The Sixth Sense

Accelerating Organizational Learning withScenarios

Kees van der Heijden

Ron Bradfield

George Burt

George Cairns

George Wright

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C O N T E N T S

ABOUT THE AUTHORS x

INTRODUCTION 1The Quest for a Clear Vision of the Future 1

Unknown Variables, Uncertain Future 1The Significance of Scenario Thinking 2Developing the Sixth Sense – the Approach to Scenario Thinking 5

How this Book is Organized 6

1. PREPARING FOR THE FUTURE 11Understanding Organizational Success 12

Success and Failure are Inevitable 12Understanding success by understanding failure 13Explaining the Sharpbenders Research: Why Organizations Fail 14

Maintaining Organizational Performance: Problems 19Sustaining Competitive Advantage – the Battle of Canon and Xerox 19Yahoo! – Competing in Fast-moving Markets 23Building a Colourful New Future Brick by Brick – the Story of Lego 26

Success Stories 28Providing Customer Value – the Rise of Tetra Pak 28Entering New Markets and Maintaining Growth – Nokia Answers

the Call 32Barriers to Strategic Success 34

Lessons Learned 34Creating Value – The Difference Between Success and Failure 36Value is Created in a Domain of Scarcity 37

Summary: Understanding the Barriers to Scenario Planning 37

2. HOW MANAGERS THINK ABOUT THE FUTURE 41Understanding Management Thinking 42

Routines in Management Thinking 43Over-reliance on Routines: Success Formulas and Managerial

Thinking 44Biases in thinking 46

The Relevance of Framing Flaws 46How a Failed Product Launch Actually Boosted Sales: the Sparkle

of New Coke 47Confirmation Bias 50Hindsight Bias 51The Problem of Overconfidence 52

The Limitations of Judgemental Forecasting 53Decision Avoidance 54

Escalation of Commitment 54Bolstering, Procrastination and Buck-Passing 57Example of a Management Team Facing a Decision Dilemma 58Thinking Flaws: A Synthesis 61

Overcoming Strategic Inertia: the Potential Benefits of Scenario Planning 63

A Scenario is not a Forecast of the Future 63Scenarios Focus on Key Uncertainties and Certainties About the Future 63Scenarios Help Identify Information to Anticipate How the Future

will Unfold 64Typical Outcomes of the Scenario Planning Process 65

Summary: Overcoming Thinking Flaws with Scenario Planning 65Summary Checklist – the Limits to Managerial Thinking 65

3. HOW ORGANIZATIONS THINK ABOUT THE FUTURE 69Flaws in Organizational Thinking 70

Communication Difficulties 71Group-think in Organizations 72Fragmentation in Organizations 73

Limitations Imposed by Identity 75Balancing Change and Constancy 75Overcoming the Limits of Organizational Identity: the Example of IBM 77

Organizational Lock-in 78Understanding Organizational Lock-in 78The Consequences of Organizational Feedback Loops and Lock-in 79

iv Contents

Behavioural flaws 80Learning and Action 80An Organizational Dilemma 81Management and Action 82

Overcoming the Pathologies of Organizational Life 84Using Organizational Processes 84The Benefits of Scenario Planning Interventions 85

Summary: How Organizations Think About the Future 85

4. THE IMPACT OF CULTURE AND CULTURAL ASSUMPTIONS ON STRATEGY 89Understanding the Impact of Cultural Issues 90

The Significance to Strategy of Globalization and Cultural Issues 91From Mickey Mouse to The Lion King: the Tale of Disney in France 92

Defining Culture for Pragmatic Purposes 96Recognizing Differences in Others 96The Value of Scenarios in Assessing the Impact of Cultural Factors 97

National Cultural Differences and the Role of Scenario Thinking 98Global Organizations and Local Service Offerings: IKEA Shelve

Their Universal Approach 98How Can We Explore Differences in National Cultures? 100

