FUTURES RESEARCH

7250 Industrial Management – Industry Scenarios

INDUSTRY SCENARIOS: Short-Termism Revealed

David Mercer

Senior Lecturer

Open University Business School

Walton Hall

Milton Keynes

MK7 6AA

United Kingdom

Telephone: 044(0)1908 655878

Fax: 044(0)1908 655898

Email: d.s.mercer@open.ac.uk

ABSTRACT

This research, derived from scenarios describing the future of a wide range of industry sector as developed by managers and professionals from more than 150 large organisations, suggests that such organisations mainly focus on 'regulation' as the factor which will be most important in determining their longer-term future. At the same time, in terms of the industry their organisation operates within, they do not subscribe to many of the conventional assumptions as to what are likely to be the main drivers for change in their macro-environment, and they focus on the nation state to which they belong rather than international developments. Most surprising of all, they do not see IT as a major driver for change!
 

INDUSTRY SCENARIOS: Short-Termism Revealed

INTRODUCTION

As we approach the Millennium, a number of significant 'revolutions' are coming to a simultaneous climax. Some of these revolutions are technology driven, especially the Information Technology (IT) Revolution. Some are driven by economic factors, especially those relating to globalisation and world-wide demographic trends, and others have their origins in political changes; the fall of Communism in the Eastern bloc may be about to be matched by the eclipse of 'market democracy' in a number of countries in the West. Above all, major social changes are under way - dominated by the 'Three Posts' (Post-Modernism, Post-Materialism and Post-Fordism).

'The Millennium Project' - jointly sponsored by the Open University, The Strategic Planning Society, DEMOS and the United Nations University American Committee (UNUAC) - is designed to provide relatively accurate predictions of the structural changes which might be expected to occur in the longer-term. It has been under way for several years, mainly focusing on global trends up to three decades ahead. As one of the stages of that larger project, however, this part of the research was specifically intended to explore how managers, in general, saw the future - over the next decade - of the industry sector in which their organisation operated. The intention was to determine how organisations saw their own futures, and those of the industry sectors within which they were located; as distinct from the overall future of their nations, or the world. At the same time, it was hoped that - by combining such forecasts across a wide range of industries - a more detailed picture of the global changes would also be aggregated.

METHOD

As part of the Open University course "The Challenge of the External Environment" our students, who study part-time whilst remaining practising managers and professionals, were required to write a number of scenarios. The basis for this was the technique described in the paper 'Simpler Scenarios'[1]. For one of these exercises, they were required to individually produce an in-depth analysis of the industry sector in which their organisation was located; leading to the production of two complementary scenarios about the future of the this industry over the next decade. The key points to note are the rigorous structure required, which was taught as part of the course, and the length (3,000 words), which reflected a workload typically exceeding ten hours for each student; which aggregated to an overall total in excess of 2,000 hours.

Students were asked for their permission to use summary statistics derived from (the content analysis of) their scenarios as the basis for the research reported here. In the event, 242 of them (40% of those taking the course) - practising managers and professionals spread across a wide range of  industry sectors - responded, and 167 of these responses were found suitable for further analysis.

The results described in the rest of the paper were mainly derived from a content analysis of the resulting 334 scenarios; though some additional questionnaire data on the current position was also used.

RESULTS

OVERALL FOCUS

The most surprising result was that - as shown below in Table 1 - when the overall prime focus (that is, reported as the single most important factor) of each of the responses was categorised, it was found that more than a third (38%) of them had - as their prime focus - 'regulation' in one form or another. If 'political factors' - which were closely related to regulation - were included, the total rose to more than half (55%). In other words, they primarily focused upon what they believed government would do in future to regulate their industry.

Indeed, this focus on regulation, as the main factor seen to be influencing the longer-term future of organisations, was the most important finding to emerge from the research, not least because it is also reflected in much of the more detailed analysis on later pages of this paper. It was an unexpected result, since 'regulation' has rarely been seen as a driving force in our other research into the future, and in particular has been barely mentioned by those involved in our other work on 'global scenarios'[2].

Of the other factors, 'general' - reflecting a mix of factors without any one focus - seemed to relate most closely to 'economic factors'; giving a total of just under a quarter (23%) of respondents who saw these as the prime foci. Technological changes were, surprisingly (in view of the widely reported impacts of the IT Revolution), the focus of only a sixth (17%) and social changes were, despite their importance (but more understandably, in view of their very long term impacts), the focus for only a twelfth (8%). Again, these results differed significantly from those observed in our other research.

