The Sixth Sense E-Book

Kees van der Heijden

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 521

Veröffentlichungsjahr: 2009

Beschreibung

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.

Leseprobe

Table of Contents

Title Page

Copyright Page

ABOUT THE AUTHORS

Introduction

THE QUEST FOR A CLEAR VISION OF THE FUTURE

HOW THIS BOOK IS ORGANIZED

CHAPTER 1 - Preparing for the Future

UNDERSTANDING ORGANIZATIONAL SUCCESS

MAINTAINING ORGANIZATIONAL PERFORMANCE: PROBLEMS

SUCCESS STORIES

BARRIERS TO STRATEGIC SUCCESS

SUMMARY: UNDERSTANDING THE BARRIERS TO SCENARIO PLANNING

CHAPTER 2 - How Managers Think about the Future

UNDERSTANDING MANAGEMENT THINKING

Routines in Management Thinking

BIASES IN THINKING

THE LIMITATIONS OF JUDGEMENTAL FORECASTING

DECISION AVOIDANCE

OVERCOMING STRATEGIC INERTIA: THE POTENTIAL BENEFITS OF SCENARIO PLANNING

SUMMARY: OVERCOMING THINKING FLAWS WITH SCENARIO PLANNING

CHAPTER 3 - How Organizations Think About the Future

FLAWS IN ORGANIZATIONAL THINKING

LIMITATIONS IMPOSED BY IDENTITY

ORGANIZATIONAL LOCK-IN

BEHAVIOURAL FLAWS

OVERCOMING THE PATHOLOGIES OF ORGANIZATIONAL LIFE

SUMMARY: HOW ORGANIZATIONS THINK ABOUT THE FUTURE

CHAPTER 4 - The Impact of Culture and Cultural Assumptions on Strategy

UNDERSTANDING THE IMPACT OF CULTURAL ISSUES

DEFINING CULTURE FOR PRAGMATIC PURPOSES

NATIONAL CULTURAL DIFFERENCES AND THE ROLE OF SCENARIO THINKING

DIFFERENCES IN ORGANIZATIONAL CULTURES

DIFFERENCES IN PROFESSIONAL CULTURES WITHIN ORGANIZATIONS

MOVING BEYOND CULTURAL PRECONCEPTIONS AND STEREOTYPES

THE APPLICATION OF SCENARIO THINKING TO CULTURAL UNDERSTANDING

CHAPTER 5 - Shaping The Future: The Emergence of Modern Scenario Techniques

SCENARIO PLANNING: THE HUMAN DIMENSION

SCENARIO THINKING AND WAR GAMES

THE ERA OF POSSIBILITY: THE MAKEABLE POST-WAR WORLD

CHALLENGING ESTABLISHED THINKING: THE DEVELOPMENT OF SCENARIOS IN THE 1970S

ROYAL DUTCH/SHELL AND THE PROBLEM OF PREDICTABILITY

THE DEVELOPMENT OF SCENARIOS AND STRATEGY DURING THE 1980S

THE 1990S: SCENARIO PLANNING AND ORGANIZATIONAL LEARNING

SUMMARY: THE BENEFITS OF SCENARIO PLANNING

CHAPTER 6 - Developing the Skills for Long-term Survival and Success: ...

THE NEED FOR A SCENARIO PROCESS

SCENARIOS AND SCENARIO-BASED ORGANIZATIONAL LEARNING

HOW SCENARIOS TACKLE THE PROBLEMS OF ORGANIZATIONAL THINKING

ORGANIZATIONAL LEARNING

SUMMARY: DEVELOPING THE SKILLS OF SURVIVAL

CHAPTER 7 - Scenario Planning in the Organizational Context

INTRODUCING THE SCENARIO METHOD

SCENARIOS FOR THE FUTURE OF E-GOVERNMENT AND THE IMPACT OF INFORMATION AND ...

STAGE 1: STRUCTURING THE SCENARIO PROCESS

STAGE 2: EXPLORING THE SCENARIO CONTEXT

STAGE 3: DEVELOPING THE SCENARIOS

STAGE 4: STAKEHOLDER ANALYSIS

STAGE 5: SYSTEMS THINKING

STAGE 6: IMPACTING ORGANIZATIONAL THINKING AND ACTION

SUMMARY: EFFECTIVE SCENARIO PLANNING

CHAPTER 8 - Scenario Planning: Taking Charge of the Future

THE ENERGETIC PROBLEM SOLVER

PROJECT 1: MAKING SENSE OF A PUZZLING SITUATION

PROJECT 2: DEVELOPING STRATEGY

PROJECT 3: IMPROVING ORGANIZATIONAL ANTICIPATION

PROJECT 4: BUILDING AN ADAPTIVE LEARNING ORGANIZATION

SUMMARY

GLOSSARY

REFERENCES

Index

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eISBN : 978-0-470-68729-1

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ABOUT THE AUTHORS

Kees van der Heijden is director of the Centre of Scenario Planning and Future Studies at University of Strathclyde Graduate School of Business (GSB). Together with the coauthors of this book - all principals of the centre - he works with private and public sector organizations to enable them to negotiate a successful course for their organizations in the face of uncertainty.

