FEATURE ARTICLE

Research Foresights

The Use of Strategic Foresight Methods for Ideation and Portfolio Management

PepsiCo Advanced Research used a customized process that incorporated strategic foresight methods to influence the company’s strategic research agenda.

Ted Farrington, Keith Henson, and Christian Crews

Ted Farrington is senior director, PepsiCo Advanced Research, working in the food-processing area. He has worked for several consumer products companies and been active in IRI for many years, having cosponsored several IRI Research-on-Research initiatives in the area of breakthrough innovation. Ted holds BS and MS degrees in math and physics from Clarkson University, an MS in chemical engineering from Caltech, and a PhD in chemical engineering from the University of Maine. ted.farrington@pepsico.com

Keith Henson is senior director, PepsiCo Advanced Research, leading the food-processing area. Prior to this assignment, he worked in research and development for the Frito-Lay division of PepsiCo for over 25 years. Keith holds a BS in mechanical engineering from the University of Texas–Austin. keith.henson@pepsico.com

Christian Crews is the principal of AndSpace Consulting; he has many years of experience in foresight both as a consultant and as the leader of corporate foresight at Pitney Bowes and other large organizations. He has an MS in studies of the future from the University of Houston–Clear Lake and a BA in English from the College of William and Mary. He is a founding member of the Association of Professional Futurists. christian@andspaceconsulting.com

OVERVIEW: Previous investigations of organizations adding breakthrough innovation capacity to already strong incremental innovation engines have shown that it can be a challenge to see past the time horizon for incremental innovation in order to set robust objectives for longer-range research teams. This article reports on a program that employed a customized process that incorporated several strategic foresight methods commonly used by futurists to influence the strategic research agenda at PepsiCo.

KEYWORDS:Inductive scenarios, Technology forecasting, Foresight tools, Portfolio management

One of the challenges in starting new teams for breakthrough or radical innovation is the need to see beyond the business-unit time horizon to identify robust innovation challenges that will be relevant when the required technical solutions have been delivered. Fundamentally, the time required for meeting the challenges presented by breakthrough technical innovation often exceeds a company’s time horizon for understanding consumer and customer desires. Foresight methods, which are commonly used by futurists to explore distinct alternative views of the future, can help bridge that gap.

Since 2008, PepsiCo has been exploring how foresight methods can be used to influence a company’s research portfolio, offering a complementary approach to common portfolio management methods. In that year, the company formed two new research departments to pursue breakthrough innovations in the areas of ingredients, processing, and packaging for its global food and beverage businesses. These two new departments, PepsiCo Advanced Research (PAR) and Long Term Research (LTR), partnered with AndSpace Consulting to lead a yearlong program that used foresight methods to identify technical opportunities that would impact longer-range research agendas. This Research Foresights Initiative was designed to help researchers address a range of challenges commonly faced by long-term innovation programs inside large corporations, identified in previous research by the Industrial Research Institute and others (Leifer et al. 2000; O’Connor et al. 2008). These include:

• Learning about markets that don’t yet exist,
• Finding breakthrough ideas,
• Transitioning innovation to operations,
• Embedding a portfolio orientation in project management for breakthrough innovation,
• Allowing for reciprocal influence between innovation and strategy, and
• Avoiding a stop-and-start approach to breakthrough innovation efforts.

The initiative clearly demonstrated that foresight methods can facilitate a productive approach to these challenges. Several components contributed to its success. At the design stage, appropriate foresight methods were chosen based on the outcomes required by the organization. These methods were combined into a process that moved the management team from their existing beliefs about the future toward a new understanding. Workshops at each stage engaged leaders and spawned champions for the content and for the initiative itself. Finally, the foresight results were explicitly linked to the goals of the research organization and incorporated into the company’s regular planning exercise.

Project Commissioning and Design

To better understand how foresight methods might help address some of the challenges to longer-term research efforts, PAR and LTR partnered to commission a comprehensive white paper by AndSpace Consulting that reviewed foresight methods. This led to an executive workshop with leaders from research, marketing, and sales disciplines in attendance. Participants learned about selected methods; applying those methods, they then generated an initial understanding of future market developments that were of interest both to the research units and to the broader operational side of the company. Most importantly, the workshop emphasized that foresight methods were not stand-alone tools, but were best utilized as part of an ongoing, iterative process of learning about the future (Hines and Bishop 2007). PAR and LTR identified sponsors and a six-person working team and commissioned the Research Foresights Initiative to test a foresight process and survey some of the tools available. The team defined as their goal the development of “compelling perspectives based on future possibilities 5 to 10 years in the future that results in potential new product spaces and business models and identifies the technical breakthroughs required to enable these opportunities.” The working team represented direct reports of the sponsors as well as a mix of younger researchers. A larger project team that incorporated a broader sampling of the research groups and other areas of the company was engaged for workshops and included in less frequent communications. Working team members analyzed the results of each phase and participated in all workshops.

