future business, business forecast, strategy, business vision

Facing the future is the supreme challenge to today's managers. In financial services, for example, many contenders speak of building 'the bank of the future'. The speakers obviously know, or sense, that this non-existent bank will be radically different from today's actuality. But very few banks have any clear idea about this 'future' - even though the issue is clearly a matter of life or death. On one prediction, today's retail banks are set to become 'the new dinosaurs'. The survivors will be the Visionaries who best read the future: those which fail this supreme test will fail.

But what if the prediction is wrong? This greatly troubled a manager with an engineering background who heard our message about 'Riding the Revolution'. As an engineer, he had seen too many predictions of doom and gloom falsified to have much confidence in futurology. Our description of the catalytic, dynamic and dramatic impact of cyberspace on all businesses struck him as similar to the Year 2000 situation.

Some forecasters expected the end of the world as we know it, while others predicted business as usual. The ex-engineer expected that the outcome would be, as usual, somewhere in-between Best World and Worst. He thus revealed himself as a characteristic Pragmatist: someone who waits for proof before committing himself to a view or an action. But in revolutionary times, the Pragmatist is as much a liability as the Conservative who wants only to preserve the status quo.

It is certainly true that some extraordinarily clever and informed people have got the future completely wrong. But the truth did not end up in the middle; it was diametrically opposed. For instance, no less a person than Bill Gates, who has achieved super-Visionary status through the sensational success of Microsoft, said in 1981, forecasting the future of personal computers, that '640k ought to be enough for anybody'. That couldn't even begin to cope with the latest versions of his Windows. Gates is in good company:

'I think there's a world market for maybe five computers'. Said by Thomas Watson, visionary chairman and virtual founder of IBM, which proceeded to miss the start of some major developments in the market.

'There is no reason why anyone would want to have a computer in their home'. Said by Ken Olsen, visionary founder of Digital Equipment, which was allowed a 14-year clear run before IBM entered the lush mini-computer market that Olsen created.

The moral is not that great minds say foolish things from time to time. Note that all three giants had vested interests in their forecasts. Watson had a stronglehold on the market for punched card machines, which were threatened (and eventually destroyed) by computers. Gates had an equally strong position in operating system software, which stood to be destablised by any rampaging developments in PC power. PCs were a massive threat to Olsen's business - a threat so enormous that he completely failed to grasp what was happening.

The trio's thinking was wishful, in other words. Note, however, that in two cases the unforeseen developments proved lucrative beyond anybody's wildest dreams. IBM became the fastest growing, richest and most admired company on earth as the mainframes, minis and PCs multiplied fantastically - despite the late starts mentioned above. The explosion of PC power created marvellous opportunities for Gates to sell other software, where his market position became almost as strong as in operating systems.

Even Digital had many years of growing and fat prosperity before its failure in PCs became fatal. The Olsen/Watson/Gates mindset does eventually catch up with the company, however. IBM's desire to preserve the present ultimately destroyed its premier position in the marketplace. Microsoft and Intel, two companies whose rise to fame and fabulous growth depended intimately on IBM, are each worth far more than the hardware giant in stock market terms. Their growth has surged on while IBM has stagnated.

The Internet might have had the same harsh effect on Microsoft, where cyberspace ranked far down the list of corporate priorities. Although Gates then successfully mounted a last-ditch fightback, the threat of the Net to his quasi-monopoly has not disappeared. The outcome of the challenge, led by Sun Microsystems, to the Windows/Intel combination is still uncertain. But Wintel's domination of the IT marketplace is by no means assured. The future could go either way.

The final outcome could, of course, result in the middle position expected by our ex-engineer. He had, however, made a basic error in comparing the Year 2000 with the Internet-based future. The underlying reaon why Olsen, Watson and Gates were so wrong is that they could not know, because no man does, what the future held. That is also why a great scientist, Lord Kelvin, announced in 1895 that 'Heavier-than-air flying machines are impossible'. The technology to prove him wrong had not been established, and might never have worked, for all Kelvin could know.

Similarly, nobody could know exactly what the Year 2000 would bring until it happened. Thus in 1999 one major software firm was doing all in its power to ensure that its own in-house systems were free from the Millennium bug: that all the hardware and software supplied by third parties was compliant: that everything sold to its customers, and already supplied to them, passed muster. Its directors had assured themselves that everything in the company's power had been done. But what if a major failure of other people's financial systems stopped bills being paid and thus the inward flow of cash? Insolvency would rapidly follow.

