep track of economic trends that impact the industry and main players. With a foresight project, there is a specific advantage in coordinating the collective insights and knowledge gained from foresight activities to consider futures that may appear. Foresight enhances alignment across the whole organisation.
4.Making your company look better in the eyes of your customers.
Plans built with foresight can, when shared with customers, have the potential to position the company in the customers’ mind as innovative or forward-looking. This change in perception can create a competitive advantage for the organisation as customers have a more positive view of its work and direction.
5.Learning to better identify growth opportunities.
Foresight projects can make the organisation aware of new business opportunities outside of the current business model. Foresight projects can help organisations be aware of new opportunities before their competitors. There is little to no downside to foresight projects for organisatons. These forward-focused activities provide early insight into upcoming changes, which ensure leaders have an enhanced framework for decision-making.
Improving long-term performance.
Published in 2018 the research paper "Corporate foresight and its impact on firm performance: A longitudinal analysis" by Rohrbeck and Kum(2) produced strong evidence for the positive impact of building foresight on organisational performance.
Using a seven-year time-lag and five different assessment approaches to overcome any limitations their analysis revealed that;
"future prepared firms (vigilant) had a significantly higher likelihood of making it (in)to the group of industry outperformers."
Their analysis revealed that organisations using foresight had a 33% higher profitability and a 200% higher market capitalisation growth when compared with the sample average. Organisations that failed to use foresight to prepare for what might happen next had to accept a 37% to 44% reduction in profitability compared to firms using foresight.
Highly useful for SMEs.
Finnish researchers Anne-Mari Järvenpää, Iivari Kunttu, and Mikko Mäntyneva conducted a comparative case study(3) of circular economy small and medium enterprises (SMEs) in Finland to understand "how companies foresee the future, and how foresight activities affect their business development." They chose to research SMEs because they "typically have narrower capabilities for future forecasting and strategic planning than larger companies."
Their research identified that for SMEs operating in, or close to the circular economy, the future demands of changing legislation and regulation, consumer buying behavior, and environmental consciousness will have a strong impact on their futures. As a result, there will be many business opportunities, as well as several challenges emerging. Challenges included getting the timing right for making decisions in this new operating environment such as; when and how to scale up a firm's capacity; when to anticipate pay-off for investments; and measuring the degree of demand and supply in the market. Opportunities included the expansion of business possibilities including the exploration of new cutting-edge technological solutions, the implementation of innovations, and new service innovation.
To exploit the opportunities and mitigate the challenges the paper recommends using foresight to SMEs as a management priority. The discipline of foresight in identifying and evaluating trends, signals, and issues from all areas of the STEEP operating environment gave SMEs additional capability to deliver stronger results. The research showed that SMEs would benefit greatly by including the processing and sensemaking of foresight as one of their key strategic activities and to actively use this data in planning and decision-making for impact and future growth.
First-mover competitive advantage.
Richard Vecchiato explored the relationship between corporate foresight and the capability of an organisation to respond successfully to external changes in his paper "Creating value through foresight: First-mover advantages and strategic agility."(4)
He noted:
"Among the most critical challenges in business is creating strategy for the future — particularly in the case of an organisation that is doing well. How do we know what we have to do next?"
Vecchiato uses the concept of "memory of the future", developed by Prof. David Ingvar(5) to explain how the human brain deals with the future. These "memories of futures" that leaders develop through the process of building foresight go hand-in-hand with their "memories of the past,". The "memories" can then be used together as they are confronted with change that they had not previously encountered. It is this strong combination of "memories of past and futures" that improves decision-making and the ability to exploit opportunities and mitigate risks.
By consciously engaging with foresight tools and systems leaders can "memorise" future opportunities and risks to identify drivers of change in their external environment and consider the first-mover advantages these changes may provide. They do this by “hearing” and "making sense" of the relevant signals that encourage first-mover advantages, such as technological capabilities, unique assets, and changes in customer behaviour. A competitive advantage is gained by adapting to the ever-changing operating environment faster and more efficiently than competitors.
Nokia - a case of foresight success and failure.
The Finnish technology company Nokia, which in the early 2000s successfully adapted to deep changes in its industry, provides a classic example of the benefits and challenges of foresight. (Fun fact: Nokia began operations in 1898 as a manufacturer of rubber boots.)
