The No. 1 Lesson From Hurricane Matthew And Brexit: Scenario Planning Is Crucial

As I write this in 2016, Hurricane Matthew is crashing into Daytona Beach. It is a monster storm, and far from over. But there already is a great lesson we can learn.

Shockingly, after passing nearly half of Florida, including densely populated areas like Miami, Fort Lauderdale and Palm Beach, only one person has died. Even as northeastern Florida awaits Matthew’s fury, damage assessments are underway in south Florida. Even though 600,000 homes are without power, utility companies are already restoring power to over 50,000 homes, and that number is growing. The Florida highway system is open, with all roads passable and people are able to reach safety, while realistically expecting they may soon be able to return to their homes. By all accounts, damage is considerable. Yet, few lives were lost and repair is already underway – long before the storm is ending.

Photo by Drew Angerer/Getty Images

The lesson here is that scenario planning is incredibly valuable. Florida’s leaders have been preparing for this storm for years. The many agencies, federal, state, county and municipal, built their scenarios, and prepared action plans. They talked about “what if” various things happened, and thought through the impacts – and actions they would take.

 The result is a remarkable demonstration of capability and leadership. Even as the storm progresses, continuing to put more people in harm’s way, the leaders are simultaneously helping those folks prepare and beginning the recovery for those dealing with Matthew’s aftermath.

Then, there’s Brexit. The British currency has fallen to 30-plus year lows. This morning a “flash crash” happened with the currency falling 10% in minutes. Even though the pound recovered much of that loss, the crash left traders and those who do international business shaken. This was just the latest reaction to the British vote to exit the EU.

JUSTIN TALLIS/AFP/Getty Images

This week people in all parts of the international business community were trying to figure out how to react to Prime Minister May’s speech saying Britain would seek a “hard exit.” This seems to imply a faster, more drastic break from Europe. But as David Buik, market commentator at Panmure Gordon & Co. said, “The media decided very quickly what interpretation to put on the term ‘hard Brexit,’ when most of us are none the wiser as to what Brexit means yet.”

The key word here is “reacting.” It is clear that almost nobody had any plans for undertaking Britain’s departure from the EU, even as the effort to create a vote, and implement a vote, occurred. While there was a lot of talk, nobody in government or business had a plan for what to do if the vote to leave actually passed. Now everyone is reacting, and the consequences are significant fear, uncertainty and doubt (FUD), and wild swings in everything from currency values to equity values and even real estate.

Scenario Planning

Proper scenario planning separates leaders from wanna-bes, and winners from losers. Those who consider what might happen, and prepare for events, inevitably do far, far better than those who react.  Lacking a preparedness plan, based on careful consideration of “what-ifs,” it is impossible to implement good decision-making, because you have no idea what markers, or metrics, to watch – and no idea of what actions to take as those metrics vary.

I observed a scenario-planning meeting where the head of planning was asking questions – “what-if…regulations go in this direction…technology accomplishes this level of performance…customer adoption of a substitute increase.” After a series of these propositions were discussed, the CEO said “This seems to be a waste of time. We don’t know what will happen. What if pigs could fly?” Given a lack of facts about the future, he proposed building a future plan based upon the market as it existed at the time, and reacting to changes only after they occurred.

The planning lead responded, “Whether or not pigs will fly has very little to do with the future performance of our company. And that is why we aren’t discussing flying pigs. These variables in the scenarios could have a major impact on future performance, and if we prepare for them we most likely will improve competitiveness, sales and profits.”

Scenario planning is not a wild exercise of imaginary happenings. Scenario planning uses known trends to identify key variables which can be measured. By looking forward on the trend, it is possible to predict possible outcomes – and prepare.

For example, famously, the leadership of Apple in 2000 looked at the trend toward high-speed internet implementation, including WiFi. They started tracking high-speed implementation, and realized that as bandwidth expanded and improved the desire to work on-line would grow as well. They began preparing products for much greater on-line use (iMac) and products based on widely available, low cost internet access. The result was a shift from near bankruptcy to the most valuable traded equity in America in just one decade.

Planning systems are biased toward using historical data, and do not consider big changes. Leadership must constantly fight the urge to assume the future will look like the past, and invest time building scenario plans. Building the skill to predict the future, using trends to build scenarios and plans, is a hallmark of the most successful companies.

Florida’s leaders could have assumed another big hurricane would not hit their state, and simply waited to react when it happened. By thinking through possible outcomes, they have shown an amazing level of preparedness. In contrast, Britain’s leaders did not think through the impact of a British exit, pushed for a vote prematurely, and now are lurching from point to point, reacting to events, unprepared for any outcome – and trying to create and implement a plan “on the fly.”

