“It is better to have specialists on tap and generalists on top,” said Vikram Mansharamani FP&A Keynote for AFP 2021. The global trend-watcher, Harvard lecturer, author and investor advised the AFP audience that today’s challenges are more akin to mysteries rather than puzzles, and that a generalist approach can navigate uncertainty better than specialists.
Puzzles versus mysteries
Mansharamani believes there are two different types of challenges in the world. Puzzles are clearly defined problems with knowable answers. To solve them, you gather more data, find more dots to connect, and develop insights. With puzzles, the data is available; you just have to find it, and specialists with deep domain expertise are best suited to find and understand the data points.
Mysteries, on the other hand, are fuzzy, ambiguous, uncertain, probabilistic and poorly defined. The data is poor. What's inflation going to be three years from now? You can't find the answer because it doesn't exist. For mysteries, we are trying to understand the dynamics, to look at the connections across different types of dots, or even different strategies for how to connect the dots.
Mansharamani then asked participants to look at the current state of the world: uncertainty. How do all the dynamics of the world come into play? What does it mean to you? And how do we navigate through the uncertainty? Going back to the inflation example, a specialist, according to Mansharamani, would begin by asking deep, micro questions: we have this pent-up demand, supply chain disruptions, prices are rising, what's going on? They're looking for more dots. “That's something that almost every single finance group I've talked to asks about: What's happening with inflation?” said Mansharamani.
What does a generalist do instead?
The generalist sees four dominant trends and derivative impacts
Being a generalist means employing the logic of systems thinking. Systems thinking is all about looking at connections and feedback loops. If you do X here, what effect does it have over here? Applying the generalist approach to the current state of the world, Mansharamani showed participants how to think of about it differently. To begin, there are four big trends we all need to consider because they will drive future dots and long-term trends.
- China. China had a credit fueled investment bubble that burst. While they are growing into it, the current state is one of overcapacity and extra supply.
- Technology. We are able to do more with the same or even fewer inputs, which equals more supply.
- Energy. We are getting more proficient in our use of alternative energies — energy advancements equal more access to more supply.
- Demographics. The world's largest economies are all aging, and when people age and live on fixed incomes in retirement, they spend less, which equals less demand.
Using the logic of a generalist, excess supply is a macro deflationary pressure that will swamp shorter-term movements. If you have more supply and less demand, prices go down and drive subsequent effects, including:
- Currency wars. To counter deflationary spirals, countries will start devalue their currency to stimulate demand for their products, which leads to currency war dynamics. Plus, when you have limited demand, you create a “winner take all” dynamic, and you're going to start seeing inequality among nations.
- Protectionism. We have fertile ground the world over for nationalism and populism to take hold. In the case of the former, we blame people outside our country, and in the case of the latter, we blame people inside our country. Both courses lead to protectionism that slows global economic growth and standards of living.
- Inequality. The coronavirus pandemic produced a K-shaped recovery that exacerbated inequality. Capital flowed quickly to new opportunities, creating new billionaires and centibillionaires, while some pockets of labor could not adapt quickly (think of people working in the hospitality or event industry. There’s also a shareholder versus stakeholder debate, asking who gets the rewards and what are the byproducts of business models on your community, your pool of labor, and your environment. The risk of compounding inequality within nations is uprising and unrest where workers of the world unite and overthrow the people in charge.
- Trade wars. The economic order is changing from a multi-later view where trade benefits all, frequently stated as “a rising tide lifts all boats,” to zero-sum thinking, summarized as “for me to win, you have to lose.” We see this in tariffs, exiting trade agreements, and hardening of borders in an effort to advantage one side instead of improving all sides.
Implications for planning: two major global shifts
Encompassing the dots discussed above, there are two major global shifts that are going on right now. The first is that global supply chains are shifting. We are seeing supply chains that were organized around a 40-year-old concept of just in time, lowest cost, supply chain strategies that price efficiency. However, the uncertainty caused by the above disruptions are leading companies to promote “just in case, most resilient” supply chains to insulate from volatility.
We also want smaller carbon footprints. That reinforces the desire to bring supply chains closer to home, vertical integration. “It's done, it's happening. We're seeing it now. And so that's a big beneficiary for the United States, for North America,” said Mansharamani.
The second major global shift going on is that the world is bifurcating into two global economies. There is a China-led economic system at the same time as we're developing a U.S.-led or Western-led economic system.
“That's going to be very disruptive,” said Mansharamani. “It's going to be particularly disruptive if you have colleagues, supply chains, business communications, IT networks that cross these boundaries. And if you don't think that's the case, think about IT laws that exist regarding what goes over a Chinese network versus what goes over an American network.”
Threat thinking versus opportunity thinking
There are two ways to think about all these dynamics, according to Mansharamani. One is to be an ostrich and stick your head in the sand: threat thinking. The specialist thinks about specifics of the change and challenge, and risks getting stuck in this paradigm.
The alternative is opportunity thinking, to apply different strategies and approaches. The supply chains are shifting—so let’s get ahead of it. Inequality is having some problematic developments—let's pay our workers more, let's pay attention to our community.
This just how a generalist connects the dots. It's a framework for the uncertainty we see on a day-to-day basis. The randomness levels are high, so flexibility, adaptation, experimentation, and expansive think will drive success.
“You can take advantage of these dynamics,” said Mansharamani. “We've always had uncertain business environments. I don't know when it's ever been certain. What matters is how we think about it. And that's what we should be thinking differently about.”
For more insights, listen to Vikram Mansharamani’s full keynote presentation. The FP&A Keynote was sponsored by OneStream Software and Workday.