Differences in Organizational Cultures 103A Clash of Personality: The Merger of Daimler-Benz and Chrysler 103Organizational Culture and the External Environment 105

Differences in Professional Cultures Within Organizations 106The Call of the Wild: How Varying Interpretations of Management

Intent Divided Senior Executives in an ITC Business 106Moving Beyond Cultural Preconceptions and Stereotypes 108

Understanding Cultures Across Boundaries 108Language, Meaning and Overcoming Ambiguity 109Increasing Diversity in a World of Similarity 109The Starting Point for Cultural Appraisal 110Developing Multiple Perspectives 110

The Application of Scenario Thinking to Cultural Understanding 111Applying the Defining Factors of Organizational Culture to Your

Organization 111

Contents v

Developing a Scenario Culture 112Key Questions 114

5. SHAPING THE FUTURE: THE EMERGENCE OF MODERNSCENARIO TECHNIQUES 117Scenario 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 119Scenarios: A Cornerstone of Human Thought 120

Scenario Thinking and War Games 121Uncertainty and Crisis 121War Game Preparations 122A Natural Scenario Planner: Field Marshal Lord Alanbrooke 123Crisis Management Training 124

The Era of Possibility: the Makeable Post-war World 124The Age of Forecasting and Systems Engineering 124The US Perspective 125The Rand Corporation: the Emergence of Scenario Techniques 126The Impact of Herman Kahn and the Hudson Institute 127The French Perspective 128

Challenging Established Thinking: the Development of Scenarios in the 1970s 129The Club of Rome 129

Royal Dutch/Shell and the Problem of Predictability 131The Development of Scenarios and Strategy During the 1980s 134

Factors Affecting the Use of Scenario Techniques in Business 135Scenarios Become Popular 135Scenario Planning and Other Strategic Approaches 136

The 1990s: Scenario Planning and Organizational Learning 138The Age of Complexity, the Limits of Certainty – and the Rise

of Scenario Planning 138Organizational Learning 139The World of Identity, Experience and Change 140

Summary: the Benefits of Scenario Planning 142Enhanced Perception 142Integration of Corporate Planning 142

vi Contents

Making People Think 143A Structure for Dealing with Complexity 143A Communications Tool 143A Management Tool 144Summary Checklist – Building an Understanding of Scenario

Thinking in Your Organization 144

6. DEVELOPING THE SKILLS FOR LONG-TERM SURVIVALAND SUCCESS: PRINCIPLES OF THE SCENARIO PROCESS 147The Need for a Scenario Process 148Scenarios and Scenario-based Organizational Learning 150

Rationalistic Decision-making 150Cause and Effect Thinking 153Systems Thinking 154Mental Models and their Limitations 158The Strategic Conversation 161

How Scenarios Tackle the Problems of Organizational Thinking 162Surfacing Mental Models 163Eliciting the Agenda 164Activating and Integrating Intuitive Knowledge 166Analysing Driving Forces 169Scenario Telling 170

Organizational Learning 171The Process of Organizational Learning 172Scenario Planning as a Way Towards Adaptive Organizational

Learning 174Memories of the Future – Creating the Jolt 175From Scenarios to Adaptive Behaviour 178Making it Happen 180

Summary: Developing the Skills of Survival 184

7. SCENARIO PLANNING IN THE ORGANIZATIONAL CONTEXT 187Introducing the Scenario Method 188Scenarios for the Future of e-Government and the Impact of

Information and Communications Technologies (ICT) 190Background 190

Contents vii

The Story of the ‘People’s Kailyard’ 191Stage 1: Structuring the Scenario Process 192

Identifying Knowledge Gaps 192Building the Scenario Team 193Timing for the Scenario Project 194

Stage 2: Exploring the Scenario Context 195Interviewing Key Players and Widening the Conversation 195Setting the Scenario Agenda 199Setting the Scenario Agenda: the Northshire Example 200The Role of the Remarkable Person 201

