Stochastic Shocks & Business Success Factors

Some events in this world are inherently unpredictable. While can hedge our bets against these events in an attempt to optimize our livelihood, sustainability, or survivability, the non-deterministic behavior of such events is a balancer of sorts – driving us to be on our toes, do good work, cherish our time, and value our lives.

In the business world, these events are often called “stochastic shocks” – events with non-deterministic behavior that affect some system, such as the economy, business growth, or personal well-being. While these do factor into business success, we can only control the risks associated with them and/or account for their potential occurrence with contingency plans and controlled reactions. We often cannot prevent them or even see them until the damage has already been realized.

Stochastic shocks aside, there are numerous controllable factors that directly contribute to the success of any business, corporation, or related organization. There must be 1,000,000,000,000,000 books and blog posts related to such “business success factors”, but through my professional experience I’d like define a few here.

Controllable Business Success Factors

  1. The Core – Feasibility, idea completeness, relevance
  2. Leadership – Personality, knowledge, network, approach
  3. Strategic Planning – Objectives, milestones, foresight
  4. Human Resources – Key performers, team dynamics, corporate culture
  5. Customer Base – Engagement, collaboration, feedback
  6. Market Space & Competition – Market research, competitor analysis, anticipation/reaction
  7. Extended Social Network – Partners, public engagement, connectedness
  8. Communication – Marketing/branding, value proposition, lexicon
  9. Growth & Sustainability Model – Targets, thresholds, reinvestment
  10. Corporate Posture – Adaptability, agility, dynamicity, transparency

In an effort to maximize understanding and applicability, I attempt to keep the above language and terminology as simple as possible. And while this list is neither comprehensive nor does it include evidence or examples, I’m quite sure both Google and Amazon will provide access to those 1,000,000,000,000,000 books and blog posts.

Ultimately, an optimal approach requires an organization to understand, evaluate, and measure both the stochastic shocks with non-deterministic behaviors as well as the controllable business success factors simultaneously. Understanding both sides can ensure survivability in a tumultuous world, balancing one versus the other given the available resources to do so.

The Origins of Opportunity

I’ve been deep into future studies / futurology over the past few weeks. It’s an intriguing field for me at both a professional/academic level and a personal level. How can we better understand the future? Are there core methodologies that we can employ to optimize our current positioning and decision-making? How can we be better prepared for the future? What’s inevitable and what’s not? Where lies the line between info-driven forecasting and innate intuition?

Although the netweb has helped to grow and organize both the futurological information and the community through which that information is developed and shared, it seems as though the field itself remains cloudy. I must hope that at some level I can build upon the existing thoughts of others and contribute new thoughts of my own so that at least the window to the future becomes more clear.

One cornerstone of future studies is in how to evaluate, filter though, and create opportunity from statements about the future. And so I wonder: from where does opportunity arise, and how can this recognition be leveraged to inform (and in some cases, influence) the future? In general, how can we characterize the origins of opportunity?

  1. Is it through early recognition? This is not beating others to the finish line, but rather beating others to the starting line. Can we identify gaps sooner than others?
  2. Is it through resourceful timing? Often opportunity arises in not being first, not being last, but somewhere in between. The earliest adopter may have his/her vision obscured through too many details, the latest adopter may be left with the crumbs. And often we find much opportunity in the failure of others – developing the right trials from the errors of others.
  3. Is it through pure knowledge and intelligence? Can brute force brainpower create the most opportunity? Or is it more dependent on the ability to apply one’s knowledge, no matter how limited it may be? Is it about having the right skill sets and tools, tactics and strategies?
  4. Is it though pure luck? Can being in the right place at the right time govern our ability to find and harness opportunity? Is pure luck within our beyond our control?

It’s simplest to think that opportunity may arise as a result of any combination of these factors. Therefore, to maximize our opportunities, we should focus on being in the right places, having the right tools, being with the right people, understanding timing as an approach, building the right knowledge base, and building an overall recognition for the many faces of opportunity.

