Many business leaders know they need to innovate. The natural first step is to brainstorm and create ideas or ideation. Ideation is considered the most important step in the innovation process. But relying solely on ideation will not result in the next big thing.
A critical factor is that radical innovation should be future-oriented. Lots of innovative ideas bounce around a couple of years before they break through. Right now, mobile wallets are on the brink of an innovation revolution, but mobile payment systems have been around for almost a decade.
Crash your crystal ball
So, as innovators, we need to look five to ten years ahead. Since it is not possible to predict the future, this is where it gets tricky. Many companies rely on business forecasts based on the current market trends. To counter the unpredictable nature of the future, they make best, middle and worst-case scenarios. This kind of planning works well if the underlying business drivers remain the same.
“But the nature of disruption is that underlying drivers change.”
Suppose you work in the airline industry. Your main drivers will most probably include the average utilization rate of your planes, the average fares paid by passengers, gate and on-the-ground times, optimizing routes and hubs, and fuel prices. So your forecasts will take into account oil prices, growth of GDP (gross domestic product) and new routes, airports expansion, travel trends and innovation aimed at shortening on-the-ground time, increasing fares and increasing utilization rate.
Now suppose that the Hyperloop project from Elon Musk, the co-founder of Tesla and SpaceX, becomes reality. The Hyperloop project is a controversial concept for a high-speed transportation system where capsules would travel through reduced-pressure tubes at jet speed. Using small, lightweight capsules, the system will be solar-powered and it could become a serious competitor for short-haul flights. When you forecast based on what happens within the boundaries of your industry, you probably never would have seen this one coming.
There are many possible futures
So if we can’t predict the future and we can’t forecast the future, then how should we go about it? Well, there is a nuance here. Instead of predicting the future, we should prepare ourselves for the future.
“It’s not a matter of being right, but being ready.”
That means investigating a range of possible futures, understanding the relevant trends and asking those important “what if” questions.
There are two types of trends to take into account: trends with a high probability and trends that are highly uncertain. For the high probability trends, the “what if” questions mostly have to do with timing: what if it happens next year? Or what if it happens in ten years? This will give you a number of starting points for possible futures.
For the more complex or uncertain situations, we like to borrow from the scenario planning method. Scenario planning stems from military intelligence. Analysts would generate different simulations, based on known facts as well as uncertainties, to try to anticipate the next move of the enemy. Since the 1970s, scenario planning has been used in the world of business.
Scenario planning helps us break out of our bad habits. We tend to focus on what we know and think within our comfort zone. The goal of scenario planning is to become aware of the things we don’t know, but which may impact our business. This awareness should help us prepare for potential high-impact changes or events.
The method boils down to this: determine which drivers have high impact and high unpredictability. These are the drivers you should prepare for. Because you can’t predict which direction they will go, you develop various scenarios for extreme cases.
Let’s take the travel industry as an example. Gross Domestic Product (GDP) is a high-impact and uncertain driver. If people earn money, they will travel. When there is a recession, we see that travel is one of the first expenses to be cut. Another high-impact uncertainty might be customer preferences. Today, many customers seem to prefer authentic experiences to luxurious accommodation, but will this last?
Now, let’s take the two most impactful and uncertain drivers. Since we are uncertain about the direction a driver will go, we will need to polarize each driver to the extreme. For example, for GDP, this means economic crisis vs. prosperity. For customer preferences, this means accommodation centric vs. experience-centric. When we put these extremes in a 2 x 2 matrix, the resulting four quadrants will be the starting point for our scenarios.
Whether you go for full-blown scenario planning or a scaled-down approach, the important thing is to be aware of the causal relationship between your business and drivers beyond your current industry. By reading the trends, you can watch out for critical events that might lead to a possible future scenario.
In the next post we will continue with our Future Sketch method and see why we should bring opposing views to the table and how to make trends more tangible.
This article is an excerpt from our upcoming book Create Meaningful Stuff. It deals with the question: how do we, as business leaders, entrepreneurs, designers, engineers and marketers create products and services that add value to our lives, that are smart, sustainable and meaningful?
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