Stage 3: Developing the Scenarios 202Determining the Driving Forces and Testing the Outcomes 202Clustering the Driving Forces: the Northshire Example 204Dealing with Impact and Uncertainty 206Scoping the Scenarios 209Setting the ‘Limits of Possibility’ for Alternative Futures:

the Northshire Example 210Fleshing out the Storylines 213Beyond the Kailyard 215

Stage 4: Stakeholder Analysis 216Stage 5: Systems Thinking 219Stage 6: Impacting Organizational Thinking and Action 220

Looking for the Organizational Jolt 220Identifying the Early Indicators 220Action Planning from the Future to the Present: the Northshire

Example 221Summary: Effective Scenario Planning 223

Summary Checklist – Implementing a Scenario Planning Process 224

8. SCENARIO PLANNING: TAKING CHARGE OFTHE FUTURE 229The Energetic Problem Solver 230

Observation – the Cornerstone of Strategic Success 231Purposeful Scenario Work 232

Project 1: Making Sense of a Puzzling Situation 234The Analytical Approach 234The Limitations of Analysis 235

viii Contents

Purposeful Analysis and How Scenarios Steer Attention 236Combining Intuition with Rational Analysis: the Iterative Scenario

Approach 236Facing the Important Questions 238

Project 2: Developing Strategy 239Defining Strategy 239The Stakeholder Game 239Strategic Aims 240The Business Idea 242Friction Forces and Barriers to Entry 244Developing Distinctiveness 246The Role of the Business Idea in Strategy 247Business Ideas and Scenarios 250The Strategic Journey 252

Project 3: Improving Organizational Anticipation 255Multiple World Views – The Limits of the Rationalistic Approach 255The Mont Fleur Story 258The Role of Scenarios in Strategic Conversation 260Creating the Scenario-based Strategic Conversation 264

Project 4: Building an Adaptive Learning Organization 266Action and Experiential Learning 266The Strategic Journey of Project 2 Revisited 266What is Adaptive Organizational Learning? 268Building a Scenario Culture 270Team Empowerment 272The Across-team Strategic Conversation 273

SUMMARY 276Rethinking the Future – the Value of Scenarios in Developing

Competitive Advantage 276Developing The Sixth Sense 277

GLOSSARY 279

REFERENCES 293

INDEX 299

Contents ix

A B O U T T H E A U T H O R S

Kees van der Heijden is director of the Centre of Scenario Planning and FutureStudies at University of Strathclyde Graduate School of Business (GSB). Togetherwith the coauthors of this book – all principals of the centre – he works withprivate and public sector organizations to enable them to negotiate a successfulcourse for their organizations in the face of uncertainty.

Director and cofounder of the Global Business Network (GBN), Professor ofGeneral and Strategic Management at Strathclyde University and visitingprofessor at Nyenrode University, Kees was formerly head of the BusinessEnvironment Division in Group Planning at Royal Dutch/Shell, London. Hisgroundbreaking book, Scenarios: the Art of Strategic Conversation (John Wiley &Sons, 1996), was runner up for the World Business Book Prize and numerousarticles on his work in scenario planning and strategy have been published in arange of books and journals worldwide.

Ron Bradfield, lectures in management at GSB, he is also the director of theschool’s international MBA programmes in Asia, and has held visiting academicpositions at institutions in Poland, Switzerland and Singapore. Prior to hisacademic career, Ron spent 15 years in senior management positions in industryin the UK, USA and Canada. In addition to his academic activities, Ron is anactive scenario planning practitioner and has led a number of large-scale scenarioprojects 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 atGSB. He has recently completed doctoral research into the role of scenariothinking to bring about strategic change in organizations. His research identifiesand describes the process of reconceptualization of the business during the scenarioprocess as the key to transition and change. George is a qualified charteredaccountant, 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’ experi-ence in a range of business and academic posts. He has previously worked at theUniversity of York and the Department of Architecture and Building Science atthe University of Strathclyde. A fellow of the British Institute of FacilitiesManagement, George’s interest lies in the understanding of the relationshipbetween the business, social, physical and technological environments of theworkplace.

