Here is an interesting fact about China that may surprise you: The Chinese advertising market has grown by 40 percent a year over the last two decades and could replace the United States as the world's largest ad market in the next eight years.
While much of the country is still desperately poor, hundreds of millions of Chinese have begun to adopt many of the key elements of middle-class lifestyles—from larger homes stocked with the latest in electronic appliances, to plush new cars, to the notion of a family vacation.
But China's evolution from the world's factory to the world's mass consumer doesn't come without a deep underlying caution. Surging growth following the global downturn has given way to runaway inflation and the growing sense of an emerging Chinese bubble. Consider the warning signs: a rising inflation rate, local governments overleveraged in debt, bloated housing and commercial real estate markets, and a sharp spike in wages marking the end of cheap labor.
An economic quake in China would reverberate in every corner of the globe—especially within finance departments. How would companies cope in such an environment? Will they see it coming or walk right into a trap? That's why more sophisticated strategic planning and forecasting is so essential today in this era of permanent volatility.
It's been suggested that to have a good feel for forecasting, you'd better have a sharp sense of history. But if the last five tumultuous years have taught us anything, it's that we fail to recognize a rapidly changing environment, even though it sure looks obvious in hindsight.
History, in recent years, has been a terrible predictor of future performance, as 2008 looked nothing like 2007, and 2010 told us nothing of what to expect in 2011.
The problem is traditional forecasting and budgeting systems produce projections that are linear at best and wholly insufficient for the level of uncertainty we're faced with daily. For all the talk about modernizing budgets and projections, corporations still largely rely on historical performance and quarterly and annual budgets, instead of a rolling, real-time approach to planning and forecasting.
It's naïve to expect a budget is going to remain relevant for six months, let alone a year. It contains far too much detail and assumes, incorrectly, that more specificity will ensure a more accurate budget. Today, more than ever, there has to be an expectation in planning that assumptions are going to be wrong.
Just as importantly, organizations need to institute early warning systems, studying the behavior of leading indicators frequently and in a more granular way.
Instituting these changes into the planning process requires collaboration with stakeholders, particularly those on the front lines that understand what drives the business. Instead of creating a one-time event, a real-time approach to planning can allow for more flexibility and quicker responses to the next great squall.
Maybe the fears about a Chinese bubble are wildly overblown and its economy will return to torrid double-digit growth.
But that magic isn't set in concrete. It never is. Perhaps the only true lesson we can draw from history is that the past reveals little about the future and can often blind us to what should be obvious.
