Forecasting_Blog_1100x600

A few years ago a well-known strategic thinker stated that any futurologist who back in the early 1990s did not predict the emergence of the internet should seek alternative employment, himself included. Yet, in spite of our inherent inability to foresee the major shifts that invariably occur we keep trying.


In the 17th century, the British and the Dutch were fighting over a tiny island Pulau Run, in the far-off reaches of what is now Indonesia. The island was one of the biggest sources of nutmeg, the most precious of the highly prized spices at the time. As a hallucinogen and aphrodisiac, the demand for the stuff was so enormous that it triggered three naval wars between England and the Netherlands.

In the end, the British and Dutch negotiated a deal with the Treaty of Breda in 1667 where all possessions were put on the trading block.

The Dutch, smarter, better organised and more profit focused than the British, refused to budge. With nutmeg being sold at a 6000 per cent mark-up, the Dutch were convinced they were on a winner. They wanted Run as a potential source of enormous profit. In exchange, they gave the British Manhattan, which the Dutch had bought from the locals for 60 guilders.

Some deal! Nutmeg’s use these days has been replaced by other substances. It is hard to find Palau Run on a map. It has about 1200 inhabitants, no fresh water and the remains of a Dutch nutmeg factory. Unlike Manhattan.

The above illustrate how futile it can be to try and predict the future, particularly at the strategic level – too many uncertainties and unknowns influence what actually happens.

Retailers should see these two examples as a warning not to immediately buy-in to the bombardment of “expert predictions” about retail trends and imminent developments that “will change retail forever”. Some might, but most will end up just like Palau Run and the world without the internet.

The reason the experts make massive forecasting mistakes stems from prediction methods based on extrapolating history using the currently known patterns.

For example, Wesfarmers chief executive Michael Chaney told a story how in the 1980s he collected forecasts from reputable organisations over a 10-year period and compared them with the outcomes.

The result: some forecasters got it right half the time, but because one could never know which half, every forecast was useless. For Michael, moving forward therefore was a matter of an educated guess and risk management afterwards.

But, even risk management is only partially effective – even the best strategies can’t deal with the prevailing uncertainty or the major shifts that must be expected according to the Catastrophe Theory. In other words, any assumption of linear continuity in forecasting holds no water.

Shell use the method of Scenario Planning to try counter the uncertainty, but even this process has limitations when the catastrophic event is of high intensity.

On September 10, 2001, Shell Australia’s approach to the aviation sector here was still focused on improving safety and operational excellence, developing new business through discussions with Virgin Blue and other potential customers, and strategies concerning the sale of Sydney Airport. The terrorist attacks the next day and the subsequent but unrelated Ansett collapse changed everything.

These kind of events are virtually impossible to predict, but they do happen. The recent mishaps suffered by Malaysian Airlines horrifically demonstrates this.

The future and retail

As mentioned earlier, retailers have to consider the fickle nature of forecasts and dire predictions when they read about what will purportedly happen in the industry. While it is wise to pay attention, making business decisions based on media hype and linear extrapolations can turn out to be costly mistakes.

For example, one paper put out by researchers at Vend University predicted that 2015 will see retailers experimenting with technology, doubling down on omni-channel retailing and in-store marketing solutions such as beacons to enrich the shopping experience, increasing their focus on corporate social responsibility and finding better ways to manage risks and protect customers.

Halfway through 2015 and we haven’t seen any sign of it happening yet. Retail, built around small margins, rigid supply lines and solid customer relationships, intrinsically has to be a somewhat conservative industry.

Contrary to what the futurists say, it is not an industry susceptible to continuing experimentation and trials of bleeding edge technology. In retail, if it works, you run with it. If it is not working then you try something else, but not necessarily from the latest IT sphere.

Technology experts who try to predict the future of retail fail to appreciate that retail success starts with the merchandise offer. If the retailer has what customers want, at a competitive price, the business will flourish.

Without a good offer the retailer will struggle, no matter how many iBeacons they use. Technology can provide a significant advantage for an already strong retailer, but on its own it cannot make a retailer successful.

Share :
ABOUT THE AUTHOR
An award winning author and journalist, commentator, lecturer, and speaker, Leon covers a range of areas including politics, history, strategy, globalization, leadership and all the big trends ahead. For the last 30 years, his main focus has been on management issues. Leon writes for publications including The Fifth Estate, ProPrint, Public Accountant, and Acuity magazine. He also produces two podcasts for RMIT University, Talking Business and Talking Technology. Both podcasts are on iTunesU and attract a global audience, largely from America and China. Apple has ranked Talking Business as the best business podcast in the world Leon has worked for Fairfax, News Limited, AAP and the Herald and Weekly Times.
Related Posts

TALK TO US