A critical component of success for foresight projects is that outcomes must be tied to the business’s strategic intent and value-creation model (Van der Heijden 2005). This allows leaders across the company to engage with the results and immediately begin using them for decision making. With this in mind, the working team developed a set of 20 potential focus questions about the external environment that would deliver content helpful to longer-term research efforts and the broader organization. The team prioritized this list based on each question’s strategic importance to the organization, the potential of the results to influence the research agenda, and the ability to use the results within PepsiCo beyond research. Project sponsors selected two focus questions from this prioritized list. The first centered on the future of consumption; due to the company’s role in the food and beverage industry, it was important to understand how consumer consumption behavior might change over the next decade. The second was concerned with the future of wellness. Earlier in the year, the CEO of PepsiCo had announced the formation of the Global Nutrition Group, a new organization within the company charged with doubling the company’s revenues from healthy snacks and beverages. Exploring the future of health and wellness would provide needed insight into this new growth area of the company.

The Foresight Process

The literature recommends a process approach to foresight that moves from one method to the next in a logical progression, rather than pursuing single methods individually (Hines and Bishop 2007). This avoids many pitfalls in strategic foresight, such as the creation of interesting future scenarios that management cannot connect to the realities of the business or innovations based on specific trends that fail because they did not anticipate how those trends might be affected by other sources of change. A process approach can also prevent the creation of foresight products that do not challenge the accepted view of the future. With this in mind, the initiative adopted a process approach to ensure that the results of the project could be connected back to today’s business but be novel enough to create future competitive advantage by engaging company leaders in logical steps that took them from their current understanding through activities that produced very different alternative futures.

We cast the steps of foresight research in four simple phases that could be quickly communicated and understood in a corporate setting: Discovery, Extrapolation, Integration, and Planning. The working team then selected for each phase the specific methods best suited to inform the focus questions (Table 1). The deliverables from each phase were designed to be used as inputs to the next phase of the process: Signals from the environmental scan became the base for the implications wheels and focus areas for technology forecasting. These were then used to form the inductive scenarios and participatory futures. Finally, insights from those activities were used in the planning stage.

Engagement was a key concern for this project, especially in the context of a previous scenario-planning effort that generated very strong content about the future but was not widely leveraged inside the research groups. In that project, an outside consulting firm did an initial set of interviews then developed the scenarios and returned to present them to the company. This approach did not encourage company engagement or ownership of the results, despite the high quality of the final scenarios. There is a long history of the need for company leaders and employees to participate in foresight projects to enable the kind of ownership needed in this project (Weisbord and Janoff 2000; Schwartz 1991). With this in mind, the project was designed to include workshops for PAR, LTR, and selected leaders from across the organization at each stage of the process.

Discovery

The success of the project depended on the development of proprietary knowledge about the future that could help the company capture value by being first to market. The discovery phase was configured to provide information around the industrywide, known global drivers of change, as well as surface new sources of change that could alter the “official future” and create new sources for value creation. The discovery phase included two activities: the internal futures audit and a weak signals environmental scan.

Internal Futures Audit. The internal futures audit is a formal assessment of the company’s current view of the future (Hines 2003). What beliefs about the future drive the company’s current plans and strategy? What does the company most need to understand about the future to accomplish its goals? The results are meant to uncover the company’s “official future,” the commonly held beliefs of leaders that influence decisions (Ertel and Randall 2005). Because the official future is generally tacit and unexamined, it is usually out of step with external change and can lead to decisions that are not aligned with the real-world developments (Gonzales 2003). The internal futures audit was intended to reveal the major global drivers the company was facing, as well as gaps in knowledge about the future.

The primary tool of the audit was interviews, which were conducted with 25 PepsiCo executives from all regions, businesses, and functions. In addition, over 50 internal reports were reviewed to establish what the company believes to be the main drivers of the future. A simple SWOT analysis was performed using this information to identify possible opportunities and blind spots for the company. Six key drivers—such as the role of governments in markets, sustainability and resource constraints, networked technologies, and worldwide calorie imbalances—were identified and carried forward to the next phase. These drivers were summarized in a formal report, which documented in detail the assumptions about the future that are driving current decision making. The output from the audit informed the inductive scenarios and participatory futures exercises in the integration phase.

