What is Strategic / Continuous Foresight?

Foresight is a systematic process of gathering future-relevant information through environmental scanning activities to extrapolate different plausible scenarios that could benefit the strategic development of an organization. In other words - it's the way we want to tell in which areas we want to invest, in order to stay competitive on the market. For that purpose, we usually refer to these areas as to "Focus Areas".

Strategic foresight allows businesses to anticipate and navigate the uncertainties of the future. It is a methodical approach that uses various tools to understand trends, pinpoint disruptions, and consider different future scenarios. By adopting this approach, companies can react swiftly to new challenges and prospects. This guide will delve into the fundamental aspect of strategic foresight functionality and offer advice on incorporating the key element to make sure Strategic Foresight finds out the right Focus Areas on our way.

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Difference between strategic foresight and continuous foresight

Strategic foresight and continuous foresight both aim to anticipate the future but in practice, vary in methodology and engagement frequency. The truth is, it is mostly a matter of nomenclature, as trends (e.g. according to Gartner's Hype Cycle for Innovation Management 2023) clearly show that the continuous foresight is rather an evolution of strategic foresight, which confuses most Innovation Managers still tight to their practices.

Strategic foresight is structured and periodic, often triggered by specific events like a product launch or a new competitor. It employs tools like scenario planning for strategic choices and it's mostly driven by entitled personas in the company, like members of the Investment Council, CVC or the Board.

Continuous foresight, meanwhile, is a consistent, iterative process, monitoring the environment for signs of change and innovation opportunities. Instead of being event-driven, it's a proactive effort to spot emerging trends and potential threats.

While strategic foresight is event-driven and intermittent, continuous foresight remains proactive. Organizations today adopt either or both approaches based on their objectives and needs, however research and practice shows that incorporating both practices as one in large organisations brings the most value.

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Why Foresight is important for innovation?

Innovation hinges on creativity, efficient resource use, and skill development. Navigating which ideas to develop and where to allocate resources is challenging. Continuous Foresight and Strategy help guide this with varied insights and a comprehensive approach, offering a structured path for introducing market-relevant ideas.

Foresight and Strategy foster informed decisions and strategic outlines, emphasizing collaboration that sets the stage for dedicated action. By employing Foresight practices, innovation leaders can spot opportunities, directing their organizations towards a competitive edge.

During the Strategic Foresight phase, environmental scanning allows for recognizing broader, less obvious organizational shifts. For transformative innovation, it's crucial to notice peripheral changes and interpret them. Many leaders limit their perspective to their industry, missing out on global trends. However, Foresight ORKs encourage a broader outlook.

Lastly, Continuous Foresight skills offer dynamic capabilities, fostering adaptability. Teams visualizing beyond current circumstances can stay competitive, either by refining what they have or pioneering new ventures. While the future extends from the present, it's also unpredictable, necessitating adaptability and forward-thinking ideation.

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Finding Our Way Through the Fog: The Tale of Continuous Foresight

Imagine trying to navigate a ship on a foggy sea with an old, unreliable compass. The waters are unpredictable, and you're uncertain about what lies ahead. In the business world, that fog represents the unpredictability of today's ever-changing environment. However, instead of an unreliable compass, we have 'continuous foresight', a merger of strategic foresight and futurism. Think of it as our modern GPS, constantly recalculating the route, allowing us to navigate the foggy seas and project desired futures.

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Why Set Sail with Continuous Foresight?

‍We're all aboard this ship called "Modern Business," trying to find our way through a storm of disruptions. A captain wouldn't sail without a map or compass, so why should businesses drift aimlessly? Continuous foresight is the sextant guiding us, connecting the dots of emerging trends, ensuring we're not just reacting but proactively charting the course.

Treasures on the Horizon

1. Adapting our Ship: We can redesign our vessel, making it more resilient against the stormy business seas.
2. Guided Leadership: Like a seasoned captain, foresight shapes leaders, ensuring they always look to the horizon.
3. Advanced Navigation Tools: More sailors are demanding tools like astrolabes and sextants, but for the modern business age—innovation and trend-spotting gadgets.
4. A Full Deck of Cards: IT captains, instead of just staring at the tech stars, can consider the entire constellation, from tech to environment (TPESTRE).

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Navigational Challenges

‍However, every voyage has its challenges. Problems that businesses must deal with when applying continuous foresight strategies are related to problems beneath the innovation strategy - organisational, communicational and personal dissonances. Using our set sail analogy, examples of such challenges (in tech companies) are typically:

• Tech-Centric Captains: Some leaders are so fixated on the tech star they miss the broader celestial map.
• Relying on Pirate Maps: Without a proper map (a systematic foresight process), we might find ourselves sailing in circles.
• Ignoring the Non-tech Stars: If we only navigate by the tech star, we're bound to hit unseen obstacles.

The real question is - why all these problems occur?

