Mirror, mirror on the wall ......
Our fascination with pundits, predictors and forecasters are well recorded in history, mythology, fairly tales and folklore with Snow White and the Oracle of Delphi among the more popular examples. People like tarot card readers, crystal gazers and astrologers who could tell the future have always been revered and sought after. They were joined by an army of professionals who brought science to the art of telling the future.
All that is changing now.
The world is running short of people who can predict the future. We all looked to experts to tell us which stocks would do best, where to buy our property for highest appreciation, which countries and governments are unstable and pose a threat, what products to make for our consumers, whether eating eggs will harm us in the long term and so on. Now we rely much more on friends and even strangers who write reviews and feedback on social or company sites. Research shows that their advice is sought more than that of gurus, professors and pundits.
Every year in Davos, the World Economic Forum holds a meeting of thought leaders, and sages. However, their track record in predicting the future has been dismal. Unfortunately, they failed to predict the impending financial crises in 2008- almost all of the world's top notch economists had not foreseen the debacle. Martin Wolf of the FT writes that the uprising in Egypt and other countries showed how political experts were as bad as economist in their failure to predict what lay in store even a few days before the jasmine revolution broke out.
Economists are not alone in failing to forecast the future but they do feel the weatherman has an easier job; one because the weather patterns follow certain physical immutable laws and therefore past data and experience play a big role and further more weather forecasts are made just for 4-5 days. In contrast, economists have to make long term predictions and extrapolation of the past is not reliable anymore because everything in the equation - resources, people, natural disasters, technology are changing constantly and rapidly. Unfortunately, science too has had a poor showing in warning us of the South Asian tsunami and the Icelandic volcano eruption.
The science of forecasting has been about extrapolating the past. This worked well when rate of change was slow. It looks like that model is obsolete with so many disruptive changes, technology in particular. The obsolescence rate in every sector is rising because of the technological advances that are changing every industry. Did big record labels predict Napster, and itunes, did book stores see Amazon stalking them from behind under a totally different guise. Digitisation changed photography and nobody knows how to differentiate between a camera and a phone and a music player and now my Nano watch can play my favourite music.
Companies too cannot forecast how markets will change and how new products will change demand patterns. Earlier in Closed Innovation systems, companies had control over their R&D and the new products and services generated. Now with Open Innovation, firms do use external as well as internal ideas. They cannot afford to rely entirely on their own research and instead buy or license processes or inventions from other companies. As a result, final innovations are often a synthesis of two or more ideas originating from different sources. Open innovation creates unpredictability for companies and long term forecasting is difficult if not impossible.
All this change is not without its impact on our values - they are changing too - the lines between right and wrong, hero and villain, evil and good are getting blurred and it is difficult to say when the tipping point will be reached and consumers will rise and march to a different beat.
In the 70s the rise of Japan was a reality and nobody could see otherwise, in the 90s the miracle economies of the Southeast Asian Tigers were a force to reckon with - well, economists have been the worst predictors of the future. Hope they have got the story of Emerging Markets right.
In a world where nothing is as it seems, how does one forecast the future?
Kamini Banga Friday March 11, 2011
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