Director and cofounder of the Global Business Network (GBN), Professor of General and Strategic Management at Strathclyde University and visiting professor at Nyenrode University, Kees was formerly head of the Business Environment Division in Group Planning at Royal Dutch/Shell, London. His groundbreaking book, Scenarios: the Art of Strategic Conversation ( John Wiley & Sons, 1996), was runner up for the World Business Book Prize and numerous articles on his work in scenario planning and strategy have been published in a range of books and journals worldwide.

Ron Bradfield, lectures in management at GSB, he is also the director of the school’s international MBA programmes in Asia, and has held visiting academic positions at institutions in Poland, Switzerland and Singapore. Prior to his academic career, Ron spent 15 years in senior management positions in industry in the UK, USA and Canada. In addition to his academic activities, Ron is an active scenario planning practitioner and has led a number of large-scale scenario projects with a range of organizations in Asia and the UK. Resident in Shanghai, Ron represents GBN in Asia.

George Burt is a lecturer in strategic management and scenario planning at GSB. He has recently completed doctoral research into the role of scenario thinking to bring about strategic change in organizations. His research identifies and describes the process of reconceptualization of the business during the scenario process as the key to transition and change. George is a qualified chartered accountant, working internationally with one of the ‘big five’ accountancy firms, prior to taking up a career in academia.

George Cairns, senior lecturer in management at GSB, has over 20 years’ experience in a range of business and academic posts. He has previously worked at the University of York and the Department of Architecture and Building Science at the University of Strathclyde. A fellow of the British Institute of Facilities Management, George’s interest lies in the understanding of the relationship between the business, social, physical and technological environments of the workplace.

George Wright is a professor at GSB. Previously, he held faculty positions at the London Business School and the University of Leeds Business School and was recently a visiting professor at the Athens University of Economics and Business. Founder and editor of the Journal of Behavioural Decision Making and author of a number of books on forecasting and decision making, including Strategic Decision Making: A Best Practice Blueprint (John Wiley & Sons, 2001), George is a psychologist with knowledge of the way managers make decisions. He is a GBN associate.

INTRODUCTION

THE QUEST FOR A CLEAR VISION OF THE FUTURE

Unknown Variables, Uncertain Future

A famous scene in the film Lawrence of Arabia illustrates the typical managerial responses often observed when companies face an unknown or changing situation. While Lawrence and a fellow traveller rest in the desert, a tiny dot becomes visible on the horizon, growing larger as it approaches. At this stage, the horizon seems far away, but they do not know what the spectre is and their curiosity holds them. They watch, and wait. They hardly speak, they just stand there, not knowing what to do about the approaching phenomenon. Eventually, the unknown object is recognized: a man approaching on a camel. Still, the uncertainty continues, as the man’s identity is a mystery. They remain fixed, not knowing who it is or what they should do. Finally, Lawrence’s fellow traveller, suspecting that something terrible is about to happen, reaches for his revolver. Before he can lift it, the unknown man shoots him. Walking over to the body, he says: ‘He’s dead.’

Lawrence replies: ‘Yes . . . why?’

In this illustration, having identified an approaching dot on the horizon, the two men try to relate it meaningfully to their known world. Various hypotheses are considered. However, it is not clear how these can be explored. Resources for gathering additional data are extremely limited. Nothing much is done to respond while they attempt to develop a theory to assess what the future will bring. A degree of understanding is needed in order to work out what needs to be done. As the ‘dot on the horizon’ develops, new data is taken in and parts of the old incomplete theory are discarded. While trying to simply keep up with the dynamics of the situation, paralysis sets in, as no theory is durable enough to be used for decision-making. Their intuition is their undoing. Unfortunately, the situation continues to evolve, leaving little time to develop or implement an effective solution. Further inaction intuitively feels intolerable. The need to do something - anything - becomes overwhelming; there is no more time left for thinking. Panic sets in. The first action that presents itself is pursued, with disastrous consequences. And when it is all over you can only wonder: ‘Why?’

The Significance of Scenario Thinking

The focus of this book, and of scenario planning, is the capability of organizations to perceive what is going on in their business environments, to think through what this means for them, and then to act upon this new knowledge. It is the need to understand the dots on the horizon, perceiving, thinking and taking action, before it is too late. We have called this Adaptive Organizational Learning. We believe, with Arie de Geus1, that being skilful in this constitutes the ultimate competitive advantage, in that most sources of competitive advantage which are normally put forward can be traced back to this basic quality and capability. We propose that most organizations manifest a significant deficit in this capability, compared to what is possible. There is huge potential for development in this area for most organizations, and those that see this first will move well ahead in the competitive race for success, taking control and ensuring their future position.

