Hello, world. Welcome to our new blog. In this space we intend to launch an ongoing, entertaining, frequently updated dialogue about the inherent uncertainty in human events, and what organizations can do about it.
FSG partner Patrick Marren chronicles a century of late-summer anxiety…and wonders what it all means for the pressing worries of 2011.
August 1911: The specter of Anarchism grips America. Anarchist Ben Reitman, disciple of Emma Goldman, counsels a rally of New York laborers to commit murder if necessary to bring about change: “If the rich thought that you would destroy their property or injure them, they would pay attention to the unemployed…. Your hope, I tell you, lies in your ability to injure society.” (N.Y. Times, Aug. 31, 1911)
It already seems like ages ago that the healthcare reform legislation was the centerpiece of the nation’s political conversation. While the most vocal opponents of the Obama administration continue to call for a repeal of healthcare reform, most of the nation (based on the results of a May Wall Street Journal poll) favor giving the new law a chance to work. The Obama administration is hoping as much, with the oil spill crisis in the Gulf of Mexico alone absorbing an extraordinary amount of executive time and attention.
The November 2009 issue of the McKinsey Quarterly includes an article by Charles Roxburgh entitled “The Use and Abuse of Scenarios.” It includes a number of good tips about scenario-based strategic planning, based on his experience in building scenarios over the past 25 years. It also highlights some important distinctions between his understanding of scenarios, and the way in which FSG has gone about creating and using them over the past few decades. And finally, it brings to the surface the urgent concerns of executives as they go about leading their organizations under uncertain conditions.
Much has been made lately of “long tails” and “Black Swans.” The latter is a formulation of Nassim Nicholas Taleb, an options trader and academic whose book, The Black Swan, lays out what Black Swans are and why just about everyone but him in the financial world is a fool.
As the economy fails to recover instantaneously, and foreign enemies bluster, President Obama is taking increasing heat from expert critics. It is clear that his administration has made many missteps already in its handling of the economy, foreign policy, and virtually every other area. Some of these mistakes will take years, if not decades, for the United States to recover from.
All that remains uncertain is exactly what those mistakes will turn out to have been.
Forecasting is based on expert opinion. Expert opinion, in turn, is essentially a collection of “if-then” statements about how causality works in one’s sphere of expertise. These “if-then” statements, it should be noted, are all based upon observation of how things have worked in the past. Hence, forecasting is based on how things have seemed to work in the past.
It’s early April – not even 100 days into the Obama administration – and already it’s been a turbulent year.
At this moment, a modest rally is buoying Wall Street and investor hopes that maybe – maybe – the worst may be over, as leaders of the G-20 nations meeting in London pledge hundreds of billions more dollars and coordinated action in the face of the greatest financial mess since the Great Depression.
The term “scenario planning” encompasses a surprisingly diverse range of activities. While there are many potential schemes for categorizing these activities, the discussion below presents a fairly comprehensive view of them, and indicates – if imperfectly – the relationships among the various approaches.
FSG welcomes Robert Avila as the contributing author of this month’s FSG Outlook. Robert, an economist and former colleague, is an iconoclastic thinker, with a keen eye and a sharp wit. Robert warns that a soft economic landing looks less and less likely this time around.
Recently, I traveled to China for two weeks. Unsurprisingly, this trip personalized my awareness of an immense and different country. But, perhaps because of the amount of time I have spent working with scenarios over the past 15-20 years, it offered much more. China is beautiful, fascinating, and varied. Its future is, however, significantly less predictable than that of any other major country in the world today.
One of the more interesting things I have found in my life and business experience is that numerical measures, or “metrics,” as we consultants are forced by law to call them, start to lose their usefulness on the day they are dreamt up.
This month we salute an article that is a lifetime old, and use it to see where things might go in the next lifetime.
Well, the article can’t be said to be a lifetime old, really, because although it has reached threescore and ten, the traditional biblical lifespan, its author, who was 26 at the time it was written, is still alive and kicking, the oldest Nobel laureate around.
The strategic decisions that corporations have to make are of mind-numbing complexity. But we know that the more power you give to a single individual in the face of complexity and uncertainty, the more likely it is that bad decisions will be made.
Hello, and welcome to our new website!! We aim to make this a place you will want to visit on a regular basis. We want to make it a can't-miss destination for people who need help making critical decisions under conditions of uncertainty, and who may be interested in using scenario planning techniques to do it.
All along the untrodden paths of the future I see the footprints of an unseen hand. - Sir Boyle Roche
We who inhabit the Land of Scenariotopia (as a former colleague termed our little realm) think that the best way to predict the future is not to. That is, you should abandon the search for certainty and explore multiple scenarios of what might be. Many people don't do this, however. We find that lots of them subscribe, usually semi-consciously, to some or all of the following fallacies:
Despite our leeriness about extrapolation from the past, we do read a lot of history at FSG in order to write our scenarios. As Mark Twain wrote, "It is not worth while to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible." (Mark Twain in Eruption: Hitherto Unpublished Pages About Men and Events (1940, Bernard DeVoto, editor).
