Business strategy – why every business needs a Historian with a Futurist’s mindset
Author: Michiel Jonker
If we like it or not, but the past (history) confines the future. By not studying history, our voyage would be in the dark. Although the future is undetermined, and open to change and new designs, the past is not (except for the interpretation of it – but let me not go down that rabbit hole for now). And though it is important to create a preferred future (whatever the normative goal might be), history will narrow down our choices (the restraining role of history is also called the “weight of history”). This is especially clear in geopolitics where states make decisions within the limitations of their given geography, available natural and human resources but, especially, the past… many decisions are influenced by the history of a state or its people. China tries to avoid another century of humiliation, and basically all their decisions are based on this historical fact. Turkey wants to resurrect the Ottoman Empire. The present-day clash between Greece and Turkey (in the eastern Mediterranean) goes back millenniums. And some historians argue that the Battle of the Teutoburg forest resulted in World War I (and, eventually, World War II). The list goes on…
The way futurists do strategy
And I want to go a step further – whatever business decision you make, it will be within the confines of a particular country’s (or region’s) history. I also want to make a controversial statement – every business (especially multi-nationals) needs a historian with a futurist’s mindset. And this statement in itself is contentious among futurists; for many the word history is an expletive. Unfortunately, many futurists overly emphasise the importance of the future vision / normative goal; in other words, the fact that the future is not determined. They get excited by the idea that the future is a “blank” slate and can be designed along the lines of a new vision.
And then there are futurists who, at most, would acknowledge that current contextual factors (trends) could impact on the preferred future. Nothing wrong with it. Business strategy and risk management should always consider the contextual environment when making decisions with regards to kicking off a business or growing in an overseas country. It’s imperative to analyse and monitor the environmental factors that will profoundly impact an organisation’s performance. Whilst scanning the environment, board members and relevant decision-makers should consider the PESTEL framework (Political, Economic, Social, Technological, Environmental and Legal factors). Unfortunately, the PESTEL analysis is usually overlooked considerably because contextual factors are out of anyone’s control.
The way multinationals do strategy
Multinationals complete risk and economic assessments, taking into consideration how the economy and market will respond to the business and the opportunity that lies within the business for them to enter a new territory. And if it is performed, the PESTEL analysis focuses pretty much on current and near-past events and facts. In my opinion, there’s not sufficient in-depth analysis of the history of a country or even a particular region – which could stretch over hundreds or even thousands of years. Yes, thousands of years. It is not a typo.
I have seen this over numerous years and, with respect, found that the assorted key decision-makers are slightly narrow-minded and mainly from a financial / economic background. Their role within the business strategy is to provide a financial and economic analysis. Yes, sometimes they consider the political environment, but at a surface level. And consultants mostly specialise in current events and what went on within the country over the past 5 to 20 years – never mind hundreds of years, or even thousands of years. I’ve begun to think about myself as a historian and as a futurist. I look at the larger story (the macro historical (change) patterns in the country) and put what’s happening today and what we see on the horizon into a bigger context. We do not repeat our history completely, but we do repeat patterns of change (humans are in their core the same – yesterday, today, and tomorrow).
The need for historians with a futurist’s mindset
Why are executives and boards not employing historians in their companies (or at least as consultants)? The political developments in a country have underlying macro historical factors or patterns that cause significant change within the country. I refer to the recent crackdown on the tech industry and private education institutions in China (and even a South African company got caught in the crossfire). Over hundreds of years, China seems to go through cycles of integration and disintegration. And before a company opens their doors in China (or any other country for that matter), it is important to understand the deep underlying history of China.
For example, historically there’s a huge wealth disparity between the coastal cities and inland (for certain historical reasons), which causes social friction – and it is a concern for the communist party. Not to mention ethnic tensions within the country. The Party will do anything to prevent the next disintegration (i.e., they try to avoid the repeat of history). Social and economic stability must be secured by means of, for example, job security – for the Party to stay in power – and plenty of sacrifices have and are still being made to ensure stability for the Chinese communist party. Jobs will be created even if they are not needed (e.g., through the belt and road initiative). Often, this may not make business sense or incorporate sound business principles like profitability. However, when the Party is facing a possible loss of control, immediately, there’s a shift to historical events, and traditions. Decisions are made that don’t necessarily relate to the most effective financial decisions for the country. The Party, in their effort to avoid a repeat of history, will always choose economic and social stability (security) over sound economic principles (and freedom). And if it requires the micromanagement of its citizens and a crackdown on the private sector, so be it. Only by studying history, a person would know this. (And the crackdown on the tech industry comes therefore as no surprise to me.)
As we develop strategic foresight, the challenge is apparent that if we consider all the change factors that the business world faces, it’s impossible do business without risk. We must, however, develop strategic foresight with supported deep research. There’s no perfect strategy, but if we start talking about historic patterns and trends in environmental scanning, this could significantly influence projections. Companies doing long-term planning and research are performing better than companies that are only focused on the short term (* see footnote). I’m fascinated and passionate about discussing and implementing a change in thought processes for the long run of business. Our decisions rely strongly on this, and no business can ignore the impact of historical trend patterns in their PESTEL analysis.
I applaud the futurists committed to assisting multinationals and each business to understand the impact of this idea when doing risk assessment as a part of business strategy. As we explore and research current trends over a spectrum of 1 to 5 years, mega-trends (5 to 20 years), and macro patterns of change (macrohistory) over hundreds or even thousands of years, we can establish scenario planning. This potentially can be where a business can thrive instead of relying solely on forecasting. Scenario planning uses both normative and explorative analysis techniques (more about this in another article). However, it is important to identify disruptions to future visions (preferred future). It’s more strategic and versatile and creates higher preparedness in an ever-changing environment that’s unpredictable. True business agility is achieved by considering what might happen within the future (considering, among other things, deep historical patterns – and not only economic and financial history) and developing an overview response.
Recently too many multinationals have found themselves scratching their heads after geopolitical tensions caught them off-guard – over and above China’s crackdown on the private sector, aborted gas explorations in the eastern mediterranean and northern Mozambique also come to mind. It is high time for multinationals, regardless of size, to consider making use of historians and futurists.
* NOTE: Research has shown that businesses with corporate foresight practices in place, perform better over the long term. Professor René Rohrbeck, from the School of Business and Social Sciences at Aarhus University, Denmark, and Menes Kum, from the University of Münster, Germany, published an academic article in December 2017, stating that the right level of future preparedness boosts a firm’s ability to attain superior long-term performance.
The research revealed that vigilant firms – those where strategic foresight practices match their need for strategic foresight and have the right level of future preparedness – had a 33% higher profitability and a 200% higher market capitalisation growth – for those listed on the stock exchange – when compared to the sample average.
The firms with future preparedness deficiencies had to accept a discount of 37% to 44% in terms of profitability, and – 49% to -108% in terms of market capitalisation, when compared to vigilant firms.
The study also found that many of the vigilant organisations had dedicated futures research functions, interacting with traditional functions such as marketing, strategy and research and development.
This is irrefutable proof that corporate foresight practices, focusing on the medium and long term, have to become part and parcel of corporate governance and risk management frameworks and practices. It is the only way we will build sustainable businesses that are strong enough to withstand future shocks.