Predicting the Unpredictable

by Gerry Allan | Jul 27, 2021 | Forecasting, Managing | 0 comments

“The more unpredictable the world is the more we rely on predictions.”
— Steve Rivkin, Economist

“At odd and unpredictable times, we cling in fright to the past.”
— Isaac Asimov

“You can either take action, or you can hang back and hope for a miracle. Miracles are great, but they are so unpredictable.”
— Peter Drucker

“At its best, life is completely unpredictable.”
— Christopher Walken

“When the world is predictable you need smart people. When the world is unpredictable you need adaptable people.”
— Henry Mintzberg

“Human destiny is bound to remain a gamble, because at some unpredictable time and in some unforeseeable manner nature will strike back.”
— Rene Dubos, Microbiologist

“It’s tough to make predictions, especially about the future.”
― Yogi Berra

Unpredictable, you will be surprised to learn, means “not able to be known or declared in advance” (Merriam-Webster). Unpredictable means not-predictable. Who would’ve guessed.

For a few of us business folks who truly have to look ahead so as to plan and execute serious and often costly actions, predicting or forecasting is unavoidable. Just doing what you have always done – business as usual (BAU) – is based on an implied prediction that the world will continue pretty much like it always has, for a comfortably long period. You hope.

Planning and action require prediction, explicit or assumed. No prediction is an implicit prediction, as just noted. BAU contains a prediction.

The world, as many have observed, has recently changed – hugely and unpredictably. Enormous impacts on nearly every business and organization. Global impacts. COVID was not predictable in nature, magnitude, or timing. Its next happenings are similarly unpredictable. Almost everything out there is now mostly unpredictable except in the very short term.

How can you run a business or organization in such a world? Doesn’t this just make our plans and actions mostly a gamble?

Global uncertainty (unpredictability) is global, and it’s even measured

I ran across this gem while digging around to see if anyone else in the world was concerned about unpredictability (which is actually different from uncertainty, but this is a quibble for another time). Turns out that so many folks are worried that the St. Louis Federal Reserve (FRED) has developed an index to measure the level of this worry. Globally.

The chart below covers about 30 years of worrying. That’s a lot of worrying and it seems to be getting much worse recently. Another thing to worry about.

World uncertainty index — Global uncertainty is everywhere and growing.

Source: https://fred.stlouisfed.org/series/WUIGLOBALSMPAVG

“The World Uncertainty Index determines uncertainty using the frequency of the selfsame word in the quarterly Economist Intelligence Unit country reports.”

Our new challenge: predicting the unpredictable

Every plan and action set is based on a prediction. Most often, this is an implicit prediction that the world will continue to behave just a bit so we can find enough wiggle-room to survive – and maybe even prosper if we get really lucky.

Today, we can’t reliably predict the future happenings very far ahead so our plan is simply that the changes will be slow enough and small enough at each step so that we can keep pace. This is of course a prediction, or assumption if you prefer.

Maybe just playing it safe by not making any major, risky (whatever that means today), or long-term actions? Small steps. Hunker down, build reserves, pay down debts, shift to variable costs. Build resilience. But what if our unpredictable world stays unpredictable indefinitely?

At some point, playing things with great caution so as to minimize the need for prediction will come up against a situation or event that forces action. Think good-old black-swan COVID. Not acting here was not an option for nearly everyone. So we all acted as best we could. Day-by-day in many cases.

Our COVID-response actions were often simply gambles based on limited understanding, limited resources, and limited options. Do something – anything – and hope that it works. And of course, CYA in case it doesn’t.

Okay for a short-term bridge plan but you can’t run a successful business this way long-term.

A better approach: ask the world what it is up to

As a leader, executive, or manager, have you talked with your local world lately? This is not a trick question, unfortunately. The world will actually tell you quite a bit about what it is up to but only if you ask – the right questions, in the right manner, and with the right timing. Piece of cake, yes?

Well, it turns out that this is not at all difficult – but only if you do it right.

The right way to ask the world what it is up to involves simply taking a small low-risk step and looking carefully at what the world does in response. Based on the response you see, you take another small step that incorporates your new knowledge of what’s going on.

Some of these small steps will be mainly exploratory. Try something just to see what happens. Others will be part of a significant project or process that is longer-term and perhaps major. In both cases, the careful observation and analysis built in at each step is the key to learning-by-doing.