"Silos" are an inevitable part of any organization; indeed, of any human activity. Even if you confine yourself to individual action, your own mind is thinking within certain categories, usually operating off a mental model that tells you what to expect - "If I do X, then Y will happen" - and what NOT to expect - Z or W or something completely different.
Scenario fodder for the week: Raghuram Rajan's "Fault Lines: How Hidden Fractures Still Threaten the World Economy" won many awards as best business book of 2010. A couple of years on, it's worth examining Rajan's major theses to see how they have played out.
Say you have a strategic decision to make. And you have several experts giving you different expert opinions about how you should make that decision. And you are not an expert. What do you do?
This is hardly an academic question. In fact, it is a fairly good description of what top management has to do every day. Especially in this era of the Internet, experts can be found to disagree on everything from interest rates to global warming to whether it is raining outside.
Frank Newman's book, Six Myths that Hold Back America, exposes what he says are six false beliefs that are widely held in the United States – even or especially among people who are in a position to make policy.
Scenario consulting has rarely had a better promotional material than Europe has been pumping out the past year or so. Uncertainty abounds.
Sunday's election in Greece has once again caused the Very Serious People in Europe to breathe a sigh of relief. "New Democracy, the mainline conservative party that wants to stay in the euro, won the election and can form a government! We're saved!"
Today we examine the sixth and final “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the worry that U.S. Treasuries could come to have the same problems of lack of demand due to fear that it will not repay the bonds coupled with escalating interest rates. As with all the myths, Mr Newman attempts to present the mechanisms that drive international finance. The policy implications are rich and varied and the subject of legitimate debate. Scenario planning can and should be used to evaluate alternatives.
Scenario planning requires imagination. Everyone likes to pretend that imagination is fun and games. But really, imagination is often very difficult and painful, because it requires us not just to take incremental steps along a pre-existing path, but to make up an entirely different path. (There are gradations of this: from some godlike perspective even truly ingenious innovative thoughts can seem boring and incremental, and from an quotidian perspective simple incremental steps can seem like the moon landing. But I digress.)
July 21, 2042 (Fox/MSNBC News): The nation reacted with a mix of horror, outrage, calls for new laws, and debate over the Second Amendment as the scale of the latest mass murder came into focus over the past two days.
A confirmed total of 212 people, most in the greater Dallas-Ft. Worth Metroplex, but some as far away as New York and Seattle, are apparently victims of yet another technologically sophisticated, targeted DNA/GPS/UAV attack.
Actually, he thinks we're WEIRD - as in, "Western Educated Industrialized Rich Democratic." Or at least you live in a country that by world standards corresponds to such adjectives. And if you live in such a country, you may fall into the trap of believing that all moral questions ultimately can be resolved through rationality. That is wrong, according to him.
Scenario Planning Fun With the Microsoft Word Search & Replace function: Are we turning Japanese?
I've taken a story from the New York Times and replaced all references to Japan, the yen, etc. with American/dollar terms. This is almost certainly NOT our future in many respects; it is difficult to imagine Americans tolerating stunted economic growth out of an Asian-like reverence for the elderly. But Japan IS demographically ahead of us in terms of the retirement cliff it is facing, so it's an interesting scenario exercise.
After decades of trying to help clients anticipate the widest range of plausible possible future events, the following quote rings quite true to us: “Those who know more forecast very slightly better than those who know less. But those with the most knowledge are often least reliable.”
Daniel Kahneman, a winner of the 2002 Nobel Prize in Economic Sciences, published this conclusion in his book Thinking, Fast and Slow after extensive research including numerous statistical analyses.
[Sometimes the best scenario planning we scenario consultants can do is based on scenarios that will never actually occur.]
JIM LEHRER: Good evening and welcome to the first 2012 presidential debate. This is the 413th debate I have moderated, and quite frankly, if there's a 414th, I will shoot myself in the eye with a nailgun. So independently of the debate organizers, I took it upon myself to break into the green rooms of the contestants and drop some truth serum into each of their elitist Evian water bottles. I'm looking forward to this - I hope you are as well.
Nate Silver's book The Signal and the Noise makes a darned good case for scenario-based strategic planning.
In it, he raises the old distinction between "hedgehogs" and "foxes," from a fragment by the ancient Greek philosopher Archilochus via Isaiah Berlin: "The fox knows many little things, but the hedgehog knows one big thing."
"Foxes" in this dichotomy are nonideological and open thinkers not wedded to any one theory; they are comfortable with "nuance, uncertainty, complexity, and dissenting opinion."
Scenario consultants have an advantage over single-point forecasters like Nate Silver: we're not restricted to single point forecasts.
