What’s NXT: Why Companies that Work with Foresight are Leading
The world around us is full of clues. They point us to changes that may happen in the coming years and decades and could alter the rules of the game for many. Entire industries can be revolutionized by what a small company does in a garage. Given that these revolutions seem to be accelerating, organizations have developed special tools to stay ahead of the game.
But first let’s look at some of these clues.
On August 18th Swedish steelmaker SSAB announced they had officially produced and delivered the world’s first fossil-free steel. This is a huge leap forward for an industry that generates about 9% of global greenhouse gases. Before we had emissions goals, now we also have a minimum viable product demonstrating that it’s possible. Is this a sign that a new era of disruption has begun in the heavy industries? How long until cement– also a notably carbon intensive industry – follows suit? Should those who use, purchase, or sell anything related to steel consider what fossil free alternatives could mean for them?
Another remarkable clue on the topic of carbon emissions, is the price of a ton of CO2 in the European market reaching an all-time high and surpassing €60 for the first time in history. While it may not seem like much on the surface, it has massive implications for the industrial landscape. If it’s more expensive to emit than to invest in R&D, companies will start looking for alternatives. According to the International Energy Agency, surpassing 60€ per ton means carbon capture technology becomes financially viable for industries like power generation, cement as well as for iron and steel. Could this be a direct competitor to fossil-free production? Does it mean carbon capture could become the next big oil?
Finally, what about Tibber? It’s a recently formed company that sells energy directly to consumers with a twist: not only has it modernized energy consumption and brought much more transparency to its users, but it has also gamified energy savings. Because of their business model, they incentivize users to save energy. This is not a small deal. It means their goals are not necessarily aligned with those of energy companies whose main objective has generally been to produce more, but encourage a sustainable consumption behavior. If people become better at lowering their energy consumption on the household level, the consequences at the city or even national level could create massive opportunities if we have more energy left over.
All these clues - whether it’s a newly demonstrated fossil-free steel fabrication process, the rise of the CO2 price or a new business model for energy consumptions, are what we call spottings. Keeping an eye out for these signs can help harvest opportunities. But they can also help organizations steer clear of risks: Toys R’Us is just an example of a company that failed to notice early signs of consumers using e-commerce. We use these spottings as clues to anticipate future directions and identify clear trends. They are the foundation of strategic foresight.
What does the foresight research say?
Do companies that work with foresight even perform much better?
Strategic foresight has grown into a standard practice for many firms most of us know today, including Siemens, Pepsi, Deutsche Bank, Boeing, SEB and Apple.
Dr. Rohrbeck – one of the world’s leading researchers on strategic foresight – and his colleague Dr. Ménès Ethingue Kum wanted to quantify the results of foresight strategies.
They had one problem though: almost no academic studies had measured the actual impact of foresight on firm performance. And that’s perhaps not very surprising considering that measuring such strategies needs to be done over several years. But to do just that they had to create a whole new model to make sure they could distinguish the effect of foresight from other factors affecting the performance of companies – a common challenge in research.
So they decided to distinguish between two aspects: foresight maturity (i.e. how advanced is the current foresight process in the firm) and foresight need (i.e. how much foresight does the firm require). This they argue, is important to consider because not all organizations operate in the same environment: some are extremely dynamic, fast-paced and with a lot of competitors, others are slower with fewer competitors and less frequent change.
Watch out for Managerial Hyperopia
In short, a firm can have an optimal level of “future preparedness” if its foresight needs are matched by its foresight maturity. Now I imagine your first question to this is: what if an organization’s current foresight practices exceed its needs? Surely, shouldn’t this translate to even better results? Interestingly, the answer seems to be no. Previous research in the field by Day and Schoemaker in 2005 identified a practice in which top management is so concerned with the distant future that they fail to consider the activities closer in time – a rare but real state known as “managerial hyperopia”.
With the concept of “future preparedness” however, Rohrbeck and Kum were able to create a new lens through which they could evaluate performance. They decided to look at two factors: profitability and market capitalization growth. By determining the level of future preparedness of firms in their sample and using data from 2008-2015, they could track how profitability and market capitalization growth developed over this period and investigate the importance of level of future preparedness.
Why foresight makes organizations better
First and foremost: they concluded that there was strong evidence that foresight has a positive effect on company performance. Those who did have systematic foresight processes (i.e. vigilant firms) had 33% more profitability and a staggering 200% higher market capitalization growth – and remember, this was measured over a 7 year period, which is enough time for foresight strategies to kick in. But this is not the only finding.
One of the most relevant aspects about this research is not only that it confirms that foresight is efficient, it also shows that consistency is the key to unlock this efficiency. Even if the number of firms who had very systematic processes was limited, those who did and who stuck with them did on average significantly better than others. Out of all the companies that were considered “vigilant” in the study (i.e. whose foresight maturity matches their needs, in other words those with efficient and systematic processes), 40% became outperformers on the economic metrics and 55% of them remained stable. Only a small 5% fell to the bottom on economic performance.
Compare this to how foresight deficient firms did. Only 10% moved up to become overperformers (4x less), most remained stable while 24% had become underperformers over the course of 7 years – that’s 5x more than vigilant firms.
What about organization that are not measured by profitability then, such as government agencies or non-profits? If we break down the results from the study on a more basic level, profitability and market capitalization growth are really just two indicators of how well an organization is playing by the rules of our current economic paradigm. So, what the results fundamentally mean, is that foresight makes organizations better at navigating the world they are embedded in. Just like a cyclist having to skillfully navigate a street busy with pedestrians, organizations – no matter their objectives, must navigate complex landscapes, watch out for major obstacles and prepare for their future. It is a fundamentally a process for all types of organizations and in fact, the foresight process didn’t start in the private sector: it has its roots in military planning for war scenarios. Seeing the value in navigating uncertainty, companies began using foresight as well.
How you can implement foresight
If by now you’re wondering where to get one of those strategic foresight processes, look no further. We at Kairos Future have developed various tools to get your foresight process up and running. They are digital version of our entire foresight methodology, available both through virtual whiteboard (for those of us who are visual) and through Co:tunity, our in-house collaborative foresight tool.
With clear instructions and short videos to guide you through the entire process, it’s almost DIY foresight. You can use Foresight Workspace if you enjoy whiteboard and Co:tunity if you are looking to involve a greater number of people. The process goes like this: gather spottings and extract the underlying trends out of them to help you sort out the signal from the noise. If you want to take it even further, we’ve made it easy to build strategies and scenarios around this material as well.
Some learnings from the study:
- Systematic use of foresight led to 40% of companies to become economic overperformers and just 5% becoming underperformers
- No use or wrong use of foresight led to only 10% of company become economic overperformers and almost 25% falling to the underperformer category
- Foresight led to an increase in 33% profitability
- Foresight also led to a staggering 200% growth in market capitalization
- Keeping an eye out for early signs is key is building a robust foresight process
- The single most defining factor is having a systematic process
- There are ways of making sure you are using the right amount of foresight
For over 25 years, Kairos Future has been developing methods and tools for strategic foresight and innovation. If you want to know more, please contact Olivier Rostang.