Why business planning gives you a false sense of security and what to do instead

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Complexity is the defining challenge for business and leadership of our time. But it never felt more urgent than now, with the coronavirus turning life and business upside down as we know it. Since March, we have been talking with leaders about what it takes to overcome the most complex and confusing issues, including the pandemic. Today we speak with Margaret Heffernan, author of Uncharted: How to navigate the future. Dr. Heffernan is Professor of Practice at the University of Bath, Senior Professor of the Responsible Leadership Program at the Forward Institute and, through Merryck & Co., mentor for CEOs and senior executives of leading global organizations. She holds an honorary doctorate from the University of Bath and continues to write for the Financial Times.

David Benjamin and David Komlos: Can you briefly describe what business leaders can learn from reading Unexplored and what would you say is the most important dish for them?

Marguerite Heffernan: Much of the world is uncertain, more than ever, and the old model of business planning – where you plan, then plan, then execute – is going to let you down and give you a very false sense of security. This doesn’t mean you remain helpless in the wind, but it does mean that the way you view the future of a business has to change.

Benjamin and Komlos: In the book, you talk about problems endemic to forecasting. Can you illustrate some of these issues in the context of the pandemic?

Heffernan: A problem with forecasts is that they are based on necessarily incomplete models. If a model could hold all the information you need, it would be as big as the world it’s supposed to model. What you put in a model and what you leave out has a disproportionate and basically invisible influence on what the model will tell you. What is left out always has an impact, but you don’t know what it is and the implication is that it doesn’t matter. During the pandemic, for example, we learned that there is a high rate of spread due to asymptomatic people, but that was not in the predictive models we used. Since we don’t know what we don’t know, role models give us a false sense of security and then let us down.

Another problem is that models and forecasts usually include a preconceived idea of ​​how the world works; a program based on beliefs about how people behave, how they make choices, and what patterns do and don’t matter. We impose these mental models on the way we approach any type of data, and they end up influencing the models we build. If, for example, we want to advance the belief that masks really work, we’ll likely heed that evidence more strongly than if we don’t want to believe it. Our forecasts are implicitly subjective, although we try to remove the deep underlying working assumptions they contain.

Benjamin and Komlos: Do these same issues apply to the predictions and forecasts that leaders use to guide their planning?

Heffernan: Most business plans start and live in the CFO’s office and are extrapolations from the present: “That’s where we are this year, that’s what our growth rate was, that was our costs, and depending on what’s happening in the world and with our competitors, we can make a little growth, maybe 3%…” They come up with a plan for the upcoming fiscal year, departments play out the plan so they can have easily achievable goals, there’s a lot of haggling, and eventually, there’s a deal. Everyone then signs up for goals, targets, and KPIs, attaches bonuses to them, and starts believing the numbers as if they were real. At the end of the year, the executive committee meets and reviews how the team managed to almost exactly meet the forecast, and everyone takes it seriously as if it were a triumph of planning and execution. execution, when in fact it’s just that we agreed on achievable numbers and then we hit them.

My problem with this whole process is that it forces people to focus excessively on forecasting rather than paying attention to what the market is telling them, which can mean that yes they hit their numbers, but they might have – could have done much better. Or they didn’t hit their numbers and they found a poor scapegoat, when in fact the numbers were always going to be impossible. I think that gives a lot of business leaders a somewhat magical sense of their own power to adapt the market to their reality.

Benjamin and Komlos: If not through predictions and forecasts, how can leaders work toward future goals in the face of uncertainty?

Heffernan: In a situation where you can’t predict what the future holds, where there are many influences and you can’t tell which ones you can affect, then the thing to do is to use experiments – in d ‘other words, try things out and see if it makes a difference.

For example, it has been found through experimentation that if you increase the area used to display fruits and vegetables in a supermarket, you increase sales throughout the store; and if you decrease it, you decrease sales throughout the store. Or, in the Dutch healthcare system, it was as a result of an experiment designed by a home nurse that it was discovered that when a team of 10 nurses cared for 40 patients, without further instruction that “do what is right for the patient”, patients improved in half the time, at a 30% lower cost to the system.

There is no conceivable way that the results of these experiments were discovered from a model or extrapolated from the present. And the people running them could never have proven them right without trying them. Experiments always lead to new ideas, even if it’s just that a belief you had was wrong. They help you better understand the system and environment you’re in, and they can quickly give people a lot of hope that changes can happen. In a very uncertain environment, such as the one we find ourselves in today, it is quite fundamental to have a better idea of ​​how the system works, what makes it better and what makes it worse.

Benjamin and Komlos: What else can leaders do to prepare for an uncertain future?

Heffernan: They can prepare by looking at things that could happen, who if they did to happen would have a huge impact. Richard Hatchett, CEO of the Coalition for Epidemic Preparedness Innovations (CEPI), includes both just-in-case and just-in-time thinking when talking about preparedness.

In case reflection involves identifying the most impactful and likely events and asking, “What do we do if these happen, and what could we do now to mitigate their impact?” Instead of trying to prepare for whatever might happen, you make informed choices about where to focus. In the context of epidemics, CEPI does this by examining diseases with epidemic potential, identifying those that are the most harmful, harmful and difficult to control, and funding the early development of vaccines against these diseases. One of the six diseases they chose to focus on in 2017 was that caused by betacoronavirus. CEPI became an early funder of Moderna’s vaccine platform. Thank God.

Just in time thinking means putting things in place in advance so that when you need them in a crisis, you can activate them. Pandemics create huge capital requirements, so it helps to have an understanding and agreements with manufacturing plants, for example, in place so they are ready when needed in a crisis. Hatchett also makes sure that CEPI’s natural tempo is to work fast all the time because in an outbreak everything goes so fast and you’re always late.

It’s a hard thing in a world hypnotized by efficiency to say you want to spend a boatload of money on something that might never happen. But the whole point of preparation is that the only protection you have is to think about potential high-impact events long before they happen.

Continued in part 2 here

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