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This book helps managers move beyond the idea that the future of business will resemble the past and allows them to use scenarios to imagine multiple perspectives. The concepts of organizational realities, experience, and beliefs are explored to encourage and embrace change in business organizations for a successful future.
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Read an Excerpt
The Sixth SenseAccelerating Organizational Learning with Scenarios
By Kees van der Heijden Ron Bradfield George Burt George Cairns George Wright
John Wiley & SonsISBN: 0-470-84491-4
Chapter OnePreparing for the Future
In this chapter, we introduce scenario thinking: what it means, why it is valuable, and how it enables organizations and the people within them to focus on achieving sustained competitive advantage.
This chapter is concerned with preparing for the future, introducing the concept of scenario thinking and its potential value in delivering a world-beating strategy. Understanding how best to achieve competitive advantage, in a world where the only constant is an ever-increasing rate of change, is the key attribute of profitable, market-leading organizations. As the pace and scope of change quickens, the urgency of finding the best, most competitive approach grows. In this context, the core tool to deliver continued success is the development of a new approach to strategic thinking. Tomorrow's successful companies will overturn strategic inertia and business-as-usual thinking, avoiding complacency and finding new, scarce sources of value.
In this chapter we will:
Assess the drivers both of organizational success and failure - understanding that both are inevitable, dynamic and closely tied together.
Explain the Sharpbenders research into why organizations fail - this researchhighlights problems in store for organizations that are inherently unable to detect or respond to change.
Use case examples to outline the problems in maintaining organizational performance - knowing where organizations go wrong, how and why, is essential in forming an approach that will deliver sustained competitive advantage.
Highlight the factors that are critical to achieving success - explaining how the barriers to success can be overcome, notably by creating lasting value.
The business environment is not a static arena. Establishing an ongoing, scenario-based strategic thinking process enables a business to plan for change, achieving optimum performance. These concepts are introduced in this chapter using several case study examples: Xerox and Canon, Yahoo!, Lego, Tetra Pak and Nokia.
UNDERSTANDING ORGANIZATIONAL SUCCESS
Success and Failure are Inevitable
This book is ultimately about organizational success. Organizational success is inevitable: there will always be successful organizations. Equally, organizational failure is inevitable. Organizations operating in the world are like football clubs playing in a competition: they cannot all win and they cannot all lose. Success and failure go together like the positive and the negative poles of a magnet; you can't have one without the other.
Most managers work towards the objective of making their own organization successful. Right from the start we know that they cannot all end up where they want to be. That thought has aspects that are both depressing and uplifting. We know that, however hard they try, some managers are going to be disappointed, and each of us should wonder: 'Could I be that manager?' On the other hand, knowing that everything is relative helps us to realize that the task ahead is not impossible. We do not have to be perfect, only better than the competition.
Success and failure are dynamic notions
If there is one thing we can all agree on, it is that the world around us is subject to constant and considerable change. It is clear that organizations operating successfully one day may fail totally the next. No matter how illustrious an organization's history might be, all rely on their future business. The game does not remain the same. Winning means changing the way one plays over time. Organizations that want to survive have to adapt. The challenge is that the way that the game is changing remains uncertain until it is played. This is fundamental: without uncertainty everyone could do the same calculation, or act in the same way. However, it is important to remember that not everyone can win at the same time: there are winners because there is uncertainty or, to put it in a more positive way, without uncertainty there can be no winners. Instead of seeing uncertainty as a problem, therefore, we had better start learning to love it as the basic source of our future success.
This is highly relevant to this book. We will explain how organizations that lose show poor performance due to thinking and behavioural flaws that can be improved by the use of scenario thinking. Certainly, everyone can discover this for himself, and if we were ever to reach a stage where this had become clear to all managers and every one of them was a scenario planner, there wouldn't be much competitive advantage left in it! At that stage it would have become a qualifier; something no organization could do without. But the fact is, we are far from that state of affairs. Meanwhile, as managers and organizations are slow to discover the fundamental importance of scenario thinking, early adopters can gain huge advantages.
Understanding success by understanding failure
Understanding that success and failure exist together, in close relation to each other, means that the study of organizational success starts with the study of organizational failure. Remembering that the quality of performance is relative, we will try to identify what people and organizations do that makes them end up on the losing side. Understanding weaknesses will help us to turn them into relative strengths.
