Strategic Framing

What do you do when financial market modeling based on past performance does not work because the market is acting in a fundmentally different way?

An article in today’s Wall Street Journal explains how one Philadelphia money-management firm, Glenmede Trust, turned to scenario planning.  As someone who works with scenario planning on a daily basis, this does not surprise me.  Scenario planning is an excellent choice when facing a highly uncertain future.  When you feel past trends will not continue into the future, scenario planning offers a disciplined way to set strategy.

Using scenario planning as an investment tool is not a totally new idea.  See the 2005 article in The Journal of Wealth Management by Anne Shumadine.

At DSI, we have a team of scenario planning experts with experience in the financial services industry.  If you have more questions about how this process could work for your company, please contact me.

Ah New Years!  A time for predictions.

Predicting pop culture trends, new technologies, political changes….and of course, the economy.

Am I the only one who feels these predictions are particularly quaint this year?  I get the sense journalists and columnists are just going through the motions.  They know as well as we that 2009 is fraught with uncertainty. No one has a clue.  Once you realize that no one has a clue, the television pundits become particularly entertaining because it seems on TV you need to pretend you actually know something that other people don’t know.  Nevertheless, the ‘2009 Predictions’ stories are fun holiday reads.

In the best of times, we are notoriously bad at predicting the future.  Here at the start of 2009 we face an inflection point.  A moment when the recent past does little to help us predict the future. At such moments, rather than trying to predict the future we can focus attention on identifying the boundaries of our uncertainty.  Let’s figure out precisely what we don’t know rather than trying to look into the crystal ball and fool ourselves into believing we can see the future.  Once we identify the range of our future uncertainty, we can begin to monitor the areas of uncertainty to spot weak signals and we can design flexible strategies that enable us to thrive regardless of how the future unfolds.

This whole ‘embrace uncertainty’ thing not for you?  No worries!  I’ll be glad to refer you to an excellent pyschic who will tell you exactly what will happen next year.

Weak signals is a collection of news stories highlighting “surprise” data or activities that could indicate qualitative changes in the business environment.  Weak signals are the early warning signs that a company’s environment may be changing in unanticipated ways.  Weak signals need to be monitored for further development and strategies need to be adjusted accordingly.

In today’s Wall Street Journal comes a report that household energy usage has dropped at a greater rate than would be expected based on weather and economic reasons.   This weak signal may suggest a qualitative shift in consumer energy use.  Perhaps energy saving device adoption has reached a tipping point.  Household energy usage has been fairly stable and predictable.  A shift in household energy patterns will impact numerous energy industry model assumptions.

Surprise Drop in Power Use Delivers Jolt to Utilities

Yesterday, Grand Canyon Education, an online education company, came to market with the first IPO in over three months.

I’m not sure I’d call this signs of a recovery, though people are reaching for any good news these days.   The bigger news to me is how completely the IPO market has ground to a halt.  One IPO in three months!  I recall a time around nine years ago when it seemed I ran into someone taking their company public on a daily basis.  OK, OK, I admit I was living in Seattle at the time and people were giddy with the coffee drinks Kozmo was delivering to their offices every hour.

However, the fact remains that issuing new equity or going public is a key part of many company strategic plans.  That avenue is effectively closed right now.   Unfortunately, given our natural tendency towards overconfidence when creating strategic plans, I suspect many of these companies did not create adequate Plan B’s for use in the event that Plan A was not viable.  A good plan B should build from a disciplined look at possible, though perhaps not probable, futures.  These plans are developed as part of the initial planning process to help the company remain proactive when the unexpected happens.  The company essentially takes out options on the possibility that their preferred strategy will not be viable in the future.  The alternative, as we are seeing now, is scrambling to react to unanticipated events.  Reacting to a crisis is not a good place from which to implement strategy.

It is difficult to put resources into strategic planning when faced with a difficult business environment.  When everyone is running faster just to meet their end of year goals, it is hard to justify pulling senior decision-makers out of the game to spend time on long-term planning. 

The strategic checkup with implementation follow through is a great option.  This is the two minute drill of strategic planning.  Find a single day (perhaps on a weekend) and gather your key decision makers together for a disciplined look at the next 1, 3, or 5 years.  The trick is to keep it short but commit to the follow through.  Too many off-site planning sessions become wasted time after the fact when nothing ever comes of the ideas.  At DSI, we offer a process to keep the off-site meeting on task and interesting but we also have the expertise to help you design the implementation once the decision makers go back to their jobs putting out fires.

In the following video, John Austin describes how a strategic check-up can be an ideal approach to corporate planning during economic downturns.

Scenario planning has a number of outcomes. As a strategic planning process, it generates a level of creativity that can help a senior team get beyond the obvious, predictable, tired strategies being pursued by all their competitors.

Like any strategic planning process, scenario planning is only as good as the follow through. What is done with the strategy plannng outcome? How is the resultant strategy implemented?

We’ve found value in using an options-based implementation strategy as a path forward from the planning process. In addition, the options approach creates excellent opportunities for leadership development when combined with a change leadership cohort of key executives or high potential employees. I’ve always found my work coaching such cohorts immensely satisfying.

Scenario planning also creates rich insight that can be used as the basis for ‘conversation starter’ articles. Scenarios can spark new thinking by creating vivid stories of possible futures.

One example of such an output is the Scenarios for Credit Unions report DSI completed. This report is a great example of the kind of output our consultants can generate at the end of a scenario planning process.

Roch Paryre, Ph.D., a Senior Partner at DSI, describes the tyranny of small steps and avoiding business failure. Excerpt from a talk on strategic thinking and decision making.

Contact us for more information about Dr. Paryre and other DSI speakers.

Companies designed to do things faster and better can be blindsided by innovations. When a system is build on predictability, environmental change wreaks havoc. With the proper resources and mindset, executives can create vigilent companies capable of thriving in the midst of industry innovation, change, and upheaval.

Roch Parayre, Ph.D. uses his experience working at McDonalds to illustrate the challenges facing performance organizations.

Overconfidence can derail a strategic planning process. It can cause smart people to assume they know more than they do. It can lead groups of people to confidently predict a future when the future is uncertain. It can make a strategy a narrowly focused agenda instead of a map of strategic options for thriving in an uncertain environment.

Roch Parayre, Ph.D. gives some famous examples of overconfidence.

Strategic planning has the potential to help an organization anticipate and thrive in uncertain environments. However, this potential can only be realized if the planning is done in a way that counteracts the cognitive biases of participants. Such tendencies as overconfidence, over-reliance on trends, a desire for certainty, and groupthink can cause a strategic planning session to end with less than optimal results.