Scenario Planning as Part of Strategy Development

In my daily work, I hear the phrase “strategic planning” with such frequency that it has become by now a signal for “switching off”, i.e. stop paying attention…here we go again…not another strategy…and not the same strategy with different words, please! What a relief to read something actually intelligently written, like Conway’s article “Scenario Planning: An Innovative Approach to Strategy Development“, in which he makes a distinction between strategic planning and strategic thinking. Sure, it’s a piece dense with “management-speak”, but given the quality of ideas, one doesn’t mind the odd “innovative approach” or “setting direction”, or “immersion in foresight concepts”.

Conway argues that traditional strategic planning, based on deductive reasoning falls short of being effective in a complex, interdependent and highly uncertain environment in that it focuses more on past experience, data and fact driven thought processes. I’d like to call this the microscope-focused approach. What he advocates instead, or rather, in addition to, is “strategic thinking” as part of the planning process, or in other words, the ability to develop foresight capacity, a “big picture” view that is less concerned with the here and now of the details and the particular but adjusts the aperture to provide a universal, telescopic view. Of course, he doesn’t say “universal” vs. “particular”, which is how a philosopher might phrase the concept; nor does he use the microscope-telescope analogy, which would be more at home in the fields of myth, anthropology and psychology. Writing for a corporate audience, global vs. local is what one might expect to hear.

I think an interesting conclusion can be drawn from this observation. I believe Conway himself reaches this conclusion even if he doesn’t explicitly say so. In an environment of growing complexity and interdependence, strategic thinking implies being able to see connections that one might not do if he/she adheres to linear logic, and what’s more, one might never see by him/herself without the contribution of others. The crisscrossing of concepts from traditionally different disciplines and the fusion of individual brains into one collective intelligence is what strategic thinking for the 21st century seems to be all about.

I concur with Conway’s take on scenario planning as a way of creating alternative future narratives, and was happy to see the Dave Snowden reference on page 12. Although Snowden has become in the past few years a household brand name in (knowledge) management and a quote by him adorns the annual or centennial  corporate strategy paper of every Tom, Dick and Harry organization that likes to talk about “innovative approaches”, Snowden does often provide food for thought. [In my capacity as CKO, I once attended a presentation of his, which sparked enough interest to add his Cognitive Edge website/blog to my RSS feeds and read a number of articles he provides there under a creative commons license.] Conway outlines Snowden’s thoughts on the irrationality of human decision processes as a way of stressing the influence of human agency in strategy development. However, the quote ends too quickly. Elsewhere, when discussing the assumption of rational choice, Snowden goes through great pains to distinguish between “objective” reality and perceptions of reality. He argues that understanding these different perceptions or perspectives of reality can lead to strategic advantages and he sees narrative techniques (scenarios for our purposes) as a way to gain greater exposure to different perspectives:

The assumption of rational choice
Relaxing this assumption means that context and perspective become as important as rationality. This is an important reason that the Cynefin framework is not about “objective” reality but about perception and understanding; it helps us to think about the ways in which different people might be perceiving the same situation. For example, there is an old folk tale from India in which a wise man decides that in order to escape an impossible royal demand, he will fake insanity in the king’s court. He is operating in complex space because he is using cultural shorthands to provoke predictable reactions but is gambling that his ruse will seed the pattern he wants to create. He knows that from the perspective of his audience, who are operating in the space where things are bound by tradition and thus known, he appears to be acting chaotically, because they can conceive of no other reason for him to act this way in front of the king (who would surely behead him if he was faking). Thus by proving that he cannot be faking, he pulls off the fake. Understanding not only that there are different perspectives on an event or situation, but that this understanding can be used to one’s advantage, is the strategic benefit of relaxing this assumption. Narrative techniques are particularly suited to increasing one’s exposure to many perspectives on a situation. In management, there is much to be gained by understanding that entrained patterns determine reactions. This realization has major implications for organizational change and for branding and marketing. Our own work on narrative as a patterning device is gaining presence in this and other areas. Speculating, one of the most significant possible applications of this understanding is a move away from incentive-based targets and formal budgeting processes—both of which, we contend, produce as much negative as positive behavior. It is a truism to say that any explicit system will always be open to “gaming.” Paradox and dialectical reasoning are key tools for managers in the un-ordered domains.

