Growth scenarios: tools to resolve leaders' denial and paralysis

Citation

Star, J. (2007), "Growth scenarios: tools to resolve leaders' denial and paralysis", Strategy & Leadership, Vol. 35 No. 2. https://doi.org/10.1108/sl.2007.26135baf.001

Growth scenarios: tools to resolve leaders' denial and paralysis

Growth scenarios: tools to resolve leaders’ denial and paralysis

Jonathan Star (Jonathan_star@gbn.com) and Doug Randall (Doug_randall@gbn.com)are consultants at Global Business Network, a Monitor Group Company located in San Francisco.

Businesses increasingly realize that significant growth opportunities are unlikely to come from incremental change. Instead they must address the challenges of novel product and service innovation, entering unfamiliar geographical and product markets, and confronting new rivals.

When the organization ventures into such untried territory, managing for growth becomes an exercise in dealing with uncertainty. Corporations must make decisions about their growth plans while facing high levels of unpredictability: will our business be commoditized or not? What unanticipated technologies could disrupt our plans? Will an unexpected competitor enter our market? How quickly will our existing products mature in the market?

Such uncertainties exist at multiple levels: in the external environment where forces beyond our control shape the business context, in the marketplace where customers, competitors and offerings are changing, and within in our own organizations, as we deal with the pressures to rethink our structures and reinvent our business models. This is especially difficult for successful, powerful organizations; if they are to evolve they must challenge the very assumptions and beliefs that brought them success in the past.

Denial and paralysis: the twin symptoms of uncertainty

When decision-makers in organizations find themselves in situations of real uncertainty, their reaction often is denial of uncertainty or paralysis in the face of uncertainty.

The most obvious source of denial related to growth is an inability to see the imperatives for change. But there are more subtle manifestations of denial as well. One example is when an organization becomes attached to a “business model” that worked during the existing product’s growth phase, but is not appropriate for new products. In effect, the team becomes blinkered, in that they are constantly looking for the next big opportunity that fits their perception, or their “model” of success. Another is when a team establishes a set of criteria that rules out many interesting potential projects. The thinking goes like this: because the last successful innovation became a major $1 billion business, then any new idea must demonstrate potential of a similar magnitude. Organizations suffer if they apply metrics from a known and stable world to a less known, less stable environment.

In such cases, denial curtails many new growth opportunities as organizations seek to replicate the parameters of the old model, rather than experimenting with what might be novel, fresh, and growth oriented.

Alternatively, managers may concede the need to explore alternatives, but exhibit paralysis when initial choices arise. Thus they openly or implicitly acknowledge the level of uncertainty, but are unable to make decisions about the way forward. The “paralysis” problem is sometimes caused by an inability to choose different growth options from a large range of possibilities. In situations where technology changes rapidly and where new markets are opening up, it is difficult to pinpoint with confidence the right decision with the right resources at the right time. As a result, managers will often hold off, looking for that extra, final piece of data or information that will illuminate or confirm which option to choose. However, that information seldom arrives in time, and the opportunity is lost as the market has moved.

Less commonly, paralysis can also result from a company misperceiving its marketplace, and thus convincing itself that it faces a more threatening position than it actually does. When faced with a highly uncertain situation – caused by potential competition or changes in technology, for example – some decision-makers have a tendency to over-emphasize the dangers that their organizations face, and therefore find it difficult to “see beyond” the immediate threat. As a result, some companies tend to under-appreciate their own level of influence and ability to shape the market.

Faced with the twin dangers of denial and paralysis, it is no wonder that many organizations suffer when it comes to imagining and organizing for growth. As a result, new initiatives frequently fail to get traction and many growth attempts fail altogether.

Scenarios: a tool for managing uncertainty

Scenario planning is a well-established tool for helping managers deal with situations of significant uncertainty. A scenario project involves a series of exercises where management teams creatively and collaboratively drill into the uncertainties that an organization faces today and may encounter in the future. The result is a set of narratives – usually three or four – that describe the different directions that the future could plausibly take. Having created and considered these alternative futures, management teams are better able to navigate both denial and paralysis, and reach sound decisions about emerging growth opportunities.

Scenarios help deal with denial. By articulating challenging, yet plausible ways in which the future could evolve, scenarios encourage management teams to “think the unthinkable,” anticipate surprises, and rehearse new possibilities. In scenario exercises, we encourage teams to think about what strategies they would pursue under very different scenarios or external circumstances.

Scenarios help deal with paralysis. Increasingly we find ourselves creating scenarios to help overcome paralysis by explicitly structuring or framing the key choices organizations face. The paralysis disappears when executives not only see new possibilities that are desirable, but also understand why and how to make realistic strategic choices. For example, as the executives imagine their business in future scenarios that may seem unattractive today, we ask them a set of simple questions:

1. 1.

   What does success look like in this scenario?

2. 2.

   In what markets will you play and which customers will you serve?

3. 3.

   How will you serve those customers?

4. 4.

   What capabilities will you need to have in place?

5. 5.

   How would you know if this scenario were going to come true?

The first four questions get them to clearly articulate the growth opportunity. The last one gets them thinking about when it would be appropriate to take a particular course of action. By systematically exploring future scenarios, organizations can gain a sense of confidence in the face of uncertainty, grounded in an understanding of what the organization could become in the future and what choices it faces today.

Two cases: translating scenario learning into action

Let’s turn to two distinct case studies that explore how two different high technology companies overcame denial and paralysis.

Case 1: overcoming denial at a global high tech

This organization asked us to help them investigate new sources of growth for their business and anticipate the potential skills and capabilities that would be required of its engineers. The client was a highly successful division of a global technology company that had enjoyed many years of success with a particular technology and associated products. The team realized that the growth curve for the technology was tailing off and that they needed to look for new offerings to sustain – and even spur – growth.

