Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
UNCERTAINTY, FORESIGHT, AND STRATEGIC DECISION MAKING:
EVIDENCE FROM LEADING COMPANIES
Riccardo Vecchiato
Politecnico di Milano
P.zza Leonardo da Vinci, 32
20133 Milano, Italy
Ph.: +39 02 23993994
riccardo.vecchiato@polimi.it
Claudio Roveda
Politecnico di Milano
P.zza Leonardo da Vinci, 32
20133 Milano, Italy
Ph.: +39 02 23993994
cludio.roveda@polimi.it
Keywords: Environmental uncertainty; decision making; foresight; planning; learning.
ABSTRACT
The external environment is a major source of uncertainty for strategic decision makers in
charge of sustaining the advantage of the firm over time. Specific practices and tools (foresight
techniques) have been developed for coping with uncertainty and enabling strategic planning in
the face of major changes. However, they had uneven success. Scholars failed to clearly define
their value added and to provide empirical evidence of their contribution to sustain the
advantage of the firm. In this context, criticisms have addressed the theoretical foundations
themselves of strategic planning and the tools and practices that are meant to cope with
uncertainty, by pointing to the impossibility of making reliable predictions. Foresight scholars and
practitioners generally respond to concerns about the reliability of future-oriented techniques by
arguing that their role is not so much to predict the future but to prepare for the future, through a
learning process that enhances the capability to handle new opportunities and threats. Still, the
following questions remain largely unexplored: what different kinds of uncertainty (and drivers of
change) may be faced in the business environment? What foresight processes and techniques
might be used to address them? These are precisely the main questions we deal with in this
paper. Their relevance is extremely high because deciding what firms should do in uncertain
situations is a key issue in the literature on strategic management. In particular, our research
questions are at the heart of the research streams that recently attempted to bridge the gap
between planning and adaptive approaches to strategic decision making, by encouraging firms
to carefully plan in order to quickly adapt.
In order to explore the relationships between environmental uncertainty, strategic planning, and
the competitive advantage of the firm we performed multiple case studies of corporate
organizations that recently faced major changes in their external environment and increasing
turbulence. First, we expand our understanding of environmental uncertainty by defining the
concept of ‘boundary uncertainty,’ which regards the core identity of the components of the
business (micro) environment. We thus distinguish between ‘continuous’ and ‘discontinuous’
drivers of change. The former bring about ‘state’ uncertainty about their evolution, ‘effect’
uncertainty about their consequences on the organization, and ‘response’ uncertainty about the
viable responses. The latter bring about boundary uncertainty as well regarding the identity of
the main players of the industry and the activities of the value chain. We thus advance a
conceptual framework of foresight efforts and practices as a contingent methodological and
organizational approach.
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
1. Introduction
The strategic management literature (Hofer and Schendel, 1978; Miles and Snow, 1978; Teece,
2007) and the organization theory literature (Dill, 1958; Thompson, 1967) have long emphasized
the role of the environment as a major source of uncertainty for strategic decision makers in
charge of coping with emerging opportunities and threats.
A broad range of heuristic approaches for carrying out future studies have been
developed in corporate organizations with the aim of promptly selecting drivers of change in the
company’s outside environment (environmental scanning: see Hambrick, 1982; Day and
Schoemaker, 2006) and of investigating their likely evolution and impact on the organization
(future-oriented techniques: see Porter et al., 2004). Today the term ‘foresight’ is widely used to
designate the activities and processes that assist decision makers in the task of charting the
company’s future course of action by encompassing either scanning or future-oriented
techniques (Bradley Mackey and Costanzo, 2009; Grupp and Linstone, 1999; Tsoukas and
Shepherd, 2004; see Figure 1).