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

About the authors xi

I N T R O D U C T I O N

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 managerialresponses often observed when companies face an unknown or changing situation.While Lawrence and a fellow traveller rest in the desert, a tiny dot becomesvisible on the horizon, growing larger as it approaches. At this stage, the horizonseems far away, but they do not know what the spectre is and their curiosity holdsthem. They watch, and wait. They hardly speak, they just stand there, not know-ing what to do about the approaching phenomenon. Eventually, the unknownobject is recognized: a man approaching on a camel. Still, the uncertaintycontinues, as the man’s identity is a mystery. They remain fixed, not knowingwho it is or what they should do. Finally, Lawrence’s fellow traveller, suspectingthat something terrible is about to happen, reaches for his revolver. Before he canlift it, the unknown man shoots him. Walking over to the body, he says: ‘He’sdead.’

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 hypothesesare considered. However, it is not clear how these can be explored. Resources forgathering additional data are extremely limited. Nothing much is done torespond while they attempt to develop a theory to assess what the future willbring. A degree of understanding is needed in order to work out what needs to bedone. As the ‘dot on the horizon’ develops, new data is taken in and parts of theold incomplete theory are discarded. While trying to simply keep up with thedynamics of the situation, paralysis sets in, as no theory is durable enough to beused for decision-making. Their intuition is their undoing. Unfortunately, thesituation continues to evolve, leaving little time to develop or implement aneffective solution. Further inaction intuitively feels intolerable. The need to do

something – anything – becomes overwhelming; there is no more time left forthinking. Panic sets in. The first action that presents itself is pursued, withdisastrous 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 organizationsto perceive what is going on in their business environments, to think throughwhat this means for them, and then to act upon this new knowledge. It is the needto understand the dots on the horizon, perceiving, thinking and taking action,before it is too late. We have called this Adaptive Organizational Learning. Webelieve, with Arie de Geus1, that being skilful in this constitutes the ultimatecompetitive advantage, in that most sources of competitive advantage which arenormally put forward can be traced back to this basic quality and capability. Wepropose that most organizations manifest a significant deficit in this capability,compared to what is possible. There is huge potential for development in this areafor most organizations, and those that see this first will move well ahead in thecompetitive 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-Dutchenergy giant that remains one of the world’s leading multinational companiesafter nearly a century of growth. The scenario-planning process enables executivesto take control of the adaptation process, providing them with the skills neededto manoeuvre their organization, over time, and creating huge process gains fortheir organizations. On the other hand, using scenario thinking to achieveAdaptive Organizational Learning is nothing new; it has been around for ages. Sowhy is it not being picked up as a matter of course?

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

2 Introduction

The significance ofscenario thinking lies inits ability to helpovercome thinkinglimitations by developingmultiple futures.

Personal biases and routines imprison the individual manager within a worldof 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 toinertia. Organizations can also be the subjects of sub-optimal behaviour, drivingtowards the pathological states of fragmentation or group-think that subverteffective organizational perception and action, leading many organizations totheir demise. And beyond that there are the assumptions we all inherit from our cultural environment, that lead so many cross-cultural projects to dismalfailure.

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

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

The ultimate purpose is to achieve adaptive organizational learning skills inthe organization at large. That is a big objective, and while one may work towardsthis over time, individual projects need to be made purposeful by ambitions thatconstitute steps along the way. At the beginning of the road is the objective ofrehearsing the future, which does not mean that scenarios seek to predict thefuture. 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 becomelocked into one specific prophecy. Of much greater value is the ability to

The quest for a clear vision of the future 3

recognize ‘dots on the horizon’ – the signs of change that inevitably affect everyorganization – and to understand their significance and how the organizationshould adapt. This is much more valuable than trying to predict the exact natureof these dots even before they arrive. The benefit of this approach is that it enablesmanagers to give consideration and priority to the important issues that have notbeen on the agenda so far.

