Why corporate foresight matters according to research

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Alex Fergnani, Associate Professor of Strategy, Rabat Business School, Olivier Woeffray, Practice Lead, Strategic Intelligence, World Economic Forum

• Research highlights that corporate foresight can have multiple benefits.
• Foresight can unlock more flexible decision-making, promote entrepreneurial behaviours, increase sense of agency and drive firm performance.
• Foresight can be a powerful vector of engagement and transformation for
  organizations, benefitting society in the process.

Corporate foresight is a set of methods that help organizations improve decision-making in uncertain and complex environments. However, despite its long history, surprisingly little has been done to empirically examine its actual benefits for organizations and their decision-makers.

With this in mind, and recognizing the importance of building an evidence-based understanding and implementation of foresight, we have extracted key results from scientific research on this topic. Some of these focus on scenario-planning, one of the most widely known foresight tools. Scenarios help articulate, extrapolate and look beyond a variety of trends and signals to help organizations transform uncertainty into a strategic advantage. Here are the different benefits of corporate foresight according to research:

1. Making decision-making styles more intuitive

Studying close to 90 managers and executives in a US technology firm before and after a major scenario-planning effort, Chermack and Nimon observe a significant impact of scenario-planning on decision-making styles. This includes a shift from a rational to an intuitive decision-making style. While rational decision-making tends to assume that all available information about a business environment is accurate and reliable, and that one single optimal solution exists, intuitive decision-making is more likely to be open to a variety of alternatives in problem-solving.

While all decision-making styles can be affected by bias, a balance between rational and intuitive decision-making styles is likely more appropriate to navigate uncertainty. It is preferable to leaning purely on facts and statistical analysis to find the “right” course of action, or an overly rational commitment to a predetermined strategic plan that can impede spotting peripheral opportunities.

2. Supporting more flexible and agile choices

Looking at experts’ judgement at the US transportation department before and after practising scenario-planning on long-term transportation infrastructure investments, Phadnis and colleagues also highlight evidence of a positive impact of scenarios. Participants were more flexible in their investment choices after exploring and evaluating scenarios, making them consider more options than they would have otherwise done before the scenario intervention.

This suggests that foresight practices where multiple scenarios are evaluated may help to de-bias experts’ judgement about the future. Indeed, though the many studies that investigated whether scenarios could remove experts’ overconfidence about the future have shown mixed results, there is reason to believe that this is due to the difference in the scenario interventions used. Scenario-planning, if practised skilfully, would likely remove experts’ bias on the perception of a single and most likely future, leading to more flexible and agile choices.

3. Promoting entrepreneurial traits

In their research, Bouhalleb and Tapinos studied the causal link between scenario-planning and decision-makers’ behaviour, organizational learning and culture. They highlight that scenario-planning promotes entrepreneurial traits such as risk-taking and proactiveness. Scenario-planning can foster organizational confidence in preparing for uncertain futures. Instead of focusing on the short-term horizon, the organization can take more proactive actions to avoid threats while exploring riskier opportunities, becoming more entrepreneurial.

Scenario-planning promotes an entrepreneurial culture in the firm as a whole. This is more stable and long-lasting than entrepreneurial traits in individual members of an organization, which may create conflicts when they are not supported by the organizational culture.

4. Increasing agency to solve industry-level problems

Looking at the joint practice of scenario-planning between buyer and supplier organizations, Phadnis and Joglekar find additional benefits of foresight for companies. The research assessed the impact of collaborative scenario planning through a role-play between decision-makers from a UK-based retailer and an EU-based manufacturer, facing the uncertainty of Brexit.

The results suggest that joint scenario-planning helped individuals involved to identify new elements in their environment that they would not have seen if they had practiced scenario planning separately. Collaborating also increased the sense of agency of the organizations involved, seeing variables that they were separately seeing as beyond their control as elements they could now jointly influence. Collaborative scenario-planning has, therefore, the power to increase organizations’ agency to solve industry problems.

5. Driving firm performance

When studying close to 90 multinational European firms over the course of seven years, Rohrbeck and Kum were able to measure the impact of corporate foresight on firm performance. They conceptualized future preparedness as corporate foresight capabilities corresponding to the level of uncertainty in the environment of a firm. They were able to classify companies into four types:

• Vigilant: foresight practices match the level of uncertainty of the environment
• Neurotic: foresight practices exceed the need of the environment.
• Vulnerable: foresight practices fall one level short of what would be required by the environment.
• In danger: foresight practices fall more than one level short of what would be required by the environment.

Vigilant firms outperformed the average, showing a 33% higher profitability and a 200% higher market capitalization. For instance, an automobile manufacturer with foresight integrated in strategy, R&D and marketing, and with strong collaboration programmes with start-ups, became the first mover in car-sharing business models and in the development of hybrid motors.

Conversely, a supplier of chemical products with no effective sensors for market signals, remained focused on its core product line (graphite electrode), which accounted for 40% of its revenues. Poor attention to potential future technologies likely contributed to a failure to anticipate the potential commoditization of its core business. As a result, they lost a large proportion of market shares.

Implications for business and society

From firm performance to societal impact

Foresight supports some of the traditional firm performance indicators, as shown in Rohrbeck and Kum’s research. This is crucial as foresight is more likely to be embraced by executives if they see its value in terms of competitive advantage. However, this does not mean that higher goals cannot be achieved. Indeed, just like entrepreneurship and its transformation into social entrepreneurship, corporate foresight practices can also benefit society.

This is evidenced by numerous corporate projects that substantially contributed to broader social, environmental or cultural goals, such as Disney’s edutainment efforts for children or Daimler’s car-pooling services to fight climate change. The potential of scenario-planning to transform social dynamics beyond single organizations is not only systematically evidenced by Phadnis and Joglekar’s research, but also by a variety of case studies, such as Kahane’s work with transformative scenarios.

The power of shifting mindsets

Additionally, many of these findings suggest that foresight can beneficially alter decision-makers’ mindsets, leading to the most profound and structural change that can take place in an organization, above and beyond routines, norms and culture. This is fundamental in a context in which nearly 40% of CEOs believe their companies will not be economically viable a decade from now unless they transform themselves.

System leadership and stakeholder capitalism

Yet, foresight practices are also increasingly undertaken in conjunction or through direct engagement with external stakeholders. This follows a broader trend towards stakeholder capitalism, further underscoring that foresight, along with leadership, goes beyond the stereotype of the detached visionary executive single-handedly directing the organization on the correct course of action. Rather, corporate foresight means having systematic processes in place to scan, make sense and act upon a multiplicity of futures. These processes are, to some extent, collective and distributed, while also responding to prompt decision-making requirements at the top of the organization.

Evidence is mounting that corporate foresight is beneficial to the bottom line of corporate organizations. It does so by substantially altering the mindset of decision-makers inside them, representing a powerful vector of engagement and transformation for the organization. Not despite corporate foresight, but because of it, society can benefit in the process.