Testing plans against alternative futures

Long Range Planning, Vol. 22, No. 5, pp. 69 to 75, 1989 Printed in Great Britain

0024-6301/89 S3.00 + .OO Pergamon Press plc

69

Testing Plans Against Alternative Futures Hentie Boshoff

The philosophy of forecasting and planning is changing: 0 from a purely internal to an internal plus external focus I? from a short term to a long term focus I? from forecasting as such to identifying direction of change * from fixed certainties to incorporating uncertainty Q from a purely statistical approach to one taking value judgements into account * from a technical to a consultative planning taking corporate culture and climate into account h from strategic planning to strategic management that includes strategic decision-making * from reactive to proactive planning. This article constructs a model to accommodate these changes.

We do not say that those who are not interested in the future have no business here. We say they have no business at all. (Pericles)

Strategic planning has always formed a part of the business scene. Historically the focus was on forecasting and operational planning; number crunching was the name of the game. It was mostly done by the planning department; often in isolation from top management. Internal matters such as market shares, penetration of new markets, new products etc., often formed the heart of the matter, while the external environment did not always receive much attention. Especially after the OPEC oil crisis this approach started to change gradually. Change became more and more a built-in phenomenon of our society; something that will accelerate in the 1980s. The death of permanancy, which resulted in the disposable society of Toffler’ is becoming a reality. Drucker’ even talks of the age of discontinuity. The result is that strategic planning is more and more faced with the concept of environmental change and even with the concept of ‘turbulent environments’.3

Hentie Boshoff is Director of the Institute for Futures Studies at Potchefstroom, South Africa.

The old inner-directed strategic planning with its focus on forecasting methodologies cannot really cope with this external focus on a turbulent environment. Stubbart’ points out that ‘prevailing strategic planning theories require strategists to accomplish feats of understanding, prediction and strategists control . . . which are plainly beyond capabilities’. This article is an attempt to construct a model to accommodate this changed focus in strategic planning. To a large extent it is based on practical experience gained by the Institute for Futures Studies doing consultation in a turbulent society such as South Africa. The first part of the article will deal with shifts in the forecasting and planning philosophy which is universal in nature. Flowing from this, the second part will briefly describe the model developed in this respect.

A Changed Philosophy of Forecasting and Planning This can best be described by pointing out the nine major shifts that underlie the emerging new philosophy. From a Purely Internal External Focus

Focus to an Internal

Plus

In traditional forecasting and planning an organization would focus on its own current performance as the basis of its outlook for the future. Early forecasting and planning techniques supported this internal perspective which assumed that changing conditions in the external world would not require re-evaluation of internal workings. However, environmental change can no longer be ignored. Since the internal organizational perspective was premised on a much more stable society, economy and overall environment, forecasters and planners were compelled to develop methods and concepts to include more and more of the external world in

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internal forecasting. According to Morrison, Renfo and Boucher,’ traditional strategic planning exhibits two important structural weaknesses in its handling of long term change: it generally assumes a complete separation between the organization and the external environment, and it is liable to underestimate the external environment’s variability. Planning went through four phases. In the first phase everything was included in the yearly budget. In the second phase, specification of goals and objectives concerning marketing etc. was included. In the third phase forecasting was included. On the basis of combining quantitative, historical records of companies with predictions about external forces (mainly the economy), it became possible to develop mathematical models to forecast the future of organizations. The fourth stage, which we arc entering now, is the acceptance of the fact that the future is unpredictable. We are becoming increasingly aware that our organizations exist within an open system of interactions so complex and so dynamic that a new format for planning is needed. This is the strategic planning phase. It consists of goal setting, understanding the environment, developing strategies and agreeing on a plan. More than any previous phase it takes cognisance of forces that arc external to the organization and which can potentially affect the organization’s attainment ofits goals. In the 198Os, strategic planning will more and more form a part of strategic management, as will be pointed out later on. From a Sirzgle Dimensional Approach

