The impact of strategic foresight

A longitudinal study that investigates the impact of strategic foresight on firm performance for corporate organisations.
Strategic foresight helps organisations make better decisions that lead to better performance. The link between strategic foresight and better performance has difficult to quantify, even with the use of strategic foresight by multinational companies and government organisations since the 1950s.

However, in 2018, a study showed that being prepared for the future is a strong predictor of success. The study found that companies that were prepared for the future did better than the others in the study, with 33% higher profits and 200% more growth.

Research overview

This research paper looks at how companies plan for the future and how it affects their performance. The researchers looked at data from 83 companies in Europe, which included different types of industries such as chemicals, finance, telecom, and healthcare. They compared data from 2008 to 2015 to see how the companies changed.

To measure how well companies planned for the future, the researchers evaluated how mature their planning process was and how much planning they needed based on how much their industry changed over time. They wanted to see if companies were planning the right amount, not just if they were planning a lot.

The researchers came up with four types of "future preparedness": vigilant, neurotic (planning too much), vulnerable, and in danger. The chart below shows the distribution of types of companies they looked at.
Image from research article
The researchers also used five different approaches to study the relationship between future preparedness and firm performance to boost the robustness of the analysis. Much of the evaluation of firm maturity was done through questionnaires based on well-known strategic foresight maturity models, and the evaluation of firm performance was based on published financial information.

Research findings

Corporate foresight can have a big impact on how well a company performs. Companies that are good at planning for the future are often more successful, with higher profits and a bigger market value. For example, this research shows that companies that are rated as "vigilant" tend to have 33% higher profits and 200% higher market value compared to other companies. On the other hand, companies that don't plan for the future as well may see a big drop in their profits and growth. In fact, they might even have to accept a discount of 44% on profits and 108% on growth.
Image from research article
There were also some interesting observations of "vigilant" firms which had launched new and innovative services or had adapted to changing market environments:
Selected observations of vigilant firms
Firm
Performance migration
Corporate foresight practices
Superior course of action, increased competitive advantage
Healthcare service provider
Underperformer to outperformer
Global foresight unit, scouting and integrating market insights in strategic decision making process.

Venturing unit integrating start-ups to develop future busines portfolio
Leading player launching technology oriented services in emerging countries

Considerable sales and market share growth contributed by technology driven services in emerging countries
Consumer business firm
Underperformer to outperformer
Customer and supplier workshops to perceive and prospect organic food and sustainability trends

Customer insights clinics and platforms to perceive emerging customer preferences
Merger with an organic product of chocolate ingredients and successful market entry in the sugar free chocolate business

Personalisation of packages, as key differentiator towards customer needs, which led to sales increase
On the other hand, the firms with low future preparedness did not fare so well:
Selected observations of firms with deficiencies
Firm
Performance migration
Corporate foresight practices
Firm performance observation
Supplier of chemical products
Outperformer to underperformer
Failed in setting up effective sensors for market signals

Focus on the core product line accounting for 40% of revenues

Poor attention on future technologies and trends
Failed to anticipate that their core business of graphite electrode will become commoditised

Lack of investment in low-cost technologies

Loss of a large proportion of its market share
Technology service provider
Underperformer to underperformer
Short sighted firm culture, with strong management focus on short term performance results

No foresight team
Poor understanding of market shifts occuring in their industry - eg. demand for integrated services beyond traditional ATM machine business

Lack of portfolio extensions towards new attractive adjacent markets such as security, maintenance, analytics service of ATM machines or new services on digital payment

Continuous loss of market share
Research has found that companies with good strategic or corporate foresight practices tend to perform better overall. The study only looked at large companies since they have more resources for foresight practices. Small and medium-sized companies may have different benefits from future preparedness since they often have more ad-hoc foresight practices. Nevertheless, every business, regardless of size, should have the ability to sense and respond to changes in the business environment to succeed.

What does it mean to be "future prepared"?

The authors of the research article used a questionnaire to evaluate the future-preparedness of the participating organisations. This questionnaire was based on previous research that had developed a maturity model to evaluate how well an organisation thought about and planned for the future.

Some questions to consider when thinking about your own organisation's level of future preparedness:

  • How complex is your environment? Does it have a high number of competitors? Are you strongly affected by government decisions?
  • How strongly has your organisation been affected by major changes in the corporate environment in the past 3 years?
  • How well can the speed of technological change be estimated in your industry sector?
  • How often are you scanning the political, technological, economic and social environments? How diverse are your sources for this information?
  • Do you have a methodological approach for integrating market and technology perspectives into your organisation?
  • How fast are insights diffused in the organisation? 
  • Do you continuously plan for the future? What triggers your future planning?

Another way to think about how strategic foresight differs from traditional planning approaches can be more easily compared in this table:
Traditional approach
New approach
Purpose
Working in the system
Working on the system
Outcomes
Incremental improvement
Transformational change
Time horizon
Short term; 1-3 years
Medium term; 5-10 years
Environment
Relatively static, stable, predictable
Relatively complex, dynamic, potentially surprising
Typical thinking
Mechanical, cause-effect
Organic, emergent
Related discipline
Systems engineering
Complexity science
Assumptions
No discontinuities, disruptions; future largely knowable
Discontinuities, disruptions likely; Future dominated by uncertainty
Approach
Following through on plans as blueprints
Being flexible, adaptable, exploratory, experimental
Tools, methods
Mostly quantitative, extrapolation, modeling
Mostly qualitative, story-telling, visualisation, prototyping
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