Critical business phases like succession, change of ownership, market entry, technological shifts can be difficult to handle in today’s complexity. These are some of the concepts that I use to look into the future in an actionable way.
Dear Fellow Innovator,
Building our future, it’s always the best way to predict it.
This is why I prefer scenarios more then forecasting.
With Scenarios you have the chance to be creative,
introducing you, as an agent, into the future course of action
and change it.
With Forecasting you limit your option to making an intial bet:
“Noir or Rouge” that’s it. Then you leave to the events.
(…and don’t forget the “zero” option…)
But what makes a scenario “actionable”?
I think that it’s about making it “quantitative”.
We have to take decisions based on the outcomes we want to get.
So weighting these outcomes is a fundamental criteria to prefer a scenario.
It’s not about how much a scenario is “probable”.
Probability is something I associate to forecasting.
It’s about understanding the impact of our decisions on the outcomes.
Managing the risks associated to our choices
it’s something that comes after we have seen how much we can get by them.
There are tons of tools, and frameworks that can help build quantitative scenarios.
But I always found usefull to make 2 control checks,
after having used those tools to paint my scenarios.
1) Backward looking
If my framework of hypothesis, data sets, governing laws, etc etc should work “forward”
it shall also be able to describe the past: looking “backward”.
I remember that when I was sweating building the market model
for the Oil & Gas Upstream industry, back to my General Electric years,
one of the fundamental check about the soundness of the model has been
to see how well it have would “predicted” equipment sales in the past.
For the past I had all the data. No need to guess.
Making my model “predict the past” was critical to fine tune it.
It worked quite well indeed: in 2007 the model predicted the 2009 crash in the economy…
2) Bias weighting.
The fact that we use very smart quantitative modeling,
inject all our know how about industry, market, company capabilities,
add historical data, cultural and social behavioral understanding,
it’s not enough if we do not:
recognize our innate ability to twist the argument in our favor.
We are very specialized in taking logical shortcuts when we do not find grasp the “mecanics” of the problem, or painting pink situations that are more comfortable to our “loss prevention” DNA . It’s something that we do even without noticing it.
There are entire books about our natural bias and how smart negotiatiors, sales men, medicine men, shamans and priests take advantage sistematically of them.
I have collected a small Cognitivity Bias list, against which I proof my scenarios:
Gambler’s fallacy – The tendency to think that future chances to win are altered by past events, when in reality they are unchanged. (The chance to get “head” tossing a coin remain unchanged if you had 5 “head” in a row.
Post-purchase rationalization – the tendency to try to convince ourself that the purchase just made was good and usefull even if it is not. (Expecially when we have to justify past investments…)
Selective perception – The tendency to “recognize” everywhere, things that are the focus of our thoughts. (The fact that we are talking about something, make us notice the argument wherever we point our attention – confirming we are on the right track…but is perception, not: reality)
Status quo bias – The tendency to like things to stay relatively the same. ( We prefer enviroment that we know well, even if they are flames and devils, then to move to a different course of actions – for which we do not have experience )
Anchoring – The tendency to rely too heavily, or “anchor”, on one trait or piece of information when making decisions (usually the first piece of information that we acquire on that subject). This is drammatic with Numbers: What if I tell you that the hour displayed on a large clock hanging on a meeting wall room can set the figure you use to budget a project? You anchor your estimate of 3MM$ to a 3 o’clock digital display…incredible as it may be…
current moment bias – Hyperbolic discounting – the tendency for people to have a stronger preference for more immediate payoffs relative to later payoffs. ( This is quite evident when we accept to do diet, but only tomorrow. We assume we can do things in the future that actually we will hardly do)
False consensus effect – It’s not only the tendency for people to overestimate the degree to which others agree with them. It’s about thinking that our “world “is also anybody else “world”, while outside there is a multifaceted reality.
Neglect of probability – the tendency to completely disregard probability when making a decision under uncertainty. (We fear to fly, even if flying accidents are extremely more rare than car accidents )
A full list of Cognitive Bias can be found on this nice Wikipedia page.
A quick reading can highlight some bias that we inject in our scenarios without realizing it.
I will be back soon again on Scenarios, and what evolutionary curves I use to make my guess. Stay tuned.
To talk about this, just give me a call:
London: +44 7491 164 097
Firenze: +39 349 648 2225
(call me now, at breakfast time, when you drive to work, wait at the airport…)
Copyright © 2016 Business Exploration ®, All rights reserved.
If you liked this post, get more of the kind.
Join my maillist: “Little Nightly Thoughts”