August Jackson: social network analysis for intelligence (part three of four)
August Jackson shares how studying the link between people, companies, and technologies makes social network analysis a very powerful strategic tool.
Paul Denlinger: China’s Strategic Future
In this episode of the Competitive Futures Podcast, we interview Paul Denlinger of China Vortex, an author, investor, and executive advisor who specializes in U.S. – China commercial activity. He’s a rare bird indeed, completely fluent in Mandarin and English and totally familiar with the executive leadership mentality of both countries. In this episode, he gives the audience some forecasts about China that you (unfortunately) just won’t be hearing in other media:
- The crash of 2008 shook China’s faith in the U.S. and sent their strategy away from engagement to the creation of a massive Chinese middle class they hope to drive the world economy
- China will ramp their use of coal significantly on the way to dominating the world market for renewable energy
- The markets for many raw materials are being cornered by China today and may leave other countries in the lurch if they don’t act soon
All of this, plus invaluable insight about how the Chinese mentality on the future differs considerably from that in the West.
We hope you enjoy listening to this interview as much as we did making it.
Assuming a bright future – pensions drag down General Motors
One of our more accurate predictions at the end of 2008 was the soon-to-be-discovered catastrophe of unfunded pensions. As 2010 develops, we see that many of the current hotspots in the ill-defined “financial crisis” are tied to this one issue of having overvalued the future at the expense of the present.
California is sitting on around $500 billion (!) in liability. The state of Illinois is short $78 billion for it’s pensions. Now, here comes The New General Motors, still losing billions after a taxpayer bailout. The Government Accountability Office has recently released a report about how pensions will likely drag the ailing manufacturer down starting in 2012 or so. (h/t to Megan McArdle at The Atlantic for quality analysis here – also, the comments section is a stitch)
What happens in 2012? The bulk of the Boomers start cashing in those defined-benefit pension plans, heading to the doctor’s more often, and generally turning 65 at the rate of 7000 per day. Aren’t forecasts useful? This is why we call it a megatrend – it will impact car companies, state governments, universities, national governments, baseball teams, travel agencies – everybody.
Nothing is more dangerous than a business decision based entirely on, “sunny, bright scenarios of fantastic success at 8% returns for all of our investors, forever!”
The crisis of American states
Obama’s State of the Union speech mentioned many classic problems facing the United States – unemployment, healthcare, security. Sure, there was some mention of the more recent banking fiascos – but how much of what was mentioned showed a nation facing unprecedented challenges requiring untested solutions?
For example, where was the mention of the fiscal crisis of the largest, most productive American states, like California, New York, and Illinois?
Investing and planning for the future? Look beyond the headlines toward the trendlines.
Small companies adding value: the rise of microbrewing
When I wrote Future Inc: How Businesses Can Anticipate and Profit from What’s Next, I chose the future of beer as a case study to illustrate forecasting methodology. The reasons were many. Beer is a 5,000 year-old product, and not as tech-driven as information technology – so you can’t fall back on techno-optimism when thinking about its future. Still, beer is wildly interconnected: it encompasses agriculture, biotechnology, transportation, retailing, government regulation, cuisine, social impacts, and much more. Despite being simple, the changes in the beer industry are rich and interesting. Plus, beer is delicious.
One of the key forecasts I uncovered while researching the book was the rise of microbrewing. The major beer brands around the world were stalling while small, local and national operations were profitably targeting a small and growing segment of beer drinkers and nascent foodies.
Here we are four years later, and the trend has continued apace. This article in the St. Louis Post-Dispatch shows how even in the shadows of the now-Belgian owned Anheuser-Busch, microbrewing is taking off at mid-double digit rates while sales of the majors now dip.
One of the reasons behind this trend actually transcends the beverage market. In our research in the field of economic development, Competitive Futures has learned that the rise in local beers often coincide with resurgences of economic vitality. Local beers become a flag around which communities rally. It often becomes associated with “local success stories” of businesses started in someone’s garage, soon requiring real capital investment in manufacturing infrastructure and jobs with good wages. Local ingredients and traditions are incorporated; cultures are revered. In short, microbrews are successful because they create value on multiple levels – for shareholders, employees, municipalities, and of course, beer lovers.
Now, can large companies create value on this level? Perhaps only if they begin thinking in this superconnected way.
Forecast of the week: Warren Buffett predicts “all electric cars in 20 years”
At a recent meeting with business students, Warren Buffett has proclaimed that all cars on the road will be electric in 20 years:
Goetgeluk asked what Buffett thought of the peak oil theory — that oil production has peaked and will only decline in the future — and what he believed would replace carbon fuel.
Buffett told him that in 20 years, he believes all the cars on the road will be electric. He’s already invested in a Chinese company working on the technology to make it happen.
