Corporate Foresight and its Consequences for
Innovation Performance: A Literature Study
Author Marije Bakker
Student number S1528939
E-mail m.bakkerr@gmail.com
University University of Groningen
Faculty Economics and Business
Master Strategic Innovation Management
Topic Corporate foresight
Word count 12305
Supervisor K.R.E. Huizingh Second supervisor M.W. Hillen
Date 11-07-2013
Co-author Tymen Jissink
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Corporate Foresight and its Consequences for Innovation
Performance: A Literature Study
M. Bakker
aT. Jissink
bK.R.E. Huizingh
c, M.W. Hillen
da s1528939 – MSc BA Strategic Innovation Management b Co-author - s2229762 – MSc BA Strategic Innovation Management
c First supervisor d Second supervisor
Abstract
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1. Introduction
Literature on organizational theory has long emphasized the external environment of an organization as a major source of uncertainty (Milliken, 1987; Vecchiato, 2012). Corporate foresight, as defined by Vecchiato (2012), is looking into the future and preparing the organization for possible future events. This indicates that it is a proactive approach which can reduce uncertainty from decision making processes and possibly increase performance of the organization (Becker, 2002).
There is no clear consensus regarding definitions of corporate foresight among scholars. Hines (2002), Ratcliffe (2006), and Rohrbeck and Gemünden (2008) define corporate foresight as an orientation towards the future, with matching capabilities that aim to create an understanding of the future and facilitate appropriate organizational responses. Martin (1995) and Becker (2002) however, stress that corporate foresight is a process, not just a set of techniques, and it focuses on activities. This indicates that corporate foresight can be regarded from two approaches: a systems approach and a process approach.
The contribution of innovation to organizational survival and growth is an accepted notion in management literature (Manu and Sriram, 1996). Innovation is one way to prepare for the possible futures identified by corporate foresight (Von der Gracht, Vennemann, and Darkow, 2010). The ability of corporate foresight to increase the innovation capability of a firm has, amongst others, been researched by Rohrbeck and Gemünden (2011), Rollwagen, Hoffman, and Schneider (2008) and Cuhls (2001). However, there is still a lack of knowledge regarding how corporate fo09resight is able to influence an organizations innovation performance (Vecchiato, 2012). It has been proven difficult to study the consequences of corporate foresight since they cannot be linked to innovation performance (Daheim and Uerz, 2006). This is why this thesis looks at it like a chain of effects: through which mechanisms does corporate foresight influence innovation performance? Another research gap in the foresight literature is the lack of quantitative evidence for increased innovation performance and thus value created by corporate foresight, which is consistent with Vecchiato (2012, p.784), who argues that “scholars have failed to clearly define the value added of foresight and to provide empirical evidence of its contribution to sustain the advantage of the firm over time.”
This study contributes to the research field by first providing a clear definition of both approaches of corporate foresight. This will be the basis on which measurement models will be built to measure each corporate foresight approach in order to create opportunities for future quantitative research. Second, a chain of effects will be given to connect corporate foresight to firm level innovation performance and propositions will be provided to show the nature of the relationships. This is again backed up with measures which can be used to empirically examine these relationships. This brings us to the main research question of this paper:
What is corporate foresight and what are its consequences for an organization’s innovation performance? Consequently, the following sub-questions are formulated:
1. What are the two approaches to corporate foresight and how can they be measured?
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The structure of this paper is as follows: first, the two approaches to corporate foresight will be explored. Second, the chain of effects of corporate foresight is established and the link with innovation performance is discussed. This is complemented with the formulation of propositions. After that, the research design is discussed, including the results of the pre-test and the selection of specific measures. The paper is concluded with findings, theoretical and managerial implications, and limitations and future research.
2. Corporate foresight
Background
Coates (1985, p. 30) provides a broad definition of foresight: "foresight is the overall process of creating an understanding and appreciation of information generated by looking ahead". Martin (1995) provides a more focused definition of foresight, specifying that foresight is a process aimed at systematically interpreting longer-term futures of fields such as science, technology, economy, and society to identify opportunities that provide the greatest benefits.
While these definitions may also fit traditional forecasting approaches, it must be noted that foresight is not similar to forecasting, as forecasting is focused on predicting the development of a known trend or issue (Cuhls, 2003). Rather, foresight aims to identify new emerging issues for which no previous data is available, and thus forecasting is not possible (Rohrbeck and Gemünden, 2008). Another significant difference is the existence of one possible future, as assumed by forecasting (Cuhls, 2003). Foresight, however, argues that many possible futures can exist (Martin, 2010).
Foresight in organizational context
Two popular terms of foresight within organizations are those of strategic foresight and corporate foresight. Both terms are used interchangeably in the literature and are related to the French term la prospective, which refers to the study of possible and desirable futures and the actions linked to anticipate such futures (Coates, Durance, and Godet, 2010). Anticipation in this sense refers to two attitudes; pre-activity and pro-activity (Godet and Durance, 2011). Pre-activity refers to anticipating foreseeable changes in the business environment in order to prepare for those changes. Pre-activity includes activities such as forecasting, future studies, and scenario planning (Godet and Durance, 2011). Pro-activity refers to how an organization invokes desirable future changes through its own actions, such as delivering innovations to gain market share (Godet and Durance, 2011).
While pre-activity is concerned with anticipating changes in the environment, these changes to futures can originate from related, but also unrelated environments (Daft, Sormunen, and Parks, 1988; Hambrick, 1982). As such, organizations that use corporate foresight should not be limited to narrow or shallow views of the future (Voros, 2003). Corporate foresight goes beyond that and should be understood as a broad approach to gain an understanding of possible and desirable futures, either in related or unrelated environments (i.e. PEST environments) (Jain, 1984; Horton, 1999; Rohrbeck and Gemünden, 2008).
