'The best way to predict the future', said Alan Kay, a founding father of the PC, 'is to invent it'. The worst way to predict the future, though, is to deny it: and there's always a lot of denial around. For example, I was talking to one of Britain's mini-tycoons about an article in The Times, by the usually well-informed Simon Jenkins, that rejoiced in the bursting of the e-bubble and dismissed all of cyberspace, except possibly e-mail, as punctured hype. To my amazement, the entrepreneur agreed - and he had made his millions in software.
In fact, this erroneous denial is easily exploded. What about the booming and mushrooming exchange sites, where companies trade in everything from car parts to crude oil? Well, said the tycoon, he wasn't really thinking about B2B purchasing sites - business to business was OK, but he meant that nobody was selling proprietary products successfully to the customer. So what about Dell Computer and its $40 million of daily sales over the Web? Well, Dell was an exception, and the exchange sites, come to think of it, only represented a different way of doing what was already done.
That, too, was easily exploded. Exchange sites offer greatly improved functionality. What about the tea auctions, which leave sellers waiting six months for payment, compared to days if the deal is struck over the Web? As for direct e-sales, those of Cisco are vastly greater than Dell's - and so on. There are no exceptions to one truth: that, on any criterion, the Internet is still growing at spectacular speed. My mini-tycoon had actually experienced this continuing boom himself: 30% of his staff were now internet-related, against none a year before. So what explained his strange wish for denial?
BEEN THERE, SEEN IT, DONE THAT
The answer lies partly in a form of cynicism that comes easily to business managers - the attitude that they've been there before, seen it, done that. This is a form of living in the past, which sounds better than nostalgia, but also embodies a desire to have things stay as they were - and still are, or so these cynics hope. That hope, though, involves turning a blind eye to what is actually happening today. To stay with the Internet as an example, all of the large firms recently sampled in Sweden had intranets, while 61% had extranets. As for B2C, 33% of Sweden's Internet users shop online. Since the net users represent over half the population, that is a great deal of shopping. Now, there are two possible reactions to such facts. One is a form of denial. The Swedes are different, and it won't work here (wherever here is). The other view is the exact opposite - that what is happening in Sweden very probably will be repeated in other markets as they catch up with Swedish levels of penetration by PCs and the Net (which, of course, is no longer accessed only by personal computers).
It's clear which of the two courses is the safer. The analysis is simple and unarguable. If you bet against change and lose the wager, you may lose the whole business. If you bet on change, and the bet fails, the cost of failure will be contained - on the assumption, that is, that the investment was made with a reasonable degree of prudence. That means using analysis and judgment.
BEST WORLD, WORST WORLD
The management technique known as Best World, Worst World is a simple example. It's an elementary form of the 'scenario planning' that is used by sophisticated planners to accommodate the one certain fact about the future: that we don't know what it holds, and never will. You therefore draw up a set of internally consistent possible scenarios and draw up your plans so that, whatever happens, your company is prepared for the event. In Best World, Worst World, you ask only:
• What is the very best result that can be even unreasonably expected?
• What is the very worst at all possible result?
• Can the company live with the Best World scenario?
• Can the company live with Worst World?
'No' to either of the last two questions spells 'No Go', or 'back to the drawing board'. The many examples of Best World calamities include the British company EMI. Swamped by huge demand for its medical scanners (a brilliant innovation), it proved unable to meet required quality or production standards. Then, Boeing was nearly drowned by a flood of airline orders as the 1990s ended. Salesmen, eager to beat Airbus to the punch, had over-loaded the system. IBM, too, had to scramble madly when PC demand hugely exceeded the very modest expectations that accompanied the decision to compete with tiny Apple.
As for Worst World, look no further than two recent British cases. The publisher Dorling Kindersley was stuck with 10 million unsold copies of its Star Wars books, a catastrophe which cost the company £18 million and its independence. And the Millennium Dome, hooked on a Best World projection of 12 million customers, was financially crippled by a Worst World result of little more than half that hyper- optimistic total.
You don't need these horrendous examples to teach the virtues of this very basic form of analysis, which forces you to clarify your expectations. Note that this isn't a case of hindsight, or being wise after the event. The Dome management could - and should - have asked what consequences would flow from a halving of the Best World attendance: and they could - and should - have observed that the break-even point was perilously close to the Best World projection. Instead, the Dome's management probably didn't even think of its 12 million number as a Best World figure.
