In life as in strategic planning, we walk a fine line between making a balance of probability call about what is likely to happen and acting as though we can predict the future. This is a subject upon which I touched on in Calling Time on a Sunk Cost, where I observed:
The critical error that line managers and boards make in assessing their strategic options regarding sunk costs is in thinking that the need to cut a failing project is only obvious in hindsight. As a result, there tends to be resistance to the so-called 'nay sayers' and 'pessimists' who counselled likely failure from the outset …
Yet reframe the thinking of 'negative people' as pragmatism, and the optimism of the 'can do people' starts to look increasingly like one of the five psychological factors that drive the sunk cost fallacy — loss aversion, framing effect, unrealistic optimism, ego, and fear of waste. Once this pragmatic and sound reframing has occurred, the other side of the hill comes sharply into view because teams skip the Kool-Aid and instead drink a bracing dose of reality. Unromantic and for certain psychological types devoid of optimism, but when embraced it is an essential mindset for strategic thinking.
I revisit this because the role of leaders is to make a judgement about a future state, such as next fiscal's revenue, and then allocate resources in pursuit of a goal or outcome for the organisation. To put a framework around this process, they Observe, Orientate, Decide and Act. When done well, the result is a compelling vision of the organisation. But how can we judge if the vision is likely to manifest or just a scintillating sales pitch? The answer lies in whether the leader has positioned for success or predicted the future state with the expectation that the details will follow.
Positioning for Tomorrow
If you have been dragged along to a strategy day, chances are some enterprising individual pitched the inevitable "let's break into groups and discuss 'what is going to change in the next 10 years?'" While the goal of this thought experiment is a noble one, the challenge for leadership teams who try to bounce forward from these sessions and make strategic plans for their organisation is that the predictions are almost always wrong. Though, there are no shortage of prophets who through retroactive clairvoyance, technically termed postdiction, like to assert that their skill or experience showed them the future.
Because organisational prophets are frequently wrong, making plans based on their predictions are fraught with difficulties. Not least because to extract the expected benefits predicted a lot of things need to fall into place for the vision of the future to become a present reality. Namely, the variables which will make or break the future not only need to be correctly speculated, but they all need to go the way predicted. If they do not, the prophesied future will not manifest — instead it will be a variation for which the organisation may not be prepared.
An example of this is the endless predictions in the financial press of a market crash and / or a recession. I have been reading about these ever since August 2020 with pundits predicting when the 'Covid Bubble' was set to burst. True, markets and property prices have seen a dip since the highs of November 2020, and many people are struggling with the cost of living, but the great recession and market crash has not eventuated. This left people who held off buying or tried to cash in during the 2022 / 2023 dip, in anticipation of a lasting downturn, are presently trying to buy in to a steadily climbing market. Given a recession and market crash is likely to come at some point in the future, those in the prediction game will insist they were right — it was just a case of being right too soon. But to do this is to miss the underlying point, that instead of burning a vast amount of effort trying to answer what Donald Rumsfeld termed unknown unknowns and predict what tomorrow brings, it is better to prepare for a future based on known knowns and known unknowns.
This approach leaves those attending strategy days with a more interesting question to ask: 'what is not going to change in the next ten years?' The key reason for this reframing stems from the inseparability of risk and strategy which teaches us that if we adopt a strategy that inherently carries a lot of risk, but we have a low appetite for risk in the organisation, it means there is a fundamental misalignment. Something which can see an organisation with aggressive growth targets cutting resources in the very teams that are expected to lead growth initiatives. Yet match risk appetite with strategic objectives and heavy investment in a clearly positioned future, and it becomes a sound decision. As Jeff Bezos observed:
When you have something you know is true, even over the long term you can afford to put a lot of energy into it.
This approach has not only served Bezos well but speaks to the benefit of preferring the mundane over the sexy. That is, the mundane reality of what tomorrow will likely bring versus the sexy speculation of what tomorrow could bring. This is something that comes naturally to people who are analytical thinkers and strong on pattern recognition but is a foreign land for those who like to intuitively leap to their destination.
The benefit a pattern recognition approach brings is that it moves away from trying to predict tomorrow, essentially guessing the unknown unknowns, and instead emphasises the importance of building on history or the known knowns / known unknowns. This is why my first degree was in history because I knew it would enable me to think strategically as 'an' historian. This approach brings the combined benefit of being lower in risk, something which is generally greeted heartily by the board, and being a stronger strategic position as it is nearly impossible to predict one specific future, but we can confidently position for multiple probable futures. Practical examples of this are:
- I do not know when a recession will hit, but I do know that at some point there will be a severe downturn in the economy. Therefore, my best strategy is to position myself for the inevitable rather than living pay cheque to pay cheque and trying to guess when I will need some savings.
- I do not know what my next role will be, but I know I will not have my current job until the end of my career. Therefore, I can position myself for the inevitable by acquiring new skills and additional knowledge for when the next opportunity comes.
While Peter Drucker never said 'culture eats strategy for breakfast', he did observe that 'culture, no matter how defined, is singularly persistent'. In this sense, positioning, no matter how defined, is singularly persistent — prediction is highly irresolute. But that would not make for such a catchy article title, therefore: positioning eats prediction for breakfast.
Good night, and good luck.