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supports this argument by treating strategic thinking, of which corporate foresight is argued to be part (Voros, 2003), and strategy development and -planning as separate. As such, corporate foresight is an input into strategy-making which, in turn, directs strategic planning and action. This means that corporate foresight only enriches the context in which strategic decisions are made (Voros, 2003). It is difficult, if not impossible, to determine specific actions that can be generalized to any type of organization that performs corporate foresight. For example, Godet and Durance (2011) argued that delivering innovations to gain market share as an action from corporate foresight should be included as part of corporate foresight (i.e. pro-activity). However, this is not an action that may be found in any organization that performs corporate foresight. Furthermore, (Rohrbeck and Schwarz, 2013) found evidence of a multitude of contributions that corporate foresight provides, but these are largely related to supporting decision making and action, rather than direct actions. Therefore, we argue that specific action steps should not be part of the conceptualization of a generalized view of corporate foresight and it therefore only includes the pre-activity attitude, which is gaining an understanding from futures (Godet and Durance, 2011).
Furthermore, while research on corporate foresight is relatively new and scarce (Rohrbeck and Schwarz, 2013), conceptualizations of corporate foresight have been varying among scholars. A split between the conceptualization of corporate foresight exists within the literature, as such that it is either a process- or a systems approach. Corporate foresight as a process refers to how an organization goes through certain activities that aim to create an understanding of possible and desirable futures, and facilitate organizational responses to these actions (Horton, 1999; Martin, 1995; Voros, 2003). Corporate foresight as a systems approach refers to having a futures orientation together with matching capabilities and capacities that aim to create an understanding of futures, and facilitate organizational responses to these futures (Hines, 2002; Ratcliffe, 2006; Rohrbeck and Gemünden, 2008; von der Gracht et al., 2010). While these two forms of conceptualizing corporate foresight may seem very different, they are similar in a few aspects (Godet and Durance, 2011). Both approaches aim to create an understanding of possible and desirable futures, to anticipate and prepare for those futures and provide input into decision-making. The difference can be found in the locus of the ’strength’ of corporate foresight in the organization; going through certain activities/steps, or have a system of capabilities in place. In this study both approaches will be treated as separate approaches that aim to achieve the same goal. As such, we define corporate foresight as follows:
Corporate foresight refers to an organizational phenomenon, as either a process- or a systems approach, which provides an organization with an understanding of possible and desirable long-term futures through the acquisition, interpretation and diffusion of future-related information, originating from the organization's related and unrelated environments, to facilitate organizational responses towards those futures.
2.1. Process approach
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Martin (1995) argued that foresight is a three-stage process: 1) Pre-foresight – tasks to be undertaken before foresight can begin, 2) Main-foresight – perform analyses, agree on the most promising future options and disseminate the results, and 3) Post-foresight – the process of implementing the results of foresight. Similarly, Horton (1999) argued for a foresight process consisting of the following stages: 1) Input – information collection activities, 2) Foresight —analysis of the collected information and the creation of future views, and 3) Output —diffusion of the results in a way they can be used by the end-users of the process.
It must be noted that these representations of the process approaches imply a sequential form of performing foresight activities. However, foresight activities take place in a less linear way than represented by both Horton (1999) and Martin (1995). Instead of the idealized sequential approach, the foresight process often has feedback loops and can be considered rather chaotic (van der Duin, 2006). However, many scholars nevertheless argue that one should systematically go through the foresight process (Becker, 2002; Grupp and Linstone, 1999; Martin, 1995; Müller, 2008; Vecchiato and Roveda, 2010b; von der Gracht et al., 2010). Furthermore, the foresight process has been argued to be embedded in the concept of ‘organizations as interpretation systems’ (Daft and Weick, 1984), which refers to refers to a continuous organizational learning cycle that consists of 1) environmental scanning, 2) interpretation, and 3) learning. Indeed, Andriopoulos and Gotsi (2006) found similar foresight process stages, and argued that the learning cycle of Daft and Weick (1984) can be considered the backbone of such a process. The cycle is displayed in Figure 1.
While both models of Martin (1995) and Horton (1999) seem rather similar, the latter has been constructed with organizational implementation in mind. The foresight process of Horton (1999) is a more generalized view of foresight as performed by organizations, something this study aims to use. It focuses more on the extent to which foresight insights are diffused throughout an organization, assimilated, and committed to by those who carry out resulting actions. Therefore the model of Horton (1999) better fits our definition of corporate foresight. We have further investigated the three stages identified by Horton (1999) and identified key activities and their corresponding characteristics that capture the essence of the foresight stage it reflects.
Input stage
The input stage refers to what extent an organization engages in activities for collecting information. This stage essentially revolves around the concept of environmental scanning, which refers to the process of how information from the environment becomes known to the organization (Hambrick, 1982). Overall, this stage results in a wide range of future-related information that provides input for the interpretation stage to uncover ‘what is really going on’ in the environment (Voros, 2003). Key activities that take place in this stage are the following.
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Acquire future-related information: While perhaps an obvious activity, it is the essential activity of this stage. Acquiring future-related information, such as information on future themes, opportunities, and threats for the organization is the starting point of corporate foresight (Horton, 1999).
Search for information from a broad range of areas: An organization should scan for useful information in current, adjacent, and unrelated business areas (Rohrbeck and Gemünden, 2008). It relates to the breadth of environmental scanning, which refers to the extent an organization scans in unrelated environments (Horton, 1999). As organizational boundaries become increasingly fuzzy (Conway and Voros, 2003), it seems ever more important to acquire information from a wide range of areas.
Select relevant environmental fields: An organization should select relevant environmental fields (i.e. political, economic, socio-cultural, and technological) which it wants to include. Detecting and learning weak signals from a multitude of different environmental fields can provide a rich information-set that can be useful in the foresight process (Daft et al., 1988). However, selecting relevant fields is needed for organizations to overcome potential information overload and the wastage of resources spent acting upon unimportant weak signals (Day and Schoemaker, 2005).
Track changes for different time-horizons: An organization should detect changes in its environment at different stages of their development. This relates to the incorporation of different time-horizons in environmental scanning. Jain (1984) argued that a very sophisticated way of scanning incorporates different time-horizons, since this allows an organization to gather insights into the different development stages of a particular trend, issue or event. By having information on both the short- and long-term, an organization can better anticipate and prepare for the changes that may occur in these different time-horizons (Rohrbeck and Gemünden, 2008). Only tracking changes for the longer term future while neglecting its short-term changes may give rise to an inability to create a proper organizational response to the short-term changes (Vecchiato and Roveda, 2010a).
Seek access to information from many sources: Information about the environment should be scanned through a great number of sources. Not only should an organization consider its internal network of sources (Hamel and Prahalad, 1994), but also a wide range of external sources should be emphasized upon (Day and Schoemaker, 2005).