In this chapter, we analyse what creates failure. This will lead to the notion of 'flaws', which we find at the level of individual thinking, organizational behaviour and community thinking, based on shared cultural beliefs and assumptions. In Chapters 2, 3 and 4 we will analyse flaws at these three levels in some detail.
We will approach the analysis from the perspective of the scenario planner, who for us is the practising manager. It is our belief that scenarios are the most powerful tools that managers have at their disposal today to move their organization to the winning side. In order to make that case, we need to understand the flaws and how they come about. In order to get us there we will first analyse organizational failure.
Explaining the Sharpbenders Research: Why Organizations Fail
In this section, we are going to make use of a body of interesting research highlighting the problems for organizations that are inherently unable to detect or respond to change. This is known as the Sharpbenders research. The people who undertook the research had the bright idea of concentrating on companies that had been failing, as manifest in a stock value that had been slipping against the market average, but which had been able to turn things around. That is where the word Sharpbenders came from - a slipping stock value followed by a recovery. The idea was that these companies, having been able to turn things around, would be able to articulate what had gone wrong and why this had happened. After all, if they had managed to turn things around they must have made a successful diagnosis of what went on during the downward part of their history. Having identified such companies from stock market records, the researchers then interviewed many of them and thus produced what is effectively a list of what can go wrong.
The outcomes of the Sharpbenders research
The findings highlight the key causes of relative decline in five categories:
adverse development in market demand or increased competition;
high cost structure;
poor financial controls;
failure of big projects;
Later, we will analyse these results in more detail. But before we do this we need to introduce a few basic concepts that will help us to navigate this territory.
The difference between hygiene factors and the business idea
The causes of failure identified by the Sharpbenders research can be divided into two categories: hygiene factors and business idea factors. What do we mean by this? As we discussed earlier, organizations have always been trying to discover ways of outsmarting the competition. This book is an example of that. Not all ideas that are developed are equally effective, but some stick out as clearly being successful. Initially some organizations develop significant competitive advantage by exploiting these ideas but, over time, others see the beneficial effects and will start to copy the ideas in their own organizations. They can be learned from studying organizations deemed as 'best in class', through a benchmarking process. They will be codified in textbooks and taught to managers. Once an idea reaches this point it has become a hygiene factor, something that is generally recognized as fundamental in running any healthy organization. Without hygiene factors, professional management knows in advance that the organization will not have a chance to play in the competitive game.
Most hygiene factors are about the need to ensure sound and efficient business processes, critical to ensure that the organization remains a going concern. These business processes are the generally accepted basics for running any organization; they are qualifiers, allowing you to play. However, winning the game requires much more: additional, distinctive factors and capabilities that will distinguish the winner from the losers. These additional, distinctive factors and capabilities that are not yet generally codified and available only to one organization are summarized in what we call its business idea.
Returning to the Sharpbenders research, the first striking observation is that most failures are due to hygiene factors. The following causes are highlighted:
Poor controls in areas such as credit, working capital, budgets, costs, cash flow or quality. This is often due to inadequate management accounts, leading to infrequent and incomplete reports that are late, too complex, too voluminous, irrelevant or incorrect.
Immature management style. Typical examples include an inflexible CEO (chief executive officer), excessive caution, authoritarianism, ineffective delegation and coordination and over-centralization.
Failure to create and communicate purpose and the business idea, both between the top and middle management, and with the workforce.
Another hygiene factor and one crucial business process that frequently gets pushed into the background is a systemic approach to sensing or responding to external change, based on maintaining sound and efficient relationships with all stakeholders. Maintaining relationships with stakeholders - such as shareholders, suppliers and customers - is vital for all organizations, as any of these groups have the power to threaten its existence. Shareholders can decide to invest elsewhere, customers may 'vote with their feet'; the government can pass unfavourable legislation, and so on. These vital groups have to be kept on board. Their conflicting expectations need to be identified and reconciled.
