Conversations

Thinking in scenarios

We met with Carsten Beck, futurist, in his office at CIFS (Copenhagen Institute for Futures Studies) to get his thoughts about what may or may not happen with the economy, with our increasingly polarized society, and with life in general. As Carsten explains, the value of futures studies, at least the way CIFS practices the discipline, is in the guidance and support it gives for decision and action today.

I’D LIKE TO START WITH A SHORT EXPLANATION OF WHAT FUTURISTS DO, AND WHAT WE DON’T DO.

We are trying to run businesses like everyone else, so as a rule most futurists tend to work in a time frame of ten years. At least that’s our preference at CIFS (Copenhagen Institute for Futures Studies). Anything shorter than ten years, and we run up against existing business plans that our clients have already decided on and are in the middle of executing. So we wouldn’t really be able to make a difference. And anything beyond twenty years nobody cares about, because they’ll all be retired anyway. There are futurists who work in time scales of hundreds or even thousands of years, and there’s something attractive about that since you never have to face your own mistakes, but there’s also the question of value. So over the years, our team has found ten years to be an ideal time frame.

At CIFS, our main tools are scenarios, which need to be carefully distinguished from forecasts. Forecasts are specific predictions about what will happen in the future. Scenarios, on the other hand, present a bundle of possible futures, which can be used by our clients to form contingency plans. I’ll illustrate with some examples from everyday life. A forecast sounds like a specific prediction about the future: We forecast that it will be sunny tomorrow. We aren’t fortune-tellers, so at CIFS we shy away from forecasts. The scenarios we build sound more like a series of hypothetical if/then statements: If it’s sunny tomorrow, then we will go to the beach. If it’s rainy tomorrow, then we will go to the museum. At CIFS, we normally present four such scenarios for our clients to interact with.

Polarization

This new 40-20-40 distribution pattern is much less stable than the old 20-60-20 pattern.

If you ask people what kinds of products they think will be available in the future, you won’t get much of an answer most of the time. Or it’ll be a fairly boring or even silly one. Maybe they’ll say they hope that medical technology will be better, or that there will be cars with better gas mileage, or... cars with wings. As Henry Ford is supposed to have said over 100 years ago: “If I had asked people what they wanted, they would have said faster horses.” Whether or not Ford actually ever said this, the observation is accurate. It is not easy for people to imagine what kinds of products the future might make available.

But, if you ask people about their feelings about the future, about their hopes and fears and their general attitudes, things get more interesting. As recently as just ten years ago, most of the people we interviewed, let’s say 60%, had a neutral or slightly positive attitude towards the future. They would say things like: “I hope I will be healthier” or “I hope I will have more money”. Nothing dramatic, basically more of the same as the present, just... a little bit better.

In addition to that majority, ten years ago there were also two smaller groupings of people, one future-oriented with strong, positive feelings about the future, and the other nostalgia-oriented with sometimes negative feelings about the future. Ten years ago, both minorities were of roughly equal size, about 20% each. The future-oriented minority couldn’t wait for the future to arrive, when everything would be much better and technology would bring almost utopian conditions for everyone. The members of the nostalgia-oriented minority were generally more distrustful of the future, and especially of technology, and yearned for a return to simpler, less connected, more agricultural and more local ways of living.

Today, we see those same three basic feelings about the future, but the size of the different groupings has completely changed, and in fact we now see a radical polarization of attitudes. Actually, we only have these numbers for Denmark, but we think they apply to the rest of Europe as well. The broad middle, that used to represent 60% of the population, has dramatically shrunk to a minority of just 20%, while the future-oriented and nostalgia-oriented groups have both grown to about 40% each. This new 40-20-40 distribution pattern is much less stable than the old 20-60-20 pattern. The polarization is scary, and potentially explosive. You can see some of the practical effects of the polarization in things like the recent election results throughout Europe.

Companies have to adjust to this polarization. There is a large segment of the population that is hungry for new technology, but there is also that large segment that will resist it. For those customers who are nervous about the future, companies might even consider a retro strategy. For the other segment of the population that is future-oriented, and always wants to push ahead with technology and go to the next level, there is the danger of creating a world of beta versions, where nothing ever works quite right.

If/Then and Adaptation

What New York can do is adapt, and prepare for future adaptation….

CEOs, and entire companies, can get so caught up in innovating and chasing the next big idea that they lose control of the business as a profit generator. If you have a CEO who really reaches for the future and wants to deliver magic, can you show that he consistently outperforms the market? No, probably not. Instead, I think the CEOs who consistently outperform the market are the ones that are more grounded and more into, not really the details, but the fundamentals of a business. They focus on things like optimizing the supply chain, steadily increasing quality and hitting delivery schedules on time. Constantly reaching for the future makes focusing on those fundamentals more difficult. Is that strange for a futurist to say? If so, maybe it’s the economist in me talking.

