Future Savvy: Quality in Foresight

I’ve been meaning to write about the business model canvas and how it fabulously advances industry foresight (principally by providing a way to take foresight ideas forward into actions, to-do’s, and next steps.) It is truly breakthrough stuff. See The Business Model Innovation Hub and the book Business Model Generation, by Alexander Osterwalder and Yves Pigneur.

But, it is the eve of the soccer World Cup so in the interest of providing more couch potato time for myself, I table the longer discussion in favor of this taster, which shows the FIFA business model canvas. The point of the canvas is it provides a “sandbox” for thinking how elements could be rearranged, taken away, or new ones added, to renew the business model for the future.

Of course, renewing a business model begs the question does it need renewing? Which is the question that bedevils all scenario and futures thinking. For some the status quo works perfectly! Did you know that FIFA demands that Sepp Blatter is hosted by South Africa at the protocol status of a visiting Head of State? Hmmm.

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I’m always looking for ways to explain the role of quality foresight in everyday management, so I liked this little animated gif from managewell.com.

Imagine driving down a country road when a street dog starts chasing your car. The dog attacks the car, but by the time it gets close, the car has moved ahead, so the dog changes direction and attacks the new coordinates. This goes on as the dog adapts, but it never quite catches up, and once it is following behind it is obviously too slow to catch up. Had it thought ahead and run straight it would have had its day with the tires.

The resulting curve looks something like this:

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In mathematics, this is known as the ‘curve of pursuit. The dog is attacking the problem as it sees it right now, but by the time it reaches it, the problem has moved on a few steps. A ‘problem-solving’ approach like this is going to prolong the time it takes to get to key decisions, and give the initiative to competitors. The better approach in managing moving situations — and all situations are moving — is to anticipate and tackle tomorrow’s position today.

Obviously the devil is in the quality of the anticipation, but for that there is Future Savvy and other key resources that exist for determining quality in foresight work. Industry foresight can never be done perfectly, but it can be done well enough to avoid the “dog chase” future-management style that characterizes much of industry leadership.

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The strategy world has mourned the sudden passing of C.K. Prahalad, Professor of Business Administration at the Ross School, University of Michigan, this week.

Front page 'Competing for the Future' Hamel & Prahalad, HBR 1994

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As many have commented, Prahalad made great strides in getting business to see the potential in emerging markets and ‘poor’ consumers, in The Fortune at the Bottom of the Pyramid and allied work.

In our rush for the new and latest, early work often gets buried. So I would like, as my take on the passing of Prahalad, to go back to his fundamental testimony to the role of and need for foresight in management, which is to be found in his co-authored piece (with Gary Hamel) ‘Competing for the Future,’ Harvard Business Review, 1994, which became a very famous book of the same name. Sixteen years on and now in the wake of the credit crunch, this piece remains as relevant as it ever was:

“Ask yourself: Do senior managers in my company have a clear and shared understanding of how the industry may be different ten years from now? Is my company’ point of view about the future unique among competitors?

“On average managers devote less than 3% of their time building a corporate perspective on the future.

“The painful upheavals in so many companies in recent years reflect the failure of one-time industry leaders to keep up with the accelerating pace of industry change… Those companies were run by managers, not leaders, by maintenance engineers, not architects.

“If the future is not occupying senior managers, what is? Restructuring and reegineering. While both are legitimate and important tasks, they have more to do with shoring up today’s business than with building tomorrow’s industries. Any company that is a bystander on the road to the future will watch its structure, values, and skills become progressively less attuned to industry realities.

(therefore) “Most layoffs at large US companies have been the fault of managers who fell asleep at the wheel and missed the turnoff for the future.

“If senior executives don’t have reasonably detailed answers to the ‘future’ questions, and if the answers they have are not significantly different of the ‘today’ answers, there is little chance that their companies will remain market leaders.

“The Quest for Foresight: Why do we talk of foresight rather than vision? Vision connotes a dream or an apparition, and there is more to industry foresight than a blinding flash of insight. Industry foresight is based on deep insights into trends in technology, demographics, regulations, and lifestyles, which can be harnessed to rewrite industry rules and create new competitive space.”

Footnote: this from the FT: The last time CK spoke to the FT he was buzzing with intellectual energy. “Really, in all my career I have been interested in ‘next practices’, and not merely ‘best practices’,” he said.

