The fine print always reads “Past performance is not indicative of future results”, yet why do we lean so heavily on past performance when it comes to developing our strategic plans? Many organisations today seek to become better decision makers using data and to ultimately improve their strategic outcomes, but it is important to recognise the limitations that predictive analytics has when it comes to strategy development.
A fundamental problem with this approach is that these data sources rarely contain the features of data that might predict the so called black-swan events that could disrupt our best laid plans. Even if we had the perfect data set that could predict the black-swan’s arrival, it would not tell us anything about what we should do about such an event, and one would argue that conversation is what strategy is all about.
Such data-driven predictions are often built up from a set of assumptions that have a very short shelf life, and as time goes on, the assumptions tend to drift from reality and the prediction becomes less useful. The assumptions also bring along any hidden biases in how data is collected, the model's design, and the way we interpret things. This can make the predictions inaccurate right from the start.
We know that the complex interactions of today’s hyper-connected world can also give rise to nonlinear and unexpected outcomes and an over-reliance on quantifiable data neglects important qualitative factors which are the heart of the decision-making process. Sure, there is comfort is showing numbers. This often feels like we’ve done our due-diligence and can point to the “facts”, but this leads to an overly narrow view that fails to capture the full range of possibilities and risks.
To overcome these limitations and develop more robust strategies, organisations need to augment predictive analytics with foresight and futures thinking methodologies that can help anticipate and prepare for a broader range of future scenarios. In this article we’ll explore more about how to integrate foresight into the strategic planning process and provide practical guidance for implementation.
Importance of futures thinking in strategy development
The ability to anticipate and prepare for potential future scenarios is becoming a critical component of effective strategy development. Futures thinking enables organisations to look beyond traditional forecasting methods and short-term planning to navigate the uncertainties and disruptions which undoubtedly lie ahead.
Consider this graphic which shows the difference between forecasting and foresight:
Organisations that use futures thinking outperform those that do not. In this study, the authors found that out of a cohort of approximately 50 mid-sized enterprises in Europe saw, on average, 22% higher profit and 200% higher growth for firms that applied futures thinking vs. those that did not. In another benchmark, the authors found that becoming vigilant about the future offered a 44% increase in the odds of becoming an outperformer in your sector.
Futures thinking builds capacity within an organisation to be more agile and innovative while reducing risks and uncertainties. By having a more tangible view of the futures, these organisations also have better decision-making processes and alignment with long term objectives.
These organisations can use creativity and imagination to extrapolate trends, anticipate value shifts and explore a range of possible future scenarios from which they can then test and refine their strategic plans. Predictive analytics becomes one kind of trend that is enhanced by other views of political, social, technological, environmental, and economic trends. Futures thinking provides the methodology for navigating the uncertainty and complexity, enabling them to make more informed decisions, capitalise on emerging opportunities and ultimately achieve long term success.
Methods for futures thinking.
Futures thinking or strategic foresight as a rich history and academic background with several methodologies available for addressing different sorts of problems. This article will explore some of the most popular and effective methods available for organisations to use today.
Trend and Horizon Scanning
Trend and horizon scanning are somewhat synonymous, but depending on how academic you wish to be, there are some differences. Both focus on looking at the external environment – the world which is outside of the organisation – for indicators of change. One difference may be that horizon scanning may focus on looking at when the change may happen, and trend scanning may just focus on the change itself.
In both cases, a scan of trends, emerging issues and drivers of change are examined across several domains. Traditionally scans are collected into Social, Technological, Economic, Environmental and Political domains, but some trend analysis frameworks have additional or different domains. The important thing is to cover a wide range of sources for change as it is often the interactions across these domains that drives disruptive change.
It is also important to consider why the change is happening. Is it related to new technological development? If so, then what? What will happen if this technology is widely adopted? Perhaps it is due to an underlying value-shift? Or the emergence of a new regulatory authority. What could that mean in the future? Understanding the implications of these trends is the key activity no matter which framework or approach used.
Many organisations conduct regular trend scans and then socialise them within their organisation to increase their future preparedness and overall futures thinking capacity.
Scenario Planning
Scenario planning is a structured process that involves envisioning multiple plausible future scenarios based on key uncertainties or trends. The scenario planning process often involves a thorough trend analysis phase to better understand the key uncertainties and trends used to help generate the scenarios.
