Is your organization ready for the future? - I by IMD
Future readiness
Howard Yu, LEGO® Professor of Management and Innovation, sets out what being fit for the future means in practice and the key lessons that can be learned from future-ready companies.
Before launching into an explanation of what future readiness is, it might help to look at what it isn’t. Take, for instance, the recent high-profile case of a once-successful company that fell by the wayside because it failed to adapt and innovate.
Not so long ago (which is eons in tech time), Angry Birds was everywhere. Developed by games developer Rovio and released in 2009, this cute physics-based puzzle – featuring a group of aggrieved avians upset over the theft of their eggs by pilfering pigs – was one of the first games to exploit the capabilities of touchscreen mobile devices. It became an instant classic. In fact, the game was so successful that it rapidly became a global phenomenon and spawned a vast range of merchandise. At its peak, the Angry Birds empire had an estimated worth of over $1bn. Today, few people play the game.
Rather than develop new products or explore new markets, Rovio put all its eggs in the Angry Birds basket and failed to diversify. It also ignored the winds of change; the mobile gaming landscape was evolving fast, with newer, more innovative games constantly coming out and gamers looking for the next new thing. By 2016, Rovio had lost more than half its market value and was in big trouble. Having a one-hit wonder doesn’t mean being future-ready. You need to be a constant hitmaker in today’s environment – a tall but necessary order for any company.
Unfortunately, Rovio’s story is far from unique. So, what does being future-ready look like? Our multi-year research shows that companies that maintain an edge over competitors all show strong near-term results while preparing to change the game for the long haul. They anticipate external changes, adapt to them, and exploit them to their advantage before others. They know that, if they don’t, someone else will.
All this takes a great deal of strategic foresight and tactical adaptability as the global environment –technological, societal, and geopolitical – grows more uncertain. Companies must scale up new capabilities to stay competitive, or, like Rovio, risk getting left behind.
You cannot improve what you don’t measure. Defining future readiness is only part of the equation. How do you effectively quantify the ability to anticipate and adapt? At IMD, we use a quantitative approach to assess which companies are most future-ready. The purpose is to learn which universal behaviors and outlooks are transferrable, regardless of which sector you are in. We want to know which companies in their respective industries have maintained their lead, what choices they made, and what their managerial behavior looked like.
Using hard, publicly available data, we measure a company’s preparedness through a comprehensive, 360-degree assessment. This includes company websites, annual metric reports, business models, press releases, and third-party sources such as CrunchBase, Espacenet, Sustainalytics, and Google Trends to produce the Future Readiness Indicator.
The indicator comprises 36 variables and is used to produce rankings based on seven equally weighted factors. These are financial fundamentals, investors’ expectations of future growth, business diversity, employee diversity/ESG, research and development, early results of innovation efforts, and cash and debt.
We measure a company’s readiness for deep, long-term, secular trends to determine whether they have the resources and the commitment to scale up new capabilities – and can demonstrate traction from doing so.
These companies not only extend their horizon beyond current market trends but also anticipate future changes to achieve sustained profitability. They demonstrate a deep understanding of emerging technologies, market shifts, and evolving customer behaviors to make their organization fit for the future. In the Darwinian sense, this is the corporate ability to adapt to and exploit the changing environment.
The Future Readiness Indicator highlights the industry leaders and the behaviors and attitudes that elevate them from the pack, and we can use its findings to identify universal lessons. We gauge the preparedness of leading global companies (as measured by revenue) across six industries: automotive, consumer packaged goods, fashion, finance, pharmaceutical, and technology.
Sustaining competitive advantage demands constant exploration of new business models, but that window of opportunity is fleeting. This is because, as soon as your competitors have been able to explore potential new business models, they will pivot to exploit that new knowledge base to their advantage.
A good example is the US multinational corporation and technology company Nvidia. It began life as a specialist in manufacturing graphics-based processors but pivoted constantly as the gaming industry matured and has been investing heavily in AI and deep learning for over a decade, long before the technology became mainstream. CEO Jensen Huang had a strong conviction that GPU-accelerated computing would be transformative across industries. By exploring this path early, Nvidia built an insurmountable lead in AI hardware and software that it is now exploiting through its data center business.
The lesson here is that, even when early evidence is inconclusive, companies must dedicate significant resources to continuously exploring the new – and commit to making tough trade-offs when the evidence becomes compelling.
Learn aggressively with a strong viewpoint. Future-ready companies guide their learning with firm convictions yet remain open to change. Such behaviors – high learning and high commitment – sound paradoxical, but it’s how visionary leaders update their mental model when new data emerges.
Nike CEO John Donahoe is a prime example. He has a strong vision of digital transformation but encourages experimentation and pivoting. He greenlit the acquisition of data analytics firm Celect in 2019 to boost Nike’s predictive capabilities, showing a willingness to change direction based on emerging trends.
Our Future Readiness Indicator shows that this outlook is associated with high shareholder returns over the last 10 years. The best-prepared companies are open to experimentation: if pivoting is required, they pivot. The evidence shows that they also commit at scale. These are big bets that are difficult to commit to without a high learning attitude and a top management team aligned around a shared view of the future.
Knowing how to make decisions quickly is essential. To do so, identify reversible choices to move quickly. Amazon’s Jeff Bezos calls such decisions “two-way doors” – they can be reversed down the line if you don’t like what you see, so you can go fast on them.
Mastercard has a track record of making fast decisions on reversible choices to stay agile. For example, it quickly launched the Mastercard Developers platform to open its APIs to third parties, a decision that could be scaled back if unsuccessful. But it proved highly popular, attracting thousands of developers.
Maintaining this clear distinction regarding which kind of decision you’re making enables rapid decision-making – a vital attribute in dynamic industries.
By analyzing what these exemplary organizations do differently, we can see that while each industry has its playbook, certain universal managerial behaviors and cognitive outlooks are common across the top-performing companies.
Focusing on innovation in the long term and adaptability in the short run is not a trade-off. Companies must excel at both. It’s a strategy that we call ‘Perform and Transform.’ This proactive dual approach is key to the resilience needed to be successful in an ever-changing global economy.
That’s not to say that to perform and transform is an easy trick to pull off – if it was, all companies would be ready for the next headwinds blowing their way. It’s a demanding act, but that’s why future-ready companies are so special. They’re the ones who aren’t merely weathering the storm – they’re scaling up new capabilities before the rest of the pack to harness the strong winds of change.
The 2024 Future Readiness Indicator ranking will be published on 21 May.
Authors
LEGO® Chair Professor of Management and Innovation at IMD
Howard Yu, hailing from Hong Kong, holds the title of LEGO® Professor of Management and Innovation at IMD. He leads the Center for Future Readiness, founded in 2020 with support from the LEGO Brand Group, to guide companies through strategic transformation. Recognized globally for his expertise, he was honored in 2023 with the Thinkers50 Strategy Award, recognizing his substantial contributions to management strategy and future readiness. At IMD, Howard directs IMD’s Strategy for Future Readiness and Business Growth Strategies programs.
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