Methodological Premises of Social Forecasting in the Context of Business organizations K.Prabhakar. Director, KSR College of Technology, Tiruchengode-637 209 [email_address] Second National Conference on Management Science and Practice 11 March, 2007 Venue: Department of Management Studies, Indian Institute of Technology, Madras

A Forecast In 1995 James Allan Fox predicted forecast of increase rate of murders by teenagers in United States of America. He proposed optimistic and pessimistic scenarios. In optimistic scenario it will be fifteen percent increase and in the pessimistic scenario it will be double the number. (Reference Frekonomics by Steven D.Levitt)

In 1995 James Allan Fox predicted forecast of increase rate of murders by teenagers in United States of America. He proposed optimistic and pessimistic scenarios. In optimistic scenario it will be fifteen percent increase and in the pessimistic scenario it will be double the number.

(Reference Frekonomics by Steven D.Levitt)

What Happened? : The murders dropped by 30% in 2004 The explanations by policy analysts for fall in crime rate have been attributed to: Growing economy providing better job opportunities Effective Gun control initiatives and innovative policing strategies .

The explanations by policy analysts for fall in crime rate have been attributed to:

Growing economy providing better job opportunities

Effective Gun control initiatives and innovative policing strategies .

Reality Check However, the reason for the fall of crime is attributed to an important event that has happened twenty years back. Norma Mc Corvey who was poor, uneducated and unskilled, drug using twenty one year old woman. She has given up two children for adoption and found herself to be pregnant again. In Texas in United States of America, abortion was illegal. She filed a class action lawsuit to seek legalization of abortion. United States Supreme Court on January, 22, 1973, ruled in her favor. This event happened twenty years before fall of crime rate.

However, the reason for the fall of crime is attributed to an important event that has happened twenty years back. Norma Mc Corvey who was poor, uneducated and unskilled, drug using twenty one year old woman. She has given up two children for adoption and found herself to be pregnant again. In Texas in United States of America, abortion was illegal. She filed a class action lawsuit to seek legalization of abortion. United States Supreme Court on January, 22, 1973, ruled in her favor. This event happened twenty years before fall of crime rate.

Literature Review The term Social Forecasting is not a recent addition business studies. The use of social forecasting stems from recognition that social pressures are becoming an increasing determinant for the success of any organization. The various indicators indicate that the society will be experiencing a total change in next few years. Some of these changes have to be anticipated and must be incorporated in any long-range plans of an organization. Daniel Bell, sociologist has mentioned about social forecasting. He put forth the concept of a post-industrial society or information age in his book, The Coming of Post-Industrial Society (1973). Later, he re-named this concept the information society, for which he is generally considered as the creator of the term (1979).

The term Social Forecasting is not a recent addition business studies. The use of social forecasting stems from recognition that social pressures are becoming an increasing determinant for the success of any organization. The various indicators indicate that the society will be experiencing a total change in next few years. Some of these changes have to be anticipated and must be incorporated in any long-range plans of an organization. Daniel Bell, sociologist has mentioned about social forecasting.

He put forth the concept of a post-industrial society or information age in his book, The Coming of Post-Industrial Society (1973). Later, he re-named this concept the information society, for which he is generally considered as the creator of the term (1979).

Bell’s View in 1973 about Information society By an information society, Bell means that we move from a producer of goods (manufacturing) to service economy and that theoretical knowledge, technology, and information become the major mode of commodity. Information, and those who know how to create, assemble, and disperse, are more valued than labor. Information is normally costly to produce, but cheap to reproduce. That is, the cost of producing the first copy of an information good (such as writing a book or recording a CD) is initially expensive, but reproducing those goods is often negligible.

By an information society, Bell means that we move from a producer of goods (manufacturing) to service economy and that theoretical knowledge, technology, and information become the major mode of commodity. Information, and those who know how to create, assemble, and disperse, are more valued than labor. Information is normally costly to produce, but cheap to reproduce. That is, the cost of producing the first copy of an information good (such as writing a book or recording a CD) is initially expensive, but reproducing those goods is often negligible.

Shift in Conditions of Human Society The Renaissance, the Agricultural Revolution, Industrial Revolution culminating to present knowledge revolution Internet has brought convergence. However, with Web 2.0 technologies and models such as Wikipedia you are going to have unconvergence . Unconvergence is a term coined by me to depict societal condition where convergence and reconvergence happen at the same time. Examples are www.youtube.com , www.slideshare.net , www.deli.cio.us.com , www.netvibes.com etc At one point we were depending on the Advertisement media for information on products. Now we have blogs that are most authentic and can make and unmake the products or services.