Interpretation stage
The interpretation stage refers to the extent to which the organization engages in activities for filtering, analyzing, interpreting, and translating foresight information (Horton, 1999). Information gathered in the previous stage is the input for this stage. Horton (1999, p. 7) refers to this stage as being "[...] the key step and the heart of the foresight process". Overall, this stage results in views of possible and preferable futures and strategies or actions that can be taken at that moment to address those futures (Horton, 1999; Slaughter, 1996). Several key activities take place in this stage.
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Interpret implications: After having properly filtered information available, interpretation activities can start. Interpretation refers to the creation of understandings from environmental information and its implications for the future from the viewpoint of an organization (Öner and Göl, 2007; Horton, 1999). Involve many different people: Related to interpretation activities, an organization should focus on involving a diverse set of people. Interpretation specifically asks for those involved in the foresight process to be open-minded and think outside-the-box (Horton, 1999). As such, this stage should be considered as a participatory stage, which allows free communication and creativity of people, resulting in more successful foresight outputs and less narrow and/or shallow views of the future (Ratcliffe, 2006; Voros, 2003). Thus, through the involvement of many actors (i.e. R&D, marketing, engineering functions) and thus variety of inputs, the quality and richness of the foresight outputs can be increased (Day and Schoemaker, 2005; Porter, Van Der Duin, et al., 2004).
Create multiple future views: Interpretation activities should result in outlooks on multiple possible futures. As no state of the future is certain, multiple alternative futures can expand the perception of what possibilities lie ahead for the organization (Voros, 2003).
Create potential suitable responses to futures: After having created multiple possible futures, an organization should come up with a clear list of strategies or actions that aim to address the futures that have been revealed (Horton, 1999).
Output stage
The output stage relates to the extent to which the organization engages in activities to diffuse foresight insights and consequently trigger organizational responses (Martin, 1995; Horton, 1999). Overall, this stage results in the diffusion of foresight results to the extent that they reach relevant actors throughout the organization and that they are committed to act upon the results. The following activities relate to this stage. Communicate foresight results: Insights generated at the interpretation stage should be communicated to a wider audience throughout the organization, for it to have an effect on and commitment of decision makers (Horton, 1999; Martin, 1995).
Have foresight results reach relevant decision-makers: Foresight results have to be diffused throughout the organization in order for it to have an effect (Becker, 2002). Widespread dissemination of foresight results however, may be impractical and unneeded (Horton, 1999). In other words, the foresight insights must reach the relevant decision-makers in an organization.
Involve relevant decision-makers in diffusion process: Involving relevant decision-makers in the process of diffusing foresight results may ensure a higher commitment level of those decision-makers to contribute to and use the foresight results (Becker, 2002).
Create understandable foresight results: Foresight results by themselves must be understandable. Martin (1995) referred to this as the communicability of the outcomes of the foresight process. Having foresight outcomes that are easily understandable by a wider audience, increases its use (Ratcliffe, 2006).
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Presenting foresight results as uncertain futures should trigger an organization to act upon those uncertainties (Horton, 1999). As futures are inherently unpredictable, so are the results of the foresight process. As such, the foresight results should have the uncertainty of the future at its center —it must be seen as possible future courses of action, rather than prediction of what is to come (Horton, 1999).
2.2. Systems approach
Next to a process approach to corporate foresight, other scholars argue that corporate foresight goes beyond being a set of approaches and techniques used to create an understanding of possible futures and how to respond to those. Rather, corporate foresight is conceptualized as an overarching futures orientation of the organization, paired with strong foresight capabilities (Becker, 2002; Hines, 2002; Ratcliffe, 2006; Rohrbeck and Gemünden, 2008; von der Gracht et al., 2010). As such, these scholars refer to corporate foresight as an organizational orientation with underlying capabilities, or even an organizational "way of life" (Hines, 2002). From this ’systems perspective’, Rohrbeck and Gemünden (2008) have formulated a best practices framework of corporate foresight based on qualitative studies. This framework has also been used in subsequent studies (Rohrbeck et al., 2009; Rohrbeck and Schwarz, 2013). In this framework, corporate foresight is argued to be influenced by several capabilities in the areas of information usage, method sophistication, people & networks, organization, and culture. These capabilities reflect an organization’s corporate foresight system concerning its strength in identifying, interpreting, and responding to discontinuous change (Hines, 2012). Overall, the five capabilities as identified by Rohrbeck and Gemünden (2008), highlight the main dimensions of corporate foresight, as such that an organization should aim to fulfill the capabilities the best it can. However, as all are essential for an effective implementation of corporate foresight (Rohrbeck and Gemünden, 2008), resources should be properly assigned to all of them. The five capabilities are discussed in the following subsections.
2.2.1. Information usage
Information usage refers to the capability of organizations to sense weak signals in the external environment (Rohrbeck and Gemünden, 2008). This capability shows similarities with the first stage (input) of the process approach. Specifically, the information usage capability refers to how an organization is able to gather insights from a broad range of environmental fields and the intensity to which an organization can scan these fields. Scanning from a broad range of fields can be achieved by devoting resources to scan a multitude of business fields (e.g. related and unrelated) and environmental fields (e.g. political, economic, technological, social) (Jain, 1984). The intensity to which these are scanned is related to the use of varying information sources, and whether these are personal, restrictive and/or exclusive in nature (Rohrbeck et al., 2009).
2.2.2. Method sophistication
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horizons; i.e. short-term and long-term developments of a specific change. When methods fit a specific objective or business issue, and also the organization’s current business context (e.g. dynamic environment), they may be considered sophisticated (Rohrbeck and Gemünden, 2008).
2.2.3. People & networks
The people & networks capability refers to specific characteristics employees involved in foresight activities should possess (Rohrbeck et al., 2009). This capability is related to the reasoning that value is only created when collected information is interpreted by employees who then channel it to the decision makers of the organization (Rohrbeck et al., 2009).