Those industries (especially in the government sector) which tended to be the current objects of regulatory attention were those which, perhaps unsurprisingly, recorded the highest proportions of respondents focusing on such issues as also being important in the future. The major exceptions were the computer and pharmaceutical industries, which were much more technologically focused; a pattern which can also be detected in the more detailed results later in this paper.

IMPORTANCE OF INDIVIDUAL FACTORS

In terms of the importance put on each of the factors - shown in Table 2 below - when they were reported (as multiple factors) within the individual responses, these not unexpectedly reflected the overall results (reported above), which were based upon the single most important factor. Again, 'regulation' rated well above the median (at 3.8 on a scale of 1 - 5, with a median of 3), where 'economics' and 'social' barely reached the median (at 2.9 each).

Note: since the baseline measurements for technology are not comparable, results for this factor are not shown here..

As can be seen, from the second column above, a similar result was obtained in terms of the proportion of respondents mentioning each factor.

OPTIMISM

One particularly important aspect of such views of the future is the degree of optimism, or pessimism, they display; shown below, in Table 3. This is especially important at a time such as the present, where there is 'paradigm dissonance' (as these revolutions work their way through and disorient all members of the population not just managers). In fact, while the results were reasonably balanced, with an overall mean of 3.2 (again on a scale of 1-5), there was a significant margin on the side of optimism. This was the one area where the results of this research was in line with those we have observed elsewhere. As such, it is an important result, not least because it is quantified, for it disproves the widespread pessimism otherwise reported by the media.

Not surprisingly, perhaps, the highest optimism was recorded by those large organisations (especially those in computers and pharmaceuticals) which could see clear growth prospects, and pessimism  by those (in the public sector) which did not.

INDIVIDUAL FACTORS

In general, the framework chosen for the detailed analysis was the widely adopted one of the STEP factors (Social, Technological, Economic, Political); which we have found to be the most useful for such a task.

If each of the factors is analysed separately, the following observations may be made:

POLITICS

It should be stressed that the results here - in Table 4 below - record the 'philosophical' aspect of politics (best described as 'party politics'). They do not include regulation, which is analysed separately in the next section. It should also be noted that they report the position as it affects the organisations; not the individual involved.

Of the respondents, approximately half (48%) mentioned political factors. Of these, however, only a fifth (19% of this group and only 9% overall) saw a change in government as having any significant impact on the future of their industry. Rather more than double this number (a quarter, 24%) specifically said that political factors would have no impact; another unexpected result considering the attention given by the media to such matters.

Whilst almost half (44%) recognised that there were differences between political parties, they did not see these differences as having significant impact on their organisation over the longer term.

Not unexpectedly, those in the public sector took political changes more seriously.

REGULATION

A potentially significant impact - on the organisation - by regulatory factors was reported by nearly all (89%) of the respondents, and received, as we saw earlier, a high (3.8) importance rating.

 In terms of the source of this regulation, the clear majority (60%) saw this as coming from national governments. This was perhaps surprising, in view of the media coverage of EU regulations (which were only seen by a quarter, 24%, as the main source of long-term impacts), but the continuing emphasis on national foci for political matters in general has been observed in most of our work with managers.

That those industries which are already heavily regulated should in general report the heaviest expected impacts for the future is unsurprising. What is perhaps surprising is that the pharmaceutical industry, which is one of the heaviest regulated (albeit possibly with favourable outcomes for its suppliers), placed the lowest importance on this factor.

ECONOMICS

Although two thirds (68%) of respondents mentioned this factor, giving an overall mean of 2.9, there was little detail reported - and seemingly relatively little interest in it.

SOCIAL

This, too, was reported by approximately two thirds (69%) of respondents, again with a mean of 2.9.

It appeared, however, that under the surface there possibly was  somewhat more interest in this topic. In particular, those in the technologically related areas (as well as those in the more outward looking ones) seemed to give it a higher level of importance; where those in the more inward looking areas (including, rather surprisingly, IT departments) took less notice of these impacts.

TECHNOLOGY

The baseline for these factors - shown in Table 5 below - was more complex, with the upper end of the 'importance' scale running from 'incremental' change through to 'radical' change; rather than just increasing levels of importance.

It was not surprising that the great majority (86%) of respondents expected significant change to take place. What was perhaps surprising, in view of the developments emerging from the IT Revolution, was that less than an eighth (12%) of them saw such changes as falling into the radical change category.

Once more, the industries already experiencing radical change in general were more likely to expect radical changes in the future. The surprising result, however, was the barely average level (12%) of change recorded by the computer industry.