Scanning
Anticipatory
analysis
Assessing the evolution
of drivers of change,
their impact on the
organization, and the
options for response
Detecting drivers of
change
Strategic
decision
making
Deciding ‘what
to do next’ for
sustaining the
advantage of the
firm over time
Foresight
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
Figure 1: Foresight and strategic decision making
So far, foresight has had uneven success and popularity. On one hand, scholars have
documented that in the last two decades many large firms in such diverse sectors as energy,
automotive, telecommunications, and information technology were regularly applying futureoriented techniques (Becker, 2002; Coates, 2001). The wide interest in foresight seems to be
confirmed by the growing number of consulting companies and networks in the field.1 On the
other hand, scholars failed to clearly define the added value of foresight and to provide empirical
evidence of its contribution to sustain the advantage of the firm. Little research has been
conducted regarding the performance of the different organizational and methodological
frameworks that were adopted in corporate organizations by omitting, in particular, the ex post
evaluation of the reliability and accuracy of the output of foresight. The most relevant example
concerning the impact of foresight on the success of the organization still remains the case of
Shell Scenarios and its anticipation of the forthcoming 1973 oil crisis (Wack, 1985; van der
Heijden, 1996). In this context, some skepticism arose in the academic community regarding the
soundness and appropriateness of foresight for making predictions about the future and, thus,
for supporting predictive strategies (Bradley Mackey and Costanzo, 2009; Grant, 2003; Wiltbank
et al., 2006). The major evidence of this skepticism may be the fact that today it is not
1
Relevant examples are GBN (Global Business Network) in the United States and EIRMA (European Industrial
Research Management Association) in the European Union.
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
specifically addressed by most MBA curricula2 and so far only a limited number of validated
analyses of future studies have been hosted by leading academic journals.
Supporting scholars and practitioners generally respond to concern about the reliability of
foresight by arguing that its role in corporate organizations is not so much to predict the future,
but to prepare the firm for the future through a learning process (Tsoukas and Shepherd, 2004;
van der Heyden et al., 2002). Still, the following questions remain largely unexplored: what
different kinds of uncertainty (drivers of change) may be faced in the business environment?
how should a firm design the right foresight approach, i.e. what type of techniques and analysis
should be conducted depending on the kind of environmental uncertainty?
These are precisely the main questions we deal with in this paper. Their relevance is
extremely high because deciding what firms should do next in uncertain situations is a key issue
in the literature on strategic management (Wiltbank et al., 2006), and at the center of the debate
between the planning and the learning schools (Ansoff, 1979; 1991; Mintzberg, 1990; 1994).
In order to explore the relationships between environmental uncertainty, foresight and
strategic decision making we performed multiple case studies of corporate organizations
(Vecchiato and Roveda, 2010a; Vecchiato and Roveda, 2010b). In this paper we focus on BASF
in the chemical industry, Daimler in the automotive industry, Philips in the consumer electronics
industry, and Siemens in the information and communication industry.
First, we expand our understanding of environmental uncertainty by defining the concept
of ‘0-Level uncertainty’, which regards the core identity of the components of the business
2
Many managers of foresight units pointed out to us that they had great difficulty in finding and recruiting the
foresight skills they required among MBA and Ph.D. graduates.
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
(micro) environment. We then distinguish between ‘continuous’ and ‘discontinuous’ drivers of
change, and shed light on their implications for foresight and strategic decision making.
2.Literature Review
2.1 Conceptualization of environmental uncertainty
One feature of uncertainty is the inability of managers to make accurate predictions (Milliken,
1987). Early conceptualizations of uncertainty go back to pioneering management scholars such
as Knight (1921) and March and Simon (1958), who argued that the business environment of
the firm is inherently unstable and this instability creates uncertainty for rationally bounded
managers who are not able to fully collect, process, and comprehend information about changes
and new events. More specifically, ‘environmental’ uncertainty arises when managers lack
accurate information about organizations, activities, and events in their external environment;
namely, when they are not confident that they can predict what the major changes are or will be
(Duncan, 1972; Lawrence and Lorsch, 1967). Milliken (1987) distinguished between three types
of uncertainty that act together to determine the overall uncertainty faced by strategic decision
makers. The first is ‘state’ uncertainty and refers to the inability to understand how components
of the environment might change (e.g., in the case of the automotive industry, the driver of
change of ecological concern by public policy makers in Europe: will new laws be enacted in the
next 10 years? If so, how strict these will be?). The second is ‘effect’ uncertainty and refers to
managers’ inability to predict what the consequences of drivers of change will be on their
organizations (e.g., will customers switch from a traditional product—fuel-based car—to an
innovative one—hybrid car; and if so, how should car-makers redefine their product portfolio?).
Finally, ‘response’ uncertainty is the inability to formulate response options and/or to predict the
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
consequences of a response choice (e.g., how should we acquire the resources we need to
develop environmentally friendly products?). Courtney (2001) further expands the concept of
‘state’ uncertainty by identifying four levels of uncertainty.
