Seeing Around Corners

How to use Data and Scenario Planning to Navigate the Future

A Suez Standstill

It is Tuesday, the 23rd of March, 2021. You are the captain of a massive container ship navigating the Suez Canal, one of the world's busiest trade routes. Suddenly, a crewman alerts you to an upcoming sandstorm that could reduce visibility to almost zero. You're faced with a difficult decision: wait out the storm and delay canal traffic for a few hours, or risk running aground, potentially blocking nearly 400 ships behind your ship for several days. The canal's narrow confines require precision, so you must choose: halt and annoy 400 captains for a few hours or proceed with the slim chance of outpacing the sandstorm and risk disrupting global trade.

You escalate to your Fleet Admiral who is about to retire; he doesn’t want to be ‘the guy’ that holds up 12% of global trade - he wishes you godspeed and confidently bets you can make it before the storm hits.

Later, you remember his bravado as the rescue team approaches. The ship ran aground. Although the rescue team has been trained for situations like this, the scale of this incident is unlike anything they've encountered. You haven’t called the Admiral back to tell him to kiss his retirement goodbye; you don’t want to be ‘that guy’ either. Instead, when you pick up the phone, you call the rescue team and tell them they need more tugboats.

In this story, the captain and his crew, supported by an optimistic admiral, faced with a looming sandstorm, chose hope over caution. As the ship runs aground, it exposes a glaring oversight in crisis management despite having all necessary elements at hand — a skilled crew that communicated an issue, but they ultimately relied on hope instead of collective expertise and resources. It underscores the vital need for clear-headed decision-making, readiness to adapt, and the importance of heeding early warnings over wishful thinking. By not leveraging their combined capabilities effectively, the team missed critical opportunities to avert disaster, illustrating the essential lessons in preparedness and adaptability in crisis situations.

Success is not just about navigating the present but also about foreseeing the future.

Anticipating performance issues and risks isn't about predicting the future with perfect accuracy. The critical skill is being attuned to the subtle signs of change, understanding the potential implications, and being prepared to adapt.

This fictionalized incident, based on one of the biggest in the canal's history, underscores the importance of anticipation, of seeing around corners to avoid a crisis. It always happens this way - in canals and in business - each person has a piece of information to share. Depending on the timing, tone, and target of your emergency message, you either navigate neatly around the crisis or are swallowed by it. If you feel less than prepared to anticipate unexpected challenges, read on to explore how to build those skills.

From Oversight to Insight

In the past, I have been the captain, the crewman, the admiral, and even the rescue team. Experiencing failure in business, for not foreseeing a crisis left its mark. But if I hadn’t failed, I wouldn't have known what I needed to see to avoid a crisis, but that need to see means that I’m looking at everything everywhere all at once.

I now have a fairly paranoid personality (in business), and only information gives me peace. It’s impossible to see around corners without deep and relevant experience within and adjacent to your domain. This means staying informed about market trends, consumer behavior, technological advancements, and regulatory changes that could impact or even derail your business. The upside, though, is that the same signals that predict crises also illuminate opportunity.

In 2000, Netflix offered itself to Blockbuster for $50 million, but Blockbuster declined. Blockbuster probably figured they could copy Netflix’s subscription-based ‘unlimited’ video rental model. However, around this time, broadband adoption in the US was growing, DVDs began to outsell VHS - Blockbuster’s core offering. By 2005, broadband penetration and e-commerce were growing trends, Netflix had gone public and raised funds to start testing streaming services while Blockbuster struggled with growing losses from the high fixed costs of physical stores as well as the growing inventory from duplicating their dying VHS catalog into DVDs. By 2007, Netflix had fully launched its streaming service, signaling its shift to digital following consumers’ growing broadband and e-commerce usage.

Blockbuster died with its brick-and-mortar model. Netflix lives on. Netflix rode that new trend wave to become the behemoth it is today. I watched this play out over a decade ago, and I often wondered about the conversations that happened, didn't happen, or were ignored. How did Blockbuster miss these important trends? And what parts of Netlix’s DNA better positioned it to win?

The ability to decode market dynamics allows you to identify potential threats and opportunities early on - observations must translate into insights. The same lens can see both hidden tripwires and treasures. The trick is to see trends before they impact your business; most crises result when you see the trend at the point of or after impact.

Building a Foundation for Foresight

Early in my career, it felt harder to voice my concerns about crises. The fear of people's opinions, self-doubt, and the potential risk to my position kept me silent. But as a leader, I realize that the burden of foresight isn't and shouldn’t be mine alone. Every team member can potentially contribute. Cultivating a culture where the entire team is listening for risk is more optimal than going it alone - it widens the net to capture signals of risk. Essentially, operationalizing my paranoia feels like the smarter thing to do to create a powerful collective ability to anticipate and navigate challenges.

Two key elements of building such a culture are open communication and team autonomy. When team members feel safe enough to voice concerns, share insights, and challenge assumptions, potential issues can be identified and addressed proactively. However, the team not only needs to feel safe to communicate openly but also empowered to find (and even deploy) solutions to the problem. When employees are empowered to take ownership and make decisions, they are more likely to spot potential risks and address them proactively.

