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Prophets, profitability, and the future

Richard Pech

Forecasting is a crucial function within the larger planning role – it provides the raison d’être for our plans, which is to prepare for the future. Planners utilize a number of time-tested and sophisticated analytical mechanisms designed to ‘see’ into the future – but it is now quite obvious that these mechanisms only work as long as everything remains stable and predictable. This seems self-defeating. If forecasts can only forecast the predictable and the obvious then what purpose do they actually serve? Humans have a need to know what the future will bring to warn of impending anomalies, turbulence, and crises.

Regardless of the rhetoric, strategists and forecasters such as economists and their ‘predictive’ instruments are unable to predict for non-conforming and pattern-breaking events. Y2K was ‘predicted’ to be a disaster and it wasn’t. The collapse of the Soviet Bloc was not predicted at all – by anyone.

During the 1980’s we were mesmerized by the seemingly flawless investment predictions of Alan Bond – events post 1987 soon exposed Bond to be a criminal rather than a prophetic genius. Until the shocking revelations of late 2008 and 2009, Bernard Madoff and Allen Stanford were regarded with similar awe, and both have fallen from grace with a similar public outcry of shock, rage, and protestations of betrayal from trusting investors.

It is actually not difficult to make predictions of what may occur in the future – and get it reasonably right – as long as you choose themes that lend themselves to predictive claims. Such themes would include vague allusions to worrisome effects of a warming planet, issues related to aging populations, the impacts of rapidly growing populations, and the costs and risks associated with increasing militancy in a shrinking world. Whether such thematic predictions are proven correct or not is irrelevant at the time of making the prediction as each claim is certain to attract attention. But once having made such predictions and they do come to pass, the predictor can claim a position anywhere on the continuum between divine inspiration and intellectual genius. The payoff in adulation and/or financial terms can be enormous. Such predictions often seem focused on natural calamities, scarcity, and conflict, exploiting our fears to Malthusian proportions painted with only the darkest shades of gloom. It might be worth adding that most of these predictions never eventuate, with Y2K being a recent example.

Politicians and the media sometimes exploit future fear by focusing on worst case scenarios. We are the healthiest, wealthiest, and longest-lived people in history and yet we are increasingly afraid. The doomsayers are powerful, widespread, and relentless in their message of fear. The events and subsequent ongoing predictions for the 2008/9 economic crisis have been portrayed as an ‘economic tsunami’ – Google registers mention of this term 591,000 times in February 2009. Painting scenarios of impending disaster, unemployment, inflation, and economic collapse, Governments then appear surprised at the business community’s response, which is one of caution, retrenchment, downsizing, and divestment. In February 2009 the Australian Industry Minister, Kim Carr, declared that in the present environment “I wouldn’t say anyone’s job is safe”. Regardless of the impact of poorly scripted public statements by politicians and fear mongering by the media, the burning question is, how did our strategists and planners, who are employed to forecast, create what-if scenarios, and develop appropriate future-proof plans, manage to miss this cascade of events which have culminated in an anomalous but deep impact global economic crisis?

Catalysed by falling house prices dubious lending practices resulted in a collapse, now termed the subprime mortgage crisis. Only then did people begin to critically assess the validity of a mortgage program designed for people who were unable to meet accepted borrowing criteria. Our unquestioning acceptance of overly complex global financial practices has removed fear, caution, and doubt, it has conveniently ignored the fact that banks are required to make profits, that many of their critical decisions are made by individuals, some of whom are, or have been beyond scrutiny and have operated outside regulatory frameworks – Madoff, Stanford, and don’t forget Nick Leeson and his destructive impact on Britain’s oldest merchant bank.

The economic crisis tells us something useful. We have absolutely no ability to predict the future. Anyone who claims to be able to predict the future, regardless of the scientific terminology with which they clothe themselves, is in effect claiming supernatural or paranormal powers – which do not exist. This does not however mean that we shouldn’t plan. Peter Drucker once made the claim that ‘forecasting is not a respectable human activity and not worthwhile beyond the shortest of periods. Strategic planning is necessary precisely because we cannot forecast’. He went on to argue that forecasting attempts to follow the most probable course of events, or range of events. In Drucker’s view, decision-makers should be asking, ‘what do we have to do today to be ready for an uncertain tomorrow?’. Drucker’s question forces people to think. It has the potential to eliminate reliance on tradition and myth; it promotes critical thinking and scientific inquiry. It reduces reliance on unreliable structures such as some of our creaking monetary systems and obsolete economic constructs because all assumptions must be examined and tested before allowing such dubious structures to underpin the things we value and the things upon which we rely for our survival and success.

Dr Richard Pech is Director of Research at The Graduate School of Management of La Trobe University in Melbourne Australia, as well as teaching MBA students and supervising PhD students. He has written a number of books on strategic planning and thinking, as well as successful global entrepreneurs. He is author of a large number of articles in various business and academic magazines and journals.