Similarities and Contrast between Scenario Planning and Competing on Edge - Essay Example

SIMILARITIES AND CONTRAST BETWEEN SCENARIO PLANNING AND COMPETING ON EDGE. (2006) INTRODUCTION The global business in contemporary era is characterized by keen competition and dynamic nature of conducting the day to day business. Hence, there is the need to curve a niche for an organization before it gains competitive advantage over its rivals. It then requires that the adoption of a more effective and pragmatic strategy is germane in attaining this height. Strategic management which entails how an organization adapt in its environment by the adequate utilization of its resources in meeting its sets goals and objectives, is a significant management techniques adopted in modern organization management in the effective attainment of set targets. The uncertainties that are facing business organization are further intensified by the dynamic nature of conducting business operations. Thus, there is a need to enforce the management of change through an effective strategic technique. Strategic planning is an invaluable tool in the hands of managers of businesses, in meeting the challenges of uncertainties and stiff competition in the business industry they operate in. In this instance, Brown & Eisenhardt (1998:4), defined strategic as basically consisting two things: deciding where you want your business to go and figuring out how to get there”. There are many models of strategic planning; thus applying the right one for the right organizational problem would result in the maximization of optimum result. This essay tends to compared and contrasts between strategic framework, i.e. Scenario Planning and Competing on Edge. These strategic approaches would be compared on how effectively they are in maximizing the result expected in a given period of uncertainty. Also, the differences in the two approaches would be given looking at their advantages and disadvantages. CONCEPTUALIZATION OF TERMS Scenario planning: Scenario planning is considered as a tool for businesses in different industry in coping with the unpredictability, and gives insights to them in finding better solution for the future problems as they arise. Rigland (1998:12), defined it as “scenario are often thought of as a management development tools as a way of creating shared vision, as well as better plans in organizations”. To Shoemaker (1991:549), scenario is defined as a script- like characterization of a possible future presented in considerable detail, with special emphasis on causal connections, internal consistency, and concreteness. Thus, corporate planning, make use of multiple scenarios to characterize the range within which the future is likely to evolve. Scenario planning is used not only in investment and portfolio management, it also involve the creation of foresight and developing an international perspective for the organization. It is an adequate tool for planning for uncertainties and brainstorming towards seeking ways to handle a foreseen problem. Drawing a boundary or sphere of applying scenario planning, Wack (1985), cited in Shoemaker (1991: 550), argues that “scenarios are not states of nature or predictions. The focus is not on forecasting the future, or fully characterizing its uncertainty, but rather on bounding the uncertainties”. Competing on the Edge: ‘Competing on Edge’ is a modern strategic technique use in the management of change that occurs in an organization. According to Brown & Eisenhardt (1998:4), competing on the edge is defined as a strategy which entails the creation of a relentless flow of competitive advantages that, taken together, form a semi coherent strategic direction. Competing on the edge acknowledges the key driver of superior performance as the ability to change. And success is measured by the ability to survive, to change, and ultimately to reinvent the firm constantly over time. Thus, competing on the edge is a strategy more pragmatic in the management of unpredictable and uncontrollable dynamics of modern business. “The underlying insight behind competing on the edge is that strategy is the result of a firm’s organizing to change constantly and letting a semi coherent strategic direction emerge from that organization. In other words, it is about combining the two parts of strategy by simultaneously addressing where you want to go and how you are going to get there” (ibid: 7) SCENARIO PLANNING AS A TOOL FOR STRATEGIC PLANNING Scenario planning is an effective tool to strategize against uncertainties in business operation. But the application of this strategic framework is a difficult one; as there is no explicit laid down situation, where an organization should make use of scenario planning. Thus, the application of scenario planning has been unsuccessful for some organization, due to their wrong application and the lack of integration of the scenario planning process. Shoemaker (1991: 550), outline conditions that favors the application of scenario planning in an organization, which include: 1. Uncertainty is high (relative to one’s ability to predict or adjust). 2. Too many costly surprises have occurred in the past. 3. Insufficient new opportunities are perceived and generated. 4. The quality of strategic thinking is low (e.g. because strategic planning has become too routinized). 5. The industry has experienced significant change or is about to. 6. A common language and framework is desired, without stifling diversity. 7. Strong differences of opinion exist, each of which has its merits. 