Burt et al (2008) on why scenario planning is an improvement on traditional models of environmental analysis.

I’m reading: Burt, G. et al., 2006. The role of scenario planning in exploring the environment in view of the limitations of PEST and its derivatives. International Studies of Management and Organization, 36(3), pp.50–76. Available at: http://www.tandfonline.com/doi/full/10.2753/IMO0020–8825360303

Key Take Away: Using traditional methods of analysing the external environment of a firm isn’t adequate. Traditional methods don’t allow for the complexity involved or the fact that understanding of ‘the’ environment is socially constructed.

Summary: In this paper the authors tackle the issue of how managers of firms can best undertake firm-level environmental analysis. They approach the issue from four directions:

  • Outlining the current thinking and approaches to environmental analysis and critiquing them;
  • Using a constructivist (subjective) interpretation as the basis of understanding environment rather than the traditional objective paradigm;
  • Offering an alternative methodology which moves beyond the traditionally enacted models; and
  • Summarising the differences between their preferred approach (scenario planning) and the traditional models with a focus on how greater insights can be achieved.

Although written before the strategy as practice perspective gained momentum, this paper nevertheless sits squarely within the strategy as practice perspective and it helps to explain how some of the micro-practices that occur in strategy making processes can influence organisational outcomes.

Quotes and Notes:

The authors begin with a description of the history of environmental analysis, pointing out that from the earliest conceptualisations of the idea of an organisational environment that the descriptors used were usually categorical and not very useful – e.g.. ‘placid’ or ‘turbulent’ environments. The intricacies of the relationships between the elements that make up the categories are missed. Cause and effect relationships are not explored – especially between categories.

p.55: With the environment now increasingly accepted as organization specific, the emphasis on analyzing and understanding the environment shifted to how members of the organization perceived relationships among events, objects, and situations in order to make these meaningful for themselves In short, the usefulness of the PEST taxonomy was brought into question, because PEST variables could no longer be considered in isolation of each other. How the variables interact with each other is currently emerging as key to effective environmental analysis. – Highlighted 2016 Sep15

p.55: In summary, early approaches to contextual environment analysis (from 1965 to 1990, approximately) were too general, producing taxonomic lists of external environment factors that were not integrated with each other. – Highlighted 2016 Sep15

This is where the idea of an epistemically technology can come into play. By considering the different affordances of each tool the practicing manager can consider the interactions much more fully. – Written 2016 Sep15
It’s one of the issues that I have with this particular paper is that the role of environmental analysis and the tools traditionally used in doing it is not considered in the light of other tools that are used by practitioners at (broadly) the same time. For example, the TOWS matrix – a tool commonly used by managers to help them to make sense of their environment, positioning the internal strengths and weaknesses of the firm against the specific interpretation of the threats and opportunities afforded by the external environment.

p.55: What emerges from the critique of these bounded approaches is the need for an organization-specific approach to analyzing and understanding the environment. – Highlighted 2016 Sep15

The authors looked at 13 strategy textbooks that were popular in Europe and North America as means of trying to understand how environmental analysis was treated in instructional settings. Although this paper was published in 2006, the paper was written much earlier and the texts referred to are, for the most part, pre–2000. This notwithstanding, my own experience looking at more contemporary strategy texts suggests that there has not been much shift in the way in which this topic gets treated.

p.56: The findings of this analysis are revealing. Twelve out of the thirteen textbooks dedicated less than 5 percent of their pages to a discussion of the contextual environment, and all of them have a general focus on environmental analysis rather than a firm-specific one. – Highlighted 2016 Sep16

p.56: Second, guidance on use and implementation of any these approaches to understanding the environment is illustrative in nature, such that readers are left to draw their own conclusions about the application of the techniques. Discussion of the implications of the results of an environmental analysis for organizational members and organizational structures and processes is missing from all of the textbook discussions. – Highlighted 2016 Sep16

This is not all that unexpected: textbooks are written to be taught from. Students who attend classes do not expect the teacher to sit there and read from the textbook. The students can do that task at home. Hopefully the teachers are going into much more detail of the application of the tools in the classroom. Hopefully.