Several employee characteristics are of influence for this capability. More specifically, characteristics of those that are involved in corporate foresight. The first being broad knowledge, reaching beyond one’s own domain, as this facilitates a quick understanding of a wide range of topics and overcomes the obstacle of specialized knowledge as dominant logic in the foresight process (Rohrbeck and Gemünden, 2008; Prahalad, 2004). Secondly, having strong internal and external networks, as internal networks increase the diffusion rate and external networks can deliver new and diverse information (Rohrbeck and Gemünden, 2008; Rohrbeck et al., 2009). Third, being seen as credible and respected inside the organization, as these signal a professional status which is needed for corporate foresight (Hines, 2012). Lastly, being good communicators, to the extent that they can communicate foresight related information through both formal and informal networks (Rohrbeck and Gemünden, 2008).
2.2.4. Organization
The organization capability refers to the extent to which the organization has formal and/or informal approaches to manage foresight information (Rohrbeck et al., 2009). The organization of corporate foresight can often be separated into a formal and an informal approach. Although being separate approaches, it is argued that an organization should employ both approaches together to have the best ‘organization’ capability (Rohrbeck et al., 2009).
Formal organization of corporate foresight is related to top management being committed to, triggering, and directing foresight activities (Daheim and Uerz, 2006). As such, corporate foresight is a formally implemented approach that is triggered by top management to fulfill a specific business issue. Furthermore, formally implemented corporate foresight uses formal communication channels to disseminate foresight results (Rohrbeck, 2011).
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2.2.5. Culture
Culture as a capability refers to the extent to which the corporate culture is supportive to future-related scanning, interpretation and communication activities. According to Ratcliffe (2006), foresight requires a transformation of corporate culture. Failure to perform and implement corporate foresight often occurs because the organization fails to recognize the magnitude and duration of effort that is required to implement a future oriented approach (Ratcliffe, 2006; Rohrbeck et al., 2009).
A culture supportive to corporate foresight is dependent on several factors. First, the culture should be focused on embracing environmental change, as it fosters challenging assumptions about the organization’s environment and its way of doing business (Ratcliffe, 2006). Second, a culture encouraging the building of strong external networks, networking and cooperation can sometimes be more important than the tasks of corporate foresight itself (Cuhls, 2003). A strong external network would reduce the suspicion of external information, which would make the information more usable (Rohrbeck et al., 2009). Third, information related to foresight should be shared freely across functions and hierarchical levels in the organization. This ensures that the actions of all the organization’s departments are based on the same expectations of future developments (Rohrbeck and Gemünden, 2008). A lack of willingness to share information can create a major obstacle for corporate foresight (Rohrbeck and Gemünden, 2008). Lastly, the culture should encourage every employee in the organization to be receptive to weak signals from the environment, as weak signals can often signal change early (Rohrbeck et al., 2009).
3. Chain of effects of corporate foresight
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which is why this relationship is also expected here. The different parts of the chain of effects are discussed in the following sections and graphically displayed in the conceptual framework (Figure 2).
Figure 2: Conceptual framework
3.1. General roles corporate foresight
The first consequence of corporate foresight is the strengthening of the three organizational roles corporate foresight can fulfill, as identified by Rohrbeck and Gemünden (2011). They identified the initiator role, the strategist role and the opponent role, and these three roles can boost the innovation capability of an organization (to innovate incrementally and radically) and all have a different function regarding portfolio management (Cooper and Edgett, 2009). Cooper (1999) defined portfolio management as a decision process in which an organization’s innovation projects are constantly updated and revised. This can result in prioritizing some projects over others and reallocating resources and this can consequently influence innovation performance. The process through which different innovation projects go is graphically displayed in Figure 3 (Cooper, 2009; Rohrbeck and Gemünden, 2011). This innovation funnel is ‘... a method and tool supporting operational and financial management of innovation’ (Grajkowska, 2011, p.193) and results in a balanced innovation portfolio consisting of products that are able to compete in the marketplace (Baker and Sinkula, 1999) and are of different degrees of novelty (Salomo, Talke, and Strecker, 2008; Cooper, Edgett, and Kleinschmidt, 1997).
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Figure 3: Location of the three roles of corporate foresight with respect to the innovation funnel (Cooper, 2009; Rohrbeck and Gemünden, 2011)
3.1.1. Initiator
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announcements, this information can be gathered and used to keep ahead of them (Rohrbeck and Gemünden, 2011).
Concluding, having corporate foresight fulfilling the initiator role ensures that the innovation funnel is fed with information about new customer needs, emerging technical trends and new concepts introduced by competitors. This is translated into the following proposition.
Proposition 1a: Corporate foresight has a direct and positive effect on the initiator role.
3.1.2. Strategist
The second role identified by Rohrbeck and Gemünden (2011), the strategist role, is positioned outside the innovation process and its most important task is to provide guidance and direction for innovation activities. The role’s function regarding portfolio management is to ensure alignment of the innovation portfolio with the organizations strategy (Cooper, 2001) and here it has several areas of impact, as has been identified by Rohrbeck and Gemünden (2011)
The first impact area is the assessment and possible repositioning of an organizations innovation portfolio. Corporate foresight identifies new innovation opportunities and organizations can compare this to their existing innovation portfolio. This helps to assess whether the innovation portfolio, budgets and priorities, is still up to date. If not, corporate foresight can provide arguments for, or against, possible realignment decisions (Rohrbeck and Gemünden, 2011).
The second task the strategic role fulfills, providing strategic guidance, is aimed at keeping innovation projects up to date and being able to respond to external changes. By engaging internal stakeholders in internal, strategic discussions, innovation projects are kept up to date (Rollwagen et al., 2008; Ratcliffe, 2006) and a commonly shared vision is created. This vision will help the organization to respond as one entity to changes imposed by the external environment with new and updated innovation projects (Rohrbeck and Gemünden, 2011; Rollwagen et al., 2008).
The third and final task of corporate foresight in the role of strategist, is the identification of new and profitable business fields. It is not so much the generation of new ideas, which is the core of the initiator role, but it is more about promising business areas the organization should develop into. The organization is able to spot new business opportunities by external analyses performed through corporate foresight (Rohrbeck and Gemünden, 2011). Next to the proactive identification of promising business opportunities, corporate foresight also identifies new, profitable, business models, possibly used by competitors, which can threaten the current business activity (Rohrbeck and Gemünden, 2011). To conclude, this role ensures the organization is moving in the right direction and it ensures the innovation portfolio is up to date.
Proposition 1b: Corporate foresight has a direct and positive effect on the strategist role.
