2018 Corporate Foresight Benchmarking Report
Strategic Foresight Research Network How leading firms build a superior position in markets of the future Strategic Foresight Research Network mgmt.au.dk/strategicforesight
René Rohrbeck Aarhus BSS, Aarhus University
Ménès E. Kum University of Münster, University of San Diego
Tymen Jissink Aarhus BSS, Aarhus University
Adam V. Gordon Aarhus BSS, Aarhus University Corporate Foresight Benchmarking Report 2018 3
Executive summary
Future Preparedness is shown to be a factor strongly influencing mid-term future firm performance, and such preparedness can be achieved via the systematic application of future prepara- tion activities, particularly Perceiving, Prospecting, and Probing, as part of the strategic leadership function.
Corporate Foresight is the capability to The study shows that future-prepared develop insights into future alternatives “vigilant” firms enjoy above-average and use this to create or renew busi- profitability and market capitalization nesses to be relevant for the future and growth. Where corporate foresight ensure long term competitive advantage. proficiency falls short by one level with Firms use corporate foresight to identify reference to vigilant firms, “vulnerable” factors that drive environmental change, firms have 37% lower profitability and foresee future market changes, and 39% lower market capitalisation growth. define a superior course of action as their “In-danger” firms fall short by two or industries evolve and change. Corporate more levels. Compared with vigilant foresight offers the possibility of guiding firms, these firms have 44% lower firms away from outdated models and profitability and negative growth. path dependency in changing industries, helping its decision makers define The study indicates that to reach vigilant courses of action that are robust to new future-prepared status, firms need to threats and opportunities. This enables build three core skills: firms to attain superior positions in markets of the future, which allows them »» PERCEIVE continuously, by building to survive and achieve consistent returns, sensors that allow it to detect change despite change. across a broad scope, and deeply analyse the drivers of change Up to this point, evidence of corporate foresight benefit on firm performance »» PROSPECT systematically to antic- has been anecdotal, with difficulties ipate tipping points of important or associated in measuring it and separating revolutionary change in their indus- the role of foresight from other beneficial try. Here firms may for example use activities. However, researchers at the scenarios and build systems dyna- Aarhus BSS Strategic Foresight Research mics models to anticipate unexpected Network (SFRN) have now developed a changes or sizes of future markets. model that empirically evaluates a firm's future preparedness. This is achieved »» PROBE into new markets with via a longitudinal study in which SFRN dedicated budgets and accelerator measured future preparedness in 2008 units to learn and, where possible, and its impact on firm performance shape the rules of the game in future in 2015. The results indicate future industries. preparedness as defined in the study is a powerful predictor for a firm attaining superior profitability and becoming an outperformer in its industry. 4 Corporate Foresight Benchmarking Report 2018
Future preparedness: what it is, why it matters
Research on the long-term survival of significant personal and reputational representation of how well the firm fit established firms in the 1980s shows investments in current solutions and are with its market environment in the past. that average company life expectancy the cohort least likely to question them, They are not forward indicators and do was around 42 years (De Geus, 1997). even if the face of imminent industry not provide any mechanism to foresee Since then, longevity of well-established, change. Their focus is on maximization the potential impact of industry shifts, market-leading firms has fallen even of the status quo, but this crowds out in this example perhaps resulting from further, to 20 years on average (Foster willingness to cannibalise current models autonomous driving, battery powered & Kaplan, 2001). How can firms, that in time to assume necessary positions cars, or shared mobility. Without are financially so powerful and often for when the industry changes, and new processes and indicators of corporate dominant in their industry, fail so fast? products, service, and business models foresight, a company has inadequate During the time that worldwide human are required. Second, future opportuni- forward indicators by which to judge its life expectancy has risen considerably ties require investment and take time to health, as is acutely required in times of due to improvements in medicine, mature, and therefore look unattractive industry evolution and change. nutrition, safety and exercise, firms have when compared to