Planning for an Uncertain Future
Strategy is built on an anticipation of the future operating environment. This maxim is true for businesses as well as governments. A strategy is an inherently forward-looking artifact that sits on top of a variety of assumptions about the future behavior of customers, competitors, and suppliers, as well as regulation, risk, and market dynamics. These assumptions extend as far into the future as the strategy timeline—a three-year strategy is making assumptions about the next three years, while a five- or ten-year strategy looks farther into the future.
One of my central observations resulting from my experience working on strategy development with a variety of private- and public-sector organizations throughout my career is that most organizations spend a disproportionately small amount of time and energy identifying and validating these key assumptions. Some organizations are only tangentially aware that they are even making assumptions about the future. The majority of time and resources are spent focusing on the entity developing strategy—what are we going to do, to whom, how, and when. These are important questions, to be sure, and must be understood and addressed in order to build an effective strategy.
However, when we study cases where business or government strategy has failed, of which there are many, we see that strategy fails more often because it is built on an incorrect understanding of the future operating environment then because of a bad plan. Leaders who have elevated themselves to the position where they are making strategic decisions tend to have a firm understanding of their organization, industry, and market. These people know what they are doing and develop solid plans, but those plans tend to unconsciously discount the possibility of significant change in the future. Most strategy is developed on the basis that the future will look similar to now. We project more growth, more apps, and more continuation of existing trend lines, but very rarely do organizations step back and truly invest energy and resources to understand the future operating environment in the robust fashion needed to make more deliberate and informed assumptions.
Organizations must understand and evaluate technological, socioeconomic, and geopolitical forces in order to build accurate assumptions. We live in a world of increasingly rapid change, which is a function of both technology and globalization. Technology, namely the computing revolution and associated modeling and simulation technologies, has completely changed the innovation paradigm, allowing for shortening cycles between major developments. Globalization has connected industries and markets to an extent never seen before, which means that disruption in one region or industry spreads horizontally to other regions and industries to a far greater extent than ever before.
Joseph Kopser and I wrote Catalyst: Leadership and Strategy in a Changing World to help professionals both understand the evolving nature of leadership and strategy development in an environment of rapid change, and identify several of the technological and socioeconomic forces that we anticipate will drive structural change. These forces, along with an accurate understanding of the future geopolitical environment, must be accounted for during the strategy development process:
Cities: World populations are increasingly moving to urban centers, dramatically increasing population densities in cities worldwide. The result of these pressures is more large cities and mega-cities worldwide, which creates a new set of transportation, sanitation, and infrastructure requirements for cities, and changes market dynamics for companies. New technologies, processes, products, and engineering solutions will be created to address the unique issues resulting from the unprecedented rate and scale of urbanization that is happening now.
Work: Declining birth rates in developed economies are leading to aging and shrinking populations on a sustained basis for the first time since the Black Death in the 14th century. This impacts consumption patterns and service requirements, and skews social systems based on having many workers available to support each retiree. Machine learning and AI technologies are nearing an inflection point, which allows software and robotics to replace workers in more advanced roles than ever before. The convergence of these factors will impact all developed-world citizens, companies who employ people and sell goods, and governments at all levels.
Manufacturing:The continued development and eventual widespread adoption of 3D printing will change the shape of global trade. A significant portion of global shipping is predicated on the low-end manufacturing model, where simple items (door hinges) and subcomponents for more complex products (iPhones) are produced wherever in the world they can be made most cheaply, then shipped to an assembly facility or directly to consumer markets. Additive manufacturing will decrease the cost variance between manufacturing items locally and in developing markets, incentivizing more localized or regionalized manufacturing.
Power: Renewable energy is nearing an inflection point where it will be cheaper in many use cases than traditional power. This is not a result of politics, wishful thinking, or government subsidies – it is the result of the billions of dollars that are being poured into battery technology innovation by Tesla and others who are developing electric vehicles. Effective grid storage batteries fundamentally change the cost dynamics of power generation. When unsubsidized solar and wind power becomes cheaper than traditional coal, gas, and nuclear power, the calculus for a variety of economic and policy decisions will shift significantly, with global effects.
Machine learning, augmented reality, health technology, and blockchain:These technologies are nearing inflection points which we anticipate will have broad, system-wide impacts. While many interesting technologies are introduced each year, we are focused on those that affect basic human needs and interaction protocols. Machine learning and inference-based software drives a reinvention of technology tools as significant as the introduction of the internet in the 1990s. Augmented reality brings the digital world into the real world, creating a new application layer and putting additional pressure on the value of skilled labor. Health technology enables longer life, greater productivity later in life, and enhances human capability. Blockchain provides a distributed trust mechanism that facilitates new types of digital interactions between people.
Catalyst is a call to action for organizations to be more proactive and deliberate about building an informed picture of the future when building strategy. We will see an amazing amount of technological, socioeconomic, and geopolitical change in the next 20 years, which will create opportunities and risks for all types of organizations.