Review: “How to improve scenario analysis as a strategic management tool”

Greetings!

This blog post is a review for “How to improve scenario analysis as a strategic management tool” for JSGS 882Strategic Management in Public Sector. This journal was co-authored by Franz Liebl and J.B.M Postma in 2003, shortly after the historic the September 11 attacks by a series of four coordinated terrorist attacks by the Islamic terrorist group al-Qaeda against the United States and other unforeseen events.

Let’s start with definitions:

“a postulated sequence or development of events.” – Merriam-Webster

“a written outline of […] or stage work giving details of […] and individual scenes [expectations and or possibilities].” – Cambridge Oxford.

In this paper published on Technological Forecasting and Social Change journal, the authors; Theo J.B.M. Postmaa and Franz Liebl defined traditional uses of scenarios and scenario development as:

…evaluation and selection of strategies, integration of various kinds of future-oriented data, exploration of the future and identification of future possibilities.” (Postmaa and Liebl, 2003).

More generally, scenario analysis aims at influencing managers’ way of thinking by offering managers several fundamentally different future perspectives on the world around them. The duo discussed the conventional scenario methods and their limitations in a fast changing world and suggested methological improvements towards a practical scenario analysis for Line Managers.

About the Authors

  1. German born Franz Liebl served in the military between 1942 – 1945. In 1947 he moved to Bavaria for a teaching job in a primary school after the expulsion of Germans from Czech. From 1957 he taught in the secondary school in Treuchtlingen and then until 1973 as a teacher in Weissenburg. Parallel to his work as a teacher Liebl wrote several works that have been translated into English, French, Spanish and Czech. Liebl died in April 8, 2002.
  2. Theo J.B.M. Postma was a Freelance Researcher at the Faculty of Economics and Business, University of Groningen, Neterlands. Postma did about 85 researches in the areas of Strategic Management, technology assessment and corporate governance. He has stopped his academic career, due to a brain stroke.

Too bad they are both gone in some way – but their work lives. Anyway’s let’s get started!

Conventional Scenario Methodologies

The authors referenced result of surveys done by Ringland to understand various scenarios used by organizations examples of which includes:

  • Battelle Institute (BASICS),
  • the Copenhagen Institute for Future Studies (the futures game),
  • the European Commission (the Shaping Factors–Shaping Actors),
  • the Futures Group (the Fundamental Planning Method),
  • Global Business Network (scenario development by using Peter Schwartz’s methodology),
  • Northeast Consulting Resources (the Future Mapping Method) and
  • Stanford Research Institute (Scenario-Based Strategy Development), etc.. all of which used Pierre Wack Intuitive Logics method, first introduced by former Shell group planner Pierre Wack since early 1980’s.

The authors posited that although Wack’s logics was widely accepted compared to (Godet, 1987) approach, it focused only on concentrates on ‘‘creating a coherent and credible set of stories of the future as a ‘wind tunnel’ for testing business plans or projects, prompting public debate or increasing coherence, but lacking coverage of uncertain and paradoxical occurrences. They made their argument by analyzing some factors considered in traditional (Wack, 1985) methods of scenario formation.

Factors:

  1. constant (structural factors that do not change – eg: need for food, income, etc)
  2. predetermined or uncertain (known factors that change, but with unknown probabilities – eg: demographics, economy, etc).

However, Liebl and Postma believes that practical situations exist that are not in the boundaries of 1 and/or 2 above and hence their questions into scenario building theories.

Authors employed the work of Van der Heijden et al to present scenarios in a Cartesian plain (Fig.1) using the vertical (y) axis as ‘level of impact’ (high/low) and horizontal (x) axis as ‘level of (un)certainty’ (high/low).

Fig. 1: Scenario construction, adapted from (Postmaa and Liebl, 2003).

The two most impact-ful and most unpredictable (uncertain) clusters/factors (4th quadrant) are subsequently chosen for scenario construction. (Schwartz, 1991) suggested that Strategists and Line Managers participate in the scenario formulation process and play out these scenarios to determine plausible causes and effects in a practical setting. This is as opposed to confining selves to only evaluation and selection of strategies, integration of various kinds of future-oriented data, exploration of the future and identification of future possibilities.

What People Think Scenario Building Is:

rehearsing the future while – (Schwartz, 1991)

memorizing of the future – (Van der Heijden, 1996)

scenarios deal with two worlds: the world of facts and the world of perceptions.” – Wack, 1985)

scenario analysis gazes into the future by combining imaginations – Others

For me, it is future learning

You?

What do you think? Please use the comment box below.

The Limitations

The authors were not totally against traditional scenario methods, but we need to understand where they are coming from. Liebl’s military background and Postma’s several researches in recent social and political changes in our recent world could have informed their thinking that scenarios built on the ‘knowables’ no longer captures (or maybe never captured) the ‘unknowables’ and evolving uncertainties. Again this research was done in 2003, just 2 years after 9/11. Could this have had effect on their thoughts and focus? Just maybe! The new thought is that scenarios deal with consistency and fails when situations are inconsistent.