present successes. descended further into an unhealthy For example, if management has profit Part of this lack can be seen in how firms lifestyle of short-termism, and lack or margins of 50% in an energy business, it very rarely track missed opportunities, do not implement mechanisms to put will be very difficult to find future growth and the loss of congruence with a chang- them on a path to mid- and long-term opportunities that have the same short- ing industry that these imply. When our survival. At SFRN, our findings suggest term profitability outlook. By their nature researchers asked whether a manager that, on average, firms’ management future business opportunities initially was more likely to lose his or her job, if spends too much time competing against appear less attractive than established (a) sales numbers were missed, or (b) if their current rivals within current lines of business. the opportunity to enter a new market industry conditions, enacting near-term was missed, the answer is overwhelm- wins. This comes at the cost of failing Among the explanations that executives ingly (a)! But missed opportunities are to build superior positions in markets gave for endemic short-termism in the canary in the mine—early indicators of the future, and with this, superior SFRN research interviews was the of non-adaptation to changing industry performance and firm longevity over the lack of tangibility of the factors that conditions, and a harbinger of inferior longer term. threaten their survival. Consider the performance and possibly premature case of a car company that currently corporate death. Past success breeds future failure, and enjoys healthy profits. The metric by firms operating a highly profitable which managers and their boards judge business are at most risk of future company performance are quarterly or obsolescence, for various reasons. annual financial figures. But these are Currently successful managers have at best backward-facing indicators, a Corporate Foresight Benchmarking Report 2018 5
If you invested However, If you to become vigilant have deficiencies 2008 2015 your odds are your odds are 44% 15% to be an to be an outperformer outperformer 44% 65% to be an to be an average performer average performer
12% 20% to be an to be an underperformer underperformer
Future Preparedness in 2008: Vigilant Deficiencies
FIGURE 1: BENEFITS FROM A HIGH FUTURE PREPAREDNESS DEPARTMENT OF MANAGEMENT RENÉ ROHRBECK AARHUS UNIVERSITY (ROHRBECK & KUM, 2018) JUNE 2017 PROFESSOR OF STRATEGY 6 Corporate Foresight Benchmarking Report 2018
Research study and findings
Corporate foresight is the set of practices that enables firms to attain a superior position in markets of the future by identifying, interpreting, and acting in understanding of factors that are driving industry and market change.
However, when measuring the impact of corporate foresight on firm performance, we need also to account for and assess it against level of its need. In faster-changing more uncertain environments, more foresight is needed. In other words, the research moves beyond measuring absolute levels of corporate foresight to assessing their presence as fulfilment of need.
To describe this contextual presence we apply a novel indicator we call “future preparedness,” which is constructed by assessing the presence of foresight maturity in fulfilment of need for corporate foresight (triggered by levels of environmental volatility and change). Maturity of corporate foresight practices is measured through Rohrbeck’s Maturity Model which is described in the sections that follow.
This section summarises the research the SFRN executed more than 120 trajectory, findings and insights of the interviews with different companies’ top study. and middle management, strengthening our hypotheses and findings (Rohrbeck, The research conducted by the Strategic 2010a). We further enriched and Foresight Research Network at validated our findings, executing more Aarhus BSS analysed future prepared- than 20 case studies with companies ness practices in more than 300 multina- featuring various profiles. tional companies, based on longitudinal data collected between 2008 and 2016 (Rohrbeck & Kum, 2018). To broaden findings beyond quantitative benchmark research, Corporate Foresight Benchmarking Report 2018 7