Full disclosure: when CIFS was founded in 1970, we thought our future would be consulting with governments to predict things like commodity volumes. So and so much steel, so and so much wool, in such and such a year. We still do some of that, but it’s certainly not our core business. Some more full disclosure: in 1995, we debated internally whether CIFS should invest in developing a website, and we decided not to, because “no one was on the internet”.

Both of those examples show that futurists aren’t fortune-tellers and can’t read the future, and they also show why we like working with scenarios. Companies, like futurists, have to prepare for multiple alternate, unknowable futures. Even though “change” has become a boring buzzword, it certainly is the reality and the norm – and not just slow, gentle change, but also fast, major disruption.

I often quote a Harvard study from a few years ago showing how 50% of the industries that were in the top 25% of an industry-to-industry performance comparison at the beginning of the study were in the bottom 25% just ten years later. Entire industries can be caught off guard by disruptive change. And there is a McKinsey study I like to quote alongside the Harvard study that compares individual corporations with each other, and shows almost exactly the same thing for corporations. Change is a disruptive force that can’t be controlled and that regularly reshuffles companies and entire industries.

Given that reality, one of the things we talk about a lot is adaptation as a strategy. Given that we rarely have the resources to change our circumstances, whether we are giant organizations or individuals, we should instead develop strategies that will allow us to successfully adapt to multiple potential future scenarios. A recent example of this on a large scale is the work that Bjarke Ingels is doing with New York City, helping prepare the city for the effects of climate change through resilient design and resilient growth. New York can’t reverse climate change, and New York can’t reverse the historical realities and growth patterns that have given the city its current shape. What New York can do is adapt, and prepare for future adaptation, which is what Bjarke Ingels is helping them do.

So adaptation is an important strategy. But while that is going on, there is also the question of what we can do about the big problems facing the world that determine the circumstances we find ourselves in. We have lively debates at CIFS about top-down or bottom-up approaches for tackling things like climate change, world hunger, illiteracy, water scarcity. Bottom-up is trendy right now, but I think that’s because the success of bottom-up models like crowdfunding and crowdsourcing in certain areas has encouraged people to see that model as the solution to all of our problems in the world. I don’t see it that way at all.

For most of these problems, we need the scale, meaning the infrastructure and systems that top-down approaches provide in order to develop the solutions that are needed. I acknowledge it’s an ongoing debate. And the answer doesn’t have to be either-or, but it has to be both-and. If you ask me, both top-down and bottom-up solutions will be required.

Impatience

Of course this is not just in politics, but also in business, and it’s not just the “little people” who are impatient, but also the executive leaders.

One of the problems today is impatience. We have come to expect instant results and instant gratification for whatever we desire. At the least, we want to be able to immediately start the process of getting whatever we desire, whether it’s a new product, a new education, a new job, a vacation, or anything else. With digitization and communication, everything can be, and we think, must be, available to me right here and right now.

That impatience causes problems when you have to tell someone that the solution to a problem is going to take 50 years to build. We face it with climate change, we face it with water scarcity, we face it with geopolitical structures. Why does France have a permanent seat on the UN Security Council for example? It seems ridiculous today to say that France should have a permanent seat and Germany shouldn’t. Of course there are historical reasons for this that were reasonable at the time, but changing the arrangement to reflect current realities will take a long time, I’m sure.

All of that can be explained, and people will understand and accept it. In fact, I think people will accept almost anything that someone has taken the time to explain in a way they understand. But, when people’s passions are involved, even when they understand, there is always the danger that their impatience might take over.

I think that is part of what is behind the swing towards local thinking and acting. 10 or 20 years ago, everyone was excited about all of the international treaties that were being signed to address a host of big problems – more of a top-down approach. But now we see that the problems are still with us. It feels like it is taking too long. And we want to do something about it – right this moment. But since we as individuals can’t control whole industries and economies, we talk about what we can control – a bottom-up approach. And that’s good. As I said, the long-term solution will be top-down and bottom-up. But the reality is that driving change with these kinds of large scale problems just takes time. And people are impatient.

Of course this is not just in politics, but also in business, and it’s not just the “little people” who are impatient, but also the executive leaders. Everyone wants to see immediate results. And the only way to handle that impatience is by having open, intelligent, and patient conversations, with the goal of educating. People are not stupid. But they often don’t have all of the information. You have to invest the time to explain why change is going to take a long time.

