Paul Saffo on rules for forecasting

[Cross posted at Future Tense]

“Never mistake a clear view for a short distance.”
Paul Saffo

Last month I had an opportunity to listen to Paul Saffo of the Institute for the Future speak at the CIO Magazine CIO|06 The Year Ahead conference in Phoenix. I was there as part of CIO’s Enterprise Value Award Process Review Board and as a facilitator for several of the breakout sessions. Paul was the MC for the 3-day event and his opening talk offered his rules for forecasting. They’re worth having handy if you find yourself in a position to have to make some bets on what might happen next.

Before sharing his rules, Saffo made the point that he thinks of himself as a forecaster not a futurist. In his categories, a futurist is an advocate for a particular future, while a forecaster is an observer trying to understand and bound the uncertainties generated by events and trying to frame the choices that might influence the outcomes. Saffo used the following image (actually his image was much nicer – this is from my notes, but you get the idea).

Saffo on forecastingRule 1. Know when not to make a forecast. Saffo made pointed reference here to Apple’s famous Knowledge Navigator concept video in contrast with Doug Engelbart’s Demo Video from 1967. I think what Saffo was driving at was the distinction between setting out a vision that will drive inventors and innovators on the one hand and recognizing that a salient event has occurred that opens up uncertainties that you ought to factor in to your planning.

Rule 2. Overnight successes come out of twenty years of failure. If you’re not paying attention, you’re going to be surprised a lot. This is where Saffo began to offer his take on the role of S-curve k inds of phenomena and how to account for them in your planning processes. Two points that I took away here. One is that there early stages of these curves is when you typically have the most leverage, if you can find a curve that will make it to the knee. Nothing terribly new there. The second, which I hadn’t thought about as much, was the difference in planning errors depending on where you were in the curve. I’m used to thinking only in terms of the tendency to overestimate how fast things will happen in the early stages of development. I’ve been less tuned in to the equally likely tendency to underestimate speed and demand changes past the tipping point. BTW, one of Saffo’s specific observations relative to this rule was that he’s paying more attention to Robotics as potentially the next big thing.

S-curve errorsRule 3. Look back twice as far as forward. Another quick bit of capsule advice about how to think smarter when you are dealing with exponential/logistics curve phenomena. This is a rule of thumb that captures the essential error in our tendency to think in linear terms about power laws. The change you’ve lived through in the last 10 years is a predictor of what you are likely to experience in the next 5. Douglas Adams captured this most memorably in his 1999 essay “How to stop worrying and love the internet.”

Alan Kay has talked about this in the context of why we’ve had more success at dealing with smallpox than with AIDS. If you are dealing with something that is operating on exponential terms, then the rate of growth matters as much or more than the slope at any instant in time. Given our tendency to project on a linear basis our tendency to over or under predict actually depends greatly on when/where you make that projection. With smallpox, the growth rate/infection rate is so fast that by the time you make any projection you are likely to be over predicting. With a slow growing epidemic such as AIDS, early stage linear projections will under predict. The corollary, of course, is that the surprise factor in slow-growing exponential phenomena is much higher.

Rule 4. Hunt for prodromes. Learned a new word. For you non-medical types, a prodrome or prodroma is an early symptom or leading indicator. This is William Gibson’s observation that the “future is already here, it’s just unevenly distributed.”

Rule 5. Be indifferent. Don’t confuse your desire for a particular outcome with its likelihood.

Rule 6. Tell a story or, better, draw a map. Trying to package your insights into a story (or scenario if you need to justify your consulting rates) helps reveal gaps, risks, and opportunities present in the events you are trying to understand. It can also help you get a better grasp on the potential wild cards. Saffo was more keen on the value of trying to find a way to capture your insights into something more graphical/visual. The value there is that those representations can help you highlight important relationships more easily and they raise the possibility of revealing ‘whitespace’ where you might find important opportunities to exploit or risks to minimize.

