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It was the year 1999. Almost a decade since investment prices started to rise faster than their historical average. In fact, the U.S. equity markets grew at their fastest pace ever, and people thought it would never end. Tycoon Warren Buffett gave some clear-sighted warnings. He said that the stock market wouldn’t perform anything like it did during the nineties and continued:
“Investors in stocks these days are expecting far too much. Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits, but simply to the fact that it seems a mistake to be out of stocks. [. . . ] Investors project out into the future what they've been seeing. That's their unshakable habit: looking into the rearview mirror instead of through the windshield.”
Prophetic words: the dotcom bubble bursted not long after.
Don't Depend Solely on Historical Data
We, top managers, are a lot like those investors. We also use historical data to check our strategic progress. Historical data is great for providing context and background. We need to update management information constantly to keep it accurate, and even then surprises can happen.
For example, it was a shock to most of us when financial services firm Lehman Brothers filed for Chapter 11 bankruptcy in 2008. It still is the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets. It was unthinkable that such a big organization could fail. Now we know better.
Wall Street stock investor Peter Lynch also has a “rearview mirror” saying:
“You can't see the future through a rearview mirror” (Beating the Street)
We have to look elsewhere to perceive what surprises may come next; we have to use different types of data.
The Promise of a Better Future is in the Early Signs of Change
Next to historical data, we have to harvest signals of future change in the business environment. Trend breaches, new competitors, or small changes in customer behaviors act as warning signs or signs of new possibilities. Signals of change are ambiguous when we first notice them. It's more like sensing than seeing a hint of a new threat or opportunity. In time, extra information becomes available, and the signals grow stronger. Because of its ambiguity and emerging character, we can’t build a management information system on future change. We can only watch for them.
Find Out Where to Look for Future Opportunities
Within the firm, the fresh brains of new colleagues will provide you with real-time information about new behaviors, needs and wants from the outside world. Most importantly, the way co-workers react to that information tells you lots about the actual agility of your company.
The fountain of fresh insights can also be tapped by quizzing younger family members, high potentials, start-ups and trend watchers investigating youth culture. Even though your firm may not cater to any of these audiences, from them, you may glean signals of paradigm shifts
Perhaps, the most concrete sources are business models and processes outside your industry, that you can adapt to yours. You can find those by looking for shared characteristics. Look for outperformers in markets with similar dynamics to yours, for companies with similar corporate cultures, or similar production processes. This will teach you a lot about challenges and opportunities in the near future.