Control your Destiny, or Someone Else Will

In recent weeks many of the world’s leading economies are predicting signs of potential recovery and possible elimination of the worst excesses of the COVID 19 pandemic. The pandemic has been truly unique, in scale and intensity, causing death, social and economic chaos on an unprecedented scale.

 Globally, as at 10 March 2021, there have been 115m confirmed cases of COVID-19, delivering 2.5m deaths, reported to the World Health Organisation (WHO). The SARS pandemic in 2003, by comparison caused 461 deaths.

 Levels of government debt in emerging market and developing economies had already risen to over 120% of GDP by the end of 2020.

Businesses, nations and regions are now facing the prospect of developing strategies and plans for a post-COVID environment. Unfortunately, the tools and processes we have used in the past will be found wanting. In this brief article I examine the challenges all leaders will face from three perspectives

• the level of debt at all levels in society
• the future shape of the workplace and
• how to lead and rebuild the organisation.

I also provide a solution to make a good start to the planning process.

Divergent scenario thinking enables us to consider a number of alternative futures, conceive strategies that will succeed in each future and develop the best integrated strategy for the most likely scenario. This article describes a process of engagement with your people that will build ownership of the emerging strategy and empower your stakeholders. Read on…

Mountains of Debt

Government, corporate or personal debt levels have soared with associated job losses and furloughing of staff and more will come as furlough ends.

This pandemic and the associated fall-out has been much more than previous crashes or recessions – believe me as I have lived and worked through FIVE recessions! The impact has been and will be hugely negative as a result a number of factors including:

•  The end of globalisation as we know it forcing more regional and local focus
• Volatility and fragility of global supply chains.
• Acceleration of trends resulting in changes in patterns of work.
• Devastating impact on the education of young people at school, university and college, and associated impact on working parents taking on the burden of home schooling.
• High levels of stress on the capacity and ability to deliver healthcare services not only in the pandemic but to ever increasing demands for more and improved healthcare, especially from an ageing population and addressing the backlog of treatment for non-COVID related conditions.
• Impact on employment and workplace productivity at the end of furlough schemes.
• Brexit delivered for the UK out of the European Union.

All Together, at the same Time…

 Future of Work

The COVID‐19 pandemic disrupted labour markets globally during 2020. The short-term consequences were sudden and often severe; millions of people were furloughed or lost jobs, and others rapidly adjusted to working from home as offices closed. The pandemic accelerated existing trends in remote working, e-commerce, and automation, with up to 25% more workers than previously estimated potentially needing to switch occupations.

The impact of the pandemic on work with high physical proximity delivered a major shock to the workforce and will continue to influence its shape and direction in the years to come. Jobs that once helped offset labour displacement are among those most affected by the long-term repercussions of COVID -19. In Europe and the United States, workers with less than a college degree, members of ethnic minority groups, and women are more likely to need to change occupations after COVID -19. These workers will face unprecedented transitions requiring wholly new skills to advance into the more highly paid jobs being created.

Source: McKinsey & Company (March 2021)

The future will be a blend of home-working in offices and call centres. A number of industries have discovered new and positive levels of productivity during the pandemic e.g. pension advisory services. Building the right blend and a strategic capability in service will be a source of real competitive advantage.

Future Prospects?

What prospects do the next five years hold? Will Asian Pacific and Russian economies prosper at the expense of the West? Will the cost of the demographic changes, combined with greater demands for healthcare cripple many of the so-called developed countries? Will the newly industrialised countries’ labour cost advantages be eroded through returning inflation and higher welfare costs? Post Brexit will the European Union break down even further amid squabbles about monetary policy, immigration and continued low growth - or even prolonged recession - prevail in the major economies? Will there be another major collapse in equity markets, asset values and pension funds? To what extent will inflation and interest rates rise and when?

Surely Digital Transformation will cure all Uncertainty?

Too many executives when considering the future spend excessive time on a relatively useless question: “What will happen to us?” Many boards and their senior management spend time together:

• Reviewing historical performance and modelling future scenarios (see below)
• Managing short-term performance
• Planning to hit operational targets.

 Once a year they go through the ritual of updating a 3-year plan or extended budget. This exercise is often carried out a few days before the plan is due for presentation to the board, following guidelines prepared by the Finance or Planning departments.

Source: Renaissance & Company

 They try to forecast the future with increasing precision and certainty using artificial intelligence linked to larger and larger amounts of data in increasingly sophisticated models - to no avail. They take action to counter these uncertainties. They build one or two quantitative scenarios around their official future prediction using factors such as +/- 10% revenue growth, increases in interest rates and inflation or use several thousand variables in the tumble dryer of random stochastic analyses.

Note: "Stochastic" means being or having a random variable. A stochastic model is a tool for estimating probability distributions of potential outcomes by allowing for random variation in one or more inputs over time

 Who knows? Why bother forecasting in micro detail? The truth is, almost everything we predict about the future will be proven wrong, even if endorsed by ever increasing amounts of fresh, big data.

What does this mean for strategic choices in the future? Typically not enough time is afforded to executives to consider the future, its complexities and uncertainties. Nor is the process carried out in an environment conducive to developing a winning strategic direction, shared by a critical mass of those charged with delivering the results. Few strategic conversations of consequence take place to open up fresh, future perspectives and create a vision of the future. Can management afford not to think about the future together?

