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

9 March, 2017 / Articles

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.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.

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