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Why most business strategies fail – eventually
A paper just published by colleagues at the Saïd Business School at the University of Oxford argues that business planning by organisations needs to involve ‘scenario research’. Scenario research involves looking at how the business would benefit or fail from a range situations.
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One of the exciting things about business is that it can be a rollercoaster as the organisation adapts to new situations and as a unit, stands and falls according to decisions made at different times. There will be quieter times, perhaps as the business grows steadily in a good economy – but there will also be difficult and turbulent times according to the vagaries of one’s market and environment. There are always ups and downs in business. Planning and working out a response for the range of circumstances is important for business continuity.
Despite the UK national economy as a whole showing growth at present, things are tough for high street retailers that don’t have a good internet retail presence for example. Those high street retailers who haven’t developed a strong web presence are seeing footfall through their shops plummet as more customers elect to shop online rather than take time out to go shopping. Current growth for the UK high street remains flat at between 0-1% annually, with many businesses losing out altogether – you just need to see the boarded up shop-fronts in your home town to see this first hand.
For a well managed online only retailer they could be seeing an average growth of 11% – the speed e-commerce is growing in the UK at present. Even those undergoing massive growth will, like the high street retailer, experience turbulent times, partially because they need to meet demand without overcooking it and being left with over stock issues or poor feedback for not meeting demand and the fact that everything is temporary. So today’s growth in internet sales may not always be there. There are always threats and disrupters lurking in the shadows.
Scenario planning needs to be a normal part of day-to-day strategic planning.
To quote the paper “The authors propose that scenario research … should not be one-off exceptions but examples of strategy in practice which turbulent times could well make more common.”
What is scenario research?
As the name suggests, it is about planning by working through a range of different scenarios likely to face the organisation and to assess what may come up. In the case of the online only retailer seeing a surge in demand, this would be to ask what would happen, for example, if a container of goods are a week late from China or is destroyed? In working out how to tackle these scenarios one can face the eventualities when it does occur, or make allowances in advance with greater confidence and not trying to make decisions whilst emotions are high.
A live example is that of Argos who clearly didn’t run scenarios of the likely effects of e-commerce and competitors like Amazon on their business.
This is “an approach to research that is substantially rational in the sense that its practitioners develop a capacity to observe and question what they are doing and to take responsibility for making intelligent choices about the means they adopt and the ends these serve… and actively examine the choices that are open … with active anticipation of the consequences of such engagement.”
In being able to plan ahead through real world scenarios the organisation’s strategist will better be able to meet the real world situations as they emerge without having to plan and act on the hoof. This adds confidence within the organisation and externally to shareholders and other stakeholders.
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