Nokia established a formal and systematic approach for performing strategic foresight in the year 2001. As a result, Nokia was able to anticipate key market developments more than six years before they occurred and invested heavily in 3G (the third generation of wireless mobile telecommunications technology), producing successful products with a technological edge over its competitors. It also invested heavily in software, providing an integrated solution for customers and escalating its brand awareness against more traditional players. Nokia was at the forefront of the convergent market – it recognised the potential for this new wave of technology years ahead of other firms and took advantage of this first-mover advantage. Other leading firms were slow to realize the implications of these deep changes for their markets and many failed to take advantage of opportunities.
Nokia, however, was unable to anticipate the more dramatic and exponentially greater changes resulting from the combination of cloud computing and mobile devices. This failure of its foresight program to identify these changes put Nokia at a significant competitive disadvantage compared with companies such as Apple and Samsung who were able to exploit these deep changes.
Nokia failed because it did not anticipate correctly the changes in its overall market. In particular, it overestimated customer demand for mobile phones and cameras as separate items and underestimated the impact of the changing role of mobile phones from a communications tool to a computing platform.
Nokia's experience highlights both the importance and limitations of foresight. The company succeeded in leveraging first-mover benefits in the convergent market, but it missed opportunities to anticipate even greater future changes.
Foresight can help leaders identify potential future opportunities and threats. These benefits can be diminished or stopped by a lack of capacity and capability, as well as biases, to sense signals of change as well as the full range of future scenarios that may unfold.
Today's critical business tool.
Foresight is a critical business tool for today because it helps organisations to identify potential future opportunities and threats, adapt to rapidly changing and uncertain environments, and make better decisions. Foresight can help leaders understand the potential implications of deep changes in their industry or market, and enable them to maximise first-mover advantages. However, foresight is not without its limitations – it can be difficult to anticipate all potential changes, and leaders may be biased in their decision-making ability to sense signals of change. Nevertheless, foresight remains a critical tool for businesses that want to thrive in a fast-changing world.
The best way to implement a foresight project will vary depending on the organisation and the specific context in which it is taking place. However, there are some key considerations that organisations should keep in mind when planning and implementing a foresight project.
Firstly, foresight thrives on diversity. It is important to ensure that the foresight process is participatory and inclusive so that all stakeholders have the opportunity to contribute their insights and ideas. This can be done through a variety of methods, such as focus groups, interviews, surveys, or workshops. It is also important to ensure that the foresight process is constantly evolving and responsive to changes in the environment so that it can capture new insights and trends that may emerge over time.
Secondly, it is important to ensure that the process of identifying future opportunities and threats is carefully tailored to meet the specific needs of an organisation. For example, some organisations may be more interested in long-term opportunities to explore and evaluate, whereas others might want more immediate data on trends, signals, and issues in play. Some organisations may be more focused on specific regions or industries, whereas others might be interested in a more general global view.
Finally, organisations need to invest in processes that enable them to adapt their plans and operations to the potential changes identified by foresight. This may involve developing new products and services, training existing employees with new skills, hiring new talent for future needs, and planning for new technology. This requires a shared understanding within the organisation to ensure that stakeholders can work together to address future challenges and capitalise on future opportunities.
With foresight, futures look clearer, and organisations have a stronger ability to plan and make decisions for impact and future growth with more confidence and greater reliability. Foresight is the critical business tool for now.
References.
(1) Hammoud, M.S., Nash, D.P. (2014) "What corporations do with foresight." Eur J Futures Res 2, 42 (2014)
(2) René Rohrbeck, Menes Etingue Kum, (2018) "Corporate foresight and its impact on firm performance: A longitudinal analysis." Technological Forecasting and Social Change, Volume 129, Pages 105-116.
(3) Järvenpää, A. - M., Kunttu, I., & Mäntyneva, M. (2020). "Using Foresight to Shape Future Expectations in Circular Economy SMEs". Technology Innovation Management Review, 10(7): 42-51
(4) Vecchiato, R. (2015). "Creating value through foresight: First-mover advantages and strategic agility." Technological Forecasting and Social Change, 101: 25-36.
(5) Ingvar, David H. (1994). "Motor memory – a memory of the future." Behavioral and Brain Sciences_ 17 (2):210-211.
