Posted by Adam Gordon on Jun 7, 2010 in all, decision-making, Future Savvy, management, strategic foresight
I’m always looking for ways to explain the role of quality foresight in everyday management, so I liked this little animated gif from managewell.com.
Imagine driving down a country road when a street dog starts chasing your car. The dog attacks the car, but by the time it gets close, the car has moved ahead, so the dog changes direction and attacks the new coordinates. This goes on as the dog adapts, but it never quite catches up, and once it is following behind it is obviously too slow to catch up. Had it thought ahead and run straight it would have had its day with the tires.
The resulting curve looks something like this:
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In mathematics, this is known as the ‘curve of pursuit. The dog is attacking the problem as it sees it right now, but by the time it reaches it, the problem has moved on a few steps. A ‘problem-solving’ approach like this is going to prolong the time it takes to get to key decisions, and give the initiative to competitors. The better approach in managing moving situations — and all situations are moving — is to anticipate and tackle tomorrow’s position today.
Obviously the devil is in the quality of the anticipation, but for that there is Future Savvy and other key resources that exist for determining quality in foresight work. Industry foresight can never be done perfectly, but it can be done well enough to avoid the “dog chase” future-management style that characterizes much of industry leadership.
read morePosted by Adam Gordon on Apr 14, 2009 in all, forecast filtering, Future Savvy, lifestyles & values, scenario planning, strategic foresight
There’s been a storm in the past few days over Amazon.com excluding “adult” books from its sales rankings. Among the almost 60,000 books affected was not just Erotica. Feminist books, Gay & Lesbian titles, and books in Health, Mind & Body, and Reproductive & Sexual Medicine also disappeared from the rankings
Amazon the new Wal-Mart? pic:Huffington Post
According to yesterday’s LA Times Amazon says the whole thing was a cataloging error. But when author Mark Probst had previously contacted Amazon for an explanation, he got this: “In consideration of our entire customer base, we exclude “adult” material from appearing in some searches and best seller lists.”
Aside: Everyone is trying to figure out what Twitter is good for, or how it will be used, and it has become clear that one application is to quickly aggregate mass protest, evidenced in the anti-Amazon outrage, see Twitter “Amazonfail.”
Author Maya Reynolds has been connecting the dots in the future of publishing, watching Amazon move via acquisitions such as Abe Books, Audible, BookFinder, BookSurge, Brilliance Audio, FillZ, GoJaba, Library Thing, Mobipocket and Shelfari.
She is among various industry watchers who claim, with fair evidence, that Amazon is following a “Wal-Mart” strategy – the well-documented essence of which is to gain enough retailer power to be able to pressure suppliers (telling them what to make or what to charge, or exacting special discounts) to achieve better retail prices and get more retailer power, in a reinforcing spiral which, inter alia, squeezes all the healthy mom-’n-pop-shop diversity and other balances of power out of the industry.
In a post of July 08 she paints the full dystopia scenario:
“1. First, the smaller presses, POD presses and e-publishers will disappear as Amazon’s margins squeeze them out of business. Amazon will help the process along by offering better terms to authors if they will use BookSurge’s POD press and Kindle’s e-book to publish. Even if authors don’t embrace Amazon initially, as their publishers go out of business, they will be forced to do so.
“2. Brick-and-mortar stores have two constraints which Amazon does not: (1) limited shelf space and (2) a limited geographic range. Bookstores carry books “on spec,” filling their shelves with stock they hope readers will seek. Amazon, on the other hand, has unlimited virtual shelf space and unlimited geographic reach. Amazon does not have to warehouse stock. They can wait until a book is actually ordered and the money is in hand before using a digital file and BookSurge to print the book. Because they cannot match the deep discounts Amazon offers, bricks-and-mortar bookstores–already under siege–will be squeezed out of existence.
