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Trend Analysis

sing Social Process Framework September 2008

Clarence 1. Mann, lD, Dr. jur. c'

Societies are increasingly in the oes of continuous change. For business purposes, the question facing managers is not so much y and how social change occurs, i.e., change theory, but rather (i) what changes are likely to occur a firm's market and industry structure within a foreseeable time frame, (ii) how are these changes ely to affect a fum's competitive position and business prospects, and (iii) what opportunities are t ese changes likely to foster for the firm? The responses to these questions are not for predicting th future, but to imagine what the industry could look like and, based on this to envision 0 ortunities d to build a" ractical vision" for the firm.

Trend analysis in this context is in nded to enable business management to think its way into the future based on more than hunches, ex polations of the past or linear projections. It employs the social process triangles as a framework 0 force a comprehensive survey of the trends that are shaping the future of markets and the competi ive structure of industry. See Borderless Business (C. 1. Mann, K. Gotz, 2007), Chapter 7, for a gra .c of the triangle. This provides an indispensable foundation for formulating business strategy, for e future is where strategy ultimately is enacted. Without insight on the future, strategy becomes static nd hollow. When thought through from an industry perspective, on the other hand, trend analysis can ovide the firm with working hypotheses of the future. It can be used as a means for assessing the type of products, services and markets the firm should address in the coming decade as well as a frame ork for building the practical vision of a firm's future direction.

More traditional means of foreca ting tend to build the future based on projections from the past. However, the critical dimensions the future, as Gary Hamel and C.K. Prahalad put it (Competingfor the Future, 1994, p. 82), are not so much that they are unknowable, but that they will be different from the past. The question is: in what ay?

"~T-",h"",e--"c",-,lu",e"-"s"--w~e",,,,ak=sl!.t:·=a~ls"-""t"d=tr,"",e~n""d~li~n=esthat suggest how the future might be different are there for everyone to observe (e phasis added). There are little data critical to the development of industry foresight that are ossessed by only one company."

Thus, any well-read manager coul recite the major technological revolutions that are re-creating the future of business, i.e., environm ntal, genetics, materials, digital and information. How many, by contrast, would be at ease in listin the revolutionary forces at work in other dimensions of society as well-- economic, political and cul ral-- e.g., the rapidly expanding entrepreneurial culture in America, increasing work force diversity,' oduction of interactive video into homes, etc.? And, how many managers could outline how majo trends -- whether economic, political or cultural-- will converge to affect their industry?

The questions, then, are: 1) How to identify the full ran of trends in socie which are likely to affect the future of the

industry?

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2) How to estimate their conver ence? and 3) How to assess their likel e cts on the structure of the indust and of future opportunities in

that industry?

creation of new industries and of the new product lines and services tical vision or 'foresight' (as Hamel and Prahalad term it), a firm's undation.

In some cases, the effect will be th that this implies. Without this pr strategy and ability to learn lacks

As a working definition, 'trend' s defined here as a pattern or a reoccurring series of events, evidencing a common direction r momentum, that is changing the way people act, think or feel in society. Thus, trends may refle t economic, political and cultural phenomena, and very likely some combination of these. Because tr nds are deeply rooted in society, they persist for the long term - possibly decades. For this reason, t ends should be distinguished from other types of social patterns that do not share this dynamism or ext ded life, such as the cyclicality of business cycles, the seasonality of traffic patterns, or the superficiali and short-lived nature of fades in, e.g., clothing or music. Thus, Americans' frequency for eating 0 t reflects a secular trend, while the changing popularity of various restaurants reflects more a fade.

Trends also may be judged to be istant, emerging and mature, depending on the strength of their momentum and the clarity of their definition and certainty of their impact. Distant trends (e.g., space travel) can be grasped only in th general shape and their impact is largely a guess, while mature trends (e.g., movement of Americ women into the work place) are visible all around. For purposes of most strategic planning, therefore, ature and emerging trends are of greatest interest, the latter clearly visible but their impacts on the' ustry and the firm remaining to be clarified. See, for instance, the broad-ranging catalog of73 majo trends affecting the United States into the 21st Century offered by Marvin Cetron and Owen Davies in their American Renaissance: Our Life at the Turn of the 21 st Century (1989), App. A. See the ore recent "Foresight 2020" analysis of global trends published by the Economist Intelligence Unit ( IU,2006).

Identifying trends is one task, disc . g their likely impact on the structure of an industry is another and more complex task. The com lexity -- and uncertainty -- lies in the fact that trends rarely show up clearly delineated, but typically in ombination with other trends. Thus, computerization has merged with telecommunications and thi with the information revolution, etc., etc. So, these converging trends need to be parsed into the' resulting strands and identified. Further, trends may impact (for instance) an industry in a variety 0 ways, having varying effects on any of the major industry forces, e.g., suppliers, buyers, competitor , entry barriers and substitute products/services. These impacts in turn must be interpreted for the s cture of the industry as a whole.