Concerning the classification of the different components of the external environment that
bring about uncertainty, Dill (1958) made the distinction between ‘general’ and ‘task’
environment. The latter one is made up of elements and sectors with which the firms has direct
contact and that directly affect business strategy, day-to-day operations, and goal attainment.
According to the organization theory, the task environment was initially defined to include the
sectors of competitors, suppliers, customers, and regulatory bodies. The strategic management
theory expanded the concept of task environment by defining the broader concept of business
microenvironment, which identifies the key forces (sectors) that govern competition in an
industry. These forces are competitors, customers, suppliers, potential incomers and substitute
products (Porter, 1980), and providers of complementary products (Porter, 1985).
The general environment refers, instead, to sectors that affect firms indirectly; these are the
political, economic, ecological, societal, and technological landscapes that surround the
business microenvironment and are today commonly referred to as the business
macroenvironment.
2.2 Foresight practices and techniques
Foresight encompasses two main tasks: the first regards environmental scanning’ and the
detection of new events and drivers of change.3 The second one regards the future-oriented
3
Scholars in this research stream provide evidence on the sectors in the environment that create greater strategic
uncertainty for top executives, the frequency with which they scan (that is, the number of times executives search
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
techniques and practices for investigating drivers of change in relation to their likely evolution
(state uncertainty), their consequences on the organization (effect uncertainty), and the most
suitable responses (response uncertainty). Roadmaps4 and scenarios5 are by far the most
popular future-oriented techniques (Cuhls and Johnston, 2008); but there are many others. For
example, Delphi, relevance trees, trend-impact analysis, cross-impact analysis, simulation
modeling and systems dynamics, and game theory (Glenn 1999; Porter et al., 2004).
Foresight practitioners and scholars generally agree that the role of foresight and its
value added in handling uncertainty is not so much to predict the future, but to prepare the
organization for dealing with it by activating a learning process about the future (Tsoukas and
Shepherd, 2004; Bradley Mackey and Costanzo, 2009). In any case, literature on strategy and
foresight fails to provide a sound explanation of the ways this learning process takes place or
even empirical evidence about it. So far, the most relevant description of the learning process
entailed by foresight concerns scenarios and is based on the concept of ‘memory of the future’
(Ingvar, 1985). According to Ingvar (1985), human brains are constantly occupied with making
up plans and programs for the future, which the author defines as alternative time paths. The set
of these time paths makes up the memory of the future. Human brains then store these various
time paths: the more time paths are stored, the more individuals are able to recognize and make
and/or receive data about the environment), and the scanning modes or channels that are the sources or medium (i.e.,
personal or impersonal, internal or external the organization) by means of which executives learn about the different
environmental sectors (Hambrick, 1982; Elenkov, 1997).
4
Roadmaps consist of representations as interconnected nodes of major changes and events in some selected fields
of the external environment, like science, technology, and markets. The links connecting the nodes are the roadmaps
themselves, illustrating the temporal and casual relationships between nodes (Kostoff and Schaller, 2001).
5
Scenarios are focused descriptions of fundamentally different futures presented in a coherent script-like or narrative
fashion. As such, scenarios are not projections, predictions, or preferences, but rather credible and coherent stories
that describe different paths leading to alternative futures (Fahey and Randall, 1998; Schwartz, 1991).
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
sense of changes in their external environment (van der Hejden et al., 2002). As Arie de Geus6
illustrates:
You personally and your company are being bombarded by an overload of signals from
the outside world. The hypothesis of Ingvar is that the function of the memory of the
future is to allow the brain to select those signals that are relevant for you. The test of
relevance is your memory of the future. If a signal comes in, it passes through this
memory of the future. If it finds a store in an alternative time path, meaning that it is
relevant for you, then the signal is translated into data: it becomes information and then
information becomes understanding.
De Geus7 thereby argues that the value of scenarios lies in adding to the memory of the
future of the managers, by enabling them to visit and to experience different time paths ahead of
time:
If you have only one possible alternative path into the future, you see—or hear—very
little. This is the real importance of scenario planning. It stretched the time horizon from
one or two years, to ten or twenty years. And paradoxically, while increasing the time
horizon, at the same time, in the present, it increases the power of perception. You hear
more signals that are relevant to you.