Without all of the information, people will seek local solutions to problems which are actually global problems and require global solutions, because they want to have a direct influence. The attraction of breaking loose and going independent is strong. But the scale isn’t there. Most countries are just too small, at least in Europe, and it’s the same with corporations. There needs to be a certain size before an organization can allocate resources to the kind of comprehensive and future-oriented thinking we are talking about. And that’s what is needed to thrive in the long term.

Courage and the Long Term

It’s a lot of disruption. How do you prepare for that?

Most CEOs and executive teams are so busy just trying to keep the business running that they have very little time to create adaptive strategies and contingency plans for the future. I guess that’s why there’s a market for futurists like me. It’s important for executives to not get lost in the day-to-day operations and to keep a forward perspective – and to have freedom to act on that perspective.

One of our clients, IKEA, is a good case study to show why long-term investment horizons are important. IKEA established supplier relationships in Poland way back in the 1960s. That was in the middle of the cold war and the Iron Curtain. That relationship did not always run smoothly. But they stuck with it and now, more than 40 years later, they are still there. That’s only because one man, Ingvar Kamprad, decided he would do it. Maybe if he had had to answer to a capital investor/owner who was pushing him to improve next month’s numbers, the many early difficulties would have required him to pull the plug on the idea. As it was, he was free to pursue his vision, and to stick with it through all kinds of difficulties and opposition, until he finally saw success.

As important as scale is, I think courage and confidence are even more important requirements for successful long-term planning and action. You have to be willing to stay with the vision. The details look different in every organization, depending on the business, but the challenge is always similar. For us at CIFS, the challenge often comes in the form of a client request to abandon our core consulting principles. I mentioned earlier that we work with scenarios. Many years ago, we had a client who asked us to modify our report to remove three of the four scenarios we presented, and to include only the one scenario which they liked the most. This would have effectively turned the scenarios report into a forecast report. And that’s not what we do.

We said no, and the client applied a lot of pressure to try to get us to change our approach, but we stuck to our core commitments. We still tell this story internally, especially to new team members, as a matter of organizational pride and to remind us of who we are, and who we want to be. Every organization will have similar stories of courage and confidence that define who they are, and that inspire and give strength in times of challenge.

Of course, the flip side to holding to a plan or a commitment with courage and confidence is that you might be wrong. This could happen, for example, when the path you have decided on collides with much larger developments or megatrends that you can’t control. The following is just one specific illustration of countless that could be discussed. There is a lot of hype right now around driverless vehicles, especially driverless trucks. As exciting as the idea is from many perspectives, a change to driverless trucks will be extremely unpleasant for plenty of people.

Uncertain Future

Where will the entrepreneurs and explorers and adventurers come from in the future?

In the USA alone, there are millions of truck drivers who have developed an entire subculture around their occupation. Often, their personal identity is defined by driving these big rig trucks across the country, living on the road like modern-day cowboys. What happens to them when their trucks become self-driving and they are no longer needed as drivers? Will we tell them to prepare for a new “career” stocking shelves at the grocery store? It’s a lot of disruption. How do you prepare for that?

The future of work - that’s something we think about a lot here at CIFS. What will the future job of the average person in Copenhagen, Frankfurt, New York, or Nairobi actually be? What will a typical day look like? No one knows the details, but like the truck drivers in the USA, whatever the details are, we can say the change will be disruptive, and not necessarily for the better, at least not for everyone.

I personally think that GDP per capita is the single most important key indicator for knowing how things are going in the world. There are, of course, all kinds of other metrics: environmentalists talk about pollution or waste or climate change, psychologists about stress and happiness levels, sociologists maybe look at education levels. But for me it is GDP per capita.

And when we look at GDP per capita, we see that in Europe and the USA, we have the first generation of people where the children will not be better off than their parents, economically speaking. It’s different in China and India and other rising economies, where the growing middle classes in those countries present a very different picture.

If the trend continues, and it seems it will, it’s interesting to ask which countries will be generally optimistic, and which ones pessimistic, about the future. Who will be more willing to take risks? Where will the entrepreneurs and explorers and adventurers come from in the future?

What we know for sure is that not all the megatrends we see unfolding point in the same direction, and they are often divergent or even conflicting. This keeps my job as a futurist exciting. How will the polarized societies of the developed world deal with the decreasing prosperity levels they are facing? In a world of impatience, how much longterm investing (with the required short-term sacrifices) should leaders in business and government try to get support for? How will top-down and bottom-up solutions interact with each other? These questions don’t have right or wrong “answers”. No one knows for certain what will happen.

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