p.56: There also appears to be a misalignment between the contemporary textbooks and the contemporary seminal papers, which emphasize organization-specifi understanding of the environment. – Highlighted 2016 Sep16

p.58: The first limitation is the lack of attention paid in the literature to the external environment and its conceptualization. The strategic-management literature has been dominated by the realist paradigm (Mir and Watson 2000), as when Burrell and Morgan state that “a realist ontology postulates that the social world external to individual cognition is a real world made up of hard, tangible and relatively immutable structures” and, as such, “the social world exists independently of an individual’s appreciation of it. The individual is seen as being born into and living within a social world which has a reality of its own, and which is not something which the individual creates—it exists out there” (1979, 3). – Highlighted 2016 Sep16

p.58: There is, of course, a counter to this argument. Weick, for example, argued that there is not some kind of monolithic, singular, fixed environment that exists detached from and external to people. Instead, people are very much a part of their own environments because they act and, in doing so, create the materials that become the constraints and opportunities they face. There is not some impersonal “they” who puts these environments in front of passive people. Instead, the “they” is the people who think and act, creating their own environment. (1995, 32) – Highlighted 2016 Sep16

p.58: Mir and Watson (2000), meanwhile, contended that a constructionist approach, whereby reality is based on observing natural objective phenomena as well as internalizing such phenomena and experiences through social processes such as conversation, has gained importance in the strategy-research arena, because there is a growing recognition of the active role of a manager in managing strategy and the existence of multiple realities in perceptions of the environment. Consequently, constructionist approaches to strategic management “offer excellent opportunities to strategy theorists to make linkages between organizational realities and larger social systems (and to study the contingent conditions under which strategy research may be transferred across time and space)” (Mir and Watson 2000, 950). – Highlighted 2016 Sep16

p.59: The overall conclusion is that research should study managers as they define their environment. – Highlighted 2016 Sep15

As a result, add a ‘T’ to the VUCA analysis as this is a key variable. – Written 2016 Sep16

There has been a shift more recently to conceptualise the environment in terms of a VUCA analysis: *Volitile; Uncertain; Complex; Ambiguous. Even this, though, falls into the same trap as the PEST/PESTEL/ESTEMPLE etc.. analysis. These are categorical and don’t take into consideration how elements might change or how, exactly, they are meaningful for an organisation. One way to improve the VUCA analysis (slightly) would be to a a T to it where the T represents T*emporal. Allowing for a key variable of time will enable managers to shift their attention and understanding about the various factors over a range of time horizons – some elements may yet only be of small consideration but may grow to be significant over time. The VUCA analysis and the PESTEL (and its variants) analysis currently don’t specifically allow for this (although, they may imply it.) I’m calling it here: I’ve just invented the VUCAT analysis. (Copyright, Jason Downs, 2016).

p.59: Guidance in the textbooks focuses on analyzing a current environment that is presupposed to be static rather than attempting to comprehend how the environment has evolved and how and why it may evolve in particular ways in the future. – Highlighted 2016 Sep16

p.59: the evolution of incidents, trends, and issues over time, and how these may mutate in the future and result in structural changes and discontinuities. – Highlighted 2016 Sep16

p.60: The scenario methodology is designed to surface multiple perspectives about concerns and uncertainties in the environment and the range of possible outcomes of these concerns and uncertainties in order to help develop insights about the unfolding future nature of the environment. Additionally, the intention is to identify what is, or will become, inevitable—in other words, the predetermined elements of the future. – Highlighted 2016 Sep16

The problem with a scenario analysis is that it is, in itself, a complex activity. It seems that the main purpose of it is to surface three(?) potential futures where everyone has the opportunity to have their say about how they see the future unfolding. It is in the process of discussion that reality is constructed – also, by allowing a framing of three futures where there is a best, middle and worst case scenario, it allows everyone to contribute and consider their positions in the context of a ‘blameless’ discussion. New information can be assimilated during the conversation, therefore allowing perceptions of reality to change. This raises the issue of ‘power’ in the discussions. Does everyone get an even say? Are scenario planning days held across all levels of the organisation? Even within the exercise, is everyone’s voice considered equal? Even if there is an explicit expectation that everyone will contribute equally, is it realistic to expect that a junior executive will be heard as much as a CEO? – Written 2016 Sep16

I note that the authors actually discourage the use of best and worst case scenarios descriptors as these are arbitrarily defined and that a better way to think about this about considering the “limits of possibility”. This is a neat conceptualisation as it allows the managers to consider things that are plausible (however unlikely) without veering off into the realms of science fiction. This could be a powerful exercise where managers with different perceptions of what is possible consider and share their ideas. The ‘limits’ element allows the managers to deliberately avoid incremental thinking.

p.61: An internally consistent account of how a future world unfolds—That is, an explanation based on causal logic of how a particular scenario unfolds from the past to the present to the future. The story will represent the dynamic interplay of predetermined elements and resolved uncertainties, showing how these factors interconnect and impact each other, revealing their logical consequences. This stage of the scenario methodology requires participants to make explicit their tacit knowledge in developing the causal logic of the story. – Highlighted 2016 Sep16

p.63: “uncertainties” – Highlighted 2016 Sep16

The VUCA/PESTEL analysis can be a first (intermediate) step to bring people towards a scenario analysis situation. – Written 2016 Sep16

Here we have the U in VUCA specifically referred to. This is prescient of the VUCA development in the literature in the mid 2000s. The authors are highlighting the fact that the uncertainty is an element that needs to be considered. Of course the remedy to uncertainty is further fact checking/gathering and since facts will be interpreted in certain ways, bringing people together to arrive at a shared understanding of what ‘the’ environment looks like is a good way to encourage further participation.