to a Multi-dimensional

Historically, environmental change mainly took place in the economy. This is no longer the case. Technological, social and political changes are accelerating. The time span and intensity of change is accelerating. This results in the fact that the interface between economic and political changes is often of greater importance than the economic change viewed in isolation. The result is a shift away from vertical/digital methodology (where the problem can be associated with a single discipline) to horizontal/holistic methodologies (where the problem is multidisciplinary in nature).6 A shift from rigid forecasting rnodels to creative insight. A shift from the either/or to a multiple option and futures approach. From a Short-term to a Long-term Focus This follows logically. It is a movement away from profit targets/management by objectives to long term survival. From fixed short-term missions to alternative/broader missions. From Forecasting Change

as Suck to Identifying

Direction

of

The accelerated process of multi-dimensional change results in an awareness that we do not live in a Newtonian society operating with fixed laws and

1989 within closed systems. In many firms the emphasis is shifting from the desire to obtain very specific, quantitative forecasts of historically tracked variables to identifying probable directions of social change.’ It focuses less on predicting outcomes and more on understanding the forces that would eventually compel an outcome; less on figures and more on insight. The focus is more on possible situations that we will face than on forecasting itself. Bertrand de Jouvenel makes this point very clear in his pioneering work The Art of Conjecture.s He begins by making a distinction between the Latin word ‘facta’ which stems from the verb @eye’ (to do or to make) and ‘fcrrtura’ which stems from the verb ‘esse’ (to be). ‘Facere’ is used only to describe past events or situations: they alone are done, completed or known. Only the past can therefore work with facts or certainties. ‘Esse is used for future events. Everything that has not yet come about is opposed, in Latin, to what is. The future can therefore only be an infectum (non-fact). In studying the future we cannot therefore work with the term pre-vision (forecasting). This implies foi-e-knowledge or true knowledge, something which no human being is capable of. But we can work with the term pre’voyance (foreknowledge). This means an effort or work tending to make us know ‘what may happen’ rather than ‘what will happen’. The result of this work is a fan of possible futures, or of futures which seem likely to us. But when we have completed this work to the best of our ability, we cannot say with certainty which of the seemingly possible futures will come about, nor even whether the future which will actually come about is contained in our fan of possible futures. When we therefore foresee or forecast, we merely form opinions about the future. From Fixed

Certainties

to Itzcorporating

Ufzcevtainty

Historically, forecasting methodology was aimed at creating more accurate forecasts. The focus is shifting towards determining the basis of certainty as to the emergence/continuity of certain trends. This results in the idea of a planning cone, in which only influences with a reasonable amount of certainty as to their occurrence was taken into account. From the Purely Statistical Approach Value Judgements Into Account

to One

Taking

Historically, only quantifiable data was taken into account. The result was that cross impact analysis, system dynamics and econometric models were the most important methodologies. However, the world in which we now find ourselves is not as amenable to rational analysis as it used to be. Because of the multi-dimensional and often irrational nature of change, the search is on for a methodology which forces planners to put aside single perspectives dictated by personally held views or values and to consider the possibility of other futures predicted using other value sets. This will result in soft methods that are intuitive and