The Renaissance, the Agricultural Revolution, Industrial Revolution culminating to present knowledge revolution

Internet has brought convergence. However, with Web 2.0 technologies and models such as Wikipedia you are going to have unconvergence . Unconvergence is a term coined by me to depict societal condition where convergence and reconvergence happen at the same time.

Examples are www.youtube.com , www.slideshare.net , www.deli.cio.us.com , www.netvibes.com etc

At one point we were depending on the Advertisement media for information on products. Now we have blogs that are most authentic and can make and unmake the products or services.

Business Forecasting Most business houses depend on Technological and Economic Forecasting for strategic Planning. However, literature review indicated that the residual error that is unexplained in both the forecasts are too large to be ignored. How the errors are caused? Can we really look at the same forecasting process differently?

Most business houses depend on Technological and Economic Forecasting for strategic Planning.

However, literature review indicated that the residual error that is unexplained in both the forecasts are too large to be ignored. How the errors are caused?

Can we really look at the same forecasting process differently?

Business Decision Process Business is a decision process under conditions of scarcity and uncertainty. Business is concerned with people. But people play different roles in different contexts. They play the role purchasers in the form of customers or consumers or both. They also play the role of resources as workers and managers in organizations. For the organization to be successful, it must understand the pattern of living, their choice models, motivation and value assumptions, legal environment etc. Therefore, the business must know not only their present situations of people, but also plan to predict their future outlook and needs.

Business is a decision process under conditions of scarcity and uncertainty.

Business is concerned with people.

But people play different roles in different contexts. They play the role purchasers in the form of customers or consumers or both. They also play the role of resources as workers and managers in organizations. For the organization to be successful, it must understand the pattern of living, their choice models, motivation and value assumptions, legal environment etc.

Therefore, the business must know not only their present situations of people, but also plan to predict their future outlook and needs.

The business has to deal with two groups of factors:- Exogenous factors – These factors affect the business. However, no control can be exercised by the business on these factors. They are labeled as the ‘environment’. Endogenous factors – These factors affect business and organization and are a foremost to a large extent controls these factors. They are defined as resources of the organization. In business we have to expect the likely changes in exogenous factors and respond with endogenous factors i.e., ‘resources’.

Exogenous factors – These factors affect the business. However, no control can be exercised by the business on these factors. They are labeled as the ‘environment’.

Endogenous factors – These factors affect business and organization and are a foremost to a large extent controls these factors. They are defined as resources of the organization. In business we have to expect the likely changes in exogenous factors and respond with endogenous factors i.e., ‘resources’.

The above discussion gave rise to three forecast outputs that business requires from the environment:- Changes that are likely to happen in the market potential Changes that are likely to happen in the various relative price, cost parameters; Changes that is likely to happen in those factors that could influence or affect efficiency.

Changes that are likely to happen in the market potential

Changes that are likely to happen in the various relative price, cost parameters;

Changes that is likely to happen in those factors that could influence or affect efficiency.

Syntropic Model In order to estimate these factors we need to have synoptic model in which all the assumptions are dynamic . In the synoptic model discussed in this research paper consists of six separate models all interconnected with each other such that output of one becomes input of others and cause these models to react within themselves.

In order to estimate these factors we need to have synoptic model in which all the assumptions are dynamic . In the synoptic model discussed in this research paper consists of six separate models all interconnected with each other such that output of one becomes input of others and cause these models to react within themselves.

The six models Economic model Demographic model Technological model Psychological model Sociological model Political model Syntropic Model Syntropic Model Syntropic Model

Economic model

Demographic model

Technological model

Psychological model

Sociological model

Political model

Events and Trends Event is used to describe something which either does or does not happen. ‘Liberalization’ of Indian economy is an event. Bush likely attack on Iran is an event. An event can be intuitively constructed . However, the probability of happening of the event is difficult to determine. We can say as time progresses the probability of happening of the event increases or decreses. Trend Implied social phenomenon evolving over period of time. In technological forecasting we generally use the ‘S’ Curve. However, in social forecasting we are in the process of identifying various different types of curves that are likely to simulate the natural phenomenon.