(Schoemaker, 1995) discussed future relevant knowledge by distinguishing between three classes of knowledge:

1. Things we know we know
2. Things we know we do not know
3. Things we do not know we do not know.

A look at Schoemaker’s classes readily indicate that:

  1. type 1 knowledge is evident.
  2. traditional scenarios can help fix 2,
  3. but how about 3?

The challenge is how do we transform knowledge of 3 into 2?  and that is the fundamental problem of every strategic planning and scenario building process.

Scenario formation

Fig 2: Forecasting Scenarios and hope (Van der Heijden). Conventional scenarios capture only a portion of events that can and do happen. But we still need to deal with the predetermineds and uncertainties. Van der Heijden is suggesting we stick to “Hope”?

Consider Randall’s mutually exclusive global trait scenarios for the Internet:

A- ‘‘interactive, entertainment-focused, community-based medium, which has mass market appeal’’;

B- ‘‘passive, narrowly segmented medium, which allows users to receive customized information and niche-oriented services’’;

C- ‘‘interactive, transaction-oriented medium, which provides both consumers and professionals with a range of commerce-based activities’’;

D- ‘‘unorganized, unstructured, chaotic frontier, which offers questionable value to consumer and professional markets’’ – Randall, 1997.

Familiar trends today? You bet! This is the model of a new scenario building that looks at all sides of the coins – the possible and the impossible.

What To Do? The Way Forward

Authors suggested a shift from the traditional scenario formulation methods of taking bases only on ‘knowable causalities’ and extending our coverage to ‘inconsistent unknowables contexts’ and to cover occurrences whose knowledge are beyond causality. To do this, they postulated three (3) methods based on Gregory and Duran (2001) and Ringland (2002):

Their argument? Read in their own words:

We all would agree that some of the messages of this review refer to deriving implausible/unbelievable scenarios, which can be the case when scenarios also include developments that indicate novel, not very well interpretable trends and events.

Method 1: recombinant scenarios

As opposed to regular scenario formulation method that focus on use of causality factors, trends are combined in this method. Authors suggested use of available trends—paradoxical or not; wild cards – for totally unusual events, to prepare for a surprise-free situations and … to help Strategists capture inconsistencies. Examples questions would be “on what condition can GDP grow with unemployment”? “What extreme situation can arise for ‘this to be that’, etc”?

Method 2: Context-based

Particularly good for public sector scenario building. Authors posit that context vary from place to place, people to people, culture to culture, time to time, … A careful consideration of this knowledge would control strategy to plan for unforeseen events before they occur.

Method 3: Inconsistency Analysis

Here the elements of conventional scenario building that focus on cross-impacts are re-aligned to capture paradoxical events. How to do this? Those elements in a cross-impact or a consistency matrix that indicate low probability/high inconsistency are changed into high probability/consistency, respectively. As a consequence, a set of scenarios that were otherwise ruled out as inconsistent becomes possible.

Critics

Liebl and Postma did a good job of reshaping known conventional thoughts around scenario building and ultimately – planning in both private and public sectors. My worry is that their research, although sound, may have been influenced by events that happened at their time, eg: 9/11.

Image Source: Irish Film Critic. Were the signs really there?

While some of the suggestions appear valid, most of them seem impractical. I do not believe in extrapolations or computer simulations to plan for unforeseen events – for instance, of contextual origins.

As a strong advocate of use of hidden stories in numbers, I would still suggest falling back to history and numbers in place of data analysis to be able to reveal hidden information that would help inform options in scenario and brainstorming. This at least would capture predetermineds, cover some inconsistencies and tell some future stories. Over all, good job they did!

References

  • Franz Liebl, J.B.M. Postma, “How to improve scenario analysis as a strategic management tool”, Technological Forecasting & social Change, 72 (2005) 161 – 173
  • P. Wack, Scenarios Unchartered Waters Ahead, Harvard Bus. Re. (1985 Sept. – Oct.) 73 – 89
  • Van Der Heijden, Scenarios: The Art of Strategic Conversation, Wiley, Chichester, 1996.

Your Take!

Please use the comment box to share your thoughts.

So which’s better: a plan or a strategy?

The term “strategic planning” is arguably a word of the moment for many organizations and governments. It’s usage has become so viral that managements now liken the meaning to cost-saving, efficiency  and innovation. No wonder it has become one of the most frequently used word in budgeting process and annual reports in the province of Saskatchewan.

I would argue emphatically before now should anyone attempt to preach without base that strategic planning in government or an organization is a no brainer. And to be frank, I found nothing short of best in it not until I found someone who has a problem with how the actors are organized and their roles – and his  arguments are interesting. Henry Mintzberg (1994) in his publication on Harvard Business Review journal discussed “The Fall and Rise of Strategic Planning”. I’m here worried that after he wrote this review on the fall of strategic planning; many governments are still scrambling to adopt and nurture same. Let’s talk about this.

