FUTURES
RESEARCH
7278 Unpublished - Fear of the Future
FEAR OF THE FUTURE - A NEW MANAGEMENT APPROACH
by David Mercer
Abstract
The article addresses the question of what new planning paradigms are emerging - as we move into the new Millennium - to help take control of the future despite the many uncertainties which still remain? It suggests that there are a number of quite different categories of uncertainty, which each demand different approaches:
Hidden Certainties - many future events still will result from obvious trends, but we now have the planning tools we might ever need to handle these. In particular, we now have the ability to identify the hidden 'creeping catastrophes' which otherwise can lead to the most unexpected, and often most damaging, 'fractures' in the future environment of organisations.
Expected Outcomes - the main part of the article, however, describes the largest group of all, that dependent on a range of social decisions, which are not totally predictable but can reasonably be expected to occur, As such, these can now be mapped, by the use of new research techniques which explore our expectations of the future.
Random Uncertainties - finally there are some genuinely random events, which cannot be predicted but the threats from which may be minimised by suitable strategies.
For each of these categories, the article suggests a range of new approaches; suitable, at one extreme, for smaller organisations to ensure their long-term survival and, at the other, for governments to intervene more effectively.
The article also suggests that - by using these new approaches and by deliberately separating long-range planning from the production of short-term corporate strategy - managing uncertainty need not be anywhere near as difficult as managers fear. As with most fears, once managers understand what is happening the forebodings disappear.
Keywords
uncertainty, scenarios, robust-strategies, wild-cards, expectations, long-range
Acknowledgments
This work is the result of thousands of contributions, from governments down to individuals. Even so, the most valuable support came from our partners, The Open University Business School and The Strategic Planning Society, and our sponsors, Barclays Bank, British Telecomm Laboratories, ICI, and ICL, along with the Cellule Prospective in the President's cabinet at the European Commission.
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' (in its second editions in both Europe and the US), he is Director of the Open University’s ‘Futures Observatory’. Sponsored by a number of multinationals, it is run jointly with The Strategic Planning Society of which he is chairman of the related special interest group. He has been advisor on long-range planning to a number of organisations and governments.
Futures Observatory
Open University Business School
Walton Hall, Milton Keynes, MK7 6AA, United Kingdom
Telephone: (44) 1908 656878 Fax: (44) 1908 655898 E-mail: d.s.mercer@open.ac.uk
FEAR OF THE FUTURE - A NEW MANAGEMENT APPROACH
Introduction
Strategic planning has gone through a number of phases over recent decades. It is arguable that the golden age came after the Second World War, when Keynesian demand management produced not just stability but the predictable growth which organisations crave. Under these near ideal conditions, planning was seen to be simply a matter of projecting forward well-understood trends, which were there for all to see. Understandably, mathematical modelling, latterly using the newly available computing power, was the favoured solution. Then, in the 1970s, all the certainties fell apart. It may have been the result of the oil price shock, or Richard Nixon's dismantling of the Bretton Woods agreements, but the prevailing climate suddenly displayed a most disagreeable level of uncertainty.
The first response was to develop even more sophisticated mathematical approaches. As the 1970s progressed, even the new scenario-based techniques were largely used as vehicles for computerised approaches, such as cross-impact matrices, and large planning staffs in corporate headquarters were the rule. By the 1980s, however, the failures of these specialists led to the widespread dismantling of their operations, and to such planning falling into disrepute. The subsequent search for new certainties, for easy simplicities that managers could understand, brought us nearer to home; first through competition policy and then reverting to totally internal issues such as cost-cutting and re-engineering; and their solution of salvation by redundancy. All of these ideas held some truth, and matched the depressed mood of the recessionary times, but ultimately none of them could resolve the prevailing uncertainties.
Now, with the Millennium behind us, the conditions in the external environment are once more favouring planners. If nothing else the stability offered by the new regional groupings, in particular that of the European Union, and by the new reserve currency of the Euro which should protect it from the problems afflicting Wall Street, offers the best chance in a generation to regain control of global events. So what new planning paradigms are emerging to help us take control, despite the many uncertainties which still remain?
We have spent the past decade, working with more than a thousand large organisations across the globe, specifically addressing that question. This article summarises our answers, and finds some grounds for hope.