Forecasting qualitative, capable of taking personal judgement into account. Change only really starts when people accept the need for change and start to react positively. This is why the incorporation of value systems and personal judgement as to the future of trends or their cross impact is often as important as pure statistical methods. For example, if institutions are becoming more impersonal, the assumption is made that people must also be growing more impersonal. Yankelovich’ calls it the ‘false leap fallacy’-the false leap from environmental change to human change. This is the real danger of creating the future in one’s own image. From Technical to Consultative Planning Taking Corporative Culture and Climate into Account One of the biggest challenges facing modern companies is to develop some means of consulting with external parties/perspectives in order to inject a healthy dose of societal reality into the decisionmaking process. The rise of individualism, the quest for quality of working life, etc. enhances it. Workers who can identify themselves with the corporate mission and culture are more motivated. Corporate identity is often more fundamental than a strategic plan because effective strategy depends on committing resources to essential strengths, which stems from identity. It is a case of letting the people who will be using the strategies have a feeling that they developed them. Change leads to the unknown and it logically brings about resistance. By making those people who will be most affected by the change part of the process of developing a strategic plan, resistance to change is often overcome. This means a grass roots instead of a top-down planning approach to ensure that corporate culture and climate are in harmony. From Strategic Planning to a Strategic Management That Includes Strategic Decision-making According to Halal” the function of the planning department is shifting from an in-house educator to a process manager. Studies have shown that, if top management does not play an important role in the process of environmental analysis and scenario building, the whole effort has no or very little impact on strategic decision making. The process of preparing long term plans is often of greater importance than the actual plans themselves. Management’s perception of the business environment is often as important as the investment in infrastructure. This is because perception determines the strategy. Wack” points out that, unless management’s view of the corporate environment changes, managerial behaviour will not change; the internal compass must first be recalibrated. This means that analytical procedures integrating strategic analysis with alternative futures in ways that clearly elaborate the importance of change to the user’s organization is needed. The idea is not merely to construct a few alternative future scenar-

Alternative

Futures

71

ios for management, but to design scenarios so that managers would question their own model of the reality in which their businesses function and change it where necessary, so as to come up with strategic insights beyond their mind’s previous reach. From Reactive to Proactive Planning In the 1980s social responsibility is becoming a part of the all-inclusive process of strategic management. The idea of management of social responsiveness of the 1970s is moving towards integrating planning for social performance into corporate strategic planning. The rise of the concept of issue analysis and its broadening to include a social audit of corporations, shared purpose between government and business and the shift from internal to external focus of management is symptomatic in this respect. Ackoff ‘? terms this approach ‘interactive planning’. It differs significantly from the two more commonly used types of planning: reactive planning (bottom-up tactically orientated planning) and preactive planning (top-down strategically oricntated planning). The former is concerned with the removal of threats and planning for survival. The latter is concerned with exploiting opportunities and optimizing for growth. Interactive planning is concerned with both equally; it is directed at gaining control of the future by designing a desirable future and selecting or inventing ways to bring it about as closely as possible. It involves three principles, namely (i) the participative principle enabling people to understand their organization and its environment through the planning process, (ii) the principle of continuity or continuously adapting to changing assumptions and (iii) the holistic principle or planning for all parts of the organization simultaneously and interdependently.

A Planning

Model

The question now arises as to the applicability of these principles in a practical planning process. I have found that the best method is an interactive process between statistics and people/judgement that brings the underlying process of change to the fore, which can conceptualize possible reactions to change and which can cultivate an instinct for change in management. Such a model, based on the described elements in the planning philosophy, will be described in this section. It evolved from the consultation work done by the Institute for Futures Studies and has been tested in company and government planning. Figure 1, termed ‘The strategic management process’ is applicable. The first two principles, namely an internal plus external focus and a multi-dimensional approach are taken into account in the SWOT analysis of the situation audit. A company, consisting of the six internal functions, always functions within a society consisting of economic, technological, demographic, social, political, judicial and spatial ele-

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Forecasting ments. It also forms part of a specific sector. It is important that all these elements be taken into account in a holistic way. One often finds that the interaction between the economic and social environment for example, is more important than the result of economic change taken into isolation. Furthermore, the resultant environmental opportunities and threats can only be identified as such if filtered through the strengths and weaknesses of the internal functions. The SWOT analysis, which forms the basis of the situation audit, must threfore be the result of a multi-dimensional approach taking all the relevant internal and external factors into account. The SWOT analysis cannot be done apart from the phases of societal change as such. Without this background, a structural change in an environmental influence might be taken for a cyclical/temporary change or vice versa. If it is a threat to the company but is only of a temporary nature, planning might overreact. The opposite might be true if it is structural in nature. This is especially true in a society which has elements of a first and third world rolled into one. It is especially true during times of turbulant change. Knowledge of the processes/ phases of societal change and indicators in this respect is therefore an essential part in evaluating