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Picture: londonfashionweek.co.uk

London Fashion Week, the UK’s slice of the $300-billion global fashion industry, starts today with flash of couture, whirring of camera and, no doubt, glug of Veuve-Cliquot. All the sass and celebrity pizzaz, and the actual catwalk schedule, can be found at londonfashionweek.co.uk

So… it’s teen giraffes tottering around in outrageous stuff, the watered down version of which will be pumped through the supply chain until it appears at your local department store in six-to-nine months. Same as it ever was, right?

In fact, not really. One of the gathering trends of the current era, across many industries, is the empowerment of consumers as ‘taste-makers,’ circumventing designers and specialist advisers. This is currently putting fashion executives through the wringer as “who decides” what is good, what is made and marketed, is being wrested from the fashion elite and from fashion intermediaries (glossy magazines like Vogue and Elle) by the “woman-in-the-street.”

The industry’s longstanding top-down orientation — where “we” told “you” what next year’s ‘look’ will be — is cracking as consumers who can easily access, share, and discuss every fashion preference, including their own, now get ‘networked affirmation’ rather than affirmation from the top.

Internet and mobile communications, and social networking technologies are behind this, of course. Access to style and fashion advice now comes anywhere, anytime. The stuffy catwalk shows are not open to the public (ah, the whiff of elitism still breathes for now,) but as a recent story in the LA Times points out: “Images can be seen online minutes after a designer shows them… The Internet makes it possible not only to read about fashion but to participate in it. The use of sites that enable users to create their own fashion-spreads, share photos of themselves in different outfits and elicit wardrobe advice from their peers is skyrocketing.”

The news for elite arbiters of taste in every industry in the 21st Century: it’s game-over. You will have to participate with your customers in their socially-networked formation of perceptions and opinions, a process you will be able to sometimes lead, but more often have to follow.

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In all the predictions of the future that I have ever read or heard, and all the scenarios I have been exposed to, it’s almost unheard of to see one that says “the squeezed middle class keeps their eye on a good deal, as they always have.”

I’m thinking about this as I see the Guardian today featuring a story about how “Poundland” has doubled it’s profits. Poundland is a copy-cat of the venerable US institution, the “dollar store,” where everything cost the same price, in this case £1.

Pic: Andrew Fox, The Guardian, August 4, 2009

The merchandising of these stores is not unsubtle. There are definite too-good-to-be-true loss leaders, but these more than offset by the many items that cost pennies wholesale. Fair enough. And recently reported doubling of profits is because more people are buying at these stores (downshifting) due to recessionarly squeeze and/or because of the current “sense of thrift” in the zeitgeist which makes pennywatching more “the done thing.”

But neither merchandising, nor consumer psychology is our primary concern here. From a foresight point of view, the point is that forecasts of 2010 that were around around a decade or two ago didn’t quite get around to saying anything about Poundstretcher leading a healthy economic life. It’s as unsexy as anything, compared to “peak oil” or advancing “singularity,” or nano-babble, and so on into the glorious future – or its polar alternative: crash & burn, soup kitchens, urban warlords rampaging, and so on.

But here we are coming to the end of the decade and a basic retailing gimmick for the squeezed middle-class consumer is well trafficked and very much part of the future. Yes, it’s success correlates with tougher times, but economic cycles will be with us repeatedly through the rest of the century and beyond.

This doesn’t mean there won’t be breakthroughs in technology or in consumer behavior. In fact, looking at the picture, one surely would not have got a pound for any amount of plain bottled water in a retail environment 20 years ago. Things do change. They just change slowly, or unevenly, against the gritty reality of savvy agregate choices made by a wary (global and growing) middle class.

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Peter Bernstein, the author of “Against the Gods: The Remarkable Story of Risk,” died recently at the age of 90. In memoriam McKinsey Quarterly reposted this recent Bernstein interview. I put it up here because it’s a timely and timeless lesson in thinking about uncertainty and threats, and avoiding simplistic (quantitative) approaches to managing them – one of core themes of “Future Savvy.” Bernstein offers and endorsement of real options and explains why sophisticated Long Term Capital Management (LTCM) mathematical models to control risk created “a math dependency” that was blind to, among other things, unexpected systemic feedback to its own emergence:

One of the first things Bernstein says is that risk implies that we don’t know what will happen, which could be good things happening too. Risk management, as it is currently understood, gets executives to look at what could go wrong in the uncertain future of the enterprise. (Somehow threats are easier than opportunties to get departmental budget for.) The standard approach is to break risks down into commonly understood threat categories: a typical analysis would illuminated risks posed by technology failure, communications failure, security failure, natural disasters, accidents, or market/reputation risk, liability risk, financial/credit risk, and so on. This negative-outcome identification is typically followed by strategies to monitor, minimize, or control the risk event or its impact.

