Margaret Heffernan: Five year plans are now a fantasy

The era of forecasting is over. The era of experimentation and just-in-time thinking has begun.

by Margaret Heffernan
Last Updated: 16 Apr 2020

Last year was tumultuous for manufacturers of plastic straws. Now it’s the turn of managers of cruise companies, tour operators in China and the director of La Scala (to name but a few). Without warning, all these businesses have been upended. The unexpected has become normal. 

Over time, we became so good at forecasting that it made sense to imagine progress was infinitely sustainable. But it isn’t. Along the way, fundamental change occurred. We moved from a complicated world to a complex one. Complicated environments are linear, follow rules and are predictable. But globalisation, coupled with pervasive communications, has made much of life complex: non-linear and fluid, where very small effects may have disproportionate impacts.

The consequence of this shift is that experts in forecasting now believe accurate prediction is feasible only up to about 400 days into the future. For those with less expertise, the horizon is around 150 days. This turns five-year plans into fantasy. It’s a startling shift, breaking the three-legged stool – forecast, plan, execute – on which management depended. If you can’t see further than about a year (and that still contains uncertainty) how do you plan? Seeing so little of the future demands a different kind of management and a different kind of leader, both characterised more by scepticism than confidence.

Oliver Burrows, chief data officer at the Bank of England, knew his job would only get harder. More data and more regulation would increase demands on his staff, but resources wouldn’t increase accordingly. So he put a call out for experiments to increase productivity. That was an experiment in itself and Burrows was surprised by the appetite for innovation he had tapped. 

All kinds of ideas were volunteered. Opening up the senior leadership meeting to everyone made little difference; making the annual appraisal process more participatory had a big impact. Junior analysts suggested technical coding projects that, Burrows said, no one in management would have been brave enough to try. 

They were a triumph. But the big win was sourcing ideas from the bottom up. “In the past,” Burrows said, “people thought strategy was the preserve of management types – which meant not them.” His experiments had uncovered latent creativity and energy that Burrows couldn’t have found without exploring. 

In complex environments, experiments are what you do when you can’t see what to do. They’re a way of feeling out how the system works, without all the political freight of change programmes or pilots. Comfort with the concept of failure makes them easy to start and easy to stop. But many companies prefer to double-down on the familiar: amping up efficiency for all its worth. 

This has been horribly apparent in the bloodbath that is retail, where the only strategy appears to be cutting prices, cutting staff until most stores manifest the same scrawny mien  of austerity. In uncertain times, doing more of what used to work, just faster and cheaper, is a dangerous option.

When forecasting worked, efficiency did too. But complex environments require robustness: more skills, more learning, more capacity to adapt. This was beautifully illustrated in Jos de Blok’s experiment that transformed Dutch homecare nursing. He saw that the business was both complicated (signing up patients, issuing invoices, getting paid) and complex (looking after patients). Instead of forcing both into an expensive bureaucracy, why not separate them? 

The paperwork was predictable and routine; it could be streamlined with technology. But since every patient is different, you can’t predict what they’ll need. So why not just leave it to the nurses to decide? In the experiment, the patients got better in half the time and costs fell by 30 per cent. To his surprise, De Blok hadn’t predicted such a big improvement could be so easy. 

In a complex system, much may be generally knowable but specifically ambiguous. We know that climate change is real but can’t forecast floods or fires with accuracy. The Bank of England knows markets will crash (as they have in response to the coronavirus) but not when or why. Ineradicable uncertainty is now a fact of life, one for which we can’t plan – but we can prepare. 

At the Centre for Epidemic Preparedness they think of this as just-in-case and just-in-time thinking. The first focuses on the tools that provide resilience; in epidemics this is vaccines, in businesses it is deep capacity for experimentation and judgment. Just-in-time is all about efficiency: being able to move fast when uncertainty recedes. Neither alone is sufficient. 

Companies that are too robust will be wasteful; those that are too efficient will have no margin to adapt. Thinking about the future is a fundamentally creative act. It’s risky if it resides primarily in finance because it is too easy to mistake financial models for reality.

Being prepared requires multidisciplinary collaboration, being able to rewrite stories of a future that makes sense to everyone. We all want to know the future, so confident forecasts are seductive traps. Safety doesn’t lie in certainty but in the confidence to explore, experiment and prepare together.

Image credit: Howard Kingsnorth via Getty Images

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