For me one of the pleasures of being on vacation, as I was last week, is to read different newspapers and learn a bit about the local economy and politics. While not quite as “local” as I would have liked, I happened upon the Caribbean version of the Miami Herald and was fortunate enough to run into an op-ed piece by long-time columnists Thomas L. Friedman of the New York Times titled “Really unusually uncertain”. Many of you will have heard of Tom Friedman in the context of his book “The World is Flat”. I stumbled across Tom Friedman in the late 1980’s – I think – and have been reading him avidly since. Clearly I have completely plagiarized the title of Tom’s article, which in turn refers to US Federal Reserve chairman Ben Bernacke’s use of the term “unusually uncertain” to describe the outlook for the US economy. Of course this uncertainty is not restricted to the US economy, which is the point Tom Friedman makes by focusing on the German economy and how it relates to economic recovery in Europe. In fact he points to three influences that will need to be reversed if the US and EU economies are to recover soon:
The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines. Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever. But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain.Commenting
on Bernacke’s statements, Jeannine Aversa of Associated Press writes that
Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe's debt crisis are other factors playing into the economic slowdown.
OK, OK, so there is lots of economic uncertainty. What do we do about it? During my time as a management consultant I learned a fundamental truth: Analyzing a situation is fairly easy, defining a future state is a lot harder, but the really hard part is defining the path to achieve the future state. Not being an economist I can comment little on the efficacy of Tom Friedman’s suggestions for recovery, nor on Ben Bernacke’s for that matter. My guess is that most of the readers of this blog fall into this category too. Clearly we all want the same future state of a revived world economy and we are all too aware of the current state of the economy. Of course we all have our opinions on the path to recovery, which we can express in elections, but for the most part actually pulling the levers of the economy is not something which is in our control. Which leaves us all feeling “really unusually uncertain”. While we may not be able to effect change to the national or global economy, we do have some level of control over the economic performance of the companies for which we work. As I commented in a previous blog titled “Why S&OP? Why now?”, this is where I see sales and operations planning (S&OP) playing a big role. But for S&OP to be effective it must provide ways for people to evaluate and understand uncertainty. There are 4 fundamental capabilities that are required to achieve this:
- Capture of assumptions made about the future state for knowledge sharing and control
- Facilitated collaboration across functional boundaries to get buy-in and inputs from multiple parties
- Super-fast “what-if” analytics that allow organizations to evaluate and compare multiple scenarios in order to maximize performance and to mitigate any identified risks
- Continuous plan performance management so that deviations are detected early and course corrections can be made quickly
The last point about performance management is often overlooked. The more uncertain the future, the less likely it is that your plans will be achieved. It doesn’t help much if at the end of the month you determine that the plan wasn’t achieved. In a more stable economy this might have been sufficient. In today’s volatile economy (which is the root cause of our uncertainty) it is really important to monitor performance continuously and to course correct as quickly as possible when significant deviations are detected. However, what makes this all possible is super-fast “what-if” analytics. Uncertainty is risk. Without a mechanism to evaluate many alternative scenarios, your ability to evaluate and understand risk is reduced greatly. Do you think Excel is up to this? Do you think this can be achieved without any technology?