Once you've learned to channel your business paranoia (in a healthy way 🙃), you can leverage two capabilities: data and scenario planning, to better anticipate crises and opportunities.

Foresight is not about seeing the future perfectly but preparing perfectly for what you can't see.

Your Data, Your Lens on Tomorrow

Every business generates data, but its value lies in how it's used. Most companies I've worked with use data like historians - they describe past events with lagging metrics. Very few leveraging data to anticipate the future. Likely because it is hard to do. Transforming business metrics to capture leading events that could pose future problems requires experience, focus, and creativity. It involves interpreting complex data patterns, predicting potential issues, and formulating preemptive solutions.

Data scientists are best equipped to handle these intricate data patterns.

A well-articulated strategy can identify potential problems, often major deviations from your KPIs.

If your business has been running for a while, responses to potential issues will likely fall within your normal operating model. To prevent a crisis, you may just need to implement corrective actions earlier than usual, but sometimes, completely new approaches may be necessary.

Amazon has thrived by anticipating and capitalizing on market shifts, largely attributed to a relentless focus on customer data. It began as an online bookstore, later creating online bookstores for others. It expanded to sell items beyond books, and integrated logistics and delivery infrastructure after initially leveraging partners. Their recommendation engines, built on mined purchase data, learned to predict what people want by recommending purchases to similar cohorts. This validates the concept that the best predictor of future behavior is often past behavior.

Amazon's various subsidiaries offer insights into different sectors. They simply extended the ‘prediction’ capability they first built with books to everything from A to Z.

Prime reveals entertainment and e-commerce trends, AWS uncovers digital infrastructure trends, and Amazon Music provides data on music streaming habits. Amazon Studios, Logistics, and Zappos offer data on viewer preferences, supply chain dynamics, and fashion trends, respectively. Kindle and Audible uncover reading and audiobook trends. Whole Foods and Amazon Fresh provide insights into food and dietary preferences. Twitch tracks e-sports trends, Mechanical Turk offers gig economy insights, and Amazon Pharmacy reveals health trends.

With this much data, all that’s left is creating the capability to mine game-changing insights from it.

Setting the Building Blocks for Prediction

Use a structured approach to predict performance issues and risks. This includes setting up early warning signals, having regular reviews, and relying on analytics. Early warning signals can hint at future problems or opportunities. For instance, a surge in customer support tickets may indicate a product issue, while reduced website traffic could signal an ineffective marketing campaign. Identifying the right early warning signals requires a deep understanding of your business metrics and their interconnectedness.

Another crucial component of a predictive framework is regular review cycles. These reviews should go beyond simple reporting and focus on diagnostic, predictive, and prescriptive analytics. Diagnostic analytics helps you understand why something happened, predictive analytics forecasts what might happen in the future, and prescriptive analytics suggests actions based on those insights.

Implementing a predictive framework requires an investment in data infrastructure, analytics tools, and data literacy among your team. But the payoff is significant - a robust early warning system and data-driven decision-making that enables you to anticipate and respond to challenges proactively.

Navigating Next with Scenario Planning

Despite your best efforts, uncertainty is inevitable. Scenario planning helps prepare for various outcomes. It involves envisioning alternative futures, identifying change drivers, brainstorming scenarios, and assessing implications. The aim isn't perfect prediction but preparing for multiple possibilities. Netflix tested streaming for years before a full launch and it was probably one of many opportunities that Netflix tested before scaling up. Google, on the other hand, has had very visible products fail after a launch - Google Loon and Google Glass, for example. You will not win them all and shouldn’t expect to.

For each envisioned scenario, the next step is to develop contingency plans. These plans outline the steps you'll take if a particular scenario unfolds, for instance, if your ship were to meet an unexpected storm at the Suez Canal. Ideally, they should be specific, actionable, and communicated clearly to all relevant stakeholders. This way, the captain isn’t figuring out what to do, but merely pulling out the plan created for that emergency scenario.

Scenario planning and contingency strategy are not one-time exercises. They require regular review and updating as the business landscape evolves. By making these practices a regular part of your strategic planning process, you can build resilience and adaptability into your organization's DNA.

The process should involve a wide range of team members—those who see what went wrong with past projects (your PMs), those who can envision probable and improbably business influences (your risk managers), and the keepers of the company’s vision (your founders and senior operators). Together, the team can whittle a long list of influences on the business to the most critical, which can then be workshopped into a set of scenarios and contingency plans.

Build Your Predictive Edge

Anticipating performance issues and risks is not a mysterious art reserved for a select few. It's a skill that every founder-operator needs. Rather than rely on hope, like our Captain friend above, at your next quarterly review, set some time aside to do some scenario planning. Make it safe and even reward your team for speaking up about issues related to the areas of your business that can surprise you the most. Teach your organization to use data in their thinking to see around corners, navigate the unexpected, and ensure your venture sails smoothly into the future.

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P.S. If you need help to start scenario planning, download this worksheet.