Rule 7. Prove yourself wrong. The essential wisdom of the scientific method. Understand and resist the natural human tendencies to believe. Be careful not to rely on a single element of strong information. Look for lots of pieces of weak information that collectively reinforce your insights. Your search for strong information should be for that one piece of evidence that proves you wrong. Look for the one thing that will make you look stupid if someone else brings it up after you’ve gone public.

It was a well spent morning listening to Paul, as was the opportunity to interact during the breaks.

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Thinkers you should know – David Reed

(cross posted at Future Tense)

One of the most profoundly important (and disturbing) things about the Internet is that fundamentally no one is in charge. One of the individuals responsible for that design is David Reed, a computer scientist from MIT.

As far back as Jethro and Moses in Exodus, we’ve applied hierarchy to bring complexity under control. Many have characterized Jethro as the world’s first management consultant. One of the reasons that hierarchy works so well in organizational settings is that is addresses the problem of information overload on managers, where middle managers serve to consolidate and route information through the hierarchy.

However, computers are not people and hierarchy is not the only, or necessarily the best, solution to information management problems. Reed, along with J.H.Salzer and D.D. Clark, wrote a seminal paper in the early days of the design of ARPANET and TCP/IP called “End-to-End Arguments in System Design” that laid out the reasons that hierarchical solutions were a bad idea in designing a network of the scale and complexity envisioned for the ARPANET. Those design insights were baked into the basic architecture of TCP/IP and are one of the core reasons that the Internet has grown as widely and rapidly as it has. If you hope to understand how the net and network thinking in general will continue to impact the future of work, this had better be one of your starting points. “End-to-End Arguments” is a pretty technical paper, although it is manageable; you might find The end of End-to-End?,” also by Reed, a better starting point.

More recently, David has been exploring other notions about how markets and technology interact in ways that don’t necessarily mesh with our default assumptions. In particular he’s done interesting work on why eBay and other internet companies have thrived but handing significant power over to their customers with the notion of Group Forming Networks.

Currently, David is back at MIT at the Media Lab leading a research program on Communications Futures. A good starting
point for this work is the program on Viral Communications (pdf) David is doing with Andy Lippman of the Media Lab.

Like other thinkers, the value of looking at what David is up to is twofold. First, the ideas themselves are powerful. Second, watching how someone smart tackles problems can give you insights into how you might tackle other problems

Paul Graham on the deeper business lessons of open source

Doc Searls points to an excellent essay by Paul Graham on What Business Can Learn from Open Source. It’s full of thought-provoking observations. Here’s just one sample:

The third big lesson we can learn from open source and
blogging is that ideas can bubble up from the bottom, instead of
flowing down from the top. Open source and blogging both work
bottom-up: people make what they want, and the the best stuff
prevails.

Does this sound familiar? It’s the principle of a market economy.
Ironically, though open source and blogs are done for free, those
worlds resemble market economies, while most companies, for all
their talk about the value of free markets, are run internally like
commmunist states.

There are two forces that together steer design: ideas about
what to do next, and the enforcement of quality. In the channel
era, both flowed down from the top. For example, newspaper editors
assigned stories to reporters, then edited what they wrote.

Open source and blogging show us things don’t have to work that
way. Ideas and even the enforcement of quality can flow bottom-up.
And in both cases the results are not merely acceptable, but better.
For example, open source software is more reliable precisely because
it’s open source; anyone can find mistakes.[ Paul Graham]

Well worth your time. I suspect that most large
organizations will have an extraordinarily hard time grasping and
acting on the trends Graham highlights. Those that do manage will have
an edge in attracting talent.

It’s a bottoms-up world

Rex is right. Go read what Kevin Kelly said.

Then think about how the same logic applies inside organizations. Organizations that continue to try to apply top-down control will increasingly fall behind those organizations that can figure out how to tap the same kind of bottoms-up logic that has driven the web over the last decade. How fast that will play out is hard to say, but the evidence from the web is that it will happen much faster than we expect or will be comfortable with.