ECOLOGY

As a subset of technological change, the scenarios were also analysed in terms of their reference to ecological factors (again, it should be noted, in the context of the organisation not the individual). In fact, only two fifths (42%) of respondents mentioned this topic - much lower than might be expected from media coverage - but two thirds of these rated its importance as being of real significance.

INFORMATION TECHNOLOGY (IT)

This technology, supposedly the driving force of the IT Revolution, was also analysed separately; Table 6. The surprising result was the relatively low importance rating it received (an overall  mean of only 2.6). Only a third (36%) of respondents thought it would have a significant (or heavier) impact on their industry sector, where almost as many (33%) thought it would have little or no impact. Considering the very real impact that developments in this area will have on all organisations, this ‘blindness’ is potentially worrying.
 

CURRENT CHANGES IN STABILITY/PREDICTABILITY

To provide background information for the scenarios, respondents were also asked to fill in a short questionnaire, detailing the current position in their industry sector. The main results from this, based in this case upon a seven point scale - with a median point of 4, and typically measuring the rate of change in each area - are shown below:

Once more, 'politics' comes high on the scale of rapid change - here rated even higher by the individuals themselves (at 6.0) rather than assessed by content analysis of the scenarios. Here, though, it is closely followed, in terms of rate of change by 'economy' and 'general' (which, in this context, is the rate of change of the overall external environment). Perhaps surprisingly, 'technological' and 'competitive' rates of change were seen to be a whole level below. Lowest of all were, as might be expected 'social' (4.4), but also, more unexpectedly, 'customer tastes' (4.5), which are often otherwise reported to be the most volatile of all.

The speed of change is reported to be highest by the large organisations; and, perhaps understandably, by those most exposed to it - for example, by those working in the sales departments. It was somewhat surprising, however, that those in R & D and in IT departments rated it to be relatively slow.

DISCUSSION

The dominant factor was clearly that of regulation. As has been stressed, this was surprising, since in our other work - on global scenarios in general - it barely features as an issue. It poses some interesting questions about the tunnel vision to which organisations succumb. We teach our students, including this group, that environmental scanning should range over the whole horizon - not just over those parts closest to home. The evidence here, backed up by some aspects of the other research we have undertaken in this field, suggests that organisations unnecessarily (and hazardously) limit their viewpoints. The result, as shown in this article, is that many managers seem happy to sub-contract their future to government - awaiting, with equanimity, the regulation which will government will impose, when it sees where the future lies. We suspect, in view of the abysmal record of most governments in planning for the future, that this represents yet another triumph of short-term hope over long-term experience.

Despite their narrow viewpoint, however, it is encouraging that, generally speaking, the scenarios were optimistic. The 'tone' of a period often also describes its approach to economic activities; that the word 'depression' is widely used in economics is indicative of the impact of the 'animal spirits' which Lord Keynes saw as affecting markets. Thus, where expectations for the future - of the population as a whole - may to a large degree determine that future, it bodes well for the future that these organisations do see an optimistic outcome over the longer term.

The other main result was that a number of the more widely accepted  assumptions about the future did not seem to be fully supported by these results, at least in terms of the positions organisations take:

The different policies of political parties were seen by the majority of respondents to be almost irrelevant to the future of their organisation; and economic factors were generally seen to be relatively unimportant.

The focus of the organisation, especially in terms of the all-important regulations, seemed to be firmly based on the nation state rather than on the international developments taking place.

Information Technology (IT) is not generally seen to be the driving force for change that commentators would have us believe - and, indeed, those in IT departments predict less change than others.

CONCLUSIONS

The main conclusion is that, while many claim to  recognise the problems caused by short-termism, few avoid it in practice!

The outcome, thus, suggests that even the wise manager needs some persuasion to expand his or her horizons to encompass more than the industry sector in which they work. It may seem unduly theoretical, but asking about the future of the world as a whole does seem to produce more helpful analyses than restricting the question to the narrower scope of just the industry. At the same time, they should occasionally shake off the more myopic assumptions of the industry within which they operate. After all, remembering recommendations of Theodore Levitt, the classic upsets in major markets - from autos to retailing - have been brought about by those who were not limited by the industry myopia.

BIOGRAPHICAL NOTE

The author is a senior lecturer in the Centre for Strategy and Policy, at the Open University Business School, of which he was the first Head. In addition to being the author of a number of books, including the MBA text-book 'Marketing' (now in its second edition), he is Director of the Millennium Project and has been advisor to a number of organisations and governments.

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