Event is used to describe something which either does or does not happen. ‘Liberalization’ of Indian economy is an event. Bush likely attack on Iran is an event. An event can be intuitively constructed . However, the probability of happening of the event is difficult to determine. We can say as time progresses the probability of happening of the event increases or decreses.

Trend Implied social phenomenon evolving over period of time. In technological forecasting we generally use the ‘S’ Curve. However, in social forecasting we are in the process of identifying various different types of curves that are likely to simulate the natural phenomenon.

The psychological model consists of seven important factors :- The desire of freedom of choice Acquisitive motive Change the attitude to obsolescence Freedom from drudgery Acquiring social prestige Attitude towards work Paradox of leisure

The desire of freedom of choice

Acquisitive motive

Change the attitude to obsolescence

Freedom from drudgery

Acquiring social prestige

Attitude towards work

Paradox of leisure

The political model covers the following factors:- Basic philosophy Equality (equality of results or equality of opportunity) Policy regarding full employment Stability of price Social welfare and defense Fiscal policy Monetary policy

Basic philosophy

Equality (equality of results or equality of opportunity)

Policy regarding full employment

Stability of price

Social welfare and defense

Fiscal policy

Monetary policy

What organizations have to do? Identification of changes in the market potential ; Adjusting resources allocation based on the available technology; Maximize use of resources.

Identification of changes in the market potential ;

Adjusting resources allocation based on the available technology;

Maximize use of resources.

Methodological Issue#1 What should be the time horizon for forecasting? Should it be for 5 years, 10 years, 15 years or 25 years? We find that short-term period of 2 to 3 years generally remain stable unless there is occurrence of discontinuity (a change of government policy from controlled economy to total free market). On the other hand in a long term i.e., forecasting beyond 25 to 30 years, the social change may be incorporated into the model. The real useful time horizon business is between 3 to 10 years to cover investment appraisals.

What should be the time horizon for forecasting? Should it be for 5 years, 10 years, 15 years or 25 years? We find that short-term period of 2 to 3 years generally remain stable unless there is occurrence of discontinuity (a change of government policy from controlled economy to total free market). On the other hand in a long term i.e., forecasting beyond 25 to 30 years, the social change may be incorporated into the model. The real useful time horizon business is between 3 to 10 years to cover investment appraisals.

What path the variable are likely to take with time? Years Forecast outcomes (i) (ii) (iii) (iv) A B

Elements of Social Forecasting What to forecast ? It is not obvious for us to discern the possible future events that could be significant for organizations. In the case of social forecasting it is likely to be more difficult. Our views of the society in which we are living, the way it has developed and it is likely path in future is affected by personal experience and individual values. Identifying right variable to be studied : S canning of the Bio-psycho-socio-political environment generally leads to large number of trends and possible future events which might be considered within the forecasting exercise.

What to forecast ? It is not obvious for us to discern the possible future events that could be significant for organizations. In the case of social forecasting it is likely to be more difficult. Our views of the society in which we are living, the way it has developed and it is likely path in future is affected by personal experience and individual values.

Identifying right variable to be studied : S canning of the Bio-psycho-socio-political environment generally leads to large number of trends and possible future events which might be considered within the forecasting exercise.

Elements of Social Forecasting … 3. A time scale is necessary for taking decisions based on informed view of future. Many of the studies of the future without application of forecaster methodology are likely to provide ineffective information. In recent years much of the data has been published with respect to impact of nanotechnology on society. However, we have to have a time scale to be of more use to the business organizations. 4. Probabilistic Assessment :Decision making under uncertainty is one of the major limitations of social forecaster. The probability will vary with the forecaster confidence in selection of indicators. 5. Measurement : Many a times the phenomena for interested of social forecaster are not directly measurable. Let us consider the example of ‘attitude towards leisure for work force’. These particular phenomena can be understood but how it is measured? We may consider some surrogate measures such as number of days spent by families for vacation or increased number of people at different pilgrimage centres. The precision may not be available in social forecasting, however, the impact of event or trend can be incorporated into the forecasting process.

3. A time scale is necessary for taking decisions based on informed view of future. Many of the studies of the future without application of forecaster methodology are likely to provide ineffective information. In recent years much of the data has been published with respect to impact of nanotechnology on society. However, we have to have a time scale to be of more use to the business organizations.

4. Probabilistic Assessment :Decision making under uncertainty is one of the major limitations of social forecaster. The probability will vary with the forecaster confidence in selection of indicators.

