Think about the title of this post for just a moment. How far into the future can you really see? Do you know what is going to happen next month, next week, tomorrow or even one minute from now? At an elemental level, it is impossible to know what the future will bring, there may be a natural disaster, political upheaval, or economic calamity all of which are out of your control. You have more control on an individual level in that you can be fairly certain that with the proper precautions you will arrive at work safely, conduct business, return home safely, go to sleep and repeat again tomorrow. The closer the event the more certain we become of it materializing the way that we had expected.
The same rules apply in our professional lives. As the month draws closer to close, we become more certain of the accuracy of our predictions for sales, operating expense, profits, etc. The question is how far into the future can you see and be comfortable with the likelihood of results materializing the way that you have forecasted. Is it one week, one month, one year or more? What are the driving forces behind that timeline and how can we alter it? For most organizations, the forecast horizon is dependent on the industry in which you operate and the level of volatility and change that industry is experiencing. This volatility can come from internal or external factors and can be minor or extreme. However, it is the industry that has the greatest impact on the forecast horizon as it dictates the business cycle. For example, if your business is manufacturing capital intensive products with long lead times such as construction equipment, aircraft or defense it is likely that you operate on very long lead times for design, sales and contracts. Due to the size and lengths of the contracts it allows for longer planning horizons for material purchases, staffing and financing. However, if you are in social media or other nascent industries where the rules, players and technologies are changing on an ongoing basis, it makes it very difficult to take a long term view with any certainty. It would not be wise to enter into long term contracts when the short term is unknown.
Volatility in both cases can come from within the industry or externally. Two key competitors may merge resulting in a situation where the new entity has pricing power and increased economies of scale in terms of production. Or a major vendor may declare bankruptcy leading to severe issues with your supply chain. Technology advances may diminish or neutralize your competitive advantage. Government regulations may make your market position untenable. In short, almost anything can happen to any organization at any time.
Darwin stated that it was not the strongest or the smartest organisms that survived, it was the ones that were most able to adapt to their changing conditions. In order to thrive and survive in a constantly changing world, organizations need to understand how far they can see into the future with a reasonable degree of certainty and have the skills to deal with the inevitable change as it occurs. Those that are able to adapt will thrive while those who can not will be relegated to the footnotes of history.
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Sid Ghatak is the Chief Data Officer at Increase Alpha and lives at the intersection of the customer, business, and technology. Email him at firstname.lastname@example.org or follow him on Twitter to get insights on your world.