Quick summary:

Most organizations spend too much time focused internally when setting strategy
Outside perspectives provide different viewpoints but are often not sufficient
Firms underinvest in trying to uncover key trends that could impact their future
Shallow identification of trends can lead you in many different (wrong) directions
Develop a repeatable process to learn what trends affect you and how to respond

Setting a direction is hard without any guardrails

I’m fascinated with all things related to innovation and the future, and I have a particular fondness for content that provides “a history of the future.” Having read books on companies such as Google, Apple, Twitter, and Facebook, I’m forever fascinated by the ideas that sparked their initial insights and how each company evolved over time. There are always “sliding doors” moments and inevitable questions on why a particular direction was taken over another possibility. As I recently wrote, companies often settle on a delicate balance between pursuing a proactive vision of the future based on the idea of founders or senior leaders (“strategy”) and reacting to the latest unforeseen crisis (“survival”).

The latest book of this genre that I am currently reading is Like, Comment, Subscribe by author Mark Bergen on the rise of YouTube. The book characterizes many missteps made before and after its acquisition by Google. As with many of these real-life stories, I have more empathy for the firm after reading the book despite some questionable decisions by its leaders. Here’s the reality: There are few guardrails and guideposts along the way. Shaping the future is hard. Of course, it would be valuable for firms to avoid obvious missteps - but how can this be done systematically?

Beware of bad analogies and misaligned metrics

Two recurring lessons that appear in the story of YouTube (among many startups) are:

The struggle to find suitable analogies to help guide you
The lack of effort to identify potential unintended consequences

The first lesson is one that I rarely see much written about or discussed, but it is critically important. When faced with a new technology that unlocks new possibilities, people struggle to grasp all of the implications fully. This is natural and unsurprising. To comprehend the ramifications of a radically new opportunity, people often look for analogies or parallels that help to guide their decision-making. In the case of YouTube, Bergen shares the image of the Body, complete with the Head, Torso, and Long Tail. The Head, in this instance, refers to quality programming that stimulates audiences similar to what was found on television and in movies produced by Hollywood. The Torso refers to the core of YouTube, the millions of individual creators that initially gravitated to the site to share and watch amateur videos in hopes that they “go viral” and generate tons of views and buzz online. The Long Tail refers to topics such as kitesurfing that are too niche for major TV channels but, given lower production costs, can draw niche audiences and collectively drive traffic to YouTube.

This Body analogy is helpful to visualize what YouTube is and who it is for. However, a problem arises when using this analogy to guide strategic decisions. Who is/are the target audience(s)? How can we best monetize this new technology? Over and over throughout the story, YouTube pursues all parts of the Body without regard to how one initiative impacts the others. For example, lots of time and effort are spent at the Head courting Hollywood stars to create content for YouTube in hopes of scaling it to appeal to wider audiences. The Torso, meanwhile, is relatively neglected - thousands of individual contributors don’t scale in the eyes of Google - so enterprising creators come together to form multi-channel networks (MCNs) of amateur stars, giving them access to tools and resources to produce videos while taking a cut of their revenues. It isn’t until much later that YouTube pivots to more fully embrace its biggest asset - the legions of regular people that suddenly have access to means of production previously reserved for studios. I’d argue a“democratization” analogy - similar to other Web 2.0 technologies such as blogs and social media - would have been better than the Body. This is the problem with selecting a poor analogy: it often leads you to pursue the wrong courses of action. It leads to inefficiency at best and is a death knell at worst.

To address the second lesson, I’ve written in past editions of Forestview about the need to beware of how misaligned metrics drive the wrong behaviors and the need for diverse viewpoints to be heard and incorporated into decision-making. Google is famous for setting objectives and key results (OKRs) and devoting enormous resources to achieving them. In the story of YouTube, the desire to respond to perceived competitive threats leads to “moving the goalposts” several times, disrupting the company internally and the external creators and partners it relies upon. For example, when Google sees the rise of Facebook as a threat, it responds by prioritizing time spent watching videos over the number of views and engagement metrics such as ratings and comments. Changes in the YouTube recommendation algorithm to favor longer videos has a negative impact on creators who produced many of the early “viral” hits that drove the initial growth of the site.

Later, in an all-out push to promote Google+ as a rival social network, YouTube creates friction with its users by requiring a Google+ login to upload videos. Google publicly announces that over 300M people use Google+ while not acknowledging that the vast majority are doing so only because YouTube is forcing them to! It isn’t until much later that Google+ is deemed a failure and dies slowly, wasting resources and annoying customers. It is evident to many employees at YouTube that decisions by top leaders at Google are actively hurting their product. However, the YouTube top brass are reticent to challenge Google’s senior leaders. The leadership council and co-founder Larry Page quickly dismiss attempts to communicate concerns. Despite promoting a “radical candor” culture, there is never a complete discussion of the widespread ramifications of the strategic guidance on Google+ to YouTube.

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Look to distinguish between a trend and a fad

Attempts to accurately predict the future are always fraught, and you’re bound to make mistakes along the way. So how can organizations improve upon creating strategies that stick without ignoring the unintended consequences of their decisions until they grow too big to ignore? I recommend spending more time at Square One: formulating a narrative worldview that broadly explains key trends and phenomena you observe. Why is this important? Because without taking the time to develop a sufficiently nuanced worldview, you’re likely to pick out an available analogy to support your strategy and run with it. You don’t want to select your strategy first and then back into the justification for it through storytelling and handwaving. There should be facts and figures supporting your strategy to the extent possible, and critical assumptions for “known unknowns” should be well documented and revisited.

Which trends matter? First, it needs to be sufficiently broad-based to be meaningful in the macro view: these are big-picture mega-trends. Small trends matter only if they are expected to become significant trends later. Fads may be buzzworthy but won’t make a difference when shaping a strategy. My daughter Felicity recently reminded me of what a fad looked like when she recalled how obsessed she was in 3rd grade with Silly Bandz at summer camp. (For my younger daughter Sienna, her 3rd-grade fad was fidget spinners.) A meaningful trend is a movement that signifies a shift in the status quo and is expected to persist over time. No activity indicates business as usual; small, temporary shifts are fads that can generally be ignored.

Second, the trends should be categorized to place their impact in context. When working with organizations, I use the following four categories to focus on:

Demographic, societal, and behavioral trends
Economic, financial, and political trends
Technological trends
Market-specific and competitive trends

Demographic, societal, and behavioral changes tend to shift less quickly over time and are easier to see and assess (although they can occur more rapidly than we realize). Because the shifts are more gradual and play out over a more extended period, I like to start here.
Economic, financial, and political trends tend to be more predictable over months and less predictable over the years; they are easier to forecast in the short- to medium-term.
Technological trends are easier to spot but the hardest to assess in my experience; some trends catch on quickly, and many do not catch on as expected. In this area, I like to think in very broad categories, such as the rise of artificial intelligence (AI) or cloud computing, and less in terms of specific technologies, such as ChatGPT. I don’t mean to imply you shouldn’t get down to this level. Still, technologies are prone to “leapfrogging,” so it’s better to explore high-level trends such as miniaturization and Moore’s Law than go too deep.
Market-specific and competitive trends are the easiest to spot for your in-house experts but tend to be shorter-lived depending on your industry. A word of caution here: it’s easy to overreact to a specific competitor’s action while also overestimating the competitive benefits of your actions. For example, many organizations have spent the last decade on digital transformation journeys to modernize their core systems infrastructure at the cost of millions of dollars. This is necessary and important work - but if everyone in your industry follows suit, you aren’t likely to gain a lasting competitive advantage.

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