5. Measurement : Many a times the phenomena for interested of social forecaster are not directly measurable. Let us consider the example of ‘attitude towards leisure for work force’. These particular phenomena can be understood but how it is measured? We may consider some surrogate measures such as number of days spent by families for vacation or increased number of people at different pilgrimage centres. The precision may not be available in social forecasting, however, the impact of event or trend can be incorporated into the forecasting process.

Monitoring and Measuring Social Indicators Sociological inputs can be quantified. We will consider how it can be done in India. The income structure can be obtained from the research done by National Council for Economic Research and various statistical data provided by government of India and Reserve Bank of India. In an income-structured society, which is related to ability, the demand for education rises? Once income is totally related to ability, the people will demand better educational facilities. The emancipation of women and empowerment of women can be traced through the employment of figures, reduction in atrocities towards women, reduction in physical violence towards women etc. A host of data can be generated and related in order to find the place of women in the society. The most difficult factor is to study family relationships. The breaking of joint family system the concept of nuclear families and large population immigrating to different parts of the world is one of the trends which are likely to provide us information on change in family relationships.

Sociological inputs can be quantified. We will consider how it can be done in India. The income structure can be obtained from the research done by National Council for Economic Research and various statistical data provided by government of India and Reserve Bank of India. In an income-structured society, which is related to ability, the demand for education rises? Once income is totally related to ability, the people will demand better educational facilities. The emancipation of women and empowerment of women can be traced through the employment of figures, reduction in atrocities towards women, reduction in physical violence towards women etc. A host of data can be generated and related in order to find the place of women in the society. The most difficult factor is to study family relationships. The breaking of joint family system the concept of nuclear families and large population immigrating to different parts of the world is one of the trends which are likely to provide us information on change in family relationships.

How to organize the data Growth or Decline - Is the total population growing or declining? How is the age structure of the population likely to develop? What factors (e.g. changes in fertility, the birth rate, mortality) do we need to examine in order to predict change? Economic Activity - What is the size of the employed population? What is the unemployment rate, distinguishing between long and short – term unemployment? How is the employed population distributed by age and marital status? How is it distributed by manufacturing industry, services, the professions, agriculture etc.? Housing - What are the level of home ownership and the various forms of home tenancy? What is the balance between demand and supply of property and of finance for buying and renting? Ownership of ‘key’ Durables - Ownership of durables which may fundamentally change the pattern of life, such as a car and a telephone. Patterns of Expenditure - What are the broad patterns of expenditure by the population as a whole and by the various ages and socio-economic group housing and associated expenditure, food, clothing, leisure activities and so on?

Growth or Decline - Is the total population growing or declining? How is the age structure of the population likely to develop? What factors (e.g. changes in fertility, the birth rate, mortality) do we need to examine in order to predict change?

Economic Activity - What is the size of the employed population? What is the unemployment rate, distinguishing between long and short – term unemployment? How is the employed population distributed by age and marital status? How is it distributed by manufacturing industry, services, the professions, agriculture etc.?

Housing - What are the level of home ownership and the various forms of home tenancy? What is the balance between demand and supply of property and of finance for buying and renting?

Ownership of ‘key’ Durables - Ownership of durables which may fundamentally change the pattern of life, such as a car and a telephone.

Patterns of Expenditure - What are the broad patterns of expenditure by the population as a whole and by the various ages and socio-economic group housing and associated expenditure, food, clothing, leisure activities and so on?

Techniques available in Social Forecasting Brainstorming Delphi Checklists Forecasting of issues in isolation Simple extrapolation Fitting curves of a known characteristic Analogies Substitution curves Monitoring Value profiles Cross relationships between factors Trend impact analysis Cross impact analysis Scenarios

Brainstorming

Delphi

Checklists

Forecasting of issues in isolation

Simple extrapolation

Fitting curves of a known characteristic

Analogies

Substitution curves

Monitoring

Value profiles

Cross relationships between factors

Trend impact analysis

Cross impact analysis

Scenarios

Summary of Areas of Ignorance in Social Forecasting The lack of Causality We can recognize new situations when they have emerged and sometime extrapolate with a reasonable degree of success, but we cannot design a model, which enables us to understand the mechanics of change. The inability on our part to be able to provide a timing mechanism for psycho-social changes generally in social forecasting a generation has been used as a unit of time change (implying 20 to 25 years). But generations are overlapping and significant changes cannot be made with respect to timing. We use working hypothesis, which generally are generated in the form of scenario developments. The large area of ignorance is what factors mould attitudes and what factors build them and change them. The exact motivation of a person to act in a particular way is yet to be well developed. The motivation is developed on the basis of self-interest. But do all motivations depend on self-interest? It may not be so as we have seen from thesis and antithesis the self-interest is likely to evolve into extra self.