Doing all this is great, BUT it is just a narrow part of enterprise and industry foresight. Why? First, industry foresight or futures studies for business is focused as much on the opportunities change offers as on threats. Second, foresight tools (when correctly applied) set themselves the task of enlarging perspectives or mental maps so that we can see more things, or more possibilities than the generally expected set (whether good or bad). Set against this, risk management is little more than the catalog of known threats. The unknown or poorly understood threat, or unseen opportunity missed (and grabbed by others) is likely to be more damaging to the enterprise.

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Normally I make a point of not reposting anything put up elsewhere, but this small list of foresight lessons deserves broader attention than just Electronics Weekly. According to EW blogger David Manners, Tsuyoshi Kawanishi, former CEO of Toshiba Semiconductors in his book Chip Management quotes 10 wisdoms of forecasting, see below.

They have a bit of the fashionable “SunTzu Art of War” feel to them, and some of the quotes may be apocryphal. But no matter. What’s really interesting in this very savvy list is how customer-focused the lessons are. As said in Future Savvy, and one can’t say it too many times, what customers (users, the public) want and the cost-benefit tradeoffs they will make is a MUCH more reliable guide to the future than any techno-fantasy.

The wisdoms also reflect a foresight industry insider truism and paradox: you seldom get to the future by asking the customer directly (e.g. in a focus group) what they would like to have. You have to leap for the customer (and use focus groups only to refine new offerings.)

The list:

“1. St Augustine said that it is a blessing from God that we can’t predict the future. If we predict prosperity, we will become complacent. If we predict evil, we will lose the ability to discriminate.

2 Sharp President Haruo Tsuji: ‘You cannot find out what the consumer wants only by doing market research. You need to pull the ideas out of your brain. Manufacturers of the future should not simply respond to market demands, they must create market demands.’

3. Konosuke Matsushita said: ‘Don’t try to fit your business to a forecast. Fit it to the needs of your customers.’

4. Toshiba President Sugiichio Watari: ‘Money doesn’t come falling into the headquarters of Toshiba. If you want money you need to go to the customers.’

5. President Yoshio Tateishi of Omron: ‘Learn from your customers. If you learn from internal resources you will become self-satisfied. If you learn from your competitors you will fall far behind.’

6. Professor Yoshiya Teramoto of Meiji Gakuin University: ‘When companies start a big market research project, it is one sign of the ‘big company’ disease.’

7. Tsuyoshi Kawanishi: ‘The way to predict the weather is to look at the sky. And, every once in a while, you can make your prediction by simply thinking.’

8. President Haruo Tsuji of Sharp says: ‘Don’t be a spider, be a honey bee.’

9. Takeshi Kaneda, a management critic, says: ‘After elaborate research to find out what the consumer wants, Ford produced the Edsel. It was a complete failure. Ford mistook what the customer wanted for what they would really buy. They ignored their insight and relied on consensus. Japanese tend to emphasize harmony and consensus. But insight and decisiveness can be more important.’

10. Someone says: ‘Figures do not lie. But liars often use figures.’”

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There’s been a storm in the past few days over Amazon.com excluding “adult” books from its sales rankings. Among the almost 60,000 books affected was not just Erotica. Feminist books, Gay & Lesbian titles, and books in Health, Mind & Body, and Reproductive & Sexual Medicine also disappeared from the rankings

Amazon the new Wal-Mart? pic:Huffington Post

According to yesterday’s LA Times Amazon says the whole thing was a cataloging error. But when author Mark Probst had previously contacted Amazon for an explanation, he got this: “In consideration of our entire customer base, we exclude “adult” material from appearing in some searches and best seller lists.”