Scenarios help organisations understand the potential consequences of different events and decisions, enabling them to develop more robust strategies. By exploring various scenarios, organisations can better identify potential opportunities and threats, as well as develop strategic responses to mitigate risks and capitalise on new developments.
In this approach, a set of scenarios are developed which describe a potential future as a narrative or story. These stories can take various forms, everything from a few paragraphs of text, to staged artefacts from the future. Stakeholders can then imagine themselves in these futures and use this perspective from which to make informed decisions and actions to today, to bring about their preferred future rather than just what might be probable.
Prediction markets and the Delphi method
Organisations with strong predictive analytics capabilities may wish to explore prediction markets which are a modernisation of the Delphi method.
The Delphi method is a resource intensive structured forecasting technique which relies on the collective judgment of experts to make predictions about the future. This method involves conducting multiple rounds of anonymous surveys, where experts are asked to provide their opinions and insights on specific issues. The results are aggregated, and experts are then given the opportunity to revise their opinions based on the group's feedback. The process is repeated until a consensus is reached.
The problem with the Delphi method is that is it extremely resource intensive and can only address a narrow set of issues at any one time. It is best used for long range / long term forecasts about particularly disruptive technologies.
Prediction markets, like Metaculous, have built a more modern and scalable approach to the Delphi method which can be useful for certain trends and emerging issues. Prediction markets harness the same collective wisdom as the Delphi method, but often use gamification or other scoring mechanisms to ensure that experts are providing their best and most informed predictions.
Integrating futures thinking and predictive analytics
The power of futures thinking and predictive analytics lies in their ability to complement each other in the strategy development process. By integrating both approaches, organisations can harness the strengths of data-driven insights and long-term thinking to create adaptable and resilient strategic plans. Here are some ways to combine futures thinking and predictive analytics:
Inform foresight exercises with predictive analytics
Predictive analytics can provide valuable insights for futures thinking methodologies, helping to identify trends, patterns, and correlations in historical data. This information can then help the development of scenarios and provide rich trend and horizon analysis.
For example, by analysing customer behaviour patterns, organisations can identify emerging preferences and incorporate them into their scenario planning exercises.
Use foresight to guide predictive analytics
Foresight and futures thinking can help inform the selection of data sources and models used in predictive analytics by highlighting the potential areas of interest or concern. This can ensure that the predictive models are focused on the most relevant factors, leading to better and more accurate predictions.
Create a feedback loop
Establish a continuous feedback loop between futures thinking and predictive analytics, allowing the organisation to refine and adapt strategic plans based on new insights and changing circumstances.
Foster collaboration and cross-functional engagement
Encourage the collaboration of foresight practitioners and data scientists, and other stakeholders in the organisation. Cross-functional engagement can help bridge the gap between predictive analytics and foresight, promoting a more comprehensive understanding of potential future scenarios and their implications.
Leverage technology and tools
Use advanced tools and technologies such as machine learning and artificial intelligence to enhance both predictive analytics and foresight efforts. These technologies can help organisations analyse vast amounts of data more efficiently and effectively, uncovering new insights and trends to help inform strategic planning.
By effectively integrating foresight and predictive analytics, organisations can create a more robust and adaptive strategy development process. This fusion of data-driven insights and long-term thinking will enable companies to better anticipate and respond to future challenges and opportunities, ultimately gaining a competitive edge in an increasingly complex and uncertain business landscape.
Building a futures thinking culture
Organisations that are more future prepared outperform those that are not. This future preparedness has everything to do with their culture, not in getting once-off reports which sit of a shelf somewhere. To truly capitalise on the potential of futures thinking, organisations must work towards cultivating a culture that values and supports foresight-driven decision making. Here are some approaches to help build a foresight culture:
Promote long term thinking
Encourage employees and stakeholders to think beyond short term goals and immediate challenges. This can be achieved through setting long term objectives, emphasising the importance of sustainability, and ensuring the strategic planning process incorporates a longer time horizon.
Nurture curiosity and innovation
Build a culture and environment where employees feel comfortable questioning assumptions, exploring new ideas and experimenting with novel approaches. Encourage continuous learning and knowledge sharing by providing opportunities for training, workshops, and cross-functional collaboration.