C. F. Kurtz, D. J. Snowden, IBM SYSTEMS JOURNAL, VOL 42, NO 3, 2003, http://www.research.ibm.com/journal/sj/423/kurtz.pdf

Back to Conway, the scenario planning process he outlines is the same as that of Project Horizon. I wonder if the people responsible for managing that project did so intentionally, following Conway’s model or it was more of a Snowdean serendipity moment. I also wonder if the Project Horizon team answered the model questions from the decision tree for scenario planning that Conway provides. I must confess, I put the tree to test in terms of my own work and found it extremely difficult to answer the questions with “yes” and “no”. The reason for this is that it is often impossible to speak about an organization with one voice. There are, individuals, teams, silos, middle management, senior management – all open to change and dialogue to different degrees. Should one engage in scenario planning if the staff are open to change and dialogue but management isn’t and vice versa? If I attempt to answer this question, another point Conway makes comes to mind: “The organization will need to focus its foresight work – is it about helping the organization develop its preferred future and documenting that in a plan, or is it about considering all potential futures, whether possible, plausible or probable.” (p.21) From the point of view of management, I would say the focus tends to be on the former – developing your preferred future. From the point of view of staff – considering all options. How feasible is it then to apply scenario planning in a government organization, where both planning and decisions are more likely than not to be strictly top down? It takes a certain entrepreneurial spirit, of which government institutions are devoid almost by default, to engage in this type of exercise. Strategic or visionary thinkers are hardly welcome in such environments. At best, their boldest big picture strategy is dismissed as day-dreaming; at worst, it is seen as a threat to the managing body. In this respect, I find it commendable of the US government to support a project such as Horizon and would be very curious to know at what stage the project is two years after publishing the preliminary report. In particular, it would be interesting to know the progress on the Global Hazards Planning and Response capability, the US Government Partnership framework and the Global Affairs Learning Consortium since all these are sub-projects I am also trying to pursue in my work.

Scenario planning and the national security issue I’m working on (Russia and the Balkans):

I had already considered using scenarios prior to reading Conway and the project Horizon report, however, I’m not sure if scenario planning is appropriate when developing a situation assessment, which is the overarching analytical technique I’m applying to my project. In my view, a situation assessment should be limited to objective capabilities rather than alternative futures. I don’t think a situation assessment is or should be concerned with forecasting; rather it should be based on what Conway refers to as “traditional strategic planning” – deductive not inductive.

Still, had I chosen the same topic but a different method, I would apply scenario planning to examine potential “new” alliance formations on the Balkans. Bulgaria is a particularly interesting case due to its membership in both NATO and the EU, and its historical ties to Russia. Alternative scenarios could throw light on what role the country is going to play in terms of energy security in Europe. With four planned major pipeline routes transiting the country – 2 Russian projects and 2 EU/US-sponsored ones, it would be interesting to develop a scenario exercise to determine if Bulgaria will choose to “bandwagon” to the EU/US greater powers or become a Trojan horse by strengthening its ties with Russia. Other countries in the region (Romania and Serbia for instance) are less problematic because they have expressively stronger affinities to one camp or the other, hence the relatively low uncertainty would not merit the use of scenario planning. Greece could be another potential wild card despite its long history of NATO/EU membership. Dissatisfaction with some EU policies and a prospect of becoming a regional energy power through closer alliance with Russia, Greece’s behavior will be anything but predictable. Throw in Turkey’s contested EU application and the event that it actually succeeds, and a reshuffle of alliances and spheres of influence is sure to experience some major shifts. Cyprus, for one, will open its arms toward Russia even wider than it currently does.

