The art of forecasting ~ Sounds + Food 'n' Retail

The art of forecasting

Is the world of food and retail an innovative one? I'd like to think so. But even if it wasn't, I'd like to be there because I think I could make a difference, and if it was, I'd like to be there to swim in the stream of progressiveness.

An article in HBR advises CEOs, and pretty much everyone else, to not rely too strongly on other people's forecasts, and instead undertake them yourself. Because "the best way to make sense of what lies ahead is to forecast yourself." And I think this is actually a vital skill to possess for entrepreneurs in any field.

Six methods are presented in the article, that should make this task a little easier:

1. Define a Cone of Uncertainty

Unfortunately all the Google-image results had their cones reversed, but this picture gives an indication of what a cone should look like. The wider the cone, the better. Too narrow a cone can mean unpleasant surprises. Too wide, a lack of cohesive strategy.

2. Look for an S-Curve
Basically, change does not come in a straight line. Usually, it starts of slowly, until it suddenly explodes. Eventually it calms down, even subsides, waiting for the next S. The best way to judge when the inflection point is going to happen is to a. read some Andy Grove and b. look at past moments in history, preferably the dramatic ones, and see when and why change happened at that time.

I think that this is very dependant on how close you stand to the curve. Both Ray Crock and Howard Schultz, founders and CEOs of McDonalds and Starbucks respectively, identified a slowly growing trend in their areas. To everyone else this would look as a micro-trend, but to them, because they were close to where the S-Curve started, they could only see it going up. Interestingly, both started in businesses supplying their later industry of choice.

3. Embrace things that don't fit
"By definition anything that is truly new won't fit into a category that already exists."
You essentially have to look for indicators of upcoming change, as unlikely as they may be. HBR mentions a good example: Everquest characters, which were first being sold on eBay until 2001, then banned, but years later Second Life decided to use a very similar business-model.

I personally think it's always easier to see these things in retrospect. That said, using the Everquest-example, this is a case where consumers clearly voiced what they wanted out of a virtual world. It was up to Sony to listen.

4. Hold strong opinions weakly
Essentially, lots of weak information that overlaps is more reliable than a bit of strong information that confirms what you believe in yourself. This should be very clear: keep an open and objective mind.

5. Look back twice as far as you look forward
Before the internet-bubble and -bust in 2000, there was the software-bubble and bust in 1990. Are we now approaching a web applications bubble? Fred Wilson and Dave Winer seem to think so. And look back even further, the media-movement. From theatre, to cinemas, to televisions, to video-recorders, to... the internet? All of this should give plenty of lessons of how volatile the future is, and how rich with opportunity.

In the case of technology, there are, in my humble opinion, two things to watch out for. One, is radical change, which is hard to predict. Two, is the drastic fall in cost, which means that there will be a torrent of competitors flooding and devaluing the market. This is certainly the case now, meaning that some businesses are certain to go bust. The right thing to do now is to invest in radical innovation, propelling a business forward into the next era, as well as ensuring a diversification of efforts. It's never good to keep your hands in a shrinking bucket.

6. Know when Not to make a forecast
As HBR notes, "the cone of uncertainty is not static, it expands and contracts." There are certain situations where forecasting is more difficult than usually. During rapid change, it is nearly impossible to predict what will happen. Similarly when trying to predict change in very complex and diverse environments, say one a global scale, it is very difficult to predict where and how change will happen. The only advice here is to make multiple predictions, both in parallel and subsequently.

Final thoughts
In terms of food and retail I don't yet consider myself a visionary as to how the future will manifest itself. I am a keen observer of current and past events. I see that people have both less time and more time; men are more focussed on metro-sexuality, and at the same time tired of it; health is more important as we have more passive jobs; People become more anti-social, but are leaning towards finding other ways of connecting with people; social gaming is not dead; India and China will and are bringing lots of change to most industries; technology will continue to take over the mobile space with all the sociological and behavioural consequences that may have; children are the major deciders of how household money gets spent, and as they grow smarter, they may even become major earners in households; the nostalgia movement; etc. etc.

And, particularly in this area, I look at the past in trying to draw up a vision of how I want the future to look like. The way I see it, the Past is that which inspires people to create the future. The Now represents the tools (like the ones above) we can use to create it. And the Tomorrow represents the, often surprising, results.

You can buy the full article, written by Paul Saffo, here. HBR also has a very related article on generations and how customers and the workforce will evolve in the next 20 years. Worth checking out!


Copyright 2006| Blogger Templates by GeckoandFly modified and converted to Blogger Beta by Blogcrowds.
No part of the content or the blog may be reproduced without prior written permission.