The scenario process provides this capability, and if confirmation were needed, it is worth considering the example of Royal Dutch/Shell, the Anglo-Dutch energy giant that remains one of the world’s leading multinational companies after nearly a century of growth. The scenario-planning process enables executives to take control of the adaptation process, providing them with the skills needed to manoeuvre their organization, over time, and creating huge process gains for their organizations. On the other hand, using scenario thinking to achieve Adaptive Organizational Learning is nothing new; it has been around for ages. So why is it not being picked up as a matter of course?

Based on our experience and research, we propose that the bottleneck is not so much in the availability of the process, but in the lack of realization of ‘below potential’ performance in organizations. Many people have become so used to the constraints under which they operate that they are simply not aware of these anymore. Managers become locked into a mode of thinking that acts as a filter, restricting the information they are able to perceive. They do not recognize that they are locked into a systemic loop, and this is reinforced by the dynamics occurring within the organization.

The significance of scenario thinking lies in its ability to help overcome thinking limitations by developing multiple futures.

Personal biases and routines imprison the individual manager within a world of recipes and business-as-usual assumptions. Human psychology, as well as the environment, conspire to keep them there. In this book, we will show how most roads that people take to deal with their day-to-day issues lead to inertia. Organizations can also be the subjects of sub-optimal behaviour, driving towards the pathological states of fragmentation or group-think that subvert effective organizational perception and action, leading many organizations to their demise. And beyond that there are the assumptions we all inherit from our cultural environment, that lead so many cross-cultural projects to dismal failure.

The crux of the matter is a serious lack of awareness of these impediments to success. One reason for this is that, although many thinking traps are individual, they happen within organizations where people are under the influence of many others. That makes it extremely difficult for them to think their way out of the problem. This is why we propose that the situation needs to be tackled by ‘process gain’, working on the dominant group in the organization. We believe that the scenario approach helps managers and organizations to overcome these flaws - an assertion based on reasoning, real world observations and a long track record of scenario-based methods. Many years of practice have shown overwhelmingly how scenarios can produce such process gain.

Not all experience with scenarios is positive. Poorly-executed scenario work leaves managers feeling that not much has been achieved. One common problem is that people often focus on the scenarios themselves, while the benefit needs to derive from the process gain. All emphasis must be on the quality of the ‘strategic conversation’. This means that scenario work should always be a customized activity. In our experience and research we have come to the conclusion that a lack of such purposefulness is the most common problem with less than professional scenario work. Scenario work is not particularly difficult, and many have used it to great advantage. What is often lacking is a sense of purpose.

The ultimate purpose is to achieve adaptive organizational learning skills in the organization at large. That is a big objective, and while one may work towards this over time, individual projects need to be made purposeful by ambitions that constitute steps along the way. At the beginning of the road is the objective of rehearsing the future, which does not mean that scenarios seek to predict the future. The complex nature of change means that predicting events is impossible, and is quite likely to be dangerous, as it implies inflexibility and a need to become locked into one specific prophecy. Of much greater value is the ability to recognize ‘dots on the horizon’ - the signs of change that inevitably affect every organization - and to understand their significance and how the organization should adapt. This is much more valuable than trying to predict the exact nature of these dots even before they arrive. The benefit of this approach is that it enables managers to give consideration and priority to the important issues that have not been on the agenda so far.

Moving on from there, the ultimate aspiration of adaptive organizational learning can be reached via the goals of ‘sense making’, ‘strategy development’ and ‘anticipation’, while keeping the organization away from fragmentation and group-think. Being very clear where you are on this road and designing the work accordingly is the first step towards process gain. But in the long run honing the skills of perception and thinking, while crucially important, is not enough. There must be a link with action to realize adaptive organizational learning. The link with action raises many issues around motivation, inertia, identity, history, rewards and, most importantly, coherence in leadership from the top. The reasons for resistance to change have to surface and be dealt with. Scenario thinking can help in all these areas. While the project as a whole is wider, there are few tools around like scenario methods that can make a contribution over such a wide area.

At the end of the road there is the state of adaptive organizational learning, where the loop from action to perception to thinking and back to action is closed. At that stage, it is clear that these three crucial skills are heavily interrelated. Action determines what we see, as much as perception determines action. The same applies for thinking: the puzzles of complexity cannot be comprehended by thinking alone but require experimentation. The process has to be seen as one system. In organizations where scenario thinking has become a culture perception, thinking and action are always considered in each other’s contexts.

The alternative is for the organization to remain stuck within blockages and defensive routines that create inertia and paralysis. These not only lead to the perils of complacency and flawed thinking, but to a failure to maximize potential opportunities. Where an organization is blocked or defensive, success, if it is achieved at all, is perilous - achieved more by luck than judgement, and impossible to sustain.

The process gain we want starts from acknowledging that the organization is full of complexity, uncertainty and paradoxes, and that a comprehensive approach is needed to help understand and manage these puzzles. In this book, we develop and outline a holistic approach that encapsulates all three aspects of adaptive organizational learning, namely perception, thinking and action.