Moving on from there, the ultimate aspiration of adaptive organizationallearning can be reached via the goals of ‘sense making’, ‘strategy development’and ‘anticipation’, while keeping the organization away from fragmentation andgroup-think. Being very clear where you are on this road and designing the workaccordingly is the first step towards process gain. But in the long run honing theskills of perception and thinking, while crucially important, is not enough. Theremust be a link with action to realize adaptive organizational learning. The linkwith action raises many issues around motivation, inertia, identity, history,rewards and, most importantly, coherence in leadership from the top. The reasonsfor resistance to change have to surface and be dealt with. Scenario thinking canhelp in all these areas. While the project as a whole is wider, there are few toolsaround 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. Thesame applies for thinking: the puzzles of complexity cannot be comprehended bythinking alone but require experimentation. The process has to be seen as onesystem. In organizations where scenario thinking has become a cultureperception, thinking and action are always considered in each other’s contexts.

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

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

4 Introduction

Developing the Sixth Sense – the Approach to Scenario Thinking

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

We re-emphasize that this is a practical, proven framework for action. It freesthinking, promotes action, and breaks the constraints that bind traditionalstrategic processes. Moreover, the method has proven to be effective in organ-izations of all sizes, types and locations, facing different opportunities andthreats, both apparent and unnoticed. The approach is inclusive, enablingstrategic conversations to take place with diverse groups of stakeholders. Therichness of multiple perspectives is opened up, resulting in a deeper, broaderperspective 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 itsmembers. It needs to be acceptable – even motivational – for stakeholders; itneeds to be innovative and competitive, challenging people as well as theirconcept of business-as-usual.

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

Scenarios offer a powerful and unique method of harnessing organizationalinsights, enabling organizations to adapt to change, by exploiting adaptiveorganizational learning, including perception, thinking and action. Doing this in

The quest for a clear vision of the future 5

a superior way drives the organization way ahead of its competitors. This uniquesource of advantage and rent, a sixth sense for organizations, is the real power ofscenario thinking.

HOW THIS BOOK IS ORGANIZED

This book provides a guide to scenario thinking: what it means, why it isvaluable and how it benefits organizations – and keeps the people within themfocused on delivering better performance. Scenario planning is central to thetasks of developing an effective strategy and building a learning organizationcapable 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 successand failure. The concept of scenario planning and its role in strategy developmentare introduced. The business environment is not a static arena; in fact, it is saidthat its only constant is an ever-increasing rate of change. Establishing anongoing, scenario-based process for strategic thinking enables an organization toplan for change, achieving optimum performance. In particular, the first chapterexamines how traditional, business-as-usual approaches to strategy are flawed,undermining success. Flaws in thinking at three levels undermine traditionalapproaches to strategy: individual, organizational and community; these areintroduced. In Chapters 2, 3 and 4, these are then explored in detail. We explainhow scenario thinking improves reaction times and adaptability, and how it addsvalue to established recipes and formulas for success. We will also highlight therange of opportunities where strategic thinking is forged, introducing thecultural issues that promote an efficient, ground-breaking level of debate. A keyelement in this chapter is an examination of why organizations fail, and this isexplained with reference to an important research study known as ‘Sharpbenders’.

Chapter 2, How Managers Think about the Future, focuses on individual think-ing flaws and their effects on strategy development. It addresses the fact thatcommonly held management assumptions tend to be ones that preserve organ-izational coherence, filtering in signals and failing to detect signals. Personaltechniques and belief systems also set the context in which decisions will bemade, and often these are guided by a view of the past, more than a vision of thefuture. As a result, it is valuable to have an understanding of the psychologicalcontext in which managers approach the future and make decisions. Thecomplexities of management thinking are examined, including the problems that

6 Introduction

result from cognitive inertia; the importance of framing; the need to debate andchallenge individual assumptions about success formulas, and the way thatmanagers approach decisions. The impact of scenario thinking on these issues isexplained.

