Crystal balls and risk

Strategy+Business has an informative article 'Cleaning the Crystal Ball'. In it the authors suggest that

Competence in forecasting does not mean being able to predict the future with certainty. It means accepting the role that uncertainty plays in the world, engaging in a continuous improvement process of building your firm's forecasting capability, and paving the way for corporate success. A good forecast leads, through either direct recommendations or informal conversation, to robust actions.

I waver on my views on forecasting. On the one hand it seems to be a waste of time, and on the other madness if it isn't done. But taking the tack that crystal ball gazing is a risk mitigation strategy makes good sense.

Although predicting the future is difficult to do – who can be sure what 'the next big thing' will be, or how the business environment will change, or which new opportunities or challenges may arise – developing the characteristic of predicting or preparing for the future brings a necessary (for survival) adaptation benefit.

Predictive skill comes in a variety of forms, through research and development labs, through scenario planning (developed by Shell in the 1970s), through employing 'futurologists' to predict technology trends – as BT, a UK telecoms company does, through systematic assessment of changes in demographics, societies, economies, medicine, and so on. Perhaps remarkably given its importance, crystal ball gazing or horizon scanning is a characteristic many companies do not have.

Here's an example of one company where the jury is out on its predictive and risk management abilities. Nestle is one company highlighted in the film Flow: for the love of water,: a documentary investigation into world water and the tussle between politicians, environmentalists, human rights groups, and corporate interests over the control of the supply of fresh water.

Recognising that the significant combined power of its many detractors in the tap v bottle water debate, poses a critical threat to the entire bottled water business that Nestle operates in the company not only issued, in 2008, its own video and a statement in response to Flow, but has also become more vocal about its environmental record and the benefits of bottled water in general. Kim Jeffery, North America President and CEO, Nestle Waters stated (in Around the Water Cooler. Beverage Industry. December 15, 2008) that the company also "plans to engage with the NGOs … and actually sit down and speak with as many of them as possible. 'You know, some of these people simply aren't going to agree with you, but you can hear what they have to say and give them something to think about,' Jeffery says. 'I believe we've got a great story, and I believe this is a really good company and a company that cares about these issues. So we're just going to tell our story to people.'"

The growing opposition to bottled water from many quarters is mounting evidence that the company is at risk – in August 2009 the Washington Post reported:

"Sales of bottled water have fallen for the first time in at least five years, assailed by wrathful environmentalists and budget-conscious consumers, who have discovered that tap water is practically free. Even Nestle, the country's largest seller of bottled water, is beginning to feel a bit parched. On Wednesday, it reported that profits for the first half of the year dropped 2.7 percent, its first decline in six years."

Jeffrey; however, is optimistic "I believe the future is very good for our industry, and we're going to continue to invest in it," he says. "We recognize the next year or two are going to be tough, but I've had many tough years here over the 30 that I've been here. We're going to keep our heads down and keep moving forward. We've got a great portfolio of products, a great corporate culture, a low-cost manufacturing model that's very, very competitive, and I think we're going to do well."

It remains to be seen whether what the company is seeing in the crystal ball will come to pass or whether the company is refusing to look into the crystal ball and see the risks in what many others appear to be seeing. The asset value of predicting without the 'hubris born of success' is one worth harboring.