Historians versus Futurists – Who is More Valuable?

Some analysts dig deep into historical information to glean insights once hidden. Other analysts are obsessed with predictive analytics and Big Data to foresee the future. Are these in actuality the same person or are they two different rivals with their own ideology?

Crystal ball versus a rear-view mirror

Futurists enjoy taking out their crystal ball and projecting future innovations. They are typically wrong. George Orwell’s book 1984 that was published in 1949 did not come close with its projections. In the 1960s I recall a Walt Disney television show describing automobiles that required no driver and were guided by some form of magnet-like strip imbedded in the street’s or highway’s roadbed. Nice try.

In contrast, historians research the past to determine what lessons might be learned that can be applied today. For example, historians examine the judgments, policies, and actions of past USA Presidents and international government leaders to assess what actions may best serve citizens today.

Do futurists or do historians provide relatively more valuable information? Futurists make us think by being provocative. Historians through their rear-view mirror allow us to reflect on what worked or did not work in the past.

Why is this “more valuable” question relevant for today’s organizations? It is because many organizations fail to successfully execute their executive team’s plans and allocate an appropriate mix and level of resources to complete those plans. This involves strategy and budgeting – two disciplines that are widely criticized today.

Historical lessons applicable to strategy execution and budgets

In the author Stephen Bungay’s book, The Art of Action, he reflects on lessons from war and military campaigns that apply to leadership skills and planning. He specifically addresses how an organization can implement and achieve the formulated strategy and plans of its executive team. In his book he draws on battle tactics of the 19th century Prussian army.

Bungay’s premise is that the leaders of almost all organizations can define reasonably good strategies. Where executives often fall down is leading their organization to implement their strategy. Bungay describes this problem as gaps and advises how to close the gaps.

His assertion is that similar to military campaigns in war when a strategy encounters the real world then three types of gaps appear. He describes gaps in terms of expected results and reality: outcomes, actions, and plans. Gaps result from complex and difficult to predict environments that all organizations deal with and are made more severe with globalization – the reduction of international borders for commerce and information. The three gaps are: 1. The knowledge gap - the difference between what we would like to know and what we

actually know. 2. The Alignment Gap - the difference between what we want people to do and what they actually do. 3. The Effects Gap - the difference between what we expect our actions to achieve and what they actually achieve.

Based on Bungay’s deep knowledge as a historian of military practices, he observes that a key to successful strategy execution is delegating more decision-making authority to managers and employee teams.

Empowering managers and employee teams

Bungay describes lessons from the 19th century Prussian army in this way. Following an unexpected military defeat the Prussian military’s tactics were reformed. Lower-level officers were given more flexible command to make decisions. What mattered is that they fully understood the battle mission. By providing more decision rights to the officer corps, this resolved a problem that the higher the military leaders are from the battlefield, then the less they are aware of the current situation. Officers could pursue local actions as they saw fit.

The Prussian army solution following its prior defeat was the institutionalization of military genius with centralized and elite generals and increased accountability of the field officers with rewards based on their performance and outcomes. This reform was successful, and the army conquered other countries.

In today’s terms of managerial methods, the parallels of the Prussian army reforms are applying the balanced scorecard methodology and adopting the participative budgeting concepts.

The balanced scorecard’s primary feature is the development of a strategy map that visually displays on a single page a dozen or more cause-and-effect linked strategic objectives. Using four sequenced components (referred to as “perspectives”) the linkages move from employee learning, growth and innovation to process improvement initiatives to customer loyalty objectives which result in the financial objectives’ outcomes. The key performance indicators (KPIs) reported in the balanced scorecard are derived from the strategy map. The KPIs monitor the progress toward accomplishing the strategic objectives, and by each KPI having targets assigned, the foundation for accountability is established and alignment of managers’ actions with the executive team’s mission and strategy are achieved.

The participative budgeting concept views the annual budget as a fiscal exercise done by accountants that is disconnected from the executive team’s strategy and is usually insensitive to forecasted demand of volume and mix. It acknowledges that budgeting annual line-item expense limits are more like shackling handcuffs for managers who may need to justifiably spend more than was planned and approved many months ago in the past in order to capture benefits from newly emerged opportunities. The participative budgeting method advocates abandoning the annual budget that quickly becomes obsolete. It proposes replacing the budget’s controls by giving managers the freedom of decision rights. This includes hiring and spending decisions without requiring approvals from superiors. It invokes controls by monitoring non-financial key performance indicators (KPIs) against the targets defined by the executives in

the balanced scorecard’s strategy map. Managers do not escape the need to be held accountable with consequences. The time frame is not annual but rather dynamic.

Historians versus Futurists

The message here does not mean organizations should not be researching emerging and imminent new technologies and methods, like analytics and Big Data. The message is that granting decision rights to managers but holding them accountable with consequences is effective at closing the three gaps. And this a lesson learned from historians.

This article was originally published in PACE Forum by the nonprofit Profitability Analytics Center of Excellence (PACE). Gary is a director with PACE.