Despite some likely reduction in their impact, successful forecasting will still, for a long time ahead, have to take account of these uncertainties. So the first thing we must do is recognise them. Fortunately, we now understand them much better than we did in earlier times. Not least, we realise that there are a number of quite different categories of uncertainty, which each demand different approaches if we are to deal with them effectively:
Hidden Certainties
We should not lose sight of the fact that many future events still will result from obvious trends, and we now have all the planning tools we might ever need to handle these. In fact there are many other trends which are currently hidden from us, which are just as easy to deal with once we discern them.
Expected Outcomes
The largest group of all, that dependent on a range of social decisions, is not totally predictable but can reasonably be expected to occur. This is where our main work lies.
Random Uncertainties
Finally there are those genuinely random events which, though small in number, can still cause chaos.
Hidden Certainties
Taking each of these categories in turn, the only uncertainty implicit in the first group is that posed by the hidden nature of some such trends. Once we recognise them for what they are, we can easily follow them. In particular, technological and demographic developments, the factors most readily associated with futurology, can usually be seen emerging well ahead - perhaps up to a half century ahead. If we can recognise them in time, a large proportion of the events we think are unpredictable also fall into this category. This group, representing in fact the majority of 'wild-cards' which upset forward planning, are sometimes better described as 'creeping-catastrophes', since once we recognise them they immediately become obvious and usually are easy to deal with. It is only the fact that we do not yet recognise them which causes problems.
The traditional answer, in theory at least, is to undertake the most thorough environmental analysis, scanning, to unearth all these trends. Indeed, the advocates of the well-known weak signals theory use an analogy which suggests that, like an audio amplifier, you magnify these trends until you can see them. The problem is that - so far at least - they have few suggestions as to what form this 'amplification' might take, and they often have to base their case on retrospective analysis - rather than foresight!
The immediate problem is the breadth of scope needed. We now are skilled in the use of sophisticated marketing research techniques designed to answer specific questions about bits of our external environment. But scanning requires that we detect as yet unknown, and unexpected, events taking place anywhere in the almost infinite range of human activities and interactions. It may be that the CIA, with its massive computing power and access to almost every telephone conversation taking place across the world, can undertake the sort of content analysis which is one of the other theoretical possibilities for handling the inevitable complexity. But even its analysts must face a superhuman challenge sifting out all the weak signals from this galactic size rubbish dump. For the rest of us it is, perhaps fortunately, simply not an option which is available.
Even so, the human brain - with its extraordinary pattern-matching capabilities - often proves quite capable of matching this massive CIA computing power. What is more, it does this without actually trying! Without really thinking about it, we all process vast amounts of data every day. The real key to successful scanning, therefore, is making use of the news and other information which is - in our data rich society - presented to us by the ever increasing range of media; the newspapers and magazines we read, the television newscasts and documentaries we view, the conversations we have with our many contacts, without even mentioning the Internet! Our brains are immensely powerful, both as unconscious repositories for all this information and - if trained - as the most sensitive filters of important developments. Of course, our individual coverage, and our analysis of the detail, must inevitably fall far short of that of the CIA, but this is an area where the 80:20 Rule is especially powerful. Based on the evidence of our own research in the field, our crude estimate is that, by using the techniques available to us mere mortals, we can - as their importance grows over time - approach 80 per cent detection of the creeping catastrophes which matter to us. Of course, the remaining 20 per cent may still destroy us, but improving the ratio by a factor of four should not be dismissed as worthless.
Indeed, the main problem proves to be one of self-censorship . Our 'filters' are too well trained to meet the demands of society's prejudices. Demographics tells us that 90 per cent of the world's population will, by 2025, lie in the developing world. But few of us in the developed world consider what this might mean for our economies, or our psyches - when the world has been our own playground for centuries past. Equally we watch Startrek, and accept its philosophy of 'going where no person has even gone before', yet we do little about the colonisation of space and sometimes even vote down the resources needed to create such a future. The need, then, is to redirect those filters in our minds
Our own recent work has, fortunately for the weak-signals theorists, suggested some ways in which sensitivity, in terms of detecting these creeping catastrophes, might be enhanced. At the most basic level, if you can, as an individual, somehow lift all the veils of traditional prejudice, which currently cloud your visions, you can sometimes - after a great deal of experience - come to recognise the most important of these hidden trends. But this is a skill that very few of us can honestly lay claim to. More realistically, you can increase the sensitivity of your observations by simply using larger numbers of observers. The classic example, described in the literature, was of an organisation where all its employees were required to clip new items they thought might impact its future. These were then filtered by the central planning team. Unfortunately, whilst we ourselves recommend the use of clippings files and that all those involved in planning pool their experience, I regret to say that we have never come across another example of such an organisation-wide dedication to the future.
