How to Predict the Future
A common and vexing issue that I’ve seen boards and management teams struggle with is balancing the company’s short-term results achievement with its future environment.
Too often this devolves into a polarized debate about the efficacy of looking out five, 10 or 15 years. The current P&L-focused group members thumb their nose at the long-term thinkers — those who have an interest in the decade ahead and are more comfortable with ambiguity. And the long-term thinkers mistakenly believe that the current thinkers lack creativity and are closed-minded.
Can both long-term thinking and short-term performance orientation exist in the same organization? Yes, but it requires a framework and some rules to make sure that all voices are heard, current cash flow is not irreparably disrupted, and “gee whiz” exploration is not confused with operational planning.
Because I spent 30 years running P&Ls and have run both large and small organizations, and because for the past 12 years I’ve worked with CEOs to help them craft clear strategy among other things, I’m going to call myself an expert on this topic (as long as the definition of “expert” implies lots of experience and success, many mistakes and ongoing learning!). As such, I’ll do this in FAQ fashion.
Isn’t it a waste of time to look at a 10-15 year horizon when I don’t know what’s going to happen tomorrow?
No. However, the objective for looking 10 years out in most cases isn’t for that view to impact your to-do list for tomorrow. That might be dangerous. It’s to develop what Henry Mintzberg calls “prepared minds.” Most organizations I work with cannot accurately predict what their business environment will look like in 10 years, but they can start to have some broad thoughts about options, some of which will come to pass. The idea is to have enough what-if conversations that as those possibilities either dissolve or appear more likely; you can start to answer the question “What if?” with “Therefore. …”
How do you begin?
If you’ve been reading my material long enough, you’ll know that I’m a great fan of starting with questions. What if “X” happened? The “Y” industry is adjacent to ours and is changing rapidly. What if we changed in a similar fashion? What’s the underlying need that we’re satisfying, and what new technology will allow us to address it differently? What do the relatively predictable demographics tell us about the future of our business?
Look for trends, new technology, adjacent industries, scientific discoveries, political shifts, economic trends, weird one-off events, highly profitable customers, large groups of unprofitable customers, etc., and you’ll come up with a good list of questions to answer. Keep reviewing them to see how your answers change over time, and you may see some trends.
Who should you involve?
Include those who’ll have to run the business in its future environment (e.g., senior leadership). Don’t farm out this activity to staff or gurus. Aggregating information provides more accurate forecasting than individuals alone, so involve others!
What impact will this have on next quarter’s results?
None! Get over it. Sheesh, who asked these questions?! Seriously, if you can’t think beyond what’ll happen next month or next quarter, you might consider a career in accounting. You’re not CEO material. I’ll bet, however, that if you’re in your role long enough and you have these conversations over multiple years; you’ll stumble upon some extremely enlightening thoughts that might allow you to create your own future! Now that will be profitable! If you’re a board member or investor, think about the fact that we reward management teams for current results and then beat them up for not thinking about the future!
Clayton Christensen reminds us that the root cause of every business disaster is mistakenly pursuing short-term goals ahead of long-term ones.
Finally, don’t confuse strategic thinking with planning. Planning is extrapolation for the future from today; strategy is painting a picture of the future and then figuring out what to do to get there.