Managing uncertainty and complexity: The value of a scenario-based strategic conversation
Dr. Otto C. Frommelt
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The rise in uncertainty is driven by a variety of factors such as the difficulty in handling uncertainty, decision-making under uncertainty, the nature of uncertainty and the different levels of uncertainty. New technologies (digitalisation and artificial intelligence) are accelerating changes in a highly disruptive manner. Moreover, profound environmental (low carbon society) and demographic (aging population) changes including paradigm shifts are occurring. All these forces result in much greater complexity. So, are you ready to challenge the "strategy as is" and put it onto question? Any need for a stress-test?
Successful strategies for the future have to consider uncertainty and complexity. We have to recognize and acknowledge that the business environment is both uncertain and complex and, thus, to adapt our approach of strategy formulation in order to be successful in the long term. Otherwise, the company or business might become a dinosaur or made redundant by a business tsunami of change.
"Scenarios can be used as transitional objects to communicate and discuss alternative future worlds and to generate new strategic conversations".
In the presence of fast-changing environmental circumstances, when uncertainty dictates the landscape and/or complex adaptive systems and environment are co-evolutionary, emergent, self-organising and chaotically related, scenarios can be used as transitional objects to communicate and discuss alternative future worlds and to generate new strategic conversations. However, the complexification of uncertainty needs to be addressed within the scenario planning process (Figure 1). In this vein, a strategic conversation based upon robust scenarios creates new language, vocabulary and emergent ideas for management and its organisation. In other words, it is the fuel for a new strategy.
Figure 1: Complexification of uncertainty within the scenario planning process
An emphasis upon the need to analyse the gaps that separate strategy, scenarios and strategic conversation is suggested. A gap matrix can provide a powerful framework for both scenario planning and strategic conversation and synthesise uncertainty and complexity (Figure 2). The focus upon gaps can challenge our mental models and create a safe conversational space for learning. The acknowledgement and recognition of the alpha-, beta- and gamma-gap is crucial input to change and adapt the current strategy, i.e. the strategy as is.
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"A strategic conversation based upon robust scenarios creates new language, vocabulary and emergent ideas for management and its organisation. In other words, it is the fuel for a new strategy".
Furthermore, it is argued that complexity awareness and a wild card audit approach puts discontinuities or weak signals on the radar screen for strategy development. A wild card audit should, nevertheless, lead to wild card scenarios (wild cards are low-probability, high-impact events) that can be integrated in the scenario-based strategic conversation. This is a pre-emptive approach to adapt the “strategy as is” to surprises arising in turbulent and uncertain business environments.
Figure 2: Gap matrix of a scenario-based strategic conversation
The dynamics of uncertainty and complexity are a true leadership and management challenge for the future. Exploiting them is “the” business opportunity to make an organisation grow and thrive in the long run, i.e. state of the art and pure strategy planning and execution.
Author: Dr. Otto C. Frommelt is currently the Director of the National Road Office (NRO) of the Government of the Principality of Liechtenstein. He is also an international Scenario, Strategy and Foresight Expert within the automotive industry and government. @DOCFTWEET
(c) 20 August 2017
I know a thing or two in Mobility, Strategy, Finance, M&A | Integrity + Vision + Methods = Sustainable Results3 | Views expressed my own | ZB?1?= Zero Bologna
7 年Great article Otto, the approach has the merit to “force” us to formalize the multiple visions of what the future may be made of – whether this will be accurate or not – possibly with the added dimension that dissimilar scenarios will unfold in different parts of the world due to “local” characteristics; and from there, to evaluate / reevaluate possible gaps in our strategy. In order to foster adaptability through the structuring of strategy itself – where the attribute of agility is now more pertinent than robustness, an evolution paralleling the need to keep relevance in comparison to securing resilience to slower, more limited changes in conditions – as well as in its deployment, it may be more effective to develop a strategy not on the sole basis of a central scenario, but rather by providing a firm guidance accompanied by a high flexibility for real options. Basic case in point: first, develop the most likely scenario, followed by the development of a fairly different scenario, still with good odds of happening. Then, if commonalities exist, emphasize strategic actions that build upon these commonalities, while further establishing bridges to add / migrate opportunistically between scenarios; even gangplanks are better than nothing, unless they provide a false sense of safety… An observation though: most everyone hates this approach. We like optimal solutions, we think we are right, and society wants winners and losers, not companies that would be an average of say, Kodak and Canon, Blackberry and Apple, or GM and Tesla. But this is not about averaging, it is about adaptability with high potential and low downside, engineering an asymmetric risk / reward; so while preserving the ability to add new orientations is capital to ensure growth, likewise, integrating exit strategies would things not develop as expected is not planning for failure, but minimizing risks – these things happen! And while I am still looking for that elusive antifragile strategy – that which becomes more effective as the world changes – agility and light footprint are certainly a help in a highly volatile, ambiguous environment.
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7 年I also think one of the challenges is getting senior managers and leaders to open up to discuss and converse about any potential areas for improvement (or God forbid to acknowledge weakness) i.e. the beta-gap. These are what you will uncover (the iceberg effect). I think the approach is great - it's the plan of action to make it happen and so often company culture and senior leader behaviour do not allow for this type of analysis and approach - they are too busy defending their own positions - which often involves covering up "weaknesses". I suggest really successful companies embrace the fact that there is uncertainty and try to forge ways of dealing with it. However, it craves bravery, transparency and tolerance does it not?
CEO at Malmeken AB, CEO and Co-founder at Juteborg AB,
7 年The future is indeed complex and uncertain. The SEVS Way (www.sevs.se ) is a strategic analysis methodology to handle societal and technological complexity and uncertainty. Developed for the mobility and transport system, but generic and applicable to any organisation preparing for change.