Planning for future uncertainty is a hot boardroom topic. It’s especially true now as we continue to deal with the fallouts from the COVID-19 pandemic: dramatic changes in customer behaviour, shifting media consumption, supply chain challenges and overall economic upheaval.
History shows that, in times of disruption, organisational resilience depends on adaptability and decisiveness. Yet many organisations base decision making on hindsight (understanding what happened) and insight (understanding why it happened).
Living in a VUCA world
In a world now plagued with volatility, uncertainty, complexity, and ambiguity (aka a “VUCA” world) - hindsight and insight are no longer sufficient to accelerate sustainable growth and gain competitive advantage.
To quote Professor Klaus Schwab, the founder and executive chairman of the World Economic Forum: "The pandemic represents a rare but narrow window of opportunity to reflect, reimagine, and reset our world."
We now have an opportunity to reimagine how we manage uncertainty and navigate towards accelerated and sustainable growth. To do this, organisations need foresight.
From uncertainty to manageable risk
Foresight takes uncertainty and turns it into manageable risk. It considers what is most and least likely to happen in the VUCA world and reveals the signposts and probabilities of them happening.
Some fascinating examples of foresight already exist. Who would have foreseen, for example, that the Chinese e-commerce platform JD.com would outplay its competitor Alibaba by reliably delivering goods when lockdown hit (and increasing revenue by 21 per cent in the first quarter of 2020) while Alibaba struggled to find couriers. Recruiting the right volume of couriers at the right time required foresight.
Whether it’s the shift to hybrid working, skyrocketing growth in e-commerce or chip shortages affecting the supply of new vehicles, VUCA events will continue to affect all organisations for the foreseeable future.
Scenario analysis by McKinsey shows that a single, prolonged supply-side shock would wipe out between 30 and 50 percent of one year’s earnings (EBITDA) for companies in most industries. The same study classified different types of shocks based on their impact, lead time, and frequency of occurrence, ranging from theft and common cyberattacks to pandemics and climatic events such as hurricanes. But knowing which possible events to focus on is not an easy task.
The goal to accelerate digital transformation via online selling and marketing started in 2013 for L’Oréal. When the COVID-19 pandemic hit, the company was well positioned to shift ad spend online. In the first quarter to the end of March, ecommerce sales grew 53% in comparison to the previous year. L’Oréal had invested in this future lever of growth and it paid off handsomely at a time of unforeseen market upheaval.
Diagnosis before cure
But how do you continue to make good decisions and successfully plan in a VUCA world? First, it’s important to understand what types of challenges your organisation is likely to face. Before you can cure, you must first diagnose.
Are you facing volatility resulting from an unpredictable supply chain? Or uncertainty caused by new entrants competing with your products? Or complexity due to regulation changes? Or ambiguity raised by not knowing if the current vaccine will protect the population against new variants? Knowing the type of challenge, or combination of challenges, you face is an essential first step.
To make data-informed decisions that accelerate sustainable growth, organisations need faster, smarter, insights that are unified into a single version of the truth to understand what has happened, why it happened and what to do next.
Foresight is key to the unified version of the truth; it enables decision-makers to war-game and simulate; scenario plan and optimise; identify and track leading indicators and to understand the risk and impact of “wild card” events.
A single system for all-round future confidence
We have a unified decision-making system at Gain Theory - HiFusion - that fuses hindsight, insight, and foresight, across all sources and levers of growth, both known and unknown. It identifies long-term strategic opportunities and answers near-term tactical performance questions.
In the HiFusion decision making system, there is a rich arsenal of foresight techniques to uncover future states of demand depending on the VUCA challenge faced:
• Future Back Thinking: defining the desired future and then working backwards to identify the potential specific actions and signposts that connect the desired future to the present. For example, setting a target to be net zero carbon by 2030 might involve several potential actions such as planting more trees or swapping to solar power. However, the signposts, such as famine and food shortages, might indicate that planting trees is no longer an option and that we need to switch to solar power as land costs soar.
• Delphi Method: developed by Project Rand in the 1950s, the method uses a group of experts who anonymously and repeatedly reply to questionnaires about the future, receiving feedback as a statistical representation of the group’s response. The aim is for the group response to converge after each iteration of the questionnaire, ideally resulting in consensus of expert opinion. While the overall accuracy is mixed, the method is used when looking at long-term trends in policy making and technology development.
• War gaming simulations: simulating different competitive settings and the impact on consumer demand. For example, the increase in demand for used vehicles during the chip shortage, depending on the duration of the shortage and the actions of competitors.
• Forecasting: projecting future events by taking signals from the past mixed with likely future states caused by internal and external factors and shocks, such as pandemics, international tension, climate change and competitor threats. For example, how will grocery evolve to meet the challenges of rising interest rates and potentially lower demand in 2022/23?
• Lead Indicators: measurable signals that provide an early warning system or prediction of what the situation could be in the future. For example, new car registrations used to be a reliable lead indicator of economic strength and consumer propensity to spend. But in the face of supply constraints, how reliable is this indicator today?
• Scenario planning: making assumptions on what the future is likely to be and how your business performance might be affected, for the purpose of creating a more robust strategy. Often scenarios are run under “what if?” assumptions to work out the best possible path. For example, looking at the impact on both short and long-term sales and profit resulting from pulling all advertising in the final quarter of the year.
• Trend analysis: collecting qualitative and quantitative information to spot patterns or new trends, and thus paint an indicative picture of what might happen. These trends can often be used later in scenarios. For example, Wunderman Thompson’s “The Future 100: 2022” which forecasts 100 trends to watch in the coming year or GroupM’s "This Year Next Year" forecast of ad spend, used to augment media response curves in future marketing campaigns.
By fusing hindsight, insight and foresight, HiFusion enables organisations to identify future sources of growth and give confidence to decision-making across all levers of growth. It enables organisations to invest in the right data sources, technology, and methods to confidently answer questions around:
• the role of brand equity and customer experience in maintaining price resilience
• the short and long-term impact of investments
• drivers of customer choices and product trade-offs
• identifying and tracking signals that provide an early warning system
• targeting new audiences based on their motivation
• acquiring new customers in a cookie-less world of walled gardens
• conducting complex multi-test-and-learn experiments at scale
• preventing customer churn
• growing spend from existing customers by making the right recommendations
• …and, ultimately, judging correctly what is likely to happen in the future.
HiFusion creates a holistic loop to support strategic decision-making by weaving foresight, insight and hindsight across time horizons and a range of stakeholders. It unifies tactical execution, plus annual and longer-term strategic planning into a single measurement system.
In a VUCA world, navigating the range of future possibilities to accelerate sustainable growth requires an organisation to invest with confidence. Foresight gives us the ability to manage uncertainty and, ultimately, create and tap into future states of consumer demand.
By knowing tomorrow, we can disrupt today.
Claudia Sestini is global CMO at Gain Theory