However, this explanation still entails that, in order to prepare for the future successfully,
foresight has to bring new information and knowledge about the future, even if in the form of
some alternative scenarios (time paths): as long as one of these scenarios turns out to be the
right one, the foresight learning process allows managers to recognize the real future as it
begins to emerge. But under what conditions can firms achieve useful information about the
future? Putting id differently, what kind of foresight techniques and approaches should a firm
adopt in different business environment and thus under different conditions of uncertainty?
Arie de Geus, keynote speech ‘The Living Company—Long Term Thinking in a Changing Society,’ presented at
the In the Long Run Conference, Berlin, Germany, October 18, 2004. See In the Long Run, Burmsteir K, Neef A
(eds). Oekom: Munich, Germany.
7
Arie de Geus, ibidem.
6
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
The main goal of this paper is to link the research stream on environmental uncertainty
with that on foresight by setting the groundwork for a more rigorous analysis of the role and
added value of strategic foresight.
3. Methods and data
The research design is based on in-depth, inductive, and multiple case studies of selected firms
that long ago started to be systematically engaged in foresight. These firms are BASF, Daimler,
Philips, and Siemens8. Given the inadequate analysis in the literature and the open-ended
nature of our questions, we felt that this methodological approach would be the most useful for
theory building (Eisenhardt and Graebner, 2007; Yin, 2003). Table 1 provides an overview of our
empirical setting.
Table 1: Overview of case studies
Firm
Business
Foresight activities started
Philips
Consumer Electronics
BASF
Chemicals
Mid 1990s
Daimler
Automotive
Late 1970s
Siemens
Consumer Products, ICT
Mid 1990s
Early 1990s
The unit of analysis was twofold. On one hand, we examined the historical evolution of
each industry where these firms compete since they started engaging in foresight, and in
particular throughout the 2000s. On the other hand, we analyzed their foresight activities in
8
Siemens is a conglomerate company which operates in a wide range of different businesses (e.g., automation,
building, energy, health, mobility,...). In this paper, we focus on its operations in the information and communication
(ICT) sectors (consumer electronics, information and communication solutions and services).
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relation to their impact on strategic decision making, the management of significant drivers of
change, and the long-term results of foresight-based decisions.
Data were collected through the combination of various sources and throughout an
iterative process. Firstly, we collected publicly available data on the industry and the selected
firms, historical annual reports including, financial analysts’ reports, conference presentations by
top managers, and articles and prior studies in the business press and scientific journals.
Secondly, company archives such as internal memos and technical papers supplemented
publicly available data. Thirdly, we interviewed a sample of senior and mid-level managers, in
particular the heads of the organizational unit in charge of foresight. We also interviewed
external consultants who were involved in the foresight process. Finally, we interviewed a
sample of leading experts from academia and industry who had extensive knowledge of each
company and their industry. Overall, we conducted over 45 personal interviews that were semistructured, and lasted from one hour to half a day (a number of these interviews are quoted in
the following).
Data analysis was highly iterative and used traditional approaches for inductive research
(Eisenhardt, 1989; Yin, 2003). Analysis began with detailed written accounts and schematic
representations of the historical evolution of each industry where the selected firms operate
foresight approach they developed. After constructing the case histories, we conducted withincase analysis, which was the basis for developing early constructs and hypotheses. Cross-case
analysis and theory triangulation with different bodies of literature on environmental uncertainty,
foresight, and strategic management produced our conceptual framework.
4. Results
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Our data suggest that companies facing different kinds of drivers of change and thus different
conditions of uncertainty in their business environments adopt different strategic foresight
approaches to identify such drivers and investigate their long term evolution (state uncertainty),
consequences on the organization (effect uncertainty), appropriate responses (response
uncertainty).
4.1 Foresight at Philips and Daimler
Environmental uncertainty and methodological approach. The chemical and automotive
industries (i.e. BASF and Daimler business) throughout the last decade were typically mature
and global industries where trajectories of technologies and customer needs are wellestablished and companies compete for market share at the international level: the situation of
the boundaries between the micro and macro environments were blurred in these industries; the
huge number of drivers of change in their PEEST landscapes, their strong mutual influences and
the slow overall pace of evolution have contributed to high complexity.