Developing the Sixth Sense - the Approach to Scenario Thinking

Exactly how this can be achieved is introduced in Chapter 6, and detailed in Chapters 7 and 8. We will describe the modern approach to scenario planning, which has grown out of ongoing practice over time. The necessary steps that organizations need to take to overcome the inertia and pitfalls of traditional thinking are explained. It is worth noting that a major feature (and benefit) of this approach is its ability to deliberately induce a high degree of turbulence and conversation. This is necessary in order to become aware of the many different perspectives to complex and ambiguous business challenges. What is valuable here is the ability to accept diversity of opinion and belief, and to understand how these different views might affect the organization’s future. By challenging their own perspectives on the way the world is, organizations can understand and develop an ongoing awareness of the ambiguous and complex nature of the world, leading to greater structural insights into the nature of possible futures - and their implications.

We re-emphasize that this is a practical, proven framework for action. It frees thinking, promotes action, and breaks the constraints that bind traditional strategic processes. Moreover, the method has proven to be effective in organizations of all sizes, types and locations, facing different opportunities and threats, both apparent and unnoticed. The approach is inclusive, enabling strategic conversations to take place with diverse groups of stakeholders. The richness of multiple perspectives is opened up, resulting in a deeper, broader perspective of the business environment and possible strategies.

The approach described generates ownership of the process by stakeholders. Clearly, the thinking must have value and relevance to the organization and its members. It needs to be acceptable - even motivational - for stakeholders; it needs to be innovative and competitive, challenging people as well as their concept of business-as-usual.

In this way, scenarios are invaluable for recognizing signs of change, understanding them and their implications, and providing the motivation for action. A crucial part of this is creating the strategic conversation. In order to succeed and be truly effective, scenario thinking needs to be understood in a wider strategic and organizational learning framework.

Scenarios offer a powerful and unique method of harnessing organizational insights, enabling organizations to adapt to change, by exploiting adaptive organizational learning, including perception, thinking and action. Doing this in a superior way drives the organization way ahead of its competitors. This unique source of advantage and rent, a sixth sense for organizations, is the real power of scenario thinking.

HOW THIS BOOK IS ORGANIZED

This book provides a guide to scenario thinking: what it means, why it is valuable and how it benefits organizations - and keeps the people within them focused on delivering better performance. Scenario planning is central to the tasks of developing an effective strategy and building a learning organization capable of delivering this strategy. However, as the first four chapters highlight, there are significant barriers confronting organizations.

Chapter 1, Preparing for the Future, analyses the causes of organizational success and failure. The concept of scenario planning and its role in strategy development are introduced. The business environment is not a static arena; in fact, it is said that its only constant is an ever-increasing rate of change. Establishing an ongoing, scenario-based process for strategic thinking enables an organization to plan for change, achieving optimum performance. In particular, the first chapter examines how traditional, business-as-usual approaches to strategy are flawed, undermining success. Flaws in thinking at three levels undermine traditional approaches to strategy: individual, organizational and community; these are introduced. In Chapters 2, 3 and 4, these are then explored in detail. We explain how scenario thinking improves reaction times and adaptability, and how it adds value to established recipes and formulas for success. We will also highlight the range of opportunities where strategic thinking is forged, introducing the cultural issues that promote an efficient, ground-breaking level of debate. A key element in this chapter is an examination of why organizations fail, and this is explained with reference to an important research study known as ‘Sharpbenders’.

Chapter 2, How Managers Think about the Future, focuses on individual thinking flaws and their effects on strategy development. It addresses the fact that commonly held management assumptions tend to be ones that preserve organizational coherence, filtering in signals and failing to detect signals. Personal techniques and belief systems also set the context in which decisions will be made, and often these are guided by a view of the past, more than a vision of the future. As a result, it is valuable to have an understanding of the psychological context in which managers approach the future and make decisions. The complexities of management thinking are examined, including the problems that result from cognitive inertia; the importance of framing; the need to debate and challenge individual assumptions about success formulas, and the way that managers approach decisions. The impact of scenario thinking on these issues is explained.

In Chapter 3, How Organizations Think about the Future, this theme is developed further. Discussion of the ways that individuals think about the future and make decisions broadens, so that we can discover how organizations as a whole can improve their decision-making processes, overcoming problems of lock-in on business-as-usual thinking by becoming effective observers of change. The need for organizations to continuously adapt to change is outlined, together with the limitations of much current management thinking in organizations and the consequences of inertia and business-as-usual tendencies.

Having introduced the topic of scenario thinking and explained the effects of individual and organizational approaches to strategy development, Chapter 4 turns its attention to The Impact of Culture and Cultural Assumptions on Strategy. The types of problems that arise due to conflicting organizational cultures and what can be done (using a scenario-based approach) to resolve them are explored in this chapter. Chapter 4 examines the issue of culture at a macro-level, where differences are perceived across national cultures, as well as at the micro-, organizational level, highlighting how conflicting cultures cause obstacles for strategy development. The application of a scenario-based approach is explained, along with how this can enable the exploration of different potential cultural responses.