3.1.3. Opponent
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challenging these assumptions, modifying and even canceling innovation activities and projects is facilitated (Rohrbeck and Gemünden, 2011).
The second goal corporate foresight aims to fulfill in this role is to identify changes in technologies, products and customer demand that have the potential to disrupt the market (Rohrbeck and Gemünden, 2011). These disruptions often come from areas outside the scope of the organization’s business activities. Corporate foresight should therefore scan these areas for disruptive trends and changes that might endanger their current way of doing business, and use these insights to challenge existing assumptions and ideas (Rohrbeck and Gemünden, 2011).
The third area of impact of the opponent role is to ensure that R&D projects are state of the art, which ensures their innovativeness. The insights corporate foresight generates can challenge the projects carried out by R&D teams and is often used to guide priority setting for R&D funding (Warnke and Heimeriks, 2008; Rohrbeck and Gemünden, 2011). Organizations should ensure a match between the observations made by corporate foresight activities and innovation projects the organization is currently performing.
The final goal is about responding to external change. When external change appears on the organization’s radar, innovation projects often need to be redefined. The opponent role ensures that the organization is critical regarding its own projects and it enables the organization to redefine them in the face of change (Rohrbeck and Gemünden, 2011).
Concluding, the opponent role played by corporate foresight challenges ideas and assumptions, identifies potentially disruptive changes in the market, ensures state of the art R&D projects and makes sure that organizations respond to changes with updated innovation projects. This is translated into the following proposition.
Proposition 1c: Corporate foresight has a direct and positive effect on the opponent role.
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Proposition 2a: The initiator role has a positive effect on innovation performance. Proposition 2b: The strategist role has a positive effect on innovation performance. Proposition 2c: The opponent role has a positive effect on innovation performance.
3.2. Future insight quality
The second consequence of corporate foresight, is divided into two phases: 1) before the idea for the innovation is born, and 2) when the idea for the innovation is already established (von der Gracht, 2010; van der Duin, 2006). These are the two situations where corporate foresight is able to contribute value and the function of corporate foresight is very different in these two stages. In the former, it is the ability to use knowledge about the future to come up with innovations that fit future customer needs before competitors do. The latter is mainly to use information about the future to assess the commercial and technological viability of innovations and/or to adjust the innovation process (van der Duin, 2006).
3.2.1. Future insight lead time
Von der Gracht (2010) argues that corporate foresight is able to contribute value in many aspects, with lead time being one of them. Davis (2001) defines lead time as the ability to being the first to enter the market with innovations. Organizations can use it to their advantage since it allows them to be ahead of their competitors (Davis, 2001). Many authors argue that lead time is the most powerful source of a competitive advantage and with that the most effective tool to appropriate returns from innovations (Stalk., 1988; Harabi, 1995; Kim and Mauborgne, 1997). Here, lead time is used to refer to the phase before the actual idea of the innovation is established.
In a dynamic environment, organizations often face the risk that competitors beat them in developing innovations for future markets (van der Duin, 2006). However, when an organization has corporate foresight in place, they might be able to benefit from gaining important information before others do and therefore being a first-mover (Lieberman and Montgomery, 1988). This allows the organization to change the environment by introducing innovations by quickly responding or actively shaping that environment (Miller and Friesen, 1978; Venkatraman, 1989a; von der Gracht et al., 2010). Organizations that learn quicker than their competitors can react quicker to future customer needs than competitors that are waiting for the change to actually happen (Woodruff, 1997). This implies that those organizations are better prepared if certain futures unfolds and are allowed more time to develop and market the innovation (Woodruff, 1997). Concluding, corporate foresight enables an organization to generate promising innovative ideas to fulfill already known future customer needs. Furthermore, the insights generated by foresight enables them to spot opportunities for innovation projects before competitors do and allows them more time to develop them. This all leads to the first proposition:
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3.2.2. Future uncertainty
Another area of value contribution by corporate foresight, as argued by von der Gracht et al. (2010), is about uncertainty. By definition, innovation means creating something new, which implies that it contains all sorts of elements that are not fully understood and this brings along uncertainty (Kline and Rosenberg, 1986). Uncertainty relates to two different dimensions: uncertainty of the innovation itself, and uncertainty of the environment in which the specific innovation will be launched (Twiss, 1992). This implies that corporate foresight can have an effect throughout the entire innovation funnel since uncertainty can exist in many different areas (von der Gracht, 2010).
The first type of uncertainty, the one related to the innovation itself, consists of a potential problem many organizations face, namely the feasibility of an innovation (van der Duin, 2006). Uncertainties are by definition accompanied by limited accessibility to information (Salomo, Weise and Gemünden, 2007) and corporate foresight is able to reduce uncertainty by collecting information and knowledge about the feasibility of innovations projects. Through this, projects can be adjusted or even terminated. This will prevent the organization from investing in a product/service that is no longer a potential success and this strengthens the organizations innovation portfolio (Venkatraman, 1989a; Cooper, Edgett, and Kleinschmidt, 1997). Trueman (1998) argues that corporate foresight is able to provide guidance when organizations face these unexpected decisions and Grupp and Linstone (1999) also view foresight as being helpful in establishing feedback loops between expected future demand and present day investments.
The second type of uncertainty, the one related to the environment within which the innovation is launched, is related to, for example, changing market conditions. The organizations ability to anticipate changes in competitors’ strategies and customer demands is enhanced by corporate foresight. High environmental uncertainty is likely to necessitate greater need for corporate foresight than stable environments, since the unpredictability increases the need for information (Gupta, Raj, and Wilemon, 1986). Corporate foresight allows the organization to spot relevant threats and opportunities and address them in an appropriate way (Kuhlmann, 2001). With that, uncertainty is reduced.
In sum, corporate foresight reduces the uncertainty related to the innovation itself and related to its environment. More specifically, corporate foresight is able to reduce uncertainty regarding future customer needs and new concepts introduced by competitors. These elements are, amongst others, identified through the initiator role as explained earlier. This section however, shows that these elements still have an uncertain nature at heart and that corporate foresight is able to help the organization to make the right decisions regarding feasible projects (van der Duin, 2006) and it allows the organization to develop into promising areas (Kuhlmann, 2001). This all leads to the following proposition:
Proposition 3b: Corporate foresight reduces an organization’s uncertainty regarding its innovations and its environment.