The structure of the chemical industry resulted from an as yet uncompleted consolidation
process, and also from the rise of new competitors in Asia, Middle East and Eastern Europe that
entered the market in the last decade by producing reliable, good-quality commodities at low
cost. Since the 1990s the demand of chemicals has been characterized by low growth and
considerable cyclicality (which is likely to increase in the near future). Capacity cannot be
adjusted easily, so there is a constant danger of over capacity. The industry has also been
increasingly exposed to rising raw material prices, steep rises in energy costs, growing
ecological concerns and stricter environmental rules, while, at the same time, the rapid
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
development of ICT tools made the market far more transparent, and increased the pressure to
optimise commodity production.
Many of these features may be easily found in the automotive industry, where the recent
financial and economic crisis has exacerbated structural problems of global overcapacity.
In such a context, BASF foresight activities were framed around scenarios, which were
built via a top-down process that started at corporate level, by firstly taking into account the
global economy and the overall chemical industry, and subsequently elaborating regional and
business scenarios in relation to each specific geographic and business area of the firm and its
investment projects. Foresight activities at BASF started in the mid 1990s, when the company
realized that the chemical industry was going through major structural changes which made
accurate and reliable predictions impossible. It therefore decided to use scenarios as its basic
methodology for tackling the challenge of investigating the major driving forces and how they
might affect the chemical industry. Macro forces and their likely evolution are described in BASF
‘Global Economy Scenarios’, where econometric models elaborate basic data in both qualitative
and quantitative terms, and likely GDP growth rates are depicted. All the company main
customer industries (the manufacturing, agriculture and construction industries) are included, so
that conclusions can be drawn about the resulting demand for chemical products and about the
overall industry’s internal adaptation, in terms of consolidation, mergers and acquisitions,
divestments etc.. Subsequent foresight activities addresses specific regions (EU, US, Asia) and
countries, by breaking down global scenarios into the firm’s main sectors and business areas,
i.e. chemicals, plastics, performance products, agriculture and nutrition products, oil and gas.
These country and business scenarios derive from a more focused analysis, which considers a
larger set of framework variables, such as national regulations or exchange rates, and market
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
issues, such as moves by suppliers and established competitors. The time frame is usually 1015 years for Global Scenarios, but much shorter for sector and business scenarios.
Daimler has also developed a scenario-based system which aims at encompassing and
integrating analyses of future changes in the macro-environment into market and product terms.
Macro-environment foresight activities address major trends and forces in the political,
economic, infrastructural, social and cultural landscapes which are likely to shape the future for
transport and mobility business, and are carried out at a global level or for a specific region, over
a 10-15 year perspective. At the market level, more focused scenarios are built and take into
account the likely competitive moves of rivals and changes in society, consumers’ behaviour and
mobility (i.e., cultural conditions, lifestyles, urban life trends, etc.). These aim to figure out the
likely evolution of the firm main business segments, so to derive future demand projections for
passenger cars, vans and trucks in different geographic areas and countries.
Use of results for strategic decision making. BASF seamlessly embedded foresight in the
strategy formulation process. Scenarios are usually combined with the formulation and
evaluation of strategic options, as they are seen as providing information inputs essential for
assessing the profitability of current and potential business areas, and for assessing investment
(and divestment) decisions for expanding (or downsizing) operations in the firm main business
and geographic areas. A notable recent corporate-level example has been the decision to
withdraw from the pharmaceutical industry. Notwithstanding the positive outlook of both
demography and demand growth, the foresight analysis highlighted increasing operating costs
due to social and political concerns, as well as the likelihood of strong pressure to reduce prices
to consumers, seen as likely to undermine general profitability levels. Future pharmaceutical
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R&D activities also promised to require huge investments, o implying that resources had to be
shifted from other, more attractive, business areas. At business and operational levels, strategic
foresight supports the definition of target features for enhancing products and services, as
macro trends in the global environment are translated down into priorities for action in specific
innovation fields. For instance, in the performance products and construction sectors, macro
trends of increasing pressure on cost saving, environmental concerns and growing urbanisation
has led the firm to boost product development in the thermal insulation, glazing and heat storage
fields.
In a similar vein, scenarios capture complexity through a multi-level hierarchy at Daimler,
which progressively links macro drivers of change with specific management objectives. The
outputs from foresight activities provide a wide basis of information which explores long and
medium-term changes in customers’ needs and lifestyles, by rooting them in an understanding
of the long term dynamics of technologies, economics, society and politics. A relevant example
has been the development of the ‘Smart’ car concept. A scenario building process was
conducted with a special focus on changing mobility patterns in urban lifestyles, and one of the
most relevant ideas that fitted the scenarios was for a small, trendy two-seater car. The foresight
process then investigated the technical and economic feasibility of the concept, which the top
management decided to endorse by establishing a new brand and a subsidiary start-up.
