Are You A Business Uncertainty Explorer?

Sounds of the sea. Columbus stands on deck, referring to parchment, sextant and sky.

First Mate: “Columbus, what’s that solid blue piece of paper?”

Columbus: “That’s my map!”

And The Crew Sings: “We are lost, we are lost, we are lost…”

The Columbus in this sketch from my days in college radio goes on to say that none should worry, “for we’ll draw the land bits in as we find them.”

When you live in the Uncertainty Paradox you are a Business Uncertainty Explorer.

Much of what we do to manage business uncertainty involves collecting and sifting data about consumers, competitors, trends, politics, technology – the list goes on and on. You can look at each bit of data as incremental detail that needs placing on your planning Map. Each ‘sighting’ (LAND HO!) adds to our understanding of the economic and marketplace landscape. Comments in the introductory Uncertainty Paradox post from several, including Brad, J.D. and LaVonn, reminded me of how difficult it can be, not only to collect data, but also to meaningfully interpret it.

Are you ready to sail when your Map is solid Blue? (Blue Skies smilin’ at me, nothin’ but Blue Skies do I see… come on everybody, hum.)

The concept of ‘No Regrets Moves’ Bill Welter introduced in his first Paradox post might help us set sail. It forces an analysis of the decision process as much as the decision. Can you make the wrong ‘No Regrets Move’? Yup. But I think ‘no regrets’ is defined by making the best move you can with the current information at hand while including a set of internal features that permits course correction as you learn more. Therefore, wrong moves are corrected rapidly and seen as learning events, not regrettable mistakes. Freeing, yes? Ready to set sail?

‘No Regrets Moves’ leverages nicely Kay Plantes push for building strategic flexibility to allow your business model to adapt to changing conditions. If you can’t predict exactly what the economic environment will bring then you have to be ready to react to the winds, storms and beautiful days as they come. Brings to mind how tossed so many of us are by the impact of Free on business models. Hang on, rough seas ahead.

The brass ring is to formulate models that can predict behavior. As more data is available these models become more and more complex. No matter how you manage information you are using a filtering system on the data in front of you, even if it is as simply-complex as gut feel. One could argue that Gödel’s Incompleteness Theorem is as true for any predictive model as it is of mathematics in general. (Ouch, I can hear the mathematicians’ cringe, give me a second to explain and then fire away.) The connection here is models are built on assumptions that make the model work, but the assumptions may not be provable or disprovable through operation of the model.

In other words: Your model doesn’t know what it doesn’t know, and you better remember that. (A blue map is perfectly happy being blue and feels no discomfort when your ship flounders on an unseen sandbank.)

How could we be misinterpreting incoming data?

  • Arbitron ratings are shifting from a diary approach to an electronic tracking method. Radio stations had learned programing tactics to boost diary numbers that don’t work very well with the new method. Given the strain on the industry, was the way to get good diary numbers (maximizing advertising revenue) the best strategy to get real listeners?
  • Mathematical modeling has it’s limits. The Gaussian copula function by David X.Li which claimed to model complex risk was adopted by most of the financial industry. It delivered a magic number that defined all the convoluted relationships and mysterious correlations involved in the complex transactions being created. It allowed for deals so complex that million dollar decisions were made based on faith in that formula. Miss-placed faith evidently.
  • Psychographic data can help you brainstorm and target and it can also can turn your idea of customers into such a stereotype that opportunities are missed. I’ve seen products designed for the young go gangbusters with seniors, causing much confusion among the hipsters who thought they knew better. Well done research is very powerful, but understanding its weaknesses is critical to avoiding hubris.

I love this description of difficulties measuring risk in financial markets from a January 2009 Joe Nocera article in the New York Times:

“[Risk consultant Mark] Groz has his own way of illustrating the problem: he showed me a slide he made of a [risk] curve with the letters “T.B.D.” at the extreme ends of the curve. I thought the letters stood for “To Be Determined,” but that wasn’t what Groz meant. “T.B.D. stands for ‘There Be Dragons,’ ” he told me.”

The Feedback Loop — A Tool For Setting Sail, Avoiding Sea Dragons, and Correcting Course

What can stand as the business equivalent of sextant, star and compass? One of my primary tools is the Feedback Loop, which provides a consistent process of propose, implement, evaluate, and refine/revise/retire. It’s terribly simple, but that is usually for the better.

