How to model an uncertain future
<p>Scenario planning helps companies think creatively about future risks. Here's what we've learned from dozens of sessions around the world.</p>
This is part 2 in a pair of stories about how businesses can use scenarios to shape sustainability. Read part 1 here.
With the world's economy facing many risks ahead, businesses need to adapt to and even mold future megatrends and discontinuities. Readiness and responsiveness can create competitive and collaborative opportunities to benefit both shareholders and society.
Scenario-planning sessions are an important tool toward this end. I've recently joined other experts to form Sustainability Foresights, an organization that specializes in scenarios. In these sessions, participants who have lived in separate “worlds” come together to identify strategies to serve their organizations. Consistent themes have emerged:
Decouple material consumption from revenues to address human needs in a sustainable manner. As half a billion people a year emerge from poverty and adopt middle-class life styles, companies will best serve their shareholder’s and society’s needs by linking global capabilities, local connectedness, and innovation to address human needs while minimizing, reusing or sustainably sourcing raw materials and energy.
Move beyond technology fixes. Investments in low-footprint technologies and R&D will be necessary, but insufficient. A deep understanding of consumer lifestyles, needs and aspirations must be coupled with ecologically friendly technologies, new business models and means of providing value to customers. Intangible contributors to economic productivity — knowledge and social and intellectual capital — will become increasingly important. These components will need to be valued in corporate decision-making as contributors to long-term shareholder value.
Become both globally porous and fiercely local. Companies will need to serve global markets seamlessly accessing talent and resources globally. Internal and external boundaries will become porous. Functional divisions will be replaced by inter-functional and cross-boundary openness. Paradoxically, as companies become globally porous, they also will need to become fiercely local. Globalization does not mean global homogenization; it means the reverse — engaging intensely with local community-based markets, suppliers and customers. The challenge will be to manage multi-local companies in the context of global markets and value chains. The need to be at once global and local will impose unprecedented burdens on corporate HR, IT, design, marketing and management capabilities. Cultural and socio-economic diversity and local knowledge coupled with an ability to communicate across languages and cultures will be key assets.
Redefine where knowledge and insights come from. The best global aggregators of knowledge and resources will be the winners. The boundaries between “the company” and its value chain will become increasingly blurred; insights from local entrepreneurs working in communities may be as important as those developed by corporate headquarters. As one participant put it, access to globally sourced insights will reveal “orthogonal opportunities” that are not apparent to nationally based companies. The same framework will be extended to customers. Co-creation of products and services with global customers will enable companies to access and transfer insights across regions of the world.
Partner with peers, NGOs and governments with new business concepts. In a world that is at once global and local and is enabled by universal telecommunications, new ways of doing business emerge. Organizational boundaries are blurred as businesses engage with communities, governments and peers. New business concepts, frameworks and tools are needed to cut across institutional boundaries to co-create products and to protect and share intellectual property developed in a collaborative setting.
Collaborate with government agencies and NGOs. The day of government solutions to society’s problems is likely passed. Traditional economics sees the role of governments as controlling the externalities” (costs imposed on society by private sector activities that are not reflected in the prices of goods and services). The more important focus going forward will be to collaborate to identify win-win opportunities that meet the common goals of society and shareholders. “Business cannot succeed in a society that fails," as Bjorn Stigson, former head of the World Business Council for Sustainable Development, said. Companies will need to work with governments to find solutions to problems such as violence, poverty, education and environmental degradation to preserve the societies where they operate. Companies themselves will adopt regulatory roles in their value chains. Governments will need to engage with companies as partners. They will become part of “we” rather than “they."
Develop risk management capabilities to address a highly interconnected and vulnerable world. Global interconnectedness carries risks ranging from economic and natural catastrophes and epidemics to war and cyber-threats to vulnerable resource sourcing and conflict materials. Localism carries its own risks — local political instability, violence, corrupt practices. Risk management capabilities to prevent risks and manage these risks if something goes wrong are preconditions of being open to a global/local world.
- Develop resilient organizations that are able to adapt rapidly and effectively to changing circumstances. All future forecasts including those based on the best efforts of scenario developers are just that — plausible futures in an uncertain world. They are not predictions. If we have learned anything by studying how the future might evolve, it is that in small, or more likely large, ways it will surprise us. At the end of the day, the lesson of scenarios is that we have to expect the unexpected. This means designing flexible resilient strategies that allow us to adapt to the unexpected. It also means that have to be open to dissonant information. No matter how carefully we designed our scenarios and strategies, we cannot become wedded to them. They are almost certain to miss important developments.
So, what does this mean for me today? What should I do differently Monday morning?
Based on your own scenarios assessment, start by looking inside your company. Do a future readiness assessment. Ask, "What trends affect our business? What do we have? What do we lack? When will you need it?" Think about:
- What do we know internally and externally? What do we know we don’t know? And (our favorite) what don’t we not know we don’t know?
- What will our markets; value chains, business models and products or services look like? Do we have strategies to get to tomorrow’s markets?
- Do we have people who are engaged in and comfortable in a wide variety of cultures and socio-economic settings and the infrastructure to support them?
- Do we have the relationships with business competitors and allies, NGOs and governments needed to develop effective local and global partnerships?
- Do we have the capacity to manage the risks of operating in complex, fractious and highly inter-connected world?
When you ask where you are and where you want to go, the steps you take to prepare for tomorrow may help you to:
- Manage risks by anticipating and preparing for the risks and vulnerabilities of the future;
- Innovate with new products, services, technologies or business models that respond to the needs of the future;
- Develop, attract and retain diverse human talent that is open to, and can respond creatively to, the challenges of the future; and
- Partner with other organizations within and across their sectors to achieve.
Image by Lightspring via Shutterstock.