A quick review of just one edition of the Financial Times (Friday 25th April 2008), reveals that we now live a world of sudden, unforeseen shocks.Â Thumbing through the pages of this edition over a cup of coffee reveals the following potential headaches for businesses, that probably were not on the strategy radar screen last September, when many companies would have been embarking upon the well established annual planning and budgeting cycle:
- The prospect of a long-term recession led by failings in the financial sector.
- Capital rationing.
- Global food shortages.
- Question marks over the wisdom of turning to biofuels as an alternative to fossil fuels.
- Fragmenting consumer values.
- Ever shortening product life cycles especially in consumer electronics.
- The rise of national protectionism in the face of the “sovereign wealth fund”.
- The rise of anti-Western sentiments in China with Western brands taking the brunt.
- A wave of increased and possibly draconian regulation.
- Banks looking to raise liquidity.
The point is, that working with one picture of the future, which is probably an extrapolation of the past, won’t work any more.Â Neither will the annual planning cycle.Â Both are too slow, blinkered and cumbersome.
We have spent so much time over the last decade in building measurement systems (e.g. the Balanced Scorecard) to help us monitor the internal status of our businesses that we have forgotten to monitor the outside world.Â And this is the area that must change.
Arguably the first challenge is to broaden the corporate mindset.Â We have all been trained to focus on one path, one picture of the future.Â Now we need to take a different course and develop a wider awareness of the range of possible futures that could face our businesses.
Take a piece of paper.Â Draw a central vertical line marked “business impact” down the centre of the page.Â Label the top of this line “high” and the bottom “low”.Â Now draw a horizontal line across the middle of the page – with the left end labeled “high uncertainty” and the right “high certainty”.Â You now have for boxes.Â We need to concentrate on the top two boxes.Â The top right will show us events that we know a lot about and are fairly confident that they will happen.Â But if they do come to fruition, then our businesses will be really hurt.Â Events in the top left hand box will really hurt us too – but we may not know much about them and we can’t say with certainty that they may happen.
The trick is to think about, as I call them, “macro” forces that can produce the type of sudden shocks described above.
Review the list of shocks that I have extracted from the FT again.Â You should be able to identify these macro forces behind each:
(c)Â Legislation and regulation
Why not spend time over a coffee every month with your work colleagues to think about how each of these six forces could produce “future shocks” and “future opportunities” for your business.Â And don’t then stop there.Â Your strategy must change to directly include the entries in the top right box – and you must use the entries in the top left box to test the resilience of your strategy.
The challenge for the coming decade will to become as good at scanning the outside world as we have become at assessing and measuring our inside world.