And now for my very favorite quote of the year, offered by Nissan CEO Carlos Ghosn.  In reference to the Nissan Leaf, a zero emission vehicle, Ghosn said “this is the future, and everything else is going to look obsolete, like sending messages with pigeons”[i].

As Gnosh put it in an interview in Fast Company, “if you already have an emissions problem with 700 Million cars, what problems are you going to have with 2 Billion?”. In the case of Nissan, Ghosn is looking beyond the defined needs of customers and is anticipating the needs of the global market in a decade or more. It is not good enough to solve problems we can see, the strategist must seek to solve problems that are not readily apparent. To consider such scenarios, strategists must consider Social, Technological, Economic, Ecological and Political trends and consider how various combinations may change the landscape of an industry.

In my book and blog“ Intended Consequences”, I predicted remarkably volatile prices for fuel and the potential for oil to reach prices of far north of $100 a barrel. The predication which became an eventuality was based on an evaluation of “converging factors”, independent trends that combine to create a tipping point. The automobile industry is on the cusp of such a fundamental shift. Toyota has been selling the Prius since, 1997 but the initial curve for adoption was remarkably slow. What we see in evidence today are converging trends that will provide the impetus to create disruptive change in the form of rapid adoption of alternative vehicles:

Political: The U.S. government’s recent announcement of an agreement with thirteen automakers that will reset the Café fuel economy standards to require an average of 54.5 miles per gallon by 2025.[ii] The willingness of OEM’s (original equipment manufacturers), to work with the government in a race to dramatically improve fuel efficiency illustrates their understanding of radical changes in their operating environment.

Social: Shifting sensibilities towards sustainability will drive adoption. Electric cars are somewhat impractical for working people who may not have time to charge them (up to 8 hours) providing a leg up to hybrids.

Technology: The new Prius plug in will offer up to 87 miles to the gallon illustrating explosive improvement in battery technology. Many of the world’s top scientists are working on batteries that could expediently improve performance, size and cost.

Ecological: In Nissan’s case,  the rapid growth of highly polluted Asian markets is viewed as a driver for future demand. Recent disasters in the gulf and elsewhere have heightened awareness of the risks of oil exploration.

Economic: Americans are still fearful of OPEC’s influence and the ability of the cartel to manage worldwide oil prices. As battery prices decline, the value proposition of hybrids will only continue to improve, and the total cost of ownership for such vehicles will be drastically reduced.

Businesses are well advised to review such variables as to develop scenarios about their industry. It may not be possible to look into a magical crystal ball to predict the future, but careful study of trends provides us context on what products and services to develop in order to create disruption.

Being Opportunistic in a Volatile World

Last week my post drew considerable attention, perhaps because of its shock value at a time when the news was truly shocking. While the tsunami was a natural disaster, the response on the part of the Tokyo Electric Company was a human calamity. Lack of preparation will invariably lead to unintended consequences, if you are managing a nuclear power plant or any other business.

The reverse is also true. The entrepreneur capable of understanding seemingly unrelated external forces, and weaving them into a thoughtful strategy, will clearly realize strategic advantage. How might the strategist consider social, technological, economic, ecological and political factors to gain insight on how to take advantage of ever changing market conditions?

Scenario planning is a methodology whereby the entrepreneur considers converging factors that (in combination) creates a tipping point. Consider some of the following predictions, based on facts already in evidence today.

In the next decade, we are likely to see:

Predicative Modeling-Cloud computing enables the migration and cross-referencing of large institutional databases.  For example, actuaries, using sophisticated algorithms are able to model ailments based on lifestyle choices monitored in real time. They are able to calculate your risk of a heart attack based on which smoothie you tend to order at Jamba Juice, your frequency of exercise, prescriptions you use, etc. Offered as a benefit of a health care plan, the member is offered incentives to opt-in and receive preferential rates. Such tools slow down rampant health care inflation.

A Cashless Society-The majority of transactions amongst big banks are managed by exchanges where no money actually changes hands. Coins of small denomination are nearing extinction. Today, you can download an iPhone app that serves as a debit card, and can be swiped within Starbucks locations.  For most transactions, cash is already irrelevant.

Smart Infrastructure- Automobiles come preinstalled with all of the features of an iPad (the 2011 Hyundai Equus will come with one) and all the benefits of the internet. Smart grids control the flow of traffic, directing drivers to particular lanes at a given speed to optimize drive time and reduce accidents. Traffic signals are regulated based on traffic volume. Sensors predict bridge and rail failures.

Of course, rapid change will occur in every industry, and the strategist must weigh various opportunities based on an organization’s ability to take advantage of them. As a general rule, organizations should seek to achieve scale and reach within its core (at least 30% market share) before expanding into new endeavors. As Jim Collins points out in his sequel to Good to Great (How the Mighty Fall), many companies fail because of an “Undisciplined Pursuit of More”.  In their zeal for diversification they often leap too far from their core competency.

Each opportunity must be assessed within the context of the organization’s resources, bandwidth, and human capital.  For every opportunity there is a cost, and an opportunity cost. To pursue any new opportunity an organization must leverage resources which dilutes focus on the core business.  Choose your opportunities carefully.

When the Internet was first thrust upon us, we didn’t know what to make of it. Nor did we know which of the entrants of the budding new market would win the beauty contest.  Our intuition was that someone (such as AOL, Netscape, Microsoft, Google, and Yahoo) would, and that the technology would be a game changer.

There are times when a technology is bigger than the first-to-market entrant who introduces it to us.  A current case in point is Toyota, a company who has been vilified in light of their massive quality and public relations problems. Yet Toyota has my attention, as they are braced to create disruption.

I recently bought a Lexus hybrid. I didn’t really buy it for environmental reasons, although reducing my carbon footprint was certainly a bonus. I bought it because I wanted all the toys, Lexus service and quality and was intrigued by the concept of 35 miles to the gallon (in a volatile world where the price of oil is at risk).

At its core, strategy is about managing trade-offs, and this technology provides the potential for consumers to gain the most, and give up the least.  I believe hybrid technology will emerge as a breakthrough, cross-over technology adopted by the majority of drivers in the U.S. in the next 5-7 years.  Electric cars are novel, yet inconvenient.  Americans are not going to adapt to sitting at charging stations for 2 hours, nor will they settle for a lack of power.  U.S. oil producers will not support any material shift to hydrogen, or corn, or recycled Twinkies, or whatever.  While the Prius was perceived as small and sluggish, the Lexus (a Toyota brand) is neither, and proves that the underlying technology can appeal to the masses. Toyota is way ahead of the pack in hybrid technology and I believe the day will come when it will provide a significant competitive advantage.

Of course this post is not about hybrids at all, it is about identifying breakthrough technologies that can disrupt an industry. Often, fortunes are made by the purveyor of a technology, as well as others who create alliances or business that can feed off it.

There are entire cottage industries being built to support such technologies, including the myriad of developers creating apps for The App Exchange (SalesForce) and Apple App Store.

Will Apple beat Microsoft in business computing (the answer is already clear in consumer products)?  Will cloud computing completely alter the technology landscape in ways we can’t even comprehend? Which mobile technologies will change the way we work and live?

What changes in health care technologies will revolutionize the way we care for the sick?  What emerging technologies could reshape your industry? What new delivery systems will improve the way your customers do business (or consume products)?  The answer will come based on who can create the best balance of trade-offs and win the beauty contest.