4.2 Foresight at Philips and Siemens
Environmental Uncertainty and methodological approach. The consumer electronics and IT
industries, i.e. the context of our case firms Philips and Siemens, throughout the last decade
were rather volatile, technology being the main driving force. The growing pace of technology
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developments and the continuous emergence of disruptive changes in customer needs have
together contributed to greatly increased volatility in these industries and for these firms.
Let’s consider the case of consumer electronics: in the display and large-screen TV
segment, in the last decade there were some major market launches of such new technologies
as Liquid Cristal Display (LCD), Plasma Display Panel (PDP), Surface Induction Electron display
(SED), Organic Electroluminescent (EL) and Liquid-Crystal-on-silicon (LCOS). New applications
and consumption opportunities have become ever-more widespread - Internet, digital camera
and camera phones, pay-TV, sport events, home cinema and film on-demand, game consoles
and 3D and interactive games, each requiring specific product features in terms of resolution
graphics, colours brightness and image definition.
The same considerations can be easily extended to the broader ICT ecosystem where
Siemens operate, as major changes in technologies and ensuing customer demand are again
continuously scrambling established business boundaries.
In such a context, foresight activities at Philips aim essentially at identifying new trends in
society, technologies and customer needs in a timely manner. A corporate unit (Philips Design)
established in the 1990s, delivers innovative design concepts and services for the company
main businesses. Within Philips Design, the ‘Trends and Strategy’ team is devoted to the
investigation of three axes - ‘Society’, ‘Culture’ and ‘People’, with a focus on upcoming changes
in social values and the expressions of these values as they emerge in customers’ attitudes
towards the technologies and products they use in their everyday lives. A new initiative - the
‘Probes Program’ - has been established recently as a long run (10 year time horizon) research
initiative intended to present ‘provocations’ about new lifestyle patterns, which are published or
exhibited to stimulate debate and criticism within the organization (a recent example concerned
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clothing and electronic tattoos that reveal the emotional state of their wearers.) Philips foresight
activities also include Philips Research - the group’s corporate R&D unit - which regularly
develops technology roadmaps concerning the group main business sectors.
These different pieces of insight are finally matched through an interactive process that
brings the social researchers from Philips Design and the technologists from Philips Research
together with the business managers from all Philips product divisions. Insights about sociocultural trends are exchanged and made coherent with those about technologies and markets, to
provide a comprehensive vision of the future evolution of the firm business environment, in a
process that guarantees that all view points (people, technology and business) are taken into
account. Foresight activities usually cover a 10-year time horizon, while emerging trend
investigations are scheduled yearly to fit in with the annual strategy calendar.
As with Nokia and Philips, the foresight system at Siemens aims at identifying disruptive
drivers of change in markets and technologies so that they can be acted upon quickly. Foresight
activities are carried out by the Corporate Technology unit, where a specific research unit (an
‘Innovation Field’) has been established for each of the company business segments (Industry,
Energy, Healthcare and Consumer Products). The main task of each Innovation Field is to
elaborate a ‘Picture of the Future’ for its target segment, which summarizes the evolution of
changes in society, lifestyle and customer needs in terms of both markets and technologies. In
the case of the consumer products and ICT businesses, the time horizon is 5 years.
Use of results for strategic decision making. The main goal of foresight at Philips is to drive
the renewal of the organization by figuring out how to exploit the new market opportunities
enabled by emerging technologies or in response to customer needs. Since the late 1990s,
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FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
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foresight activities have played a key role in re-defining the company mission, as it focused its
value proposition on the ‘Sense and Simplicity’ concept. In this context, Philips Design and
Philips Research have jointly developed the ‘Ambient Intelligence’ vision, which means an
‘intelligent home environment’ that utilises a wide range of interconnected and embedded digital
devices to make the environment sensitive, adaptive and responsive to the presence of people.
By following this vision Philips has built its core technological competencies around displays,
connectivity and storage, and started to develop and to experiment with innovative product
concepts in all divisions. A notable example is the Ambilight concept (Ambient Lighting
Technology), which aims at enhancing the home cinema experience by generating lighting
effects around the TV set that match the video content, so enabling customers to enjoy a ‘larger’
virtual screen and thus a more immersive viewing experience.