How prepared is your company? How often do you discuss future scenarios, and actually plan for them? Or do you plan based on history, hoping the future will look like the past? Are you going to use scenarios to be effective in future markets?

Or are you going to wait for events to unfold, react and hope you don’t drown?

Resolve to Focus on Goals Rather Than Results in 2015

Resolve to Focus on Goals Rather Than Results in 2015

Results, results, results.  We frequently hear that we should focus on results.

More often than not, focusing on results is a waste of time.  Because it is looking in the rear view mirror, rather than the windshield.

Someone asked me today what I thought of Janet Yellen as head of the Federal Reserve.  I found this hard to answer.  Even though Chairperson Yellen has been in the job since February, her job as lead policy setter has almost no short term ramifications.  It takes quarters – not months – to see the results of those policy decisions.  Even after a year in office, it is very difficult to render an opinion on her performance as Fed leader.  The fantastic 5% growth in the U.S. economy last quarter has much more to do with what happened before she took office – in fact years of policy setting before she took office – than what has happened since she became the top Fed governor.

We often forget what the word “results” means.  It is the outcome of previous decisions.  Results tell us something about decisions that happened in the past. Sometimes, far into the past.  We all can remember companies where looking backward all looked well, right up until the company fell off a cliff.  Circuit City. Brachs Candy. Sun Microsystems.

Further, “results” are impacted dramatically by things outside the control of management, such as:

  • Changes in interest rates (or no changes when they remain low)
  • Changes in oil prices (which have been dramatically lower the last 6 months)
  • Changes in investor expectations and the overall stock market (which has been on a record-setting bull run)
  • Inflation expectations (which remain at historical lows)
  • Expectations about labor rates (which remain low, despite trends toward higher minimum wages)
  • Technology advances (including rapid mobile growth in apps, beacons, payments, etc.)

We too often forget that last quarter’s (or even last year’s) results are due to decisions made months before.  Gloating, or apologizing, about those results has little meaning.  Results, no matter how recent, are meaningless when looking forward.  Decisions made long ago caused those results. “Results” are actually unimportant when investing for the future.

What really matters are the decisions being made today which can cause future results to be wildly different – better or worse. What we need to focus upon are these current decisions and their ability to create future results:

  • What are the goals being set for next year – or better yet for 2020?
  • What are the trends upon which goals are being set? How are future goals aligned to major trends?
  • What are the future expected scenarios, and how are goals being set to align with those scenarios?
  • Who will be the likely future competitors, and how are goals being set make sure we the organization is prepared to  compete with the right companies?

Far too often management will say “we just had great results.  We plan to continue executing on our plans, and investors should expect similar future results.”  But that makes no sense.  The world is a fast changing place.  Past results are absolutely not any indicator of future performance.

Windshield v Rear View Mirror

For 2015, and beyond, investors (and employees, suppliers and communities sponsoring companies) should resolve to hold management far more accountable for its future goals, and the process used to set those goals. Amazon.com maintains a valuation far higher than its historical indicates it should primarily because it is excellent at communicating key trends it watches, future scenarios it expects and how the company plans to compete as it creates those future scenarios.

In the 1981 Burt Reynolds’ movie “Cannonball Run” a character begins a trans-country auto race by ripping the rear view mirror from his car and throwing it out the window.  “What’s behind me is not important” he proudly states.  This should be the 2015 resolution of investors, and all leaders.  Past results are not important. What matters are plans for the future, and future goals.  Only by focusing on those can we succeed in creating growth and better results in the future.

 

 

 

Tesla is Smarter Than Other Auto Companies

Tesla is Smarter Than Other Auto Companies

Car dealers are idiots” said my friend as she sat down for a cocktail.

It was evening, and this Vice President of a large health care equipment company was meeting me to brainstorm some business ideas. I asked her how her day went, when she gave the response above. She then proceeded to tell me she wanted to trade in her Lexus for a new, small SUV. She had gone to the BMW dealer, and after being studiously ignored for 30 minutes she asked “do the salespeople at this dealership talk to customers?” Whereupon the salespeople fell all over themselves making really stupid excuses like “we thought you were waiting for your husband,” and “we felt you would be more comfortable when your husband arrived.”

My friend is not married. And she certainly doesn’t need a man’s help to buy a car.

She spent the next hour using her iPhone to think up every imaginable bad thing she could say about this dealer over Twitter and Facebook using various interesting hashtags and @ references.

