The FINANCIAL — Predicting the future is dangerously easy. Getting it right is dangerously hard. In the late 1980’s a smart young man discovered a way to predict the future price of any stock. He began to send his weekly predictions to thousands people over e-mail, establishing his credibility as an brilliant analyst. After three or four predictions, he would start charging for his weekly stock tips, and people from all over the world were happy to pay for this valuable information. After all, several hundred dollars a week was a low price pay for accurate stock price predictions.
This smart young man was ultimately labeled a con man instead of a genius. His approach was simple. The young con artist took a list of 80,000 email addresses and split this list in half. He then picked a stock with high price volatility and told the first 40,000 people the stock would go up in value. At the same time, he told the second group of 40,000 that the stock price would drop. The second week, he split the list of people who received the correct prediction again in half. He picked another volatile stock and again sent opposite predictions to each new list of 20,000 people. By the end of four weeks our con artist had a group of 5,000 people convinced he was a Wall Street Wizard, and he started charging hundreds of dollars a week for his advice.
As humans, we love to believe that people can predict the future. The fact that we can even conceive of the future as a concept sets us far ahead of any other animal on earth. However, it turns out that we are actually much worse at predicting the future than we realize. Our confidence in our ability to predict the future far outweighs our actual ability to do so.
In a previous career, I was part of the senior management team of an 8000 person consulting company. Every year, like managers in many well-run companies, we would lock ourselves away in some fancy retreat and develop our 1, 3 and 5 year plans for growth. Then, like clockwork, our company would grow very close to the predicted numbers. We all enjoyed the accolades and monetary bonuses for our great predictions and exceptional leadership. The one problem with our success is that we were rarely ever correct in the details of our actual predictions. Our revenue growth came from places that we never imagined during our planning sessions.
In reality, we were terrible at predicting how we were going to grow. Thankfully, we were pretty good at adjusting direction in the heat of battle, and we always managed to deliver the promised revenue and profit. Because we “hit our numbers” no one (including us) ever looked backward at our predictions to verify that they actually came true. We all just patted ourselves on the back and moved on to the next yearly planning meeting.
When I looked back at these meeting notes years later, I was surprised at how incorrect our predictions actually were. But even more disturbing than my personally incorrect predictions was my own personal revisionist memory. My review taught me that my mind adjusted its memory of what we predicted to better match what actually happened. My psyche had spared itself the psychological discomfort of admitting it was wrong.
After sharing this disturbing insight with several colleagues and a social psychologist, it turned out my revisionist approach to history was quite common for people in business. The danger is that this adjusted memory convinces us we are good at predicting the future, when are actually quite bad at it. The resulting decisions made based on confident, incorrect predictions of the future create chaos in companies and governments around the world.
Software engineering projects are a great example of the damage too much confidence in future predictions. A traditional software engineering approach is called the waterfall method. This approach has been used for decades and closely mirrors how most companies run. Experts lock themselves away from the world for weeks or months and design exactly how the software application should function. Then the development team will build the software program as envisioned by the designers.
The problems start when the program is released to the world. Even when the software works as designed more often than not the design does not meet the actual business need the program was envisioned to solve. Quite often this newly released software requires a tremendous amount of re-work, just to function. Occasionally, the designers missed the goal so much it is less expensive to just throw the program away, and rebuild the application from scratch. The Waterfall development approach fails because it requires the designers to accurately predict small details in the future which is almost impossible to do.
In the mid 90’s software engineers decided there must be a better way to organize development projects. They accepted the fact that designers were terrible at predicting what was actually needed and would never be able to give the developers an accurate detailed design. These brilliant pioneers set out to create a project framework that could successfully deliver software in the midst of ever changing design specification. In early 2000, this approach became known as the Agile Development Methodology. This new way of designing software was based on a management system that allowed the software development team to easily adapt to change. As the team’s knowledge grew, the design changed naturally and the final product was relevant to the actual need. This new approach to software project management worked very, very well.
These same Agile Development ideas can be applied equally well to general business. There is tremendous opportunity in Georgia today. If you are one of the bold entrepreneurs who are setting out to build a company, consider building it with the capability to meet the unpredictable demands of a changing market. Don’t rely on anyone’s ability to accurately predict the future – even your own. When you build an organization that can adapt to change, then unexpected change becomes your friend and you can harness it to your own competitive advantage. Planning for the future is good, but being adaptable to tomorrow’s reality is even better.
For more information on the twelve guiding principles of the Agile Manifesto please visit the web at http://www.agilemanifesto.org/principles.html.
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