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  • Writer's pictureStephen Plimmer

Proposing our 10 dimensions of a business' "future-readiness"

What makes a business more ready and resilient for the future, and the changes that could happen in their market environment, which are presently uncertain? It turns out from reviewing 20 years of research across different research topics, that there are lots of factors. Therefore, we've created a maturity model called "FROM" to help SMEs consider their own strengths and weaknesses in this regard, which has ten dimensions. Here, we run through them.


Introduction

Businesses are constantly challenged by changing environments, consumer needs, and technologies. Intermittently, smooth and predictable changes (like the ageing population or smartphone usage) are punctuated by shocks (like COVID, or the financial crash). Some trends exhibit a ‘suddenness’ that lies in between, like the relatively fast growth in AI.


So who best survives these forces? As Charles Darwin once famously said, “It is not the strongest nor the most intelligent of species that survives, but the one that is most adaptable to change.”


There are plenty of examples in the business world that reflect this sentiment. Facing market changes, we have seen companies decline despite offering highly-popular products and services, like ToysRUs, Blackberry, Woolworths, BHS, Comet, HMV or Kodak.


On the other hand, some companies have successfully adapted to a decline in their traditional markets, to re-emerge stronger. Most famously, Amazon was originally a bookstore and Netflix was a DVD rental service.


There have been countless research studies on understanding what capabilities or resources make a company more able to adapt and thrive; to quickly change what they are doing when the external environment changes. Better still, they are able to help companies take advantage of environmental changes having pre-empted them.


We've boiled the many factors we found down to 10 dimensions that can be used by a business to help with reflection, evaluation and strategic planning. In the interests of time, we've summarised, omitted the nuances and left out the contributing components.


#1 Customer orientation

Customer orientation has been defined as “the sufficient understanding of one's target buyers to be able to create superior value for them continuously” (Narver & Slater, 1990). It is a philosophy of an organisation that prioritises customer needs and represents a commitment to understanding and meeting them. The commitment obliges leaders and staff alike to focus intently on the current and changing needs of consumers.


On balance, research supports that customer orientation helps organisations to perform relatively better. (e.g. O’ Kass and Sok, 2014), A more-considered analysis, that accounted for other business variables to isolate the impact of customer orientation, found that there are different strategic approaches that can all generate strong performance, but those approaches that achieved stronger performance only occurred when companies exhibited a stronger customer orientation (Frambach et al, 2016).


In any present moment, customer orientation helps a company to maintain its performance by creating more successful marketing campaigns, products and services.


Customer orientation also helps “future readiness” via the intense focus on customers' changing needs, as well as present needs, which additionally provides insight for the business to remain ahead of the curve.


#2 Market and environmental insight

As well as understanding consumers, it is important to understand the dynamics of the wider market environment in which the business operates; notably the behaviour of other actors within the market system, like competitors, suppliers, regulators, academics, inventors and lobbyists.


The complexity of market systems - including the inter-relationships between these actors - can make markets hard to predict. Conversely, monitoring such a system offers a rich source of signals as to the emergence of new factors, trends, bottlenecks and inventions.


Being aware of changes to the environment through monitoring trends and “horizon scanning” for future possibilities provides a business with an earlier view of opportunities and threats.


Thereafter, having a good foundational understanding of the dynamics in a market offers a better chance to interpret developments and devise faster, more accurate, and more effective responses.


#3 Foresight and strategic vision

Foresight is not a “prediction” of the future market, so much as an awareness of the different ways the market could evolve, given different unknown forces that might yet play out. There are numerous potential future scenarios for any market, particularly beyond a 2-3 year horizon where forecasts get less reliable.


SMEs with better foresight have been shown to have better financial performance (e.g. Bonsangue et al, 2019).


Foresight is a logical precursor to vision and strategy, which provide purpose, inspiration and guidance to a company’s staff. With a strong vision, the efforts of staff are more aligned, while Deloitte (2020) found that a compelling vision and purpose are among the top factors that attract and retain talent.


Understanding “possible” scenarios for a market (and not just the most probable) reflects stronger foresight. Businesses with such foresight are already tracking which scenario is set to emerge, giving them the opportunity to react faster and in ways that they have already partially planned for. As well as preparing the business for a single future, which represents an extrapolation of today’s market, such foresight allows a business to invest in R&D, innovation or more agile processes and technologies that give it the opportunity to adapt in a number of different possible future market scenarios, making it more robust to uncertainty.


