When people think of Amazon the first impression is that they are the main online marketplace for the United States. Others may reference that they are the first online bookstore for the world. However, many people don’t realize that their key revenue stream is AWS (Amazon Web Services), their cloud computing platform. Bringing in $12.7 billion a year in 2020 it makes up 10% of Amazon’s overall revenue.
This follows a long line of Amazon’s principles of enabling the ability to experiment. Placing a high value in always improving and then giving the management team the resources needed to innovate. This turned a budding company into a global powerhouse. No one asked for AWS, but it turned out the world was hungry for it. Not being risk adverse on placing future bets, they followed a hunch that paid off greatly.
This culture stems from their founder, Jeff Bezos’ values. He isn’t a micro manager but manages consistently the process of being thorough and thoughtful. Rarely focusing on the day-to-day operations, he tries to live two to three years out. Living in that world lets him make better wagers on tomorrow’s bets.
Leading an organization, you want to know where the market is going. It is good to be introspective and being the best you can for your customer. However, the hope is that in the future that the customer will still want to buy the best version of what you are selling. Your mission is to attempt to predict your customer’s future issues and desires. The future is an idea that we must conjure in our minds, not something that we perceive with our sense. What we want today, by contrast, we can often feel in our guts as craving.
One of the best methods to meet the needs of customers is putting yourself in the mindset of your consumer. The evolution processes help predict industry changes. For example, “are there government actions on the horizon that can influence the structure of the industry.” This leads into the next step of determining what will your customer impacts be and how can you solve their pain?
This puts your organization in a competitive advantage of being first to market. If you have good insight into where the world is going, you have an advantage over your competitors that you can then leverage. To achieve leverage, you must have insight to a pivot point that will magnify the effects of focused energy and resources. This then paves the way to be first to market. First to market ensures that you can achieve strong brand recognition and set the prices for the new product.
Business competition and the battle for market position is not just a battle of strength and wills but a subsurface intelligence war for insights and competencies. Having knowledge or predictions of the future puts you in place to have an advantage. An advantage that you must act on. A fear of acting on a knowledge advantage is one of the most egregious errors a manager can make.
Most strategic anticipation draws on the predictable downstream, this makes everything predictable. This excels at setting annual budgets but not for placing strategic investments. History provides insight, but innovative strategies sometimes call on markets that don’t exist yet and can’t be predicted.
When predicting the future, the first model is to determine will history repeat itself. There are patterns over years which help show the probability of things reoccurring. However, the future is for the most part unpredictable. At times, that unpredictability is greater than normal. The more dynamic the situation, the poorer your foresight will be. This calls for a proximate strategy. Examples point to the start of the COVID Quarantine. Not knowing the future and having the strategy being an immediate need of stabilization. Possibly wagering on heavy supply chain activities and bolstering those to protect status quo.
When predicting the futures there are four dimensions to consider. These consist of industry, customers, position, and competition. Once you define the marketplace you can then dissect what changes you see happening in these four quadrants.
Another useful approach centers on scenario planning. Scenario planning helps navigate uncertainty by teaching anticipation to possible futures. The management team takes scenarios and plans them out. It doesn’t mean that you do it, just how you would react with this stimulus. An example would be new legislation with the affordable healthcare act. As a doctor you would think through what changes that will make for their customers and the billing processes.
Using myself as the example again I did this exercise at the beginning of the Covid-19 crisis and saw corporate environments in chaos and heavily reliant on reaction instead of planned change. While mid-sized companies were struggling to stay afloat most enterprise companies were starting to reduce their workforces. Looking internally, I wanted a business model designed for a state of change and how I could provide value. This led me to position myself to provide professional change management transitions and execution.
When building a framework to better understand the future, important to note that with more time you will have less data. Less data typically brings about more uncertainty. Hence, your predictions will be less accurate in the later years of projections.
Futurist, Amy Webb, developed a phased approach to predicting future market sifts. It begins with looking at tactics and what will happen over the next one to two years. Here you will have the most insights and have a high level of accuracy when positioning your company for the market. Next, you evaluate strategy on what will happen in the market over the next two to three years. This enables insights into how markets will evolve through subtle changes. Next you focus on the vision of the organization where you want to speculate what will occur over the next five to ten years. Lastly, you look at systems level evolution going beyond ten years on how the entire market could be revolutionized.
As the future is unknown and companies struggle in predicting breakthrough technologies that will disrupt the market, running agile company can be your organizations best weapon. Most corporate strategic plans are simply three to five year rolling budgets. More than likely, your competition is positioned for the status quo. In this dynamic world, even when a company knows change is upon them, their structures are built on stability limiting their ability to change. A foundational goal for your company needs to enable the ability to pivot on a dime.
Scenario planning is a process used to make flexible long-term plans. Typically used in the military planning community where analysts would put together a handful of plausible scenarios. These consisted of what could happen in global demographics, geography, military, political, etc. The strategic planners would then design strategic responses on how to position themselves for the event.
In the 1960’s the oil company Royal Dutch Shell experimented with future scenario planning to help unlock repeatable planning. They had been using a financial based planning model that led to numerous errors and missteps. This drove Royal Dutch to explore a more robust methodology using scenario planning.
Hiring individuals with backgrounds in marketing and creative writing the planning team began to write plausible scenarios on how the oil world could unfold. They wanted to suck executives through great writing and situations to engage their mind in the “what if.” Fifty years later, this methodology still used today has helped Shell weather many storms around the world of oil fluctuations.
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