This book is not about hygiene factors. That does not mean that it is not important to recognize their existence as qualifiers in the race. Indeed, often they are not looked after sufficiently, notwithstanding the fact that professional managers know what needs to be done. Unfortunately, in real life things often slip due to lack of time or attention. If this results in poor performance, the manager has to create a 'sharp bend' by applying well-known codified management knowledge. For example, where management accounts are found to be inadequate, effort on getting these up to standard pays significant dividends. Similarly, inadequate internal communications leading to a poorly motivated workforce will offer significant scope for improving results with a relatively modest and obvious upgrading project. There are many examples where hygiene factors have to be considered and addressed with the application of codified knowledge in order to ensure success.
This knowledge is available, for example, in business schools and in textbooks, and help is at hand from the many consultants who offer their services in these areas. In this book, however, we will concentrate on where winning business ideas come from. Our focus here is on longer-term strategy.
Looking after hygiene factors should be seen, therefore, as a minimum requirement to play, a qualifier for being in the game. However, the ultimate aim is to try to win. For this, the organization needs a unique business idea. The Sharpbenders research shows interesting failures in this area as well.
The Sharpbenders business idea failures
The strategic reasons for failure identified in the Sharpbenders research include:
A lack of recognizable strategies in such areas as functional policies, corporate strategy and environmental monitoring.
Poor execution or timing of responses to developments such as declining market demand or increasing competition.
Inappropriate risk-taking, in terms of projects that are too large in relation to the size of the organization taking them on, or acquisitions that are assessed too optimistically.
In considering these causes of decline, we see clear evidence of organizational inability to understand and adapt to change in their environment. In retrospect, people identify changes in the marketplace that passed unnoticed at the time. Typical examples include new products and new substitutes coming on the market, changes in product technology, demographic changes, changes in income distribution, changes in fashion, and a cyclical fall in demand that wasn't taken seriously.
Similarly, increased competition often went unnoticed, while in retrospect the signals were obvious, such as technological change lowering rivals' costs, threats from substitutes keeping prices low, political changes related to loosening of regulations, trade barriers and purchasing policy, removal of protection and other barriers to entry, a significant new entry, high exit costs keeping competition intense in the face of falling sales, a lack of strong product differentiation or strong cost advantage, or falling switching costs for customers.
Turning things around
The Sharpbenders research findings also show the managerial actions that were successful in reversing a decline in organizational performance. The business idea-related strategic factors that were identified in the research included:
An emphasis on customers and their dynamic value systems.
A strong marketing focus.
A clear product focus with a deliberate concentration on what the organization can do best.
Regular reviews of strategy (the danger of formalizing this process tends to increase with the size of the business).
Excerpted from The Sixth Sense by Kees van der Heijden Ron Bradfield George Burt George Cairns George Wright Excerpted by permission.
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Table of Contents
ABOUT THE AUTHORS x
The Quest for a Clear Vision of the Future 1
Unknown Variables, Uncertain Future 1
The Significance of Scenario Thinking 2
Developing the Sixth Sense – the Approach to Scenario Thinking 5
How this Book is Organized 6
1. PREPARING FOR THE FUTURE 11
Understanding Organizational Success 12
Success and Failure are Inevitable 12
Understanding success by understanding failure 13
Explaining the Sharpbenders Research: Why Organizations Fail 14
Maintaining Organizational Performance: Problems 19
Sustaining Competitive Advantage – the Battle of Canon and Xerox 19
Yahoo! – Competing in Fast-moving Markets 23
