Hindsight, insight, and foresight: The power (and shortcomings) of our decision-making

As business planning for 2023 shifts into high gear, in the midst of historic uncertainty and instability, I have been considering the various ways in which leaders gather intelligence and make decisions.

We all have our own individual approaches, and organizations have their own processes and specific inputs that are relevant and necessary to plan for their future sustainability and growth.

But it strikes me that we have in common three interrelated but distinct ways of informing our decision-making—hindsight, insight, and foresight—which I want to explore here.

Hindsight

“Those who cannot remember the past are doomed to repeat it.” These words are repeated often enough that they may sound clichéd, but they are also true. The lessons of the past, or hindsight, are invariably one of our most used and valuable tools.

What patterns have we seen in the past that are relevant to today? How do they differ? What lessons can we draw to help us plan for tomorrow?

During the financial crisis of 2008, the United States was lucky to have Ben Bernanke, a historian of the Great Depression, at the helm of the Federal Reserve. What he knew about the past helped him devise policies that protected the economy from collapse. A dozen years later, lessons from the financial crisis informed policymakers as they responded to the pandemic, leading them to undertake massive fiscal and monetary stimulus, including direct support to individuals in many countries. As we enter uncertain economic waters, companies can draw similar lessons from their pasts. How did your enterprise weather the financial crisis? Looking back at 2020, when you had to respond fast to COVID, what worked and what did not?

Our firm’s experience at times like these in working with companies that are slowing, as well as those that are struggling, has taught us many things. But the lesson that stands out the most is this: Move fast. Don’t wait to prepare for a downturn till one is already clearly in view. Don’t wait to respond to other disruptions till they have already begun to eat away at the foundations of your business.

Hindsight has taught us the critical, no-regret steps companies should be taking today to strengthen their business, and if a recession doesn’t hit, our experience shows that companies that have done so will have created more resilient organizations, poised for growth.

Hindsight has a flip side, too. Those who remember the past too well might not be clear-eyed about the future, like generals who are ready to fight the last war, not the next one. That’s why smart decision-making means combining hindsight with two other things—insight and foresight.

Insight

Insight comes from critically and objectively analyzing all available and relevant data, today’s data as well as the lessons of history, to make informed decisions.

As psychologist and Nobel laureate Daniel Kahneman has demonstrated, humans are lazy thinkers. Even the most sophisticated analysts cut corners; even the most alert thinkers can be blind to their own biases. For example, we tend to give more weight to data or stories that confirm our underlying assumptions than those that contradict them. We are more likely to project that a trend will continue than look for signs that it will change.  And we pay more attention to hot news than long-term movements.

As a result, it is essential to challenge our assumptions. One way to do this is to consult people who have different perspectives than your own. Getting diverse perspectives in an open and collaborative way is powerful. Have you asked the younger or less vocal members of your team their point of view on a problem, for example? Don’t become trapped in an echo chamber.

Data and analytical tools, such as artificial intelligence and machine learning, are another powerful means to gain insight. Most companies today recognize data as a strategic asset, but they are less good at putting that asset to work to sharpen decision-making. The benefits in doing so are tremendous. In research that AlixPartners conducted with MIT’s Center for Information Systems Research, we found that best-in-class, future-ready companies enjoyed profit margins 9.4% greater than companies with siloed and inefficient data processes.

Companies need to build insight engines that pull facts together quickly and present them in a form that makes it easy for executives to use them in their decision-making. Though we know analytics tools can be subject to their own biases, when constructed properly and used well, their most powerful use, in collaboration with your own experience and judgment, is predictive, which leads us to foresight.

Foresight

The purpose of any budgeting and planning process is to look into the future and prepare your company for the most likely sets of outcomes. But in a world of converging, interdependent, and accelerating disruptions, uncertainty has become the new normal. How do you plan in that context?

Consider, for example, how home improvement retailers and manufacturers were caught off guard during the pandemic by a sudden surge in demand. The classic recession playbook (built on hindsight) called on them to reduce inventories in expectations of lower sales. Instead, demand skyrocketed on the back of a supply-driven recession in which consumers were both stuck at home and recipients of stimulus checks.

Consumer demand was so unpredictable throughout the pandemic that AI became an essential planning tool for most consumer-facing businesses. New techniques, using smaller data sets, allow greater agility and real-time decision-making.

These are just tools, of course, and human judgment remains critical. When faced with such uncertainty, at times it’s less important to make bets on assumed outcome. Scenario planning, laying out the factors that could lead to different outcomes and then identifying which levers you can pull quickly in the event of each, is therefore essential.

The whole is greater than the sum of its parts

Together, these three—hindsight, insight, and foresight—provide the foundation for business planning and decision-making. Hindsight identifies what patterns we have seen in the past, how those evolved, and what lessons we can learn: We need that wisdom. Clear-eyed analysis of the data at hand, enhanced by AI tools and shorn of our cognitive biases, provides us insight: We need those facts. And foresight is identifying what you should be doing today to prepare for an uncertain tomorrow: We need that imagination.

Combining these three—wisdom, facts, and imagination—will enable better decision-making and better outcomes for your business.