Scenario methods are neither difficult nor new and in Chapter 5, Shaping the Future: the Emergence of Modern Scenario Techniques, we will show how scenarios have been around for hundreds of years. The reason why people stop short of using the obvious tools for the development of future strategy is not in their availability, but in the thinking flaws that stop them from engaging in this exploratory activity. This chapter explains that scenario thinking is an ongoing approach leading to adaptive organizational learning. The factors that have driven the development of scenario thinking are explored, as these serve to inform modern thinking about the benefits of scenarios. Scenario thinking has an established and successful heritage, with deep roots in the development of decision-making. Chapter 5 explains how making the unthinkable a part of current thinking has shaped policy. It has enabled people, organizations and countries to better direct and control their fortunes, learning to cope with changing conditions. Arguably, people are natural scenario planners: it is how we make sense of the world and how we decide on which course of action to take. Also in an institutional context, identifying and harnessing the intricacies of situations is the true intellectual measure of potential.

Chapter 6, Developing the Skills for Long-term Survival and Success: Principles of the Scenario Process, develops the themes outlined earlier and explores how the scenario process overcomes the flaws and problems identified. The issue of how organizations can adopt the scenario approach to enable them to recognize and react to change before competitors do is the focus of this chapter. This is significant because successful organizations need to be aware of change and react to their changing business environment before their competitors. In particular, successful organizations need to develop superior organizational learning skills. This chapter explains how scenario thinking provides people with a purposeful organizational learning approach, helping them to safely navigate the shifting business landscape.

In Chapter 7, Scenario Planning in the Organizational Context, we explore the specific processes involved in scenario thinking, helping organizations to overcome many of the problems that severely limit the development and implementation of an effective strategy, in a detailed and operational step-by-step way. This proven guide to the scenario approach is modern and up-to-date, but based on this type of thinking’s long history. Building on the belief that scenarios provide unique insights, harnessing knowledge, skills and distinctive competencies to drive organizations forward, we outline five key areas. These are the need to: structure the scenario process; explore the scenario context; build the scenarios, identify the driving forces in the environment; undertake a stakeholder analysis, and understand the impact on organizational thinking and action.

Chapter 8 broadens the scope and considers scenario activity in the wider context of problem solving, strategy and organizational learning. It is titled Scenario Planning: Taking Charge of the Future. No other strategic approach satisfies the fundamental business need for meeting and successfully handling external environmental drivers. We will also explain why scenario-based continuous learning is essential for all organizations and individuals. The next steps organizations take to integrate scenario processes and culture into the organization are crucial to ensure a successful future.

Throughout the book, we have used case histories to illustrate issues. For example, organizations typically seem unable to anticipate changes in customer values and are vulnerable to the future. In the following chapters, we document the causes of business-as-usual thinking (the enemy of creativity, learning and development) and show how scenario thinking can overcome these causes. This enables people and organizations to understand the nature of the future, so that the organizational response is aligned with reality.

The perspective adopted throughout is that of the scenario planner - but for us, the scenario planner is not an offline professional, thinking in splendid isolation on behalf of the organization. Rather, she is an active manager personally involved in the day-to-day running of the organization and determined to build its strength, competitive advantage and success, now and in the future.

Currently, the traditional mindset that is formulating and guiding a great deal of business strategy is woefully inadequate, embedded in conventional business practice and thinking, and presenting a formidable challenge to companies wishing to maximize strategic effectiveness. The solution is scenario thinking.

In essence, it is possible for managers now to see things that others cannot. This book will explain how: the Sixth Sense.

CHAPTER 1

Preparing 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.

Overview

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 research highlights 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.

There are winners because there is uncertainty; without uncertainty, there can be no winners. Therefore, instead of seeing uncertainty as a problem, we should start viewing 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 research2. 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;

• acquisition problems.

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.

The business idea

An organization’s business idea (BI) can be described as its success formula in the competitive game. We look at three fundamental factors to judge the strength of a BI:

• A BI must be capable of explaining how value will be created for stakeholders of the organization. Without value creation, no organization will be able to survive. We know that value is being created if the BI addresses a scarcity somewhere in society, by filling it or by alleviating its effect. This is what prompts customers to come to the store to buy its products.

• An organization that wants to be able to meet a scarcity in society must have something unique to offer. If nothing is unique in what the organization does, it cannot engage in unique activities and therefore, by definition, not address any scarcity. A BI has to clarify the system of uniqueness that the organization brings to bear on its activities.

• Once an organization makes a unique contribution and creates value it can charge a price for its efforts and in that way generate resources to invest in its survival. A success formula cannot be effective forever. Anything that is unique will eventually be copied, or its value may disappear because people’s interests move elsewhere. Therefore, an organization must be able to show how it invests on an ongoing basis in its distinctiveness.

The three factors operate in a loop, which feeds on itself and stands for the survival capability of the formula. We return to the notion of the business idea in more detail in Chapter 8.