“3. Like Wal-Mart, Amazon will continue to apply pressure on publishers to give more favorable terms. Wal-Mart’s suppliers used cheaper materials and out-sourced to cheaper overseas labor. As the publishing houses’ profit margins are squeezed, their cost-cutting efforts will take three directions: (1) Focus even more attention on signing best-selling authors whose work is guaranteed to sell; (2) Begin to pressure their mid-list authors to accept lower advances and lower royalty percentages; and (3) Sign fewer and fewer new authors because of the uncertainty and the expense of growing a new writer.
Where will they go?
“4. Mid-list authors and new authors, unable to either find a publisher or unwilling to accept the low royalties, will seek to self-publish. Where will they go? Since, by that time, most of the self-publishing houses will have gone out of business, they will go to Amazon’s BookSurge or to Amazon’s e-book division, Kindle. Amazon will welcome them.
“5. The next death on the food chain will be the publishers and agents themselves. First the mid-level publishers will die. Well-known agents and the larger houses will be protected for a period of time by their best-selling authors who are loyal to them. However, as those cash cows die off, so will the agents and larger houses. A new paradigm will emerge: Amazon as both publisher and retailer.
“6. Eventually Amazon will have so much power, they will be able to decide WHAT is worthy of being published. Welcome to the future of publishing.”
Is this the future of publishing? The logic of unregulated industry power suggests it is. But Future Savvy says response – regulation – is also likely. As with Microsoft and many before them, when Amazon gets too powerful, anti-trust regulators should be in business. But only if their hand is pushed. Articulate and persuasive dystopias such as Reynolds’ are the single most powerful mechanism by which the word is spread (spread it! forward it, tweet it!) so that enough consumers get to see and believe threatening future outcomes early enough, and pressure regulators to act.
read morePosted by Adam Gordon on Mar 5, 2009 in 2015, all, decision-making, economy & finance, foresight tools & methods, management, managing uncertainty, prediction markets, trend tracking
Prediction markets have been in the news a lot for their forecasting potential. These markets – where participants buy and sell bets as to whether future events happen or not – mimic “real” securities markets, so it stands to reason that real markets are predictive too, and they are.
My question, as the Dow Jones Industrial Average (DJIA), and the FTSE100, the DAX, the Hang Seng and so on have hit a decade lows is, what is this predicting, if anything? What is the long-term value of this prediction, and could it be used to make better decisions in the real world?
We know that the value of a common stock – a share in a company – is based ultimately on the returns (dividends) it will bring. Buyers and sellers therefore derive a daily market price based on their views of the share’s expected, that is, predicted future payback. The greater the expectation, the greater the price. A high price vis a vis earnings (P/E ratio) suggests confidence in future earnings, and vice versa.
Therefore the current steep fall in share prices is an expectation of (crowd prediction of) lower future payouts. Of course the complexity in human-prediction situations is that this basic level is also overlayed with a meta-level: people are not only trying to figure out what will happen, they are trying to figure out what others think will happen. So falling PE ratios are an expectation of what others will do (predicting they will continue to sell.)
Madness or not?
One of the perplexing things about the markets is they very often seem to react opposite to what is expected; to what would be common sense. They often fall on good news, rise on bad news, close unchanged on big news, and so on. Although there is – famously much irrational behavior and herd instinct in the market – you don’t get hundreds of thousands of decision-makers wagering significant money not using common sense.
What is going on, of course, is that the market has often already risen or fallen in prediction of the news. When a new condition – an interest rate move, for example – is imminent, the market will move to “price in” the expectation. If market participants as a whole have called the future correctly the market will not move much on announcement.
Pricing-in the future
Because of this predictive component to group decision-making in market situations, the stock market as a whole is a classic leading indicator of the real economy. When prices move they may be taken as the crowd “pricing-in” a future prediction. So markets will fall ahead of real economic problems (they may continue to fall, as now, during steep economic declines.) But they will also turn up well before any real, measurable upturn.
By the way, there is little doubt it will overshoot in this time, as it always does. This is because, as in prediction markets, the wisdom of crowds can predict the trend but not the turn. Trend extrapolation will never show you the key shifts, and this is why predicting the bottom or top of a market is so hard.