  • Propose - Set direction and evaluation methodology. I wish to sail here, it should take me six weeks. I will find Land. What makes this promising six months from now, for what reasons would it be killed? I think Bill would say, “Sit Down And Think.”
  • Implement – Rapid prototyping, inexpensive testing, no CYA research. Buy Supplies, load the boat, set sail. Find affordable tools to monitor and test assumptions. Implementation steps need to provide as much ‘real world’ evaluation power as possible. (Avoid Focus Group Confirmations.)
  • Evaluate – Depending on the risk of further investment this step takes on various forms. Where are we on the map. Any green bits yet? Giant squid port side. The larger the investment the more serious the effort to disprove the momentum viewpoint must be. A hypothesis that is only tested in ways to prove it is right leaves you in the dark about ways it is wrong. Again from Bill – CHALLENGE.
  • Refine/Revise/Retire- Every cycle should provide learning that is incorporated into the next Loop. Have someone involved who is a contrarian, devils advocate. Captain, we must change course. This step forces you to add the flexibility Kay wants to see in your business model and strategy.

This pretty much applies the scientific method to business planning (and personal life, if your so disposed – the tool scales well from the individual to the largest of projects) and is a critical element to be included in any knowledge based organization. It’s common sense, but honestly, can you remember the last time you applied something like this systematically and consistently? By establishing a Feedback Loop you reinforce the ability to make ‘No Regrets Moves’ because flexibility and course correction is built into the process. This doesn’t reduce the necessity to get decisions right, but it amplifies the ability to make decisions more timely.

The Feedback Loop also helps empower reaction to new marketing data at the lowest levels. If you are reacting at ground level, by the time a trend is a trend you already have created a solution that has gone through trial and error and can be rolled out fast. So even if it feels like your map is nothing but blue, the Feedback Loop puts in place the system you need to identify shoals, call out landmarks, track and change direction and most importantly, identify dragons.

In previous comments Terry said: “I guess the real paradox is being prepared and having a plan, but remaining open to inspiration.” So, I’m hoping the Feedback Loop can help keep your plan open to inspiration.

Are you using any tools that seem to work in a black-box sort of way to predict what the future holds?

Does the Feedback Loop sound useful to you? Have you used similar processes?

I wanted to thank everyone for your comments on the introduction to this series.  My thinking is always being spurred forward with your challenges, additions, and corrections and is very much appreciated.


The Uncertainty Paradox Three business bloggers search for leadership, strategy and customer relationship insights and certainties in a world full of escalating uncertainties.

Join the continuing conversation at each of our blogs as we explore the implications of the uncertainty paradox.


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13 Responses to Are You A Business Uncertainty Explorer?

  1. Brad Shorr says:

    Fred, Really wonderful suggestions. Feedback is so, so, so important – especially when it comes from customers. I’ve gotten sidetracked and derailed from time to time by favoring “expert” suggestions over those that come straight from the horse’s mouth.
    .-= Brad Shorr´s last blog ..How Twitter Is Changing Business Blogging =-.

    • Hi Brad, It’s a process that ends up being harder than it looks. The decisions around how to weight the different points of data and opinion that come in the door can be as critical as the data itself. That’s why I like the idea of a really robust feedback loop – where assumptions are really tested. (Bill’s post brings up the idea of a Knowledge to Assumptions ratio which is an interesting way to indicate how reliable a decision may be.)

  2. Terry Heath says:

    I’m always honored when someone quotes me, and especially in such a smart article as this. It makes me sound smart by association, but of course now that I’m leaving a comment, I’ll dispel that myth.

    The problem with a feedback system is people don’t know what they want. We will say what they think is the “right answer” then run out and, by our actions, contradict what we just said. Often, we won’t even be honest about what we typically do (like when asked in a survey), but instead we say what we “think we should do.” Then of course, there’s the problem of getting feedback from a true cross section which doesn’t have any particular bias . . . yada, yada, yada.
    .-= Terry Heath´s last blog ..Could Your Creative Work Be The Greatest Thing Since Sliced Bread? =-.

    • Hi Terry, LOL – And your comments never dispel, always build :)

      The issue you bring up is a very serious one, which is why I often warn folks who are basing big decisions primarily on consumer research or comments. Crowd sourcing can both be powerful and diverting. I’ve been in product development situations where it appears the reliability of certain kinds of research and consumer input is inversely proportional to how radical the innovation is. That’s why I’m for bringing in as much evaluative data as possible to a feedback loop. Sometimes you have to build something you believe in, working towards it knowing that if you get it right it has great potential, but not really being able to know if you’ve gotten it right until its launched.