The firm’s leaders agreed that change was occurring, but their approaches to looking for new business suggested a more subtle form of denial. The criteria for funding any innovation or new business bore a striking resemblance to business-as-usual. In a world where the current model had peaked, they struggled to see how a different business model, customer segment, or strategy would allow them to achieve the growth they desired.

The challenge was to create a set of scenarios that allowed the management team to recognize their form of denial, and to help them envisage some new ways in which their business unit could evolve in the future. Working together we created three scenarios – each looking back from ten years in the future – that told very different stories of how and why the business unit had changed and thrived in the intervening decade.

The big top”. In this scenario, the business unit has invested heavily – and successfully – in a small number of big “plays” where their technology is used in large scale healthcare and entertainment applications. As a future CEO explains:We pushed our ideas and resources into a very small number of new market directions, particularly those where we could protect our intellectual property.

In many ways, this was a repeat of the model that had served them so well with an earlier generation of technologies.

When they developed this scenario, the team realized how much the viability of this “big play” approach depended on greater company-wide collaboration and integration with the organization’s broader strategy. This was not about perfecting a massive stand-alone product, but about placing the business unit at the center of an ecosystem. Consequently, the business unit would have to think as much about the ecosystem architecture as about the technology.

The diverse incubator”. In this scenario, the business unit becomes a powerful innovation center, an incubator of many, diverse, successful businesses. The future CEO lauds the shift from a staid corporate facility to a dynamic hotbed of energy and ideas:We are most proud of the fact that we made this change with the staff we had. We didn’t have to change the people – we couldn’t find better talent anywhere – but we did have to shift the mindset and distinguish carefully between the core business and the sundry new businesses we launched.

The team outlined how this approach would require the organization to explore a far wider range of markets and applications than they had previously envisaged. Additionally, the scenario implied radically different thoughts on business models, particularly around licensing and intellectual property. It also stressed the imperative of extensive collaborations with other parts of the business.

Developed and solved right here”. In this scenario the business unit wins by selling its services and expertise to outsiders via a consultancy model. The future is characterized by technological convergence, and thus a business unit staffed by a multinational, multi-talented team: system engineers, bio-scientists, and creative artists. “The biggest barrier to change is entrenched mindsets,” explains the future head of innovation, “and so we have encouraged and incentivized our people to engage and connect with the rest of the global organization – and customers outside it.” The team recognized that this approach was not only about engineering skills, but about a revolution in business thinking as well. Offering a service to solve deep, complex engineering-design issues for clients in the way this team imagined could even turn the business unit’s competitors into customers.

The scenarios were remarkably successful in helping the team see how the possibilities for the future did not rely only on past models. Under the current regime, success in “diverse incubator” and “developed and solved right here” would be impossible to achieve: the criteria and metrics being used to screen potential projects were highly likely to block any small-scale innovations. As a result, the group realized that they had adopted a very risky strategy by only looking for growth through the “big plays,” using the same people, skills, and processes. Moreover, even if the “big top” scenario were to occur, the scenario exercise made the team realize the importance of a range of different approaches and mindsets if it were to be successful.

The scenario work created broad agreement that the current approach to developing new growth businesses was suboptimal, and that any search for new growth must not only re-engineer the innovation model, but also involve a very significant re-think of the organizational structure and capabilities that were in place within the business unit.

Case 2: overcoming paralysis at a software firm

Another technology company, a major player in a subset of the software industry, had recently embarked on a new strategy that contained ambitious growth targets. They were concerned, however, that these ambitions could be threatened if one or two of the world’s software giants were to enter their market space, and effectively commoditize their branch of the software industry. As such, the organization was paralyzed by fear of a new competitive entrant.

After a comprehensive survey of the uncertainties that characterized the marketplace for their software, the scenario workshop determined two critical uncertainties that, when combined, created four different worlds that could describe the future business environment.

The four worlds were:

Next new thing”. Technology and consumer changes lead to radical disruption, yet big players are unable to have a major impact in the software space. This is a dynamic, fast-changing world characterized by new platforms, open source production, and new players from emerging countries.

The players”. Consumer and technology changes are significant and big players are able to enter the organization’s market space, causing a major change in the competitive landscape. Here, a few large, integrated players dominate the software and IT world, even as the demand and technology environment changes radically.

Distraction”. Consumer demand and technology changes only incrementally and big players have little impact in this software space. Big players are distracted in this scenario, and suffer from the competition posed by new, low-cost entrants.

The dinosaurs”. Consumer demand and technology changes incrementally, and the big players enter this software market space with a significant impact. This is a more regulated world, where players with scale are able to establish a stronghold on the industry.

These scenarios allowed the management team to explore their assumptions concerning the future business environment and better understand their strategic maneuvering room. They recognized that “the dinosaurs” was their “official future” – the scenario that they expected to happen. This was not surprising; the scenario reflected their fear that big players would enter the industry and establish positions of dominance.

However, when “the dinosaurs” was set in the context of the other scenarios, management realized that the future was more likely to oscillate between “next new thing” and “the players,” as the world’s largest software players strove to catch up with the latest disruptions in a fast-moving industry. Thus, managers became more confident about adopting strategies that would be best placed to succeed in “next new thing” and “the players.” They realized that a more flexible and resilient strategy, including a portfolio of different business models, would likely allow them to thrive in the future.

These scenario conversations also produced a number of suggestions for strategic initiatives, which led to additional investigations and informed the firm’s regular strategic planning process. Subsequently, the company made a major acquisition that took them into a new competitive space. The scenario exercise helped rid the organization of some of its fears about the competitive threats of the future. Instead, they realized that their success was still in their own hands, as long as they continued to make sense of the world.