All these dimensions are interrelated with others: Companies with (#1) stronger customer orientation and (#2) environmental insight are generally better placed to develop foresight and compelling visions. since they have the body of evidence with which to create them.


#4 Innovation management

Innovation is “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization, or external relations." (Eurostat 2018).


There are several parts to the discipline of innovation management, embedded in processes that i) generate ideas from insight, ii) test-, iii) improve- and iv) build them. Organisations can evolve innovation management capabilities over time, such that innovation itself becomes a controlled and more effective process which is being continuously improved.


Garcia-Granero et al (2019) are among many academics that have found positive relationships between innovation activities and financial outcomes.


Companies with stronger foresight (#3) are better placed to successfully innovate effectively by being more attuned to future consumer needs. The effectiveness with which innovation processes are executed is also influential.


#5 Advanced technology adoption

We are in an unprecedented time where a number of disruptive digital technologies have emerged in a relatively short time. In organisations, the most influential have included E-commerce, Cloud Computing, Artificial Intelligence, the Internet of Things, and Extended Reality (XR).


The UK’s Enterprise Research Centre has carried out a study into digital adoption during COVID, it was found that “more digitalised SMEs were better equipped to weather the storm of the Covid-19 pandemic and maintain the same turnover or grow if they introduced digital technology in operations which resulted in increased innovative activity (ERC, 2021).


Each of the main classes of emerging digital technology, noted above, has been correlated with higher performance. For instance, cloud computing has been linked to a 6.9% sales uplift and other benefits like offering the ability to adopt further new technologies (MIT, 2022)


Logically, new technology is eventually owned by most or all companies, so the competitive advantage erodes. Consequently, the technologies that are deemed “advanced” will continually be changing.


Advanced technology, like AI in advanced analytics, can often be both an enabler and a result-of foresight (#3) and innovation (#4).


#6 Learning and trust culture

An organisation’s culture determines the shared values, encouraging certain ways of thinking and behaving while discouraging others. A “learning culture” thereby promotes continuous learning and development where curiosity, experimentation and feedback are all viewed as important. (Garvin et al 2008)


However, experimentation and risk-taking invariably lead to project failures. The culture, rather than the individuals, must absorb the “blame”. The failure of risky but controlled experiments is considered a necessary part of optimisation and growth.


To make this culture work well, employees must also trust each other, to share their knowledge and ideas openly. Managers must strive more to offer employees learning opportunities, rather than focus only on delivering the tasks at hand.


Various research studies have shown that a learning culture (which can be measured through employee feedback) plays a strong role in organisational performance (Serratt, 2017). In terms of future readiness, it is helping staff to individually and collectively sense, learn and adapt to the changing environment they see (contributing to #2) and steer their work toward meeting the organisation’s vision with greater awareness (#3).


#7 Dynamic capabilities (for seizing and transforming)

Some common business capabilities include Operational Excellence, Marketing or Customer Experience. “Dynamic capabilities” are an important subset that refer to “the ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments.” They refer not so much to the capabilities for making and selling products, but the capabilities to enhance the ways things are made or sold. (e.g. Eisenhardt & Martin, 2000).


Such capabilities include, for example, business transformation, processes to acquire and integrate other businesses, or R&D capabilities. They do not provide better financial results directly but rather are the means to acquire new capabilities that lead to maintaining or improving performance. They are not governed by what the company is doing but by what it should be doing. Transformative dynamic capabilities* are ones that build new capabilities and then transform people and processes to realise value.


Dynamic capabilities have long been shown to correlate with better performance (e.g. Teece & et al, 1997), but the field still continues to evolve with the changing world, recognising more nuanced categorisation of different types and applications in wider economic challenges (Teece, 2023).


In the context of this framework, having strong "dynamic capabilities” equates to a business being able to seize and internalise opportunities and transform itself with relative ease, speed and efficiency to take them. Without such capabilities, a business can have foresight into the future, and a wonderful vision, but still be without the means to build infrastructure to capture value from the future opportunities that it envisages.


(*NB: Dynamic capabilities have been classified as those to “sense, seize and transform”. However, in our framework, we have separated the "sensing" capabilities (#3) as they interrelate with other factors from the “seizing and transforming” capabilities which are those to implement change through planning and project delivery.)



#8 Collaboration and networks

There are many reasons that collaborations and networks are important for business performance: They provide the means to overcome complex challenges, by giving access to resources and expertise, and seize new opportunities together, such as entering a new market.


