After my blog on Tuesday, I was bashed by a number of folks as a pessimist – or worse. Some have said my willingness to discuss America’s financial crisis in a negative light based on the assessment it is likely to worsen, as well as the loss of America’s manufacturing base and jobs, is far too negative. I’ve also been accused of being Chicken Little and claiming the sky is falling – when we’re only in for a patch of rough weather. Some have quoted presidential candidate John McCain and said that our best days are surely ahead of us, and I should be less gloomy. So are my detractors right?
I don’t know what the future will bring. I have no crystal ball. I have no ability to time travel. I cannot foresee the future. And that was not my point. Rather, what I’m recommending is that we all use scenario planning to help us create a strong future for our lives, our work teams, our functional groups, our businesses, our industries and our economies. Whether our futures are bright or gray has everything to do with what actions we now take – and those must be based on our scenarios of the future. If our actions prepare us to be more competitive in the future, we can be far more successful than we were in the past. Yes, our best days will lie ahead for all of us who are preparing for the shifted marketplace – who are moving to implement based on future scenarios that are different from the past. What these news headlines are telling us is that markets have shifted, and the future will not be like the past.
The risk is that our planning is not effective. Too often planning is based on extending the past. "This is what it was always like, and I’m sure things will return to the old ways soon enough." When we build plans based on the past we start using confirmation bias to help us believe our extension planning is the most likely case. After all, up until a market shift the planning has been right – hasn’t it! Recently one fellow told me that while several of America’s largest and most powerful financial institutions were failing he wasn’t worried because a local bank he knew was doing quite well, according to its leaders. His bias that things will work out allowed him to take this piece of information and use it to discount all the information in the news that America’s financial system is in crisis. He’s not stupid or foolish – he just allows his Lock-in to the past to permit using data in a way that confirms what he wants to believe. We all do this, and often it’s no big deal. But, when market shifts happen, confirmation bias that allows us to keep faith in a future similar to the past can be deadly.
The folks running Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Freddie Mac, Fannie Mae and Washington Mutual were/are some of the smartest people in business globally. (Add up the incomes of the "C" level execs in these companies and you’d have enough money to operate several state governments). But their belief that "things would work out" allowed them to keep following a plan which did not meet market reality. Shifts were happening in the worlds of real estate, manufacturing, commodities and finance that were preparing to upset their proverbial applecarts in a major way. They weren’t stupid, but they also weren’t prepared. Their scenarios of the future did not account for these shifts, and as a result they have been struck down. For them, there best days definitely don’t lie ahead. For some of them, there is no future. Not for the companies, and not for their employees or customers. Not only are the shareholders being wiped out, but those customers that depended on these institutions for financing are now scrambling to figure out what to do next. A lot of people are finding life very tough this week because these organizations had plans based upon extending the past – rather than cold assessments of what might happen in the future.
There will be winners coming out of this financial crisis. Some will be in the USA. Some will be elsewhere. Those who will succeed will be those who compete based upon where the markets are headed – not where they have been. While some analysts are recommending people invest in Coke, Pepsi, General Mills and Kraft, the reality is that those recommendations are nothing more than looking for a life raft (any raft, no matter the quality) so you can escape the sinking ship (and ignores that the best life raft is simply cash or treasury bills). The winners will be those competitors that build on the underlying factors which created this crisis, implementing new solutions. Because there will be loans tomorrow, and there will be banks, and there will be a need for financing. But the market will be different. And those who are prepared for this difference, for this new market, will do much, much better than those who are not. A situation like we’re seeing now in American finance is only a problem if you aren’t prepared.
Those competitors that perform well year after year after year after year are the ones who don’t simply plan by extending the past. They build scenarios that take into account many factors – including factors which can doom their Success Formula. They don’t ignore the scenarios that put them at risk. In fact, they invite outsiders to their planning (advisors, consultants, investors, lost customers, etc.) who will point out confirmation bias. They invite the creation of scenarios that require a different Success Formula – so they can understand what they will have to do if they are to continue succeeding regardless of market shifts.
I’m not pessimistic about the future. I’m optimistic. Creative Destruction (see Joseph Schumpeter here) means that out of every failure you have the creation of a new opportunity. I can only be seen as pessimistic by those who want the future to be like the past. Only if you are wedded to past extension do you find this "crisis" something to ignore, avoid or hope simply isn’t going to really happen. If you are committed to a successful future then this is an opportunity. It is an opportunity for those who are willing to Disrupt their Lock-in and use White Space to develop new Success Formulas that take advantage of the market shift.
Smoothing out the ups and downs is all about effective scenario planning. If you are willing to use big trends to develop scenarios of the future you can prepare for almost any circumstance. And those who are prepared find market shifts the time to take advantage of competitor weaknesses and grow. Are you planning for the past to return, or are you developing scenarios of the future that could be very different from today? If you’re the former, it’s going to be a rocky ride. If you’re the latter, you could be the next Google. The DJIA can fall 1,000 points, and that is immaterial if your plans are based on the market requirements of the future. Those companies which are focused on the future scenarios are the ones to invest in.