Business Prognosticators Keep Getting It Wrong

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This explanation was originally chief executive officer.

As we head into the new year, CEOs want smart predictions to guide their business. However, while highly paid, forward-looking external expert consultants can provide fresh perspectives, one should be careful not to take their credible-looking projection graphs too seriously.

Forecasting has long been problematic. John Kenneth Galbraith was one of the most influential economists of the 20th century. But in 1975, over lunch, he said to me:

history of mistakes

Political pollsters have largely failed to hit their targets in the midterm elections, as they have for decades. The field of political polls is shrouded in seemingly sophisticated data analysis, but the guesses of pollsters have never proven better than your neighbor’s unsupported assumptions.

Bankers and economists flip-flop as to whether the country is facing a small recession, about to experience a tough one, headed for a soft landing, or sees no real difference. Cynical business pundits blamed protracted supply chain congestion a year ago due to port and rail jams and a shortage of truckers. But when these problems were resolved in a few months, they disappeared.

A top Wall Street energy analyst warned of a $400 barrel oil price at the outbreak of Russia’s attack on Ukraine, but 10 months later, prices have never approached 25% of those estimates. bottom. Similarly, energy industry experts are unaware that Russian gas is in the form of steam and would have had to travel through pipes that did not yet exist to reach Asia. It warned of Putin’s redirection of gas exports to China and India.Royal Dutch Shell, a pioneer in business scenario planning, has admitted that it has deliberately exaggerated its oil and gas reserves by more than 20%. rice field.

This poor performance forecast has a long history.Journalist turned futurist Alvin Toffler’s 1970 business bestseller future shock Big business proclaimed it would blend in with the adhocracy of nomadic workers who rapidly changed professions in the 90s. John Niisbett’s 1982 book megatrend, new york times It was a bestseller for two years, but completely missed the rise of China and other Asian economies.

Another 1982 business bestseller, Seeking excellence, made a celebrity out of authors Tom Peters and Robert Waterman. But a few years later, more than half of the companies hailed as future winners underperformed the market.His 2001 original version of Jim Collins bestseller is the best Introduced a full chapter of Enron’s greatness — collapsed the same year. Original edition of Bill Gates’ 1995 book, road ahead, I couldn’t predict e-commerce and the World Wide Web.

Result is? CEOs should be aware of these common forecaster mistakes:

  • Straight line projection: Many “experts” are constructed from widely published media reports that project the past into the future.
  • Talk about their book: Industry analysts are often too close to their clients, selling what they need to please their primary audience.
  • Biased data sources: Telephone surveys, non-random email polls, and over-reliance on pseudoscientific hypotheses produce flawed, self-interest-driven predictions.
  • Cynicism and drama sell like this. Fighting for attention in a crowded arena, futurists believe that the more negative and disruptive sounds, the better off they are and the smarter they look.
  • Lack of candor and remorse: Instead of acknowledging mistakes and learning from them, futurists often hide their tracks, seemingly believing that the solution to inability to accurately predict is to predict often.

As Galbraith warned, “There are two kinds of predictors: the unknown and the unknown.”

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