Business Planning for Turbulent Times

New Methods for Applying Scenarios

Rafael Ramirez, John W. Selsky, Kees van der Heijden, Rafael Ramirez, John W. Selsky, Kees van der Heijden

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136544187
• Edition: 2
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

The world is increasingly turbulent and complex, awash with disruptions, tipping points and knock-on effects exemplified by the implosion of financial markets and economies around the globe.

This book is for business and organizational leaders who want and need to think through how best to deal with increasing turbulence, and with the complexity and uncertainty that come with it. The authors explain in clear language how future orientation and, specifically, modern scenario techniques help to address these conditions. They draw on examples from a wide variety of international settings and circumstances including large corporations, inter-governmental organizations, small firms and municipalities. Readers will be inspired to try out scenario approaches themselves to better address the turbulence that affects them and others with whom they work, live and do business.

This second edition extends the use of scenarios planning and methods to tackle the risk and uncertainty of financial markets and the potentially massive impacts on businesses of all kinds, providing powerful tools to give far thinking executives an advantage in these turbulent times.

Part I

1

Introduction: Why Write This Book and for Whom?

Rafael Ramírez, Kees van der Heijden and John W. Selsky

What surrounds us as we Finish the Second Edition of this Book?

As we finished writing the first edition of this book in early 2008, oil prices had exceeded US$100/barrel, NATO was bogged down in a war with the Taliban in Afghanistan, Iraq continued to be in a bloody quagmire and was receiving incursions from Turkey, the Darfur genocide was well underway, banks were wary to lend to each other following the ‘sub-prime’ mortgage melt-down in the US, the gap between poor and rich continued to grow, and Colombia had written off huge parts of its territory that were controlled by ‘rogue’ guerilla groups. Moreover, the Kyoto Protocol and carbon trading initiatives were failing to avert the growth of carbon dioxide (CO₂) in the atmosphere, making climate change an ever higher priority policy-making issue, perhaps even more than military security in this era of terrorism and nuclear proliferation.

This second edition was prepared 18 months later, in mid 2009. In those intervening months millions of people have lost their jobs and homes. Lehman Brothers has collapsed and was broken up, Chrysler; GM and Iceland have been bankrupted and are all being deeply reinvented; AIG, Royal Bank of Scotland and many other financial institutions have been bailed out and nationalized; many of the world’s stock markets have lost half their value but are recovering ground; and the exposures of governments and central banks have climbed to the tens of trillions of dollars. Climate change continues relatively unchecked as the world prepares for the Copenhagen conference. In recognition of these dramatic recent events we have added to our repertoire a new chapter, Chapter 15, on the financial crisis. We find that the crisis corroborates much of our argument in the first edition of the book, which we have kept largely intact.

Possible futures over the next five to ten years, as seen by a corporate executive, a government planner or a non-governmental organization (NGO) managing director in 2010 continue to hold both great promise as well as great risks. Most decision-makers would acknowledge that complexity in the general context of their organizations appears to be increasing (see Chapter 10). Most would also recognize that failure to effectively address this contextual complexity can be expensive. The destructive, even catastrophic, consequences of these failures have been well examined in the literatures on public policy and corporate strategy. Two examples point this out sharply. First, the Stern report commissioned by the UK government and issued in October 2006 examined the real cost of climate change out to 2050, concluding that it would lead to the biggest ever-recorded economic meltdown if it was not averted (Stern, 2006). Second, Nobel Prize winner Joseph Stiglitz, together with a colleague, has calculated that the failures of the Bush administration to comprehend the complexities of Iraq have led to a cost overrun of the war from the administration’s original estimate of $60 billion to well over $3 trillion (Stiglitz and Bilme, 2008). More recently, in the US the $700 billion exposure called the Toxic Asset Relief Program of 2008 has ballooned to over $23 trillion and there is exposure of governments worldwide in terms of ‘bailouts’, stimulus programmes, fiscal easing, etc.

While we express all these situations as threats, every change constitutes an opportunity for growth and development. For example, the increasing use of technology in society stimulates interconnections and thus greater complexity (e.g. households spend more on telecommunications, and more people travel and travel more – between 1972 and 2000 the average annual distance travelled by Britons grew 53 per cent¹). As assets in the world become more liquid with rapidly developing technology (Normann, 2001), they can be linked to each other in more ways, and the increasingly rich connections pattern can produce unforeseeable surprises. For example, economic growth and globalization increase our awareness of overall constraints, affecting activities which we considered unrelated up to now. Many of them have destructive unintended consequences.

This book is about how threats can convert into opportunities – and how increasing threats can turn into increasing opportunities. In order to think in these terms we need to look into the future. For reasons that will become clear we consider the future through the spectacles of the scenario approach. While we do that, we reflect on our practice in the light of the perspective offered by a school of thought in the social and organizational sciences called social ecology, in particular its description of the ‘turbulent environment’. We will show how scenarios and social ecology inform each other, allowing us – as managers, consultants and scholars – to become more effective and successful navigators in an increasingly turbulent world.

Scenario Work: Success without Understanding

Scenarios are descriptions of plausible future contexts in which we might find ourselves. Scenarios are typically presented as a small set of stories about how our surrounding environment might have evolved into the future. They are produced by carefully analysing and structuring relevant and challenging possibilities (for a good methodological overview, see van der Heijden, 2005).

Available data suggest that the use of scenarios to address complex conditions has been increasing. Scenario thinking and practice have occurred in military circles and policy think tanks, as well as in companies for many decades. There are indications that its practice is spreading (see Figure 1.2). The thinking and practice of scenarios are characterized by a broad and confusing mix of methods and practices with little explanation as to why and how they ‘work’ and variable criteria for success. In spite of its widespread adoption, scenario work remains theoretically underdeveloped.