Truthfully, almost nobody likes going to an auto dealership. Everyone can share stories about how they were talked down to by a salesperson in the showroom, treated like they were ignorant, bullied by salespeople and a slow selling process, overcharged compared to competitors for service, forced into unwanted service purchases under threat of losing warranty coverage – and a slew of other objectionable interactions. Most Americans think the act of negotiating the purchase of a new car is loathsome – and far worse than the proverbial trip to a dentist.  It’s no wonder auto salespeople regularly top the list of least trusted occupations!

When internet commerce emerged in the 1990s, buying an auto on-line was the #1 most desired retail transaction in emerging customer surveys. And today the vast majority of Americans, especially Millennials, use the web and social media to research their purchase before ever stepping foot in the dreaded dealership.

Tesla heard, and built on this trend.  Rather than trying to find dealers for its cars, Tesla decided it would sell them directly from the manufacturer. Which created an uproar amongst dealers who have long had a cushy “almost no way to lose money” business, due to a raft of legal protections created to support them after the great DuPont-General Motors anti-trust case.

When New Jersey regulators decided in March they would ban Tesla’s factory-direct dealerships, the company’s CEO, Elon Musk, went after Governor Christie for supporting a system that favors the few (dealers) over the customer.  He has threatened to use the federal courts to overturn the state laws in favor of consumer advocacy.

It would be easy to ignore Tesla’s position, except it is not alone in recognizing the trend.  TrueCar is an on-line auto shopping website which received $30M from Microsoft co-founder Paul Allen’s venture fund.  After many state legal challenges TrueCar now claims to have figured out how to let people buy on-line with dealer delivery, and last week filed papers to go public.  While this doesn’t eliminate dealers, it does largely take them out of the car-buying equation.  Call it a work-around for now that appeases customers and lawyers, even if it doesn’t actually meet consumer desires for a direct relationship with the manufacturer.

Apple’s direct-to-consumer retail stores were key to saving the company

Distribution is always a tricky question for any consumer good. Apple wanted to make sure its products were positioned correctly, and priced correctly. As Apple re-emerged from near bankruptcy with new music products in the early 2000’s Apple feared electronic retailers would discount the product, be unable to feature Apple’s advantages, and hurt the brand which was in the process of rebuilding.  So it opened its own stores, staffed by “geniuses” to help customers understand the brand positioning and the products’ advantages. Those stores are largely considered to have been a turning point in helping consumers move from a world of Microsoft-based laptops, Sony music products and Blackberry mobile devices to new iDevices and resurging Macintosh popularity – and sales levels.

Attacking regulations sounds – and is – a daunting task. But, when regulations support a minority of people outside the public good there is reason to expect change.  American’s wanted a more pristine society, so in 1920 the 18th Amendment was passed prohibiting alcohol. However, after a decade in which rampant crime developed to support illegal alcohol production Americans passed the 21st Amendment in 1933 to repeal prohibition. What seemed like a good idea at first turned out to have more negatives than positives.

Auto dealer regulations hurt competition, and consumers

Today Americans do not need a protected group of dealers to save them from big, bad auto companies. To the contrary, forced distribution via protected dealers inhibits competition because it keeps new competitors from entering the U.S. market. Small production manufacturers, and large ones in countries like India, are effectively blocked from reaching American customers because they lack a dealer base and existing dealers are uninterested in taking the risks inherent in taking these new products to market. Likewise, starting up an auto company is fraught with distribution risks in the USA, leaving Tesla the only company to achieve any success since the dealer protection laws were passed decades ago.

And that’s why Tesla has a very good chance of succeeding. The trends all support Americans wanting to buy directly from manufacturers. At the very least this would force dealers to justify their existence, and profits, if they want to stay in business. But, better yet, it would create greater competition – as happened in the case of Apple’s re-emergence and impact on personal technology for entertainment and productivity.

Litigating to fight a trend might work for a while. Usually those in such a position are large political contributors, and use both the political process as well as legal precedent to protect their unjustified profits. NADA (National Automobile Dealers Association) is a substantial organization with very large PAC money to use across Washington. The Association can coordinate election contributions at national and state levels, as well as funding for judge elections and contributions for legal defense.

But, trends inevitably win out. Today Millennials are true on-line shoppers.  They have no patience for traditional auto dealer shenanigans. After watching their parents, and grandparents, struggle for fairness with dealers they are eager for a change. As are almost all the auto buyers out there. And they are supported by consumer advocates long used to edgy tactics of auto dealers well known for skirting ethics and morality when dealing with customers. Those seeking change just need someone positioned to lead the legal effort.

