So, what do I mean when I say you should future proof your business? Future-proofing means creating a business that anticipates future changes by building products and brands that don’t become obsolete. A company striving to survive far into the future plans for that future today, rather than facing the stresses and shocks that come when the future overwhelms that business.
The twin economic and health crises facing businesses today caught many businesses unaware, leaving them vulnerable and forcing many to close their doors forever. Brands like Lord and Taylor, Chuck E. Cheese, and many other businesses in the retail and entertainment space now find themselves with few options other than declaring bankruptcy and closing the doors in many locations. And, while the times we face today are highly unusual, such economic challenges are far from unique. Instead, the problems underpinning this crisis have been building for decades, ignored by managers and investors who buried their collective heads in the sand, when they should have anticipated changes in the status quo.
A cautionary tale
The US auto industry is a cautionary tale of what happens when you don’t future proof your business. In the 1970s, US automakers ran the game and turned tremendous profits. But, the winds of change were coming and they did nothing to change the business model that brought vast wealth to everyone in the supply chain.
The Japanese, a long-standing joke in the industry for the poor quality of their automobiles embraced the strictures of TQM (total quality management) and not only vastly improved their quality but used early precursors of lean to cut down the time needed to produce a new model from 7 years to 3. This was the first of the triple threats that brought down the mighty.
Next, the oil embargo from OPEC leaders who learned about supply and demand in Western universities brought gas shortages resulting in long lines (some areas resorted to rationing gas) and huge spikes in prices from about 23 cents/ gallon to 75 cents/ gallon almost overnight.
Finally, politics raised its ugly head by endorsing free trade, which lowered tariffs and quotas on foreign products, including cars.
In response to these threats, Detroit (the seat of the US auto industry) did virtually nothing. They shook their fists at politicians to restrict imports of cars while continuing to manufacture large land crafts that got gallons/ mile in contrast to Japanese small cars with their fuel efficiency. Plus, Japanese cars began surpassing the quality of American-made cars. The net result of this failure to recognize the future was devastating. Detriot became a ghost town and the American auto industry never regained its prominence as the car of choice in the US — a 50-year mistake.
Why managers don’t future proof
Failure to future proof your business doesn’t show up right away. Your business goes chugging along, whether you future-proofed or not but if you didn’t future proof your business, you might hit a wall when external conditions change. Thus, rather than facing an uphill ramp over a longer period of time during which you future-proofed your business, you stop dead in your tracks. Climbing the wall in front of you requires a massive amount of resources (time, money, effort, focus) and may be impossible. Hence, rather than spread the pain over a long period of time, you experience it all at once.
When you future proof your business, the results don’t show up for years, maybe decades. Sometimes, gains from future-proofing never show up. In the meantime, your business faces a series of immediate challenges, such as delivery delays, administrative issues such as employee relations and equipment failure, or cash flow problems. Failure to fix these problems damages your reputation with customers, partners, and employees, resulting in lower profits now and in the near future.
In addition, running the day-to-day operations of the business takes time and focus. Sometimes you feel the daily demands of your business drain you of everything you’ve got.
And, face it. You have a limited amount of bandwidth and, as the saying goes, the “squeaky wheel gets greased”. Hence, you spend all your energy on just surviving every day.
Here’s a great article from Forbes on the dangers of sacrificing long-term success for short-term gains and, more important, how to avoid this common pitfall. This begs the question of why this negative management style continues to dominate. Here are some factors driving short-sightedness in businesses:
- Too busy to think long-run
- Lack of data necessary for long-term planning
- More pressing priorities, including short-run profits
- Demands from external parties, such as investors and board members
- Restrictive employment contracts
- Lack of imagination
- Compensation plans that reward short-term profits
Underpinning all these factors contributing to the short-sightedness experienced in a number of businesses is a lack of leadership and poorly constructed reward structures. For example, if you’re a manager and your compensation plan rewards profits earned by your unit, you work very hard to optimize your profits. Since many efforts to future proof your business involve expenses, you know your paycheck goes down when you spend money to future proof rather than carrying that money as a profit. Under those conditions, almost no manager dedicates money toward the future.
