Photo courtesy of ©iStockphoto.com/VallarieE
Apple has announced that it will shortly hold a special media event, regarding a development in their business model (such events seem to be partly for benefit of consumers, shareholders, suppliers, etc. as well as, seemingly, laying down a challenge to their competitors) – per AppleInsider:
Apple on Wednesday sent out invitations for a special event next week on Jan. 19 in New York City, where it has promised an “education announcement in the Big Apple.”
This announcement has resulted in increased speculation (there was already plenty of speculation before the announcement) of Apple’s potential future success.
Based on the rumors of the forthcoming event, many are predicting that Apple will now take over the text book industry, and some going as far even as saying that Apple will in future dominate the publishing industry.
Here, for example, a comment by Mike Elgan, a well known tech-blogger, on CultofMac.com:
By the time Apple has transformed the high end of the textbook market, they’ll be ready to go after books in general, which will by then also be ready to go it alone without publishing intermediaries and will also be ripe for multimedia.
Cognitive bias: Overconfidence
An error commonly being made by the media (and others) when making projections is looking at individual events or strategies, in isolation (without regarding other possible developments), leading to possible overconfidence. In the above case, for example, one might presume that there is a high likelihood that Amazon, Google, Microsoft, or others (Penguin? Pearson? etc.) would respond to Apple’s strategic efforts.
Apple has had amazing success with it’s iPad (and iPhone, iPod, etc.), with largely only ‘copycat’ efforts by other major technology companies, not yet seemingly garnering any significant market share (with the possible exception of the Amazon’s Kindle/Kindle Fire products). That’s not to say that Apple is guaranteed to have the same success with its other products. I’m a fan of Apple, and they’ve certainly been very successful in recent years, no doubt, but this is business – it would be naïve to assume that the competition will not try to respond.
In a way, forecasters are forgetting the classic “know what you don’t know” (or as put by one commentator, below, “expect the unexpected”) – they know what one company is planning, but not yet how others will respond.
But then of course, it’s difficult enough to make projections for the stuff you do know, let alone the stuff you don’t know … But even so, what else is there to do, and if you want to value something, or comment on future options, or potential outcomes, you can’t very well just ignore half (or more) of the equation. I’m not suggesting it’s easy (or even possible).
At least as far as the media is concerned, they don’t necessarily need to worry about “valuing” things – much of what they are writing is only subjective, qualitative commentary, and it seems, so long as the articles are engaging and interesting at the point in time, few will check to see the accuracy of their projections (and even if they do, there are usually plenty of caveats as to why things turned out differently, giving future reasons to write more articles), and as such, it seems that their views on the future don’t even need to be accurate.
In a recent annual update, the Chairman and CEO of Ernst & Young, James S. Turly mentioned:
[Volatility] is increasing — both in terms of the frequency of disruptive events and in their magnitude. In some ways, it’s the flip side of the world’s increased interconnectedness. When negative events occur they’re immediately transmitted around the world, increasing anxiety and amplifying the effects of the event.
In terms of the implications, all companies need to do their best to expect the unexpected. They need to spend time planning for different scenarios — not that they’ll ever predict the future exactly, but they will learn enough to help them to act quickly when the unexpected does occur.
In any volatile situation, size and strength are much less advantageous than speed and agility. So organizations need to look at how they can become more agile through means such as lowering their fixed costs relative to their variable costs. And of course it pays to diversify; to work across a range of countries and to offer a range of products and services.”
Having vast amounts of real-time information certainly increases volatility, favoring those how are agile, but requiring also that companies are well connected, and willing to change.
Having written the bulk of this blog post, when searching for something completely different, I also just came across an interesting series of blog posts by William M. Briggs, Adjunct Professor of Statistical Science, Cornell University, Ithaca, New York (among other roles), titled “What A Prediction Is And What It Is Not“, which takes a more theoretical (and as noted by some of the comments under the post, sometimes semantic) perspective on predictions and scenarios.
Is there a learning point from all this negativity about how accurate forecasts can ever be? As many say, “the only thing that you can say for certain about a forecast is that it will be wrong”!
That’s not to say that there is anything wrong with forecasting – it is ultimately the driver behind most actions (you wouldn’t do something if you didn’t have a view that it wouldn’t have a chance of turning out beneficial for you (albeit while the risk/probability may not need to be 100%, it does need to be more than nil). Assessing that risk requires robust planning and awareness of the market’s actions (and if possible, an understanding of your own ‘risk preference’), but also an understanding of the market’s possible responses to your developments (and then your responses to their responses, and so on) – ie, scenario planning.
This may sound like war games (or more formally, military simulations), and in many ways it is (and there’s no irony in referring back to the title of the CultofMac article “Apple’s war on Amazon starts Thursday“). Military leaders learned to play war games a while back (back then, only they had access to the computers capable of such multi-scenario analysis, but today’s computers, software and analytics tools allow everyone to be more diligent about their planning).
That’s not to say it’s easy – it still requires dedicated thinking, and experience, and these multi-scenario plans need to be regularly revisited and updated. That all takes time, and as long as media consumers are happy to read provocative, and subjective articles, the media may see no need to change! The rest of us will win or lose by the effort we put into considering the different potential outcomes.