Forecasting Innovation — How To Anticipate Trends In The C-Suite

Author

Christopher P. Skroupa

March 10, 2017

David currently serves as leadership for the Decision Support and Innovation (DS&I) team within the Consumer Experience group and holds a leadership role within the Customer Experience Technology (CET) group. Before joining Aon, David served as Vice President for Business and Innovation at AHIMA and Unity Medical. He also served as Vice President of Emerging Technologies at the University of Pittsburgh Medical Center, where he started an internal investment and incubation center for the medical system. Prior to these efforts, David worked at Intel in various roles. David graduated from the University of Michigan as an Industrial and Operations Engineer. He earned his M.B.A. from Carnegie Mellon’s Tepper School of Business in 2008.


Christopher Skroupa: Innovative ideas and trends continue to be hot topics in the business community. From your perspective, what should an executive be looking for in the next couple of years?

David Westfall: In short, Chris, executive leaders should be looking for what they normally do not look for. People tend to look to confirm what they already think or know—confirmation bias. I believe that if you want to understand, forecast, and realize future trends and innovations, you have be looking for something you do not know. In other words, something you are already not looking for.

In our conversation about process and performance, we discussed the importance of the use of a low entropy process to gather high entropy information. The most important information we can obtain is information that surprises us (high entropy information) and our approach to this type of information should be to optimize how quickly we can react to that information (low entropy process).

A simple example will illustrate my point: If I told you that the sun will rise tomorrow, this is hardly surprising nor all that informative. In fact, it is only further encouraging a confirmation bias of something we believe we know. But, if instead I told you tomorrow the sun will not rise, now that is both surprising and, assuming I am right, extremely informative. It would definitely change and shape your actions you take today in preparation for tomorrow. However, if you wait or do not react until tomorrow, this information becomes much less valuable.

In the business setting, if a leader honestly looks at their internal information systems, they will likely see processes and procedures that are designed to filter out unexpected or non-conforming information. In essence, these systems would filter out the high entropy information of the sun not rising, or would set off so many internal reviews, committees, action teams, etc. that by the time they even got started, tomorrow would already be here and you would find yourself in the same boat everyone else is in!

I also what to review our discussion about how critical it is to have the right mindset in your innovation teams to truly leverage that information. In that discussion, we identified that it was critical to bring in the right talent and specifically the right mindset to enable the discovery of high entropy opportunities. Having a team that thinks exactly the way your current culture and leadership thinks is, again, only continuing to reinforce confirmation biases. You need to have the right team of people together who are willing to put aside the company cultural biases and their own personal biases to see information for what it is. They need to be receptive to being surprised and be willing to act.

Well, in the vein of those two foundational articles, I want to suggest not trying to create the perfect prediction model to look for what we expect and know already. Instead, we need to “unknow” what we think will happen.

Skroupa: Do you look at trends or forecasts in your efforts to keep ahead of new technology trends?

Westfall: I look at forecasts and predictions all the time, but I think the key difference is that I’m looking for things that surprise me—new or unexpected things. However, I can guarantee you that the last thing I am thinking about is how I could model or forecast trends.

By definition nature and the world around us are unpredictable. How many times have you been surprised by a certain event, technology trend, or political change? In no way am I trying to be political here, but just how many “experts” were wrong about the recent Presidential election held in the United States? To use the phrase popularized by Nassim Taleb, there are a lot of black swan events that simply are beyond our ability to predict. Therefore, I believe it is critical as an executive leader that one looks to properly balance the reliance on traditional trends and forecasts to predict what is fundamentally unknowable. Instead, their focus should be on how to quickly identify and act on that information that is most surprising to their current understanding or business model. There is clearly some value in planning on what you think your opportunities as a firm are and applying resources to capitalize on those forecasts. However, it is my belief that one’s forecasting efforts must be carefully measured in context of its real value – you know what you know now and everything in the future is an estimated guess.

While looking to create models, estimates, or simply an educated guess, as an executive leader, you should always look to maximize your options. Let me pose a simple question that I think emphasizes this point. In my career, I have seen many examples of long-range strategic planning—typically looking 3 to 5 years out. There is some value in planning on what you think your opportunity as a firm is, but this must be carefully measured in context of its real value. For example, one thing that always bothered me in this process was the following: If the strategic planning process were accurate in its prediction of 3 to 5 years out, then why is it common place to repeat that strategic planning process every year? Should it not be sufficient to only do this every 3 to 5 years?

I use this example not to lay blame on strategic planning, but to simply point to the fact that no model, forecast, or educated guessing process is perfect. In the case of innovation trends, when they become noticeable to most firms, they often appear to come from nowhere and are suddenly creating a huge disruption to your business model. However, if you look at most disruptive innovations, they actually tend to have been around for a while and it was never something your strategic planning processes saw coming. That is why so many firms repeat their strategic planning processes every year. Most firms realize that beyond the next month or if they are very lucky, next 6 months, everything else they are planning is mostly a guess! I believe fundamentally most leaders directly or indirectly acknowledge this. That is why most firms simply repeat the strategic planning process on a yearly basis to tweak their plans as they acknowledge new information. 

