In our second article in the series, we discuss corporate foresight and show how a well-developed understanding of this phenomenon can be used by the organisation to gain a preferential position over its competitors. First, we need to dispell some myths about what is and is not foresight.
Foresight is not about envisioning the future; it is about careful and deliberate planning to detect any change that could have far-reaching implications – good and bad – for the organisation. It is an ability to spot discontinuous change early, interpret the consequences for the organisation and formulate responses to ensure its long-term viability and success (Rohrbeck, 2010).
There are different kinds of foresight – technology, strategic and corporate – of which the latter is discussed here. Corporate foresight is used to support strategic management, identify new business fields and, in a sense, the innovation capacity of a firm. There is an element of futurology, involving forecasting, forward-thinking and prospective hindsight (imagining that an event has already occurred), that combines with planning (strategic analysis and prioritisation) and networking (engaging an appropriate constituency) to determine perspectives and paths.
Foresight is necessary when working in markets and environments that are complex, volatile or where demand for growth exceeds normal limits. It involves a certain amount of scenario building to expose the possibilities and there can be many of them. The aim is not to predict the future – no one can do that – but to be able to see what others cannot. Other aspects of corporate foresight include peripheral vision, pace of change, ignorance and inertia and are discussed below.
As the term implies, it is about vision that occurs outside the centre of gaze. Quite literally, there can be so much focus on what is going on that there is little chance of picking up what might be happening on the horizon. Everybody seems busy with what is in-front of them. Horizon scanning – environmental scanning is another term – is a common tool in corporate planning that stands alongside scenario analysis. It involves the systematic examination of potential threats, opportunities and likely future developments which are at the margins of current thinking and planning. Horizon scanning can cover persistent problems or trends, as well as exploring novel or unexpected events and issues. Recording them accurately and feeding them to managers who can use them to inform decision-making is the next step.
Staff of the insurance company, Equitable Life, used to boast that they had been around since 1762. They were not the last to believe that the past was an unquestionable guide to future performance. The closure of books to new business and outright failure of some institutions have destroyed that myth. In other sectors, names that were once synonymous with individual products are gone or are in serious decline, Kodak is an example. The real lesson does not lie so much in a ‘hall of fate’ but in the examples of those organisations that have become hugely successful in fields away from their origins. Once derided for their audacity, they have become recognised as exemplars of firms that detected that change in the environment or who saw a disruptive technology in the making such as Nokia for example. As opportunists, we should laud their ability to adapt, by having sensed a changed and then seized upon its potential to marshal the resources and competences needed to exploit markets. The lumbering giants – the incumbents – regarded these ‘Johnnies-come-lately’ with contempt. Those agile competitors have now assumed much of the power.
In the FSS, there is scope to latch on to changes that initially would seem to fall outside the normal run of business. The sector’s move into low carbon is an example of how opportunities can open up. Low carbon financial services include investment in carbon trading, carbon offsets, green or clean technology indices, socially-responsible investment funds and in providing capital for investment in new and cleaner technology. The opportunities for the sector can therefore be seen in terms of sources of finance and investment for firms committing to low carbon futures and carbon trading, as well as their own needs in carbon reduction.
Pace of change
The speed with which change is occurring in technology and, especially, in the diffusion of technological innovations is staggering. Globalisation has helped to accelerate the changes and they in turn have led to yet greater globalisation in terms of products and their markets. Product life cycles are fractions of their 1990s and early 2000s equivalents. New products (and many services too) cannot afford the time their predecessors had to take root in the marketplace. Either they sell and sell soon, or they have to be withdrawn. In the past, knowledge of new products and services, or rather the lack of it, meant that some gestation period was necessary as awareness in the market built up and sales started to flow. Today, it is not necessary to know that something exists in order to find it. For some products and services, if it is out there customers will find it and quickly. Moreover, they will be able compare with competitors’ products and services to determine the preferred option.
Ignorance – loss of corporate sightedness
Knowing what is happening on the periphery of the organisation and on the wider horizon comes easier to some organisations than others. Highly-structured corporate environments must of necessity build in formal mechanisms for horizon scanning otherwise it simply will not happen. Another of the features of the highly-structured environment is that is intended to withstand all attempts to change it. Mintzberg and Waters (1982) did not apply the machine metaphor without good reason. The rigidity that comes with it is a particular strength, but it is a serious weakness especially when short time-frames are involved and agility is needed. Corporate strategic planning cycles might simply be too long to cope with the pace of change and so the organisation misses out on yet another prospect.
A further weakness is the inherent resistance to learn, unless applied through directives from the higher levels and even then they leave little room to manoeuvre at the middle and lower levels. Other behaviour that results in this corporate loss of sight is the plethora of information that often prevents senior managers and executives from assessing potential impacts, even if the information reaches the appropriate management level. Middle managers, intent on preserving their area of operations, can be the real culprits by systematically filter information. In time, the organisation’s management risks being so far adrift from where it needs to be that radical action is likely to be the only way forward.