THE FUTURE PRESENT
This is a case where understanding the present is of limited help in projecting the future. But, as Peter Drucker has both argued and shown, in general understanding the present enables you to dispense with futurology. If you correctly interpret what is happening now, you will win a huge advantage over the competition. Most other people will misunderstand the present and will base their plans on continuity. This is certain to be fatal in discontinuous times.

Often the present is difficult to read. This doesn't happen to be the case with the Internet. For example, the received wisdom holds that electronic shopping will be slow to take off and will not be a serious factor until well into the Millennium. The Pragmatist ex-engineer pointed to the fact that Amazon.com, although it has grown its revenues as colossal pace, is still unprofitable. Yet its competitors have been forced to add Websites to their conventional stores because of the huge inroads made by Amazon into their market share.

Against the newcomer's lack of profits must be offset its great cash flow and the immense value of the customer database which it is accumulating. Which traditional bookshops know who their customers are or what they buy? Which conventional retailers of any kind have this knowledge? And which banks?

In his book E-Shock, Michael de Kare Silver makes statements that sound like predictions, but are actually accurate readings of the present - for example, [with our comments in square brackets]:

1. The revolution in electronic shopping is going to happen [it is self-evidently happening, with US retail sales over the Christmas period in 1998 estimated at $3-5 billion]

2. It is going to have a major impact on the shopping and retailing scene [it already has it; in activities as far apart as travel bookings and music, new cars and stocks, spending over the Internet is large and growing apace]

3. This revolution will reach critical mass by as early as 2005 [In the industries mentioned, that mass has already arrived]

4. From supermarkets to banks, nearly all retailers will be affected [which is also already happening: in Britain, local organisations are taking orders for packaged goods over Websites and making home deliveries: Internet financial services are plainly taking the lead from established techniques, partly because of insuperable cost advantages]

5. The electronic environment will demand new marketing skills

The fourth 'prediction' is the one that poses the greatest difficulty. Take the banks mentioned at the beginning. They have yet, for the most part, to acquire and apply the marketing skills required for their existing and largely traditional business. Now they are being forced to contemplate a new world for which they are woefully unprepared. The new market is driven by customer needs and enabled by new technology. The old style of banking, in which expensive High Street palaces formed a nationwide retail network, is obsolete.

Banks, like other financial services companies, have proliferated 'products', adopting the language of fast moving consumer goods (FMCG) while lacking the same business foundations. Few customers can differentiate between financial 'products'. They can differentiate between two very similar FMCG products, like Coke and Pepsi, because years of differentiated advertising and distribution have created a meaningful brand - meaningful, that is, to the customer. Because banks, insurance companies, mortgage lenders, savings banks, etc. have offered the same 'products' in the same way for generations, their brands have little worth.

ATTRACT, RETAIN AND MAXIMISE
Another way of describing their problem is that the 'products' have no inherent value. You might be able to sell the bank's 'brand': but would anybody buy a particular form of account without the customers who held that account? The true product in financial services is the customer. By gearing themselves to products, the financial insitituons have grabbed the wrong end of the stick. Their prosperity depends on their ability to master a variety of the ARM formula. In human resource management, that means the ability to Attract, Retain and Motivate employees. In commercial terms, it signifies the ability to Attract, Retain and Maximise customer loyalty.

The M refers to maximising the income flow from each customer over time, preferably a lifetime. The ARM formula has become much more urgent with the advent of e-commerce. Customers for both retail and commercial goods and services will have no need to use the existing channels. In many cases, they can already go to the Website of their choice or can search, with the aid of a search engine, for whatever they want. The strategy of Amazon.com is to ensure that its customers come first and foremost to its Website when they want books, or CDs, or movies, or whatever else it chooses to sell. That strategic need must be universal.

In some businesses, you may be able to retain customers by superior service. Computer resellers are trying this route, which must, however, become less lucrative as computers become simpler and prices lower still. But their logic is that described above. Their real stock-in-trade is the customer, meaning the corporations that could buy direct from manufacturers or from discounters who offer a no-frills service. More and more, however, computer hardware and software sales will be made without frills - and are being made - over the World Wide Web.