To sum up, I would not apply scenario planning to my national security issue as long as I’m doing a situation assessment. However, I do believe scenario planning as a technique could be a valuable addition to long-term strategic analysis, especially when used to challenge assumptions about rational choice whether on an individual or a collective level.

 

 

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A Business Metaphor in the Context of National Security

Applying a business metaphor to intelligence processes in the national security context is not only valid, but I would like to argue, also desirable. In reading Allen’s take on the business analogy, it seems that he is rather averse to this proposition. His first contra argument is that, unlike business, the government cannot be responsive to market forces. I disagree. What the market is to business, international relations is to government. Are we to believe that government should not pay attention to and respond accordingly to developments in the international arena?

Secondly, our environment is becoming more rather than less networked through globalization. Where once particular domains were immune to changes outside their immediate environment, and cause-effect analysis had a more linear dimension, the complexity and interconnectedness of elements cutting across disciplines and once clearly defined domains, calls for non-linear cause-effect analysis. If government is not responsive to market forces (which I don’t believe is the case in reality), then it most certainly should be.

Further, Allen goes on to say that since government functions are assigned by statute, should a certain direction/policy/requirement become “unprofitable”, unlike business, it cannot choose to simply abandon it. This may be true due to the bureaucracy inherent in government institutions. However, it is precisely this inflexibility and slow reaction to change that the government should address through reform, and use examples from business as guidance.

Finally, functions are assigned to government, Allen argues, because they have a higher, public welfare purpose that is not economic. Get off your high horses, Mr Allen! Why should economic purposes be necessarily painted in such a negative light?! Economic growth and prosperity through healthy competitive business, not only contributes to the “higher, public welfare”, but also helps bring stability and opportunities for many conflict resolutions by means of soft power rather than the not so noble practices of coercion and military intervention.

There is one area that Allen briefly discusses, where the business metaphor is not likely to be applicable, and that is information/intelligence sharing among the agencies. But even here we need to make a distinction between business vs. competitive intelligence and homeland security agency cooperation vs. agency cooperation in an international context.

By definition, business intelligence is an inward-looking process. It pertains to knowledge derived from analyzing an organization’s information and internal processes to help make better business decisions. Essentially, it falls under the knowledge management domain. Progress has been made here to facilitate internal information/knowledge/intelligence sharing both in the private and public sectors. Various knowledge management practices and technological tools have proliferated in the past decade to facilitate this process.

This is less the case with competitive intelligence and international inter-agency collaboration for obvious reasons. Even when an outsider is perceived to have friendly intentions, he is still an outsider; tables can turn quickly; and trust is always on a tighter leash. For clarification, I refer to competitive intelligence as gathering and analyzing information about your competitor’s activities (and general business trends) to further your own company’s goals.

However, despite intrinsic differences, both business and national security intelligence share the same objectives:

• Avoid surprises
• Identify threats and opportunities
• Gain a competitive advantage by decreasing reaction time
• Improve long and short term planning

With the above in mind, I think the utility of the business metaphor to the national security context is indispensable. What is more, both domains use more or less identical techniques in the way they go about their business. This brings me to the second part of the question: the role of early warning in business and national security.

In business, early warning intelligence provides executives and senior management with timely, valuable information about market and competitors that enables them to make strategic and tactical decisions more quickly. (definition from Society of Competitive Intelligence Professionals)

In the national security context, early warning intelligence is supposed to provide anticipatory assessment of future problems to avoid strategic surprise. As in the business field, the recipients of this information are senior leaders and decision-makers, who are then expected to provide a course of action to address the threat.

