The Perils of the Official Future

A recent discussion with a colleague prompted me to revisit something I wrote a few years back and is something we use with clients.  It’s on the dangers of the “official future” that exists inside organizations.

~Christian

The Perils of the Official Future

Imagine driving a car along a suburban street. Ahead of you a car is turning left, there are pedestrians jogging on the side of the road, and a truck seems to be stopped in the distance. Quickly your mind arrives at probable and alternate ways the immediate future will unfold. Based on the speed of the joggers, it is probable that the car will turn left before they prevent him from doing so, and therefore you will be able to navigate around the stopped truck without significantly slowing. But alternate futures may also occur: what if the car decides to be cautious and not turn ahead of the joggers? What if the joggers speed up to get across the road before the car turns? What if the truck starts moving? What if it backs up? Many times a second your brain updates these scenarios with what it sees happening, and you decide to swerve, brake, or speed up accordingly.

Now imagine after the first view of the situation, you stayed with the initial assumptions about the future and did not have the opportunity to update them as real events unfolded. You might be the cause of a major accident. This is the danger of the “official future”.

Organizations typically develop shared assumptions about the future over time. This “official future” is informally developed over the course of operations, as management and frontline employees interact with each other in the running of the business. While it facilitates faster decisions it also carries the danger of being informal and singular in nature. Informally held beliefs are difficult to challenge, and errors in judgment can persist in organizations long after the current reality has changed. It is also impossible to predict the future, so in all probability a company’s official future is not the way the real future will turn out, either in subtle or significant ways. Organizations are better served being aware of the different ways the future may unfold.

Often the first step in any foresight and innovation process is to surface the official future and identify the gaps and issues it may cause moving forward.  Some of the official future is important to understand and keep.  Conventional wisdom of how the market and customers behaves are critical inputs to a foresight and innovation process. But it is also important to see how new forces in the external environment might shift in ways not expected in the official future. These shifts can create new opportunities for the company or threaten core sources of value.  Those are ripe areas for innovation and change.

So ask yourself – does your company have an official future? Take a few minutes and write down the core assumptions it embodies.  Now take a fresh look at the forces and emerging issues impacting your industry.  With little effort, you should find some places where the world will shift around your company in ways not accounted for in the “official future”.  That means it’s time to embrace a formal process of foresight and innovation.

The Hidden Dangers of Perfect Prediction

In Greek myth, Cassandra was given the gift of true prophecy by Apollo, but when she did not return his love he cursed her to be disbelieved by all who heard her.  As a result, she was blessed with the ability to see the future, but was powerless in her ability to alter it.  There is a deep lesson to the curse, which is that perfect prediction implies an inability to change the future.  If something is perfectly predictable, no actions by any agency can alter the forces creating the future.  In a perfectly predictable world, everyone is doomed to make the best of what is given.  Only in uncertainty can people or organizations hope to drive change in the world or in their own destinies.  Uncertainty creates the power to change. 

Scenarios offer a range of alternate futures because the future is not predetermined, and the actions of people and institutions will shift how the future will turn out.  In their plurality, scenarios offer choices to organizations.  However, it is also true that people and organizations inherit a world in which major driving forces of change have momentum.  These driving forces include global trends such as the economic and political growth of the developing world, sustainability and resource constraints, and the global calorie imbalance.  These currents of change cannot be entirely altered or stopped, however like a river they may be guided in different directions.

The Cassandra myth offers another powerful insight – that parts of the future that are most probable can be perceived as impossible and disregarded.  This is due to mental models, informal and tacit understandings of the world and the future people create based on experience.  Studies have shown that the human brain takes considerable time and energy to create a mental model of the future that dictates all decisions, even reflex actions.  All information about the environment and the future is filtered through it.  Contradictory information is either rejected or rationalized.  When the environment changes, the brain continues to make decisions based on an outdated mental model, often leading to injury or death. 

Just as people develop mental models, so do organizations.  Like individual mental models, these “official futures” that exist in organizations are often unexamined, tacit systems of thinking and behavior that have developed over a long period of time, and act as filters to interpret external events and conform organizational behavior.  Any future that differs from that mental model, however plausible, will most likely be rejected. Organizations, just like people, cannot predict the future, so the “official future” inside an organization is wrong, yet it continues to guide decisions every day. 

