Providing Certainty is Not the Job: Part 2
The Case for Uncertainty
In Part 1 published earlier I discussed the dangers of using foresight in a quest for certainty. Part 2 explores the power of using foresight tools to surface and understand the dynamics of uncertainty in the external business environment.
Many corporate futurists are drawn to the field by the story of Royal Dutch Shell. Once a distant seventh in the world of global energy companies, it incorporated uncertainty into its planning process and ten years later was number 2, weathering the oil crisis of the early 70’s and the following crash in oil prices in the early 80’s along the way. Shell demonstrated that leaning into uncertainty creates enormous opportunities, even when the external market conditions overall are disruptive and negative.
It certainly spurred my decision to concentrate on scenario planning and transformative innovation. I was watching the $2.4 billion 80-year-old company I had worked at for over ten years fail to respond to a changing marketplace. I realized I needed the tools to help leaders think differently about the future, and after reading Art of the Long View and At Home in the Universe decided on a MS in Futures Studies from UHCL rather than an MBA. While I was still in grad school that company ceased to exist, leaving tens of thousands of employees and shareholders with little to nothing.
These two stories represent the two advantages of leaning into uncertainty:
1. Agency to create a better future for the company.
2. Recognizing and acting against existential threats to the company.
Uncertainty Equals Agency
If something is perfectly predictable, it is by definition impossible to change. So, the presence of uncertainty creates the ability for individuals and companies to change their futures for the better. This is borne out by history. Half of all Fortune 500 companies were founded in recessions, including HP, GM, P&G, Microsoft, and Uber. Shell certainly improved its position in the global energy industry by taking advantage of two anticipated disruptions.
Not only do uncertain times cause companies to constantly monitor and adapt to change, their mutability helps companies nudge markets in their favor. Would LinkedIn have been able to grow one of the first social networks without the dotcom bubble bursting, leaving hundreds of thousands of tech professionals out of work? Would Uber have had the freedom to flaunt taxi laws and build a large fleet of drivers outside one of the deepest recessions in US history?
As I pointed out in my earlier post on certainty, companies that embrace uncertainty and shape markets become hard to displace when the industry becomes more predictable. The reality is that disruptions create opportunities for startups and established players to redefine the playing field and gain critical advantages to exploit when those disruptions fade. And the good news is (if you are seeking to change yourself or your company’s future), disruptions happen all the time. Some may be large, like a global pandemic, and others may be smaller, such as geopolitical strife giving the advantage to local manufacturing and regional value chains.
Make your job finding these disruptions, these whirlpools of uncertainty that might give your company an advantage if you innovate into them, ahead of time. Anticipate uncertainty to identify future areas of growth.
Recognizing and Acting Against Existential Threats
In his remarkable book Deep Survival: Who Lives, Who Dies, and Why, Laurence Gonzales studies many disasters from mountain climbing to crashed planes to being lost at sea. The biggest insight is that those who live through these disasters can recognize that the world around them has changed, and immediately jettison their old goals and plans to set about surviving in the new situation they are in. Those that don’t recognize that the environment has changed, or continue striving to achieve outdated objectives, perish.
The flipside of uncertainty is that it threatens the expected status quo that many companies have configured their operations to make as much money as possible. The hardest part of the job is communicating the reality that the expected future, one that the organization may have spent years or even decades building competencies around, is no longer valid. Any influence and credibility as a futurist you’ve built at a company, either as a consultant or working internally, can be gone overnight if raising this existential threat to the business is not handled correctly.
The best approach is to engage leadership in collaborative scenario development. Leadership “owning” and socializing the risks identified in a series of workshops reduces the threshold of resistance. It also helps leaders understand the dynamics of change and logical assumptions behind the risks, not just the shocking and easily dismissed headlines.
A less-preferred option is to bring in an outside expert, someone recognized as an authority. This may sound expensive, but it’s not overly so when compared to the cost of bringing senior leaders together multiple times for scenario workshops. And it is certainly less expensive to shareholders compared to the company losing significant market share and stock price in the event they fail to respond to the disruption.
Even if the management accepts the premise that future conditions will be different, it may simply be too hard for them to abandon all that made them successful to embark on a new and uncertain journey (see the Addendum). It is important for companies to build the muscle memory to identify and adapt to uncertainty and disruption. In Deep Survival, Gonzales says to increase the chances of survival, one must be “annealed in the fires of peril.” In other words, practice in these situations helps people make better choices in the moment. He finds that people who have been through difficult situations in the past do better in a new crisis. Using simulations, future narratives, and design fictions can help leaders experience future disruptions and understand the consequences of different strategic moves. Supporting lean startup initiatives within the company or incubating transformative innovation projects can also be ways to expose leadership to change with lower risk.
Uncertainty is a critical element of growth. It provides the freedom of movement for companies to experiment and shape the markets they are in, establish unique positions that will translate into long-term competitive advantage. A futurist can help leaders identify and take advantage of change and help them build the skills they need to take action in uncertainty.
Next week Part 3 will delve into Generative AI’s role in foresight and uncertainty. Check out more thoughts on Foresight at Wavepoint’s POV page.
Addendum: Innovation is Not Free
Why won’t companies act, even when change is staring them in the face? Let’s look at the incentives. Leaders are compensated on performance – revenues, profits, and stock price. The current organization is perfectly structured to maximize those levers. Mature products have long paid off their large initial capital investments, have been optimized over the years to be made as efficient as possible, and take advantage of an extensive distribution, channel, and brand experience platform. If you are a CEO with a median tenure of 4.8 years, will you
Invest a dollar in boosting sales for mature product lines with the safety of getting a minimum of a 5-10% profit on a minor bump in sales.
Invest that dollar on a new product in a small but growing market that may become the future of the company but right now is difficult to forecast, does not return a profit, and while revenue growth is high it is based on a small total market size, so real dollar revenues are small compared to mature products.
Throw a small amount of money into an internal VC fund and tell the board you are investing in the future and will look for an acquisition when the market is more mature and profitable (see Part 1 Addendum for why this is a bad idea).
Maximize cash by slashing innovation and headcount, then take that cash and buy back stock and grant dividends to shareholders, boosting your own compensation and the major shareholders.
The hard truth is people, even very well-compensated people, will do what they are paid to do based on the metrics they are measured by and the incentives they are provided. If you really want to help the company respond to external uncertainty, pay attention to the incentives and metrics being used. Innovation is never free. People will not take risks out of the goodness of their hearts when they have mortgages and private college tuition for their kids.