According to former US president Ronald Reagan, there are three kinds of people – those who let it happen, those who make it happen, those who wondered what happened. In that case, here is a simple question – which of the above, in your opinion, refers to Northern Rock? Send your answers to the board, not me.
Is the future important? Of course it is. As CS Lewis said: “The future is something which everyone reaches at the rate of 60 minutes an hour, whatever he does, whoever he is.” You can’t avoid it. But first we need to define a boundary, a horizon. By the time you’ve read these words they are already history and the rest of the article is the future. OK, that is a bit pedantic but just think for a moment how much time is spent in business looking backwards in comparison to looking forwards.
We have all been or are involved in the annual strategic planning process. Some have characterised this process as one of hope over reality. As Robert Heller described it: “Down at the level of the firm, there’s strategic planning, which usually looks three to five years ahead, draws on global forecasting, but extrapolates from the company’s own recent past. The first year of the strategic plan, which companies may or may not have, equates with the budget, which virtually all companies possess. This great range has only one thing in common: whatever the type of forecast, it’s generally mistaken, often by a country mile. Even governments’ forecasts of their own spending – which you would think are under total control – are notoriously inaccurate.”
Should the strategic planning process incorporate a ‘real’ evaluation of the future and the threats and opportunities such an evaluation would reveal? It seems only logical (and obvious) that every organisation should look to the future. The question is how far forward?
Timescale is an important factor. The further out into the future we look, the less clear are the signals of impending change. The horizon needs to be set to suit the type of organisation. Some of the factors that will influence the time horizon are business volatility, competitive position, reliance on specific external factors (the economy, lifestyle and social attitudes and so on) and perhaps, above all, the organisation’s appetite for change and ability to embrace it.
For most organisations, a horizon of between five to 10 years is generally deemed to be suitable. This is close enough to validate or influence the normal strategic planning cycle and far enough to pick up strong signals of possible longer-term change.
But is it possible to see into the future, to predict what might happen five to 10 years ahead? Even if you could, does the organisation have the will or ability to extrapolate these predictions to understand their likely impact on the fortunes of their own organisation? Unfortunately these are not easy questions to answer and there isn’t a simple textbook to teach you how.
Regardless of how large or small or what kind of business organisations are in, they all have to cope with the same problem – uncertainty about the future. Their most important concern is what they should do and how can they master future changes and challenges. What they are looking for are less questions, but more answers and ideas.
So real future thinking is about looking for (not necessarily finding) answers or clues to the question ‘What if?’ and understanding their implications for business strategies.
By studying the future, people and organisations can improve their anticipation of what lies ahead. More importantly, they can decide how they will live in the future by making choices today and realising the consequences of their decisions.
Let us be honest – thinking about the future is great fun. When you listen to a futurist talking about how the world might be in 10 to 20 years’ time, it really stimulates the imagination, gives you a bit of a buzz. Of course, your acceptance of what is being said is tinged with some degree of scepticism, and quite rightly so. No one really knows with certainty what the future will bring. Professional futurists do have a strong track record of interpreting trends and faint signals turning them into fairly accurate predictions of change. What they are doing is creating a series of signposts indicating directions the future could take.
These weak signals are highly significant, as they provide vital input into risk assessment, market research, strategy building and innovation strategies. Among other things they point to forthcoming customer requirements, identify promising new technologies, generate new business opportunities and even anticipate new regulation.
Just think back, say, 10 years. Whether you look at technology, social attitudes, global economics or politics, futurists were predicting major change. Not all of them got all of it right. Some got the direction wrong, or the timescale – too soon or too far away. But the underlying trends were there to be seen.
In technology, for example, the rapid improvements in communication, in the internet and the general take-up of home computing led to the massive growth in online activity of all sorts. Some industries ignored the signs and some are still doing so. But we have see the rapid growth of online banking (in all its forms), the demand for personal music leading to MP3 players and the new industry of music and video bought on-line, on demand with the consequential decline of the music CD.
Of far greater importance to the finance industry are the changes in individual attitudes, in our hopes and aspirations.
I have written before about the ‘digital native’ generation. They are now in the mainstream of life and redefining how we live and work. As the Pew Research Centre concluded last year after a major survey: “A new generation has come of age, shaped by an unprecedented revolution in technology and dramatic events both at home and abroad. They are Generation Next, the cohort of young adults who have grown up with personal computers, cell phones and the internet and are now taking their place in a world where the only constant is rapid change.” Unfortunately, many people think the future will be an extrapolation of the recent past and that future trends will develop along essentially a straight line. Too often, this thinking is at the heart of the strategic plan. So often future plans are derived directly from today’s strategies – tomorrow is a logical extrapolation from today. This is a dangerous assumption. What future planning is looking for are paradigm shifts – trauma in today’s cosy road map to tomorrow.
Organisations listen to intelligent lectures about the future, get excited, ask the most imaginative experts how the future might look, get brilliant, incisive ideas about how the world might change but their most urgent questions – “what does this mean for us? What should we change and how?” – remain unanswered. Yet these are the key questions every organisation should be trying to answer.
Within organisations, most strategic planners stumble when faced with the challenge of incorporating the future into their plans. Corporations do explore their future environments, run remarkable futurist exercises and come to brilliant new conclusions. But when it boils down to implementation, the momentum stalls. Either the responsible managers are not able to translate their ideas into a new strategy, or they are afraid to tackle the outcome because it requires a tremendous and thus an uncomfortable change.
The Pew Research Report comments on this: “As companies scramble for ways to predict an increasingly volatile future, many view scenario planning as a crystal ball – but then do nothing with the elaborate scenarios that result from most planning exercises. This is backwards. Scenario planning is useful not for predicting the future (which can’t be done) but for helping companies become more aware of possible outcomes. And just as awareness means nothing unless it is acted upon, even the best scenario planning is worthless unless companies use the scenarios to construct strategies that can succeed in those possible futures.”
Back in the early 1970s, many energy companies were surprised by both environmentalism and the Organisation of the Petroleum Exporting Countries cartel, and thereby lost billions of pounds of revenue by mis-investment. The dramatic financial effects of those changes led at least one organisation, Royal Dutch Shell, to implement scenario planning as a serious business tool. The company’s analysts publicly estimated that this planning process made their company the largest in the world as it had thought through possible implications of future events and developed strategies to cope. They were able to react far more quickly and positively to events as a direct result. Many people today cite Shell’s regular Global Scenarios as setting the gold standard.
As Ged Davis, managing director of the World Economic Forum’s Centre for Strategic Insight, observes: “At times, the world can look so complex and unpredictable it becomes hard to make decisions. Scenario building is a discipline for breaking through this barrier”.
Looking back – a reprise
So thinking about the future, as well as being fascinating, can provide us with an insight into what the world in which we live and do business might be like in the years to come. For most businesses, a timeframe of five to 10 years is probably the most practical.
But this information is of no real value unless acted on and scenario planning is the main tool to take advantage of this understanding. It enables an organisation to not only improve its planning for the future but to challenge existing thinking in order to take best advantage of the new order.
So returning to the thoughts of Ronald Reagan, are you the sort of person who lets it happen, or do you make it happen, or are you the sort of person who wondered what happened? In the same vein, ask yourself what sort of organisation do you work for?
Coming back to Northern Rock, should it have been following the example of Shell? Would that have prevented LSthe current disaster? Who knows? March 2008 | Lending Strategy | Feature