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Forecasting: its role and value for long-term planning and strategy

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The most important lesson we have learned in the field of forecasting over the last two decades is that models which best fit avaible data are not necessarily the most accurate ones in predicting beyond this data. In this paper I show that such a lesson has serious implications for other areas and notably management which is still based on the notion that future success can be attained by imitating "excellent" companies or the equivalent of model fitting. In this paper I demonstrate that future success can only be achieved by correctly recognizing emerging changes in the business environment and accurately predicting future ones. Recognizing and predicting such changes brings forecasting to the forefront of management and ironically turns its biggest weakness (the fact that the best model fit does not guarantee the most accurate post-sample forecasts) into a much needed strength as recognizing and predicting changes is becoming one of the most critical factors for formulating corporate strategies..

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1994/94-27.pdf

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Copyright INSEAD. All rights reserved