KEY CONCEPT

In today’s fast-moving environment, scenario planning (SP) and early warning scanning (EWS) are essential strategic tools. The former imagines future scenarios and helps frame possibilities; the latter highlights new developments in the market. Research suggests these tools work best if integrated as ‘co-specialization dynamic capabilities’ (CDCs). Organizations need to combine both practices dynamically – using scenarios to help frame the context for EWS, and using EWS to help focus on signs that scenarios will emerge.

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IDEA SUMMARY

Scenario planning (SP) and early warning scanning (EWS) are considered important to ‘managerial cognition’. They help leaders understand how the future might unfold and they alert top management to new developments and ‘issues’ – typically conceived as opportunities and threats. They help leaders understand how to reconfigure resources to match or create market change – and they improve the quality of ‘strategic conversations’.

How can companies maximize their return on investment in these tools? How can they deploy them to inform strategy in real time?
A longitudinal study of two major Scandinavian companies, Nokia and Statoil, spanning the period from 1994 to 2008, suggests ‘co specialization dynamic capabilities’ (CDCs) are the answer.
CDCs link SP and EWS – and, crucially, they ensure that both, while reasonably stable and embedded in the organization, remain fluid and open to change. The result is more robust decision making – as multiple futures are framed and reframed, and thinking ‘refreshed’ or reversed.
Both Statoil and Nokia have a several-year history of linking SP and EWS in competitive intelligence, and in both the practice has been found to bring tangible benefits.

The research suggests that CDCs strengthen decision-making and the management of risk by:

• Challenging dominant ‘strategic frames’ and decision-making biases (‘legacy thinking’, ‘strategic straitjackets’);
• Directing management attention to important issues that would otherwise have been considered peripheral;
• Widening organizational cognitive processes (through, for example, use of EWS bulletins and newsletters).

The evidence was stronger in Statoil, where SP-EWS work led to the company’s strategy on climate change and to its decision to focus new technology investments in Canadian oil sands.

At Nokia, which lost market share after 2008, the effect was less clear-cut. However, the study found that CDCs enabled management to anticipate the emergence of new mobile ‘ecosystems’. (Nokia launched its touch-screen phone, the Nokia 7710, in 2004. Its subsequent failure to compete with Apple and the i-Phone can be attributed, in part at least, to a failure of execution.)

The greatest value of SP and EWS, suggests the study, lies at the points they intersect. Creating synergies between the two practices – by, for example, using scenarios as the context for competitive intelligence EWS – significantly increases the effectiveness of each.

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BUSINESS APPLICATION

• Consider creating cross-over, semi-permanent SP and EWS working teams to ensure synergy between futures work and market and competitive intelligence.
• Think about the broader implications of EWS for SP – does it, for example, suggest the frequency of SP rounds should be increased to reflect the rate of change in the market?
• Take a ‘multi-media’ and iterative approach – use workshops to help top management make sense of the future; use newsletters, emails and blogs to help staff imagine future contexts, counter ‘inertial strategic frames’ and feed into workshops and scenario planning.
• Consider asking business partners – for example, executives from customer companies – to help imagine the future and take part in scenario planning. Acknowledge the value individuals with different experiences bring to sensing.
• Frame scenarios as questions rather than statements; invite ‘interrogation’.

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REFERENCES

R. Ramirez, et al, Scenarios and early warnings as dynamic capabilities to frame managerial attention, Technological Forecasting & Social Change (2012) 

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