Scenarios have been used over decades by governments, businesses and non-governmental and not-for-profit organizations. Across each of these sectors, examples like the Singapore government,1 Shell Global2 and the UK National Council for Voluntary Organisations3 show the value attached to scenarios. In this age of uncertainty surrounding political, social, economic and environmental changes across the world, we see a clear need for all individuals and organizations to use scenario thinking. In the past year, as we complete our writing in early 2017, we have seen the unfolding of events that, as our later examples of scenario projects will illustrate, were found totally implausible, and even laughable, less than a year ago.
In the first quarter of 2015, the idea that Donald J. Trump would be elected President of the United States was scarcely considered. Similarly, the notion that the UK populace would vote to leave the European Union was not seriously considered, not even, apparently, by those that promoted leaving. Now, in 2017, we see calls for similar actions in other EU countries, including France, Italy and the Netherlands . As you read this, there may be clarity, for the present, about such moves. However, we would need to consider the possibilities and potential impacts of them in any scenario exercise undertaken in the run up to various national elections. You should be prepared to seek out similar critical uncertainties that will impact your and your organizationâs decisions and actions, considering all plausible possibilities, and challenging what others present as implausible.
Scenario thinking offers a way for individuals and groups to face up to the threats and opportunities of the future and to their potential impact upon the organization or community. As a decision maker in this sort of situation, you may not fully understand the complexities and ambiguities that the future may hold. However, we would argue that in light of the examples above and those we will discuss below, you cannot afford not to think about the future and simply continue with your present course of action.
Business-As-Usual Thinking in a Changing World
The history of business shows that there are many companies that have achieved success and remained household names over long periods by adopting a business-as-usual approach. However, for many firms this success has been challenged in the longer term by new innovations and new market entrants. Comparison of the organizations that dominated the Fortune Global 5004 over even the last two decades shows the rate and nature of change. In 2016, the global top 10 comprised a mix of retail, energy, technology and automotive firms from six nations across the globe. Of these, only five appeared in the 2006 listâWalmart/Wal-Mart, Royal Dutch Shell , Exxon Mobil, Toyota and BP. Chinese firms occupied three of the top four positions in 2016, below Walmart in first. In 2006, there were no Chinese firms ranked in the top 10. Comparison with the 1996 list shows even greater movement. In that year, only Royal Dutch Shell came from outside either Japan or the US. Japanese firms occupied six of the 10 positions. Of these, only Toyota moved forward to the 2006 list. Exxon Mobil, Shell and Toyota are the only three organizations that have remained in the Fortune Global top 10 across all three lists.
Why is it that world-class companies, staffed by world-class managers, do not survive in a changing world? Why is it that others survive, but only after facing up to unanticipated threat to their dominance and seeming invincibility? IBM was for decades the worldâs leading computer manufacturer and it invented the personal computer (PC). However, it failed to exploit this new technology and product. IBMâs slowness to adapt enabled first Compaqâlater to be merged into HPâthen Dell to take the lead in PC development, marketing and sales. These companies recognised the need for new business models to sell PCs to a new, non-traditional set of computer users. As these companies created their own brief spell of market dominance in PCs, IBM for a while seemed lost. Latterly, IBM reinvented itself as a global business consultancy organization and rebuilt its brand image and a new global success in this new form. In the meantime, the personal computer market has moved forward, with laptops gaining market share and new providers like Acer, Asus, Samsung and Toshiba entering a competitive global market.
The threats to survival can be multiple and organizations may survive one threat only to be crippled by another that they did not see coming. Over the last decade, the âbig threeâ US automobile manufacturersâChrysler , Ford and General Motors (GM)âhave been among the many affected by the global financial crisis (GFC). These firms dominated the US and global automotive markets for most of the twentieth century. All three appeared in the 2006 Fortune Global top 10, but with Chrysler by then in the guise of DaimlerChrysler and headquartered in Germany. However, none is in the 2016 top 10, with only GM in the top 20, at number 20 (Daimler, now devoid of Chrysler sits at number 16).
These major corporationsâ first major error lay as far back as the 1980s, when they failed to adapt to new consumer demands for smaller, more economic and more environmentally friendly vehicles. In that decade, Honda, Nissan and Toyota made major inroads into the US market, first through vehicle imports, then building production plants onshore. For a period in the 1990s and early 2000s, the big three avoided the impact of these demand changes by creating and living off a new craze for âsport utility vehiclesâ (SUVs). However, the unfolding financial events wiped the sheen off the gas-guzzling top end of that market and they were left exposed.
Looking at the global automobile market for 2016, smaller saloon cars dominate the top ten sales globally, with examples like the Toyota Corolla, VW Golf and Ford Focus from a range of manufacturers who now build and sell their vehicles in a wide range of international settings. However, at number two globally, we find the massive Ford F-Series truck, which dominates the US market ahead of two similar products. So we see that, despite the continuing fallout from the GFC, fluctuating oil prices, calls for action to reduce carbon emissions and the emergence of new hybrid and electric cars, the backlash against large vehicles has not been maintained as a long-term consistent trend.
Looking further back in history, we can consider the example of Xerox , which in the early 1970s held a 95 percent market share of the global copier industry. Its target customers were large corporations and the concept of customer value was that of centrally controlled photocopying. Xerox focused on manufacturing and leasing complex high-speed photocopiers, using its own production and sales service force to provide a complete package to those who leased its machines. Then, along came Canon âwho competed head-to-head for Xeroxâs large corporate customer base. Why didnât Xerox appreciate the nature of the threat and respond earlier than it did to Canonâs attack?
Xerox had a very strong business idea, but the very strength and invulnerability of the business idea was its undoing. Xerox was shackled with its own sales force and its leasing policy for its big machines. It could not afford to offer smaller machines to its customer base. It thought that its customers, heads of copying in large corporations, would protect both themselves and Xerox and retain centralised copying, since it was in both the customersâ and Xeroxâs interests. Other parties trying the same business idea found that it could not be copied. However, individuals working in those large corporations increasingly wanted the control that the flexible and instant access to copying facilities of Canon offered.
Like IBM , Xerox has survived and continues to thrive, but as an agile and adaptable business that focuses on customer-focused research and innovation to develop âinnovation at workâ and explore âtrends (that) are shaping the world of workâ.5
Lessons from HistoryâBuilding Agility for the Future
Why is it that major, household name businesses like Chrysler , Ford , GM, IBM , and Xerox felt invulnerable and convinced that the future would be a continuation of the recent past? They seemed totally unprepared for when the worst happened: market forces changed, a competitor came from nowhere and established a stronghold, based on evolving customer value. Why was this? The reason is that these companies and many, many others were the prisoners of their own success. They show how, when things are running smoothly, ways of operating can become ingrained over the years.
Many organizations follow managerial recipes in a similar way to those we have mentioned, allowing their recipes to become routines that guide all thinking and acting. As writers on strategic management have argued, to survive, an organizationâs strategic decision making must retain or improve the organizationâs alignment with the external world. In other words, recipes should not be routinely followed and should be changed altogether when appropriate and necessary. However, strategic inertiaâdefined as the degree of commitment to current strategyâgrows over time as current ways of operating become increasingly embedded in an organization. Commitment to the status quo will tend to escalate in a smooth, undisturbed fashion, with incremental adjustments or improvements to current strategy over time. However, as we highlight above, escalated commitment to business-as-usual is likely to result, at some stage, in a mismatch with changes in the business environment.
Constrained Thinking and the Global Financial Crisis (GFC)
The GFC and its aftermath offer clear evidence of what can happen when the future is seen as a continuatio...