What Kevin Kelly said. What Kevin Kelly said: (Note: I’m still not blogging this weekend, I just happened to finally getting around to reading something in a magazine that, fortunately, is also online, and couldn’t help myself.) In a must-read Wired Magazine article, “We Are the Web,” Kevin Kelly displays how to make a profound argument stick, not by focusing on the rules and rants about who can and cannot blog, but by providing insight into the beauty of what has taken place over the past ten years — and, in turn, making us realize that the next ten could take us places the rule-makers (be they bloggers or old-media types) are the last to envision.:

What we all failed to see was how much of this new world would be manufactured by users, not corporate interests. Amazon.com customers rushed with surprising speed and intelligence to write the reviews that made the site’s long-tail selection usable. Owners of Adobe, Apple, and most major software products offer help and advice on the developer’s forum Web pages, serving as high-quality customer support for new buyers. And in the greatest leverage of the common user, Google turns traffic and link patterns generated by 2 billion searches a month into the organizing intelligence for a new economy. This bottom-up takeover was not in anyone’s 10-year vision.

No Web phenomenon is more confounding than blogging. Everything media experts knew about audiences – and they knew a lot – confirmed the focus group belief that audiences would never get off their butts and start making their own entertainment. Everyone knew writing and reading were dead; music was too much trouble to make when you could sit back and listen; video production was simply out of reach of amateurs. Blogs and other participant media would never happen, or if they happened they would not draw an audience, or if they drew an audience they would not matter. What a shock, then, to witness the near-instantaneous rise of 50 million blogs, with a new one appearing every two seconds. There – another new blog! One more person doing what AOL and ABC – and almost everyone else – expected only AOL and ABC to be doing. These user-created channels make no sense economically. Where are the time, energy, and resources coming from?

[rexblog: Rex Hammock’s Weblog]

Free Software Foundation, Grokster, Strategy, and the MPAA

All of the Copyfight coverage
of the Grokster case is worth following. This one reminds me the
differing mindsets of executives and policy makers. I was lucky enough
to learn strategy from Mike Porter as he was writing Competitive Strategy. His course was the hottest course at the Harvard Business School.

Several years later, I went back to Harvard to get my doctorate at the
Business School. As part of that process I took the basic course in
Industrial Economics from Richard Caves
who was Porter's thesis advisor and learned that Porter was possibly
even more clever than I already thought. Porter's fundamental insight
was to take the academic research field of Industrial Economics and
invert it. Industrial Economics studies the question of market
failures. What conditions lead to markets that don't conform to the
economic ideal of perfect competition? What conditions make monopolies
and oligopolies likely? The economists study this area with an eye
toward what public policies are useful and necessary to maintaining
competition in its close to ideal form.

Porter's genius was to see that an economists' market failure was a
CEO's wet dream. Competitive strategy could be viewed as an effort to
create market failures. This is what executives are trained to do and
rewarded for. Absent the appropriate policy checks and balances, you
end up with the world that the RIAA and MPAA hope to preserve.

Free Software Foundation tears MPAA a new one in Grokster brief. Cory Doctorow:
The Free Software Foundation and New Yorkers for Fair Use have filed a
brief in Grokster, EFF's Supreme Court case to establish the legality
of P2P networks. Eben Moglen, the author of the brief, really lights
into the RIAA and MPAA — he's a fantastic writer:

At the heart of Petitioners'
argument is an arrogant and unreasonable claim–even if made to the
legislature empowered to determine such a general issue of social
policy–that the Internet must be designed for the convenience of their
business model, and to the extent that its design reflects other
concerns, the Internet should be illegal.

Petitioners' view of what constitutes the foundation of copyright
law in the digital age is as notable for its carefully-assumed air of
technical naivete as for the audacity with which it identifies their
financial interest with the purpose of the entire legal regime.

Despite petitioners' apocalyptic rhetoric, this case follows a
familiar pattern in the history of copyright: incumbent rights-holders
have often objected to new technologies of distribution that force
innovation on the understandably reluctant monopolist.

Lippman and Reed on Viral Networking

Let me add my recommendation to Martin’s and add that the paper is authored by David Reed and Andy Lippman of MIT. I’ve mentioned David’s work from time to time and Andy is equally brilliant and insightful.