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Many authors regard lead time as a powerful source of a firm’s innovation performance (Clark and Fujimoto, 1989; Stalk, 1988; Harabi, 1995; Kim and Mauborgne, 1997). Organizations that develop new products and services faster than their competitors are able to enjoy big advantages (Stalk, 1988) and can enjoy a first-mover advantage (Lieberman and Montgomery, 1988). Being a first-first-mover means that competitors have been outperformed (Stalk, 1988) and this indicates that having access to information early, results in a better innovation performance because the innovation’s success in the marketplace is increased. This reasoning is reflected into the following proposition:
Proposition 4a: Being a first-mover and having the ability to increase lead time, has a positive effect on innovation performance.
Another aspect with which innovation performance is often associated, is a reduction of uncertainty (Riel, Lemmink and Ouwersloot; 2004). If an organization is able to reduce uncertainty surrounding an innovation, either the innovation itself or its environment, the decision making process of managers is improved significantly. This results in a balanced innovation portfolio regarding the degree of novelty in innovations, and this increases the innovations degree of success and thus consequently, innovation performance (Cooper and Edgett, 1996). The following propositions reflect this line of reasoning:
Proposition 4b: Reduced uncertainty has a positive effect on innovation performance.
3.3. Innovation performance
Next to the indirect effect corporate foresight has on innovation performance, as described earlier, there is also expected to be a direct effect. Corporate foresight enables organizations to improve the way they handle changes, either radical or incremental, in their internal and external environment and supports organizational decision making regarding its innovation portfolio (von der Gracht et al., 2010; Warnke and Heimeriks, 2008). This way, organizations are able to gain and maintain a competitive advantage in an increasingly complex and competitive global knowledge economy (Rohrbeck, 2012). Corporate foresight allows organizations to ‘take a look in the future’ and it enables them to not just react to changes in the market, but also shape that specific market (Neef and Daheim, 2005; Warnke and Heimeriks, 2008). These authors also argue that the aims of corporate foresight are: identify relevant new trends and with that reduce uncertainty and support innovation processes. This all leads to the following proposition:
Proposition 5: Corporate foresight has a positive effect on innovation performance.
3.4. Financial performance
The importance of innovativeness for an organizations financial performance is well recognized in the innovation literature (Darroch, 2005). In this study, financial performance refers to the financial success of innovations, both services and products (Im and Workman, 2004). This positive relationship between an organizations innovation performance and its financial performance has been studied by several authors (Capon, Farley, and Hoenig, 1990; Capon, Farley, Lehmann and Hulbert, 1992; Atuahene-Gima, 1996; Han, Kim, Srivastava, 1998). They argue that innovation is a crucial factor in an organization’s performance. Following their line of reasoning, the final proposition is formulated as follows:
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4. Research design
4.1. Scale development
4.1.1. Corporate foresight
To measure corporate foresight, we build upon the systems approach framework by Rohrbeck and Gemünden (2008), and created new scales for the process approach, as literature lacked any scales for the process approach. For the process approach, we followed the process approach framework proposed by Horton (1999) by creating measurement items for activities Horton (1999) identified per stage and backed up by extant literature. We created an initial pool of items to measure each of the three stages. The initial pool of items for these stages went to through several iterative feedback sessions with Dr. Rohrbeck and Dr. Huizingh, in order to make sure we would measure the essential activities in each stage with the proposed items and to have these items correctly formulated. We ended up with 5 items per stage to determine the extent to which an organization performed activities within that stage. The input stage was assigned items to measure the extent to which an organization performs environmental scanning. The interpretation stage was assigned items to measure the extent to which an organization analyses and interprets future-related information into future insights. Lastly, the output stage was assigned items to measure the extent to which an organization diffuses the insights and learns from them. The items asked on a seven-point Likert scale ("strongly disagree" / "strongly agree") to what extent respondents performed certain activities. As such, the process approach measurement model for corporate foresight features a 15 item scale, intended to be of reflective nature.
For the systems approach, we used the framework by Rohrbeck and Gemünden (2008) that views corporate foresight consisting of five distinct capabilities. This framework is used in subsequent studies (Rohrbeck et al., 2009; Rohrbeck and Schwarz, 2013). As this measurement model was not created with large-scale empirical analyses (e.g. factor and regression analyses) in mind, we performed an exploratory factor analysis on a prior dataset as used by both (Rohrbeck et al., 2009; Rohrbeck and Schwarz, 2013) as a first step into refining the measurement model. We performed a principal component analysis (PCA) with varimax rotation to identify the number of factors and item factor-loadings (n=83). The analysis showed some problems with the items and their loadings onto the constructs. Appendix A shows the results of this analysis. Results indicate that ’method sophistication’, ’people & networks’, and ’culture’ represent factors with items that load onto the desired factor. However, some items did not load onto a single factor as wanted. First, ’information usage’ shows a split view, but when we removed items that referred to scanning of specific environmental fields1, the remaining items loaded onto a single factor as intended. Secondly, ’organization’ was rather troublesome. However, when we removed items that referred to specific links of corporate foresight with departments2, we found a split in organizing foresight. We interpreted the results of the ’organization’ dimension in such a way, that 1) foresight is instigated by issues that are enforced through top management, and 2) foresight is instigated and maintained by employees themselves, causing for a continuous and bottom-up instigated foresight activities. They seem to be contrasting views on organizing foresight.
1 Research by Becker (2002) has found that virtually no organization performs scanning on all the environmental fields. As such, it is unwise to take
in items that refer to each environmental field.
2 Removal of items that refer to specific links of corporate foresight, with internal departments have been left out, as we have not defined corporate
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We consequently used the results from the PCA to refine the measurement model of the systems approach of corporate foresight by Rohrbeck and Gemünden (2008). The resulting measurement model of the systems approach, as can be found in Appendix B, shows a highly modified and revised model based on the PCA analysis and several feedback sessions with Dr. Rohrbeck and Dr. Huizingh. Overall, all items had been re-worded for the final questionnaire. More specific changes to each of the dimensions are as follows. First, ’information usage’ had its items removed that referred to specific environmental fields, but kept the remaining four items which the PCA analysis showed to have high factor loadings. Second, ’method sophistication’ had items removed that referred to communication aspects of foresight methods. Third, ’people & networks’ had been renamed to ’people’, focusing only on characteristics of employees involved in foresight activities. Fourth, ’organization’ had been split into ‘formal organization’ and ’informal organization’, as the PCA analysis showed a clear split in organizing forms. New items had been made for these two new factors. Items referring to specific links with other departments had been removed. Lastly, ’culture’ had been largely left untouched, with only the items being reworded. All in all, the revised measurement model for the systems approach of corporate foresight featured 27 items.