In Chapter 3, How Organizations Think about the Future, this theme is developedfurther. Discussion of the ways that individuals think about the future and makedecisions broadens, so that we can discover how organizations as a whole canimprove their decision-making processes, overcoming problems of lock-in onbusiness-as-usual thinking by becoming effective observers of change. The needfor organizations to continuously adapt to change is outlined, together with thelimitations of much current management thinking in organizations and theconsequences of inertia and business-as-usual tendencies.

Having introduced the topic of scenario thinking and explained the effects ofindividual and organizational approaches to strategy development, Chapter 4turns its attention to The Impact of Culture and Cultural Assumptions on Strategy. Thetypes of problems that arise due to conflicting organizational cultures and whatcan 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, wheredifferences are perceived across national cultures, as well as at the micro-,organizational level, highlighting how conflicting cultures cause obstacles forstrategy development. The application of a scenario-based approach is explained,along with how this can enable the exploration of different potential culturalresponses.

Scenario methods are neither difficult nor new and in Chapter 5, Shaping theFuture: the Emergence of Modern Scenario Techniques, we will show how scenarios havebeen around for hundreds of years. The reason why people stop short of using theobvious tools for the development of future strategy is not in their availability,but in the thinking flaws that stop them from engaging in this exploratoryactivity. This chapter explains that scenario thinking is an ongoing approachleading to adaptive organizational learning. The factors that have driven thedevelopment of scenario thinking are explored, as these serve to inform modernthinking about the benefits of scenarios. Scenario thinking has an established andsuccessful heritage, with deep roots in the development of decision-making.Chapter 5 explains how making the unthinkable a part of current thinking hasshaped policy. It has enabled people, organizations and countries to better directand 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

How this book is organized 7

we decide on which course of action to take. Also in an institutional context,identifying and harnessing the intricacies of situations is the true intellectualmeasure of potential.

Chapter 6, Developing the Skills for Long-term Survival and Success: Principles of theScenario Process, develops the themes outlined earlier and explores how thescenario process overcomes the flaws and problems identified. The issue of howorganizations can adopt the scenario approach to enable them to recognize andreact to change before competitors do is the focus of this chapter. This issignificant because successful organizations need to be aware of change and reactto 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 purposefulorganizational learning approach, helping them to safely navigate the shiftingbusiness landscape.

In Chapter 7, Scenario Planning in the Organizational Context, we explore thespecific processes involved in scenario thinking, helping organizations toovercome many of the problems that severely limit the development andimplementation 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 thatscenarios provide unique insights, harnessing knowledge, skills and distinctivecompetencies to drive organizations forward, we outline five key areas. These arethe need to: structure the scenario process; explore the scenario context; buildthe scenarios, identify the driving forces in the environment; undertake astakeholder analysis, and understand the impact on organizational thinking andaction.

Chapter 8 broadens the scope and considers scenario activity in the widercontext of problem solving, strategy and organizational learning. It is titledScenario Planning: Taking Charge of the Future. No other strategic approach satisfiesthe fundamental business need for meeting and successfully handling externalenvironmental drivers. We will also explain why scenario-based continuouslearning is essential for all organizations and individuals. The next stepsorganizations take to integrate scenario processes and culture into theorganization are crucial to ensure a successful future.

Throughout the book, we have used case histories to illustrate issues. Forexample, organizations typically seem unable to anticipate changes in customervalues and are vulnerable to the future. In the following chapters, we document

8 Introduction

the causes of business-as-usual thinking (the enemy of creativity, learning anddevelopment) and show how scenario thinking can overcome these causes. Thisenables people and organizations to understand the nature of the future, so thatthe organizational response is aligned with reality.

