How To Incorporate The Future Into Your Strategy
The future is uncertain, yet we act in some way or another toward our expectations of what may happen. This article explores tools and strategies to make better predictions about the future – to reduce uncertainty – and to prepare for it.
The future is – and will always remain – uncertain. Yet, most of our actions in the present are aligned to some prediction of the future. So what if we could predict the future with higher accuracy, leading to better actions in the present? This is where foresight comes into play.
Contents
The Art and Science of Foresight
In times of great uncertainty, it’s difficult to formulate strategies. We can’t draw on experience to address developments no one has ever seen before (more on that in the second part of this article). Yet the decisions we make now could have ramifications for decades.
How can we formulate strategy in the face of uncertainty?
The practice of strategic foresight offers a solution. Its aim is not to predict the future but to help organizations envision multiple futures in ways that enable them to sense and adapt to change. Its most recognizable tool is scenario planning. To use it well, organizations must imagine a variety of futures, identify strategies that are needed across them, and begin implementing those strategies now. But one-off exercises are not enough: We must institutionalize that process, building a dynamic link between thinking about the future and taking action in the present.
Learning From The Future
Based on the article by J. Peter Scoblic
Even before the Covid-19 crisis, rapid technological change, growing economic interdependence, and mounting political instability had conspired to make the future increasingly murky. Uncertainty was so all-encompassing that to fully capture the dimensions of the problem, researchers had devised elaborate acronyms such as VUCA (volatility, uncertainty, complexity, and ambiguity) and TUNA (turbulent, uncertain, novel, and ambiguous).
In response, many leaders sought refuge in the more predictable short term, doubling down on efficiency at the expense of innovation, favoring the present at the expense of the future.
Strategic Foresight
Strategic foresight offers a way forward. Its aim is not to predict the future but rather to make it possible to imagine multiple futures in creative ways that heighten our ability to sense, shape, and adapt to what happens in the years ahead. Strategic foresight doesn’t help us figure out what to think about the future. It helps us figure out how to think about it.
The most recognizable tool of strategic foresight is scenario planning. It involves several stages: identifying forces that will shape future market- and operating conditions; exploring how those drivers may interact; imagining a variety of plausible futures; revising mental models of the present on the basis of those futures; and then using those new models to devise strategies that prepare us for whatever the future actually brings.
Of course, strategic foresight also enables us to identify opportunities and amplifies our ability to seize them. Organizations don’t just prepare for the future. They make it. Moments of uncertainty hold great entrepreneurial potential to both exploit existing competencies and explore new ones.
How To Conduct a Scenario Planning Exercise
For the best scenario planning, it's extremely helpful to view time as a nonlinear concept. Humans tend to conceive of time as linear and unidirectional, as moving from past to present to future, with each time frame discrete. But attendees of successful scenario planning exercises took stock of trends in the present, jumped many years into the future, described plausible worlds created by those drivers, worked backward to develop stories about how those worlds had come to pass, and then worked forward again to develop robust strategies. In this model, time circles around on itself, in a constantly evolving feedback cycle between present and future. Once participants began to view time , they understood thinking about the future as an essential component of taking action in the present.
Here's how to conduct such a scenario exercise workshop:
Invite the right people: One of the chief purposes of a scenario exercise is to challenge mental models of how the world works. To create the conditions for success, you’ll need to bring together participants who have significantly different organizational roles, points of view, and personal experiences. You’ll also need people who represent the three powers necessary for any effective conversation about strategy: the power to perceive, the power to think, and the power to act.
Identify assumptions, drivers, and uncertainties: It’s important to explicitly articulate the assumptions in your current strategy and what future you expect will result from its implementation. Think of this scenario as your projected scenario – but recognize that it’s just one of many possible futures, and focus on determining which assumptions it would be helpful to revisit. Rafael Ramirez, who leads the Oxford Scenarios Programme, advises that in doing this you disaggregate transactional actors, which you can influence or control, from environmental forces, which you cannot. How might those forces combine to create different possible futures?
Imagine plausible, but dramatically different, futures: This can be the most difficult part of the exercise, particularly for those used to more analytical modes of thinking. Push yourself to imagine what the future will look like in five, 10, or even 20 years – without simply extrapolating from trends in the present. This takes a high degree of creativity and also requires the judgment to distinguish a scenario that pushes the envelope of plausibility from one that is completely unrealistic. Good facilitators can both prime the imagination and maintain the guardrails of reality.
Inhabit those futures: Scenario planning is most effective when it’s an immersive experience. Creating "artifacts from the future," such as fictional newspaper articles or even video clips, often helps challenge existing mental models. It’s also a good idea to disconnect participants from the present, so hold workshops off-site and discourage the use of phones at them.
Isolate strategies that will be useful across multiple possible futures: Form teams to inhabit each of your far-future worlds, and give them this challenge: What should we be doing now that would enable us to operate better in that particular future? Create an atmosphere in which even junior participants can put forward ideas without hesitation. Once the groups develop strategies for their worlds, bring them together to compare notes. Look for commonalities, single them out, and identify plans and investments that will make sense across a range of futures.
Implement those strategies: This may sound obvious, but it is the place where most companies fall down. Using scenario planning to devise strategies isn’t resource-intensive, but implementing them requires commitment. To couple foresight with action, leaders should set up a formal system in which managers have to explain explicitly how their plans will advance the firm’s new strategies. Realistically, foresight will not drive every initiative, but scenario exercises can still be valuable in several ways.