This does not require prediction or forecasting in the usual (now mostly obsolete) sense. You can nearly always see far enough ahead to plan and execute a series of small steps. Inertia in real world behavior pretty much guarantees this.

Again, each step is based on a prediction of some sort, hopefully explicit so it can be tested against what actually happens. Learning-by-doing. The learning part however will generally be new to your management processes.

Learning comes about by making a limited-prediction for the step-action outcome and then analyzing the actual outcome against your prediction. If the outcome is distant from what you predicted, then back to the drawing board on your limited-prediction process. This is where strong team players become absolutely vital.

Learning-by-doing requires creativity and sets of diverse expertise, both at the planning and execution stage, and then at the post-action analysis stage. You need your very best people involved here.

This process clearly requires an agile culture and agile practices unless you have only a very few areas to probe this way. Each agile team would tackle its own test-of-the-day and evolve the most effective, longer-term action approaches dynamically. Also, by this means, learning what their sharply-focused local world is currently up to.

Big project design implications

Many major projects involve long-term efforts and require serious upfront resource commitments. Especially if a lender is involved. This makes it very difficult to arrange a small-step implementation process.

The first step that I can see is to identify as many as possible of the primary project assumptions (or predictions). There should not be a large number of these in most cases. With these in hand, you can ask the next question: Is there any way to test regularly the validity of each of these outside of the ongoing project itself?

Pilots and research projects are traditional ways to test foundation assumptions and to learn more about the project context. These are usually done pre-project, however, not project-parallel as suggested above. These days, pre-project information may be largely invalid by the time a big project gets fully underway. You need to have current information generated as the project proceeds.

You may also want to think about building in some project exit points and mechanics and probably some points where significant course corrections might take place. These have to be built into the project from the outset in most cases.

What can go wrong is not the issue here

Our present unpredictable, fast-changing world makes the standard “what can go wrong” risk management exercise a bit difficult. We simply have no idea about what the world is up to next, and maybe not even much real understanding of what is going on at the moment. Again, think COVID days.

You don’t even know whether anything significant will occur, nor what its nature might be if it does occur, nor anything much about timing. All you can say is that in our current times, something major is pretty likely to occur. We’ll know much more after it happens, which may be too late to do anything productive.

The challenge is to be ready for a range of possible impacts from causes unknown in nature, magnitude, and timing.

We can usually get pretty explicit and accurate about where impacts are likely to occur and how they might affect our organization or business. Impacts, for example, are major sales declines, a new product fails, a new regulation greatly restricts our operating flexibility (think lockdowns). Even if we can’t identify causes, we can certainly identify points of impact on us, and usually we can quantify these impacts in terms of our operations and financials.

This means that our planning needs to include assessments of vulnerabilities and options for responding to them. Impact causes unknown and often irrelevant.

Agility. Adaptability. Resilience. AAR.

A recent post brought up these vital requirements for dealing successfully with impacts from unknown causes and timing:

“What is needed in an extended period of major change is an entirely different way of leading and managing. This has three primary components:

Agility – the ability to move quickly and change direction quickly. It involves very close attention to current conditions. It requires a very different kind of organization and culture.
Adaptability – the ability to function effectively in a wide variety of situations and events. It means an absence of rigidity and presence of operational flexibility.
Resilience – the ability to recover from almost any kind of adverse impact or situation. It goes beyond survival and extends to success post-recovery.

All three AAR components are essential for successful continuing.”

None of these require traditional forecasting or prediction. All require only the recognition that something big and damaging is likely to occur at some point in the future. This is how we get ready and strong enough to face whatever comes along, whenever it comes along.

And whatever is certain to come along. Unpredictably – in nature, magnitude, and timing.

Survival and success in the new normal of constant change

Stability and predictability seem to be long gone. And probably not returning in any recognizable form for an extended period. Effectively forever, even. Leading and managing in a world of constant change is very different from past processes and practices. Fundamentally different.

If we can’t predict with any real confidence, then planning for the longer term becomes difficult or simply a gamble. Planning is forced into a largely short-term mode, which makes it very hard to develop and innovate.

The first step, as just outlined, is to restructure the organization for effectiveness in times of great change. Agility. Adaptability. Resilience.

As these abilities are gained, the organization can begin to address operationally the unfolding world as it unfolds, and perhaps even gain advance knowledge about its direction and nature. This is a learning organization in essence.