A. THE CHALLENGE OF MEASURING THE we assessed future preparedness data IMPACT OF CORPORATE FORESIGHT from 2008, which we matched with firm D. MEASURING CORPORATE FORESIGHT In strategic foresight research, up to this performance data from 2015. MATURITY point, evidence of the beneficial impact of Foresight maturity in this study uses corporate foresight on firm performance B. SAMPLE AND DATA COLLECTION the frameworks of firm future maturity has been anecdotal (Rohrbeck, 2012; In total, 467 firms were invited to developed by Rohrbeck (2010a) where, Rohrbeck & Schwarz, 2013; Ruff, 2015). take part in the study, of which 135 based on empirical evidence from 19 case The main reason for the scarcity of participated. Of the participants, 52 studies of large multinational enterprises conclusive evidence of beneficial impact firms provided either incomplete or and 107 management interviews, a model is the difficulties associated with measur- inconsistent data, which reduced the field with five dimensions and 20 elements for ing benefits. In its research SFRN used a to 83 participants. measuring, benchmarking, and enhanc- longitudinal 2008-2015 study to account ing organizational future orientation was for impact of foresight on firm perfor- To collect the future preparedness obtained. mance, beyond the vagaries of short-term data, we relied on a questionnaire that positive or negative events. The time measured corporate foresight maturity The study isolated five capability frame is also judged as sufficient for the with 35 items and corporate foresight dimensions: impact of corporate foresight to play out. need with 10 items. The questionnaire was created both in English and German 1. information usage—the information Past research has found case-based and to boost the response rate from German which is collected anecdotal evidence suggesting a link of companies. An online survey page was corporate foresight activities (sometimes distributed. As an incentive, potential 2. method sophistication—methods individual projects) to local outcomes participants were offered a tailored used to interpret the information (for example, the repositioning of a benchmarking report. product portfolio, which leads to higher 3. people & networks—characteristics sales) (Battistella, 2014; Rohrbeck, 2012; To collect the firm-performance data, we of individual employees and Ruff, 2015). However, it has also pointed used the S&P Capital IQ database. As a networks used by the organization to at the challenge of complex causal links first step, for each firm, we collected the acquire and disseminate information that may confound the relationship profitability and average profitability on change (Subsequent iterations between corporate foresight and firm of the respective industry in our future of the maturity model split these performance. In particular, competitor preparedness database. Here, we were items.) actions and industry-level factors have able to retrieve data from 70 firms. Next, been reported to play an important role we matched the market capitalization 4. organization—how information is in determining firm performance. date from 2008 and 2015 for all publicly gathered, interpreted and used in listed firms to determine the market the organization In our study (Rohrbeck & Kum, 2018), capitalization growth. In this search, we we addressed this in two ways. First, we retrieved the market capitalization data 5. culture — the extent to which the controlled for potentially confounding of 42 firms. corporate culture is supportive of environmental factors by connecting organization foresight. foresight maturity to foresight need C. MEASURING THE NEED FOR and using only the combined construct CORPORATE FORESIGHT Within each dimension, there are three ‘future preparedness’ as the independent To take into account that firms in, for to five elements by which the maturity of variable. Second, we used the ‘outper- example, a very stable environment the foresight system can be assessed. For former’ and ‘underperformer’ clusters, would have a lower need for building each element, four maturity levels have which are populated at industry level, to corporate foresight practices, we been identified, as the following diagram cross-check the whole-sample analyses. proposed introducing a relative measure shows. Taken together evaluating these that compared the need for and maturity elements make it possible to assess the The second main challenge is that of corporate foresight practices. For our proficiency of the organisation in each corporate foresight cannot be expected study, we created a 10-item ‘CF need’ foresight capability element. They also to pay off in the short term. The first con- scale that uses environmental complexity guide improvement of foresight matu- sequence is that scholars willing to study (four items) and environmental volatility rity, as explained in following section, the impact of corporate foresight need (six items) as subscales, to a large extent building future preparedness. to adopt a longitudinal research design inspired by Day and Schoemaker’s (Eberhart, Maxwell, Siddique, Eberhart, (2005) scales. & Maxwell, 2016), as we did. In our study 8 Corporate Foresight Benchmarking Report 2018
Organi ational Future Orientation OFO i Information usage Method sophistication People networ s Organi ation ulture
C ara teristi s o i in ness to s are a ross Rea at it oa ode oresi ters un tions
Readiness to isten to Inte ration it ot er S ope at it onte t Interna net or s outs and e terna pro esses sour es
Or ani ation s attitude Ti e ori on Inte ration apa it E terna net or For a di usion o insi ts to ards t e perip er