Source: Business Source Complete (EBSCO)³

Figure 1.2 Growth in the Scholarly (English language only) Literature on Scenarios (1970–2007)

Recognizing the need to clarify the theoretical underpinnings of scenario work, the three editors of this volume organized the first Oxford Futures Forum (OFF2005) at Templeton College, Oxford University in October 2005. This forum attracted 70 ‘futures’ practitioners and academic researchers for two days of dialogue about the relevance of complex environments – as conceptualized by the field of social ecology – to the practice of scenarios. Participants included many of the scenario planners who have shaped the practice over the last 50 years, as well as a cross-section of researchers and consultants from the social ecology school. We designed the OFF2005 as a ‘strategic conversation’ (see van der Heijden, 2005) and the event demonstrated that reflective dialogue between the two communities can be lively, mutually enriching and relevant. The chapters in this volume are drawn from contributions to the OFF that have been edited and updated. Hence, in an important sense this book continues the conversations started in the Oxford Futures Forum 2005 and has no illusions of ending them.

This book seeks to provide academic rigour and scholarship to scenario work. So far the field has been supported by practitioner books of varying quality. We aim to anchor scenario thinking more robustly in social science knowledge, based on better research that improves practice. For example, a debate was reported in the journal Organization Studies (volume 27, issue 12, 2006) among Richard Whittington, Gerard Hodgkinson and George Wright as to why a scenarios-based intervention by the two latter authors failed. They agree that the intervention was ‘premature’ in relation to the emerging turbulence in the client organization’s environment. However, what is still missing is guidance as to when in the rising turbulence it would have been advisable for scenarios to be deployed. This book aims to clarify such issues.

Scenario Work: Towards a Practical Theory

In the 1960s a group of social scientists, focused on organizational research, theorized environmental complexity and uncertainty in terms of types of what they called the environment’s ‘causal texture’. Their development of causal texture theory (henceforth ‘CTT’) was provoked by a growing need for social scientists to better understand increasing environmental complexity and uncertainty, and the indeterminate nature of such environments that managers were beginning to experience. Thus, as part of their work on CTT they coined the term ‘turbulence’ to represent the most uncertain environments. The need to understand complex environments has certainly not abated!

This book suggests that CTT provides a robust conceptual underpinning for how scenario practices help to address environmental complexity. Grounded in state-of-the-art examples from across the world, the book examines how CTT explains the effectiveness and limitations of scenario practices.

In broad outline we see two ways where scenarios help in coping with turbulence. First, they help stakeholders develop a better systemic understanding of their surrounding environment and provide new insights into the turbulent environments they inhabit. A clearer (see Chapter 11 in this volume) awareness of pre-determined elements in the environment (see Chapter 12) helps managers and other decision makers to make better sense of their subjective experience of turbulence. So does a keener insight about plausible, rather than probable, futures, as illustrated in the new Chapter 15 on the financial crisis.

Second, scenarios help in building common ground among disparate stakeholders in a turbulent environment. It enables them to focus their collective attention on a set of alternative futures. Multiple futures provide space for surfacing tacit assumptions, which can then be discussed and understood (see Chapters 6, 8, 9 and 12 in this volume). Understanding each other’s perspectives on how the field they hold in common may play out in the future (see Chapters 6 and 10) allows stakeholders to come together to align and jointly strengthen their coping strategy.

Who this Book is for

This is not another ‘scenarios book’. Nor is it an academic treatise on a particular management theory or trend in the social sciences. Instead it links theory and practice to render theory more rigorous and practice more effective.

This key link is for those who wish to reflect on and address uncertainty and complexity in their environment in a creative manner, with a focus on the future, in order to serve their present concerns. This includes both practitioners and scholars.

We think this work will be of interest to what Don Schön (1983) called reflective practitioners in scenario work: those who use scenarios in their managerial or consulting work, and who want to know more about why, when and how they can be made more effective. We expect this book to be of particular relevance to professionals directly or indirectly involved with strategic planning and management, in private, public and NGO sectors and who consider themselves reflective learners. This will include senior general management executives in small and large organizations, but also professionals involved in strategic planning, foresight, scouting, corporate affairs, inter-governmental relations, external communications, change management, corporate social responsibility and internal consultancy. We hope to provide these readers with new insights about practical issues such as forging common ground, responding to disruption, the role and scope of fairness in planning, different uses of scenarios, ‘swarm planning’, clarity in scenario work and working with pre-determined elements.

We think the book will also appeal to scholars who want to understand better how managerial practice relates to tracking how uncertainty and volatility impacts businesses, governmental institutions and NGOs. These themes may be relevant to faculty and students in the fields of strategy, management studies and policy studies, as well as in social geography, sociology, economics, educational leadership, public administration, epidemiology, community psychology and engineering. The book will be specifically useful for faculty and students with an interest in strategy, leadership, sense-making, environmental studies, scanning, future studies, sustainability, corporate social responsibility, long-range planning, scenarios and entrepreneurship.

A special appeal of the material in this book is its global nature that is so often missing in policy studies and strategic planning books. The chapter authors are from Australia, Canada, England, Holland, Greece, Mexico, Scotland, South Africa, Sweden and the U...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of Figures and Tables
• List of Contributors
• Foreword by Vince Cable
• Preface
• Acknowledgements
• List of Acronyms and Abbreviations
• Part I
• Part II
• Part III
• Part IV
• Postscript
• Index