The most dangerous forecast may be the one that assumes disruption is temporary when the system itself is being rearranged.
After a shock, leaders naturally ask when conditions will return to normal.
That question is useful when the disturbance is temporary and the underlying system remains broadly intact. It becomes misleading when the event accelerates structural change in markets, institutions, technology, supply chains or political relationships.
Graham Bird's 2013 paper Managing a Changing World Economy provides a useful historical illustration. Written in the aftermath of the global financial crisis, it challenged the assumption that recovery necessarily meant returning to the previous economic configuration. Bird explored the possibility of a “new normal”, discussed shifting patterns of global output, trade and capital flows, and considered alternative scenarios for how international change might be governed.
The paper's specific forecasts are historical and should not be reused as current predictions. Its reasoning problem remains durable: is the system recovering, or becoming something different?
The Strategic Context
Executives often inherit planning systems built on extrapolation. Historical demand informs sales forecasts. Prior costs inform budgets. past productivity informs capacity. Previous competitor behaviour informs strategy.
This is rational when relationships are sufficiently stable.
Structural change breaks those relationships.
A new technology can alter cost curves. A regulatory shift can remove an operating model. A geopolitical change can alter supply assumptions. A change in customer behaviour can reduce the relevance of an established channel. A financial shock can change risk appetite, capital availability and policy responses simultaneously.
In these circumstances, the question is not simply how large the variance will be. The model generating the forecast may itself be changing.
What Leaders Commonly Misread
The first misread is treating every shock as cyclical. Cycles matter, but leaders should test whether the shock has changed behaviour, institutions or economics in ways that will persist.
The second is extending a recent trend indefinitely. Bird's paper itself offers a caution: its long-range projections were based on straightforward compounding of recent growth rates and explicitly acknowledged that such projections are unsophisticated and unreliable. The value lies in the warning, not the numbers.
The third is demanding one forecast when several futures are credible. A single forecast can be useful for budgeting but dangerous as a strategic worldview.
The fourth is confusing scenario planning with prediction. Scenarios are not claims about what will happen. They are structured descriptions of materially different conditions under which today's decision could perform differently.
The fifth is focusing on first-order impact. Structural change often travels through feedback loops: policy changes affect investment, investment affects capacity, capacity affects prices, prices affect behaviour, and behaviour creates new political responses.
Reframing the Issue
The executive question should be:
Which assumptions are cyclical, which may be structural, and what decision would remain sensible across several plausible future states?
This does not remove the need for a base case. It prevents the base case from becoming the only case leadership is psychologically prepared to see.
Strategic Analysis: How to Recognise Structural Change
Behaviour does not revert
A temporary shock can create new habits that persist after the original cause weakens. Customers may discover different channels, employees may adopt different work patterns, suppliers may redesign networks, and regulators may retain emergency-era controls in modified form.
When behaviour does not revert, historical comparison points become less reliable.
Capital moves to different places
Structural change often shows up in investment before it is obvious in operating results. Capital can move toward new technologies, geographies, capabilities or business models. That movement changes future capacity and competition.
Institutions and rules adapt
Bird's paper considers international governance, coalitions and economic nationalism as alternative responses to global change. The specific context was macroeconomic. The broader lesson is that shocks can change the rules of the game, not only the performance within those rules.
Old categories lose explanatory power
When previously useful labels no longer describe competitive reality, leaders may be looking at a structural transition. Industries converge, technologies blur sector boundaries and new entrants operate with different economics.
Forecast error becomes directional
Random forecast error is normal. Persistent error in the same direction suggests that an underlying assumption deserves examination. Repeatedly revising a number without revising the model can delay recognition of structural change.
Decision Framework: From Forecast to Scenario
A practical scenario process can be built around five steps.
1. Define the focal decision
Do not begin with a broad question such as “What will the economy do?” Begin with the decision: build capacity, enter a market, commit to technology, change a supply chain, fund a program or acquire a capability.
2. Identify critical assumptions
Which external conditions materially determine value? Examples include demand, regulation, input cost, technology maturity, customer adoption, capital availability or supply security.
3. Separate uncertainty from preference
Executives often treat the desired future as the likely future. Scenarios should include outcomes that are uncomfortable but plausible.
4. Create materially different states
The scenarios should change the decision, not merely vary one number by 10 per cent. A useful set might include:
- continuity with gradual improvement;
- accelerated transition;
- fragmented or protectionist conditions;
- disruptive technological substitution.
These are examples, not universal categories.
5. Identify robust moves, options and triggers
Some actions are valuable across scenarios. Others should be staged. Define the evidence that would justify accelerating, stopping or switching paths.
| Decision type | Best response under uncertainty |
|---|---|
| Robust | Proceed because value survives most scenarios |
| Reversible | Experiment and learn |
| Irreversible | Raise evidence threshold before committing |
| Option-creating | Invest modestly to preserve a future path |
| Scenario-specific | Delay or condition on a clear trigger |
Related article: Strategic Flexibility: Match the Management System to Environmental Turbulence
From Strategy to Execution
Immediately, identify one or two strategic decisions currently relying on a single external forecast. Ask what would make the forecast structurally wrong, not merely numerically inaccurate.
Over the medium term, add scenario triggers to portfolio governance. A scenario should not remain a workshop document. If a key signal changes, funding, sequencing or scope should be reconsidered.
Over the long term, build foresight into capital allocation. Structural uncertainty often favours staged investment, modular architecture, transferable capability and option value. These choices can appear less efficient in the base case but more resilient across futures.
Leaders should also maintain historical humility. Bird's 2013 analysis includes projections about 2020 and 2030 that were explicitly tentative. That is useful evidence of why strategic foresight should not be evaluated by whether a long-range numeric forecast proved exact. Its value lies in exposing assumptions, alternatives and consequences early enough to improve decisions.
Scenario work is strongest when it changes present action. If every scenario leads to exactly the same plan, either the decision is genuinely robust or the exercise has been too superficial. Leaders should be able to identify which investments are common across futures, which should be delayed, which create useful options and which depend on a particular external condition. That linkage turns foresight from narrative into capital-allocation discipline.
Signals to Monitor
Possible structural-change signals include:
- customer behaviour that remains changed after the initial shock fades;
- persistent shifts in capital expenditure or investment destinations;
- regulation that changes market-entry or cost structures;
- supply chains being redesigned rather than temporarily rerouted;
- new technology improving faster than the incumbent system;
- forecast errors repeatedly requiring the same directional correction;
- coalitions, institutions or industry standards reorganising around new conditions;
- competitors changing business models rather than merely adjusting price.
The key is not to monitor more signals. It is to connect signals to predefined strategic decisions.
Questions for the Leadership Team
- Which part of our current outlook assumes a return to the previous normal?
- What evidence would indicate that the change is structural rather than cyclical?
- Which forecast assumption has the greatest influence on our investment decision?
- What plausible future would make our preferred strategy unattractive?
- Which commitment is difficult to reverse if our base case is wrong?
- What option could we preserve at relatively low cost?
- Which signal should trigger a formal reconsideration of the strategy?
References
Bird, G 2013, ‘Managing a Changing World Economy: Challenges and scenarios’, World Economics, vol. 14, no. 4, pp. 99–123.
Closing Perspective
The goal of foresight is not to predict a single future with confidence. It is to prevent the organisation from making irreversible decisions as if one uncertain future were guaranteed.
When disruption is cyclical, disciplined forecasting can guide recovery. When change is structural, leaders need a wider toolkit: scenarios, options, trigger points and the willingness to revise assumptions before performance forces the issue. The future may resemble the past. Strategy becomes dangerous when the organisation assumes that it must.
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