4.1.2. Roles corporate foresight
To measure the proposed corporate foresight roles, a new construct was built, based on the framework suggested by Rohrbeck and Gemünden (2011) who argue that corporate foresight fulfills three roles; the initiator, the strategist and the opponent. By identifying characteristics of each role, a pool of items was created, and several feedback sessions with Dr. Rohrbeck and Dr. Huizingh ensured that the items measured the essential characteristics of each role. The items asked on a seven-point Likert scale (“strongly agree” / “strongly disagree”) to what extent respondents agreed with statements applying to their organization. In the end, each role consisted of four items, intended to have a reflective nature. The items can be found in Appendix B.
4.1.3. Future insight quality
To measure the effects of corporate foresight regarding the quality of future insights, another new construct was developed. This construct is mostly based on research from van der Duin (2006) and von der Gracht et al. (2010). The construct is divided into two effects, future insights used to lengthen lead time and future insights used to reduce uncertainty, for which, respectively, five and four items were created. For this construct, multiple feedback sessions with Dr. Rohrbeck and Dr. Huizingh were held, in order to ensure that the items reflected the characteristics of that specific effect. Similar to the other constructs, the items asked on a seven-point Likert scale (“strongly agree” / “strongly disagree”) to what extent respondents agreed with statements applying to their organization. In the end, the total scale of nine items is intended to be reflective of nature. The items can be found in Appendix B.
4.2. Variables of interest
The following section describes the other variables of interest which constructs are based on previous studies and existing scales. The various measures and its items are presented in Appendix B.
4.2.1. Innovation performance
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measure innovation performance. The wording was adapted where necessary, in order for the items to reflect the context of this research:
New product/service success. This refers to the ability of the innovation to compete in the marketplace (Baker and Sinkula, 1999).
New product/service innovativeness. This refers to the novelty level of the innovation (Salomo, Talke, and Strecker, 2008).
4.2.2. Financial performance
Following Song and Parry (1997b), this study uses relative subjective measures (e.g. performance relative to a firm’s other products and objectives) to assess financial performance. The reason for choosing subjective measures is that objective measures (e.g., financial data) are often unavailable or inaccurate (Han, Kim, and Srivastava, 1998; Song and Parry, 1997b; Im and Workman, 1994). Financial performance is assessed using four items from Im and Workman (2004):
Profitability.
Return on investment. Sales.
Market share.
4.2.3. Control variables
Several control variables have been used in this questionnaire to take into account possible alternative explanations for variations in organizational innovation performance. First of all, much attention in the innovation literature has been given to the relationship between firm size and innovation performance (Freeman, 1994; de Visser, de Weerd-Nederhof, Faems, Song, van Looy, and Visscher, 2010). Firm size is therefore included, measured by the total number of employees (Menguc, Auh, and Shih, 2007). Second, firm age is used to control for the number of years the organization has been in business (Antoncic and Hisrich, 2001). In order to control for industry effects, the third control variable ‘industry’ is used. The distinction between industries made by Antoncic and Hisrich (2001) is also used here. Additionally, product/service development time is included, since this can influence the effects of corporate foresight on innovation performance (Stalk, 1988). Furthermore, market turbulence (Han et al., 1998), technological turbulence (Citrin, Lee, and McCullough, 2007), competitive intensity (Auh and Menguc, 2005; Zhou et al., 2005) and environmental technological sophistication are included since they were found to influence an organizations innovation performance (Atuahene-Gima and Wei, 2011; Zhou, Kin, and Tse, 2005). All the items are included in Appendix B.
4.2.4. Pilot study
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viewed their own unit as an organization, rather than the whole firm as we intended to measure. Also, the words "external environment" received similar feedback, as some participants indicated that their external environment was considered everything outside their own department. As such, items were reformulated that we made clear that organization related to the whole firm, and the external environment related to everything outside the firm’s boundaries. After the pretest, the revised questionnaire was sent for proof reading by a native English speaker. Several small textual errors were corrected after the proofread.
4.3. Proposed setting and data collection
Initially, this study intended to measure the effects of corporate foresight, through a chain of effects, on innovation performance. Unfortunately, we were unable to gather enough responses (N>60) for our research due to time constraints. Nevertheless, we will discuss our data collection approach. We combined a direct approach of gathering responses through e-mail and telephone with an indirect approach of contacting potential respondents through LinkedIn.
Regarding our sample scope, we intended to create a sample with organizations that had a focus on innovation. For this, we introduced a screening question that asked respondents whether their organization had introduced three or more product/service innovations in the last five years. Furthermore, as we aimed for innovative organizations, we only intended to receive responses from those that may be familiar with corporate foresight activities. As such, managers and directors from the realm of innovation, strategy, and corporate development were of interest. To achieve this, we asked respondents to fill out their function title. This also allowed us to identify higher-ranking respondents in the case of multiple respondents per organization.
For our direct approach, potential respondents were contacted first through e-mail, and followed up two weeks later by e-mail and/or telephone. The first mailing included a cover-letter as an explanation of our research; this cover-letter can be found in Appendix E. Potential respondents were provided by Dr. Rohrbeck, consisting mostly out of previous participants in his research on corporate foresight.
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5. Discussion and conclusion
5.1. Findings
This study found corporate foresight to be a multidimensional concept about which scholars are not unanimous regarding its meaning. By combining research done by leading authors in the field, this paper provides a clear definition of corporate foresight and is able to build a bridge between corporate foresight and the consequences for an organizations innovation performance. This bridge is built through a chain of effects through which corporate foresight influences innovation performance. Here, the findings of this study are discussed.