8. Your competitors are using scenario planning. The above listed conditions show that scenario planning becomes a vital tool when an organization is met with great uncertainty regarding its future operation thrust and when there is frequent changes in ways of operating in the industry the organization operates, and also the difficulty involve in seizing business opportunities. Scenario planning differs from other traditional strategies, in that it is a brainstorming process, where it entails a lot of thinking work, while other strategies are best conducted with concrete, causally coherent narrative facts. Scenario planning also differs from other traditional strategic methods, in the sense that when dealing with uncertainties it presents several models, which bound the uncertainty range. It thus, caters to people’s preference for certainty, by primarily specifying uncertainty across rather than within scenario. In this view Shoemaker (1991:550) stated that scenario can be perceived a as clusters of high-density mass. What matters in scenario analysis is the identification of the clusters and how one might get from the status quo to that particular region of the outcome space. But for the traditional method of strategic planning, the treatment for uncertainty involves the presentation of a single model where uncertainty is nested within it. Scenario approach accords the human mind an important role as input provider, pattern recognizer, and information synthesizer. But it also recognizes that this mind could be stretched, challenged and cleansed from illusions (Polanyi, 1958, cited in Shoemaker 1991:551). It is pertinent to state that scenario planning as a method of strategic planning can play a complementary role in decision analyses when working with other strategic approaches. Here, it is used in defining and offering the basis and structure of problem under study. For example, when using decision tree analysis, scenario may help identify which are the important uncertainties and what subjective probabilities to associate with each branch. Scenario planning also influences people’s attitudes towards questioning assumptions and accepting change (ibid). This applies to organization working either in the public sector or the private sector. For public sector organization scenario planning has helped in influencing attitudes towards a w ay of developing recommendations for public policy. Here, the effects of policy actions are made explicit, in a non threatening way through an effective scenario planning. Similarly, in the private sector, scenario planning has been used as a tool for discussing market changes and for transferring thinking about market effects to staff in the organizations. The advantages associated with scenario planning compared to other strategic method include: 1. It is a better tool in planning in an atmosphere where there are great uncertainties. And it provides a framework to think ahead and serves a constant remainder of future uncertainties. 2. It is a strategic tool used in testing to see the reaction to changes or innovative introduction of new mode of operation. Here, scenario planning aid in the choosing of the right decision for carrying out an operation or engaging in a new field of operation. 3. It is a complementary tool in making an effective decision analysis of a given phenomenon or problem. 4. Scenario planning makes the strategy maker to undergo sections of brainstorming; rigorous thinking. Hence, they are made to understand every aspect of the strategic processes and structure they are introducing to the organization. 5. Scenario planning is also advantageous in the sense that it provides several options of understanding and dealing with uncertainties, here the most feasible alternative is made known to the strategic planner and hence, the best result is derived from its’ implementation. The disadvantages associated with scenario planning are: 1. It is a very complex way of strategizing. Hence, it result in unsuccessful result if the organization applies it wrongly and lacked the will to integrate the scenario properly in obtaining the best result. 2. Scenario planning technique is not easily applicable; thus it requires an expert and knowledgeable professional who understand how to utilize it and apply its interpretation in addressing an organization given problem. Not every manager of an organization can easily understand how scenario planning is applied. 3. The successes associated with scenario planning are difficult to pinpoint. Therefore, other strategic management tools may provide a better result in the creation of new ideas and opportunity identification, than scenario planning. 4. If a wrong makeup of a scenario team is in place, the quality of the scenario planning would be affected. According to Ringland (1998:12), “it is not the quantitative, but the qualitative aspect of a team that matters. Each individual of the team must be knowledgeable in their core areas and be willing to challenge existing assumption and think out of the box” COMPETING ON EDGE: A TOOL FOR STRATEGIC PLANNING The challenge of managing frequent changes in the way business conduct its operation is usually accomplished by unpredictability and uncertainty; therefore there is the need to have a strategy that can withstand this phenomenon. This is where Competing on the Edge comes in. Traditional strategic approach normally collapse amidst rapid and unpredictably changing industries. To Brown & Eisenhardt (1998:6), “they collapse because they overemphasize the degree to which it is possible to predict which industries, competences, or strategic positions will be viable and for how long, and they underemphasize the importance and challenge of actually creating and then executing the strategy that is chosen”. The contemporary business world is experiencing a stiff competition; hence, for an organization to gain competitive advantage over its rivals there is the need to operate in a fashion that will bring out the efficient utilization of available resources within the organization to effectively attain the goals and objectives of the organization. Competitive advantage don’t result in one form; a firm can stand out in its market share, or it can have a strong brand management, or a strong network effect to attract more buyers to its products, or have competitive advantage through its trademarks and patents, or cost effective structure, and also through the possession of high switching cost. According to Porter (1985:34), “a firm cannot gain competitive advantage in both cost leadership and product differentiation”. Since both of the strategies goes in the different direction; in cost leadership the organization loose income by the reduction of its price of its products, while in product differentiation the firm incurs more cost by making its product unique, thereby getting premium fro the innovation, so there is no basis where both can be applied same time. Though, some critics have proved Porter’s theory wrong by arguing that this is possible with sighted evidences. Thus, with the challenge in managing change Competing on Edge, as a strategy , tend to differ from other strategic methods in the sense that it shows where the strategic direction the organization is taking and how it is going to attain its goals. The following characteristics are associated with Competing on Edge: It is unpredictable, in that, it comes as a surprise. It is not a planned