Paul Otellini, the outgoing Intel CEO, was recently interviewed by The Atlantic. He expressed a profound sense of disappointment over missing the iPhone opportunity.
“The thing you have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do… At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn’t see it. It wasn’t one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought.”
It was the only moment I heard regret slip into Otellini’s voice during the several hours of conversations I had with him. “The lesson I took away from that was, while we like to speak with data around here, so many times in my career I’ve ended up making decisions with my gut, and I should have followed my gut,” he said. “My gut told me to say yes.”
In other words, he missed the iPhone opportunity because his forecasts were wrong. And his gut knew it. It’s not just him, forecasts are always wrong! We deceive ourselves by thinking otherwise. We don’t need to make strong assumptions; we need to understand uncertainty. This requires multi-scenario thinking – exploring the high and the low possibilities.
Imagine Otellini working systematically through the uncertain ranges instead of forecasts. He’d first make a list of the economic factors that needed to be assessed, which would include volume of chip sales and cost of manufacturing the chip. He would then ask:
Imagine that the volume of chip sales is really high. Give me some reasons that would explain this.
This “backcasting” approach invites the listener to live in a future reality. Seemingly unimaginable situations suddenly become explainable. Asked in this way, his request would legitimize optimism and would result in reasons like:
- Steve Jobs has strong intuition and has changed the world before with his products
- The mobile world is saturated with me-too devices, and something cool could really shake things up
After the reasons have piled up, Otellini asks:
Live in this world, and give me the highest credible number for volume of chip sales.
He repeats this exercise by asking about reasons for low volume, and the lowest credible number. This legitimizes skepticism and allows the naysayers to have their concerns incorporated. Finally, he asks for something in the middle. In this way, Otellini has invited divergent thought and worked with multiple scenarios, resulting in a range of volume instead of single number forecast. He repeats this exercise for cost of the chip, the other variable of concern.
By analyzing the ranges, using tools like a Tornado Diagram, Otellini would have been able to clearly articulate where his gut was pointing to: This could be a huge winner! Using the reasons in the ranges, he could have challenged his team to make it work. Using his knowledge of the uncertainties, he could have structured a deal with Apple to deal with the risks.
Too often, we set up a false choice between analysis and gut. By including uncertainty in forecasting, companies unleash the hidden insight in gut and achieve better results.