In today’s fast changing market an orbuculum, otherwise known as a crystal ball, is probably high on the wish list of business leaders the world over. I bet it is certainly something that John Antioco, ex CEO of Blockbuster, wished he had back in 2000 when he famously declined an offer to purchase Netflix for $50 million. He also refused their proposal to run the video chain’s online presence a few years later.
The changing business environment
A lesson taught in every business school is that nothing stands still. Industries and markets are dynamic impacted by a dizzyingly array of factors from macro trends like technological change and economic fluctuations to micro issues such as the changing needs of a segment of customers. As a result having one eye firmly focused on the future is crucial.
Never before has such a stance been more applicable. It has been proven that the world in which we live today is changing faster than it ever has before. This means that obsolescence is a very real problem and what might be booming today, won’t even exist tomorrow. A recent study by Dell shows that 85 per cent of jobs that will exist in 2030 haven’t been invented yet. Moreover, research from the Yale School of Management shows that the average lifespan of an S&P 500 company in the US has fallen from 67 years in the 1920s to just 15 years today. And it is predicted that 75 per cent of firms in the S&P 500 now, will be gone by the year 2027. No one, business executives included, like to consider their own mortality and hence often it is easier to bury your head in the sand rather than think about the future. Apparently only six per cent of people plan their own funerals and according to Deloitte, in business, only 15 per cent invest in leadership succession planning.
The plague of short termism
The Yale study therefore isn’t that shocking. Organisations are suffering from severe short termism. However, it is organisations that recognise that change is on the horizon and meet it head on which will be the ones still around in just eight years time (scary huh!). Take for instance the garage forecourt industry. Fossil fuel cars are in decline. Heck, drivers will soon also cease to exist. A back of a fag packet (assuming you can find a fag packet) STEEPLE analysis will reveal that the need for petrol stations in the future is not going to equal today’s consumption. But what about the thousands of square meters of space dedicated to garages. What can it be used for instead? And isn’t now the time to start thinking about it rather than wait for the inevitable to happen. Try telling that to the ex-employees of Tie Rack, Kodak, HMV, Borders, Maplin et al.
The power of scenario planning
This is where technology, data and innovation come into play. Of course scenario planning is nothing new – farmers have used it for years to predict yields, likewise the military since the time of Alexander the Great has war gamed to determine the likely outcome of mobilising various assets. However, bringing these three elements together takes business scenario planning to another level; ultimately enabling a more powerful and predictive approach.
Traditionally scenario planning has taken a linear, formulaic approach:
Step 1: Identify your driving forces - pinpoint what the big shifts will be and determine how they will affect your company
Step 2: Identify your critical uncertainties – determine which trends are the most risky
Step 3: Develop a range of plausible scenarios – typically this takes the form of a matrix based on the critical uncertainties selected to provide four possible future scenarios
Step 4: Discuss the implications and the future plans for the business.
Scenario planning 2.0
This is a very sensible process and one that has for a long time successfully helped business leaders focus on the future. But where it falls down is it can’t find the unpredictable. It simply isn’t deep enough. But this no longer has to be the case. By working with modern data specialists it is possible to bring together cutting edge artificial intelligence and data science to build models that spot patterns that were previously undetectable. This means that the process is not constrained by the bounds of human comprehension or bias and results in an engine that goes beyond understanding what has happened to anticipate, with proven confidence, what will happen. It turns data from being descriptive to predictive and turns decision making into a series of recommended actions that will enhance business performance and mitigate risk not to mention the ability to consider every possible outcome over time. Imagine the power of finding the whole sewing kit in the haystack rather than just a needle.
Ultimately bringing together these three facets removes the myopic lens that plagues businesses and replaces it with a long term view; providing the fabled crystal ball.
Richard Calvert, co-Founder and chief strategist, The Thread Team