Aside: Everyone is trying to figure out what Twitter is good for, or how it will be used, and it has become clear that one application is to quickly aggregate mass protest, evidenced in the anti-Amazon outrage, see Twitter “Amazonfail.”

Author Maya Reynolds has been connecting the dots in the future of publishing, watching Amazon move via acquisitions such as Abe Books, Audible, BookFinder, BookSurge, Brilliance Audio, FillZ, GoJaba, Library Thing, Mobipocket and Shelfari.

She is among various industry watchers who claim, with fair evidence, that Amazon is following a “Wal-Mart” strategy – the well-documented essence of which is to gain enough retailer power to be able to pressure suppliers (telling them what to make or what to charge, or exacting special discounts) to achieve better retail prices and get more retailer power, in a reinforcing spiral which, inter alia, squeezes all the healthy mom-’n-pop-shop diversity and other balances of power out of the industry.

In a post of July 08 she paints the full dystopia scenario:
“1. First, the smaller presses, POD presses and e-publishers will disappear as Amazon’s margins squeeze them out of business. Amazon will help the process along by offering better terms to authors if they will use BookSurge’s POD press and Kindle’s e-book to publish. Even if authors don’t embrace Amazon initially, as their publishers go out of business, they will be forced to do so.
“2. Brick-and-mortar stores have two constraints which Amazon does not: (1) limited shelf space and (2) a limited geographic range. Bookstores carry books “on spec,” filling their shelves with stock they hope readers will seek. Amazon, on the other hand, has unlimited virtual shelf space and unlimited geographic reach. Amazon does not have to warehouse stock. They can wait until a book is actually ordered and the money is in hand before using a digital file and BookSurge to print the book. Because they cannot match the deep discounts Amazon offers, bricks-and-mortar bookstores–already under siege–will be squeezed out of existence.
“3. Like Wal-Mart, Amazon will continue to apply pressure on publishers to give more favorable terms. Wal-Mart’s suppliers used cheaper materials and out-sourced to cheaper overseas labor. As the publishing houses’ profit margins are squeezed, their cost-cutting efforts will take three directions: (1) Focus even more attention on signing best-selling authors whose work is guaranteed to sell; (2) Begin to pressure their mid-list authors to accept lower advances and lower royalty percentages; and (3) Sign fewer and fewer new authors because of the uncertainty and the expense of growing a new writer.

Where will they go?

“4. Mid-list authors and new authors, unable to either find a publisher or unwilling to accept the low royalties, will seek to self-publish. Where will they go? Since, by that time, most of the self-publishing houses will have gone out of business, they will go to Amazon’s BookSurge or to Amazon’s e-book division, Kindle. Amazon will welcome them.
“5. The next death on the food chain will be the publishers and agents themselves. First the mid-level publishers will die. Well-known agents and the larger houses will be protected for a period of time by their best-selling authors who are loyal to them. However, as those cash cows die off, so will the agents and larger houses. A new paradigm will emerge: Amazon as both publisher and retailer.
“6. Eventually Amazon will have so much power, they will be able to decide WHAT is worthy of being published. Welcome to the future of publishing.”

Is this the future of publishing? The logic of unregulated industry power suggests it is. But Future Savvy says response – regulation – is also likely. As with Microsoft and many before them, when Amazon gets too powerful, anti-trust regulators should be in business. But only if their hand is pushed. Articulate and persuasive dystopias such as Reynolds’ are the single most powerful mechanism by which the word is spread (spread it! forward it, tweet it!) so that enough consumers get to see and believe threatening future outcomes early enough, and pressure regulators to act.

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The International Herald Tribune (New York Times Global Edition / Reuters Business) last week ran an interesting foresight story headlined ‘Crisis complicates forecasting by luxury brands,’ reporting from the International Herald Tribune’s eighth conference on luxury in New Delhi. The gist was that although most of the famous brands continue to do well despite the recession, luxury sector executives are very uncertain about the future.

Christian Blanckaert, Executive Vice President at Hermès International was quoted as saying: “We have absolutely no visibility into 2009!”

On the one hand, fair enough. This economic downturn is steeper than previous down cycles, and the basic viability of the financial sector has been tested. Access to credit is normally easier in a recession, but in this one it is not. All of which makes luxury spending harder to predict.

No doubt the most unlikely prediction of all would have been that Hermès, Burberry, LVMH, Moët Hennessy, Louis Vuitton, and PPR (Gucci , Yves Saint Laurent) have all recently reported better-than-expected results.