The point, for market speculators, is that long before the real gloom is over the markets will be zooming upwards. The point for the rest of us is that recession times will be with us even after the markets move up. In the long term the market will go up. Like death and taxes, it’s the surest thing there is.
read morePosted by Adam Gordon on Feb 26, 2009 in 2025, all, decision-making, economy & finance, forecast filtering, leadership, lifestyles & values, management, policy, politics of the future, risk management, social change
Publication of the Institute for the Future’s “Map of Future Forces Affecting Sustainability” on the same day that it is revealed that Sir Fred Goodwin (50) of failed & baled Royal Bank of Scotland (RBS) will get a £693,000 (about $1,000,000) a year payment for the rest of his life, gets me thinking about short-termism and its entrenchment.
The IFTF’s full map is available for download here. Quick aside: these maps, putting complex forces into visuals, have defined IFTF’s public (and client, one presumes) communications for over five years, and have raised the bar of excellence in the foresight communications. The company has produced many such outstanding maps, some publicly available.
The new map and Sir Fred-gate are unrelated of course. But here was the connection for me: The IFTF map lists six “Key Driving Forces” (2007-2017) in the area of sustainability, and the first is:
“An Imperative for Looking Long: The 21st century will test our ability to grasp the future impacts of present choices, but even as we struggle to incorporate future knowledge into our day-to-day decisions, we’re tuning up our bodies and minds and even our cultural frameworks for a much longer view.”
My question is, “really?” Is the long view really a driver – something that will drive change and shape the future? Or do we hope it is. Are we trying to talk it into being?
No question that the long-term view is crucial. Solving just about any social, technological, or environmental problem requires sustained long-term action. And everyone who works in foresight keeps evangelizing long-termism. But, in fact, what we have in industry and government is rampant short-termism and there is no indication this will change, despite the crisis and many heartfelt calls.
Linking big to long
The problem with Sir Goodwin’s package (in career and in retirement) is that the reward numbers were based on short-term company returns. “Hey, we made lots of money this year, so you get a big bonus, and you get a big bonus,” etc. But a few years down the line – in the long term – it turns out that no bonuses were valid (if a bonus is, truly, a reward for success).
Put it another way: in finance, as in other aspects of society, technology, and the environment, we don’t know if we’ve succeeded or failed until the long-term numbers are in. Few would have a problem with handsome rewards for a valuable job well done, but those rewards must surely be delayed, and delayed, until we are in command of the long view of the performance.
Easy in theory, hard in practice. Perhaps impossible in practice when most politicians and legislators are themselves on a short 3-7 year cycle, like CEOs. I have some inkling from the IFTF map that the thinking is that life-extending technologies will improve to the point where people will really see themselves in for the long haul, and so adopt a longer perspective on benefits and rewards.
Time on the clock
Perhaps. But, life-technologies aside, plenty of decision-makers – Goodwin included – still have a lot of time left on the clock and that doesn’t appear to stop them chasing and cashing in short-term incentives at the expense of the future. Or legislators (and the public who votes them in) structuring performance rating on our immediate perception of their performance.
What we have, and what we have increasingly had (the trend) over the past few decades, is systemic short-termism. Winning in the next annual report or the next election is what what leaders’ rewards are based on. Incentives for politicians or business leaders or even scientists or engineers to make a better world for 2025 or 2050 are negligable.
Until there is reason to anticipate that this fundamental underlying short-term incentive structure and mentality changes (that is – convince me – who will change it and how?) the future savvy perspective must say that the “long-term imperative” remains a nice sound-bite, but not a material driver of anything.
read morePosted by Adam Gordon on Jan 6, 2009 in 2015, 2025, all, decision-making, failed predictions, forecast filtering, managing uncertainty, Perils of Prediction, technology change, trend tracking
Happy New Year! Well, this time of year traditionally brings out the “January 1 quarterbacks,” poking fun at the wrong predictions for the year just past, awarding dunce caps, particularly (deliciously) to famous people.