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Focus Area Dispersion

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Before we dive into the topic, let's set the scene up regarding some of the phrases we're going to use. Whenever we call out "BUs" or "Business Units", we understand entities that correspond to the client’s company organisational structure. Their list and shape will vary depending on the type, size and governance type of the company. According to the rules of appropriate siloed operations problem mitigation, this process should limit the number of entities to the maximum, leading towards merging entities into groups. Here, refer to a Business Unit as the first line structure layer, according to examples below.

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The problem with sustainability of continuous foresight is that when a decision regarding innovation investment is made in one particular BU, the interest of that BU may not be fully aligned (or not aligned at all) with the company's interest, even if HQ supports BU’s development direction. If the company doesn’t have a centralised, long-term investment policy, all decisions regarding innovation investments are left to potentially biassed BU executives and individuals with separate agendas. This often leads to a situation where innovative ideas are “sold” to the executive board through lobbying derivatives of the initial BU development vision.

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The outcome of this situation is that BU’s initial innovation investment strategy - Focus Area  is dispersed. This means, portions of new innovations falling outside of the initial BU Focus Area widens the Focus Area, lowering the Innovation Profitability Potential. As a result, BU’s Focus Area Dispersion may reach a certain critical point, when BU’s innovation strategy is blurred to the level where its majority falls outside of the profitable potential. This level is denominated as “Critical Focus Area Dispersion '' where a combined Return on Investment indicator of all BU’s innovation ventures falls below the “Effective Innovation Investment Level'' and turns negative.

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Investment decisions within siloed business units can be made independently, without input or collaboration from other business units. In such situations, each BU usually focuses on its own priorities and goals, rather than considering the needs of the organisation as a whole. This can lead to inefficient allocation of resources and missed opportunities for growth and development. In a siloed environment, investment decisions are based on individual business unit performance, rather than the overall performance of the organisation. This leads to a lack of alignment between business units, and can make it difficult for the organisation to achieve its strategic goals.  Furthermore, in a siloed environment, decision-making processes may be slow and bureaucratic, as each business unit may need to consult with multiple stakeholders before making a decision. All these things result in missed opportunities for investment and growth - shrunk innovation profitability potential.

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The Focus Area Dispersion is based on a zero-sum game between BU resources and costs. Focus Area (company’s innovation ROI2 zone), widens overtime due to inappropriate resource management, as resource allocation is often put into areas outside the company’s interest. Every business unit holds a responsibility for a certain area of company innovation investments, which due to a limited amount of resources - Human Intellectual Capital and budget, has a limited area of potentially profitable investments. This resolution comes from Li, Xing, Guo, Hou, and Liu (2021), who examined the relationship between human capital allocation and innovation performance in China's knowledge-intensive service industry. They found that a limitation in human intellectual capital resources can lead to limitations in a company's innovation performance. Specifically, the authors argued that a company's ability to innovate is closely related to the quality and quantity of its human capital resources.

The problem is that the risks of investment in innovations have a different nature and are managed in isolation, which reduces the effectiveness of risk management—the reduction of some risks leads to the growth of other risks, and the risk component of investments in innovations is preserved at a high level. The financial interests of business and the economy (economic growth and high-tech export) contradict the interests of employees (stability, refusal of any changes), and the resolution of this contradiction in addition to corporate social responsibility impairs innovation growth and violates the action of the market mechanism. This impairment is fixed to the measure of innovation investment risk, associated with the company's financial risk, and constitutes the cost of an innovation.

This leads to a situation, where high-risk investment decisions, made outside of the company’s investment interest, exploit BU resources creating an isolated financial risk source. In a situation, where an individual interest group is actively lobbying for bad investment sustainment, the cost (risk) grows over time. This resource exploit effect is multiplied by the growing number of similar isolated investments; however their magnitude tends to fall due to shrinking resources.

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Business Effects Case Study

This particular Focus Area Dispersion observation is based on a cease study of one of the S&P 500 semiconductors manufacturing company. In an observed scenario, siloed business unit lifecycle consists of four, periodic phases.

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Phase one

High-risk investment phase is denoted as the birth of the business unit or a beginning of BU operations after a major company (or BU) transformation. This time period is characterised by an aggressive profit margin expenditure due to Focus Area Dispersion. During this time, the business unit makes strategic decisions which, if leading towards the Critical Focus Area Dispersion, jeopardise BU’s business continuity model and make the innovation strategy unsustainable.

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Phase two

In phase two, lack of sustainability leads to further resource burnout. This happens after BU resource evaluation goes down below the cost, or when the financial and social risks associated with innovation maintenance are greater than risks associated with maintaining a company's competitiveness. We can denote characteristic behaviours associated with this period such as:

• Unreasonable investment decisions caused by an urgent need for a profitable innovation,
• Over-hiring due to investments in dispersed Focus Area,
• Further Focus Area Dispersion effect caused by the over-employment,
• Significant rise of operational cost
  
  

Here, the BU profitable innovation potential continues to shrink because of the further resource burnout combined with raising innovation maintenance cost. The cost is associated mainly with significant budget expenditure, as the human intellectual capital grows due to excessive employment. When the burnout reaches the level of a critical resource depletion, which typically occurs in the face of significant BU liabilities, the business unit is forced to look for additional investors in order to mitigate innovation sustainability challenges.

