Clem Sunter

The Uncertainty Principle

2010-07-28 12:30

One frequent comment I attract from my columns is that scenario planning is a cushy job because you can never be wrong. All the possibilities are covered.

I shall exercise my right to reply. For the record, you can get it wrong. In the mid-1980s, the Anglo scenario team which included luminaries like Pierre Wack and Ted Newland thought that the 1990s belonged to the Japanese. America would fade because of its obsession with short-term results. In fact, Japan hit the wall in 1990 when the property bubble burst there; whereas America had a great decade. We could not have been more incorrect.

On the plus side, we captured the idea of a political settlement between the National Party and the ANC in 1985 in our “High Road” scenario. At the time it was considered a fairy tale. In 1990 we identified the greatest turn-of-the-century challenge for the West as Fundamental Islam. In a June 2001 letter to President Bush, we stated that his biggest threat as incoming president was a devastating terrorist attack on a Western city. In April 2005, we gave credibility to a “Hard Times” recession for which the flag was declining property values in the US.  The flag went up in January 2007.

None of the stuff we were right about was a prediction where we stated that something was going to happen. “Going to happen” implies a 100% certainty. But that is precisely why scenario planning is such a powerful technique. You can be so much more daring if your head is not completely on the block. For if you’re wrong, you can shrug your shoulders and say it was just a scenario. At least, though, you have got the idea into the public domain and urged people to start thinking about it. Stories about possibilities can be very persuasive and imaginative, whereas forecasts tend to be boring, middle-of-the-road projections. What’s more the general consensus can sometimes be wrong, especially when a low probability, high impact hypothesis becomes a reality. A scenario may have prepared you for it.

I take my cue from Werner Heisenberg, the brilliant German physicist who came up with the “Uncertainty Principle” in 1927. He basically said two things about the sub-atomic universe. Firstly, you can never be certain of a particle’s velocity and position at the same time. Secondly, the very act of observing either the particle’s velocity or position will have an impact on the other parameter and thereby increase its uncertainty.

Human dynamics is no different to quantum mechanics except that an added source of uncertainty in the human universe is passion and free will. Otherwise, you just have to accept the unpredictability inherent in the behaviour of human beings on the one hand and particles on the other.

Scenario planning, like Heisenberg’s mathematical model, is just a more realistic way of picturing the world as it is. Yet the best business schools in the world still teach the old classical model of basing corporate strategy on single-line forecasts. They are 100 years behind the times if the idea of applying a quantum mechanical model to economics and markets is accepted as a valid concept. They have to move on from Isaac Newton.

Moreover, the second part of Heisenberg’s proposition has equal relevance in the human domain. A person’s observation of a situation can actually change the outcome. We put the “High Road” scenario on the table in the mid-1980s to change the conversation and make the idea of getting the real political leaders around a table more of a possibility. Call it propaganda if you like, but it worked.

Nobody has called Heisenberg a cop-out for his acceptance of uncertainty in particle physics. Nobody should call a scenario planner a cop-out for never giving a firm forecast. What Chantell Ilbury and I have done is add the element of flags (events which tip the future one way or the other) and the attachment of subjective probabilities based on the disposition of the flags to the scenario process. In this way, we have tried to distance ourselves from the Delphic Oracle whose ambiguity and vagueness ensured it could never be caught out.

Like good foxes, however, we try to minimise the chances of being caught out by constantly monitoring the news for items of relevance to our flags; and adjusting the probabilities when necessary. An incremental approach works better in the long run because there will always be things happening around you which you don’t know you don’t know. We can’t all have the track record of Paul the octopus in the World Cup, but you can come close if you adopt our technique. Try it and see how much you can separate the daily noise and clutter from the real signs and clues which indicate an imminent change in the future.

It’s all about the choice of the flags – and watching. That is how you handle the principle of uncertainty. You don’t need massive research teams full of PhDs to be ahead of the game. Just a fox’s nose.  

Send your comments to Clem

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