This punditry is widely read, and sometimes published in respectable places. Some of it is just year-end fun, and nothing wrong with that. But there is also a failed-forecast “nyah-nyah” that is corrosive to the foresight field in general, which demands answers. So at the risk of giving the 20/20 hindsight artists undue oxygen of attention, here are a few thoughts:
Consider Foreign Policy’s “10 Worst Predictions for 2008.” (Dec, 2008). Highlights include:
“If [Hillary Clinton] gets a race against John Edwards and Barack Obama, she’s going to be the nominee. Gore is the only threat to her, then. … Barack Obama is not going to beat Hillary Clinton in a single Democratic primary. I’ll predict that right now.” —William Kristol, Fox News Sunday, Dec. 17, 2006
“Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?’ No! No! No! Bear Stearns is fine! Do not take your money out … —Jim Cramer, responding to a viewer’s e-mail on CNBC’s Mad Money, March 11, 2008 [Bear Stearns was sold to J.P. Morgan Chase at about a 90% discount to it market capitalization at the time of the forecast]
“The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.” —Arjun Murti, Goldman Sachs oil analyst, in a May 5, 2008, report [Oil was then around $130 a barrel. By late December it was below $40.]
Or this one from Business Week’s list of 10 (December 24, 2008)
“Existing-Home Sales to Trend Up in 2008″ —Headline of a National Association of Realtors press release, Dec. 9, 2007 [On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million—down 11% from a year earlier—in the worst housing slump since the Depression.]
The Future Savvy question is: how should we think about predictions like this? And how should we think about failed-forecast spotting?
1. Failed-forecast spotting is not remotely “scientific”
This should be obvious, but somehow never is. Purposefully extracting the failed forecasts from the total set of forecasts says nothing about the quality of the set in general. Many did predict Obama; did predict the downturn, etc.
2. Failed-forecast spotting raises a healthy skepticism, but runs to nihilism
Despite not passing any credible test of knowledge, at least failed-forecast spotting stokes apprehension about forecasts and the wisdom of experts. At base this is healthy. Prediction is hard, and it is mostly done poorly. And experts often transgress the boundaries of their expertise. (Typically, in this instance, they know a lot about their field, but often don’t know more than the next Joe about the future of their field, often because their expertise is wedded to existing practices and assumptions.)
Prediction skepticism is fine. What happens, however, is that tempts a “nobody can predict anything” nihilism. This is its own failing because many predictions are in fact excellent, producing good foresight, which is a key strategic and competitive advantage.
3. Often the short term future is harder to see.
This is the trickiest insight of the lot. As everyone knows, it’s impossible to accurately predict the future (which is not the same as usefully predict the future, see arguments in other posts). The world is just too complex, too chaotic. But there’s a wrinkle. It should be that the further we look into the future the harder it is to see. The world will change more – there is more time for unpredictable things to happen. The short-term future (one year, say) is closer to us, it should be more like today and we should be able to anticipate it better.
In fact, short-term foresight is the most impossible task: a casino game. In the longer term (10-20 years, say) strong trends can be relied on to have had their impact. For example, the move away from fossil fuels, or effective nanotechnology engineering, or simple domestic robotics, can be reliably forecast. But while the sweep of these and other similar evolutions are reliable over time, the short-term picture will suffer lags or reversals that follow no pattern at all. (It’s no accident that is this is just like the stock market. In the long term the market will go up, in the short term it can go anywhere.) Also short-term predictive failure is compounded by the fact that the standard to which it is held is higher – we expect specifics: dates, places, numbers, players, winners – that are not demanded of a long-term view. In other words, near-term predictions are all about “point forecasts,” and there’s nothing more impossible than a point forecast unless you believe in tea leaves and crystal balls.
The take away: short-term point forecasts really are a mugs game and the skeptics are right. Medium-long forecasts, when well done, are worthy of our strategic and competitive attention.
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