Our own more mundane approach now makes use of the dozens of individuals who take part in our group-based research on social decisions. The technique we use is remarkably simple. If just one person comes up with a wild idea we simply dismiss it, as we always have done. If, however, two people, especially if they are in two different groups, come up with such an idea we investigate it in some depth. There are, of course, many occasions when we find that these are just two people holding the same silly idea, but there are a sufficient number of occasions where we unearth a genuine wild-card, or at least a creeping-catastrophe, to make the whole process worthwhile. In these cases the effect is nothing less than enlightening, the pleasant shock of being greeted by a new perspective on the future, where the issue suddenly becomes obvious.
For many smaller organisations, this level of environmental analysis may be all they can resource, but even so it can provide protection against the worst dangers facing them.
Expected Outcomes
This brings us to the second element, the currently most neglected area but the one which represents the main part of our own work. Thus, much of the future is now largely determined by social decisions. Despite what many economists would still have us believe, the supply of most resources is now relatively unconstrained. At the same time, in our genuinely affluent Western society, we ourselves are no longer limited to making economically rational choices. Thus, the main props of traditional economic theory, that prices reflect rational decisions about scarce resources, have been fatally undermined. Combine this with the fact that the law of diminishing returns no longer applies to information products, indeed the very reverse is now the case, and you begin to understand why we need to understand the processes of social decision-making rather than the arcane laws of economics! It is the billions of small decisions which now count. Even the most powerful governments are constrained by the wishes of their individual electors.
So, if the economic laws we have relied on for almost two centuries, no longer apply how do we predict the new outcomes? Fortunately, the answer is once more relatively simple. In fact, it follows on from one of the later developments in monetarist economics, that of rational expectations. Simply by extending this special theory, which relates to a limited number of financial actors taking rational decisions, to become a general hypothesis of aggregated expectations, which covers all the decisions of all parts of the overall population taking them, we can start to find an answer. In this way we can begin to produce meaningful forecasts of future developments - across a wide range of sectors and many of the issues within them. It is, of course, no longer possible to create nice little laws for such a messy aggregation, which is why economics started to lose its power after the uncertainties of the 1970s emerged. As a result, many theoretical economists hate what is happening to their discipline! But it is quite possible to use all the well-developed techniques of market research to measure the expectations which now drive these social decisions - so practising marketers, and managers in general, are coming to love it! Above all, it is based in the real world, measuring the real expectations of real individuals.
Needless to say, it is not quite as easy as that, otherwise everybody would already be doing it. It has taken us the best part of a decade to evolve, and then fine tune, the techniques involved. On the other hand, the basic concepts underpinning these could not be simpler to understand. As in most reputable market research, the starting point is the use of focus groups - here working within a scenario-building framework and using Post-It-Notes placed on a conference room wall to communicate their ideas - as the qualitative element of the research. These groups are, as usual, the vehicle for discovering the key dimensions of the problem - here the key drivers which will shape the future. In our global research we found, in this way, 162 dimensions, which we reduced to 48 issues for later work and which may be even smaller in number where individual sectors or specific topics are being investigated.
For most organisations, which can only react to the forces impinging on them from their external environments, this will represent the limit of their exploratory research, and the requirement is then to combine the resulting drivers into the two or three scenarios, between them encapsulating all the external threats and potentials which face an organisation, which is now the recognised culmination of this scenario forecasting process. In this situation, typically only one scenario-focus-group will be used, and its seven or eight individual members will then go on, maybe over several weeks, to rearrange the drivers into progressively smaller clusters until the final scenarios are reached.