Inertia – organisational reaction to change
Assuming that the organisation is structured in ways that enable it to sense where opportunities lie, it might be prevented from doing anything about it for other reasons. Resistance to change is an ever-present feature that can be enshrined in processes and procedures designed to lock-out anything new or non-compliant. Internal structures might be so complex that the opportunity either falls into the cracks between rigid compartments or is simply added to the bottom of the list of jobs to be done. Understanding, or rather the lack of understanding, external structures such as supply chains can further frustrate attempts to move forward (strengthening the case for strategic supply partners to be brought more into the corporate fold).
New business generally means that existing businesses and the units that manage them have to be reconstituted or cannibalised. There is normally not the time or money to spin-off new business that can start with a clear sheet. A further trap is in being wedded to current technology that is familiar, even if it has shortcomings. Over time, people tend to overlook those shortcomings whilst reinforcing, even overstating, what few features are useful to the ongoing business. Without the appropriate technology platform and tools, the opportunity is likely to fall at the first fence.
The extent to which organisations have developed (or matured) their capabilities within their chosen business fields can be subject to measurement from which it is possible to compare performance. Comparison can take place within an organisation or among a group of similar bodies. A capability maturity model (or, more correctly, capability maturity model integration) is the expression of the progression that is possible for an organisation. The purpose of capability maturity model integration (CMMI) is to help organisations improve their performance. CMMI can be used to guide process improvement through a project or across an organisation or even a part of it.
At the Initial level (1), the organisation’s processes are unpredictable, poorly controlled and reactive. At the Managed level (2), processes are characterised for projects and the organisation often remains reactive. Extending process definition across the organisation and acting proactively is signified by the Defined level (3). This level is also significant for being able to hand back standardised processes to projects, thereby ensuring consistency from top to bottom. Improvement (maturation) beyond here occurs when processes are measured and controlled which results in the achievement of the Quantitatively managed level (4). Having reached a steady state, with full cognisance of current capability it is possible to consider improving processes. The final, Optimising level (5) is then achieved.
Organisations that have merged often find themselves at Level 2 Managed. Projects are mounted to align processes and it is usually only when that has been achieved that the merged organisation can set its sights on advancing to Level 3 Defined. The 2009 merger of the Britannia Building Society and The Cooperative Financial Services illustrates this position well. Connecting one bank with the other’s mainframes was the first task, followed by a programme to align process and modelling standards to link business processes and IT. Smaller, boutique banks are more likely to have reached Level 3 Defined and, in some cases, Level 4 Quantitatively managed.
Another way of considering capability maturity is to examine the type of information that is collected by the organisation, how it is used, the methods it employs to interpret that information, how its people and networks use the information, and the extent to which the culture supports a future orientation (Rohrbeck, 2010). The emphasis on information is obvious, but the importance of other aspects appears to be overlooked. Information is clearly essential to any successful operation; however, it is the extent to which meaning can be derived from that information to enable it to sense and seize opportunities that is crucial to sustainable performance.
The conundrum of lessons learned
Managing information as knowledge would seem apposite and applying it more so. Also connected here is the extent to which the organisation is capable of learning. The relative absence of organisational learning from the mainstream literature in recent times would seem to suggest that either it is a given or that it is adequately encapsulated or embedded in other theories – see our next article in this series on Dynamic capabilities. The ability for an organisation to learn is entirely dependent upon the extent to which its people are allowed to share experience and knowledge and how that is utilised for the benefit of propelling the organisation forward. Unless learning is enabled, ability to respond quickly to change will be thwarted as the default mindset does its best to maintain the current equilibrium. That equates to something between ‘do nothing’ and ‘do as little as possible’.
The corporate directive that requires lessons learned to be captured – typically in the case of project-based activity – seems to pervade most sectors. Often forming part of post-implementation reviews, they can help those involved to understand how to respond in a repeat situation. The trouble is that often a repeat does not present itself or the all-important contextualisation of the problem is absent, at least when conveyed to those outside the review process. It is, however, the case that utilisation of lessons eludes most organisations; not because of the lack of lessons, but from knowing exactly what to do with them. In organisations that have the ability and supporting processes to apply the lessons – those at Level 5 and possibly Level 4 in the CMMI – there are likely to be worthwhile gains.
Organisations standing at Levels 1 through 3 have less chance of making proper sense of lessons because they lack the formal processes to embed them in workplace routines.
Corporate foresight manifests in many ways and helps to provide the focus for attempts to capture and profit from anything that could reasonably and realistically move the organisation forward. The rest depends on how the organisation is able to utilise its new-found knowledge and the information and data that support it. Recognising that internal processes are supposed to reflect the core functions of the business organisation means that attention must switch to those areas where new knowledge or insights can be exploited.
There is plenty that the organisation can do to position itself favourably in the marketplace. There is no magic about it. Understanding how well the organisation is able to think about its future is the first crucial step in the right direction.
Rohrbeck, R. (2010) Corporate Foresight: Towards a Maturity Model for the Future Orientation of a Firm. Heidelberg and New York: Physica-Verlag, Springer. See also related blog post on inter-organizational collaboration for foresight and building future orientation through empowered individuals.
Mintzberg, H. and Waters, J.A. (1982) Tracking Strategy in an Entrepreneurial Firms, The Academy of Management Journal, 25(3), 465-99.