Tesla wins because it uses trends to be a game changer

Tesla has shown it is well attuned to trends and what customers want. When other auto companies eschewed Tesla’s first entry as a 2-passenger sports car using laptop batteries, Tesla proceeded to sell out the product at a price much higher competitive gas-powered cars. When other auto companies thought a $70,000 electric sedan would never appeal to American buyers, Tesla again showed it understood the market best and sold out production. When industry pundits, and traditional auto company execs, said it was impossible to build a charging grid to support users driving up the coast, or cross-country, Tesla built the grid and demonstrated its functionality.

Now Tesla is the right company, in the right place, to change not only the autos Americans drive, but how Americans buy them. It’s rarely smart to refuse a trend, and almost always smart to support it. Tesla looks to be positioning itself as much smarter than older, larger auto companies once again.

Don’t leave ObamaCare to the Attorneys!

No businessperson thinks the way to solve a business problem is via the courts.  And no issue is larger for American business than health care.  Despite all the hoopla over the Supreme Court reviews this week, this is a lousy way for America to address an extremely critical area.

The growth of America's economy, and its global competitiveness, has a lot riding on health care costs. Looking at the table, below, it is clear that the U.S. is doing a lousy job at managing what is the fastest growing cost in business (data summarized from 24/7 Wall Street.)

Healthcare costs 2011
While America is spending about $8,000 per person, the next 9 countries (in per person cost) all are grouped in roughly the $4,000-$5,000 cost — so America is 67-100% more costly than competitors.  This affects everything America sells – from tractors to software services – forcing higher prices, or lower margins.  And lower margins means less resources for investing in growth!

American health care is limiting the countries overall economic growth capability by consuming dramatically more resources than our competitors.  Where American spends 17.4% of GDP (gross domestic product) on health care, our competitors are generally spending only 11-12% of their resources.  This means America is "taxing" itself an extra 50% for the same services as our competitive countries.  And without demonstrably superior results.  That is money which Americans would gain more benefit if spent on infrastructure, R&D, new product development or even global selling!

Americans seem to be fixated on the past.  How they used to obtain health care services 50 years ago, and the role of insurance 50 years ago.  Looking forward, health care is nothing like it was in 1960.  The days of "Dr. Welby, MD" serving a patient's needs are long gone.  Now it takes teams of physicians, technicians, nurses, diagnosticians, laboratory analysts and buildings full of equipment to care for patients.  And that means America needs a medical delivery system that allows the best use of these resources efficiently and effectively if its citizens are going to be healthier, and move into the life expectancies of competitive countries.

Unfortunately, America seems unwilling to look at its competitors to learn from what they do in order to be more effective.  It would seem obvious that policy makers and those delivering health care could all look at the processes in these other 9 countries and ask "what are they doing, how do they do it, and across all 9 what can we see are the best practices?" 

By studying the competition we could easily learn not only what is being done better, but how we could improve on those practices to be a world leader (which, clearly, we now are not.)  Yet, for the most part those involved in the debate seem adamant to ignore the competition – as if they don't matter.  Even though the cost of such blindness is enormous.

Instead, way too much time is spent asking customers what they want.  But customers have no idea what health care costs.  Either they have insurance, and don't care what specific delivery costs, or they faint dead away when they see the bill for almost any procedure.  People just know that health care can be really good, and they want it.  To them, the cost is somebody else's problem. That offers no insight for creating an effective yet simultaneously efficient system.

America needs to quit thinking it can gradually evolve toward something better.  As Clayton Christensen points out in his book "The Innovator's Prescription: A Disruptive Solution for Health Care" America could implement health care very differently.  And, as each year passes America's competitiveness falls further behind – pushing the country closer and closer to no choice but being disruptive in health care implementation.  That, or losing its vaunted position as market leader!

Is the "individual mandate" legal?  That seems to be arguable.  But, it is disruptive.  It seems the debate centers more on whether Americans are willing to be disruptive, to do something different, than whether they want to solve the problem.  Across a range of possibilities, anything that disrupts the ways of the past seems to be argued to death.  That isn't going to solve this big, and growing, problem.  Americans must become willing to accept some radical change.

The simple approach would be to look at programs in Oregon, Massachusetts and all the states to see what has worked, and what hasn't worked as well.  Instead of judging them in advance, they could be studied to learn.  Then America could take on a series of experiments.  In isolated locations.  Early adopter types could "opt in" on new alternative approaches to payment, and delivery, and see if it makes them happy.  And more stories could be promulgated about how alternatives have worked, and why, helping everyone in the country remove their fear of change by seeing the benefits achieved by early leaders.

Health care delivery, and its cost, in America is a big deal.  Just like the oil price shocks in the 1970s roiled cost structures and threatened the economy, unmanagable health care delivery and cost threatens the country's economic future.  American's surely don't expect a handful of lawyers in black robes to solve the problem.