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Phase three

In the third phase, BU enters the innovation freeze period, in which it can no longer afford further profit potential loss and must narrow down the Focus Area, limited to strategic areas with the highest probability of future sustainability. This situation is forced by the strategic investment decision, as the innovation business continuity management is now delegated to the company board directly. The BU is looking for a way to achieve sustainability of the current innovation strategy, freezing all new initiatives which, in case of a highly dispersed Focus Area, has a very low probability of success. The critical financial risk, resulting from the innovation freeze is the missing time to market opportunity window, leading to a higher brobability of a competition leap frog. This is a source of a significant social risk to the company, such as:

• Loss of employee motivation and engagement, especially in R&D,
• Reduction of career development opportunities,
• Undermined BU leadership position,
• Lower rewards budget.

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Phase four

These risks, regardless of the Enterprise Innovation Management system processes presence, typically result in the beginning of the fourth phase - strategy breakdown. Here, the company is forced to significantly cut costs associated with the BU innovation strategy, which leads to narrowing the Focus Area down to the critical-only projects. That means, all other innovation projects are terminated, which often results in group layoffs and significant loss of the human intellectual capital. With depleted resources, the BU is no longer able to innovate and must be restructured.

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Focus Area Selectiveness

A co-existing effect to dispersion is selectiveness in innovation investment decisions based on the company's current revenue profile which leads to a decision favouring a certain segment versus the full addressable market.

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The main reason why Focus Area Dispersion and Focus Area Selectiveness take place is the fact that siloed BU investments are deprived from auto-regulation mechanisms. If new business investment decisions were made in a collaborative mode using shared resources,  this would imply much more careful decision making based on a shared-cost (risk) responsibility.

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Business alignment - An Absolute Condition To Foresight Effectiveness.

A study by McKinsey & Company (Lee, J. H., & Kocak, A. (2019)) found that companies with a shared cost responsibility model for innovation investments were more likely to have successful innovation initiatives. Specifically, the study found that companies with a shared investment decision-making process were 1.5 times more likely to report successful innovation outcomes compared to those with a centralised decision-making process. The study also found that companies with shared investment decision-making processes were more likely to have innovation initiatives that aligned with their overall strategy.

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Investment Mandate

Business alignment can be achieved by introducing a company-wide Investment Mandate, which is the overarching investment regulation that all BUs must comply with. The Investment Mandate is a product of the Strategic Foresight activities, supplied with Continuous Foresight data.

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An Investment Mandate ensures that all innovation initiatives are aligned with the company’s investment strategy aiming to maximise the ratio between the Investment Profitability Potential and Innovation Focus Area width. In other words, the Mandate dictates that all innovation projects fall into the company’s maximum investment interest area and are distributed proportionally to the addressable market volume.

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Investment Mandate Council - Building a Successful Foresight Team

In a world that is constantly evolving, organizations are realizing the value of staying ahead of the curve. One of the most effective ways to do this is by integrating strategic foresight into the very fabric of the organization. Central to this strategy is building a robust foresight team (or Investment Council), a group that becomes the lighthouse, illuminating potential future challenges and opportunities.

A foresight team doesn’t just predict the future; they equip the organization with the tools and knowledge to navigate it. Here's what they typically engage in:

• Scanning the Horizon: They're on the lookout, researching emerging trends and technologies that could redefine the organizational landscape.
• Crafting the Tale of What’s to Come: They're storytellers, developing various scenarios of possible futures, painting a vivid picture of the organization's potential trajectories.
• Making Sense of the Numbers: Data is their compass. By analyzing it, they extract insights that become crucial pointers for the organization's strategy.
• The Communicators: Their findings don't stay locked in a drawer. Through reports and presentations, they make sure the organization's stakeholders are in the know.
• Bridging the Gaps: Collaboration is key. They work hand-in-hand with other departments, ensuring the insights are woven into the broader organizational strategy.
• Risk and Opportunity Spotters: Part of their role is to play the devil's advocate, identifying potential threats, but also pinpointing the goldmines—the opportunities that await.
• Educators and Supporters: They don’t keep their knowledge to themselves. They're trainers, providing the necessary guidance to other departments, ensuring the entire organization can leverage the power of foresight.

Considering the vast responsibilities, who should be on this team? The foresight team needs a mix of researchers, data analysts, strategists, and communicators. People who are curious, critical thinkers, and can connect the dots in unconventional ways. Collaborative spirits who can integrate their findings across departments, ensuring the organization doesn’t just see the future but is ready for it.

In essence, a foresight team is more than just a department; it's an organization's strategic compass, guiding it through the unpredictable waters of the future. Building this team is not just a move; it's an investment in a future-ready organization.