The perspective adopted throughout is that of the scenario planner – but forus, the scenario planner is not an offline professional, thinking in splendid isol-ation on behalf of the organization. Rather, she is an active manager personallyinvolved in the day-to-day running of the organization and determined to buildits strength, competitive advantage and success, now and in the future.

Currently, the traditional mindset that is formulating and guiding a great dealof business strategy is woefully inadequate, embedded in conventional businesspractice and thinking, and presenting a formidable challenge to companieswishing 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.

How this book is organized 9

Preparing for the Future

C H A P T E R 1

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 competitiveadvantage.

Overview

This chapter is concerned with preparing for the future, introducing theconcept of scenario thinking and its potential value in delivering a world-beating strategy. Understanding how best to achieve competitive advan-tage, 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 paceand scope of change quickens, the urgency of finding the best, most com-petitive approach grows. In this context, the core tool to deliver continuedsuccess is the development of a new approach to strategic thinking.Tomorrow’s successful companies will overturn strategic inertia andbusiness-as-usual thinking, avoiding complacency and finding new, scarcesources of value.

In this chapter we will:

• Assess the drivers both of organizational success and failure –understanding that both are inevitable, dynamic and closely tiedtogether.

• Explain the Sharpbenders research into why organizations fail –this research highlights problems in store for organizations that areinherently unable to detect or respond to change.

CONTINUED . . . Overview

• Use case examples to outline the problems in maintaining organ-izational performance – knowing where organizations go wrong,how and why, is essential in forming an approach that will deliversustained competitive advantage.

• Highlight the factors that are critical to achieving success –explaining how the barriers to success can be overcome, notably bycreating lasting value.

The business environment is not a static arena. Establishing an ongoing,scenario-based strategic thinking process enables a business to plan forchange, achieving optimum performance. These concepts are introduced inthis 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 isinevitable: there will always be successful organizations. Equally, organizationalfailure is inevitable. Organizations operating in the world are like football clubsplaying in a competition: they cannot all win and they cannot all lose. Success andfailure go together like the positive and the negative poles of a magnet; you can’thave one without the other.

Most managers work towards the objective of making their own organizationsuccessful. Right from the start we know that they cannot all end up where theywant to be. That thought has aspects that are both depressing and uplifting. Weknow 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 notimpossible. We do not have to be perfect, only better than the competition.

Success and failure are dynamic notionsIf there is one thing we can all agree on, it is that the world around us is subject toconstant and considerable change. It is clear that organizations operating success-

12 Preparing for the future

fully one day may fail totally the next. No matter how illustrious an organ-ization’s history might be, all rely on their future business. The game does notremain 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 ischanging remains uncertain until it is played. Thisis fundamental: without uncertainty everyone coulddo the same calculation, or act in the same way.However, it is important to remember that noteveryone can win at the same time: there arewinners because there is uncertainty or, to put it ina more positive way, without uncertainty there canbe no winners. Instead of seeing uncertainty as a problem, therefore, we hadbetter 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 thatlose show poor performance due to thinking and behavioural flaws that can beimproved by the use of scenario thinking. Certainly, everyone can discover thisfor himself, and if we were ever to reach a stage where this had become clear to allmanagers and every one of them was a scenario planner, there wouldn’t be muchcompetitive 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 thatstate of affairs. Meanwhile, as managers and organizations are slow to discover thefundamental importance of scenario thinking, early adopters can gain hugeadvantages.

Understanding success by understanding failure

Understanding that success and failure exist together, in close relation to eachother, means that the study of organizational success starts with the study oforganizational failure. Remembering that the quality of performance is relative,we will try to identify what people and organizations do that makes them end upon the losing side. Understanding weaknesses will help us to turn them intorelative 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 behav-iour 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.

Understanding organizational success 13

There are winnersbecause there isuncertainty; withoutuncertainty, there can beno winners. Therefore,instead of seeinguncertainty as a problem,we should start viewing itas the basic source ofour future success.

