Thursday, June 01, 2023

Objects in the mirror are closer than they appear

 I'm constantly struck by how much faith businesses put in numbers, especially numbers about the past.  All businesses want to be "data driven" and the volume of reporting that occurs at the end of a week, month, quarter or year is astounding.  Of course, we want to know if we made our numbers, or how key metrics compare to metrics from other months or quarters.  But the focus on numbers about the past, even the recent past, pales in consideration to the focus on what's going to happen next.  And there are several reasons for the emphasis on looking back at numbers rather than looking forward to possibilities and probabilities.

There are several problems with a focus on numbers and compilation and analysis, when looking at a quarter or month just completed.  First, most companies don't have great data quality or data flow, so a lot of the metrics they are looking at require a lot of massaging and human manipulation, which eats up an enormous amount of time.  Second, the data is all hindsight - did we make the quarter just past?  How does that compare to the previous quarter?  Of course, these questions are important, but just as important is:  what's going to happen next? 

Far too little data and analysis goes into what's going to happen next.  Yes, there are attempts to build pipelines and forecasts, but those are often wrong by orders of magnitude.  We aren't up to using data to be prescriptive about the future and have too many people focused on what just happened - reporting, rather than figuring out what's going to happen - predicting.

This focus on historical data isn't a problem in settings where there are few uncertainties and little change.  The emphasis becomes a larger problem when data is uncertain, people are at a premium, and understanding what's going to happen next is more difficult.  Welcome to your VUCA world, where things are changing faster than ever, and often in unexpected ways.  Now we need data and people to help us understand what is going to happen and how to prepare for and anticipate what's going to happen, because factors are changing in unpredictable ways and the rate and pace of change is accelerating.  

Worse, we've trained a cadre of managers who are good at reviewing and analyzing data about the past, but don't have the tools or skills to look forward with any degree of certainty.  When I do trend spotting and scenario planning with my clients, it's interesting to hear people talk about the future and what will occur and the ideas they create as if the possibilities are unlikely and far in the future, when many of the ideas and situations they create are actually happening in real time.  As William Gibson has said, the future is already here, it's just not widely distributed.

Doing well in business in the coming years will be more about using data, both quantitative and qualitative, to understand and predict what is likely to happen in the short run, and to develop scenarios and pathways for the longer term, again based on emergent data and observable trends.  This is not yet an area where AI or ML will be as helpful, because the data and patterns are not yet as established.  Analyzing and predicting based on past behavior in somewhat stable environments is a trainable activity.  Anticipating events and scenarios where there is no history or data, with uncertain inputs and conditions requires a significant amount of adjacent thinking and exploration of possibilities.

The old warning on rear view mirrors was that objects in the mirror were closer than the image in the mirror might suggest.  I think we need a new warming, on the forward windshield of your business:  Objects in the future are closer, and moving faster, and more erratically, than you expect.  Is your business prepared?  Is it capable of being proactive, understanding what might happen and being nimble enough to address rapid changes in stride?  Does the word "surprise" show up often in your 10Ks and 10Qs?  If so, it may be time to change your emphasis from reporting to predicting.

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posted by Jeffrey Phillips at 8:38 AM 0 comments