Leading Successfully in a New Era

Managers who perceive change early should spend more time on a far more useful question: “What will we do if such-and-such happens?” Only this latter question can lead executives to make changes inside an organisation that will allow it to survive and thrive in the new uncertain future.

 Help is at hand. It comes in the form of Scenario Thinking – building, often divergent, visions of the future, and developing strategies around these futures, and their implications. Scenarios are stories from tomorrow. They enable an imaginative, insightful leap into the future. They are crafted in a creative environment, and are carefully constructed stories, full of rich, relevant detail, orientated towards real life decisions. They are designed to bring forward surprises and unpredictable leaps of understanding. They are helpful in creating insights around ‘cause and effect’ connections to customer attitudes and behaviour, operating paradigms and resource requirements that might not have been immediately or previously evident. They focus on gaining insight into the 'most likely' scenario, not the 'most preferred'. Strategies can be considered for each of the four scenarios in terms of vision of success, strategic goals, capabilities and implications for action. The strategy for the most-likely scenario should be developed using a strategic framework and enhanced by considering features from the strategies developed for the other scenarios. Remember the best strategy is not one that works in each scenario. This thinking effectively leads to the lowest common denominator strategy - of little use when at times you have to 'bet the company'.

Here are the four scenarios or alternative futures, that enabled Highland Distillers to chart the future for The Macallan to grow value from an acquisition price <￡200m to over ￡3bn in just over 10 years:

The key is not to pick one preferred future, hope it comes to pass, adapt to it, or ‘bet the company’ on it. Strategic decisions should be crafted around a number of futures. These are created by considering the most important strategic factors and the critical uncertainties facing the organisation going forward. At the same time the early indicators of an emerging scenario should enable management to exploit any opportunity more effectively than competitors. In the past, the term scenario was used to consider alternative results of what might happen, often within a narrow range of parameters. Now scenario thinking can be used to create strategic options or alternatives, as well as testing any emergent strategy.                    

To make the best use of scenario thinking means instilling it as an integral part of the strategic management process. Scenarios are not one-off exercises to be replaced as quickly as possible by ‘business-as-normal’. Scenarios are never-ending stories developed by your people, for your people. They take time to develop and cannot be adequately built during a few hours of the annual planning day. Those privileged to be involved in the process require to be briefed and engage themselves in the external and internal environments that will influence the outcome.

It will be useful to engage other ‘remarkable people’, at some stage, to enrich the scenario story. They may be experts in related or unrelated fields, but more likely people respected for their skills and knowledge elsewhere. They may include analysts, actors, authors, musicians and artists to bring extra creativity. Frequently they add unique insights to an internal team (themselves often weighed down with the baggage of the organisation’s past) taking them to new and spectacular heights of strategic thinking. The quality of engagement can also be influenced by the provision of information on the future - however crude or sparse.

Engage and Empower your People

Staff must feel genuinely empowered to develop scenarios and implement the resultant strategies and plans. This first requires building capabilities in people. The next step is to establish a charter between the individuals and the company where the taboos are as clear as the can-does. Individuals must be free to innovate and act because they are clear as to their role, responsibilities and contribution to implementing the emerging strategic direction. As a result, organisations can manage the present and the future in complementary ways, allocating resources for sustained advantage.

The scenario thinking process enhances an organisation’s capacity and capability to be innovative. It ensures that a strategic dialogue takes place to build greater ownership of the outcomes. This leads to greater competitive advantage, by building barriers around the unique strategy that will emerge. How different from following the ‘off-the-shelf’ process out of a history book written by yesterday’s guru.

In an increasingly uncertain world, it will be wrong for organisations to

• Carry out more market and competitor research in isolation
• Intensify their planning processes through digital transformation or artificial intelligence
• Increase the demands for more data in a quest for greater certainty 

Instead, management teams should be given time, space and resources to build rich scenarios for the future - good, bad and ugly - using their knowledge and insight. They will be able to consider the implications of these alternative futures before they occur. By increasing the quantity and quality of strategic thinking - in conversations together - leaders have a greater chance of success, far less survival. The process through which these views of the future will emerge will also do much to prepare and develop the management team for the intense fight ahead, to secure the high ground in the battle for the future.

 Here's How to Do It...

Here are the key features to build in to the scenario thinking process:

Many of those organisations who 'changed the game' deployed scenario thinking as part of their process of change - establishing where to go and how to get there - by planning back from the future, rather than forward from the past. The view has to be worth the climb when building a vision of the future, even at the end of a crisis like the one caused by the pandemic. Engaging key stakeholders in the process and empowering your staff to contribute can deliver genuine strategy innovation even in the darkest of times.

Footnote

Over the last 20 years I have worked with over 150 clients to build scenarios for the future. These clients have been private and publicly listed companies, small and large ventures as well as public sector and not-for-profit organisations. In almost every case some feature has appeared in the final, emerging strategy that did not exist prior to the scenario thinking process. With my colleagues at Strathclyde Business School we represent a resource that is well qualified and experienced to support scenario thinking in your organisation.