How do we evaluate the value of a prediction and underlying assumptions when formulating Strategy?
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"The formula was fine if you used it sensibly and abandoned it when market conditions weren't appropriate. The trouble was its potential for abuse."
The above referenced Black Scholes equation, the Guardian reported was to blame for the bank crash and subsequent recession. The expectation that humans will apply models sensibly in the face of unstable market conditions may be what separates success from disaster. This fundamental human dilemma seemed worthy of further exploration. How exactly does one act sensibly in the face of changes to your basic assumptions? How do we evaluate the value of a prediction, and underlying assumptions when formulating Strategy. Regardless of how well you know your business, the industry the market and operating environment can completely render the best laid plans obsolete.
I happened to see the 24/7 Wall street column from June of 2012 that predicted 10 companies they expected would disappear in 2013. I'm not a regular reader of this blog but then again, many investment columns are long on lists and short on rationale. Increased access and volume of data, doesn't help future predictions of the weather or a company stock price or performance. The familiar investment caveat --Past performance is no guarantee of future returns-- proves a worthless defense for a failed business strategy.
Everyday, its impossible to escape the necessity of making assumptions. Daniel Kahneman's work aside, how should strategists differentiate descriptive accuracy and analytic relevance ? or resolve discrepancies between assumptions and realized outcomes?
Join us as we consider two philosophical perspectives and explore developing strategies to yield more effective Business Strategy. We also have included the 24/7 Wallstreet list of companies to give us a practical backdrop or case references.
Methodology of Positive Economics, Implications for Economic issues
Milton Friedman, 1953
McKinsey Quarterly, January 2011 | byChris Bradley, Martin Hirt, and Sven Smit
Reference brands that were predicted to disappear in 2013
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