Weak Signals Environmental Scan. The weak signals environmental scan is an external search for early signals and precursors of trends that might manifest themselves in the time frame of interest, in our case 5 to 10 years in the future. Operationally the environmental scan includes emerging trends and weak signals not widely agreed to or even identified in the internal futures audit. These weak signals, which take time to mature, may become significant sources of change in the longer-term future.

External firms that specialize in this area were used to collect over 300 weak signals of potential future trends in the areas defined by the two strategic questions. These were distilled down to 40 that the project team felt were relevant to the company’s future and the focus questions. Some examples include:

1. The rise of DIY biotechnology. The falling cost of biotechnology and the proliferation of robust biotechnology applications are giving food producers and consumers the ability to conduct sophisticated, targeted genetic analysis, testing, and even manipulation. Two crowd-sourced biotech facilities are already in operation, at www.biocurious.com and www.gentech.com.
2. The rise of personalized medicine. Personalized medicine, which tailors treatment to the needs of specific individuals who may have different lifestyles and personal preferences as well as different responses to particular regimens, will be radically accelerated by advances in genome mapping.
3. The growing understanding of how food influences genetic expression. It is becoming clear that particular foods may alter how genes are expressed in organisms, including humans; as these mechanisms become better understood, they will profoundly influence how people eat.
4. The growing intellectual leadership of BRIC countries. The influence of large developing economies is already being felt in economic and technical arenas. As they continue to grow, Brazil, Russia, India, and China will begin to dominate not just economic growth but research in the sciences as well.

The output from the environmental scan informed the implications wheels and technology forecasting in the extrapolation phase.

Extrapolation

Humans have a difficult time projecting trends into the future. As Ray Kurzweil has pointed out, change (especially technology change) is exponential, while human brains can only forecast in a linear fashion (Kurzweil 2005). As a result, humans are taken by surprise by the impact of trends that at first seem small or inconsequential. Also, there are other ways change occurs that are difficult for humans to forecast, such as the punctuated equilibrium of ideational and generational change or the cycles of change exhibited in economic markets. The extrapolation phase seeks to overcome these cognitive limitations by projecting the current drivers and weak signals found in the discovery phase into the future using a variety of different processes. By consciously focusing on an extrapolation phase, foresight tools augment the natural human instinct to look ahead, helping the team develop a more accurate view of change over the planning period. The PepsiCo working team relied on two foresight tools, implications wheels and technology forecasting, to accomplish this.

Implications Wheels. Implications wheels are a qualitative tool that offer a straightforward approach to exploring how particular trends will evolve over time. Typically they look like mind maps, with a central trend in the center and primary, secondary, and tertiary future impacts of that trend radiating outward. Implications wheels are created in a participatory process that helps teams examine their assumptions about how specific trends will impact the business environment and create contrary or non-obvious futures (Barker 2011). PAR, LTR, and selected marketing and strategy personnel participated in several workshops in which implications wheels were used to extrapolate weak signals into the future. To avoid oversaturating the project with data, implications wheels were generated for 12 of the 40 priority weak signals identified in the environmental scan. These 12 were selected to provide a broad cross-section of impacts that would serve as optimal inputs to the integration phase (Figure 1).

Figure 1. Implications wheel for DIY biotechnology.

Technology Forecasting. To understand how technologies will evolve in the future, it is critical to combine pure quantitative models with qualitative information from experts in their fields of study. For this project, the work team asked external experts and thought leaders in technologies relevant to two key fields of interest—predicting consumers’ individual needs and manufacturing to meet individualized needs—to present forecasts for the coming five to ten years in a symposium format. Topics included epigenetics, biomonitoring devices, electronic medical records, synthetic biology, and rapid prototyping. Each expert presented a background on their topic, the major forces of change, and quantitative forecasts of how the technology would evolve over the next ten years. The 50 participants from the company asked presenters about the assumptions behind the models to clarify their understanding of the drivers of change in each field. This part of the process highlighted significant future consumer needs and technical gaps required to fulfill those needs.

The output from these two exercises directly informed work in the integration phase of the project. The extrapolation phase combined quantitative and qualitative methods to develop a more accurate and informed view of possible long-term evolutions in individual trends related to the two focus questions.