This is, however, just the starting point for the much smaller number of large organisations, especially governments, which are in a position to positively intervene in the wider environment. Where such resources are available, therefore, greater coverage can be obtained; in the initial stages by the simple expedient of using numbers of scenario-focus-groups rather than just the one normally recommended. In this more sophisticated usage, at least ten such groups may be needed, and we ourselves have used more than twenty. The larger numbers are required to ensure that all the drivers for change, even the less obvious ones, are identified. At the same time they add an extra level of stability of the process; and indicate the sensitivity of the results. Of course, they also help to identify the creeping catastrophes which may otherwise be so difficult to detect. The aggregated results, of all these groups, are then used to produce the final scenarios, though in this case it is the central staff, rather than the participants, who do this.
The next stage is, as might be expected from conventional market research practices, a simple quantification - by mail survey - across the various, 162 or 48 or whatever, dimensions have been surfaced in the qualitative work . In this case, the quantification is in terms of the three well-known Delphi variables; importance, probability of occurrence and likely date. If sufficient numbers of respondents are recruited, we have used a number of around a thousand, this can give a quite accurate 'static' picture of current expectations about the future. Even so, this may still require some intervention by experts. Whilst, our experience shows that, in general, the managers and planners we contact in this way are able to report their expectations of the future in some detail - and our tests, across various samples and over time, have shown that these results are stable. - in some areas they tend to report symptoms, rather than the underlying structural changes. But, given the measured levels of these symptoms, it proves not too difficult for our experts to extrapolate them to the structural trends - after all that is what such experts are best at! The final result, combining all these sources and including those from other researchers, is a quite detailed 'map' of the future; or, at least, of the social expectations which will shape it.
The final, unexpected, piece of sophistication requires a return to the earlier qualitative results. If the numbers of focus groups are sufficient, these results - which prove to be more 'dynamic' since they are obtained from progressive interactions between group members - may also be 'pseudo-quantified', for comparison with the later survey results. In most areas the two different sets of results reinforce each other. In some situations, which often prove to be the most influential however, the two sets of results diverge. The evidence suggests that these are typically the issues which are most open to intervention by government - say - to steer the future. The differences, indeed, indicate the direction such steering might be most profitably deployed; and this extra information is especially valuable to any government wishing - as it perhaps should - to undertake such steering.
Random Uncertainties
By definition, there is nothing you can do to detect these! But the important point to note is that, despite the shock felt by the many more victims of creeping catastrophes, genuine wild-cards are relatively few in number. Some day a comet will destroy civilisation as we know it; but we do not know when. Like other categories of genuinely wild-cards, we can, though, prepare for it in a generic sense - which is why the colonisation of space is - in this case - so important.
Managing Uncertainty
Managing the first of our categories, hidden certainties, simply requires that managements understand the true situations facing them. Then all that is needed is the application of all the processes learned business school academics, such as myself, have been teaching for decades. Managing the uncertainty, in the other two categories, is however a much more complex process; and, for many managers, potentially much more frightening.
On the other hand, our work over the years has shown that - for most organisations - long-range planning has not been held back by the real shortcomings which forecasting has faced. It has, instead, been the result of the fear generated by the chaotic task of bringing the resulting uncertainties into the otherwise clearly defined corporate strategy debates. In fact, what is not generally recognised is that these two processes, long-range planning and corporate strategy making, inevitably have completely different objectives. Corporate strategy demands a single solution that aims to optimise short-term performance, ideally based on the simplest of ideas - which typically now focus on internal cost-savings - that is instantly communicable to everyone throughout the organisation. Robust strategies, the description now applied to their long-term equivalent, are built upon a complex package of strategies which between them cover all the opportunities and, in particular, the threats which the organisation might face externally over the long-term; to underwrite its long-term survival. The tension between the two might become more obvious if you consider the dilemma faced by a management team about to explain to its stakeholders why it is definitely reducing its short-term performance in order to guard against the mere possibility of a threat in the longer term!