Nevertheless luxury industry leaders have declined to provide investors and analysts with any official outlook. What’s curious, from an industry foresight point of view, is how executives such as Blanckaert thought they really had more “visibility” into any previous year, or that they will somehow gain it again when the financial crisis is over. They will not. The world will continue to surprise them and us. What they will gain, certainly, is a greater likelihood that the standard business-as-usual future assumptions they make will not be upset by reality.

Meanwhile, judging by the conference, the luxury goods industry has a very decent grip on current social and moral trends, and clear insight into the bigger picture of change in its industry over the next five to ten years. As they know from before, what happens in a recession is that luxury goes out of fashion. Conspicuous consumption wanes, or retreats further behind secluded walls. This is a basic pendulum swing that tracks the economy (witness how the early 1990s recession stimulated a return to “values” era after the “me, me, me” 1980s.)

Sustainable luxury

So we are again in a swing to modesty. But we also know that each swing of the pendulum also carries with it the specific issues of its time. Current key issues for consumers in this segment are sustainability, global warming, business ethics, and globalization (or fear thereof).

Therefore the luxury brands will be looking for ways of making, transporting, and displaying goods in an energy-efficient and socially conscious way, including a renewed emphasis on local artisans and traditional craftsmanship that speaks sustainability in both natural and human resources. This will be the basis of the “sustainable luxury,” positioning that the famous houses will define and compete in. Fabulous and renewable  – now there’s something you can charge top dollar for.

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It’s all in a day’s irony when Guinness releases its 250-year view of the future on the day that the UK Chief Medical Officer pleads for a minimum price for alcohol (and Gordon Brown, for now, says no, but don’t bet on that holding for long.)

Guinness' view of the pub of 2259. Image credit: Chris Bainbridge

The Guinness Pub-of-the-Future is a St. Patrick’s day (March 17) promotion. Nothing wrong with a little bit of fantasy foresight. But what they come up is so “20th-century-futurism” it’s hilarious. Among various reports on the project – for example in the Telegraph – the following features are foreseen:

- robotic doorman, greets you by name
- cash obsolete; orders via RFID; payments deducted automatically
- your product tailored to you on the spot
- touch-sensitive tables, send your order straight to the bar
- socializing via virtual / hologram technology
- a running tally of the number of units consumed.

Yawn. Even on it’s own terms (minimal constraints of realism) this is a totally derivative piece of foresight. These “innovations” are the staples of an infotech view of the future, and they have all been thought and spoken of countless times. Also many of the elements and services cited are already here, or not more than a decade away. What we have is the current pub assumptions + digital steriods, while the year 2259 will be, truly, another world.

The limits to growth
But all this leads us to more interesting industry foresight problem. Will there be pubs in even a generation, never mind 250 years? What the Telegraph dryly observes at the bottom of its report is that 39 pubs are closing every week Why? A number of driving forces are coming together:

First is strict drink-driving limits, which makes “the local” literally local or nothing. Second, pubs in the UK have traditionally been a refuge from housing that was poor and/or underheated. Unprecedented waves of affluence (credit-crunch notwithstanding) have led to widespread housing “do-ups.” It’s now a valid option for most people to spend their leisure time at home and entertain at home.

Then there’s the where’s-my-friend trend. You’re likely to go down the pub if your friends are there, but not if they are where most people’s friends are: on Facebook.

The social-legislative clock
Fourth, no matter how you dress it up, pubs are retail outlets. So, like all retail they are under the cosh in a Wal-mart / Tesco world. The price gap between store and pub has become too great for most consumers to cross with good conscience.

Which brings us to the current price-floor legislation bid. Alcohol is a huge social cost in terms of health care and violence. Drink costs the NHS £3bn a year, and the total price of alcohol to the taxpayer is estimated at five times that. Eventually these costs will become unjustifiable so, like smoking before it, the social-legislative clock is ticking for booze. As the 2-martini lunch has become the 2-seltzer lunch, the trend to social stigmatization is clear, and legislators will follow (not with Prohibition, but with a much more subtle community-endorsed squeeze).

Like the good politician he is, Gordon Brown won’t let his party get ahead of the trend. But the trend is clear and it bodes ill for pubs.

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