There are various types: strategic partnerships are long-term relationships between organisations with complementary strategies, R&D partnerships to develop new knowledge, supply chain collaborations to improve efficiency and cost, industry consortia where groups of people tackle shared challenges and open innovation networks, involving companies, customers and other stakeholders who co-create new products and services.


Partnership management has itself become an established management discipline, covering the selection, formation and maintenance of relationships.


Lavie (2007) found that alliances focused on co-development and knowledge-sharing have a positive impact on company performance. Some relationships between networks and financial performance are more complex, such as the finding that Swedish technology firms benefit from being in localised business networks to access the resources needed in early life (Rydeshell et al 2019).


In terms of future readiness, innovation networks have become particularly important as technology is applied to global challenges like COVID, climate change, global economic development and urbanisation. Disparate businesses each have the skills to offer parts of a bigger solution, so need to collaborate within networks to be effective. Conversely, having the skills to operate in these networks offer businesses a better chance to find opportunities to capture value from solving these bigger problems.


#9 Aligned financial strategy

There are a number of financial metrics that indicate an organisation’s health and short-term prognosis: The autonomy ratio (quantifying whether a business can cover its costs with its earnings), interest to sales, and days in accounts receivable are among the variables that have been determined to offer predictive power into the failure rate of SMEs up to three years before the event (Zizi et al, 2020).


However, businesses that are future ready-need to additionally pre-empt the need for their finances to be ready in anticipation of different stages of market, product and business lifecycles. For instance, having a financial strategy aligned to a future vision might require it to be ready to fund critical activities such as market entry, product development, and scaling up. It also accounts for risk, by considering how the business might cope in future scenarios.


The National Audit Office has previously created a maturity model for financial management, with the top level demonstrating a commitment to both continuous improvement and proactivity: “The organisation anticipates and responds to the challenge of changing circumstances and looks ahead to anticipate significant events.”


#10 Brand equity

There are fundamentally two sorts of investment a company can make in marketing: Simplistically, 1) it can seek to drive direct sales from adverts, or it can carry out 2) brand marketing, which aims to build the company’s reach and reputation without necessarily trying to sell a product there and then.


While there is an instinctive appeal in believing all marketing should be the first type - driving sales - robust research into the most effective overall marketing strategies has found that the best results for long-term profitability and growth are achieved when the split of brand marketing to direct marketing is 60:40: a metric that has stood the test of time for a decade (Binet and Field, 2013, 2016 & 2019).


'Brand' is a key driver of customer preference, perception, and trust, which directly impact revenue, market share, and overall business performance. A strong brand can also attract potential collaborators or channel partners.


So-called 'brand equity' measures the value that a brand holds in the minds of consumers, including their perceptions, preferences, loyalty, and association. It offers a company value by commanding the attention and goodwill of potential consumers, making them easier to convert. In the context of future readiness, it provides a better platform for launching new products and moving into new market sectors when the opportunity arises, or core markets start to decline.


This dimension is particularly interdependent with customer insight (#1) and market insight (#2) and the ability to offer innovative products (#4).


Conclusion

In all, there are many factors that correlate with a business being future-ready. These have been grouped into ten themes (dimensions), for each of which there is strong evidence, gathered over 1-2 decades, that it contributes to business performance, resilience and the ability to grow. Of course, there will always be exceptions and different factors will matter more or less in different industries and contexts.


Different levels of 'future readiness' will already exist in companies. We have created a framework that captures this with different levels: Capabilities with "low maturity" will generally mean that an activity is not so much never considered, but rather done in an ad-hoc, reactive way, reliant on an individual's endeavour. Where the capability is at the top level, it is viewed as being of strategic importance, with controlled and mature processes, which are themselves subject to benchmarking and innovation.


Throughout the description of each dimension, examples were noted of how they are interrelated and mutually dependent. As companies mature their ability to be future-ready, then the strengths of these synergies will also strengthen. It is likely that most businesses will exhibit similar levels of maturity across many dimensions for this reason.


This subject is an extensive one. For each of the ten dimensions, there are multiple contributing elements. For SMEs looking to consider their own position more deeply across these ten dimensions, and plan how to strengthen for the future, then we offer an Audit service based on our FROM framework (Future Readiness Organisation Maturity), which considers the next tier of factors under each dimension. We also use this framework in some of our other services, like when considering future scenarios that demand consideration of how a business might respond to different market scenarios


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