Thursday, October 2, 2014

Reasoning about the future

In the long run we are all dead. (John Maynard Keynes)
That statement is indicative of the kind of wisdom academics are willing to offer concerning the future. Given that strategy as a discipline would appear to a lay person to be inherently about shaping the futures of individuals, organisations, industries, and markets, there has been hardly any systematic theories that discuss the future in any meaningful way. The only widely used concept relating to the future is that of vision, which has been at best a marginal topic studied by a few fringe researchers (not a serious strategy topic). The discipline of entrepreneurship fares hardly better, and may actually be worse. Discussions on whether entrepreneurs discover or create "opportunities" seems to miss the point entirely. Rather than musing on the "creation of opportunities", we should try explain how new firms and new products are conceived as potential futures prior to their existence and how such projections are evaluated.

The problems with the future

This is hardly surprising. The future is a very difficult thing to talk about. Most academics and theories are grounded on firm realist grounding: we make and test our theories based on the real data we have observed, while our decision making theories posit actors to make choices based on information available to them. In social context, the future does not exist and arguably cannot be known. It is just one of many problems that a realist account of the future is not compatible with free will of humans. The problem of induction is an extreme statement of the indeterminacy of the future. Even if someone predicts the future accurately, they might just be lucky. These difficulties have led most management scholars to simply ignore the future altogether. All information is from the past, and thus the future is simply not relevant for explaining managerial decision making.

Finance provides an elegant account of the future, yet one that has limited usefulness for managers. The account finance gives of the future is that of statistics. It assumes that there are a large number of relatively stable processes that create outcomes of interest. Such second order stability leads to predictable distribution of outcomes, so that a satisfactory probability can be calculated to any range of outcomes. Although this is a somewhat simplifying account, most of finance theory does not want to deal with causal relationships (or "stories" as Nassim Taleb calls them), thereby proudly ignoring issues such as wars or the invention of electric cars in predicting the future price of oil.

Outside the academic theories, there is also an engineering approach to futures, which is to mine data for significant causal relationships that can predict future outcomes. Apparently, weather does not only predict traffic jams, but also how much will be sold online in the immediate future. These approaches embrace "The End of Theory" as Chris Anderson suggested at Wired, where the future is predicted but not explained. Despite inevitable techno-optimism, such approaches have very limited predictive power and seldom provide meaningful implications for strategic decisions. Predictions without explanation are also unreliable, as past patterns can change in unpredictable ways (as has been demonstrated in relation to the Google Flu Trends).

Reasoning about the future through stories

Some academic work has of course taken seriously the idea that decision making is not just about past information but depends on the active projection of futures. Merton's old idea concerning self fulfilling prophecies highlights how expectations concerning the future shape the future. This idea is more broadly known as performativity in sociology, suggesting that beliefs held by actors shape the subsequent reality. For example: if all investors believe the price of gold will increase, it will most definitely increase. In technology studies, there is a small but interesting stream on the sociology of expectations.

We cannot know for sure the price of oil yet we cannot claim all predictions to be equally plausible or foolish. There are no reliable ways to predict the future, yet not all predictions have the same credibility nor is the credibility itself an arbitrary attribute of predictions (although you would probably find some social scientists taking this extreme position). The predictions about the future are problematic, since they are neither arbitrary nor definite. We reason about the future by constructing stories of how things will be, and the credibility of those stories depend on the analogies we can provide as evidence, the status of the actors who tell those stories, and a broad variety of other justifications included to bolster them. Experts provide credible predictions because the stories they tell (of statistical analysis and personal expertise, for example) are convincing. Unfortunately, it seems that many experts are really terrible at predictions (as Tetlock has famously documented).

The future is something that does not exist, but humans construct futures through stories, hypothetical worlds that may come to be, which they can base their actions on. Whether such futures are accurate (i.e. come to be the future) cannot be known ex post. Despite such uncertainty, futures matter for organizations.

Reasoning about the futures in organizations

The futures matter for organizations and management for many reasons. Futures are the basis of coordination, identity, and credibility. Three quite interesting articles have recently appeared on the topic, all of them coincidentally in Organization Science.

I have myself written a recent article that examines how new ventures must create plausible and exciting futures in order to convince they are worthy of support from investors, prospective employees, and even pilot customers. Relationships are often based on expected future transactions, and the management of relationships requires constant management of expectations. Since the future cannot inherently be known in business context, some of the expectations are likely to remain unmet now and then, creating the need for revising the future projections in relationships. We also note how the plausibility of stories that an individual organization tells about the future are intrinsically linked to stories told by other organizations and the media

In another recent article, the authors argue that just as individual identities are much about possible future selves, organizational identities also tend to incorporate a "possible collective self", a vision (often unrealistic) of what the organization will be in the future. When the collective portrayed by a strategic vision is appealing to an individual and conforms with the possible selves of the individual, they are more likely to exert effort to pursue the vision. Strategic visions thus serve the purpose of allowing members of the organization to imagine an alluring future where they have a role to play. As we know, most individuals want to have dreams even if they cannot be fulfilled. The number of people joining gyms is greater than the number of people who actually get fit. The western societies are societies of hope as Nils Brunsson has noted. We want to see ourselves as members of a "leading organization" that "makes a difference", even if only a small portion of all organizations aspiring for a leading position actually attain one.

The last article I want to mention focuses on the role of expected futures in making credible and broadly acceptable decisions. Reasoning about what to do now must inevitably be able to provide coherence across acceptable accounts of the past, the present, and the future. The one who controls the present controls the past (said Orwell), and since much of history is open to multiple interpretations, the acceptability of the futures we form depend on the accounts of the past we have. There is certain reasonability across time, and the reasons we settle for to explain the past outcomes shape what futures we can justify as reasonable. (As a side note, the unsurprising finding by Kaplan and Orlikowski that accounts must be "coherent, plausible, and acceptable" for a social group to embrace them seems to capture the key of human reasoning in general.)


Concluding words

Irrespective of how "factual" (or realist) we want to be about our views of the world as it is today, it seems inevitable that the accounts we create of the future matter. Futures are non-arbitrary constructions formed by more or less plausible stories. To be successful leaders, managers must learn to construct compelling futures that can form self-fulfilling prophecies, stabilise relationships, resonate with possible selves of followers, and create seeming coherence across the past, the present, and the expected future.  

Futures, or what tend to be called "strategic vision" thus matters, yet there is disappointing lack of research and theory on the phenomenon. Their uneasy position as being neither arbitrary nor determined by an external reality makes them particularly resistant to well-structured logical analysis by academics. Even if the avoidance of the topic has been well-justified, I would hope there will soon be some breakthroughs in ways we think about projections of the future, how we study them, and how we teach practitioners to create and evaluate alternative futures.

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