The Perils of Present-Forward Thinking

“What got us here will not get us to the future.”

We wrongly tend to believe that an existing business can be extended out in time indefinitely by simply continuously making incremental improvements to it. That next year & the year after are going to be merely an increment of this year's performance with a standard deviation ( worst/best cases scenarios that are mathematical variations). Noting along the way that this year is also an extrapolation of last year, and so on...

Let us see why this though model is not only a fallacy but even a dangerous one: Kodak for instance thought that the business of film camera will continue to grow with additional improvements of film quality. Vinyl disc thought that music will always be listened on LPs at home provided they improve on the disc quality & /or price. We all know what happened to these industries.

Had Kodak & Vinyl companies understood that they are respectively in the 'Capturing & sharing magic moments' (versus film market) and in "the music everywhere/anytime' business, they would probably be still around and doing extremely well. Had the train companies understood that they were in the transportation business, they wouldn't have been disrupted by the advent of automobiles. They all simply couldn't imagine their business other than within the narrow product definition they were in.

The lesson is 'do not define what you do by the product you sell'. Or as Peter Drucker use to say: "People rarely buy what the business think it is selling them".

So why despite knowing the fatalities of getting stuck in the present, many smart CEOs and executives do nothing? One reason is well summarized in what Innosight called 'The Tyranny of the Urgent': an analysis of the calendars of twenty-seven CEOs over a full quarter showed that, on average, they had thirty-seven meetings per week, which took up 72 percent of their time. Is it any wonder they have so little time to imagine a better future?

Another reason is corporate inertia. If Newton’s first law is the law of inertia, it is also, unfortunately, the first law of established organizations. When they are at rest, they tend to stay at rest. And when they are moving in a given direction, it requires them a great deal of energy and effort to alter their courses. The other reason is that so much of the management philosophy we still apply was created more than a century ago to ensure efficiency and repeatability. Executives are trained to gather and analyze data and base their decision-making on what it tells them. But such data is by definition from the past. Managing in such a way is entirely appropriate when your goal is to win the game you’re (and your competitors) already playing, but it cannot take you ahead of the curve of change. It won't allow you to anticipate the future and lead in it.

“The only sure way to increase shareholder value,” as Roger Martin has noted, “is to raise expectations about the future performance of the company. Unfortunately, executives simply can’t do that indefinitely. Shareholders will look at good results … and ratchet up their expectations to the point where managers can’t continue to meet them.… So the executives invest in short-term strategies, hoping to get out before the inevitable crash.

”To achieve and sustain breakthrough growth, you need to master a different managerial approach, one that is more intuitive but no less rigorous. One in which uncertainty is high and the outcomes are yet unknown; future-back thinking, it's called, is low in initial knowledge and high in assumptions—its aim is to discover what could be true. It is all about anticipating and shaping the markets of the future. So how to go about it?

• First you need to set a clear Vision. Having a clear point of view on the markets of the future and the role that your organization can play in that new and different world. Having a really powerful vision, targeting the right time horizon, can unleash the potential to transform whole industries.

"If everything you do needs to work on a three-year horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.”-Jeff Bezos.

• Walk back from your vision into the present, translating it into a clear strategy, with explicit benchmarks and goals. programs and initiatives in the present that set you up to evolve into the future state.
•  Prepare for and manage its implementation. Most organizations leap from strategy to execution, using the structures, processes, rules, and norms that guide the execution of their core business to carry out their outside-the-core initiatives. A strategy must be carefully nested into an organization before it can be effectively implemented. Your growth team structure, incentives, processes and modus operandi must be different than that looking after the core business.

“Most incentive systems are backwards,” Scott Cook, the cofounder and leader of Intuit and a member of the boards of P&G and eBay said in an interview. “They pay for last year’s successes. Yet investors invest for a company’s future performance.”

What does it all mean for companies operating locally & in the (troubled) M.E region? it means that they can't continue playing the short-term games over & over again and expecting different results. Owners at these firms must take the long-view and imagine their business, markets & customers in 5-7 years from now then ask themselves the questions:

• How different from today, my customers would be, what value proposition can I offer to stay relevant. What do they really care about?
• What are the disruptive shifts happening in the market? What used to mater, might not matter anymore? What do they wish we do that we don't?
• How technology, economic & social influences will play out on the company's offering? What if a competitor with more agile business model grab our lunch?

But the other crucial question remains: What about today? my end year results, how can I sustain and grow what I have so I can start thinking of tomorrow? This is a very important issue hence why you get your core team focusing on core growth by improving the core's efficiency & exploring easy-to-achieve adjacent growth that can leverage existing capabilities. As for the future-back transformation, the CEO must champion the search for new growth area. Set a dedicated team, with the help of external party to inject fresh perspectives and reduce internal biases, to explore the longer trajectory of the company.

Let's therefore call it a two-track business growth:

• Track A: is about improving what already exists. It is a different way to deliver against a market need that has already been validated via better efficiency measures like process improvements, automation, cost reduction, etc. It is called an 'inside-out' approach. It can also include the exploration & development of adjacencies such as line extensions.
• Track B: is about finding a new way to solve a different/new problem. Success therefore comes from identifying problems that the target customer historically has wanted to solve but can’t or is using less-than-ideal solutions, iteratively fine-tuning a new business model, and using partnerships, acquisitions, and external hires to accelerate the development of capabilities required to win against a new competitive set. A good example is Amazon Web Services. Amazon identified new customers with new unmet needs (small corporation needing easy & cheap way to operate their IT and e-commerce systems). This move is today well connected into Amazon's global digital offering yet it was none-core when the company was first incepted as a digital bookstore.

What is important is to continuously look outside your building, keep your pulse on the market to monitor signs that might signal your business is loosing momentum:

• Decline in customers loyalty
• Decline in profit margins
• New entrants with successful new business model ( Tech. enabled)
• Customers habits shift
• Change in government policies/regulations

As the futurist Bob Johansen puts it, the idea is to hone in on what you know will be different while reducing your overconfidence in business-as usual. “The future will reward clarity,” he says, “but punish certainty".

Do give us a call or drop us an email if you wish to discuss more about the future or how we can help you shape it for your company.