Building a Colourful New Future Brick by Brick – the Story of Lego 26
Success Stories 28
Providing Customer Value – the Rise of Tetra Pak 28
Entering New Markets and Maintaining Growth – Nokia Answers the Call 32
Barriers to Strategic Success 34
Lessons Learned 34
Creating Value – The Difference Between Success and Failure 36
Value is Created in a Domain of Scarcity 37
Summary: Understanding the Barriers to Scenario Planning 37
2. HOW MANAGERS THINK ABOUT THE FUTURE 41
Understanding Management Thinking 42
Routines in Management Thinking 43
Over-reliance on Routines: Success Formulas and Managerial Thinking 44
Biases in thinking 46
The Relevance of Framing Flaws 46
How a Failed Product Launch Actually Boosted Sales: the Sparkle of New Coke 47
Confirmation Bias 50
Hindsight Bias 51
The Problem of Overconfidence 52
The Limitations of Judgemental Forecasting 53
Decision Avoidance 54
Escalation of Commitment 54
Bolstering, Procrastination and Buck-Passing 57
Example of a Management Team Facing a Decision Dilemma 58
Thinking Flaws: A Synthesis 61
Overcoming Strategic Inertia: the Potential Benefits of Scenario Planning 63
A Scenario is not a Forecast of the Future 63
Scenarios Focus on Key Uncertainties and Certainties About the Future 63
Scenarios Help Identify Information to Anticipate How the Future will Unfold 64
Typical Outcomes of the Scenario Planning Process 65
Summary: Overcoming Thinking Flaws with Scenario Planning 65
Summary Checklist – the Limits to Managerial Thinking 65
3. HOW ORGANIZATIONS THINK ABOUT THE FUTURE 69
Flaws in Organizational Thinking 70
Communication Difficulties 71
Group-think in Organizations 72
Fragmentation in Organizations 73
Limitations Imposed by Identity 75
Balancing Change and Constancy 75
Overcoming the Limits of Organizational Identity: the Example of IBM 77
Organizational Lock-in 78
Understanding Organizational Lock-in 78
The Consequences of Organizational Feedback Loops and Lock-in 79
Behavioural flaws 80
Learning and Action 80
An Organizational Dilemma 81
Management and Action 82
Overcoming the Pathologies of Organizational Life 84
Using Organizational Processes 84
The Benefits of Scenario Planning Interventions 85
Summary: How Organizations Think About the Future 85
4. THE IMPACT OF CULTURE AND CULTURAL ASSUMPTIONS ON STRATEGY 89
Understanding the Impact of Cultural Issues 90
The Significance to Strategy of Globalization and Cultural Issues 91
From Mickey Mouse to The Lion King: the Tale of Disney in France 92
Defining Culture for Pragmatic Purposes 96
Recognizing Differences in Others 96
The Value of Scenarios in Assessing the Impact of Cultural Factors 97
National Cultural Differences and the Role of Scenario Thinking 98
Global Organizations and Local Service Offerings: IKEA Shelve Their Universal Approach 98
How Can We Explore Differences in National Cultures? 100
Differences in Organizational Cultures 103
A Clash of Personality: The Merger of Daimler-Benz and Chrysler 103
Organizational Culture and the External Environment 105
Differences in Professional Cultures Within Organizations 106
The Call of the Wild: How Varying Interpretations of Management Intent Divided Senior Executives in an ITC Business 106
Moving Beyond Cultural Preconceptions and Stereotypes 108
Understanding Cultures Across Boundaries 108
Language, Meaning and Overcoming Ambiguity 109
Increasing Diversity in a World of Similarity 109
The Starting Point for Cultural Appraisal 110
Developing Multiple Perspectives 110
The Application of Scenario Thinking to Cultural Understanding 111
Applying the Defining Factors of Organizational Culture to Your Organization 111
Developing a Scenario Culture 112
Key Questions 114
5. SHAPING THE FUTURE: THE EMERGENCE OF MODERN SCENARIO TECHNIQUES 117
Scenario Planning: the Human Dimension 118
Bringing the Future into the Present: The Story of Margareta Lonnberg 118
Memories of the Future: Scenarios Filter What We Perceive 119
Scenarios: A Cornerstone of Human Thought 120
Scenario Thinking and War Games 121
Uncertainty and Crisis 121
War Game Preparations 122
A Natural Scenario Planner: Field Marshal Lord Alanbrooke 123
Crisis Management Training 124
The Era of Possibility: the Makeable Post-war World 124
The Age of Forecasting and Systems Engineering 124
The US Perspective 125
The Rand Corporation: the Emergence of Scenario Techniques 126
The Impact of Herman Kahn and the Hudson Institute 127
The French Perspective 128
Challenging Established Thinking: the Development of Scenarios in the 1970s 129