      Think movies and games for example. Hollywood developed the morning rush process to deal with the problem of not being able to see how acting was translating to film. But even though the director may love what is being caught, an audience doesn’t get a chance to vote till the movie is pretty much shot. (of course focus group research is used here… very dangerous but as good as they can get). You test it to the best of your ability while keeping it true to your vision. The danger, with and without actual real world feedback, is that all things move towards the average and visionary products need to avoid that pull.

  3. Bill Welter says:

    Fred,
    The concept of being a business uncertainty explorer gives us the opportunity to look for inspiration in other places — the world of explorers. Bold people without detailed maps. Uncertainty can be viewed as something to fear, but it can also be viewed as the challenge to the greatest adventure of a leader’s life. Some will look back years from now and smile at their bold moves.
    Bill

    • Fred H. Schlegel says:

      Hi Bill, I’m hoping you’ll write on the example you brought up a few weeks ago in one of our conversations. I think there is real learning down the explorer’s path.

  4. J.D. Meier says:

    > wrong moves are corrected rapidly and seen as learning events, not regrettable mistakes
    That’s a great mindset and mindset can make all the difference.

    When it comes to uncertainty, I like to compartmentalize risks. The thing that helps me the most though is knowing the system, knowing the cycles, and knowing who knows. Some people seem to anticipate better than others. For example, Bill Gates travels the world asking companies to contribute to charity, which means he gets a very different pulse.

    There’s also certain patterns that show up time and again. For example, consumer leads Enterprise. I check trends in consumer, to see what’s important. I also look for discrepancies between intrinsic value and market value, and I anticipate corrections.

    I think knowing the system and cycles is powerful. For example, when the PC cycle is down, IBM sells services that help you reduce cost. They know the cycle and they play to it. When we don’t know the cycle, we get crushed by it. When we know the cycle, we can ride the wave.

    One thing I felt first hand is the power of anticipation. For my last book, App Arch 2.0, I scanned the industry to find the hot spots. I ended up sharing my findings in a post on key software trends. It’s helped me stear clear of “dead technology” and follow the growth. It was ultimately a mash up of multiple sources and I kept validating from different angles. I was surprised by how much stability I could create by creating a robust map. Even when there’s a disruption or change, it’s easy for me to see and have a fallback position.

    The other thing that helps me a lot is chunking things down, getting in a tighter loop with customers, and using business intelligence / analytics. I’ve spent more time in SEO than I planned, but it pays off. I can test and measure where others might fly blind. It’s when you’re flying blind that things feel more uncertain than they really are.

    I think the core of the pattern is the cycles of change are shorter. If we embrace that, we can operate more effectively by using tools that work well for that context, such as shorter feedback loops, prosumer models, trend watching, smaller things, shorter release cycles, … etc.

    • J.D., Your comment is full of useful nuggets, but I really like the concept of ‘chunking it down.’ In science understanding complex systems often stems from isolating and understanding the discrete units that make up the system. Thank you for your detailed addition!

  5. kay plantes says:

    Sound advice Fred as always. I am reminded of a friend who said, “Let’s face it. In managing our businesses we are always managing to a theory of what might work. We must constantly test it and adjust it as we discover some of our assumptions were wrong and some beliefs turned into assumptions in the end.” The reality of this demands such a different approach to leadership ––-from being “in the know” to being constantly curious to discover more. Kay
    .-= kay plantes´s last blog ..Four Seasons Is Down But Not Out if They Adopt a Business Model Innovation Lens =-.

  6. Andrew says:

    Fred,

    An extremely thorough summary of the limitations of predictive models as planning tools and the need to maintain flexibility with regard to the implementation of new business initiatives.

    Nobody has perfect foresight and no matter how diligent firms are with regard to the planning process, no one can predict the future with absolute certainty. Business must proceed, if indeed that’s what they decide to do, in an environment whereby the achievement of the desired outcome is a long way from certain.

    Because of this, mistakes will be made (and the making of some mistakes should not be seen as a sign of weakness, but rather as a sign that the enterprise is on the move – you only stumble if you are moving), and therefore, as you outline so well above, companies must maintain an attitutude of flexibility in the post stages of taking action with regard to new initiative so that they can adapt their approach as appropriate.
    .-= Andrew´s last blog ..Stern Hu’s detention and why the international business community should be worried =-.

  7. Thanks for your addition here Andrew.

    Your comment caught me: “Business must proceed, if indeed that’s what they decide to do…” In general, I think the option to quit what you’re doing often gets buried under the momentum to keep moving forward. Sometimes the fastest and surest way to succeed is to abandon a current path, quit in other words, and marshal your resources in an entirely different direction.

    • LaVonn says:

      I agree that quitting is sometimes the right answer. Unfortunately we have created a business culture that rewards everything but…