It could be argued that one fundamental weakness of early warning systems is that they are better able to provide strategic rather than tactical intelligence. For example, strategic early warning was ample in the case of Pearl Harbor. The U.S. expected a Japanese attack well in advance, but early warning was unable to predict that this attack will happen on U.S. territory. Indicators pointed toward Southeast Asia. In the case of early warning prior to 11 September 2001, again, strategic assessments had correctly predicted bin Laden’s intentions to carry out a terrorist attack against the U.S., but were unable to pinpoint time and location.
In the business context, despite various whistle-blowers’ early warning indications, five weeks prior to Enron declaring the largest bankruptcy in U.S. history, the company’s debt was still rated as investment grade by leading rating agencies. In the case of Grove’s company, Intel, early warning was there, but no one considered it significant enough to allocate time and attention to it before it was too late. After running a probability test to analyze potential effects of the “minor” design error on the chip that was to cost them USD 475 million and eventually result in the complete business re-engineering of the company, Intel’s management underestimated the non-linear consequences of this small probability – high impact event. The failure, as Grove correctly observed, was not technological; it was social. And the forces that prompted the reverberating reaction across the company and the computer industry as whole, were likewise prompted by social dynamics rather than technical design.

This brings me to the next problem, which I think is inherent in early warning, namely, the relationship between the warning analyst and his senior decision-maker in the national security context and the whistle-blower and his senior manager in business.

According to John Kriendler, who writes on NATO Intelligence Warning Systems (NIWS), “no matter how well-structured an early warning system, its success depends, above all, on the judgment and vision of political authorities. Ultimately, the political will to act individually and collectively, and, if necessary, to intervene is more important than any early warning tool.”

From the above, it can be deduced that for early warning to be effective, two elements must be in positive complementation to each other: the development of critical indicators, where analysis is based on a qualitative not quantitative approach and ensuring that “the nature and level of warning that is being provided is understood; feedback is essential.” (ibid.)

Why is leadership so important to the early warning process? As Grove says: “Most analyses of competitive well-being of business are static ones. They describe the relevant forces at any instant in time and help explain how they add up to favorable or unfavorable business positions. But they are of little help when a major change is taking place in the balance of these forces.” (p.27)

Just like peace time and war time require a different type of leadership and a different set of skills to manage either, so in business, a leader who has grown accustomed to a gradual and systematic performance, leading to few unpredictable results, will most likely be unable to react with the agility a surprise transition requires. It is at such times that “intuition” has higher value than structured scientific methodology: “Even those who believe in a scientific approach to management will have to rely on instinct and personal judgment.” (Grove, p.35)
Early warning intelligence is not suited to a 9-5 government routine, bureaucratic processes and quantitative reports. Rather, it resembles the R&D department of a company. Of all other forms of intelligence, it should be the one granted the most freedom in the way it fulfills its function, and the recruitment strategy should aim at finding individuals with highly developed visionary and critical thinking skills.

Organizational challenges of global trends

According to a November 2007 McKinsey global survey, in which 1317 senior executives from 93 countries participated, organizational change is seen as a crucial factor in building or maintaining competitive advantage.

The 3 global trends that appear to matter the most are: (i) the intensifying battle for talented people, (ii) shifting centers of economic activity and (iii) increasing technological connectivity.

Top business trends likely to have the most effect on business over the next 5 years

1. Competition for talent will intensify, become more global – 47%

2. Centers of economic activity will shift globally, regionally – 34%

3. Technological Connectivity will increase – 34%

4. Ubiquitous access to information will change economics of knowledge – 28%

5. Demand for natural resources will grow, as will strain on environment – 25%

6. Population in developed economies will age – 22%

7. Consumer landscape will change, expand significantly – 20%

8. Role, behaviour of business will come under increasing scrutiny – 19%

9. Organizations will become larger, more complex – 18%

10. New global industry structures will emerge (e.g. private equity, networked

Top organizational challenges by given business trend

1. Trend: Ubiquitous access to information will change economics of knowledge, n=363

Challenge: Ensuring information, knowledge, wisdom are shared across business as quickly and as effectively as possible, 51%