How long will it take to get there? The answer lies in the abilities and strength of your leaders, executives, and managers. Some will be able to decide and move quickly – breaking out ahead of the herd in many cases. These will be the real winners, assuming that they don’t make any major mistakes enroute.

If you are not among the strongest in this respect, you can at least be a very effective follower of one or more of the most visible and successful leaders. This may actually be a low-risk way of moving ahead. Let the “pioneers” find out where the arrows are coming from and then step gently over their arrow-filled remains.

An example: products requiring heavy onsite selling and user training

Recent lockdowns, which seem likely to recur, along with severe travel restrictions and facility occupancy limits, hit businesses that make and sell complex products especially hard. Such products must often be demonstrated at customer sites and placed into trial uses. Considerable user training and post-sale handholding may be vital to ensuring customer satisfaction and follow-on sales.

COVID times made this a major challenge – not simply in bridging the immediate responses like customer personnel working mainly from home but more importantly staging for a very unpredictable and/or uncertain future:

Will COVID restrictions continue indefinitely so that we must redesign our selling, user training, support, and perhaps even the products as well?
Can customers adapt to a sales process that is much more remote and indirect?
How can we handle vital product demonstrations and user trials?
How will customers change their processes where our products may be affected?

Obviously, the actual list of questions – uncertainties – will be much longer in most instances.

Suppose that survival of our business depends heavily on getting the next steps right. Our predictions of what will work and how things are changing had better be pretty much on target. And, oh yes, someone just busted our crystal ball.

Broken crystal ball — Worse yet, our crystal ball is busted

Our past planning and project practices required typically a year or two of lead time. Lots of research, piloting, and the like. Today, and likely for the lengthy future, such practices simply won’t work. We must be able to move quickly and confidently.

Small steps to test assumptions and learn what works

It should be noted here that our customers will also be changing – probably greatly and unpredictably. Our actions will be executed in a dynamic, uncertain environment. A moving target, if you will.

This means pushing forward in a wide range of small steps that test responses to approaches that we think might work. Small agile teams seem vital here, each tasked with exploring a different primary aspect of our sales, training, support, and product design features. Actions will have built-in feedback and review mechanisms to assure that all significant new knowledge is identified and accommodated quickly into each process.

Steps will be designed as much as possible to be low-risk and reversible in case we start off in a wrong direction or make a bad decision somewhere along the way. Resource commitments at each step will be kept to the absolute minimums.

In our example above, we may decide to test the idea of providing self-contained, mobile sales and trial platforms so that customers can work onsite using minimal, or even no, face-to-face contact with our sales and support people. This is likely to require product extensions that have built-in training and use diagnostics.

Another practical example: things that can impact our sales

Looking at the shortlist below of things that are happening out there – mostly unpredictably, we can see that nearly everything listed might have a significant impact on our sales. Some impacts may be favorable while others, perhaps even the majority, are most likely to adversely impact sales. We will probably have an idea of which is which but enough to place a big bet of any kind? Very often – not. Here’s a starter list of things happening out there today:

Supply chain concentration (e.g., China, Taiwan)
Rapidly-growing sovereign debt and spending
High unemployment
Tightening bank credit
Continued/reinstated lockdowns
Online vs. in-store shopping
Remote work vs. offices
Switch to digital services, AI, automation
Government policy changes
Recession vs. growth
Inflation vs. deflation
Low vs. increasing interest rates
Food shortages?
Extreme weather episodes
Cybersecurity challenges
Post-COVID recovery
Four-day workweek
Low-contact interactions

There’s lots more.

Think about folks abandoning major cities at a great rate today and heading for nearby suburbs. Remote workers for the most part. If we are a retailer, we might shift our focus to suburban sites and close as many city locations as possible. But what happens if government policies change to favor cities instead of suburban locations? What if housing costs outside cities become prohibitive?

You get the idea. Almost anything that happens out there in whatever-land can affect your sales significantly. Many are unpredictable but together they suggest that one or more will occur at some unpredictable and probably inconvenient times.

Bottom line:

The “solution” here is to ignore (in most cases) possible causes and concentrate on your resilience and adaptability to major impacts from whatever cause. No predictions needed. Unpredictable events and situations are handled in the best way you can manage at the time. Creativity is vital for success.