April 22, 2007

Can You See The Future?

Try answering these questions:
  • If you watch American Idol, who do you think is likely to win?
  • If you enjoy basketball, which teams are likely to end up in the NBA Finals?
  • If you follow technology, which company is likely to be most successful in five years, Google, Yahoo! or Microsoft?
  • Which car company is likely to increase market share the most over the next five years, General Motors, Toyota or Hyundai?
  • Which Democrat and Republican candidates are likely to survive the primary process, and become candidates for President of the United States?
Now, try answering these questions about the company you work for.
  • What are the net sales and earnings before taxes forecast for this fiscal year for your company?
  • Is your company, year-to-date, exceeding, meeting or missing sales and profit expectations?
  • Given the trends in the ability of your company to acquire new customers and grow existing customers, what is the forecast for net sales and profit for each of the next five years?
  • If you stopped advertising via your most effective advertising channel (catalogs, paid search, portals, television etc.), how would your five year forecast of sales and profit change?
  • If you stopped producing your most popular category of merchandise, how would your five year forecast of sales and profit change? If you stopped producing the merchandise that sold in the bottom third of all merchandise you sold, how would your five year forecast of sales and profit change?
It is always interesting to see the reasonable accuracy humans achieve when predicting the future. We love predicting the future! We seem to have an intuition to make predictions. We combine external facts with personal experiences to make educated guesses about events that might unfold.

We're pretty good at doing this, too. We know we should avoid our favorite restaurant at 7:00pm on a Saturday night, if we want to be seated immediately. We can predict what the siding on our house will look like next spring, and as a result, determine when we should paint, stain, or replace our siding.

We are not good at forecasting the future trajectory of the businesses we lead. We know what sells today. Our merchandisers do have an instinct for what might sell in the future.

But the rest of us are not great at forecasting the future trajectory of our business. We are great at seeing how external forces impact other businesses. We read that Google purchased Doubleclick, and we begin theorizing what this means for Yahoo! or Microsoft. We are not good at thinking about what happens within our own business when we add new products, eliminate old products, increase advertising, decrease advertising, or re-allocate advertising dollars to new advertising channels.

I don't think this is necessarily our fault. Tell me the last time your company was forthright with you about your business. When was the last time your company opened up the books, and shared everything it knows about the future trajectory of the business with you?

Over the next few weeks, I'll elaborate a bit more on the topic of forecasting the future of the businesses we lead, sharing tools and approaches for figuring out where we are heading, and what we can do about it.

Time for your opinion. What do you think? Do we, as leaders, do a good job of forecasting the trajectory of the businesses we lead?

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