2. Trend: Public sector activities will baloon, n=56

Challenge: Finding right cost base, pricing model for products and services, 44%

3. Trend: Demand for natural resources will grow, as will strain on environment, n=334

Challenge: Managing operations in a way that is environmentally sound, 41%

4. Trend: New global industry structures will emerge, n=229

Challenge: Creating, capturing value from networked businesses, 40%

5. Trend: Consumer landscape will change, expand significantly, n= 274

Challenge: Managing complexity of tailoring products or services to different local conditions, preferences, without diluting the brand, 36%

6. Trend: Population in developed economies will age, n= 271

Challenge: Recruiting next generation of workers, 30%

7. Trend: Technological connectivity will increase, n=443

Challenge: Developing ability to change organization, operating model quickly enough to keep pace with technological change, 28%

8. Trend: Role, behaviour of business will come under increasing scrutiny, n=234

Challenge: Improving enterprise-wide risk-management processes, 27%

9. Trend: Growing competition for talent, both technical and managerial, n=644

Challenge: Dealing with shortages in specific skills, 26%

10. Trend: Organizations will become larger, more complex, n=235

Challenge: Increasing speed of decision making, response to external changes, 25%

11. Trend: Centers of economic activity will shift globally, regionally, n=461

Challenge: Managing an organization with operations at different stages of growth, market development, 20%

Collaborative Governance

Deriving  value from informal network knowledge pools instead of experts, is a trend that is likely to continue growing rapidly in 2008. Open source technology, social collaboration tools and a mindset change are quickly transforming the ways of traditional top-down communication, management and decision-making. Pioneer initiatives such as Wikipedia, My Space and Facebook, to name but a few, were quickly picked up by the intelligence community, international organizations, private sector multinationals, and NGOs as an alternative solution to internal knowledge management processes.

In the US, the intelligence community bravely embraced the idea of open distributed knowledge networks, and it has, since 2005, established an Open Source Center under the DNI office, set up a knowledge base intellipedia, allegedly used social networking sites in recruitment campaigns, and opened its doors to non-intelligence experts, i.e. the media, academia and NGOs in the first ever intelligence conference open to the general public. All this is done in an effort to collaborate and share knowledge that might prove indispensable in saving lives and avoiding major intelligence failures in a world where asymmetric threats and risks lurk around every corner.

The UN has followed suit and introduced its own wiki to help connect its thousands of employees stationed in different parts of the world.

Wikis and blogs are the hottest buzzwords among knowledge management, business intelligence and organizational development professionals because unlike other technologies that chiefly increase efficiency and productivity, they are succeeding in something far greater and bearing far larger consequences: mindset change – a change in how we think about work.

The Democracy Journal of ideas published in its new Winter 2008 issue an article, entitled “Wiki-Government” by law professor and director of the Institute for Information Law and Policy at New York Law School, Beth Simone Noveck. In this article, Noveck explores how open source technology can make government decision-making more expert and more democratic. She argues that “speaking truth to power” is best done not by individual experts in the traditional sense of the word, but by collaborative knowledge networks, composed of non-experts. The article touches on various themes by now more than familiar to knowledge worker professionals, such as scientific peer review as an alternative mechanism for oversight, transparency and quality control, the value-added to governments of non-professional expertise, the peer-to-patent experiment as a model for collaborative governance, and finally, digital institution building.

Opening up closed decision-making may raise some brows and prompt reservations of the kind “too many cooks spoil the soup”. It would be short-sighted, however, and unrealistic of governments to think and behave as though they could bypass a trend of this magnitude. In the current balance of power, governments no longer have the upper hand. It is smart business enterprises, non-state actors and (in)formal knowledge networks that set up both the change and the speed with which it happens. A failure to come to terms with this and embrace change would doom governments to bureaucratic mediocrity at best, and would eventually drain them of the intellectual capital they aspire to possess.