First, the literature review shows that there are two different approaches to corporate foresight, a process approach and a systems approach. Both shine lights on different aspects that are important for foresight to be successfully implemented in an organization. The first approach, the process approach, argues that foresight cannot be seen as a one-time event, but instead, as a process of activities that all fit within three stages (Daft and Weick, 1984; Martin, 1995); the input, the interpretation, and the output stage (Martin, 1995; Horton, 1999). The second approach, the systems approach, takes a different perspective, and treats corporate foresight as a concept going beyond a set of techniques, thus being an overarching futures orientation which is backed up by strong foresight capabilities (Becker, 2002; Ratcliffe, 2006; Rohrbeck and Gemünden, 2008). The five capabilities that are essential for successful implementation of corporate foresight are: information usage, method sophistication, people & networks, organization, and culture. These two approaches show us that corporate foresight is not a uniform concept and that it can be looked at, and measured, in different ways. This also implies that organizations are able to implement it in different ways. They can either decide to invest resources in implementing a structured process, or they can choose to invest in developing or acquiring the necessary capabilities in-house.
The second aspect of this paper regards the consequences of corporate foresight for innovation performance. The results show that corporate foresight influences innovation performance through a chain of effects. The first being the strengthening of three organizational roles that can be played in an organization. The three roles are: the initiator, the strategist, and the opponent (Rohrbeck and Gemünden, 2011). Each role improves the performance of the innovation portfolio and therefore the innovation performance (Salomo, Talke and Strecker, 2008). The second consequence, the reduction of uncertainty and opportunity to work with longer lead times (von der Gracht, 2010) also positively affects innovation performance. This indicates that organizations which perform corporate foresight have a better innovation performance than organizations which do not. It also implies that it is important to keep investing in foresight in order to be able to perform better than your competitors.
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5.2. Theoretical and managerial implications
This study contributes to research in several ways. The first is that it has created a complete picture of what corporate foresight entails. Various scholars have tried to create a clear view of the concept, however, many lack to provide a complete study. Here, two approaches of corporate foresight are described in detail, taking away the confusion surrounding the concept. The second contribution is the link that is created between corporate foresight and innovation performance. This study provides two concepts that mediate the relationship between corporate foresight and innovation performance and this entire chain of effects is able to explain the final effect, an increased financial performance. Furthermore, besides a thorough literature review, a complete questionnaire is created with newly developed and tried and tested measures. This creates the opportunity to quantitatively measure corporate foresight and its consequences for innovation performance which has not been previously done in the corporate foresight literature (Ratcliffe, 2006). Besides theoretical implications, this research also has managerial implications. The first one is about the usability of corporate foresight. With the clear overview of the capabilities (systems approach) and the stages (process approach) of corporate foresight, managers are able to successfully implement it into their organizations. It also enables them to manage it more easily, since they know what is necessary for it to be successful; either having the five capabilities in-house, or having a structured, sequential foresight process in place. Furthermore, managers should be aware of the consequences of corporate foresight for their innovation performance. All activities should be focused towards improving the innovation portfolio. For the three corporate foresight roles, it is important that they are being fulfilled, since that will bring the most optimal performing portfolio. Managers also need to be aware of the possibility to lengthen the lead time of innovations when foresight allows them the opportunity to develop innovations ahead of their competitors. This way they can improve the innovation portfolio as well which in the end leads to a better innovation and financial performance. Finally, it is important that managers only implement foresight when it is right for their organization. It is a concept that demands the devotion of resources and it might not be beneficial for all organizations. Therefore it should be a well thought-out decision.
5.3. Limitations and future research
Despite efforts to make this study as objective and thorough as possible, the review of corporate foresight has several limitations, which create opportunities for future research. The first limitation is posed because of the limited time frame of six months in which this study needed to be completed. Because of this time frame, the sample size was not big enough for a quantitative analysis. The lack of data means that the validity of the constructs in the questionnaire cannot be accounted for. Future studies should therefore aim to validate the measurement models and possibly adjust them so that they can be used for quantitative research. This way, the propositions formulated in this study can be tested through factor analyses and mediated regression analyses.
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Gracht et al., 2010) and therefore selected in this paper. Future research should address the possibility of overlap between these two mediators and the possible existence of more mediating consequences of corporate foresight.
The third limitation is posed by the measurement of innovation performance. The developed questionnaire measures innovation performance by focusing on product and service innovations. Other types of innovations, i.e. process innovations and business model innovations (Wang and Ahmed, 2004), were left out, which makes the paper less generally applicable. This limitation also applies to the screening question in the questionnaire, used to classify innovators and non-innovators. This was also done based on a minimal number of three product/service innovations. These choices were made because of the relatively high number of items in the questionnaire. Increasing this with more measures would consequently increase the completion time and therefore possibly decrease the response rate. The length of the questionnaire is also the reason why moderators were not identified or included. Including these relationships and items in the text and the questionnaire would make both too long and is therefore not suited for this paper. These limitations make this paper less generally applicable, however it does create an opportunity for future research.
The corporate foresight measurement model that was created might not be applicable to different types of organizations, which also damages the general applicability of this paper, and forms the fourth limitation. Since corporate foresight research seems to focus mostly on large firms, the developed measurement model might not be applicable to smaller organizations because of their lack of resources (Will, 2008).
Fifth, this paper studies both approaches to corporate foresight – process and systems – separately. However, they are focused towards achieving the same outcomes and therefore might be complementary. Another possibility is that one approach is superior to the other. Future studies should address these issues and possibly adjust the measurement models, since those are separate as well.
Finally, corporate foresight literature may benefit from combining this paper with the one by Jissink (2013) since he addresses the antecedents of corporate foresight. That way, a complete picture, antecedents and consequences, of corporate foresight can be created. Potential specific relationships between antecedents and consequences can then also be studied.
5.4. Conclusion
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6. Acknowledgments
First and foremost, I would like to thank Dr. K.R.E. Huizingh for his indispensable support and feedback. His suggestions and comments improved this paper considerably. Furthermore I would like to thank Dr. R. Rohrbeck for his help with the development of the questionnaire and K. von Weydenberg for her support in our data collection. Furthermore, the monthly feedback from Arien Hendriksma and Charles de Beaufort was very valuable and helped me in the completion of this paper. I would like to thank Dr. M.W. Hillen for his objective review of this thesis. Last but not least, I would like to thank Tymen Jissink, as without his support, both content-wise and morally, this paper would not be nearly as good as it is now.
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