Management guru, C K Prahalad, warned corporate leaders that financial forecasting of quarter-on-quarter results and judging their performance only by that criterion was dead.
"Volatility is here to stay and forecasting is a way of procrastination instead of responding to the fast changes," Prahalad told an audience of business leaders at an interactive session on business.
Prahalad, professor of business administration at the University of Michigan Business School, was one of the panelists at the session.
Other panelists included Stephen J Kobrin, professor of multinational management at the Wharton School, University of Pennsylvania, Richard T Pascale, associate fellow at the Templeton College, Oxford University, and Christopher J Graves, managing director, Far Eastern Economic Review.
Kobrin agreed with Prahalad and suggested that companies could instead attempt scenario planning. Prahalad disagreed and maintained that scenario planning was different from forecasting, but would not solve the problem.
"How could a chemical company forecast its financial results and the earning per share at a time when energy prices were volatile, while its product prices and production levels were more-or-less fixed for at least a quarter?" he asked.
Elaborating further, he argued that core competency was not a static idea. Companies should move away from their current zones of comfort to new zones of opportunity.
"Unfortunately, there is no milestone setting by the CEOs today and investors are not just happy with quarter-on-quarter growth," he said.
Prahalad clearly stood tall among all the panelists with his incisive analysis and authoritative observations that few in the audience could challenge.
He said capacity planning, of course, was not dead. "It is forecasting which is difficult; business unit oriented forecasting will be less reliable," he added.
The renowned management guru also stamped his authority at the session with his views on business leadership.
With fundamental restructuring of business taking place, the CEOs must be conscious that their accumulated intellectual capital was diminishing, he said.
The academic institutions also were not training leaders for tomorrow. This, he said, was also an ethical question: How do business leaders come to terms with their diminishing intellectual capital and what does ethical behaviour mean when leaders today are always on the stage?
Borrowing an analogy from the world of sports, Prahalad listed six key qualities of a business leader: He has to be an active player in the business; he must be the captain and remain accountable; he should be the coach and be the mentor; he must be the referee and ensure that due processes are followed; he has to be the rule maker, and; finally he must be the cheer leader.
The proportion of these qualities can differ depending on the personality of the leader or the type of business you are in, he said.
Prahalad outlined the three challenges for business as growth, pursuit of the unserved markets and achieving a better price performance level through cost reduction.
He argued that a fundamental restructuring was taking place with capital and product flows from the developed countries to the new emerging economies being replaced and supplemented by knowledge and talent flows.
"New plants in China are state-of-the-art and Indian software is competitive not because of its cost, but because of its quality," he said.
Striking a mild note of dissent, Pascale wondered if the emphasis on cost reduction would take the focus away from building the companies muscles and core competencies.
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