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Outline
• How to reduce risk of unpredictability– Horizon– Adaptability– Leadership– Emulation
• Thought slides
–Insurance–Humility–Creativity–Action
Forecasting and Prediction
• Forecast– To calculate or predict (some future event
or condition) usually as a result of study and analysis of available pertinent data
• Prediction– To declare or indicate in advance; Especially : foretell on the basis of observation, experience, or scientific reason
ForecastPrediction
Beliefs vs. Forecast
• Manifest destiny• Domino theory• Mr. Sherden’s education forecast• Beliefs
– Guide to action– Connections
• Forecasts– Specific– Inform beliefs
Future Is Unpredictable
• How do we know?– Book gives many examples– Forecasting accuracy is not
converging (pg68)– The future does not exist– Compare against naïve
prediction• Same as yesterday
NowThe Future
Forecast Vs. Naïve Prediction
NaïveForecast
Today Average
High: 86Low: 54
High: 88Low: 55
High:84°Low: 55°
Complexity
• No constant natural laws• Adaptive: the rules change• Models become obsolete cannot be dissected into
their component parts• Counterintuitive cause-and-effect results• Periods of order and predictability and moments of
turmoil• No fixed cycles
– Economy, technology innovation, stock markets, and social sciences
“Past performance is no indication of future results”
• Stock market technicians– Analyze data tendencies
• Long-Term Capital Management– Based predictions on past events– Had to be bailed out in 1998
Use Short-term vs. Long-term Forecast
• Dismal economists: Forecast accuracy drops with lead time.– Research was conducted based on 5,000
forecasts made between 1976 and 1988 by fifty leading economic forecasters.
– Forecasts on GNP growth and inflation rate.
• Weather – predictions are accurate over 12-24 hour period– become less accurate over time
Be Willing to Change
• Forecasts should be updated often• Prepare contingency plans• Build “highly responsive
organizations that will adapt”• Examples
– IBM in the 1980s– EWR Inc. and data comm. technology
Recognize Difference Between Leading and Controlling
• Organizations are not directly controllable• Businesses must strike a balance between achieving
efficiencies and remaining flexible to adapt• Tom Peters wrote about abandoning hierarchical
organizations for flexible groups in Liberation Management: Necessary Disorganization for the Nanosecond Nineties, 1994
• Businesses must manage in the short term, while they lead in the long term
Recognize Difference Between Leading and Controlling
• Controlling:– Set minimum level of sales
revenue through use of forward contracts on future production output.
• Managing:– Technology innovation,
integration & development in strategic mine planning.
Mining Industry
Military• Controlling:
– Use of Boot camp to generate a team thought process.
• Managing:– Use of Reserve training to
generate expertise in billet assignment.
Follow Example of Most Successful Organizations
• Self-organization (d-day)
• Organizational intelligence(Toyota)
• Natural reflexes(royal Dutch/shell)
• Mutation(joint venture of CICC)
• Symbiosis(VCR standard)
• Competitive challenges(Fedex express)
Use Insurance
• Farmers know weather is unpredictable– Options– Crop Insurance
• Investors know market is unpredictable– Dollar-cost averaging
• Redundancy in IT systems
Be Humble
• The saying of Ancient Chinese
“To live a long life, make your mind disinfect first; to govern a country, be humble first.”
夫欲致精者,必虚静其形;欲致贤者,必卑谦其
身
Be Creative
• Capacity to have new thoughts and to create expressions unlike any other.(Encarta)
• Basic element in many human endeavors, such as art, music, literature, and performance
• Video games– Atari was craze in 1970s but it popularity decreased in
1980s– Nintendo made video games a craze again
Act
• Act or not act in the face of uncertainty?– New Deal, Great Society– What is the cost of not acting?
• Prediction interact with the phenomena they predict• Often the best research could not have been
predicted before the work began• We are often surprised by the research topics that we
“back into” (bottom-up)• Business plans are successful not because of their
concept, but because of successful implementation
“Innovation is essentially a process of coupling”
• Don’t try to reinvent the wheel
• Find place in research field– review literature
• Research may end in an unintended area
Reduce Uncertainty in Social Research
• Critical thinking
• Sound theory base
• Avoid predicting on cycles
• Check credentials of sources
• Discount track record
• Avoid personal bias