Companies & Industries

Uncertainty? Get Over It


No business, regardless of what the federal government does, can expect much control over the major forces shaping the world

If there is one thing you can be certain about, it's that Peter Drucker wouldn't countenance all the complaining by business people about uncertainty. They're directing their grousing primarily at the federal government, as illustrated by an interview I caught last week on National Public Radio with Andrew Liveris, the chief executive of Dow Chemical (DOW). Commenting just before President Barack Obama's State of the Union address, Liveris reeled off a litany of concerns that many American chief executive officers have expressed in recent months. "Well, I not only have high taxes; I have uncertain taxes," he said. "Right now, I have more regulations coming at me that are not fact-based, not science-based, not data-based. I actually don't even know what my costs are going to be in the next five years. And so I'm sitting back waiting for regulatory reform, and the government, of course, is now engaged on that—health care and the uncertainty around the health-care bill and what's going to end up happening there. Energy policy—we've got lots of uncertainty in the energy policy regimen. I mean, I can keep going, but that's half a dozen." It's not that Drucker would have felt entirely unsympathetic. "Modern government has become ungovernable," Drucker asserted in his 1968 book The Age of Discontinuity, hitting on a theme that he never backed away from as the decades wore on. "There is no government today that can still claim control of its bureaucracy and of its various agencies." Drucker also believed that in the grand scheme of things, government's influence tends to be relatively minor. (Unless, I suppose, you're a federal contractor and your primary customer is Uncle Sam.) Forces outside the public arena act as the main drivers of the most profound changes shaping our world, including the continuing transition to a knowledge age. "The Futility of Politics"

"If this century proves one thing, it is the futility of politics," Drucker wrote in 1994. "It is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in." Drucker added that "headline-making political events" would remain in this lesser role well into the 21st century. Yet beyond all that there exists another, more fundamental reason to stop griping: Uncertainty is simply part of doing business. Executives need to manage uncertainty, not whine about it. In fact, ever since the economy shifted from agriculture to manufacturing, uncertainty has been part of the equation. "The farmer knew that if he did not have a corn crop by the time the frost came, he would not have a corn crop at all that year," Drucker wrote in his 1950 book The New Society. "The husbandman knew that if the ewes failed to lamb in the spring, he would not be able to restock his herd. But in industrial production it cannot be predicted with any certainty when a product or service will be successful. Whether it will be successful … we call 'risk proper;' but whether it will be successful in one year, five years, or in 20 years is 'uncertainty.'" More than 50 years later, with the bulk of the nation's blue-collar manufacturing jobs supplanted by knowledge and service work, the amount of haziness managers face has only increased. "Uncertainty—in the economy, society, politics—has become so great as to render futile, if not counterproductive, the kind of planning most companies still practice: forecasting based on probabilities," Drucker wrote in his 1995 book Managing in a Time of Great Change. So what then, is a bewildered executive to do? "Planning for Uncertainty"

To begin, Drucker advised, it's essential to frame things in a new way. "Traditional planning asks, 'What is most likely to happen?'" Drucker noted. "Planning for uncertainty asks instead: 'What has already happened that will create the future?'" One place to spot these developments, Drucker suggested, is in demographics, particularly the rapidly aging population ballooning across the U.S., Europe, Japan, and elsewhere. Another area to look at is changes in science and technology or in our basic values (think about the environmental movement) that have, as Drucker put it, "already occurred but have yet to have full impact." "It is commonly believed that innovations create changes, but very few do," Drucker wrote. "Successful innovations exploit changes that have already happened. They exploit the time lag—in science, often 25 or 30 years—between the change itself and its perception and acceptance." Drucker also called for analyzing structural changes to an industry: fluctuations in productivity, the way consumers' disposable income is distributed, and so on. "Over any short-term period their effects are slight," Drucker pointed out. "But in the not-so-long run these structural trends are of far greater importance than the short-term fluctuations to which economists, politicians, and executives give all their attention." Especially around the time of the State of the Union address.

Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University.

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