Are your foresight tools up to date?04.01.2022
Looking back, the past two years have highlighted the incredible pace of change and innovation. Zoom out even further to the past and you’ll recognize that progress is like a flywheel that has been unstoppably gaining more and more momentum ever since the industrial revolution. As a result, it’s no surprise that leading companies are constantly refining their foresight tools to keep abreast of the ever-faster technological and societal developments.
There are many arguments to explain the accelerating pace of development. Most of them rely on fundamental changes in the global business environment such as increasing global competition, changes in cultural factors, shorter technological cycles, shorter product-service lifetime cycles, improved global knowledge transfer, and technological diversity. But for an average business the ’ why ’ might not be that interesting. Instead, it is the ‘so what’ or ‘how does this affect us? ’ In order to assess the impact of the shift in the speed of development, let us establish a simple framework.
Three different time horizons
Divide the future into three simple time frames. Short-, medium- (or intermediate), and long-term time horizons. In terms of strategic, business-oriented thinking, we’ll define them as follows. Short-term is the next 1-2 years. A typical business strategy for the next few years relies on a linear perspective that things will progress as they have. What has worked in the past will likely work in the future. Tomorrow might be a little different than today but not remarkably so. Within this framework, a typical business keeps an eye on what is happening in their own field by benchmarking competition and assessing market reports but rarely looks outside of their own industry.
The intermediate time horizon is defined as the next 2-6 year period and it has two distinctive characteristics that distinguish it from the short-term perspective. First, pure linear thinking starts to become less effective and even insufficient. You may no longer expect things to evolve on a smooth continuous line. Instead, radical changes may appear, altering entire industries. This is what we call market non-linearities. Second, you must start looking across industries to spot the potential non-linearities, as in the medium term the traditional industry boundaries become obsolete.
The intermediate-term truly separates the wheat from the chaff. Those who anticipate and account for potential non-linear market movements become stronger and those who don’t may become redundant.
Finally, the long-term horizon is defined as the next 6+ year time period and more. In the long-term view, non-linear transformations are not merely potential but rather expected. It is famously difficult to make any presumptions of the business environment in the long-term. As a result, developing any meaningful predictions of the future is extremely hard and often impractical – at least from a business perspective.
The accelerating rate of change
Due to the accelerating flywheel of development, I would argue that the whole lifecycle of the three time horizons has intensified. Each individual section of the cycle is shorter than before, and will likely keep getting shorter. This inevitably forces companies to hone their skills at forecasting the business environment in intermediate and even in the long-term horizons. At least if they are to stay relevant and competitive.
To understand why this is so important, let’s play a second thought experiment. This time, consider the future as a funnel. On the left-hand side, we have the narrow end of the funnel – the present moment, and on the right-hand side, we have the broad end of the funnel – some distant point in the future. The further right we go, the wider the funnel and the more possible states of the future we have and the harder it becomes to predict the future.
Now compress the funnel as we did with the three time horizons. The funnel is vertically as wide as it was, but just shorter in length (horizontally). Now, what’s the effect for businesses? Simply put, predicting how the future will turn out is harder to do as the business environment can evolve more rapidly than before, and do so in a dramatic fashion. This accelerating rate of change has imposed two types of requirements for companies that aspire to thrive.
First, tools and procedures that enable companies to adapt quicker, make decisions in a rapid fashion and be experimental are needed. Sounds familiar, doesn’t it? Terms like lean, agile, and growth hacking are all the rave today. But on top of that, and here’s where we come to the second bit, companies need better tools for developing an understanding of the probable and plausible future scenarios in the first place.
This is what ultimately allows you to steer the direction of your experimental bets. It enables you to increase your batting average. Jim Collins has famously written about the practice of firing bullets, then cannonballs as one of the key factors that set the most prosperous companies apart from the rest. If firing bullets is about being experimental, it is of equal importance to develop a good understanding on where you are going to aim these bullets. This is where the foresight capabilities come to play.
Developing better foresight tools
We’ll devote the last part of this post to understanding how companies can become better at spotting the most probable and plausible future scenarios, especially in the intermediate time horizon. How one can develop better foresight that enables making better and more accurate strategic decisions. If we look at the toolkit an average organisation has for the medium-term today, they are bluntly put very limited. Typically the information is constructed on the basis of pure gut, familiarity, competitor benchmarking, and some inside or outside expert knowledge like traditional market reports. Yet, these sources of information are relatively one-sided, too lightly data-driven, and often fail to look across the traditional industry boundaries. In a world where non-linearities take place swiftly, the traditional data sources are inevitably becoming insufficient.
At Verona Growth we believe that the most effective, hard data-driven tool to anticipate and prepare for the intermediate-term can be found from assessing the world of startups, growth companies & venture capital. Looking at a cross-industry level aggregation of high-growth companies and their funding, provides an overview of where the market is heading, what is likely to happen, and whether there are non-linearities in sight. Such cumulative growth company data is easier to attain than ever before, thanks to the global online databases with information on millions of companies. We call this hard evidence, as these data points are based on an aggregated view of those with arguably the most skin-in-the-game – the entrepreneurs themselves. And ultimately they can provide the strongest form of any foresight evidence – already paying customers. Making it arguably the most precise data-driven approach to predict the intermediate-term market shifts. Analyzing millions of newly formed companies backed by venture capital financing gives you the best guess of the future foresight and puts you in a position to take advantage of the market shifts, take aim, and fire the bullets in the right direction.
Read more about Verona Growths services here and contact me to discuss how we use our foresight tools to develop your business.