Finally, to ensure a working ima of an industry's future, it is critical to clarify the assumptions underlying each major trend or tre convergence. In other words, what events or discontinuities could occur that would significantly alte these trends and the future as envisioned? These could be random events, such as wars, but may also e counter-trends or seemingly innocuous or distant events that could unexpectedly shift perceptions 0 the future, such as personal computers, overnight mail delivery,

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wireless communications, talking ovies (Henry Warner, 1921: "Who the hell wants to hear actors talk.").

Methodology for Trend Analysi

To ensure a comprehensive ident ication of trends, the nine major dynamics (sub-triangles) of the social process triangle (see diagr below) can be used as a checklist. See Chapter 7 in Borderless Business book for a discussion of e three major dimensions: economic, political and cultural. The terminology in the diagram below is intended for conducting country analyses, but because the same dynamics occur in all societies, it an be used to look across societies around the world and identify common trends at work. To be co prehensive and avoid blind spots in your analysis, identify at least one trend influencing your indust that originates in each of the three dimensions.

Three Social ealms - Nine Social Dynamics

Sacred Values

Fundamental Beliefs Values, symbols and

expressions of social identity Work Force Minds t

Attitudes, practices and methods for acting, learning

and transmitting knowledge

Culture Social Relationships e.g. family, generations

business & interest groups & communities

Resource Base

SOCIAL DYNAMICS

Regulatory Climate Scope and inclu-

~----=----~ siveness of gov't Political regulation System

olicy-Making Process

Market Accessibility Purchasing Power, market size, distri- bution channels; ~--""""'-----+----:~ com petitive structure

Legal Base

Quality of Inputs Physical & Technolo- gical infrastructure; factor quality and costs

roductivity ngt systems, bor organization, apital assets

Predictabillity Rule vs. discretion; Effective dispute resolution

Stability Due to transparent and broadly based decisions?

Steps in conducting trend analysis

1. Trend Siting. For each of e nine sub-triangles -- (i) Discern in what res ects the industry could be affected by the social dynamics of that

particular sub-trian le. (ii) lllustrate these pote tial effects with patterns of events that appear to have some

substantial social mentum behind them.

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2. Trend Candidates. For ea of the nine sub-triangles -- (i) Develop a number f trends that appear to be gaining momentum and have potential to

influence/change t e shape of the industry in some substantial way. The number will vary among the su -triangles.

(ii) Characterize the so ial forces (institutions, beliefs, group behavior, etc.) that appear to reinforce or oppos these trends at present.

3. Trend Verification. For e h likely trend-- (i) Determine--

• Strength and dation of the social forces that will perpetuate and reinforce the trend during the next five to ten years;

• How fast the tr nd is emerging in different markets, and what could accelerate or slow the trend.

(ii) Establish whether its i tensity or momentum is likely to be high, median or low? (iii) Should the trend be c acterized as 'distant', 'emerging' or' mature'?

4. Trend Impact. Using a ti e horizon of some point between 5 to 15 years-- (i) Determine where tren s will converge, and to what effect. (ii) Assess the likely im acts of each trend or convergence of trends on the market or

competitive struc e of the industry, keeping in mind that any trend or combination of trends can have onomic and political as well as cultural impacts. Consider, specifically -- • Who is moving 0 exploit the trend, and by what technology and investment choices;

who are the pa engers and the bystanders? • Who is driving has the most to gain or lose? • How are cons er needs and demands affected?

(iii) How are the industry nd the markets likely to change over the next 10 years? (iv) What counter-trends r discontinuities could occur to undercut/reverse these changes?

5. Scenarios. Depending on e variety of trends and how they converge, different scenarios or 'futures' can be constructe from the above analysis -- by determining how and at what points trends will intersect in the ture, and how these impacts will shape the industry or market. (i) Build an assumption b se for each scenario, describing how the trends combine to change

the shape of the co petitive structure of the industry. (ii) Elaborate further --

• What new pro ct and service opportunities are being created; • Consider how d whether the firm should seek to influence the direction or speed

of the trend, or ven intercept it.

It should be obvious from the fore oing that trend analysis requires substantial effort, if it is to serve as a firm foundation for strategy panning. Beyond that, however, it is a discipline that should be pursued by senior management 0 an ongoing basis. It should become an integral part of environmental scanning for comp nies who wish to remain leaders in their industries.

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References

Cetron, M., & Davies, O. (1989), merican Renaissance: Our Life at the Turn of the 21st Century. New York: Macmillan. Economic Intelligence Unit (2006 . Foresight 2020. London: The Economist Hamel. G., & Prahalad, C.K. (199 ), Competingfor the Future. Boston, MA: Harvard Business School Press Mann, C.J., & K. Gotz (2007). Bo derless Business. Westport, CT.: Praeger.