2. Situation

audit

73

On the other hand, as far as the situation audit and especially the environmental analysis is concerned, it can be dangerous in planning if only the long term/structural changes and the direction of change is taken into account. Due to the often turbulant nature of change in the short term, fluctuations around the trendline can often have a serious impact on the company’s planning. One has to incorporate this short term uncertainty as an element in the planning model. Such changes might die a natural death, but some might develop into structural changes over time; they must therefore be identified at an early stage. Taking them into account is in line with the fifth stated planning principle, namely incorporating uncertainty. Another account

reason for taking is found in the

and Issues Analysis

internal Functions

Figure

Futures

environmental change, and its possible future prospects and influences upon the strategic plan of the company. This is why the third principle of the planning philosophy is a long term rather than a short term focus. This inevitably leads to the fourth principle, namely that the focus in the environmental analysis must be primarily identifying the direction of change, and not on forecasting the extent of change.

Phases of Societal Change

Environmental

Alternative

this issue analysis into ninth stated planning

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principle, namely the movement away from reactive to proactive planning and the need for integrating planning for social response and performance into strategic planning as a vital instrument for survival. Some issues may be short lived, but others may develop into major trends which assume the nature of structural change. At that stage it might be too late to respond. Various approaches are used in this respect. I personally find the Naisbitt” concept of ‘media content analysis’ the most rewarding one in this respect. Simply stated, this concept can be described as follows. The news hole in a newspaper is a closed system. For economic reasons, the amount of space devoted to news in a newspaper does not change significantly over time. So, when something new is introduced, something else must be omitted. It is the principle of forced choice in a closed system. In this forced choice situation, societies add new preoccupations and forget old ones. In keeping track of the ones that are added and the ones that are given up, we are in a sense measuring the changing share of the market that competing societal concerns command. We have been experimenting with a computerized keyword system in operation in South Africa. A local research unit daily monitors all newspapers and periodicals in the popular press and files reports according to certain keywords. By simply counting the times a certain concept appears over time, one gets a feeling of emerging or receding issues. This is followed up by reading and looking for statistics on these issues. It is important to note that this issue analysis must supplement the structural environmental analysis. The first step therefore remains the identification of trends in the environmental influences and their possible outcome in a holistic way. The second step is to identify issues that might impact on these trends. A trend impact analysis study is then done to determine the possible positive or negative influences it might have on the slope and direction of the trends. One usually ends up with more than one possibility. The result is that one often has to work with more than one possible future in planning, namely the planning cone concept. It was shown that taking value judgements and corporate culture and climate into account, are important planning principles. This leads to the principles of strategic decision-making and proactive instead of reactive planning, as part of strategic planning. We have found that including the concept of alternative perspectives in the model is the best way to accommodate these planning principles and make the resultant planning more valid. Moving directly from the situation audit towards alternative futures in a system’s analysis way and omitting the filter of alternative perspectives, is bound to end up as purely brain gymnastics

1989 with little practical application for strategic ning. The reasons for this are two-fold.

plan-

Firstly, science operates with the notion that only the technical perspective is scientific in nature. But Lindstone” points out that the notion of alternative futures brings the use of multiple perspectives to the fore. This inexorably moves us beyond the paradigms associated with science and technology. He points out that experimental design and validation ofhypotheses operate only within the framework of a perspective. They cannot prove that a model gives the most useful or ‘correct’ representation of reality; they cannot give assurance that the variables chosen are sufficiently inclusive or appropriate. They tell us nothing about other perspectives. Secondly, change only really starts when people can identify themselves with the results of change. They therefore manipulate the process of change, so that the end result is often quite different from the continuation of the trendline approach. In a democratic system one cannot assume that trend will be destiny. This is why the results of the SWOT analysis in the strategic planning process must be filtered through the alternative perspectives of the stakeholder’s interests in the planning problem. Lindstone” distinguishes three perspectives that have an influence on forecasting and future planning. The first is the technical perspective. The important thing is to realize that these prespectives are based on different paradigms and have different time perspectives. Briefly, the salient features can be stated as follows. The technological perspective is a system’s perspective. Terms like alternatives, tradeoffs, optimization, data and models suggest the rational, analytic nature of the technical perspective. The tools include probability and game theory, econometrics, etc. The classification and categorization of information, preparing lists and matrices, structural organization charts and graphs lie at the heart of the matter. It usually has a long time perspective and is ideally suited for well structured closed systems problems. In our model we use academicians, research personnel, etc. in the corporation to represent this view. The second view is the organizational perspective. This perspective sees the world through a different filter, that is from the point of view of the affected and affecting organizations. Is it a new policy in line with corporate culture? Will it affect the organization’s rights, standing and ability? How will it affect the internal and external interest groups? In this medium range perspective there is no real use of analytical tools; it is more based on feeling and trade offs. We usually use top management and departmental heads in a position of responsibility to represent this perspective. The third view is the personal perspective, which is very subtle and elusive to define. Here the world is

