Strategic Management Insights
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Scanning Your External Business Environment
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CONTENTS
Scanning Your External Business Environment - Strategic Management Workshop
- Strategic Managemen Master-Class
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Scanning Your External Business Environment The 2010 IBM Chief Executive Officer Study is generating a lot of chatter in social media channels (hundreds of blog mentions). The comprehensive study covering 33 industries and 60 countries asked CEOs how they are Capitalizing on Complexity in a more uncertain business climate.
Setting strategic direction in a changing external business environment
The high interest in the study is evidence that leaders are looking harder for strategic solutions for managing in a more volatile business world. Business leaders are more concerned than ever about the external business environment, yet they feel less confident about how to navigate through it. Rigorous external business environment scanning is key to increased competence, and confidence, in finding robust strategic solutions. A typical PEST (political, economic, socio-cultural, technological) analysis, however, seems inadequate in increasingly volatile environments.
We used to scan our environment by asking questions based on informed shifts in market dynamics and changes in PEST factors. Today, we have to consider that the goal post may be moved to another field. Realistically, few CEOS are presuming to have as much understanding and control over the external environment as they had before the 2007 market downturn.
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Bolder questions for a more complex external environment
The good news is that analytical tools are evolving to put leaders back in control of their strategic approach to the external business environment. Traditional approaches are likely to come up short. In light of the dramatic restructuring of industries and economies, new questions need to be asked when analyzing the external environment from a short- and longer-term horizon. In the former business climate, a firm’s core competence was expected to endure for a lifetime like a destiny assigned by the mythological Fate Lachesis. Today, the ‘what if’ scenarios must be bolder.
· Will my core competence be commoditized? How soon?
· What’s my next core competence?
· What regions will dominate in my core competence?
· What companies/regions will erode my competitive advantages?
· Will this become an outsourced industry? And by whom?
· What will be the most innovative product/company tomorrow?
· What technologies, not yet conceived of, will out innovate me?
· What is the worst-case scenario in terms of capital market receptivity to my industry? What will be my alternatives?
New business scanning models
In responding to the needs of leaders, it is important to distinguish whether their main concern is the ability to understand the rapidly changing business environment, or the capacity to undertake the appropriate actions to respond to it. Most leaders will argue the former. The evidence shows that leaders are confident that they have the skills and resources to respond to drastic change (this introduces another challenge: over-optimism bias – see box below) and what they really require is a more robustway of scanning their business environment, and keeping up with the changes.
The usefulness of external business environment scanning in strategic planning should not be discounted as outdated. It is likely only your model that is outdated. Studies continue to show that a good external business environment scan has significant positive effect on the strategic course of a firm, and ultimately performance; environment scanning models today must include plausible varying scenarios to be adequate for the current complexity. The Haines centre for Strategic Management has worked closely with clients throughout the economic downturn, to reposition and fine-tune their strategic approaches to managing, in an external business environment in a constant state of flux.
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Behavioral Strategic Planning
Removing Biases in Business Scanning & Strategic Planning
In the current business environment, bias in decision-making is to be expected given that we have operated in a business-as-usual environment for stretches of decades—with only a few recessions and other small bumps along the way. There are dozens of biases that affect our decision making, but some of these biases affect our perceptions more than others in dynamic environments. One such bias is optimism. We have a tendency to overrate our own self-efficacy or ability to meet the challenges ahead. We also tend to be overly optimistic about the future.
Over-optimism bias
When hiring a sales manager, over-optimism might be a positive trait that can contribute to success. But in decision making, bravado can cause strategic and contingency plans to fall short of dealing with the challenges in front of us. Fortunately, analysts and shareholders are two rational stakeholders, who may force us to act in a more rational manner. This could partly explain why, tempered by more rational heads, public companies outperform private companies. Similarly, companies supported by the active and rational influences of private equity investors, such as buyout or venture capital funds, outperform other private peers. These private equity investors exert a significant influence on rational behavior.
Rational decision making
As a recent McKinsey article The Case for Behavioral Strategy saliently points out, rationality and behavior are explored regularly in the investment market and, arguably, have improved predictability and probabilities in the financial markets. Yet we do not apply the same rigorous behavioral analysis to our leadership decisions. When the market exhibits a certain pattern, a trading algorithm helps us decide whether to sell or buy. However, as the economy ebbs and flows, we have no black box or hard-and-fast rules to help us improve our forecasting abilities. Strategic decision makers are more influenced by, yet fail to understand, the cognitive biases that inform their decision making, concludes the McKinsey study.
De-biasing Your Strategic Planning
Before embarking on external business environment scanning, behavioral economists argue, we need to let go of preconceptions and biases that can negatively influence our strategic decision making. In addition to optimism, examples of other decision-making biases that you should consider in the strategic planning process include loss aversion, risk aversion, the principal-agent problem, the framing effect (taking a narrow view), and the illusion of control.
An overarching failure in today’s decision-making is screening out the normalcy bias, made all the more complex by the fact that we do not yet know what the new normal is. Under each bias, consider making lists of bias traps that you may be prone to fall into:
· Are you underestimating the rate at which your business can be commoditized?
· Are your sales forecasts consistent with the last two years of business? Is recent history now the new normal?
· Is your competitive advantage being commoditized?
· Can you continue to compete with outsourced services?
· Have you adequately accounted for the effects of new regulation on your business?
· Is your product development and innovation advancing at a pace that can compete with the unknown competition ahead?
· Have you adequately accounted for risks? Cumulative and dynamic measures of risk?
Other de-biasing strategies
· Debate ALL ideas and strategies
· Gather current research to support prevailing and alternative views
· Leave the door open for peers and subordinates to challenge you
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Strategic Thinking for Uncertain Times
Strategic Management, The Systems Thinking Approach
3-Day Workshop – Singapore For many leaders, their understanding of, and confidence in, their internal and external environments has wavered. As a result, they may sometimes feel as if they are making strategic decisions in a vacuum. In fact, a more volatile business and economic environment can provide opportunities. To manage effectively in the current business environment, leaders require new strategic tools and approaches, that can help them to improve their strategic decision making.
This game changing workshop will help you acquire the skills and knowledge necessary to apply critical strategic and systems thinking on a daily basis—even when the goal posts are moving. Advanced knowledge, innovative thinking, long-term performance planning and ongoing strategic management coaching and training are imperative for companies and organizations that intend to not only grow, but excel.
The 3-Day Executive Workshop is designed to provide you with the strategic skills and knowledge you need to develop an effective strategic plan to take your company or organization to the next level and maintain your competitive edge.
Utilizing engaging presentations, discussions and innovative tools, tips and techniques, SYSTEMS THINKING APPROACH to STRATEGIC MANAGEMENTwill train you on how to implement integrated strategic thinking, planning and change to deliver customer value. It is led by master facilitator, Stephen Lin, co-author of Enhancing Your Strategic IQ-Winning Strategies From A to Z and noted specialist in strategic thinking, strategic planning, change management, leadership, and innovation—all the basic knowledge needed to manage your organization more strategically.
Continue your development in the art of strategic management. Gain deeper learning and insights, and share exeperiences with other candidates and the facilitator, in this intensive immersion boot camp.
For more information, click on the workshop titles or email to: info@hainescentreasia.com
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