Develop foresight capabilities
Invest in developing skills and capabilities for effective foresight and futures thinking, including scenario planning, trend analysis and horizon scanning. Consider online options from the Institute For The Future and TFSX.
Support from leadership
Leadership, of course, plays an important role. It is essential that top management actively demonstrates their commitment to foresight by incorporating into their decision-making processes, allocating resources to foresight initiatives and promoting its benefits to the organisation.
Foster adaptability and agility
Cultivate a mindset that embraces change and uncertainty as opportunities for growth and learning. Encourage employees to be flexible in their approach to problem solving and be willing to adjust their approach when new information or insights emerge.
Establish feedback loops
Regularly review foresight initiatives, considering changes in the external environment and the emergence of new trends or insights. Source input from a range of stakeholders to provide feedback and perspectives on emerging trends and potential future scenarios.
Celebrate success and learn from failure
Recognise and reward foresight driven successes and treat failures as opportunities to learn. Share case studies and best practices from a range of organisations build a shared understanding of the value of foresight and its role in strategy development.
Case studies and success stories
There are several examples of organisations using futures thinking and foresight to gain competitive advantage or to work through disruption. Some notable examples are:
- Siemens – used foresight and scenario planning to anticipate changes in the energy and industrial sectors, helping them develop innovative solutions and technologies that address emerging challenges.
- IBM – used foresight to shift focus from hardware to software and services, allowing the company to maintain a strong competitive position in the rapid changing technology landscape.
- Proctor & Gamble – applied foresight to anticipate consumer trends and preferences, enabling them to develop new products and adapt their marketing strategies accordingly.
More case studies are emerging all the time as futures thinking and corporate foresight become more popular. See more here: Corporate foresight - Wikipedia
Practical steps to start futures thinking today.
Incorporating futures thinking into your strategy development may seem challenging, but there are some practical steps that organisations can follow to ensure a smooth transition. Here are some thoughts and recommendations:
A dedicated team?
Many large enterprises have dedicated foresight teams who are able to create a centre-of-excellence and provide valuable insights to decision makers. However, this is perhaps one of the most contentious issues, especially for small to medium sized organisations is the establishment of a dedicated foresight team. For many organisations this is just not possible due to resource and budget constraints.
Even for large organisations, a dedicated team attracts scrutiny and can become a victim of cost cutting in the future. And there also emerges the problem of the foresight team running into barriers from other teams in the organisation who wish to maintain the status-quo.
A more effective option, although slower and with less immediate impact, is the embedding of foresight practitioners into the organisation at all levels, and then leveraging these practitioners to build a culture of foresight.
Foresight in planning processes
Incorporating foresight into planning processes, rather than having separate foresight initiatives, can help gain organisational buy-in and strengthen the development of a foresight-oriented culture. By augmenting existing planning processes, foresight can also be more consistently applied to across the organisation.
Training and education
Provide training and resources to help employees understand the importance of foresight and how to use various foresight methodologies. Consider some of the online courses mentioned above.
A regular cadence
Schedule regular foresight exercises such as scenario planning or horizon scanning sessions to keep the organisation focused on the future and prepared for potential change. Review and update scenarios and strategic responses periodically to ensure they remain relevant and actionable.
Collaborate with partners
Engage with experts such a futurist, industry associations and research institutions to gain access to valuable insights, trends and perspectives. Build a network of trusted partners that can help the organisation stay informed about emerging trends and help you anticipate future changes.
Monitor and measure the impact of foresight
Consider establishing metrics or KPIs that track the effectiveness of foresight activities. This can help refine methods and gain buy-in from stakeholders by demonstrating the value of these activities.
The impact of futures thinking
The rapidly changing business environment demands a shift from traditional strategic planning to embrace foresight and futures thinking in strategy development. By integrating foresight methodologies, organisations can better anticipate potential future scenarios and proactively adapt their strategies.
This shift in thinking should not stop at the board or executive level, rather it should be a cultural transformation as cultivating a culture of futures thinking enables organisations to become more agile, resilient, and competitive in the face of uncertainty and change.
As we move into an increasingly complex and interconnected world, futures thinking will be a critical asset in navigating the challenges and seizing the opportunities that lie ahead.
Photo by Mikhail Nilov: https://www.pexels.com/photo/charts-and-graphs-on-paper-on-a-clipboard-9304917/
