We believe that the best people to sketch scenarios and shape the strategic direction for any organisation are those who are expected to implement the strategy.
When engaged to facilitate a strategic session, we ask the executive team to sit at a round table or in a horseshoe configuration so they can see each other. Conversation is as much about gestures and facial expressions as it is about what people actually say. It also means that nobody has superior status at the table because of position.
We encourage the conversation to be as participative as possible since the best strategists in a team are often the last people who want to speak up. We use the Socratic method of asking questions to stimulate the participants to re-examine their basic beliefs about the organisation. There are no sacred cows!
We also insist on zero paper except for the flip charts on which we record the conversation. We want people to bring their minds, their experiences and, most of all, their imagination to the meeting. Long documents on strategy tend to contain figures that are based on consensus forecasts and therefore kill the imagination, the very faculty that allows people to think outside of the box. Such documents also seek alignment before the conversation has taken place, when the whole point of the conversation is to obtain a diversity of views and then gain alignment.
Above all, long papers on strategy normally confuse strategy with tactics. An old nineteenth-century saying sums up the difference quite well: "Strategy differs materially from tactic; the latter belonging only to the mechanical movement of bodies, set in motion by the former". In brief - strategy is the direction of the business and the tactics are how to get there. What this means is that a handful of strategic decisions determine all future operational decisions. The order of events is shown in the diagram above. In our experience, the conversation around 'aiming' the business should take one day, or two days at the most. The third and more detailed phase around 'firing the gun' can take considerably longer. Another important element to strategic success is timing. The right time to have the conversation is the difference between success and failure. Sometimes an idea is 'before its time' and other times people are not open enough to change unless they are forced to by the environment. That is where scenarios help, as seeing a possible future allows one the chance of getting the timing right.
Strategy, the aim of the business, should not change that often, while tactics to stay on course will vary according to how the game evolves. Indeed, we have defined seven principles of strategy:
Strategy is direction. Tactics are how to get there.
Strategy formulated without first consulting the context will probably end up being bad strategy.
Strategy is as much about ruling in potential paths that fit your scope as ruling out others that don't.
Good strategy can be turned into bad strategy by a future change in the context. Scenarios are a way of exploring alternative futures, which might necessitate a change in strategy.
Bad tactics can destroy good strategy, but no tactic can rescue bad strategy.
Good strategy has a greater chance of being converted into good results if tactics are accompanied by a set of measurable outcomes to which people can aspire.
Above all, strategy is about understanding what you do and don't control, and what is certain and uncertain about the future - and knowing when to change direction to avert unintended, and possibly tragic, consequences.
The strategic conversation we facilitate is in two parts: firstly defining the game and secondly playing the game. The first part has six steps and the second has four as indicated in the model to the above right:
Defining the Game
The first step in defining the game is to review its evolution in recent years and where it stands today (together with your status as a player). The second step - Scope - is really about strategy, because selecting the game you want to play in future is equivalent to choosing the direction of the business.
Steps 3, 4 and 5 examine the interplay between your strategy and environmental factors beyond your control, while step 6 - the scenarios themselves - provide the possible outcomes.
How has the game in your field or industry changed? What flags have gone up? Where is the game heading? Is it growing or disappearing? Has it become more international or more competitive? Has there been consolidation in the industry? Are, say, the Chinese now a threat? Importantly, how have you fared as a player?
These questions are designed to take the participants over familiar territory and act as a warm-up for the harder questions ahead. It also allows a first take on where the future may be heading. The diagram to the left shows the seven frames you should be looking through to get a feel for context.
What is the current playing field of your organisation? What lies inside and outside its boundaries? Should the field be wider or more focused? Where is there scope to extend the field into new, profitable activities? Should you change your game completely because it has become so unattractive? Scope can be divided into product range (horizontal range of goods and services), product chain (vertical chain from raw materials to customers), geographical footprint (the countries where you want to market your product/service or own businesses) and market segment (profile of your customers in terms of age, income, industry where you have industrial clients etc).
In considering Scope you have to reflect on your brand, culture, core competencies, organisational structure, business model, resources and location. Where they have to be changed to accommodate a modification in Scope, suitable tactics will have to be considered under Options below. For example, going downstream in the product chain or entering new countries may require competencies you don't possess. Tactics may therefore include joint ventures/alliances with companies that have competencies in the areas being targeted.
Scope at this point of the conversation should be considered provisional, since it may be altered by important issues raised later on.
Who are the players that can significantly change the outcome of the game you've chosen? Who are the ones for you that want you to win; who are against you and want you to lose; and who are neutral and liable to swing either way? We start by asking you to name your main competitors and what their strengths and weaknesses are, and in particular how big they are in relation to you. You can just as easily be killed by a big gorilla with greater economies of scale as by a swarm of bees with no overheads. Remember in sport it's common practice to do a SWOT on your competitors before you play them.
