Complexity is the defining business and leadership challenge of our time. But it has never felt more urgent than this moment, with the coronavirus upending life and business as we know it. Since March, we’ve been talking to leaders about what it takes to lead through the most complex and confounding problems, including the pandemic. Today we speak with Margaret Heffernan, author of Uncharted: How to Navigate the Future. Dr. Heffernan is a Professor of Practice at the University of Bath, Lead Faculty for the Forward Institute’s Responsible Leadership Programme, and through Merryck & Co., a mentor for CEOs and senior executives of major global organizations. She holds an honorary doctorate from the University of Bath and continues to write for the Financial Times.
David Benjamin and David Komlos: Can you briefly describe what business leaders can learn by reading Uncharted and what you’d express as the most important takeaway for them?
Margaret Heffernan: Much in the world is uncertain, more than ever, and the old model of business planning - where you forecast, then plan, and then execute - is going to let you down and give you a very false sense of security. That doesn't mean you're just left helplessly flapping in the wind, but it does mean that the way you think about a business's future has to change.
Benjamin and Komlos: In the book, you talk about problems that are endemic to forecasts. Can you illustrate a few of these problems against the backdrop of the pandemic?
Heffernan: One problem with forecasts is that they are based on necessarily incomplete models. If a model could contain all the information you needed, it would be as big as the world it was meant to model. What you put in a model and what you leave out has a disproportionate and fundamentally invisible influence on what the model is going to tell you. What's left out still has an impact, but you don’t know what it is and the implication is that it doesn't matter. During the pandemic, for example, we’ve learned that there is a high spread rate due to asymptomatic people, but that wasn’t in the predictive models we used. Given that we don't know what we don't know, models give us a false sense of security and then let us down.
Another problem is that models and forecasts usually include some preconception about how the world works; an agenda based on beliefs about how people behave, about how they make choices, and about which patterns are and are not important. We impose these mental models on the way that we approach any kind of data, and they end up influencing the models that we build. If, for example, we want to advance the belief that masks really work, we're likely to weigh that evidence more highly than if we don't want to believe that. Our forecasts are implicitly subjective however hard we might try to expunge the deep underlying working assumptions that they contain.
Benjamin and Komlos: Do these same problems apply to predictions and forecasts that leaders use to guide their planning?
Heffernan: Most business plans start and live in the CFO’s office and are extrapolations from the present: “This is where we are this year, this is what our growth rate was, these were our costs, and based on what’s going on in the world and with our competitors, we can do a bit of growth, maybe 3%...” They map out a plan for the coming financial year, the departments game the plan so they can have easily-hittable targets, there's a lot of horse-trading, and eventually, there’s agreement. Everybody then signs up for goals and targets and KPIs, attach bonuses to them, and start believing in the numbers as though they are real. At the end of the year, the executive committee comes together and looks at how the team has managed to hit the forecast almost exactly, and everybody takes it seriously as though it's a triumph of both planning and execution, whereas, actually, it's just that we agreed on numbers that were doable, and then we hit them.
My beef with that whole process is that it makes people focus excessively on the forecast rather than staying alert to what the market is telling them, which may mean that yes, they hit their numbers, but maybe they could have done a lot better. Or they didn't hit their numbers and they found some poor scapegoat, when actually the numbers were always going to be impossible. I think it gives a lot of business leaders a somewhat magical sense of their own power to make the market fit their reality.
Benjamin and Komlos: If not through predictions and forecasts, how can leaders work toward future goals in the face of uncertainty?
Heffernan: In a situation where you can't predict what the future is going to hold, where there are many influences and you can't tell which you can affect, then the thing to do is to use experiments - in other words, try stuff and see if it makes a difference.
For example, it was discovered through experimentation that if you increase the square footage used to display fruits and vegetables in a supermarket, you increase sales across the store as a whole; and if you decrease it, you decrease sales across the store. Or, in the Dutch healthcare system, it was as a result of an experiment designed by one homecare nurse, that the discovery was made that when a team of 10 nurses looked after 40 patients, with no more detailed instruction than ‘do what’s right for the patient’, patients got better in half the time, at 30% less cost to the system.
There is no conceivable way the results of these experiments would have been discovered from a model or extrapolated from the present. And the people who ran them never could have proved they were right without trying them. Experiments always lead to new insight, even if it’s only that a belief you had was wrong. They help you better understand the system and the environment in which you operate, and they can quickly give people a huge amount of hope that change can happen. In a very uncertain environment, such as the one that we're in today, having better insight into how the system works, what makes it better and what makes it worse, is pretty fundamental.
Benjamin and Komlos: What else can leaders do to prepare for an uncertain future?
Heffernan: They can prepare by looking at things that could happen, which if they did happen would have a huge impact. Richard Hatchett, the CEO of the Coalition for Epidemic Preparedness Innovations (CEPI), includes both ‘just-in-case’ thinking and ‘just-in-time’ thinking when he talks about preparedness.
Just-in-case thinking involves identifying highest-impact, highest-likelihood events and asking, “What do we do if these happen, and what could we do now that would take the edge off of their impact?” Instead of trying to prepare for everything that might conceivably happen, you make informed choices about where to focus. In the context of epidemics, CEPI does this by looking at the diseases that have epidemic potential, identifying the ones that are the nastiest, most harmful, and hardest to combat, and funding the early development of vaccines for those diseases. One of the six diseases they chose to focus on in 2017 were those caused by the betacoronavirus. CEPI became one of the first funders of Moderna’s vaccine platform. Thank goodness.
Just-in-time thinking means putting things in place in advance so that when you need them in a crisis, you can switch them on. Pandemics create huge capital requirements, so it helps to have understanding and agreements with manufacturing plants, for example, in place so that they are ready when needed in a crisis. Hatchett also makes sure that CEPI’s natural tempo is to work fast all the time because, during an epidemic, everything happens so quickly and you're always behind.
It's a hard thing in a world mesmerized by efficiency to say you want to spend a boatload of money on something that might never happen. But the whole point of preparedness is that the only protection you have is to think about possible high-impact events way before they happen.
Continued in Part 2 here
Original article posted on Forbes on Feb 16, 2021
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