Therefore a basic tenet of futures studies is that images of the future affect the decisions people make and how they act. It assumes that human will can affect the course of events to create futures that are significant transformations of the present. Images of alternative futures inform action by providing an intellectual fulcrum with which we can critique the “official future” and open the organization to updating the image of the future being used to make decisions by the C-Suite or frontline employee. 

The BoP as a Source of Competitive Advantage

It was a revolutionary idea that Prahalad put forward over 10 years ago when he reframed the world’s poor not as a target for aid, but as a huge potential economic market to be tapped. More recently that point of view has become more nuanced as multi-national corporations (MNC’s) have gained experience in the Base of the Pyramid (BoP): to grow sustained profits, companies needed to shift thinking about the poor not just as a market demographic to be exploited but as co-creators for building local capacity and systemic solutions to poverty.

That shift of mind has created a new source of competitive advantage. Companies are designing new products, solutions, value chains, and business models that survive and thrive in the BoP’s significant price, energy, and distribution constraints. These products can be introduced into mature markets with a few modifications at very disruptive price points or service levels, a practice termed “Trickle Up Innovation” in articles in Fast Company and BusinessWeek.  Suddenly BoP markets are not just adjacencies used to marginally increase global sales, but sources of competitive advantage that offer companies places to develop, test, and export disruptive innovation.

McKinsey Quarterly’s What Matters ran Iqbal Z. Quadir’s response to the question “Will Asia become the center for innovation in the 21st century?” He asserts that the massive BoP markets in Asia are now an asset that the region can use to become the leader in innovation globally. He provides 5 reasons, which I paraphrase below:

1. The entrepreneurial and inventive nature of the Asian BoP market will develop breakthrough innovations from existing technologies

2. The need to address the BoP in Asia will create innovations in products, forms of employment, and distributions schemes

3. Innovations in energy and materials are needed to serve these markets cost effectively (not sure how this is much different than #2)

4. The relative absence of existing 20^th century infrastructure will allow Asia to leapfrog to 21^st century technologies and communications networks

5. Continuing governmental and economic liberalization will unleash masses of human capital currently under-leveraged.

A Global Opportunity

Looking at this list I couldn’t see much to disagree with as factors that may spur disruptive innovation. What I didn’t understand was why the author felt this list allowed Asian companies to exclusively develop trickle up innovation. US and Europe headquartered MNC’s have a large and growing R&D presence in Asia that allows them to directly participate in these markets, experience the constraints and design new products. Last I checked, some of the best examples of trickle up innovation were by some of these companies. GE’s India-based R&D group developed a low-cost ECG machine now being marketed in the U.S.  Grameen Danone created a minimal refrigeration distribution channel for the Indian market that it is now moving into developed markets due to its lower energy and carbon footprint. The US-based OLPC push to develop ultra-cheap computers for the developing world has created a new netbook category currently enjoying the fastest growth of any PC segment. The pay-as-you-go SIM card model for cell phones developed in Europe is spurring new applications in developing regions around mobile banking.

Even if Asia could somehow wall off its valuable BoP resource, the constraints of poverty are not the provenance of Asia alone. While WRI’s definitive study “The Next 4 Billion” lists Asia as the single largest BOP market at $3.7 trillion, Latin America and Africa have a $1 trillion potential market combined. Even these days, that’s a lot of money. Just south of the U.S. lies Mexico, in which 75% of the population is considered part of the Base of the Pyramid. In fact, there are plenty of underserved communities in the U.S. that may not have the infrastructure challenges of the BoP, but certainly exhibit cost constraints, language barriers, and distribution challenges. While at the Waitt Foundation, I helped fellow directors plan and run a meeting that brought together public and private stakeholders together at MIT to explore how appropriate technologies could be developed for these communities. It is a ripe market that remains largely untapped.

Some of these issues work across income. Energy and sustainability issues are not constrained to the BoP; they will impact all value chains at almost every income level. The high end luxury market for “green” products is booming, and one only need look to Tesla and Fisker Automotive to see the levels of investment in this category.

Quadir’s list does succeed in pointing out why a substantial portion of disruptive innovation will come from the BoP. The bigger point is that this resource is there to be developed by anyone, providing they also heed the design principles and business strategies of developing products for the BoP, and have the ability and courage to introduce the resulting disruptive innovation back into their core markets. That is fodder for further posts...