Forecasting seen through the individual’s eyes and brain. Here we deal not so much with the physical aspect of change and its physical results, but with the individual’s perception and reaction to it. This cannot be done by the technical perspective without falling into the danger of the ‘false leap fallacy’. On the other hand we cannot have the opinion poll on each of the relevant influences on the strategic plan. However, it is important to take personal reaction into account. The first reason is because human reaction might change the strength or the direction of an environmental trend. The ‘Megatrends’ of Naisbitt are full of examples in this respect. The second reason is the growth in the social accountability concept of a corporation. The notion of that which is good for the corporation is good for the country is long past. The concept of ‘private disobedience’, that is, public action against a corporation, in contrast with civil disobedience, is rising. This necessitates the personal perspective. Various ways can be used to take this perspective into account. Because it is usually short term in nature, media content analysis is useful. The result of social indicators (such as the Yankelovich monitor in the U.S.A.) is also very useful. In most cases we include leaders in various interest groups (such as labour union leaders, cultural organizations, etc.) in the planning team. This works quite well in a society which is still basically a top down society. The end result of this exercise is that one often ends up with an alternative set of futures, issues and possible implications for the company. The resultant strategic and operational planning is therefore more flexible in nature. Such a strategic plan can

Alternative

Futures

75

accommodate minor changes more easily and there is less need for contingency planning.

References (1) A. Toff ler, Future Shock, Pan Books, London (1979).

(2)

Peter Drucker, The Age of Discontinuity, London/New York (1968).

Harper & Row,

(3) F. E. Emery and A. L. Trist, The causal texture of organizational environments, Human Relations, 18, 21-32 (1965). (4) C. Stubbart, Why we need a revolution in strategic planning. Long Range Planning, 18 (6), 68-76 (1985). (5) J. L. Morrison, W. L. Renfo and W. I. Boucher (Eds), Applying Methods and Techniques ofFutures Research, Jossev Bass Inc.. London/San Francisco (1983). (6) A. N. Christakis, Managment’s quest for new solutions, Paper delivered at the WFS Congress, Washington, July (1984). (7) Ft. E. Linneman and H. E. Klein, Using scenarios in strategic decision making, Business Horizons, 64-74, January/February (1985). (8) B. de Jouvenell, The Art of Conjecture Lary), Basic Books Inc.. ? (1975).

(English translation by N.

(9) D. Yankelovich. New Rules: Searching for Self-fulfilment World Turned Upside Down, Bantam Books, London/New (1982).

in a York

(10) W. E. Halal, Strategic management: the state-of-the art and beyond, Technological Forecasting and Social Change, 25, 239-261 (1984). (11) P. Wack, Scenarios: uncharted waters ahead, Harvard Business Review, September/October (1985). (12) R. L. Ackoff, A Guide to Controlling Your Corporation’s John Wiley & Sons, New York (1984). (13) J. Naisbitt, Megatrends: Ten New Directions Lives, Warner Books Inc., U.S.A. (1984). (14) H. A. Lindstone, Multiple Perspectives North-Holland, London (1984).

Future.

Transforming

our

for Decision-making.