If we can learn to recognize opportunity and better understand where it may arise, we can begin to gain a better picture of the future. Then, we can work to inform that picture with data and models to ensure that we take full advantage of those opportunities to better our self, our communities, our world, and that of tomorrow.

Principles of Forecasting

I just finished reading a couple books about future studies and the nature of predictions and forecasts: (1) Future Savvy, by Adam Gordon and (2) The Future of Everything, by David Orrell. From the former of the two, I wanted to pull a good portion of the content from Chapter 11 and structure it here for use in future posts and projects. In Chapter 11 of his book, Gordon outlines the important questions to ask of any forecast. As decision makers and leaders, analysts and synthesizers, and organizations and citizens, it’s critical that we learn to properly evaluate and filter statements about the future so that we can optimize our decisions and, ultimately, our positioning for the future.

With that as a quick intro, here are the questions we should ask of any prediction or forecast. As Gordon states of forecasts: “they are not in themselves valuable, they are only valuable alongside a clear way to separate the wheat from the chaff”.

Purpose

  • What is the purpose of the forecast? Is the forecast upfront about its purpose?
  • Is the forecast future-aligning or future-influencing?
    • Is the forecast widely publicized?
    • Does it specify action to take in the external world?
    • Is it a forecast of extremes?

Specificity

  • Is he forecast mode predictive – spelling out what will happen – or speculative, illuminating possible alternatives?
  • Is there too much certainty?
  • Is there enough certainty? Is the forecast hedging?
  • Is the forecast clear about the pace of change? Does it specify timelines or does it leave the question hazy?

Information Quality

  • How extensive and how good is the base data?
    • Is the data up to date?
    • Does the forecast use secondary data?
    • Is the data real or a projection?

Interpretation and Bias

  • Are the forecast’s biases natural or intentional?
  • What is the reputation of the forecaster and forecast organization? Does the forecaster have anything to lose by being wrong?
  • Are bias-prone contexts at hand?
    • Is the forecast sponsored?
    • Is self-interest prominent?
    • Are ideology and idealism prominent?
    • Does the forecast focus on a “single issue” future?
    • Is editorial oversight bypassed?

Methods and Models

  • Does the forecast specify its methods?
  • Does the forecaster imply the method is too complex, too arcane, or too proprietary to share?
  • Do forecast proponents trumpet their unique or “new and improved” methods?

Quantitative Limits

  • Is the use of quantitative methods appropriate?
  • Is a machine doing the thinking?

Managing Complexity

  • Does the forecast oversimplify the world?
  • Does the forecast acknowledge systemic feedback?
  • Does the forecast anticipate things that could speed up the future, or push it off track? Does it account for triggers and tipping points?
  • Does the forecast expect exponential change?

Assumptions and Paradigm Paralysis

  • Has adequate horizon scanning been done?
  • Are the assumptions stated? Is the forecaster aware of his or her own assumptions? Is the forecaster willing to entertain alternative assumptions?
  • Do the forecaster’s assumptions appear valid and reasonable?

Zeitgeist and Groupthink

  • Is the zeitgeist speaking through the forecaster?
  • Is the forecast jumping on the bandwagon?
  • Does the forecast rely on “experts”?
  • Does the forecast do stretch thinking? Does it allow us to break free from the “official future”?

Drivers and Blockers

  • Are change drivers and enablers identified? Or are trends simply projected?
  • Are blocking forces identified and fully accounted for? Is friction factored in?
    • Have utility questions been asked and adequately answered?
    • Are there proposing or opposing stakeholders, particularly powerful individuals and powerful organizations?
    • Does the forecast challenge social, cultural, or moral norms?
    • Whose side is the law on?
    • Is the forecaster in love with the technology?
    • Does the forecast underestimate the time to product emergence? Does it overestimate the pace at which people’s habits change?
    • Does the forecaster assume change? Does the forecast underestimate the full hump change must overcome? Does the forecaster recognize what doesn’t change?