In contrast, modern-day business is positively Newtonian in its outlook and trails behind science in its rate of development. Business still takes a deterministic view of the world. It pictures it running like clockwork. As long as one can analyse the inner workings of the clock in minute detail, one can predict exactly what the mechanism is going to do in the foreseeable future. Actually, there is so much competition, so much discontinuity in the markets and so many new horizons that are opening up as a result of technological change that the only thing that is certain is uncertainty. Businesses therefore have to work within this uncertainty and require a complexity-reduction process to do so. In this respect, our foxy matrix offers an ideal way to gather all the relevant information, sift it like sand running through an hourglass and use it to focus on the most realistic options available at any one time. The final decision is more informed; but if it proves to be wrong, the decision maker can return to the matrix for another round.
SWOT – a nuts and bolts explanation
Readers may well ask where SWOT analysis (strengths, weaknesses, opportunities and threats) fits into our matrix. The answer is that the matrix now changes the sequence to OTSW: opportunities and threats are outside our control whereas we can do something about our strengths and weaknesses. Opportunities and threats therefore belong to the first two quadrants on the lower deck, and strengths and weaknesses to the last two quadrants on the upper deck.
Let us consider the example of a proud owner of a hardware store in a small country town. We’ll call him John. The opportunity may well be that the only other hardware store in town is about to close because the owner has made it known that he is going to retire. If John is certain about this information, it is a rule of the game. If it is a rumour it is a key uncertainty. Either way, it offers John an opportunity to expand his business. The converse is that John has heard that a big supermarket chain is intending to establish a new branch in the town. It will have a hardware section which will offer considerable discounts and a variety of goods to customers. That is a threat. Again, depending on the credibility of the source of this news, its appropriate place is in the first or the second quadrant of the matrix.
John now considers his strengths and weaknesses and his options in light of them. One of his strengths is customer loyalty because his shop has been around a long time and he likes to chat to his customers; and they like to chat to him. His option in the “opportunity” scenario just outlined is to persuade these customers to speak to those who have frequented the other shop and tell them what a decent deal they can get at his shop. Word of mouth may suffice. Another option may be to drop leaflets in their letter boxes. John also realises that one of his weaknesses is that he doesn’t carry some of the brand names that the other shop does. His option is to expand his range of hardware and correct this situation or stick to his traditional lines and try and convince his new customers to switch brands.
In the “threat” scenario of a retail giant arriving in town, John may opt to build on his strong customer loyalty by making his shop even more welcoming – by putting say a little coffee stall inside. If he pursues this strategy, he will be going out of his way to differentiate himself from the impersonal surroundings of the supermarket. However, John may decide to close up shop because, in analysing his weaknesses such as comparatively higher prices and a narrower range, he realises that he’s too vulnerable and he should quit while the going is good. Fishing in the local dam becomes an overwhelmingly attractive alternative.
Reversing the order of SWOT analysis makes it no less effective and, as the example shows, it can form an integral part of our matrix.
The principle of irresistible temptation and tobogganing in the dark
As you will by now have realised, the matrix builds on the well-tried methodology of scenario planning. It adds a third and fourth quadrant to represent the two final stages of decision-making – option formulation and choice – after the scenarios have been compiled. For this reason, we have subtitled the book “scenario planning in action”. It completes the loop, so to speak. Before moving on to a more detailed analysis of the four quadrants, we would like to relate one story and two quotes from a trio of internationally acclaimed and very foxy futurists. They all worked for Royal Dutch Shell which is considered the holy grail of scenario planning. Then we’ll close the section with a cautionary tale.
Pierre Wack headed Shell’s scenario planning department during the 1970s and acted as consultant to Anglo American’s scenario team during the construction of the High Road/Low Road scenarios in the 1980s. He was assisted by Ted Newland, another scenario giant who used to work at Shell. Pierre is considered the pathfinder of scenario planning along with Herman Kahn who wrote the 1962 bestseller On Thermonuclear War: Thinking About the Unthinkable. One of Pierre’s favourite forms of flattery was to call you a remarkable person. He was, as the following story indicates, one of the most remarkable men of all. In the mid-1970s, Pierre nominated two rules of the game governing the future of the oil business. The first rule was that the supply of oil would decline because, as Arab countries received a higher price per barrel, they wouldn’t need to sell so much oil to meet their domestic commitments. The second rule was that demand for oil would continue to rise, even at higher prices, because Western countries could not put in conservation measures fast enough to reduce consumption. The key uncertainty was at what point in time the downward sloping supply curve would intersect the upward sloping demand curve. If sooner, the scenario was a second oil price shock (the first one occurred in the early 1970s when the price went from $3 to $12 a barrel). This would be caused by the market entering a “zone of anxiety” in which the “principle of irresistible temptation” prevailed. Rotterdam spot traders would see the tightening of the market and ramp the price skywards. If the intersection was later, the price would remain firm at $12. Shell had two options – base their strategy on the “second shock” scenario or on business as usual. In the event, they chose the “second shock” scenario, the oil price soared to over $30 a barrel and Shell scored mightily, moving up to pole position among the oil giants. Pierre always looked for the points of greatest leverage in terms of bang for the buck: and this was a perfect illustration.
Pierre’s successor at Shell was Peter Schwartz who went on to establish the Global Business Network in California and wrote The Art of the Long View: Planning for the Future in an Uncertain World. Along with Pierre’s two-part article in the Harvard Business Review of September/October 1985, entitled “The Gentle Art of Reperceiving”, this book must rate as the best in scenario literature. The memorable quote from it is: “An old Arab proverb says that he who predicts the future lies even if he tells the truth.”
The third person is Arie de Geus, who was co-ordinator of group planning at Shell and has, since his retirement from Shell, concentrated on showing how managers and organisations actually learn to do new things. In a piece entitled ”Planning as Learning” he made what at first blush may appear to be a surprising statement: “A child who is playing with a doll learns a great deal about the real world at a very fast pace.” However, based on this principle, business executives on management courses in Europe participate in a game called Lego Serious Play. They apparently use the blocks to demonstrate in a practical way their vision for the company. Then they demolish their models and start afresh, thus learning the importance of being adaptable. Arie’s point is that lengthy lectures from planners seldom lead to a change of behaviour in an audience of experienced executives. Games do and scenarios in a sense are a series of “what if” games.
Now we come to the cautionary tale. One of us (no prize for hazarding a guess!) was visiting Boston in the mid-1980s to give a guest lecture on scenario planning at the Harvard Business School. It was February and bitterly