Once again, I am glad to report, the solution turns out to be delightfully simple. All that is needed is that we separate the two processes, so that their different objectives never come into conflict. Thus, the robust strategies should be explored separately, prior to incorporating them in the corporate strategy - as is already done with the other component strategies, such as that for marketing. The fear is then taken out of the process, and it even becomes something of a game. Indeed, our experience is that managers, once they are not faced with having to implement long-range plans immediately, enjoy playing this game. But it is not just a game, since the pay-off comes when they then compare the two separate outcomes, the robust strategies with the corporate strategy. It is possible that this comparison shows a significant discrepancy between the two; for then you are entitled to panic. It means that unless you do something immediately you organisation does not have long to live. I guess you had better heed that warning, whether you like it or not! In fact, we have never come across this situation. Much more typical, in our extensive experience, is the situation where all that is needed to protect the longer-term future is relatively minor changes to short-term activities. We refer to this process as steering. In reality, in all the situations we have examined, this steering has had no significant impact on short-term performance. The main reason for this is that with a timescale which is usually ten times shorter, preparation for robust strategies as part of the corporate strategy process enjoys a massive leverage. Small changes now will result in large ones twenty years hence. So the management team can go to its stakeholders and realistically promise both optimised short-term performance and a protected long -term future for the organisation!
Even the genuine wild-cards may not always pose insuperable problems. It is true that they cannot be predicted, but they can be prepared for by a variety of insurance options. One of these is literally taking out financial insurance policies or, perhaps more likely, employing conservative accounting techniques which may result in substantial reserves to handle the unexpected; though that may in turn precipitate the most unwelcome wild-card of all, a hostile take-over! More generally, we recommend investing in relationships with the two key groups of stakeholders - as 'generic robust strategies'. We all now agree that we should now invest in the relationships with our customers; relationship marketing was the buzzword, if not the practice, of the 1990s. In this context, however, this investment creates the loyalty which means that, come what may, these customers will allow us some leeway before they take their business elsewhere. That may only be a matter of months, maybe just weeks, but this may be enough for us to recover our position. There has been less agreement about the other stakeholder group, that of the organisation's staff. Indeed, recent cost-cutting policies seem almost to have been designed to alienate this group. That has been a major mistake for the second secret to successful recovery is having the flexibility to make effective use of the small amount of time customer loyalty may allow you, to recover your position. For this to happen, you need a loyal workforce which trusts you. If, as is now the case with the many organisations which have squandered that trust, staff query your motives, you can be destroyed before you even start the come back!
So far we have looked at the situation facing those organisations which can only react to external forces which are beyond their direct control. When we look at governments, however, the focus changes. They need to know how the processes described may be used to support the most effective interventions. In their case the maps of the future, the static one showing current expectations and the dynamic one showing the opportunities for change, can be used in two ways. Whatever the situation, the first stage should always be simply to decide whether or not any intervention is possible; and whether it will be possible to reach the desired objectives. In this way, the politically desired outcomes can be compared with the maps of actual expectations, to see whether the latter can be shifted sufficiently to allow a productive outcome. Too often, political ideology persuades governments to aim for impossible targets. Knowing this in advance may still not deter them, but they will no longer be able to proffer dubious excuses when they fail.
If, though, they recognise the inevitability of failure, the maps can be used to plan the optimum damage limitation measures. Of course, if they are pleasantly surprised and their plans are shown to be viable, the maps then become invaluable; in terms of showing them what changes will be needed to move from the current situation to the one they desire.
In particular, as the target of the resulting activities is popular expectations, governments may mobilise all the now traditional tools of mass marketing. Even more powerfully, they can create the intellectual models which the all the participants can agree upon as the basis for their future expectations and subsequent behaviour. In this way, for a long time Keynesian demand management worked, because we expected it to. Then, at the opposite extreme, monetarism was made to work. Even though it was based on essentially unworkable measures, not least it was questionable whether the monetary flows could even be measured, we were persuaded to believe it really would work. Now we accept, almost as illogically, that inflation is what determines stability; and that, in turn, interest rates are what control it. The illogicalities do not matter, what does matter is that we have agreed that we will accept this model and follow its predictions! We sign up to the consensus, and it becomes a self-fulfilling prophecy - and that is at the heart of the processes, managing expectations, described in this article.
So, managing uncertainty need not be anywhere near as difficult as managers fear. As with most fears, once you understand what is happening the forebodings disappear. Hopefully this article will start the process of driving those fears of the future out of managers minds, and we will be able to get on with the important work of planning the future together.
Application Questions
1. What long-range planning does your organisation undertake? How will this give advance warning of 'hidden certainties' and 'expected outcomes'? How might you implement some of the techniques suggested in the paper?
2. How do you manage uncertainty? What might you do to counter genuine wild-cards?
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