Then we ask who are your key suppliers and are they assisting you in winning the game? How about your customers? How do they regard you, and when did you last do a customer survey? Are your employees for you or are they neutral? You can never win a game with an unmotivated team! What about trade unions, communities around your areas of operation, the government, shareholders and the media? Where do they stand?
Players are often the most underrated part of a strategic conversation, yet can be the most influential as they have the power to transform the game.
4. Rules of the Game:
Every game has rules. If you break them in sport, you get a red card and get sent off the field. If you break them in business, you go bankrupt. However, unlike sport, the rules of the game of business can change significantly over time.
We have identified three kinds of rules that you need to establish in order to understand the DNA of your game:
Descriptive rules (D), which give you a basic licence to operate in the country/countries where you are located. Of course, these rules can differ from country to country. In addition, descriptive rules include the 21st Century Megatrends as well as the long-term forces governing your market or industry in the future;
Normative rules (N), which cover ethics, corporate governance, the environment, health, safety and corporate social investment. These rules should be universal for all countries; and,
Aspirational rules (A), which will give you the edge to win the game. These are usually few in number but crucial to the sustainability of the business. For example, in the mining industry cost leadership and quality of ore deposits are rules to win, while in many service industries a rule to win would be the establishment of long-term relationships with clients based on trust and value for money. Living your brand is now an essential rule in engaging with the public, as is a culture of innovation and sometimes being the cheaper alternative.
Options (below) should include tactics to lead you towards closer compliance with the rules, especially the rules to win. In other words, how you act in accordance with the rules is within your control, whereas the rules themselves are part and parcel of the game.
5. Key Uncertainties:
What are the main uncertainties that can have a major impact on your business and affect the outcome of the game? Uncertainties can be economic, political, social, technological, and legal, or revolve around your market or your competitors' strategies. They can be international, national, local, related to your specific industry, or internal (e.g. CEO succession). They are the surprises that may necessitate a change in strategy or tactics. Whereas external uncertainties are usually beyond your control, your response to alleviate the impact of these uncertainties is within your control and constitutes tactics.
Good examples are a stock market meltdown (shock event), the uncertainty around global warming (gradual threat) and the level of oil prices in the future (volatile parameter).
A conversation around key uncertainties is a critical component of the journey towards understanding the future. The accompanying diagram is used by many of our clients to plot the probability and impact of each key uncertainty in order to prioritise their options.
What are the two principal variables affecting your company from which you can construct a 2x2 matrix or scenario gameboard, giving you a best-case scenario, a worst-case scenario, as well as two intermediate scenarios? Many companies choose the state of the market as the horizontal axis and competitiveness as the vertical axis (see Business Gameboard). Which scenario are you in at the moment? Where have you come from and where do you want to be in, say, a year, and looking further ahead? Equally important, what is the current position of your competitors on the gameboard, and where do you expect they will be in the next few years? Drilling down, where would you put your individual business units or products on the gameboard?
Of course, this step also includes the review of the global economic scenarios and country scenarios, like those for South Africa. Identifying flags provides an indication of movement from one scenario to another and brings the timing of decisions into sharp focus. Assigning probabilities to the scenarios enables consensus around what the playing field should be, and creates an ongoing capability of building the team's strategic thinking and agility. It is a dynamic process based on flags going up or down. For more on assigning flags and probabilities, click here.
Playing the Game
Step 7 is a realistic assessment of your own profile and situation before looking at strategic choices (direction) and tactics (how to get there) in steps 8 and 9. Step 10 gives you a concrete mission statement for the next five years.
We don't allow the executive team to get up from the table without measurable outcomes. Otherwise, why waste time on a strategic conversation? In this sense, our strategic conversations are very different from the traditional strategic workshops, which can end up in a haze of hot air and are often soon forgotten. People don't normally do things unless they are measured and, in order to measure them, you need measurable outcomes.
What are your internal strengths and weaknesses, and the external opportunities and threats in playing the game as you do now and as you may play it if the scope has changed? How do you measure up to your rivals in this regard? In what way does your SWOT change as you move around the scenario gameboard? Most companies already do SWOT analyses, but in our model it is done in the context of the game after profiling your competitors. Thus it is usually more accurate than one done in isolation. It also gives you an idea about tactics that play to your strengths, overcome your weaknesses, take advantage of opportunities and counter threats.
What are your strategic and tactical options (i.e. things that you can realistically do within your control) to take the negative scenarios as far as possible out of play and thrive in the good ones? How do you get closer to the rules to win? Given a company has finite resources, options need to be prioritised on the basis of importance/ urgency, leverage (output to input ratio) and risk versus reward. Options can be exclusive where you can do either this or that; or be inclusive where you can do this and that.
Normally the greater the magnitude of resources required, the more exclusive the option becomes. The most frequent trap a company falls into is to select a change in scope (i.e. strategic direction) and then not allocate sufficient resources to make it happen because it falls outside the comfort zone of 'business as usual'. Again one can plot the options on the adjacent diagram.