Integration

Organizations often move immediately from individual trends to innovation and strategy formation. Two problems occur when this happens: First, competitive advantage is not gained by investments against individual trends because most are known industrywide, and the entire industry, as well as new players, are basing decisions on these trends. Second, emergent change that occurs when trends come together can radically alter future business environments, and companies that do not examine these emergent changes will miss opportunities to create value for customers ahead of the rest of the market. The integration phase explores how global drivers of change identified in the internal futures audit and extrapolated weak signals and technology forecasts might combine to form several distinct, plausible, yet provocative views of the future. The inductive scenarios and participatory futures studies employed in this phase were the largest activities in the entire process.

Inductive Scenarios. Inductive scenario planning was selected as a method because it creates very rich, detailed future environments for innovation, and the scenarios tend to be more transformational than incremental (Curry and Schultz 2009). These qualities fit the needs of PAR and LTR, which were chartered to explore technology solutions that are more high risk/high reward than those pursued by other parts of the organization. Inductive scenarios are generated from the bottom up and use systems thinking to explore different ways many trends will interact to create alternative futures. This is in contrast to the more generally used deductive scenarios, which are top down in nature. Deductive scenarios begin with the top two or three critical uncertainties and then fill in different scenarios based on how those uncertainties may unfold (Schwartz 1991). They are more appropriate for corporate strategy environments where the chief goal is to delimit the risk space and aid executive decision making. Inductive scenarios employ systems maps to explore the collision between global drivers (from the futures audit) and weak signals (extrapolated from the environmental scan with implications wheels).

The process begins with the creation of an influence diagram that explores these connections (Figure 2). PAR and LTR members, alongside selected participants from other parts of the company, produced 24 influence diagrams by connecting elements of the implications wheels to each other and to impacts of the six global drivers identified in the discovery phase. The consulting team were trained systems thinkers and combined the 24 diagrams into three large causal loop diagrams (Figure 3).¹ Another workshop was held in which participants described the overall dynamics of the system and then used Donella Meadows’s “Ways to Intervene in a System” method to identify leverage points that would create positive futures for the company and point to innovation areas (Meadows 2008). In systems thinking, leverage points are points in a system at which small actions can produce major changes to the system’s behavior (Senge 1990).

Figure 2. Influence diagram for the collision of global drivers with the DIY biotechnology signal.

Figure 3. High-level system map for the scarcity scenario.

The scenarios were then developed using a Hero’s Journey template (Vogler 1998), and graphic recorders visually rendered the teams’ stories. The working team and the vendor partners then crafted the workshop results into three distinct scenarios.

The inductive scenarios provided a very fertile and rich format for exploring new product and business-model opportunities. Among many results, the scenario process surfaced a compelling need for more customized products and advanced packaging systems.

Participatory Futures. “Participatory futures” refers to a relatively new set of tools based on technologies supporting massively multiplayer online role-playing games. This method was chosen for its ability to engage potentially thousands of people in examining and reacting to forces of the future (McGonigal 2011). Participatory futures allowed PepsiCo employees in over 30 countries to participate in an online game exploring how different trends would come together in the future and how consumers would react to those changes. PepsiCo and the Institute for the Future (IFTF) collaborated to develop an online game to explore how people would “Make Every Calorie Count” when forced to make health and wellness choices in 20 future vignettes. The vignettes were created by crossing the commonly used STEEP categories (Science, Technology, Economy, Environment, and Political) with the perspectives gained in previous phases.

Over 1200 PepsiCo employees from 30 countries played the game over two weeks as teams of 88 persons each. Solution strategies were proposed, developed, and voted upon as teams accumulated chips on their game boards. Five chips on one vignette equaled an “epic win.” Players innovated in the spaces of packaging, ingredients, product form, and shopping experience while proposing solution strategies. The results included insights into how consumers will likely behave in future situations and identified several product and packaging opportunities for PepsiCo.

The integration phase involved a high number of participants from across the PepsiCo organization, easing the adoption of the results throughout the wider organization, even results that were highly contradictory to the current understanding of the future within the organization.

Planning

Many companies generate strong research into the future of their industries but fall short in connecting those insights to investment and strategic action (De Geus 1997). PAR and LTR were committed to ensuring that the products of the foresights initiative were included in research planning decisions going forward. The planning phase was designed to connect research into the future with the innovation portfolio for PepsiCo’s long-term research efforts.