The Club of Rome 129
Royal Dutch/Shell and the Problem of Predictability 131
The Development of Scenarios and Strategy During the 1980s 134
Factors Affecting the Use of Scenario Techniques in Business 135
Scenarios Become Popular 135
Scenario Planning and Other Strategic Approaches 136
The 1990s: Scenario Planning and Organizational Learning 138
The Age of Complexity, the Limits of Certainty – and the Rise of Scenario Planning 138
Organizational Learning 139
The World of Identity, Experience and Change 140
Summary: the Benefits of Scenario Planning 142
Enhanced Perception 142
Integration of Corporate Planning 142
Making People Think 143
A Structure for Dealing with Complexity 143
A Communications Tool 143
A Management Tool 144
Summary Checklist – Building an Understanding of Scenario Thinking in Your Organization 144
6. DEVELOPING THE SKILLS FOR LONG-TERM SURVIVAL AND SUCCESS: PRINCIPLES OF THE SCENARIO PROCESS 147
The Need for a Scenario Process 148
Scenarios and Scenario-based Organizational Learning 150
Rationalistic Decision-making 150
Cause and Effect Thinking 153
Systems Thinking 154
Mental Models and their Limitations 158
The Strategic Conversation 161
How Scenarios Tackle the Problems of Organizational Thinking 162
Surfacing Mental Models 163
Eliciting the Agenda 164
Activating and Integrating Intuitive Knowledge 166
Analysing Driving Forces 169
Scenario Telling 170
Organizational Learning 171
The Process of Organizational Learning 172
Scenario Planning as a Way Towards Adaptive Organizational Learning 174
Memories of the Future – Creating the Jolt 175
From Scenarios to Adaptive Behaviour 178
Making it Happen 180
Summary: Developing the Skills of Survival 184
7. SCENARIO PLANNING IN THE ORGANIZATIONAL CONTEXT 187
Introducing the Scenario Method 188
Scenarios for the Future of e-Government and the Impact of Information and Communications Technologies (ICT) 190
The Story of the ‘People’s Kailyard’ 191
Stage 1: Structuring the Scenario Process 192
Identifying Knowledge Gaps 192
Building the Scenario Team 193
Timing for the Scenario Project 194
Stage 2: Exploring the Scenario Context 195
Interviewing Key Players and Widening the Conversation 195
Setting the Scenario Agenda 199
Setting the Scenario Agenda: the Northshire Example 200
The Role of the Remarkable Person 201
Stage 3: Developing the Scenarios 202
Determining the Driving Forces and Testing the Outcomes 202
Clustering the Driving Forces: the Northshire Example 204
Dealing with Impact and Uncertainty 206
Scoping the Scenarios 209
Setting the ‘Limits of Possibility’ for Alternative Futures: the Northshire Example 210
Fleshing out the Storylines 213
Beyond the Kailyard 215
Stage 4: Stakeholder Analysis 216
Stage 5: Systems Thinking 219
Stage 6: Impacting Organizational Thinking and Action 220
Looking for the Organizational Jolt 220
Identifying the Early Indicators 220
Action Planning from the Future to the Present: the Northshire Example 221
Summary: Effective Scenario Planning 223
Summary Checklist – Implementing a Scenario Planning Process 224
8. SCENARIO PLANNING: TAKING CHARGE OF THE FUTURE 229
The Energetic Problem Solver 230
Observation – the Cornerstone of Strategic Success 231
Purposeful Scenario Work 232
Project 1: Making Sense of a Puzzling Situation 234
The Analytical Approach 234
The Limitations of Analysis 235
Purposeful Analysis and How Scenarios Steer Attention 236
Combining Intuition with Rational Analysis: the Iterative Scenario Approach 236
Facing the Important Questions 238
Project 2: Developing Strategy 239
Defining Strategy 239
The Stakeholder Game 239
Strategic Aims 240
The Business Idea 242
Friction Forces and Barriers to Entry 244
Developing Distinctiveness 246
The Role of the Business Idea in Strategy 247
Business Ideas and Scenarios 250
The Strategic Journey 252
Project 3: Improving Organizational Anticipation 255
Multiple World Views – The Limits of the Rationalistic Approach 255
The Mont Fleur Story 258
The Role of Scenarios in Strategic Conversation 260
Creating the Scenario-based Strategic Conversation 264
Project 4: Building an Adaptive Learning Organization 266
Action and Experiential Learning 266
The Strategic Journey of Project 2 Revisited 266
What is Adaptive Organizational Learning? 268
Building a Scenario Culture 270
Team Empowerment 272
The Across-team Strategic Conversation 273
Rethinking the Future – the Value of Scenarios in Developing Competitive Advantage 276
Developing The Sixth Sense 277