At Siemens, too, foresight activities go beyond identifying emerging changes in
technology and customer needs to encompass the exploitation of the new market opportunities
its scanning reveals. Initially, one of the company business groups is targeted as the ‘buyer’ for
a specific market opportunity, and if an innovative idea does not ‘fit’ with an existing business
group, it is allocated to the ‘Siemens Technology Accelerator’ (part of the Corporate Technology
division) which fosters venture activities within the company and provides financial support to
new subsidiary companies and start-ups. Most business groups also have their own venture
activity groups, which cooperate in the development of innovative ideas.
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FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
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5. A Model for Uncertainty, Foresight and Decision-Making
In preceding sections, we sketched the drivers of change that emerged from our data which
dealt with remarkable uncertainty in four different industries and the approaches through which
selected firms coped with these drivers. In particular, our data suggest two different classes of
drivers of change, having a strong influence on the kind of uncertainty firms may face and
posing strong implications for the most suitable approaches to handle them.
5.1 Boundary uncertainty and implications for foresight
So far scholars in strategy and environmental uncertainty left the issue of state uncertainty
unexplored which is essential for adopting techniques like scenarios or roadmaps effectively:
such issue regards the evolution of the boundaries of the business. We define it ‘boundary’
uncertainty: it affects the identity of the main components of the business microenvironment (i.e.,
rivals, suppliers, customers, substitute products, potential entrants), that is the activities and
processes of their value chain, and the mechanisms –business models - through which they try
to create and to capture value.
With the concept of boundary uncertainty as a backdrop, we distinguish between two
main types of drivers of change. The first is ‘continuous’ drivers of change that support and
enhance the traditional identity of the main components of the business microenvironment, slo
leading to incremental developments in the value chain and the business models of established
firms, and in their main types of activities and products. Such drivers are typical of mature global
industries where trajectories of technologies and customer needs are well-established and
companies compete for market share international level. The second types is ‘discontinuous’
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
SEVILLE, 12-13 MAY 2011
drivers of change that have disruptive effects on the business models of established firms and
lead to completely new kinds of products, players and activities in the value chain. Such drivers
are typical of emerging industries and more generally of industries where technology is the main
driving force and completely new customer needs rise to the fore.
The chemical and automotive businesses - as global and mature - and the consumer
electronics and ICT businesses - as technology driven - are well suited to illustrate what types of
uncertainty a firm may face in its external environment because they provide paradigmatic
examples of continuous and discontinuous drivers of change, respectively. Let’s consider the
chemical and the automotive industries first. Key drivers of change -rise of companies from
emerging countries, financial crisis, etc. - had relevant consequences on the evolution of the
main components of the business. In any case, these drivers of change were all continuous
drivers, as they did not affect the boundaries of the chemical business. Over the last four
decades, BASF and Daimler could clearly know in advance who were: i) competitors; ii)
suppliers; iii) customers; iv) providers of substitute products; and v) potential entrants. What
BASF and Daimler could not know in the face of these continuous drivers of change, was how
these drivers would evolve, how they would affect the industry structure (i.e., the strategic
behavior and the evolution of the main components of the business microenvironment) and the
position of the firm, and what responses it could adopt. Operating in the chemical and
automotive businesses could be compared with a person playing a game of cards, who from the
beginning has full awareness about the rules of the game and the cards in the pack (i.e.,
boundaries of the business—identity of the key components of the business microenvironment).
What the player does not know is which cards he/she will be given and what cards will be put on
the table (i.e., state, effect, and response uncertainty—evolution of drivers of change,
consequences on the industry structure, and viable solutions).
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Forth International Seville Conference on Future-Oriented Technology Analysis (FTA)
FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
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On the other hand, the consumer electronics business of Philips (or the broader ICT
business of Siemens) was affected by discontinuous drivers of change that brought about
boundary uncertainty conditions so affecting the identity of the main components of the business
microenvironment. Let’s consider in particular such a driver of change as the convergence of
multimedia technologies: digital imaging, digital music, games and high-speed Internet access
have definitely enabled more and more functions and services to be used on a TV set.
Investigating such changes in technology and customer needs requires not only the anticipation
of their likely evolution, but most of all, an answer to the following questions: what are the new
kinds of products and services that customers want? What are the new benefits they seek?