The work team planned for this integration using Point of View Options Modeling (PoV).² PoV is designed to combine foresight with internal research goals and company strategic intent to generate a shared understanding of how the future will unfold and what research areas should be pursued as events clarify the future. Companies do this to:

• Develop a compelling vision of how the company will create value in a particular future,
• Connect the research portfolio to company strategy, and
• Review and adjust research investments as external events and internal research evolve.

PoV statements, the key outputs of the process, combine a strongly held belief about the future with a description of how the company could use existing and newly invented capabilities to create value for customers in a unique and differentiated way ahead of competitors. They move the company from understanding the future to actually making investment decisions. Assumptions about the future embodied in the PoV statements will undergo systematic reviews so the organization can shift resources as the future evolves.

A two-day Open Space innovation workshop was held to develop opportunity briefs based on the work done in previous phases. These opportunity briefs combined a perceived future consumer need based on the foresights process with the technical research needed to serve those needs. Subsequent workshops for PAR and LTR leaders converted these opportunity briefs to PoV statements by sifting them down to firmly held beliefs about the future, and adding signposts that would indicate whether the likelihood of the relevant scenario materializing was increasing or decreasing with time. About 20 PoV statements resulted from this work and will be considered for addition to the R&D project portfolio. Because these PoV statements contain assumptions about the future and signposts to monitor, R&D leadership will use them to ensure that projects in the portfolio can be synchronized as they evolve to developments in the external business environment.

Lessons Learned

PepsiCo’s experience offers some important lessons for other organizations considering a foresights process. Overall, wide engagement is the key to success. At an operational level, the high degree of engagement—by the working team, the broader project team, and the wider organization—creates better products and stronger engagement with the results. Group work, however, can often reduce the amount of content that is radically different from commonly held assumptions. Therefore, it is important for smaller teams to take group work as inputs and stretch them into deliverables that reflect the group’s work, but extend the conclusions beyond current horizons.

To get broader engagement in the foresight work, workshops are only a beginning. A high degree of communication about the project must accompany the work itself. Because a foresight process is longer than a single method, frequent, widely distributed updates on the progress of the project are important. Each method and phase should have an official document that categorizes the output of that stage and relates it to the broader project and the strategic goals of the company. Modes of communication should include project websites, videos, reports, presentations to stakeholders, and informal conversations.

Like most projects, sponsor support and engagement are critical to success. Because the foresight process is designed to surface insights about the future business environment that are very different than the official future, sponsors need to be involved at each stage of the process so that their understanding of the future evolves gradually over the project. Otherwise, sponsors may find themselves at the close of the process presented with futures that they do not recognize, making it difficult for them to champion more broadly or make portfolio decisions based on the results.

Engagement with outside resources is also critical. Using a variety of vendors increases the chances of finding unique and challenging content about the future. To ensure that the work of vendors contributes to the overall project goal, it is important to tightly define method deliverables so that the results contribute to the overall process. Paying attention to design at the beginning of the process can enable this integrated approach.

This foresight process was designed specifically for the needs of longer-term innovation groups within PepsiCo. Other groups within PepsiCo, and other companies, will have very different foresight needs and risk tolerances, and will therefore require different methods and approaches to foresight. It is important to design a foresight process to fit your organizational needs.

Conclusion

The Research Foresights Initiative succeeded in proving that foresight methods could positively impact the challenges of longer-term R&D functions. The process identified markets that do not exist now but will be robust in 5 to 10 years, and it created content about the future that enabled the company to invest in innovation platforms based on new breakthrough ideas. The PoV statements have brought a portfolio approach to the management of these innovation platforms and should reduce the start-and-stop approach to funding them. The scenarios have been broadly communicated across the organization, influencing the strategic intent of other businesses and smoothing the way for future transitions of innovations to the operations side of the company. These outcomes should help PAR and LTR meet the challenges of managing longer-term innovation programs.

The true test of this project will be how iterative the process becomes over time. As strong as the foresight work has been, there is no way to predict the future. Only by continually testing assumptions about the future can the longer-term innovation platforms stay calibrated to coming market conditions and new consumer needs and values. The extent to which day-to-day work and leadership decision making references foresight thinking will determine its future success. However, the depth of analysis and the interactive nature of the project have established a strong internal capacity for reflecting on the conclusions and incorporating new information about the future.

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¹ The consulting team included Christian Crews of AndSpace Consulting, Wendy Schultz of Infinite Futures, and Richard Lum of Vision Foresight Strategy.

² The PoV tool was developed by AndSpace Consulting and Princeton Growth Partners; RTM editor-in-chief was a partner in Princeton Growth Partners.