But, the future eventually becomes the present, bringing with it the challenges mentioned earlier that reduce profits. That should change your motivation toward planning for the future, right? No, because if you did a great job producing profits, you moved on to a higher-level position within your company or you took your ability to produce profits to another company where you take the same short-sighted approach. In fact, according to the US Bureau of Labor Statistics, the average worker stays with their current employer for just over 4 years and may hold several titles within that time. Hence, by the time the business ends up paying for their short-sightedness, managers responsible for those poor decisions are long gone and another poor guy/ gal takes the blame.
Steps to future proof your business
1. Market sensing
Market-sensing is “a broad generation of market intelligence by an organization relating to present and future needs of customers, distribution of these knowledge across the organisation’s functional unit, and the organization’s responsiveness/reaction to the market” (Jaworski & Kohli, 1993). Below is a graphical depiction of market sensing data showing how a firm uses the probability of an event happening and the effect of that event on the business’s performance.
Effective market sensing goes beyond simply understanding changing consumer needs to investigate the potential impact of other elements of the external environment, including the competition, economy, technology, and legal/regulatory environments. Of course, there’s often an overlap between changes in these elements of the environment, including changes in consumer tastes. Here are just a few changes facing companies today:
- Consumers increasingly choose products based on a firm’s commitment to sustainable business practices such as protecting the environment, social justice, animal welfare, and charitable contributions
- Technology is changing with:
- increased use and ability of robots, AI (artificial intelligence), and ML(machine learning)
- use of sensors to optimize performance in manufacturing and logistics
- sophisticated digital options such as virtual dressing rooms allowing customers to purchase a wider range of products online
- drones that reduce delivery time
- reduced cost of data storage allowing the collection of massive amounts of data to fuel new industries
- virtual reality to let you go anywhere without leaving the room
- blockchain and other distributed ledger technology
- quantum computers that make today’s supercomputers look like toys
- Telehealth increasingly fueled by AI to make diagnosis more accurate and faster.
- Cryptocurrency and decreased use of money as more consumers choose to pay using apps like Apple Pay.
- Mobile technology allowing users to do everything with a click of a key from managing their homes, to unlocking their cars, to monitoring their health, reminding them of events, storing and taking pictures/ videos with better quality than cameras did a few years ago, oh, and making phone calls and texts.
Gathering information about the environment is only the first step in the process to future proof your business. Next, firms must disseminate information through the organization to diverse people throughout the organization. The more diverse your team in terms of demographics (age, gender, race) as well as job function, the better ideas you get.
There’s a concept from communication called weak ties, referring to relationships between people beyond a group hence the rationale behind using diverse members in your brainstorming sessions. Hiring folks with experiences outside your company or even your industry brings in more weak ties that benefit your firm by introducing novel ideas and solutions. Using people with similar backgrounds and experiences leads to anemic brainstorming that simply rehashes old ideas.
The main rule of brainstorming is that anything goes. Ideas don’t have to be practical or even possible at this point. An impossible idea often generates a related idea that is doable. Take Leonardo DiVinci. He drew realistic images of machines like helicopters and submarines in a time long before the internal combustion engine. His ideas had no place in his time, but motivated others to produce his imagination once technology caught up.
3. Building a business case
Of course, after brainstorming ideas, it’s time to get down to business. Now ideas are weighed against reality to build a business case for a solution. Be careful that you don’t settle on a single idea too soon or discard an idea because it isn’t easy to build a business case for the solution. Consider a number of your ideas at this step in the process.
4. Building consensus
As you work toward building a business case for your best ideas, start the winnowing process until a single idea remains. Now, strong ties (the opposite of weak ties) become important as the strong relationships developed within a group help build a coalition to see the idea come to life.
A word of warning here. Strong ties, built on reciprocity and respect allow individuals to build social capital they then spend to build consensus behind an idea that drives everyone toward a single goal. That’s a good thing. However, using coercion, promising personal gain, or other tactics to subvert the process lead to unpleasant outcomes and don’t contribute toward future-proofing your business.
5. Rinse and repeat
When you future proof your business it isn’t a one-time event. Future-proofing is an ongoing process of continual market sensing.