If you are interested in how to drive participation in the strategy process, then you should consider reading the article by Mantere and Varra (2008).

p.64: By bringing the (PEST) variables together in such an exercise, the scenario methodology enabled participants to look behind the obvious and taxonomic nature of PEST in order to develop a deeper interconnected understanding of the interplay among variables as well as the causal logic of relationships among these variables. – Highlighted 2016 Sep16

p.64: This exercise generated heated discussion among the participants as they began to engage in a process of sense making. – Highlighted 2016 Sep16

p.66: It’s this step that help people imagine a new future. – Written 2016 Sep16

p.66: The two critical uncertainties identified in Step 4 were explored in depth in order to identify the plausible polar extremes of possible future outcomes of the uncertainties and to denote the nature of change. – Highlighted 2016 Sep16

p.71: By contrast, the scenario methodology also overcomes descriptions of the environment as, simply, placid, turbulent, and so on—this generic description can only be known retrospectively, if at all. – Highlighted 2016 Sep16

p.71: That is to say, the environment is in a continuous state of flux and change, being constantly updated and existing not within regular chronological time but in relation to the subject’s own chrono-logic understanding. – Highlighted 2016 Sep16

The authors spend quite some time working through what a scenario analysis is and how to conduct one. For this reason alone this article is well worth spending the time to read. I’ve had the pleasure of working with one of the authors when he was Head of School at the university in which I work. In more than a few situations he helped me to see the value of the scenario analysis methodology. This notwithstanding, it is difficult to understand how to undertake this activity without actually running or participating in one. The key thing to remember is that strategy making is a social process and that the actors undertaking this social process will often have differing interpretations of key elements of the analysis that they are undertaking. This surfacing of tacit knowledge is vital if organisations seek to align the efforts of their members.

Further sources highlighted in the reference list:

Bourgeois, L.J. 1980. “Strategy and Environment: A Conceptual Integration.” Academy of Management Review 5 (1): 25–39. – Highlighted 2016 Sep15

Child, J. 1972. “Organization, Structure, Environment and Performance: The Role of Strategic Choice.” Sociology 6 (1): 1–22. – Highlighted 2016 Sep16

Dill, W.R. 1958. “Environment as an Influence on Managerial Autonomy.” Administrative Science Quarterly 2 (4): 409–443. – Highlighted 2016 Sep16

Eden, C. 1992. “Strategic Management as a Social Process.” Journal of Management Studies 29: 799–811. – Highlighted 2016 Sep16

Emery, F.E., and E.L. Trist. 1965. “The Causal Texture of Organizational Environments.” Human Relations 18 (1): 21–32. – Highlighted 2016 Sep16

Grant, R.M. 2003. “Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors.” Strategic Management Journal 24 (6): 491–517. – Highlighted 2016 Sep16

Kiesler, S., and L. Sproull. 1982. “Managerial Response to Changing Environments: Perspectives on Problem Sensing from Social Cognition.” Administrative Science Quarterly 27 (December): 548–570. – Highlighted 2016 Sep16

Lawrence, P.R., and J.W. Lorsch. 1967. Organization and Environment: Managing Differentiation and Integration. Boston: Graduate School of Administration, Harvard University. – Highlighted 2016 Sep16

Meyer, A.D. 1982. “Adapting to Environmental Jolts.” Administrative Science Quarterly 27 (4): 515–537. – Highlighted 2016 Sep16

Miles, R.E., and C.C. Snow. 1984. “Fit, Failure and the Hall of Fame.” California Management Review 26 (3): 10–28. – Highlighted 2016 Sep16

Morgan, G., and R. Ramirez. 1984. “Action Learning—A Holographic Metaphor for Guiding Social Change.” Human Relations 37 (1): 1–28. – Highlighted 2016 Sep16

Smircich, L., and C. Stubbart. 1985. “Strategic Management in an Enacted World.” Academy of Management Review 10 (4): 724–738. – Highlighted 2016 Sep16