What are the preferred options that, right now, are 'go' and can be turned into decisions and actions? What is the initial action associated with each decision i.e. who is going to do what by when and how much is it going to cost? What options do you want to defer, either because they are lower priority or they will only be triggered by other scenarios coming into play? Which options are too risky or unethical and should be rejected?
Of course, the difference between options and decisions is that in the former case you can be as wild as you like because you're not making a commitment. In the latter case you are committed. Where an option is exclusive, its selection will always carry the 'opportunity costs' associated with the options refused. The decision may therefore be harder to take than for an inclusive option. The diagram to the left indicates that decisions are incremental and the most important thing is to get the show on the road. Often the steps have to be amended in light of changing realities.
10. The Meaning of Winning:
We like to end the conversation on an uplifting note; so our final question to each person at the table is simple: What is your personal criterion by which you will judge whether the company has won or lost the game in five years time? This should be expressed as far as possible as a measurable outcome, which forms a kaleidoscope of winning the game.
Different people give different answers. For example, the Human Resources Director may well want the company to be the 'employer of choice' in the industry, one to which all smart graduates thinking of joining the field will apply; the Technical Director may want at least three revolutionary breakthroughs in product design so that the company is seen as cutting-edge in the industry; and the CEO generally wants the share price to triple because he or she has more share options than anyone else!
The result can be treated as the mission statement or balanced scorecard for the company over the next five years (balanced because if you press the button too hard on one meaning of winning, you may lose out on another one). It is a much more useful tool than the homilies which pass as vision/ mission statements in many companies. Equally, it demonstrates that winning in business is much more subtle than winning in sport where outright victory is always the intention. The purpose of business is to win but not necessarily make other people lose. Sometimes a business has to accept a 'draw' on the grounds that a strategy of outright victory could easily end up in outright defeat because of factors beyond its control. In practice, business is a combination of pure rivalry games and co-operative games (a touch of von Neumann with a dash of Nash).
Whatever you feel about foxes and hedgehogs, try out this agenda when you next have a strategic workshop. The conversation will be entirely different, as will the strategic insights.
Three questions we are frequently asked
We're often asked how often should you conduct these strategic conversations, how far down the organisation should you go with these conversations, and where should you hold them?
The answer to the first question is that there is no set formula and it is very much up to you as to how to use our model. Some people like to have a one-off conversation on strategy and then only review it if and when the external environment changes to the point that it has to be reviewed. Obviously, any tactical decisions taken at the meeting along with their associated measurable outcomes are regularly monitored. Certainly the business gameboard is continually updated to keep the team aware of its competitive position. Other teams like to review strategy once a year before the next round of operational planning and budgeting begins.
On the second question, some companies like to restrict the conversation to their top executive team, while others like to cascade it down through the different business units and service departments. Obviously the lower one goes, the more restricted the scope of the game becomes. Nevertheless, it is still useful to consider the range of activities inside any production unit/service centre and whether these should be changed to accommodate the needs of other in-house departments which are its clients. Equally, relationships with 'supplier' departments can be examined as well.
The third question on appropriate venue we leave entirely up to the company. Some executive teams like to meet off-site while others are quite happy to use the boradroom. Whatever the venue we do insist there are no distractions, and full attention is given to the conversation.
The Wack Test
Pierre Wack was the recognised master of scenario planning during the 1970s and 1980s. He used to say that the acid test for a successful scenario exercise was not that it captured an unusual future before it happened; rather it was whether the scenario penetrated the mindset of the relevant decision-makers and persuaded them to act ahead of time. We call this the Wack Test. The scenario itself did not have to be entirely accurate in its details, as long as it modified the course of action taken for the better.
Many scenario exercises are brilliant intellectually, but fail the Wack Test because they do not connect to the people who make the decisions. There are, however, three aspects to our conversation model which give the scenarios a good chance of passing the Wack Test:
We assist the decision-makers in writing the scenarios themselves instead of having external specialists presenting scenarios to them. The decision-makers are an intrinsic part of the scenario process;
We have integrated options, decisions and measurable outcomes into the same conversation that handles the formulation of the scenarios. Thus the practical implications of the scenarios cannot be ignored;
The scenarios sometimes feature the main decision-makers in the story. This makes them feel more committed to take appropriate action to ensure greater probability of the virtuous scenario materialising, or the worst-case scenario being avoided.
Finally, we believe there is a big difference between being a facilitator and acting as a consultant. The former is there to extract brilliance from the minds of the participants who make up the session, whereas the latter is there to provide original ideas that may not have occurred to the participants themselves. Self-revelations induced by the Socratic question-and-answer method have a much greater chance of changing people's minds about the future than ideas introduced by an external agency. Nothing beats good facilitation that tests the basic beliefs and principles of the executives concerned. They are then ripe for thinking the unthinkable (and becoming foxes in the process).