Ingrain the process: In the long run you’ll reap the greatest value from scenario exercises by establishing an iterative cycle – that is, a process that continually orients your organization toward the future while keeping an eye on the present, and vice versa. This ambidexterity will allow you to thrive under the best of conditions – and it’s essential for survival under the worst. Moving in a loop between the present and multiple imagined futures helps you to adjust and update your strategies continually.
Learning From Samples of One or Fewer
A summary of the classic paper by J. G. March, L. S. Sproull, and M. Tamuz
We mainly learn from experience. Sometimes, however, history is not generous with experience and historical events are unique enough to make accumulating knowledge difficult. The following section explores how we can still learn from events without having all the certainty we desire.
Don't Confuse Uncertainty and Risk
Uncertainty stems from our inability to compare the present to anything we’ve previously experienced. The economist Frank Knight famously argued that uncertainty is best understood in contrast with risk. In situations of risk, Knight wrote, we can calculate the probability of particular outcomes, because we have seen many similar situations before. A life insurance company, for example, has data on enough 45-year-old, nonsmoking white men to estimate how long one of them is going to live. But in situations of uncertainty – and Knight put most business decisions in this category – we can only guess what might happen, because we lack the experience to gauge the most likely outcome. In fact, we might not even be able to imagine the range of potential outcomes.
How Organizations Learn
Many organizations seek to increase the information extracted from their own limited historical experience by treating unique historical incidents as detailed stories rather than single data points. Stories have higher chances of leaving an impression that sticks and we learn more from them.
Additionally, extracting knowledge out of consequences of previous actions is a key component of learning. But long before an organization experiences many of the outcomes of a typical decision, it experiences a variety of collateral consequences associated with the making of the decision and its implementation. Learning and evaluation occur through these collateral experiences prior to outcome-based learning. For example, participants appreciate collateral experiences such as ‘‘a bold move’’ or ‘‘a good meeting’’ before such a consequence objectively manifests in reality. But beware of inaccurate collateral experience; When early collateral experiences are positive, organizations, like individuals, are prone to exhibit self-reinforcing decision behavior. Especially when outcome feedback is slow or unclear, an organization is likely to repeat decisions simply because it has made them before.
Simulating Experience
The sample size of historical events is typically small. To help increase the sample, we consider two closely related techniques for organizational simulation of hypothetical events: the first technique is to define and elaborate a class of historical non-events that can be called near-histories – events that almost happened. The second technique is to define and elaborate a class of historical non-events that can be called hypothetical histories – events that might have happened under certain unrealized but plausible conditions.
Beware of The Small Sample Fallacy
Small samples produce larger statistical artifacts. Within smaller samples, you have more deviation from the true statistical mean and extreme sample draws are more likely to happen. You will find both the best and the worst results within small samples. If you're then trying to give a causal explanation for events that are a product of random chance, you are going to make a mistake, because you're trying to attribute a cause to something that has no cause.
The failure to recognize small sampling effects for what they are and our tendency to attach plausible, causal explanations to these effects and then act on these explanations is called the small sample fallacy. So beware of small samples.
Near Histories
If a relatively small change in some conditions would have transformed one outcome into another, a different near-history would have unfolded.
Air traffic systems illustrate how organizations learn from near-histories. By collecting information about near-accidents (i.e. events where a small change would've led to dramatically different results) from pilots and air traffic controllers, air safety reporting systems considerably enlarge the sample of events that can be treated as relevant to understanding aviation safety. Information on near-accidents augments the relatively sparse history of real accidents and has been used to redesign aircraft, air traffic control systems, airports, cockpit routines, and pilot training procedures.
Hypothetical Histories
Understanding a historical event's underlying distribution and mechanism allows to imagine events that might have happened under certain unrealized but plausible conditions. These hypothetical histories can be treated as having interpretive significance comparable to, or even greater than, the history actually experienced and further increase the sample size of events.
Learning From Small Histories
Bewate that many of the techniques organizations use to learn from small samples of history can lead to learning false lessons, to superstitious learning, to exaggerated confidence in historical understandings. Neither reliability (i.e. the reproducability of learning) nor validity (i.e. the "true-ness") is assured.
It's hard to learn and we are prone to reinforce our existing beliefs due to our confirmation bias. The confusions of history often obscure what happened, why it happened, and how we should learn from it. Learning processes sometimes result in confusion and mistakes.
But, the authors believe that usable knowledge can be extracted from fragments of history and that intensive examinations of individual cases can be used imaginatively to construct meaningful hypothetical histories. Organizations expand their comprehension of history by making experience richer, by considering multiple interpretations of experience, by using experience to discover and modify their preferences, and by simulating near-events and hypothetical histories from sample sizes of one or fewer.
Thank you for reading this far and I hope this article serves you well. To me, the work by the cited authors has been a very interesting read. Even though I was familiar with scenario planning, I didn't give it much weight before. Yet, the research illustrate proven benefits and tactics in ways that I wasn't previously aware of. May it also be helpful to you!
– Dominik
Sources
J. Peter Scoblic
Learning from samples of one or fewer – J.G. March, L.S. Sproull, M. Tamuz
All of the content on here is original, and was researched and written by me, Dominik Maglia.
