Reading this sobering FT piece recently about how (unfortunately) UK productivity growth has again fallen short of OBR forecasts reminded me of the classic McKinsey idea of hockey stick dreams and hairy back reality.
The OBR forecasts over the years have followed the classic pattern repeated again and again in many businesses' strategic planning processes of over-estimating the impact of aspirational new initiatives (the hockey stick forecast) and under-estimating the scale of change needed to make those ambitions a reality (resulting in the 'hairy back' of successive failed plans).
The McKinsey piece sets out some good, solid reasons why this happens: overly-confident and optimistic forecasts which are supported by confirmation bias; the willingness at senior levels not to question such forecasts in the interests of setting stretching goals (it's only those that set ambitious targets that get promoted, after all); strategic planning processes often being more about competition for resource rather than market or competitive reality; the failure to look at learning from previous planning processes and attribution bias for past failures. A lot of the things that Daniel Kahneman and Dan Lovallo talked about in this paper from 1993 about 'timid choices and bold forecasts'.
The solution, as the McKinsey piece also points out, is to reconcile and understand past failures in order to learn what will really need to be done that is different, and avoid making the same mistakes again. To accommodate a wider 'outside view', not just the view related to your specific situation which can be limiting and subject to biases (I talk a lot to leadership teams about the value of understanding the application and interpretation of out-of-sector examples and contexts). To consider the momentum needed to achieve stretching targets (the reality of what your actually trying to achieve and what management can really do to change performance) and how you can really build that momentum. And more than anything not to confuse goals with strategy (strategy of-course being much more about the choices you make).
Wise words indeed.
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