COMMONSENSE JUDGMENT
In other words, lack of intellient foresight isn't responsible for such failures - mere lack of commonsense judgment is to blame. The plot thickens, however, in cases like the Internet, where the evidence is scanty and ambiguous. Electronic banking is an example. Even in the US, only 1.4% of the population use e-banking. In Germany, the figure is half that. In France and the UK, the numbers are smaller still: 0.3% and 0.2%. Moreover, there are many stories - no doubt true - of the web customers who have already deserted their e-banks, disappointed by cumbersome sites and time-consuming transactions.
The Worst World scenario is that banking sites do not improve their ease of use and efficiency, and that e-banking peaks at a single figure percentage of the market. But this is no cause for relaxation, let alone rejoicing, inside the traditional banks. A rise to 9% e-banking would represent a sixfold increase in penetration in the US, 45-times in Britain.
Momentum on that scale will attract and sustain new e-banks whose low overheads should generate large profits in time. But what if a Best World scenario comes about, and e-banking takes, say, half the entire market? The better strategy for the established banks must be to plan for that possibility. It's clearly in their best interests, for the cost of e-banking is one-hundredth that of branch banking. In fact, acceptance of Best World would probably be a self-fulfilling prophecy. The more money the banks pour into websites, the higher e-banking penetration will mount.
Banks would thus be doing as Alan Kay advised: inventing the future. They are not doing so because of denial. The e-banking potential contradicts one of their basic assumptions: that conventional banking will continue to dominate the market. Every business has such basic tenets, which tend to be shared by all competitors. That accounts for the sameness of their strategies. Thus, all telecoms companies (telcos) react as if under orders to enlarge their networks by madly costly acquisitions, mergers and new licences. But the compulsion is purely internal. 'Biggest is best' is conventional wisdom, not established fact.
ESCAPING THE ASSUMPTIONS
The assumptions trap can be escaped. The key is to write down the trends and patterns that you take for granted and that are widely shared by competitors and commentators. Then write down your reasons for holding these beliefs (because that is what they are, faith not facts). In some cases you will find that there are no logical reasons for believing as you do. The assumptions are just that: assumed.
Where beliefs are supported by evidence, moreover, it is usually the same story in many different guises. The evidence is highly selective. People are looking for facts that justify their conviction that this is how things are now, or have always been, or both, and will be. All assumptions are open to challenge. So challenge them. The three key questions are:
• What could invalidate this assumption?
• What would be the consequences?
• How far are my assumptions governing my actions, and thus seeming to validate the assumptions, in a circle which could become vicious?
This is not a negative exercise. You are not trying to knock down the old, but to build a new and better business. Look at the banks again. They are weighed down by fixed assets, which cost a great deal to maintain and, still more, to staff. Their efforts to cut costs within this structure only result in less customer service and more customer complaints. Worse, rivals are muscling into the traditional territory - insurance companies, mortgage companies, on-line upstarts, etc. Going whole-heartedly on-line themselves would dramatically lower their cost bases, enable the rapid start-up of new services, establish a new dimension of customer relationships and revolutionise perceptions. By challenging the dominance of traditional banking themselves, the banks would ask new questions: above all, how to hasten the growth of internet banking.
If you follow a similar route through your own business new and valuable ideas will be generated. The key question, however, is whether you will have the courage of your new convictions. Suppose you had been working for booksellers Barnes and Noble. Your counter-factual challenge shows that, maybe, internet bookselling will dramatically overtake any store-based bookseller. You put an e-proposal to the board. Would the senior executives wielding command and control leap to release the necessary finance?
TOP-DOWN DECISIONS
Everybody knows the likely answer. The project will be turned down for several specious reasons. The customers will not accept it; it will cannibalise the traditional business; it will just lose money. The problem is just as obvious. In most companies, top-down decision-making is controlled by older people who have grown up in the traditional business and are deeply attached to its past achievements and to their part in creating that success. They also tend, because of their age and experience, to be more cautious. They are not reluctant to make huge investments, but only where these strengthen their own prestige and power - and preserve the status quo.
The key to the future lies in attacking that prestige and power. Starting your own start-ups outside the mainstream business can achieve precisely that. These small internal start-ups are the opposite of their large parents, direct and informal, with no rigid hierarchy, but with speedy, adventurous reactions, inclusive 'can-do' cultures, and rewards linked to results. Their qualities are plainly virtues: indeed, virtues that big companies ideally want. But the virtues are not consistent with the bossism that dominates even established 'new economy' groups (like the telcos).
MBB (Management by Budget) rules the bossist culture. MFF (Managing for the Future) demands different thinking and organisation. Making the future happen rests not on control or command, but on opportunity in two senses: opportunity for capable, very possibly younger managers who are free to seize business opportunities that break with the past. If that means breaking the old order entirely, break it.
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