America needs to learn from its competition, be willing to disrupt past processes and try new approaches that forge a solution which not only delivers better than anyone else (a place where America does seem to still lead) but costs less.  If America could be the first on the moon, first to create the PC and first to connect everyone on smartphones this is a problem which can be solved – but not by attorneys or courts!

Planning for the future – 2010 – Facebook, Linked-in, MySpace, Pepsi

As we enter 2010, is your business expecting a very different future – and have you started planning to implement new approaches based upon a different future?  For example, how do you plan to acquire new customers, employees and vendors in 2010 and beyond?  Do you still rely on traditional advertising?  Do you use a web site?  Is most of your on-line IT budget still dedicated to web site development?  How much of your plans for 2010 are extensions of what you've been doing on 2009 – or maybe an ongoing trend from much earlier in the decade?

According to the Wall Street Journal in "Linked In Wants Users to Connect More," the number of Linked in users almost doubled in 2009, from 31.5M to 53.6M.  And to drive additional user traffic the site is working hard to add applications which can help companies with recruiting, marketing and other business functions.  With users jumping, and time on site increasing, is your company blocking access?  Or is it figuring out how to leverage this leading web site to find new customers, recruit aggressive new employees and build a stronger business? 

But Linked-in is considerably less successful than Facebook.  Do you still think of Facebook as a site for college kids to plan drinking parties?  If so, you've missed a tsunami in the making.  Facebook's user base, at 350 million, is over 6 times Linked-in.  According to ReadWriteWeb.com "It was a Facebook Christmas; Site Hits #1 in U.S. for First Time."  On 2 days Facebook actually had more site hits than search giant Google!  And Facebook was the #1 Google search in 2009.  Facebook use is exploding.  The average Facebook user spends over 3.5 hours in a sessionMany Facebook users log in daily to keep up with their network and what's happening in markets of interest to them.

Increasingly, people don't do web searches to find out about restaurants, movies, products, services – or even jobs.  They go to social media sites like Linked-In, Facebook and Twitter.  If you depend on people to use your web site to learn about your business – that may be too late.  When referred by a friend, what is the first impression a potential customer (or recruit) gets when reaching out to your LInked-in, MySpace or Facebook page?  What applications or groups do you support to demonstrate your business and your ability to grow?  How are you reaching out through these environments to meet the people who should be a customer, employee or vendor? 

Increasingly, people don't even make their first touch with your business via your web site.  iPhone users, and the soon-to-explode Android phone users, as well as all the other "smartphone" (or mobile device) users learn about your business from a very small screen that brings in small bits of information that is largely text.  They often go to a PC and search a traditional web site only every few days.  So how is your information presented?  Is it largely graphical, with embedded objects that don't show up well (or at all) on a mobile device?  Is it lengthy HTML pages that requires scrolling on a phone? 

Increasingly, people looking for you will blow off traditional web pages in favor of easier to access and read information.  You may hate the 140 character Twitter limit – but it's becoming a standard (the new "elevator pitch.") So is your on-line impression being driven by web developers, or by mobile device developers?  Is your on-line environment all about driving people to your web site – which may never happen – or are you effectively connecting with them via Facebook, et.al. and informing them without asking them to go to your environment?  Are you letting users control their access to your information, making it easy for them, or are you trying to control their behavior — and putting off many?

There are many reasons to think that in 2010 how people acquire business information will shift from traditional web sites to social media sites.  First impressions, and a lot of the decision making process, will come from Facebook, Linked-in and Twitter.  Is your business positioned for this shift?

Pepsi recently made a decision that appears forward-focused rather than following tradition.  Pepsi is abandoning Super Bowl ads in favor of spending more on-line.  MarketingDaily.com reports in "Compete:  Pepsi's On-line Push a Smart Play" that Pepsi is reaching more people at a lower cost by investing in on-line marketing.  Despite the historical role Super Bowl ads have played for big consumer products companies, Pepsi's decision is positioning the company to better connect with more users and drive more sales.  Coke's decision to remain with traditional advertising looks increasingly expensive – and out of step with how people really make purchase decisions today.

Smart companies are already making changes to reach the tidal wave of people relying on social media.  They are building a strong impression, and business applications, that help them grow using environments like Linked-in, MySpace and Facebook.  And they employ people to keep their Twitter communications clear and strong. 

So is your business taking actions – making implementations – that will support where the market is headed in 2010?  Are you putting yourself where the customers and recruiting targets are?  Or are you trying to do more of the same better, faster and cheaper?