Just so you know, Loizos Heracleous (1998) published a paper on Long Range Planning titled “Strategic Thinking or Strategic Planning?” There were indications that the confusion as to which of planning or strategic thinking were useful remained a pre-90’s aged debate. However, amidst the arguments, his work believed that

…strategic thinking informs strategic planning/management and that strategic thinking without strategic planning/management will cannibalize itself in a quest for structure and process.

In this paper, Henry believed that having a plan is not same as having a strategy and planners shouldn’t be given so much focus as they currently receive. He posited that strategic planning is rudimentary and procedural as opposed to innovative thinking. In his words,

Strategic thinking is the building blocks of informed strategic planning. Planning features working with what is available (tools, divisions, departments, business units, resources, etc) as opposed to strategy that in most cases requires inventing new categories, not merely rearranging old ones.

I agree with this to some large extent, but while we see strategic thinking as thinking outside of the box; it is more important to know which box to think outside of – a data-driven planning provides insights for choosing this direction. We should also all note that best of strategies do not drive it’s self agenda. A popular sociologist, Philip Selznick warned that strategies take on value only as committed people infuse them with energy. We need doers as much as we need planners!

So what’s Henry’s thought?

I can take on an a random guess that Henry borrowed his ideas from some of the values and ethics of Weberian Civil Service practiced in Canada – which stresses that the employees (likened to a planner) provide the relevant information up there, so that the elected (likened to managers) can be informed about the details down below without having to immerse themselves in them. In a way he’s advocating division of labor, while’s putting more authority to decide on the leaders/managers or the elected – which they already have anyway. The borrowed lines below is from Government of Canada website on values and expected behaviours that guide public servants in all activities related to their professional duties.

  • Public servants shall uphold the Canadian parliamentary democracy and its institutions by:

  • 1.1 Respecting the rule of law and carrying out their duties in accordance with legislation, policies and directives in a non-partisan and impartial manner.

  • 1.2 Loyally carrying out the lawful decisions of their leaders and supporting ministers in their accountability to Parliament and Canadians.

  • 1.3 Providing decision makers with all the information, analysis and advice they need, always striving to be open, candid and impartial.

Where I think Henry was wrong.

“Planners shouldn’t create strategies, but they can supply data, help managers think strategically, and program the vision”.

Excuse me Henry but this is not entirely true. I may be biased here, but as a Data Analyst enthusiast; I disagree with your quote above, which happened to be the first line in your article that I read. Planners should not be restricted from coming up with strategies. And they should not only supply data, but bring refined insights from so-called data to the table for discussion. I am of the opinion that planners have the responsibility to bring options forward which would then form the basis of synthesizing real strategic decisions. These options doesn’t come from data, they come from several analysis that may result in strategies.

Do I have a support? Well, in any case Michael Porter, probably the most widely read writer on strategy, wrote in the Economist (below).

I favour a set of analytical tech-niques for developing strategy.

Aren’t these set of analytical tech-niques beyond data-sourcing? I bet they are and I’d think you believe they are. No wonder you wrote the paragraph below:

They (those responsible for planning) should work in the spirit of what I (you rather) like to call a “soft analyst,” whose intent is to pose the right questions rather than to find the right answers.

Dear Henry, permit me to borrow one of your lines as my concluding remarks.

I believe that all viable strategies have emergent and deliberate qualities, since all must combine some degree of flexible learning with some degree of cerebral control.

That said, planning is an important aspect of every strategy and management. An informed retrospective study on what has been, status quo and a further matching of the information therein to plot the destination maps help planners to build a guided (but not rigid) directions into the future. I agree with you that planners should not make deliberate efforts to ‘force’ (convince or confuse) decision-makers into taking their advise, but there should be some balance in the marriage between the two for a coherently successful system and strategic process to emerge.

My Request

Please do share your thoughts or criticisms below in comment box. Should you want to read the document, please see this link.

Welcome to September, my month.

Just because it’s September, I’ll love to share a thought. I’ve written this specifically for a focus audience that happen to be my friends on Facebook, but then it won’t hurt if I share with you. I’m sorry but I started this thought-sharing by issuing a warning.

Be careful not to be found the right place at the wrong time or doing the right things the wrong way!

Why did I just say that? Well,

There’s no question of being found doing the wrong thing at the right time or being at the wrong place at the right time, for whatever is bad is bad everywhere and at any time.

Then I talked about succeeding, again this depends on what ‘success’ mean to you.

There’s a connection between every success and timing. Be conscious and press towards the prize you desperately want, being aware of timing.

I love smart means

And if we all use smart phones in a smart world of today, who said you can’t work smarter? Find ways to do things a bit differently; that will redefine your uniqueness and pave ways for more opportunities.

We have endless avenues to explore, we just need to look within and fix things up for the best. And when the path of career or life you currently walk through calls for a change of direction, let your inner mind guide you.

The sailors don’t go all the way down or up, it’s a combination of different turns in calculated and sometimes random bearings.

Welcome to September, my month. I articulated this out of thoughts, and I hope it makes meaning to someone out there.