Bringing Future Thinking into Strategy
Embracing uncertainty and thinking more deeply about the future equips us to respond better to external change
Lately, I have had a significant increase in inquiries on how to think about the future and deal with uncertainty due to the problems that the CoVid 19 disease has caused.This is an opportunity to embrace uncertainty
In discussions the questions generally divide neatly into what I should do now, and how should I change my thinking and strategy processes? While both questions are contextual, the first is highly specific to the individual organisation so this article focuses on how to bring future thinking into a strategy.
In thinking about foresight and strategy I think about it as a funnel with a filter in the neck of the funnel. I think about the foresight part of the process as the top of the funnel and the strategic planning process as the filter. In between is strategic thinking. The role of foresight is to ensure that as much thinking and scanning gets into the funnel in the first place. If you don’t get important stuff into the funnel in the first place, you cannot think about it, and if you don’t think about it then you never get to make strategic decisions about it.
There are plenty of ways to go about that and I want to focus in this article about getting to strategy so I would briefly summarise the initial foresight process as three principles:
1. Get as many perspectives on looking at what might happen as possible. Including a diversity of gender, cultural background, age, training, etc. We all suffer from our own cognitive blind spots and the best way to avoid those is to get other people’s perspectives. If those wide perspectives are not in your organisation, then think of ways to harness external people (One way that I do that is via a Twitter list that I actively curate and engage with on a daily basis. You can see that list at https://twitter.com/futuristpaul/lists/my-perspectives-list. You can subscribe to the list but I would encourage you to create your own and engage with people inside and outside your industry or sector, including people you disagree with).
2. Create processes that help your organisation avoid their blind spots and biases. Our brains evolved to deal with threats and time frames that are not the same as the challenges we face today. So our brains don’t naturally work well at thinking about the future. In particular, people tend to think about the future either as business as usual, variations from their preferred future, or dystopian disaster tropes. You need to push people into areas of the preposterous and the uncomfortable to get the organisation to really think.
3. Avoid “action people rabbit holes”. Time and time again we come across action-orientated people who will jump into the execution of ideas as soon as something comes up. This poses two risks. Firstly, it immediately shuts down a wider examination of possibilities. Secondly, it tends to avoid thinking about the third and fourth-order consequences. One thing the current global outbreak is teaching us is that the third and fourth-order consequences matter.
If you are doing those things well then I like to use an uncertainty/impact matrix to translate all that thinking into action. As you will see some action is waiting. This is similar to a risk matrix where instead of looking at impact and likelihood we look at impact and uncertainty levels on a simple map like this:
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If we get different groups to map trends and issues on the matrix then in a simplistic sense, we get the following categorisations:
High Impact/Low Uncertainty
Which translates into:
“We know this is important to us and we know what is going to happen”( “Know” here is not an absolute term but knowing enough to make a decision because all decisions are made with incomplete information).
STRATEGY RESPONSE: Strategic Plan
This is the area of a standard strategic plan where there is enough certainty to make a decision.
Low Impact/Low Uncertainty
Which translates into:
“We know this is not that important to us and we know what is going to happen”
STRATEGY RESPONSE: Mine for nuggets
This means to look for things that you can do that make sense and are economic even if they are not high impact. In a recent example with a large NFP client, they rated renewable energy in this section across most groups. However, power purchase agreements for the construction of installer owned solar systems on their premises still made sense. They involve no capital outlays and immediate expense savings.
High Impact/High Uncertainty
Which translates into:
“We know this is important to us if/when it happens, but we don’t really know if/how it will play out or over what time frame”(Note that it is important to explore organisational uncertainty here. Two people can be absolutely certain and have opposite views. That means uncertainty).
This is the area for two strategic approaches:
STRATEGY RESPONSE 1: Hold Your Horses — Scan and Act
This entails holding multiple pictures about what the future might be and identifying signposts that will tell us when/if a certain future has unfolded enough for us to start taking action. Regular scanning for these signposts emerging allows you to act in the appropriate time frame. That time frame may be years in advance, or just ahead of your competitors, depending on your context.
STRATEGY RESPONSE 2: Scan/Probe/Grow or Kill
This is where you think through market opportunities and are unsure which way the market might go. You build several business model approaches at a small scale relative to the size of the organisation that are profitable(In higher risk/faster moving/complex environments you can build stuff that is not profitable). The idea is to build expertise and contacts in an area that you think might grow so if it does you are a few months ahead of where you might have been otherwise. There are two issues with this approach:
- Boards and executive often do not like small projects that are not material in the short term to key goals like revenue growth or increased profit margins. So, the strategy has to be carefully communicated.
- You must have the discipline to kill off projects that are no longer useful. This means setting up tight criteria on time frames, profit targets, and exit strategies.
Low Impact/High Uncertainty
This is really an oxymoron because if there are high levels of uncertainty you cannot really say it will have low impacts, especially third or fourth-order impacts.
I encourage clients to do two things here:
STRATEGY RESPONSE 1: Explore the uncertainty more deeply, looking for impacts in the short term.
STRATEGY RESPONSE 1: Scan the environment on an ongoing basis to determine if things are important when further clarity emerges.
Other Important Points
Along with this approach to a strategy we encourage people to think more deeply about areas where there is high uncertainty. This can reduce that uncertainty over time as the organisation gains more understanding. It can also help you build a strategy which deals with uncertainty without reducing it.
As an example, a simple investment strategy which I have followed over the last year has been as follows:
1. Increasing levels of cash proportional to shares as I was concerned that various issues including expanding debt levels meant increased fragility of stock markets to an external shock.
2. In the early stages of the CoVid 19 outbreak, I sold off some shares in three companies that I saw as having significant exposure to problems in a pandemic if it occurred. I did not get this right in all three cases. After the rally of yesterday, two companies were still down by 30 and 40 per cent respectively but the other one has been basically stable.
3. Invested 25% of my reserved cash during the recent falls as an averaging strategy and kept the other 75% in case of further falls.
4. Actively looked for a significant non-share market investment that made sense by itself but would do even better in a financial shock when access to capital might be an issue for people. I found a deal and was in active negotiations as the CoVid 19 problems worsened. That made me keener for the deal rather than wanting to pull back.
Part of that strategy was informed by the Event 201 scenario exercise (www.centerforhealthsecurity.org/event201/about) that was done back in October. In this exercise, the impacts of an outbreak of a novel coronavirus were simulated. It is terrifyingly similar to what we are actually experiencing. This helped inform my thinking once an outbreak actually occurred.
Time will tell if my strategy is successful or not, but I am comfortable that I have responded to levels of uncertainty by getting better informed about what might happen. I also created a strategy that deals with the uncertainty without trying to predict actual events.
In the real world, we have to act in conditions of uncertainty. Adopting foresight skills and disciplines can help us do that with less risk and greater clarity.