What are the main activities of the value chain? Who is in the business? How does one create
and capture value? By using the previous analogy of a card game, operating in the consumer
electronics business could be compared to the case of a player who still has to learn both the
rules of the game and what the cards in the pack are.
Discontinuous and continuous drivers of change entail very different and peculiar
implications for strategic planning and the tools and practices to use for handling uncertainty.
Let’s consider the case of continuous drivers of change and the energy industry first. Managers
at BASF and Daimler could be quite confident about the key decisions they would have to make
in the next twenty years, or even more.
In this context, traditional techniques like scenarios could be used directly for handling
state, effect and response uncertainty. First, they allowed managers to think about the
alternative evolutions of drivers of change (state uncertainty) in an organic and systematic way.
Second, they allowed managers to effectively exploit what they already knew (and needed to
know) about the boundaries of their business. Thanks to their past experience they were able to
evaluate the consequences of drivers of change on the evolution of the main components of the
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FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
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business and on the competitive position of the organization (effect uncertainty) and to define
the best options for coping with these drivers. As some executives and former heads of the
scenario unit at BASF explained to us:
In the chemical industry, techniques like scenarios work well because they help managers
to gain new insight on the ways new forces of change may develop in the next 10 or 20
years, and they challenge consolidated beliefs regarding the state of these forces. At the
same time, as they dig into what they learnt from their past job, managers can think over the
likely structure of the industry and the competitive position of the organization under these
different states.
On the other hand, as they were facing discontinuous drivers of change, managers at
Philips and Siemens had to address the crucial task of identifying the new boundaries of their
business. In this context, the key decisions to be tackled by the organization for future growth
were not clear. Under boundary uncertainty conditions, it is simply not sensible to use
techniques like scenarios or roadmaps: environmental scanning efforts and, most of all, the
explorative actions that follow its release (new concepts of product and service, prototypes,
commercialization in target market niches, venture initiatives and start-ups) serve exactly as a
learning process to solve boundary uncertainty about the (new) identity of the main components
of the business micro environment and the new activities of the value chain. Only after that such
components and activities have been cleared, decision makers might start using traditional
techniques (e.g., scenarios, roadmaps, etc.) in order to deepen the investigation of state
uncertainty (e.g., rate of improvement of a new technology, future demand for related products
and features) and finally to address the effect and response uncertainty of (discontinuous)
drivers of change.
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6. Discussion and conclusions
Our work relates to several fields of research in strategy and organization. First, it improves our
understanding of the different kinds of uncertainty and drivers of change that a firm may face in
its business environment. Second, it provides empirical evidence on the ways foresight activities
of large organizations were integrated and how the results were used to support strategic
decision making. In particular, it provides the broad outline of a conceptual framework about how
to cope different kinds of uncertainty (boundary uncertainty vs. state, effect, and response
uncertainty) with different techniques and approaches. In this way, we try to enhance the
academic standing of foresight and its use by practitioners: we believe that matching the right
foresight approach with the specific kind of uncertainty faced by a firm is an essential condition
in order to foster and nurture the learning process about the future which scholars and
practitioners in the field have suggested as the main contribution of foresight to strategic
decision making (Tsoukas and Shepherd, 2004; De Geus, 1997).
Data collection and data analyses were designed in order to improve the construct and
internal validity of our conceptual framework. Through pattern-matching across cases, we tried
as well to establish some sound casual relationships between environmental uncertainty,
foresight, and the performance of the organization, and to enhance the external validity and
replication of our conclusions.
Much additional research must be done for improving and expanding the conceptual
framework that we broadly outline in this paper. Efforts to explore the external validity and
usefulness of this framework through studies of boundary, state, effect, and response
uncertainty and foresight in other industries and firms are required.
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‘Boundary’ uncertainty in particular offers (and requires) interesting avenues for further
research. Our arguments suggest that a crucial issue is the ability to distinguish continuous
drivers of change from discontinuous ones. Future research on boundary uncertainty can build
on literature on innovation and managerial cognition (Tripsas and Gavetti, 2000) with respect to
how to identify discontinuous drivers and how to frame the exploration of their impact and how to
renew the strategic beliefs of the organization regarding the boundaries of the business.
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FTA and Grand Societal Challenges – Shaping and Driving Structural and Systemic Transformations
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