Don't get us wrong: Nate Silver is as good as it gets when it comes to single-point forecasts, and as honest about their limitations. But that undeniable fact just further dramatizes how dangerous point forecasting can be.
Just to illustrate, let's take the current ongoing presidential hoo-hah.
This has been a ridiculously busy and stressful week for three of our recent scenario-based strategic planning clients: the United States Coast Guard, the Port Authority of New York and New Jersey, and the Federal Emergency Management Agency (FEMA).
"Now let us all join hands and give thanks for all we have this day.
"First, for our gas generator that saved us when the power grid went down yet again last night. It costs four times as much as our fathers' power bill, but it's there when we need it and it keeps our electric fence going when the Others try to enter our yard.
"Second, for our advanced weaponry and the Iron Dome that defends us from all enemies, domestic and...well, mostly domestic. Our new rooftop electromagnetic pulse gun stops the Others before they even reach the security perimeter moat.
February 14, 2013 [Wolf News/MSDNC]: In a Valentine's Day miracle, Congress and the administration today reached a long-term deal on the debt ceiling, taxes, and fiscal reform.
A group of rogue bipartisan realists from perfectly safe seats - the Washington DC and Guam delegates and the observer team from McMurdo Station, Antarctica, spurred along by a contingent of visiting Marines and Seal Team members glowering down from Senate and House galleries, publicly wondering exactly what they have been risking their lives to preserve - have brokered a deal to end the budget logjam.
Things that happened for which scenario planning was or might have been useful on this date in history.
537: Ostrogoths begin a siege of Rome. Belisarius almost gets caught outside the walls, but makes it inside in time to lead a successful long-term resistance to the siege (probably thanks to a primitive form of scenario planning).
After a week off for vacation, scenario planning fodder returns.
1306: Robert the Bruce becomes KIng of Scotland, seven months and two days after William Wallace is hanged, drawn and quartered in London. It will take him eight years to establish de facto control via the Battle of Bannockburn; then he will invade Ireland and northern England in attempts to establish a "Pan-Gaelic Greater Scotia." It doesn't really catch on, most historians believe due to the haggis.
With the Internet revolution already established, are the best days of productivity growth – and therefore income growth – behind us? That worrisome question is popping out of the trends in growth in non-farm output. But it’s possible the best is yet to come.
The Financial Times has a story that causes our eyebrows to rise well above half-mast this morning.
With Greek banks' splendid history of rigorous management and Wall Street hedge funds' impeccable eye for risk and record of spreading nothing but goodness and light in countries in which they invest, what could possibly go wrong?
Another blast from the past for your enjoyment, as we twiddle our thumbs as Washington flicks lit matches around a gunpowder factory, just as it did at the end of 2012 and in mid-2011 (and will do again next year).
1. He had started back-channel communications with Castro a few weeks before his death, so our relations with Cuba might have been very different.
2. He had also begun discussions with his advisors about an exit strategy from Vietnam. Some experts think he would have stayed in Vietnam; others, including some of his closest advisors, think he would have gotten out in a second term. It seems unlikely that he would have escalated as aggressively as LBJ.
Is the current California drought about climate change or some periodically recurring rainfall shortage? The experts don't agree. Which is why planners affected by this situation should rigorously think through multiple scenarios -- and their implications.
In it, I came up with the hypothesis that much of what has passed for "strategy" the past decade or more had actually been about cost cutting, and in particular, cost-cutting of the largest line-item: labor.
Errol Morris’s documentary on Donald Rumsfeld is in the theatres. The film, plus a companion four-part series on the former secretary of defense in the The New York Times, raises interesting questions about knowledge, uncertainty and corporate strategy.
2015 is starting out as a year of unexpected paradoxes and amusing contradictions.
1. The Dow Jones Industrial Average is plunging because Americans are no longer being forced to take out mortgages to fill their gas tanks, and those nice guys Vladimir Putin, the Chavistas in Venezuela, and the Iranian cleric-dictators are being put in a tough spot. It's almost as though maybe Wall Street doesn't have the same interests as the average American.
A Greek election may offer a glimpse of the future - or a brief detour to a failed past.
This past Sunday, Syriza, the Coalition of the Radical Left, won a large victory in Greek parliamentary elections over the main establishment parties, the center-right New Democracy party, led by Andonis Samaras, the Movement of Democratic Socialists, led by George Papandreou, and the already shriveling Panhellenic Socialist Movement (PASOK), recently led by Evangelos Venizelos, and founded by Papandreou's grandfather.
Opposition to proven preventive measures is not a left-right issue - and metaphorically, it also affects a lot of businesses.
In the past few days, a mighty attempt has been made by various Media Creatures to shoehorn a controversy over a measles outbreak and non-vaccination of children into yet another left-right bipolar fight.
When it comes to feel-good scenarios about the future, FSG scenario planners tend to be a circumspect bunch. Still, on the occasion of New Year's, we're not beyond putting a positive spin on current events. Here's what gives us hope...