approach; this is because the strategy tends to handle only the current uncertainty the organization is experiencing. Competing on Edge is uncontrollable; since it is not a command and precise planned strategy by the senior executives. With the numerous occurrences in a rapidly changing industries, there is no single group with the responsibility to orchestrate move in checking this, thus it be comes the responsibility of many people in the firm. This Competing on Edge is about strategy-making centered at the business unit, not at the corporate headquarters. Competing on Edge is also characterized by inefficiency, in that it is not usually efficient in the short term; due to the activities of s tumbling into the wrong market, wrong decision making and bouncing back. Competing on Edge is not about making the organization the most efficient or most profitable, but using changes to make the organization regain its part to attaining this status, through discovering of opportunities fro growth and letting profits follow. Competing on Edge is a proactive tool, in the sense that it does not passively wait and watch for there to be occasional discontinuity before it is applied. It usage comes in randomly. As uncertainty sets in a business operational sphere it is utilized to check against it (ibid). Competing on Edge operates around three core concepts; it operates to capture and control the ‘edge of chaoses, ‘the edge of time’ and ‘the edge of time pacing’. The edge of chaos is a situation where the organization lies in an intermediate zone, where it never quite settle into a stable equilibrium but never fall apart, either. Thus, the edge of chaos then tend to take hold of the complicated, uncontrollable, unpredictable but yet adaptive behavior within the structure the organization operates in this given instance. The edge of time requires the manager of the organization to rely on his/ her past experience while still focused on the current issue at hand, and also looking on the likelihood pattern or shape the future trend would take. The edge of time requires that there is simultaneous thinking on multiple time horizons. The edge of time pacing, which Competing on the Edge operates on, entails changes that are brought about due to the passage of time. Whereby, with the passage of time new product are launched and they become in vogue, while old ones are out of vogue. Then time pacing entails, for example, the launching of new product or service in every six months, rather than waiting until there is intense competition before the response is made. The advantage associated with competing on the edge is that, it is a readily available tool to tackle the current uncertainty that the organization is going through, and it is effective for managing change in management associated with highly changing industries. Its disadvantage lies in the fact that it is not a tool for forecasting and thus, not very effective for tackling future uncertainties that the organization is likely to face. THE SIMILARITY BETWEEN SCENARIO PLANNING AND COMPETING ON EDGE The similarities that exist between scenario planning and Competing on Edge include the following: Both scenario planning and Competing on Edge are strategies aim at aiding the organization in the tackling of uncertainties. Both management strategic methods have been a tool to adequately and effectively deal with uncertainties facing an organization. Another similarity between the two strategic methods is that, both are unique in their approach to strategic planning, hence, they differ from the traditional methods of strategic planning. Both strategies require a team work in conducting its implementation. Hence, there should be a collaborative effort to be put by the organization, where a group of people are assigned to carry out the process of the strategic formulation and implementation. Both strategic methods are drawn in order to assist the organization in meeting its set objectives and goals in the most effective way. Thus, they are built around the organization’s objectives and goals. The contrast between scenario planning and competing on Edge includes the following: While scenario planning act as a tool for forecasting and predicting uncertainties, competing on Edge is not a tool fro forecasting; since it is not planned for but spontaneously utilized when the situation calls for its use. Scenario planning can be use as a complementary tool for analyzing decision with along side with other strategic tools. But for Competing on Edge, it is not a complementary tool, in that; it acts as an immediate strategic tool use to tackle the present uncertainties facing the organization. Scenario planning as a management tool takes a process planning in its implementation, while competing on edge occurs by surprise in the bit to handle the current uncertainty the organization is facing. While the implementation of scenario planning requires a special expert team to implement it, for competing on edge there is no single group for which the responsibility is assigned in its conduct; unit of an organization can implement it alongside with those in the organization’s headquarter. This is as result of the diverse uncertainties that are f acing an organization in a high changing industry. CONCLUSION It is seen that in this era of high tendency for changes in the operations of business organization, there is the need to utilize a strategic methods that would assist in tackling the uncertainties that comes with the changes. Both scenarios planning and Competing on Edge is effective tool in tackling the challenges that comes with change in management and the uncertainties associated with it. It is then seen that both of the strategies have its own unique process, but they adopt an approach different from what is obtainable with the traditional strategic methods. REFRENCES Brown S.L. & Eisenhardt, K.M. (1998), Competing on the Edge: Strategy as Structured Chaos. Boston, Mass: Havard Business School Press. Porter, E. Michael (1985), Competitive Advantage: Creating and Sustaining Superior Performance. New York. Ringland, Gill (1998), Scenario Planning; Managing for the Future. London: John Wiley & Sons Limited. Shoemaker, Paul J.H. (1991), “When and How to Use Scenario Planning: A Heuristic Approach with Illustration” in Journal of Forecasting Vol. 10, 549-564. Shoemaker, Paul J.H. (1993), “Multiple Scenario Development: its’ Conceptual and Behavioral Foundation” in Strategic Management Journal Vol. 14, 193-213. Read More