Über die Autorin bzw. den Autor

Dr. Simon Ramo, a recipient of the PresidentialMedal of Freedom, is a pioneer incofounding successful high-tech companies.
Dr. Ronald Sugar is chairman and CEOof Northrop Grumman, a $33 billion hightechnologycorporation defining the future ofglobal security.

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Strategic Business Forecasting

The McGraw-Hill Companies, Inc.

Contents

Chapter One

We begin our discussion of how to perform intelligent forecasting by examining the past record of predicting occurrences of great importance to society. That score, we shall find, has been so poor that it impels us to the conclusion that leaders of government and private entities must strive to be more intelligent in the future than in the past in predicting the future and shaping it. In this book we will present procedures that have worked well for us in making useful predictions. To shape the future, it is necessary to understand why leaders have done so poorly in the past. It is common, we must note, to cite poor performances in making predictions. Authors of books relating to forecasting seem often to revel in describing badly wrong predictions by others, especially when those predictors erred colossally and disastrous consequences followed (and when the predictors had been widely admired beforehand for their leadership and vision). But parading a collection of horrible past mistakes is not the object of this book. The examples of poor past predictions that we shall present were all chosen to aid in later discussion of why forecasting often has been inadequate and how to benefit from superior efforts.

In the decades closing the 1800s, a company known as Western Union was riding high. Its pioneering technology was revolutionizing the transmission of information worldwide. Having grown very large and prosperous, Western Union was a prime example at the time of how advancing technology could alter greatly and improve radically business and government operations. Western Union had turned down the opportunity to buy a new company founded by an inventor named Alexander Graham Bell. The big corporation's experts decided that "telephony" was an unnecessarily complex way to send messages, one foolishly employing human voices and ears. Fundamentally, and therefore permanently, the telephone would be limited in its transmission quality and its distance coverage. It would be costly compared with any possible advantage it might hope to offer, and it also would be extremely error prone in the critical elements of word generation and word recognition because of its dependence on those unreliable and quality-inconsistent human components. All in all, telephony, they concluded, would constitute an unsound investment by a company already possessing the proven answer to society's need for rapid and reliable communication at a distance.

Western Union's decision was an abysmal failure to envisage the future correctly. It occurred even though Western Union then housed the world's largest and most knowledgeable and experienced team in the application of technology to information transmission. Bell's company became AT&T, the world's top communication entity and one of the largest (for almost a century, the very largest) of corporations, while Western Union became increasingly minor.

Western Union was not alone in prediction failures, but it was a strong contender for the worst record among those attempting to foresee what was to come in their own specialized fields. We shall see shortly that failure to predict correctly, often even to anticipate at all, the coming of the most significant developments has been common. Indeed, those best positioned to visualize and gain from society-changing events have often erred most comprehensively.

In view of the enormous impact on the world of progress in technology, we shall describe more examples of the past record of forecasting in that category. We shall also note that poor foresight about the advent and effects of world wars served the world poorly. Prediction efforts in only these two very different areas, technology and war—and we shall describe briefly some examples in other fields as well—provide ample evidence to justify our assigning a low score to past predictions.

All now recognize that possessing the capability to exploit the progress of science and technology is necessary for a growing economy and a healthy and secure citizenry. Science and engineering advances occur continuously today through both private and government efforts. The forecasting by some individuals has been spectacularly insightful and has led to new and successful companies that grew large and became basic to the nation's gross national product (GNP). But most new companies, in contrast to their founders' and backers' predictions, fold quickly, and the established large corporations often fail to see and act on future potentials. There have been far too many huge prediction errors and oversights by both government and industry leaders.

Predicting TV

When World War II ended, it was apparent that broadcast television had become technologically achievable. Engineers, that is, could apply new technology so that scenes in studios could be reproduced on home televisions. But would broadcast TV soon arrive? Could studio cameras, transmitters, receivers, and programs worth watching all be produced at feasible costs? Would there be enough viewers so that advertisers would pay what it would take to reach that audience? Would the timing be the near future, or would successful—that is, profitable—commercial television broadcasting be far off in time? That a serious prediction effort was needed to probe such issues clearly was indicated for any company considering a large investment to create a future television broadcast business.

One of us authors (S.R.) was employed at General Electric in 1945 (as a research scientist, not a TV broadcasting expert) and remembers well having the privilege one day of sitting in on a presentation made by GE's TV market prediction team. The team compared TV broadcasting with radio broadcasting, which was at that time a well- developed, prosperous industry producing programs reaching many millions of listeners.

The GE team explained that the price of a home TV set would be more than 10 times the price of a radio because of the much greater complexity and quantity of the TV's parts. But the number of hours a day in which typical viewers could be expected to watch their TVs would be less than a tenth of the number of hours in which typical radio listeners were listening to their radios. The team pointed out that a listener could enjoy a radio program while preparing dinner, cleaning house, knitting, driving the car, boating, dressing, performing calisthenics, painting, bathing, or making love. In contrast, a viewer must look at the TV screen. If a radio is a bit off in sound quality, only serious classical music lovers might notice or care. A picture ever so slightly off in focus or stability, however, would be totally unacceptable to every TV viewer.

The GE predictors concluded that a very high cost would be incurred in preparing programs for sight and sound as compared with sound alone. The cameras and their handling, the costuming of actors, the creating of the scenes, and the complex rehearsals would obviously be vastly more expensive than what was required for simple audio broadcasting. Even if movies were to constitute most of TV entertainment, the visual quality of the picture and the anticipated small screen of a home receiver would be noticeably inferior to what the public was accustomed to enjoying in a movie theater.

Not surprisingly...