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).

• A forward-looking approach which invests in the future through plant, equipment, research and development (R & D) and training.

Several themes stand out from these issues. First, there is a lack of exploration of the environment and its potential or actual impact is not sufficiently recognized. Second, there is a lack of understanding of how the wider environment is impacting customers, their needs and value systems, and whether the organization’s products or services continue to create value for them. Let’s consider a number of examples where these forces can be seen at work.

MAINTAINING ORGANIZATIONAL PERFORMANCE: PROBLEMS

Sustaining Competitive Advantage - the Battle of Canon and Xerox

Background 3

Consider the example of Xerox, who in the early 1970s held a 95% market share of the global photocopier industry. Its target customers were large corporations and its concept of customer value was that of centrally controlled photocopying. Xerox focused on manufacturing and leasing complex high-speed photocopiers, using its own manufacturing and sales force to provide a complete package to those who leased its machines. Then came along Canon - who competed head-to-head for Xerox’s large corporate customer base. The case below sets out what happened, and the key question to consider is this: why didn’t Xerox appreciate the nature of the threat and respond earlier than it did to Canon’s attack?

In 1956 Chester Carlson, inventor of the electrostatic process that led to the birth of the copier industry, sold his patents to the Haloid Corporation which changed its name to Xerox in 1961. The 914 copier (named because of its ability to copy documents 9ʺ × 14ʺ in size) was introduced in 1959 and heralded Xerox’s emergence as the dominant force in the copier industry. The first of its kind to make both multiple copies and the fastest number of copies per minute, the 914 opened up the era of mass copying. Xerox seized the initiative by inventing a business idea targeted at large corporations requiring high-volume copying. The results were spectacular: by 1961, only two years after the introduction of the 914, Xerox became a Fortune 500 company. Business Week displayed the 914 on its cover and Fortune magazine declared the 914 to be ‘the most successful product ever marketed in America’. In 1968, Xerox achieved $1 billion sales, the fastest organization to reach that landmark at that time. The word Xerox became synonymous with copying: people did not copy documents, they Xeroxed.

Xerox wasted no time in globalizing its business idea. It created a joint venture in the UK to form Rank Xerox, which dominated the European market. Rank Xerox and Fuji Photo Films in Japan created another joint venture, Fuji Xerox, which came to dominate the Asian market. By 1970, Xerox held a 95% market share in the global copier industry.

Then Canon, a Japanese multinational and an industry newcomer in the mid- 1970s, created entirely new market segments for copiers not served by Xerox in the USA: small organizations and individuals. In the late 1970s Canon designed a value delivery system offering a $1000 personal copier to target these segments. For almost a decade, Xerox largely ignored this new business idea that Canon had chosen to develop. In fact, in 1978, Fuji Xerox was willing to sell low-end copiers to Xerox to counter-attack Canon in the USA, but Xerox refused the offer and Canon prevailed.

Canon’s ability to attain leadership in low-end copiers illustrates another vital issue in any business idea that can be impacted by scenario planning. This is the power of changing the rules of the game by radically redefining the customer base, based on a previously unattended and growing customer value - in this case, personal control in a distributed system.

Two strategies compared: Xerox’s big copier business model

Xerox’s decision to serve large corporate customers allowed it to build a business model with huge entry barriers. Xerox had more than 500 patents that effectively prohibited new entrants, and with their massive duplicating needs, corporate customers preferred big scale-efficient machines of the type provided by Xerox’s technology. Patents effectively prohibited new entrants.

Furthermore, the high cost of salesforces deterred competitors. By focusing on corporate customers, Xerox could build a direct salesforce, since it had a limited number of customers to service. By 1970, Xerox had created an enviable salesforce with technical expertise, long-term customer relationships and deep product knowledge. New entrants wanting to copy its business model would have to replicate their sales network: this was a high fixed-cost activity and thus another major entry barrier.

Finally, the large investment cost of providing a specialized, 24-hour service network acted as an impenetrable barrier. Xerox’s customers, primarily Fortune 500 corporations, did not care as much about price as they did about the need for reliability. Because central copy centres typically had one large machine, the entire centre came to a standstill when the machine broke down. It was not enough for Xerox to offer excellent service: it had to guarantee outstanding 24-hour service. By 1970, Xerox had built a world-class, round-the-clock servicing capability. This proved to be another formidable entry barrier, and this, coupled with the brand name, simply overwhelmed new entrants.

These factors posed significant problems, even for an established office equipment supplier like IBM. Certainly, IBM faced an insurmountable barrier in the form of technology patents. It was a contender to challenge Xerox as it sold computer mainframes to corporate customers through a salesforce and serviced them through an extensive network as early as the 1960s. However, IBM’s sales and service staff could not easily be transferred to the copier market without further, significant investments in technology and product training. Because of these factors, Xerox enjoyed a virtual monopoly in the copier industry.