The proliferation of supply sources and customer choices is not a prediction, but a fact. It helps to explain why so many orthodox household names are shocking the stock market by coming out with dismal results: their unconventional rivals are creaming off their marginal profits. Remember the point about wishful thinking. When business people look into the future, the Conservatives and the Pragmatists alike do not want to sacrifice the strengths of the past and present.

Like Digital with its mini-computers, IBM with its mainframes and Microsoft with its Windows, they want to believe that the foundations of the business - its historic product, selling and image strengths - will sustain success into the furthest reaches of the future. Only the Visionaries perceive that those foundations have become generally as shaky as those of the world's great banks.

Take just one household name, Marks & Spencer. No less a guru than Gary Hamel was praising its innovative powers as recently as the autumn of 1998 to a world-wide satellite audience. The basic formula has sustained excellent performance down the years: provide exceptional perceived value for money by ordering goods to your own specification; control the quality by direct involvement with the suppliers; attract the customer by well-located, well-designed and well-managed stores.

In an age of proliferating choice, however, the formula has become tired. A Visionary would see that IT, through an Extranet connecting M&S with suppliers and customers, and in other ways, can revitalise the old recipe. But the management, like so many others, had come to believe that it knew the market better than the customers. The chickens came home to roost with a series of appalling setbacks, starting in December 1998 and leading to unprecedented 'culling' of senior managers.

Culling by itself accomplishes little. M&S desperately needs to invent a new future - one in which, like it or not, the Internet is going to loom large. To invent that future, though, this corporation, and many, many others, need to invent a new company. That is not going to be easy, even for Visionaries. For Conservatives, it is impossible, while Pragmatists will probably be too late.

REWRITING THE RULES
The extent of the difficulty can be judged by looking at the 'Ten Commandments for Next-Generation Businesses' which Karen Southwick describes in Silicon Gold Rush . As her dust-jacket says, 'the next generation of high-tech stars' is rewriting 'the rules of business'. So does your management....?

1. Shape the company's culture and work ethic? Does the CEO manage and nurture the company's knowledge capital?

2. Maintain a fresh perspective? Does your company see its place in the world as something ephemeral and transitory rather than assured and permanent?

3. Cultivate knowledge? Does it distribute leadership so that each employee is entrusted with higher levels of responsibility and information management?

4. Develop 'mind share'? Does it complement the company's product innovation with brand marketing initiatives?

5. Avoid formal structures and prefer teamwork? Does it form teams to allocate resources, prioritise tasks, and determine how to launch products, etc.

6. Place the customer, not the technology, at Number One? Does the company tailor products to meet real customer needs?

7. Find the right partners, mergers and acquisitions? Is your company an integral part of a web of relationships?

8. Embrace the unknown? Are you ready for the next gold rush, which could occur in an entirely unexpected place?

9. Behave in a paranoid manner? Is it prepared to face a horde of aspiring competitors and to react accordingly?

10. Act like a speed demon, without being squeamish? Does the company have the vision to cope with speed of market change, technological advances, and emerging business opportunities?

In the case of M&S, the positive answers are at best two out of 10. Small wonder that it landed in such deep trouble. The problem does not lie with the management corps as a whole. Excellent recruitment and top-class career development have created leadership potential at all levels. But last autumn, when a representative cross-section of managers was asked if they could describe the company's strategy, not a hand went up.

You can define the problem from Southwick's expansion of her Fifth Commandment. The team principle means that 'Senior management acts much like a venture capital investor, assessing the merits of relative projects, assigning values, selecting the teams (or at least the team leader), and giving them budgets and deadlines'. While this achieves invaluable flexibility, its greatest merit is to devolve leadership and focus the organisation's effort through groups tailored to the specific needs.

Also, it removes top management from an operational role, leaving it free to concentrate on overall strategy and long-term performance - in a phrase, on inventing the future. The conservatism which hides behind forecasting difficulties and organisational norms has always been a drag on progress. Today the go-slow mentality threatens not just the ability to grow, but the possibility of survival.

That threat must be eradicated by letting the Visionaries explore new frontiers and find partners so that they can goad each other forwards to achieve extraordinary results. That success will in due course convince the Pragmatists - but probably too late for the richest prizes.