If you want to give a presentation on your proposal and/or anything else (knowledge value chain concepts, etc.) to our LinkedIn group “Corporate Planning & Global Industry Segmentation” which has monthly webinars for and by members – we will roll out the virtual red carpet for you. We have over 3,500 members; and our next open slot for a speaker is for May.
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What you’re referring to is what the quants — and at heart I am one of them — call Bayesian probability. This is, I agree, important in the real world because we almost always have partial information. In that sense, life these days is more like poker than chess, which was a decade or so ago used as a metaphor for strategic planning. With each round, we gain more information, and place our bets (i.e. “allocate resources”) accordingly. But we NEVER have complete information — until it’s after the fact.

What I’m proposing is that we need to take in and process information on a real-time basis, not once a year as in the “strategic planning” model. Then adjust what we are doing based on Bayesian probabilities.

My one comment is that maybe (22% likely?) your opening question (”Why doesn’t early warning work?”) doesn’t frame the issue correctly. It would be just as incorrect to say, “Why do early warning systems always work?”

Maybe a better way to frame the issue is by making the following observation:

Scenario planning involves creating two or more possible future scenarios, with each scenario assigned a probability of likelihood.

Leaving aside how to best structure scenarios (like using unknown variables for each of Porter’s five forces) – the reality is, only ONE scenario can take place.

If you “pick a card” the probability before you pick might be 1 out of 13 of selecting an ace, but after the card is drawn, the outcome is 100% known. If you count cards and see that after 46 cards no ace has appeared, your early warning system has a 67% chance of “knowing” an ace will be next (because there are 4 aces left among the 6 remaining cards in a deck of 52 cards). With perfect “pre-knowledge” in a closed system with master counting – the early warning system, for this single event, only has a 67% chance of betting correctly.

Today, you have “all of the signals/warnings” that China and India are booming and their populations are so large we are heading for global prosperity never before seen globally. (For the U.S., which has so dominated the global economy since the 1950’s, the rising tide will not feel as dramatic.)

Today, you also have “all of the signals/warnings” that our economy and the global economy are going through the same cycle as during the depression. After the stock market crashed back then, stocks bounced back 50% before the long downhill slide and economic fallout for over ten years.

Bottom line: there are early warning signals for each scenario…. at the end of the day, only one scenario will take place.

(An early warning system that studied my behavior might have calculated that there was only a 7% chance that I would read your blog today – but look what happened!)
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