Canon’s response: the distributed copier business model

Canon focused first on overcoming the problem of patents. It dedicated its research efforts during the 1960s to develop an alternative to Xerox’s patented technology. In 1968, it invented the New Process (NP) technology, which used plain paper to photocopy but did not violate Xerox’s patents. Canon deployed two of its existing competency bases, microelectronics (from its calculator business) and optics and imaging (from its camera business) in developing NP technology. Further, it benefited from a 1975 USA Federal Trade Commission ruling forcing Xerox to licence its dry-toner PPC technology freely to competitors.

The next line of attack was Canon’s ability to redefine the customer base. In the late 1970s, Canon successfully designed personal copiers at a price significantly below Xerox’s big copiers, appealing to small businesses and individuals. Canon’s personal copiers, which made 8 to 10 copies per minute, ranged in price from $700 to $1200. In contrast, Xerox’s high-speed machines, which made 90 to 120 copies per minute, had a price range of $80 000 to $129 000.

Rethinking distribution was the next area of focus for Canon. Because its target segments involved millions of customers, it could not effectively use the direct salesforce approach. Instead, it chose to distribute its personal copiers through traditional third-party distributors: office product dealers, computer stores and retailers. This distribution approach not only eliminated Canon’s need for a huge cash outlay but also allowed it rapid market entry.

Challenging the need for a costly service network was the next hurdle that Canon faced, and its next area of innovation. In fact, they overcame Xerox’s formidable advantage in 24-hour servicing in several ways. First, because of the inverse relationship between product reliability and the need for service, it designed its copiers for maximum reliability. Each copier had just eight units that could be assembled on an automated line by robots. Second, it made replacement parts modular so that end-use customers could replace them when they wore out, removing the need for a service network. Copier drum, charging device, toner assembly and cleaner were combined into a single disposable cartridge that the customer could remove and replace after 2000 copies. Third, Canon’s design was so simple that traditional office product dealers could be trained to make repairs. Finally, the Canon model enabled people to use other departments’ machines when theirs wore down. Unlike with central copying, 24-hour service was not required.

Canon’s effect on the copier industry was similar to its earlier, redefining effect on the camera industry. Another key element of Canon’s approach was their success in leveraging their strong brand reputation for high quality and low cost in the camera industry, benefiting its business when it launched personal copiers.

Sustaining competitive advantage by avoiding flawed, business-as-usual thinking

One of the core values of scenario thinking is its ability to avoid conventional approaches that may be outflanked by a competitor but, instead, invent new business ideas. An important factor here is reaction time and the need to get there before anyone else. This is highlighted by the potential reasons for Xerox’s delayed response. There might be several reasons why Xerox did not respond soon enough to Canon’s attack with its own version of distributed copying. It might not have perceived Canon as a serious threat because Canon did not initially go head-to-head against Xerox. Perhaps Xerox simply did not expect low-end copiers to become a huge market segment. In fact, during the 1970s Xerox was more worried about IBM and Kodak, which entered the copier industry at the high end by playing by Xerox’s rules. Big machines had a high profit margin per unit, whereas personal copiers had a low one. Xerox might have feared the effect of cannibalizing its high-margin business for low-margin copiers. It had invested heavily in a salesforce, which probably would not have welcomed the use of third-party dealers to sell personal copiers that would compete with big ones. Similarly, Xerox’s service network, which operated as a profit centre, had little incentive to support programmes to produce quantum improvements in product reliability. Moreover, under the leasing policy, Xerox had not fully recovered its investment on its installed base, so it was unlikely to want to risk making that base prematurely obsolete by offering personal copiers. Finally, Xerox’s customers, heads of copy centres in large corporations, were critical to Xerox’s success and so might have had an important influence in its internal decisions. They would naturally resist the introduction of distributed copying for fear of undermining their own position.

Scenario thinking enables businesses to avoid conventional approaches that may be easily predicted and parried by a competitor, allowing new business ideas to be invented instead. Swift reaction times and the ability to get there before anyone else are vital.

Therefore, strong and dominant though they appeared, Xerox had inherent vulnerabilities in its structure and business thinking: an inability to see how potential threats could arise, possibly from a redefining of the industry, highlighted by conventional, business-as-usual thinking and organizational inertia. This situation might have been exposed through a process that considered radically different future scenarios.

Yahoo! - Competing in Fast-moving Markets

Background 4

Yahoo!’s meteoric rise to success was matched by an equally spectacular downturn in fortunes. Its rise and fall demonstrates the disastrous consequences that can follow when an organization fails to plan for changes in markets and customer values.

When AOL (America OnLine) announced its intended purchase of media giant Time Warner in January 2000, Yahoo! was caught completely unawares. However, Yahoo!’s troubles actually started much earlier, with its failure to develop and constantly update strategies, which left it completely unprepared for future changes.

Yahoo!’s main competitor for Internet advertising space, AOL, bought media giant Time Warner, with its vast array of magazines, movie studios and book publications. AOL saw considerable benefits in a tie-up with an old-time media giant, but Yahoo! decided not to follow suit. Its competitive thinking was flawed - and this led to disaster.

