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Executives of an Uncertain Age

Daniel Gross

Daniel Gross is executive editor of strategy+business.

 

On January 20, Kansas City Southern, which runs railroads that facilitate Mexico–U.S. trade, said that changes in the geopolitical environment have made it difficult (pdf) to forecast results for the coming year. “Looking ahead to 2017, the company is aware of both economic and political uncertainty,” Kansas City Southern’s president and CEO Patrick J. Ottensmeyer said in a statement.

Indeed, uncertainty seems to be breaking out all over the place. Given the political earthquakes we’ve witnessed in the U.K. and the U.S., “you need to prepare yourself for several years of uncertainty,” my colleague David Lancefield warned businesses late last year. The Global Economic Policy Uncertainty Index, which is based on factors such as “newspaper coverage of policy-related economic uncertainty” and “disagreement among economic forecasters as a proxy for uncertainty,” displayed enormous spikes last year — first in the wake of the Brexit vote and then after the U.S. presidential election in November.

It makes sense that uncertainty is the watchword of the day. Significant changes are afoot in the structures governing our economy — a new arrangement of power in Washington, with a highly unpredictable president at its center; Brexit; a promise to swiftly alter the economics of healthcare, a sector that accounts for about one-sixth of the U.S. economy. The context in which many businesses have operated and thrived — one in which free trade and greater economic integration was a baseline assumption, one in which the regulatory rules and policies were set or evolved slowly — is rapidly changing.

But here’s the thing: Business has always been uncertain, even when it seemed predictable. The television financial pundit Jim Cramer likes to say that there’s always a bull market somewhere. The corollary is that there is always a bear market somewhere else. Industries are forever being born, and business models, worldviews, and understandings are continually under assault. It’s just that some of the companies facing sudden uncertainty today — cross-border railroads, car manufacturers, hospitals — have become accustomed to relative stability in this current economic expansion, which dates to 2009.

I’ve often been surprised over the last few years when talking to friends who work in medicine, or at hedge funds, or in education, when they note that their professional environment suddenly seems to be uncertain and changing rapidly. You don’t say?

As a 28-year veteran of the media industry, I’ve been witness to waves of disruption and continual uncertainty — business models and technologies change, establishment publications fade away, entirely new media rise. Working in the news business means things are always uncertain — you literally don’t know what is going to happen the next day. Uncertainty is part of the background noise, the way the clacking of typewriters and the ringing of phones used to provide a soundtrack in the newsroom.

One of the best ways to prepare for uncertainty is to accept that things are inherently less certain than we may have thought.

It’s a natural human tendency to want certainty, and to have a bias toward it. Imagine how difficult it would be to wake up each morning not being entirely sure that the enterprise is on the right path, or that your assumptions about how the world works are correct. That’s one of the reasons people tend to forecast by extrapolating from the recent past into the future. It just feels right. Our market share fell 2 percent last year, so it’ll do so again next year. Presidential voting and polling patterns in the last two cycles favored the Democratic candidate, so they will again in the 2016 election. Coal had 40 percent of the market for electricity last year, so it’ll have 40 percent of the market for electricity next year.

But even when things seem certain — especially when they seem certain — they may not be. Events continually upset the conventional wisdom. Reading history, it’s often astonishing, in hindsight, how countries, companies, and people carried on as if everything were normal, certain in their path, until the moment they were swamped by a tidal wave whose formation was easily detectable: the outbreak of war, the appearance of a disruptive competitor. The environment was always uncertain. It just didn’t feel that way because the challenger or disruptor hadn’t attained critical mass, or assumed office. And, if we’re honest, lots of people would prefer to ignore prospective changes than to start preparing for them.

American automakers in the 1960s had great certainty in their business models and dominance, even as Japanese manufacturers were starting to make inroads. Newspapers, broadcast, and cable companies — every sector of the media ecosystem — had a relatively high level of certainty in their business model, even several years after the advent of the Internet. In October, big American firms were certain there was a broad political consensus for free trade in the U.S. — even though polls were indicating otherwise and one of the two main candidates for president was loudly trumpeting his opposition to it.

There’s a tendency to believe that our ability to measure a range of factors in real time — the weather, the performance of an engine, consumer sentiment, traffic on a website — should grant us something close to perfect knowledge. In theory, gathering, sifting, and analyzing large amounts of data should help give us a greater sense of certainty about what is going on in the world. Which is why it’s more shocking when events surprise and befuddle our expectations.

One of the best ways to prepare for uncertainty is to accept that things are inherently less certain than we may have thought.

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Executives of an Uncertain Age