Facing Management Dogmas: Making Decisions Based on Historical Data

Irrespective of the industry, when creating a strategy, executives want to understand what the future of their market holds. Since the future cannot be predicted with certainty, they often focus on determining the most plausible scenario to prepare their organization and respond in a timely manner. To achieve this, executives frequently rely on the same approach: looking into the past and extrapolating trends. More specifically, they analyze historical trends in demographics, economic parameters, customer behavior, competitors, and suppliers, and then trying to predict their future trajectory. This approach assumes a certain linearity between past developments and future outcomes.

Of course, when modeling future trends, executives often account for major shifts in the market, attempting to incorporate the potential impacts of these changes into their extrapolated projections. The resulting figures then serve as a framework within which future goals and actions are defined and implemented.

Another commonly used method for analyzing past trends is benchmarking. By examining industry standards or competitor performance, organizations essentially look at the past, as current performance reflects decisions and actions made previously. However, benchmarking has significant limitations – It does not provide insights into the planned actions or innovative strategies competitors may pursue. Organizations that rely heavily on benchmarking to set their goals are unlikely to become market leaders. At best, they might achieve the status of a solid follower, capturing a portion of the market leader’s share.

Now, consider the implications of over-relying on past data to guide future decisions. How often have past trends accurately shaped the future of industries and organizations? How frequently have unforeseen events reshaped the macroeconomic landscape? Examples include the COVID-19 pandemic in 2020, the Suez Canal blockage in 2021, and Russia’s invasion of Ukraine in 2022. Similarly, disruptive new entrants have repeatedly shaken industries with innovative business models – Amazon has redefined multiple sectors, Netflix transformed the television and media distribution industries, and Spotify outperformed traditional music giants like Universal Music and Sony Music.

Given these examples, how can we confidently assert that past trends will be reflected in future scenarios? If the correlation is uncertain and the value of such an approach is limited, why do we continue over relying on historical data to understand future requirements?

Of course, the past is not irrelevant – it holds significant value. Lessons learned from prior experiences should inform and frame our thinking about the future. However, we must avoid expecting the future to be a mere extension of the past. At the very least, we should recognize that historical trends should not be blindly extrapolated.

The primary limitation of relying on historical data is its underlying assumption: that the future will mirror the past. This perspective fails to account for changing market dynamics, innovation, and competitive actions.

To address these limitations, decision-making should integrate historical data with forward-looking tools such as scenario planning, trend anticipation, and adaptability to emerging challenges and opportunities. Combining these approaches allows organizations to create strategies that are both informed by the past and prepared for the uncertainties of the future.

In addition, organizations should continuously reimagine how to meet the evolving needs of their customers by developing innovative products and services, designing novel operating models to deliver them, and discovering new ways to capture value.