Three individuals had driven Yahoo’s early success and they felt invincible. However, they did not anticipate - in this case, they did not anticipate the loss of interest from advertisers due, in part, to the dot-com bubble bursting and, in part, to a growing perceived need from its customers for integrated advertising campaigns - including the Internet, TV, radio and magazines.

Yahoo!’s CEO, Timothy Koogle, president, Jeffrey Mallet and co-founder, Jerry Yang, met to discuss their reaction to the AOL/Time Warner announcement. It is easy to comment with hindsight about the errors in judgement made in this meeting and about how they proceeded to compound these mistakes over the following year. It is also undeniably true that the organization was impacted by external factors other than its competitive position in relation to AOL/Time Warner (factors that also affected AOL and others in the industry). However, Yahoo!’s fortunes went from bad to worse, with revenues plummeting 42% in one quarter and market capitalization falling 92%, resulting in redundancies and, over time, in the CEO’s departure.

Analysing the Yahoo! example

The story of Yahoo! is a warning for every business, not only start-ups or technology organizations. The source of its problem was its inability to compete and move with the market - or, put another way, its difficulty in planning for the future in a rapidly changing environment. Was there anything that Yahoo! could have done to prevent its problems? It could be argued that if Yahoo! had properly anticipated and planned for various eventualities, even ones that seemed unlikely or unthinkable, it would have been better able to weather any storm that tore through their industry. On this basis, we will argue that scenario planning would have highlighted the potential pitfalls of, and solutions to, an over-reliance on advertising revenues. This anticipation could have been achieved in a number of ways.

Clearly understanding internal weaknesses

Yahoo! had a number of internal problems that left it inadequately prepared for the external problems that were about to change its fortunes. Fundamentally, it failed to anticipate the actions of competitors and develop contingency plans for various scenarios, which would have allowed it to respond quickly to competitors.

Ensuring effective leadership

The first internal problem was the leadership of the business. There was a consensus style of management that dulled the decision-making process; a clash of opinions between the CEO and the president allowed the organization to stray off-course, and the lack of a clear and united direction from senior executives left other staff confused and demotivated. In addition, the CEO’s distant style of management meant that the organization lacked the strong leadership it required. In visioning the future and getting everyone involved, effective leadership is vitally important.

Building a positive organizational culture

Closely linked with the need for effective leadership is another major area of difficulty: organizational culture. Yahoo! did not invest in the future, preferring instead to live for the moment. Mallet admitted that if a customer was not prepared to enter into an immediate advertising contract with them, then Yahoo! was not interested in spending any time on developing a relationship; it simply moved to the next customer. This policy may have worked in the early, pioneering days of Internet businesses, but was not appropriate as the market became more sophisticated. Yahoo! failed to appreciate the value of building long-term relationships with clients in increasingly customer-focused markets. This requires time, effort and planning - all factors that rely on leadership and a focus on the right priorities. Yahoo! had failed to respond to, let alone plan for, changes in customer needs. When companies were looking for coordinated advertising campaigns, Yahoo!’s limited offerings of banner advertisements looked inferior and poor value.

Keeping close to their customers

Yahoo! lost sight of its customers, and failed to offer a compelling value proposition. If customers could not see the point of advertising online and Yahoo! was not concerned about winning them over, then the business was doomed to failure.

After considerable disagreement at the executive level, the potential purchase of Internet auction company e-Bay was turned down. Yahoo! had rejected the chance to move away from its over-reliance on advertising, which accounted for 90% of their revenues. Almost inevitably, Yahoo!’s fortunes declined as advertising revenue fell with the end of the dot-com honeymoon. In a new, fast-moving market, complacency and an inability to stay close to the market led to a flawed approach. Clearly, the value of scenario thinking in such a situation needs little further explanation.

In contrast, some organizations do manage to change their business idea - Lego, for instance. Here the story unfolds over many years showing that a longer-term, tougher approach to strategic thinking is needed.

Building a Colourful New Future Brick by Brick - the Story of Lego

Background 5

Lego, a family-owned Danish company, invented the popular moulded plastic building bricks for children’s free-form play. This open-ended play system was developed by the founder, Ole Kirk Christiansen, and was extremely successful for many years, but sales levelled out in the late 1980s. Ole Kirk’s grandson, Kjeld, took charge of the organization in the early 1990s and saw the changes that had taken place in customer value. In response, Lego bricks were packaged as themed self-assembly toys (themes including Star Wars and Mindstorms), and this repositioning led to a major increase in sales of Lego products. However, in the highly competitive and fickle world of children’s toys, Lego’s fortunes and future are far from certain. Profits peaked in 1996 and 1997, and then fell precipitously. In 1998, Lego lost almost $35 million before taxes. In 1999, Lego laid off 1000 people, the first big layoff in company history, but then in 2000, Lego lost $120 million, on sales of about $1.1 billion.