The Prediction Paradox & the Power of Analytics
By Dr. Brad Cousins
This is the third article of a three-part series highlighting best practices for leading through uncertainty. The series and its companion webinar broadcasted in partnership with the University of Arkansas’ Walton School of Business, are all available on the Ingage website.
During the webinar, we highlighted the three leadership characteristics to successfully lead through uncertainty:
- Prediction – the ability to predict the future
Uncertainty & prediction
In our recent article about adaptability we reviewed how uncertainty impacts employees and organizations, and in last week’s article about resilience we illustrated how businesses can positively respond to crises and changing conditions by being deliberate about their culture. Today we explore how leaders can take control of uncertain times by predicting the future.
Business without prediction
Just as adaptability and resilience fuel each other, prediction is both a stimulator and outcome of adaptability and resilience. Without prediction capabilities, companies remain stuck in an ceaseless reactionary cycle, therefore struggling to meet their long-term goals and keeping their employees and stakeholders in a constant state of uncertainty. It is critical to maintain a balance of all three strategic aspects; as Bain & Company , “if you could be perfect at any one of the three—adaptability, prediction or resilience—the other two would be unnecessary.” However, prediction is the harder and less explored aspect of leading in uncertainty—is this a crystal ball? Is this another form of strategic planning?
The paradox of forecasting the future amidst uncertainty
Leaders need to develop and master two distinct competencies and associated behaviors which may seem antagonistic to each other:
- Rigorously develop scenarios to evaluate and anticipate possible changes in their operating environment
- Display significant flexibility to adapt to those changes that do materialize
Great leaders solve the prediction paradox and combine the discipline of planning with the flexibility of responsiveness.
Great leaders rigorously develop scenarios
This is a departure from the traditional strategic planning, which assumes little change in the fundamental drivers for growth and therefore produces mostly incremental plans.
Scenario planning, on the opposite, calls for a systematic and radical re-evaluation of every variable in the environment that may weigh in on your performance.
Management consulting firms like BCG have developed sophisticated approaches to model the multiple variables at play in the Covid-19 crisis, from the public health situation to the impact of governmental measures. But such models are challenging to replicate in small and medium businesses which may lack the necessary analytical horsepower. For SMB leaders, scenario planning can be as simple as:
- Listing the key variables that directly influence their operations, from customer demand to the likelihood of their top suppliers surviving
- For each variable, develop “3B” options: Base, Bad, and Best
- Developing 2-3 credible scenarios combining the Base, Bad, and Best of each variable
The hardest part for leaders is then to accept the outcome of scenario planning, which we call the “wall of incredulity”: the inability for leaders to accept or even comprehend that the worst case scenario may actually happen, and threaten the very survival of their business (this is a bias well studied in risk management). The nearly unbelievable rate at which the Covid-19 crisis shattered communities and businesses has been a sobering reminder that what was unimaginable could still happen. Here is a call for leaders to imagine the worst indeed.
For this reason, great leaders have enough self-awareness to recognize that they may not be well-suited for the demands of scenario planning; they use behavioral analytics to delegate it to employees who are naturally suited for the task, i.e. thorough, collected, and preferably cautious with risk, which will lead them to more readily develop the worst-case scenarios that others would frown upon.
Great leaders display significant flexibility, for themselves and their organization
Many studies have quantified the economic advantages for businesses to respond early to changes in their environment compared to those peers adopting a wait-and-see approach or just failing to respond.
Unfortunately, adapting to change to take advantage of opportunities (or to hunker down if the threats are extreme) is far from easy to execute. In fact, it requires leaders to take a deliberate approach that combines several actions:
- Know themselves, and understand their own ability to adapt. Many leaders tend to have a higher appetite for risk and are naturally resourceful and inventive, but under stress these traits can harden and become self-defeating; great leaders are aware of their own response to pressure and flex to avoid its downsides
- Shape a deliberate culture that offers enough safety for people to speak up, which is the condition for adaptability and innovation
- Simplify decision-making and delegate authority in large chunks to empower employees to act without delay
- Delegate leadership of adaptive actions and initiatives (e.g. testing a new product in response to new customer needs, diversifying suppliers when supply chains are disrupted) to employees who are naturally proactive, decisive, and thriving under pressure.
The critical role of people – and of people analytics
The common thread in all the aspects of prediction we’ve discussed so far is the fundamental importance of people: scenarios are as thorough and objective as the employees who developed them; the organizational response to whatever scenario unfolds is only as nimble as the employees who lead it.
This is where great leaders stand out from the merely good ones: they utilize their employees to the best of their natural behaviors and put the right people in the right roles: the more disciplined and risk adverse in the planning phase, the most resilient and proactive in the response phase.
Behavioral and cognitive data about your employees provides invaluable information about their strengths, drives, and needs. It also appropriately influences the decisions that leaders must make while developing and putting scenarios into action.
Therefore the most unexpected aspect of developing strong prediction capabilities is that leaders must leverage analytics not for the complex modeling of the future, but for the thoughtful utilization of their employees right in the present.
Ingage and leading through uncertainty
Ingage’s purpose of helping business leaders be the best version of themselves for their organization has never been more timely. We coach and support leaders to address uncertainty and to foster adaptability, resilience, and prediction in their organizations.
Dr. Brad Cousins, CEO of Ingage Human Capital Strategies and Vistage Chair, has recently been accepted into Forbes Coaches Council, an invitation-only community for leading business and career coaches.