Beware the Prognosticators!

Posted: November 1, 2007 in Powerful Ideas

At the turn of the 20th century, two famous forecasts turned out to be completely wrong. The first one was by the head of the U.S. Patent Office, who famously claimed that the agency was no longer required because everything of consequence had already been invented. The second one was by Lord Kelvin. He opined that there was really nothing left to discover scientifically. There were only a few minor issues to clear up and all that was left to do was to apply these discoveries. Five years later, Einstein published two innocuously titled papers, one on relativity and another on a new theory of light that postulated the existence of photons and other discontinuous packets of electromagnetic energy he called quanta. Need I say more?

This type of smugness wasn’t restricted to the fields of science and technology. In 1900, the world economy had achieved a level of global integration close to that of today. European powers controlled most of Africa and dominated world trade and commerce. The sun never set on the British Empire and it was possible to travel just about anywhere without a passport.

Within a mere fourteen years, the Great War in Europe destroyed the illusions of a generation of optimists. What followed? The Bolshevik Revolution. The Crash of 1929. The Great Depression. Japanese Imperialism. World War II and the Holocaust. The Maoist Revolution in China. The Cold War.

In 1989, all the talking heads predicted that the Soviet Union still had a long life ahead of it. Sure, it had been battered and shamed in Afghanistan. But Gorbachev had introduced perestroika and glasnost, which would allow the USSR to remain a dominant superpower. Within two years, Soviet forces were pulling out of Eastern Europe. Germany was reunified and was paying for the removal of Soviet forces to the Confederation of Independent States, the rump state that was left after the breakup of the Soviet Union.

I could go on with this of course: the rise of the People’s Republic of China as a capitalist power, the spread of terrorism, the invasion of Iraq. In the financial arena, we had the Ruble Crisis and the failure of Long-Term Capital Management, the Asian Contagion, the stock market meltdown of 2000. None of these events were predicted beforehand by experts. Sure, there may have been marginal characters here and there who had an inkling of the possibilities. But the vast majority of so called experts never saw any of these breaks and discontinuities beforehand. Beware the prognosticators!

Conversely, many forecasts that were famous at the time they were made have largely been forgotten now. Why? Because they were useless. Remember the Y2K scare? The fact that computers had not been programmed to change date properly at the turn of the millenium was going to cause the downfall of civilization. Seriously. I was serving in Bosnia at the time, where there was little electricity and public services for the population were meagre at best. The soldiers in my unit joked that the Y2K bug could be good for Bosnia because maybe it could make the lights come on. So much for military gallows humour. While rich countries invested billions, essentially to reprogram digital calendars, poor countries basically did nothing. And nothing happened.

The reality is that very few individuals and organizations know exactly what is happening as it is happening. Even fewer are capable of understanding the implications of events as they unfold, much less identify risks, threats and opportunities that are brought about by changes.

The solution does not lie in more prognostication. Instead of trying to predict what will happen next, it is much better to be open to the whole environment: political, social, cultural, demographic, ecological, technological, organizational, and economic. It is also better to be prepared for a range of possibilities with varying levels of probability, rather than listening to the experts and hoping for the best. This entails an ability to gather intelligence and to assess the changes that are happening. More critical, though, is the ability to think for oneself.

Executives and managers must be capable of leading through the ensuing changes while maintaining the strategic viability of their respective organizations. This, in turn, requires a practical understanding of the nature of probability. Not the type of probability that we learned in statistics class and that is related to games and dice. We’re talking about what Nassim Nicholas Taleb (in The Black Swan) calls “wild randomness.”

What we don’t know is often more important than what we do know. Even more critical, though, is the humility to realize this and to make it a virtue. Why is this? Simply because the ability to predict would imply a totally deterministic world. In this type of alternate universe, there would be no true innovation and losers couldn’t become winners (and vice versa). The true virtue therefore lies in seeing change for what it is: a vibrant source of opportunities.

To achieve this level of sophistication requires a clear understanding and – more important – respect for uncertainty and contingency. It also requires skills and knowledge in dealing with uncertainty and risks. Finally, it requires a methodology for identifying and prioritizing opportunities and protective measures while competitors are still wondering what is happening.

It is possible to develop these skills, both individually and organizationally. The payoffs can be huge, both in terms of protecting against the downside effects of disruptions of all kinds, but also in terms of generating profitable opportunities. This requires targeted investment in professional and organizational development, but also the wisdom to recognize that our actual knowledge of the world pales in comparison to what we don’t know.

© 2010 Richard Martin. Reproduction and quotes permitted with proper attribution.

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