We live our lives based on a number of assumptions,
in this highly connected
and at the same time highly disconnected,
extremely complex and increasingly
turbulent world where there are only two certainties
death and even more
uncertainty, with change the only constant.
And yet, we have professionals
like Physicians,
Priests,
and Financial Advisors who claim to offer certainty.
I call them "Certainty Merchants."
As a financial advisor, my clients expect me
to offer them certainty when it comes to their financial life.
Even though
the economy is a complex adaptive system
and the financial markets track
millions of statistics
and the government produces data
on tens of thousands of economic
indicators each year.
The match of technology and
democratization of knowledge has not made our life any easier.
The way we deal with
the turbulence in the current environment
is very critical for both the individuals and institutions.
So,
you might wonder, how do these certainty merchants do it?
How can I find some semblance of certainty in my own life?
First, we must admit that there is no single right answer.
We simply cannot predict the future with a certainty that our clients would like.
The secret of this certainty merchant is in fact not certainty.
It is better planning.
You see traditional planning is based on the assumption that there is
one best idea. One best answer to any strategic question.
And that the world of tomorrow is going to be very much like the world of today.
But quite often that's not the case.
It's akin to driving looking in the rearview mirror.
Most strategic planning is done to relieve management anxiety.
Most of them don't even work when you need them the most.
As that great boxer, philosopher Mike Tyson stated,
"Everyone has a plan 'till they get punched in the mouth."
That is why I use something called scenario-based planning.
Scenarios are stories about how the future might turn out.
Stories that help us to understand
and adapt to the changing facets of the current environment.
If you can imagine different futures,
you can imagine how you're likely to act or react in those futures,
what decisions you might make and how those decisions might play out.
Think of it like a simulation exercise.
Surgeons,
athletes,
and even those in the military, increasingly these days,
practice and learn on real-time,
interactive simulators too.
So scenarios could be categorized as
vehicles to rehearse the future and learn
so that you make better decisions.
It's all about imagining what if. Not, what is.
So, there are some fabulous cases of scenario-based planning and action in the business world.
Perhaps the most famous one is
that of the Royal Dutch Shell, the giant oil and gas company.
Back in 1973,
the Arab oil-producing nations had imposed an embargo on the West.
As a result of which,
the price of crude oil quadrupled.
But, Shell saw this coming.
Why?
Because it was one of the many scenarios
that they had already explored.
As a result,
they were able to deal with the oil shock to some extent.
And from being one of the weakest among the seven largest global oil-producing companies,
it became one of the strongest.
Yet another example of scenario-based planning in action
is that of the New York Board of Trade, which is currently
a division of the Intercontinental Exchange or ICE.
Following the 1993 attacks on the World Trade Center,
the New York Board of Trade
decided to engage in scenario-based planning
and decided to set up an alternate trading site
in Queens, New York.
They didn't exactly predict 9/11.
But,
as a result of the foresight that they had, they were able to continue their
operations after the attacks of 9/11.
There are some individuals as well as some firms like
JDS Uniphase as well as AutoNation
that came out with reports
after the great financial crisis and credited
the scenario-based planning
they had done
to the speed
and profitable manner
with which they responded to the crisis.
Most major corporations say
they engage in scenario-based planning.
But if that were the case,
why is it
that we saw so many individuals
and major corporations
totally blindsided by the great financial crisis?
Why didn't they see this coming?
So in my doctoral research I came up with three responses.
One:
Ignored warnings.
Two:
Blind confidence in probability.
And three:
Reactive response to change.
Let me explain.
Ignored warnings.
Prior to the Great Financial Crisis,
some employees had
alerted management about the impending changes.
About the problems they foresaw.
They dared speak truth to power.
But,
they were ignored or discounted.
And what's worse, in some cases
they were fired or disciplined or demoted
or silenced in some other ways.
For us to improve, we have to
listen and make changes,
even when it is uncomfortable and especially when we don't like it.
Second.
Blind confidence in probability.
We humans
have
blind confidence in probability,
which is one of the main reasons why
probability-based scenario planning
fails most of the time.
You see, when a leader asks for a forecast
he is not looking for anything but the highest probability outcome.
When provided the highest probability outcome,
our brain has the tendency to latch onto it like a heat-seeking missile.
So even if we provide multiple scenarios
the tendency is to go for the most likely scenario
for the illusion of certainty it offers.
So it's very important
to understand what I started with.
There is no certainty beyond the fact
of death and uncertainty.
So it is very important to make sure that we
refuse to fall victim
to the seductive siren song
of probability-based thinking and instead
work hard on cultivating
equally plausible scenarios
in the hope of being approximately right
rather than precisely wrong.
And number three.
Reactive response to change.
See, we humans
are generally very reactive to change.
And so are the leaders.
They don't want to change unless they have to.
Not because they want to.
And as Andy Grove, the former CEO of Intel Corporation, stated quite succinctly,
when it comes to change,
we managers loath change,
especially if it involves us.
Most leaders are too often too busy firefighting
to think about fire prevention or future growth.
Firefighters get promoted.
Fire preventers get seldom noticed.
I must remind you here that Noah
built his ark before the rains began.
Change is part of our life. We cannot plan for all eventualities.
But, we can avoid a lot of unpleasant surprises
if we use scenario-based planning
to engage
in mental rehearsal about the three or four events that are likely to
turn your world upside down.
Believe me, rehearsals make life less scary.
But, life is not a dress rehearsal, we only live once.
So if you feel you're living a life of indentured
servitude, go do something about it! Engage in future-proofing your career
using scenario-based planning.
So, when you decide to buy a house, for example,
you are thinking about, "do I want to buy a house with a fixed mortgage or a
variable rate mortgage?"
And that question depends upon the future direction of interest rates.
So you might ask the question:
"Is there a scenario in which the rates could go much lower in the next five to ten years?"
The value of that scenario is you are engaging an exercise of looking into the future and
looking at the factors that could affect the future interest rates and hence make
an informed decision.
Uncertainty is never an ally of confidence.
And confidence is critical for any commitment.
So,
to think clearly,
feel confident,
and act decisively,
scenario-based planning could be the key.
It is up to us to use it wisely.
Not out of a sense of weakness or fear, but out of the strength and conviction that
comes from knowing that we are prepared to play the hand that is dealt.
Thank you.