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 mostpowerful tools that managers have at their disposal today to move their organ-ization to the winning side. In order to make that case, we need to understand theflaws and how they come about. In order to get us there we will first analyseorganizational failure.

Explaining the Sharpbenders Research: Why Organizations Fail

In this section, we are going to make use of a body of interesting research high-lighting the problems for organizations that are inherently unable to detect orrespond to change. This is known as the Sharpbenders research2. The people whoundertook the research had the bright idea of concentrating on companies thathad been failing, as manifest in a stock value that had been slipping against themarket average, but which had been able to turn things around. That is where theword Sharpbenders came from – a slipping stock value followed by a recovery. Theidea was that these companies, having been able to turn things around, would beable to articulate what had gone wrong and why this had happened. After all, ifthey had managed to turn things around they must have made a successful diag-nosis of what went on during the downward part of their history. Having ident-ified such companies from stock market records, the researchers then interviewedmany 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 needto introduce a few basic concepts that will help us to navigate this territory.

The difference between hygiene factors and the business ideaThe causes of failure identified by the Sharpbenders research can be divided intotwo categories: hygiene factors and business idea factors. What do we mean by this?

14 Preparing for the future

As we discussed earlier, organizations have always been trying to discover ways ofoutsmarting the competition. This book is an example of that. Not all ideas thatare developed are equally effective, but some stick out as clearly being successful.Initially some organizations develop significant competitive advantage byexploiting these ideas but, over time, others see the beneficial effects and will startto copy the ideas in their own organizations. They can be learned from studyingorganizations deemed as ‘best in class’, through a benchmarking process. Theywill be codified in textbooks and taught to managers. Once an idea reaches thispoint it has become a hygiene factor, something that is generally recognized asfundamental in running any healthy organization. Without hygiene factors, pro-fessional management knows in advance that the organization will not have achance to play in the competitive game.

Most hygiene factors are about the need to ensure sound and efficient businessprocesses, critical to ensure that the organization remains a going concern. Thesebusiness processes are the generally accepted basics for running any organization;they are qualifiers, allowing you to play. However, winning the game requiresmuch more: additional, distinctive factors and capabilities that will distinguishthe winner from the losers. These additional, distinctive factors and capabilitiesthat are not yet generally codified and available only to one organization are sum-marized in what we call its business idea.

The business idea

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

• A BI must be capable of explaining how value will be created for stake-holders of the organization. Without value creation, no organizationwill be able to survive. We know that value is being created if the BIaddresses a scarcity somewhere in society, by filling it or by alleviatingits effect. This is what prompts customers to come to the store to buyits products.

• An organization that wants to be able to meet a scarcity in society musthave something unique to offer. If nothing is unique in what the

Understanding organizational success 15

CONTINUED . . . The business idea

organization does, it cannot engage in unique activities and therefore,by definition, not address any scarcity. A BI has to clarify the system ofuniqueness that the organ-ization brings to bear on itsactivities.

• Once an organization makesa unique contribution andcreates value it can charge aprice for its efforts and inthat way generate resourcesto invest in its survival. Asuccess formula cannot beeffective forever. Anything that is unique will eventually be copied, orits value may disappear because people’s interests move elsewhere.Therefore, an organization must be able to show how it invests on anongoing basis in its distinctiveness.

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

Returning to the Sharpbenders research, the first striking observation is thatmost failures are due to hygiene factors. The following causes are highlighted:

• Poor controls in areas such as credit, working capital, budgets, costs, cashflow or quality. This is often due to inadequate management accounts, lead-ing to infrequent and incomplete reports that are late, too complex, toovoluminous, irrelevant or incorrect.

• Immature management style. Typical examples include an inflexible CEO(chief executive officer), excessive caution, authoritarianism, ineffective dele-gation and coordination and over-centralization.

• Failure to create and communicate purpose and the business idea, bothbetween the top and middle management, and with the workforce.

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Scarcityaddressed

Investments

Distinctiveness