The lack of Causality We can recognize new situations when they have emerged and sometime extrapolate with a reasonable degree of success, but we cannot design a model, which enables us to understand the mechanics of change.

The inability on our part to be able to provide a timing mechanism for psycho-social changes generally in social forecasting a generation has been used as a unit of time change (implying 20 to 25 years). But generations are overlapping and significant changes cannot be made with respect to timing. We use working hypothesis, which generally are generated in the form of scenario developments. The large area of ignorance is what factors mould attitudes and what factors build them and change them. The exact motivation of a person to act in a particular way is yet to be well developed. The motivation is developed on the basis of self-interest. But do all motivations depend on self-interest? It may not be so as we have seen from thesis and antithesis the self-interest is likely to evolve into extra self.

Conclusion We can discern that social forecasting will be a valuable tool for business planners. It has different methodology of approach compare to that of economic and technological forecasting. It is not based on static assumptions, but on dynamic nature of business. Thus social forecasting reflects present and can be extrapolated in to future. Though, we observe that blind spots are pervasive in social forecasting they can be bridged with the help of information technology.

We can discern that social forecasting will be a valuable tool for business planners.

It has different methodology of approach compare to that of economic and technological forecasting.

It is not based on static assumptions, but on dynamic nature of business.

Thus social forecasting reflects present and can be extrapolated in to future.

Though, we observe that blind spots are pervasive in social forecasting they can be bridged with the help of information technology.

References Twiss Brian.C (ed.) ‘Social Forecasting for Company Planning’ by MacMillan Press Ltd. (1982). There is a very little ‘hard data’ on how many do, in fact, do so. A useful survey of current practice is contained in D.J.Romano and J.C.Higgins, The Role of Social Forecasting in Business Planning (Management Centre, University of Bradford, 1978). Social Trends, No.6 (1975), ‘Subjective social indicators’, by Mark Abrams; and No.7 (1976), Subjective measures of the quality of life in Britain, by John Hall. Survey Unit, Social Science Research Council. Meadows, D>H.and Meadows, D.L., The limits to growth (Potomac Associates, 1972). Coyle, R.G.Management Systems Dynamics (Wiley, 1977) Kahn, H.World Economic Development: Projections from 1978 to the year 2000 (Boulder, Colorado: Westview Press, 1978). Hayek, F.A. Individualism and Economic Order (London: Routledge & Kegan Paul, 1949). Mitchell, A Life ways and Life Styles (1973) and Elgin, D., Voluntary Simplicity (1976) Social Change: Implications of Trends in Values and Lifestyles 1979) Rao.S.L. and Natarajan.I, ‘Indian Market Demographics’, Global Business Press, 1996. Hall E.Thomas, ‘Business Cycles’, the nature and causes of Economic fluctuations Praeger (1990)

Twiss Brian.C (ed.) ‘Social Forecasting for Company Planning’ by MacMillan Press Ltd. (1982).

There is a very little ‘hard data’ on how many do, in fact, do so. A useful survey of current practice is contained in D.J.Romano and J.C.Higgins, The Role of Social Forecasting in Business Planning (Management Centre, University of Bradford, 1978).

Social Trends, No.6 (1975), ‘Subjective social indicators’, by Mark Abrams; and No.7 (1976), Subjective measures of the quality of life in Britain, by John Hall. Survey Unit, Social Science Research Council.

Meadows, D>H.and Meadows, D.L., The limits to growth (Potomac Associates, 1972).

Coyle, R.G.Management Systems Dynamics (Wiley, 1977)

Kahn, H.World Economic Development: Projections from 1978 to the year 2000 (Boulder, Colorado: Westview Press, 1978).

Hayek, F.A. Individualism and Economic Order (London: Routledge & Kegan Paul, 1949).

Mitchell, A Life ways and Life Styles (1973)

and Elgin, D., Voluntary Simplicity (1976)

Social Change: Implications of Trends in Values and Lifestyles 1979)

Rao.S.L. and Natarajan.I, ‘Indian Market Demographics’, Global Business Press, 1996.

Hall E.Thomas, ‘Business Cycles’, the nature and causes of Economic fluctuations Praeger (1990)