A fatal infection. I would urge readers to drop the baby, turn off the oven, sit down and read this MIT paper on viral networking. In a nutshell, it describes the future of mesh networks. There are two core results: Throughput increases with… [Telepocalypse]

Jeff Bezos interview in Wired

An interesting interview with Bezos. To me the most interesting thing he said was:

I'm not saying that advertising is going away. But the balance is
shifting. If today the successful recipe is to put 70 percent of your
energy into shouting about your service and 30 percent into making it
great, over the next 20 years I think that's going to invert.

I do think that current advertising models are obsolete and that few have figured out that that means for their businesses.

Jeff Bezos on the Zen of Sales.
The cool head of Amazon.com talks about the rise of the obscure, taking
on Netflix and why he quit spending on TV advertising. By Chris
Anderson from Wired magazine. [Wired News]

Dvorak on disruptive technology

John Dvorak has just discovered Clay Christensen’s Innovator’s Dilemma and figures it’s a good excuse for a rant. Like many who’ve used it as a launching pad for their own purposes, there isn’t a lot of evidence that Dvorak has bothered to read the book. Here’s Dvorak’s conclusion:

The concept of disruptive technology is not the only daft idea floating around to be lapped up obediently by the business community. There are others. But the way these dingbat bromides go unchallenged makes you wonder whether anyone can think independently anymore

Including Dvorak I suppose.

But then he isn’t really interested in advancing the dialog, just in getting us to read and link to his columns. Traditional media at its best.

I still think the Innovator’s Dilemma and its companion The Innovator’s Solution are easily among the best business books written in the past 10 years. But you do have to read them and then think about what they say. Sorry about that.

The Myth of Disruptive Technology. People love a good, unified explanation for the ways things are. [PC Magazine: the Official John C. Dvorak RSS Feed]

Michael Porter on Charlie Rose

Added to my TIVO to do list for Monday night. A great opportunity to see a first-rate thinker at work.

Way back when I was getting my MBA, Porter’s strategy course was the second year elective of choice. This was when Competitive Strategy was being written. Those of us fortunate enough to get into the class got to read it a chapter at a time. I was also fortunate enough to do a field study with a team of fellow second years under his supervision.

I learned a ton during those two courses. My fundamental reservation about Porter’s approach to strategy is that it is too focused on static equilibrium and doesn’t pay enough attention to technology innovation. Mix in Clay Christensen’s work on innovation however, and you have a powerful set of lenses to apply.

Michael Porter on Charlie Rose. Michael Porter on Charlie Rose — Missed it Friday night, but Harvard Professor and strategic management thinker and author Michael Porter was apparently a full-hour guest on Charlie Rose on PBS. By Porter:

Competitive Strategy: Techniques for Amalyzing Industries and Competitors
Competitive Advantage : Creating and Sustaining Superior Performance
Michael Porter on Competition

Fortunately, in New York, the show is repeated the next day (Monday May 3 in this case) at 1:30 PM. I’m setting my DVR for it. You might want to check your “local listings.” [Frank Patrick’s Focused Performance Blog]

Dan Bricklin on Clayton Christensen

Clayton Christensen at MIMC. I attended another of MIMC’s Fireside Chats last week. This one was to hear an interview with Clayton Christensen. He’s famous for writing The Innovator’s Dilemma, and is now promoting his new book, The Innovator’s Solution, which I reviewed here on this weblog last October. Great meeting. I’ve written up my notes and added a few pictures. Clayton comments on things from drug research to low-cost airlines to Open Source. [Dan Bricklin’s Log]

Dan Bricklin provides a very meaty summary of Clay Christensen speaking about innovation and strategy during this fireside chat. Helps provide additional insight into Christensen’s books (I just did a review of Innovator’s Solution a few days back). Dan also points to a Fast Company article on Clay’s work from last November, “The Industrialized Revolution.” If you want to understand technology driven strategy you have to spend time understanding what Christensen is saying.