Skroupa : Then how should a business leader look to be prepared for something they struggle to predict or forecast?

Westfall: As a leader, you need to embrace the fact that many things are unpredictable. While modeling and forecasting can be useful tools when applied appropriately, they cannot be the only tool you leverage. Instead, as we have discussed in prior conversations, as a leader you need to adopt a low entropy process around your forecasting and modeling. You need to employ and empower people with the right mindset who can help your business model adapt to the unknown, natively unpredictable things that will inevitably come your way. In short, you need increase information flows around surprising information. Explore that surprising information without filters or biases. Then assess its impact to your business model and ultimately deliver with what I and a colleague of mine, John Kenagy, have been calling velocity management.

Skroupa: What is velocity management and how does that help with identifying and reacting to innovation trends?

Westfall: At its core, velocity management is the recognition that most information is chaotic, not inherently predictable and being able to react quickly to unpredictable information that derives new value. Remember, high entropy information has a high amount of value. While it may have been surprising, it is because of this surprise that you must act. Velocity Management is putting into practice only those processes and systems that allow a person, a group, and ultimately an organization to quickly assess the information and act – low entropy process. Key to this is avoiding the natural human bias of trying to assign, categorize, or filter according to what we expect to know (low entropy information). If you rely on this, the information you are acting on is by definition of low value. In order to take advantage of valuable information, you must recognize it and you must act on it. It is that act of putting into practice only those processes, procedures and systems that allow a person, a group, and ultimately an organization to quickly assess the information and act quickly within a defined risk environment. Velocity Management does not prescribe to specifics tasks or efforts and instead is a focus on identifying barriers to achieving the lowest possible entropy process within the boundaries set by an organization. Key to identifying those processes that are not low in entropy is to look for procedures that try to assign, categorize, or filter according to what we expect or think it should be. Alternatively, one can look for any process that reduces a team’s ability to act quickly. Clearly there needs to be a balance of risk and reaction speed, and frankly that is something as a leader of a firm we are constantly balancing. However, it is critical to employ this approach for innovation efforts.

The balance is simply what your firm’s willingness to take risks is. There are two extremes we can quickly explore, and everyone will likely fall somewhere in between. The first is zero risk. While this sounds good, it comes with peril in the following way – if you are not willing to take a risk, you are also unwilling to make any meaningful changes. If the sun does not rise and you did not prepare for it, then you will be in severe trouble. The competitor who did recognize the information and prepared for the possibility it might happen will thrive – likely at your expense!

The other extreme is 100 percent risk. This I would express as completely abandoning any process, accepted procedures, systems, etc. This is hardly acceptable to most organizations either. Changing your business plan every single day in anticipation of the sun not rising is equally likely to create severe trouble. The competitor who can balance their organization to be prepared yet is not changing their organizations focus every day again will thrive!

As a leaders assess the reality of their organization, only they can determine what the appropriate amount of risk to take is. If your business is extremely stable and more of a commodity, then lower risk is perhaps appropriate. If your business is unstable and subject to new competition, then a higher risk approach may be more advantageous. However, may I suggest that whatever the amount of risk is that you feel may be right, you should probably take it a step further towards the riskier side. You are likely already biased towards low risk and may not be pushing hard enough to be innovative.

Skroupa: Where should a business leader start?

Westfall: Business leaders focus, rightfully so, on making sure current solutions and opportunities are being maximized. They drive themselves, their team, and the organization to optimize current opportunities. That is obviously of value and important. However, what I am suggesting is that looking to use this same approach for innovation is fundamentally flawed for the reasons we have briefly talked about here.

Innovative opportunities will tend to be from areas that are surprising to you. If your intention is to seek both immediate opportunity and longer term innovation, then your business focus needs to recognize both as uniquely different approaches. Use forecasting and strategic planning for your current, known objectives, trends, and information. And put in place a business model that empowers your organization to make decisions that can act quickly to those unknowable events. By doing this, you reduce your reliance on forecasts and models which are ill equipped to predict these events.

As a business leader you should always be looking to drive yourself, your team, and your organization to always be looking for the unexpected. You need to “unknow” what you think you should be looking for. You should respond with velocity to new, surprising information. And you should put in place a business model that empowers your organization to make decisions that can act quickly to those unknowable events. By doing this, you reduce your reliance on forecasts and models, and instead are creating an environment within your business to harvest new and exciting value from things that you did not even realize were there the day before. You are unknowing that you thought you would know!

 

This article was written by Christopher P. Skroupa from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Great ! Thanks for your subscription !

You will soon receive the first Content Loop Newsletter