Buffett is really famous and really rich, mostly from his defiance of conventional wisdom and some excellent timing, so people are naturally attracted to what he thinks about the future. He hasn’t given us much context to this forecast, but it’s still important to consider. Even though Buffett is an authority of strategic-level business issues, let’s pick apart this forecast. I’ll use a rigorous method of forecast assessment I learned working with the great Joe Coates:
Forecast:
- “All cars on the road everywhere electric in 2029″
Author:
- Warren Buffett, chairman Berkshire Hathaway, Omaha, NE
Type of forecast:
- Expert opinion/conjecture
Assumptions:
- All cars means all continents will have electric motors – Africa, Asia, Latin America included
- Electrical “fuel” will be more competitive than petroleum as fuel for transport
- All new electrical refueling infrastructure implemented in the next 20 years across the globe
- Sufficient increase in electrical power supply across the globe to meet new energy requirements currently fulfilled by liquid fuels
Implications:
- Massive recycling of existing cars and engines
- More liquid fuel available for long-haul trucking (assuming “cars” only means passenger cars and not electric trucks)
- Retooling of all auto factories starting in 2010
- Trillion dollar business opportunities everywhere from rebuilding local electric grids, recycling old batteries
- Increase in demand for coal and wind generated electricity to make up gap in supply of electricity
- Increased demand in solar
Probability:
- Extremely unlikely
Assessment:
This forecast is pretty glib coming from Mr. Buffett. All cars running on electricity in 20 years? Fifteen percent electric cars I could easily see, 50/50 I might buy as an extreme scenario – but 100% electric cars by 2029? It’s nigh on ludicrous. The system effect of a TOTAL shift on all cars everywhere would be practically an act of a minor deity. Perhaps Mr. Buffett is “talking up his book” and this new Chinese company in which he has invested.
Not all forecasts are created equal.
Pricing oil for the future
“To run a pricing market for a non-renewable resource off rationing short-term supply and demand makes no sense.” – Gregor MacDonald
One of the worst traps in thinking about the future is assuming that your images of 20, 30, or 50 years ago are still likely, or even possible, in the future. Gregor illustrates this beautifully in his post “Jett Rink’s Speedboat,” about how today’s major oil finds will never lead back to some cheap oil pseudo-paradise of the 1950s and 60s. They cannot. Because this world is so very different.
Notice also his comments on how hyperbolic oil companies are becoming from oil field “discoveries” that sound dauntingly difficult – and how the market responds anyway.
In praise of forecasting: a series
- “It’s impossible to tell the future.”
- “Nobody could have seen this coming.”
- “ These days, things are so unpredictable, we just focus on the short-term.”
- “We have entered into a period of history of high instability – forecasting is practically impossible.”
The above are classic canards used by the media and some authority figures to argue against the intellectual exercise of thinking critically about the future. They have been used with alarming frequency since the bank meltdown of last year. The collective shrugging of the shoulders of our banks and Treasury officials was often accompanied by sighs of “How could we have know what was coming? It was all TOTALLY random. That’s just the way of the world now.” Ergo, we needn’t think hard about the possibilities of converging trends, we should just check in to be told what’s going on.
This is wrong, and it is counter to how smart leaders act. None of that has changed, bank catastrophe or not. Think about the future and you will improve it. Ignore it, and other people will create your future for you.
This week marks my tenth anniversary as a forecasting professional. I can now look back on forecasts we made a decade ago with today as the target date. Thinking about a decade of predictions, scenarios, visions and forecasts, I can say I am more excited than ever about this intellectual discipline. In short, it works, it helps, and I still recommend it to every executive on Earth.
This week, I’ll be sharing some of my favorite stories of forecasts we made in the heady days of the Dot Com Boom. If ever there was a period of irrational exuberance, that was it. And we still saw into 2010 with some clarity – enough so that I’m proud to discuss our successes and amusing failures.
And they mock FUTURISTS for bad forecasts…
This morning I awoke to the news that Obama will be nominating Ben Bernanke for another turn at the helm of the Federal Reserve.
My only commentary would be that if you are a self-described futurist and misread the most basic economic trends for your clients, you won’t be called up for more fame and success. At some point, your bad forecasts need to call into question your methodology, and indeed, your competence.
I would say that the reason we don’t replace Bernanke despite his malpractice is that our current crop of leaders are defending our current institutions at all cost, and Bernanke plays well at that game.
Leaders need to ask themselves, do they want institutions that thrive in future realities, or ones that exist DESPITE those realities? Only our most senior leaders can make such a choice, and right now they are choosing the latter.
Interview for Korea’s KRX Magazine: Small, smart companies and more
With the release of Future, Inc. in Korean and Chinese, I’ve had the great opportunity to do interviews with Asian business magazines. I find that they ask more interesting, more insightful questions than many of their Western counterparts, so they are often fun interviews. The only problem is, once they are translated, I have NO IDEA what they said.
I just finished an interview with Korea’s KRX Magazine, which covers the Korean stock market and business in general, and I decided to post the whole text in English, so someone can appreciate it.
The questions:
Companies have hard time in business due to the global financial crisis. What new trends can we look for?
The most important trend is away from the philosophy of growth at all costs. For years, particularly in the United States, management has followed a typical playbook – get big, quickly, through borrowing money from private venture capital or public offerings. Then, you can go national or international, reaching bigger markets and gaining leverage over vendors and distributors. Once you have leverage over vendors and distributors, you cut costs by firing excess employees and force downward price pressure on the market. With the extra cash from operating expenses, you buy more national or international companies. For around forty years companies have repeated this formula.
The theme here was BIG BIG BIG. The problem with “big” is that it sometimes comes at the expense of “smart.”
About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.Connect with us
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a time-tested, profitable method of discovering business opportunities in the future with Eric Garland's groundbreaking Future Inc: How Businesses Can Anticipate and Profit from What's Next, available at Amazon and fine independent booksellers.
