Thursday, July 5, 2007

Horizon Blindness

Back around the time I was in High School, my parents decided to go on a vacation to the Canadian Rocky Mountains. Living in the Detroit area at the time, my parents determined that it was a lot cheaper to cross the Detroit River and fly out of Windsor, Canada, rather than fly out of Detroit. Therefore a buddy and I drove my parents over to Windsor to catch their plane.

As long as we were in Canada, my buddy and I decided to drive around the countryside for a few hours before heading back to the US. Although the Detroit side of the river was quite urban, the Canadian side became farmland very quickly. What impressed me was how far I could see into the distance before coming across a flat horizon line, where the sky met the earth.

This was not a common sight to me. Having spent most of my life in a dense urban environment, you could never look more than a few blocks before your sight was blocked by a building. You would never see a horizon point where the sky touched the land, because it was hidden behind all of those buildings.

It reminded me of a study I had done in high school about the Pygmies of Africa. The Pygmies spend their whole life in the dense jungles, where they can never see more than a few feet in front of them. One day, a group of anthropologists were going to take some Pygmies out of the jungle and back to their university.

This was the first time the Pygmies had ever been out of the jungle. It was also the first time they had ever seen a horizon line out in the distance. The Pygmies were confused because everything out in the distance was tiny. They couldn’t figure out how everything out there could be so much smaller. They were even more surprised when some of these items came closer to them and got larger as they came nearer. How did they miraculously grow in size as they got nearer?

Because the Pygmies had always lived in an environment where they could never see more than a few feet in front of them, they had never developed the concept of depth perception. They had no idea of the principle that things would appear smaller, the farther off they were in the distance. They just assumed that everything would look to be the same size, no matter how far off an object was away. After all, everything always looked to be the same size in the dense jungle. The Pygmies were so used to only looking a few feet in front of them that they did not know how to act when confronted with a more distant horizon.

A similar problem can occur in the business world, except that it involves time horizons, rather than distance horizons. If one spends their whole business life dealing with the crisis of the moment, they never get a chance to see beyond what is immediately in front of them (their crisis of the day). They can become so used to only looking out a day or two at a time that they do not know what to do when confronted with a more distant time horizon.

Items out in more distant time can look funny and small—so small that it is easy to have a tendency to ignore them. Unfortunately, because these people have not looked out into the distance of time before, they are mistaken in thinking that the issues in front of them are small. Instead, they are large, major issues which only appear to be small because of the distance of time. As that time approaches and become nearer, the issues start looming larger and larger. Because these people had never developed depth perception in time, it was all very surprising when these items came closer. They were unprepared to deal with them.

Had they spent more time studying more distant time horizons, they could have developed the depth perception necessary to understand how large an issue is in the future. That would give them ample time to prepare for it today.

The principle here is the principle of time horizons. Strategic planning requires looking off to more distant time horizons. The purpose is to better understand what is in front of you, so that you can prepare for it in the most advantageous way. If you are unaccustomed to looking off into the distance of time, you will not accurately understand what is in front of you, so your decisions will not be as effective.

One time, I had the pleasure of meeting with John Hagel III, an expert in strategic planning. He was speaking on the topic of time horizons. John Hagel said that in strategy, one must consider three separate time horizons. The first time horizon is the immediate future—what will happen in the next year or so. The type of strategic planning necessary for this time horizon can usually be accomplish via an annual budget, provided your budgeting process is more than just making up numbers to satisfy an unrealistic annual profit target.

A strategic annual budget starts by determining the most likely conditions which a business will encounter in the next year. Then, based on the analysis, the leaders make the tough choices about where in invest or divest its resources (time, talent, treasure) in the next year in order to optimize within that environment.

The second time horizon is typically about 3 to 5 years out. The strategic process for the second time horizon is somewhat similar to the first. One studies the future to determine the likely environment, and then makes plans of how to allocate resources to optimize performance in that environment.

The third horizon is more than five years away. The strategic planning here involves dreaming up a desirable (and possible) future, and then determining what must be done to make that potential future state become the future which actually evolves and comes into being.

John Hagel III made the point that all three planning horizons need to be studied. For example, if one only looks at the first and most immediate time horizon, one may make decisions which look good in the immediate term, but end up destroying a company’s potential in the future. The principle is that by only focusing on the immediate, you squander away your future potential by taking the profits out of the business too quickly rather than reinvesting for the long haul. For more on this topic, see the blogs “Don’t Eat Your Seed Corn” and “Cutting Your Way to Prosperity (Part 3).

If you only look at the third horizon (more than 5 years out), you may develop a wonderful path to long-term prosperity, only to go bankrupt today because you did not find a way to feed the business today to fund that path. A focus only on the middle horizon may make you fall victim to missing out on both the profits of today and the long-term prosperity.

The most interesting comment made by Hagel was that when most people think about strategic planning, they tend to focus on the middle time horizon (three to five years out). In his opinion, this is the least important of the three. Here is his logic.

Near-term planning can be very powerful, because it is easy for the organization to understand, rally around, and deliver the desired results. Provided the annual targets are realistic, they can be a powerful tool in giving the direction necessary for the people out in the field to do what is necessary in the short term. People are pretty good at finding ways to hit an annual budget (especially if it is tied to bonuses).

Long-term planning can be very powerful as well, because it gives you enough time to actually create the future of your dreams. It takes time to develop the desired competencies and influence how an industry will develop. If done properly, you can actually increase your ability to control the future when given the time to actually create it to your advantage and ensure that the business rules the industry operates under are defined in a manner which benefits your position.

The problem is the mid-term planning. It is too far off to seem relevant to the day to day field employee and to close in to be easily molded and manipulated to your advantage by your company. It is, ironically, the time horizon over which you have the least control even though it is the one we tend to focus on the most.

Therefore, we need to still spend time looking at what is immediately in front of us, like the Pygmies do in the dense jungle. We also need to be looking at far away horizons, where there is still enough time to dream up an ideal state and make plans to bring that state into reality. In other words, we have to sometimes get out of the daily jungle and train ourselves in depth perception.

The middle horizon can then become a combination of forward extrapolation of today’s budget and a backwards extrapolation of that needs to be done in the interim to get to the desired future state. If you only try to do the middle time horizon (without the other two), you cannot properly fit the middle horizon into its proper context between the near and the far.

Strategic planning needs to look near-term, mid-term and long-term. Otherwise, one may try to maximize the potential in one time frame at the expense of the others. Annual budgets need to be thought of as a means of accomplishing near term strategic goals. And long-term planning must look out far enough to encompass enough time to gain control of how the future will evolve.

My wife recently got tri-focal glasses, so that she can see well at three distances. It took awhile for her to get used to the three lenses, but eventually it became automatic and natural. When starting three-horizon planning, it can be very difficult at first trying to see all three parts. But hang in there…eventually it will become more automatic and natural.

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