Scenario planning is rapidly on the rise as one of the most important strategic tools. This awakening have slowly been going on for a while but the global uncertainties caused by the financial crisis and global economic recession have been speeding up the process.

Since the 1960:s the value of scenario planning have been that of a tool for the long term strategic thinking process. A value that most managers have been able to ignore since operations have had a very strong focus in the vast majority of organizations. Because of this I usually argue for scenario planning along the lines that

1. many of the important decisions organizations actually have to take have more far reaching ramifications and consequently is taking place in a more uncertain future than usually is understood – scenario planning can help in mapping and understanding this longer term perspective
2. peoples perceptions of a situation are almost always flawed due to a range of biases that comes from how we as humans are hardwired – scenario planning is here used to assist organizations to see through and beyond their own unconscious blinds

Since October of 2008 a lot of people have suddenly become painfully aware that we live in a time of fundamental uncertainty. In such a situation planning is not just a process of organizing long lists of actions that leads towards a goal. When uncertainty blurs the horizon and an uncertain environment calls for real action, people abruptly come to understand that they have forgotten the process of assessing and interpreting what is happening in the environment in order to evaluate their own capabilities of adapting and identify realistic and relevant goals.

Hugh Courtney, who is quoted below, is known for a simple but powerful model of explaining different levels of uncertainty we perceive that we can see for the future:

The change we have seen since October of 2008 is that many more of us now perceive our situation to be on uncertainty levels 3 and 4 rather than on levels 1 and 2 which was the common view before.

One of the few structured ways to understand the situation of an organization in the longer and more uncertain perspective is to use scenario planning. And today when uncertainty even permeates the shorter perspective scenario planning is basically the only strategic management tool that is left.

This awakening can be followed by the increasing in referrals to scenario planning in management magazines articles. Here are some examples from the last couple of months.

• In August Economist published two relevant articles in their online section of management ideas about Scenario planning and one the real gurus behind the modern scenario planning Pierre Wack

• CFO Magazine notes that 41% of senior financial officers have “strengtened their scenario-planning procedures” – Future Tense – CFO Magazine – December 2008 Issue – CFO.com

• Hugh Courtney, author of 20/20 foresight is interviewed in McKinsey Quarterly and advices strategy officers to start with scenario planning because it is more important than ever that we think forward even if we don’t get any exact answers, because any clues to what might unfold is valuable in these levels of uncertainty – A fresh look at strategy under uncertainty: An interview

• In the same issue of McKinsey Quarterly there is another article basically following the same line of thought – Leading through uncertainty

Even in other places scenario planning is suggested as a tool for managing uncertainty:

• In www.livemint.com a WSJ on line publication there is an article about Coming to grips with turbulence where scenario planning is the suggested tool

If you want to read more about scenario planning visit my page: scenario planning resources

Technorati Tags: financial crisis, scenario planning, uncertainty

It is said to have been developed in the 80:s in order to understand the uncertainties of the future of the american automotive market.

Searching Google I found out that this particular scenario cross is also referred in at least two other books:

• “20/20 Foresight: Crafting Strategy in an Uncertain World” (Hugh Courtney)
• “The Power of the 2 x 2 Matrix: Using 2×2 Thinking to Solve Business Problems and Make Better Decisions (Jossey Bass Business and Management Series)” (Alex Lowy, Phil Hood)

Since what these scenarios described was two major uncertainties in the automotive market the conclusion was that efficiency and size/design of cars really are important i e lower fuel consumtion and more van/hybrid cars.

This process started, but came to an abrupt halt when the birth of the SUVs tricked the american automotive industry into that fuel and size weren’t real issues. What was basically missed was that the relatively good economic era of the 1990s boosted a life style purchasing pattern that for some time supported large, safety focused cars signalling a active and individualistic life style. That basically made the automotive industry going back to sleep forgetting what they actually seemed to ahve realized during the short wake up periond in the 80:s

Just to some years later wake up to the bells of the real energy crisis boosted by a financial crisis and a global scale recession.

I don’t know, but the word culling comes to mind…

Technorati Tags: automotive, Foresight, scenario planning

Yesterday I held a speech at a local conference of entrepreneurship. As usual I talked about scenario planning and it’s virtues of creating a better understanding of the business environment, especially when it comes to understanding the underlying driving forces shaping the environment as well as assessing the critical uncertainties of how these will play out.

I also met a former colleague from Volvo and we started to discuss the state of the automotive industry. Suddenly I found myself retelling some of the ideas about the future of the car industry and mobility I spoke about at Volvo almost 10 years ago. Thoughts I had a problem getting people to grasp then… but maybe something has happened since? These are a new remix version of what went on in our minds then, and what is occuring inside in my head these days.

Three futures of personal mobility

Today’s car industry is since long stuck in a mature and until recently slowly, but now rapidly braking market. The key reason for this have been, and still is, the unwillingness/inability to reinvent the concept of the car to something else than a increasingly complex, functionality loaded, emotional, status-boosting and expensive entity.

A number of driving forces in the business environment coincide to create the business situation where this reinvention is absolutely necessary:

• overall diminishing economic growth due the approaching maturity of the industrial markets slowly decrease the customers available money
• the urbanization continues which
  – decrease the need for a car in daily life
  – increase the cost of land and thus the cost for owning/parking a car
  – increase the awareness of the air pollution as a problem
  – increase the traffic congestions
  – increase the number of people who have a different economic situation with an uneven income that is dependent on projects, cultural consumption and other idea driven short activities
• increasing global awareness of the climate situation
• increasing/uncertain cost of energy
• people are experience, meaning and identity driven in a different way than before which makes them more discontinuous and unpredictable in their behavior and choices

A certain indicator of this development is the continuous increase in the use of bicycles and small personal motorized vehicles (e g mopeds) in modern cities. The situation have since 10+ years become more and more critical so the problem isn’t new. What is starting to occur is that the automotive industry is running out of both buffered resources and there is still no signs of proactive ideas.

What we now can be almost certain of, judging from the period from the different crisis from 1972 until the present, is that the ideas and innovations with a potential to change the situation will not come from inside the automotive industry itself. But where will they come from?

Two major long term driving forces shaping the future entrepreneurial landscape seems to be:

Simpler functions are are on the rise, not increasingly complex services - In the area of Internet and Web 2.0 we seems to have found a really important insight, which is slowly finding its way to other areas. When decreasing the complexity in an offer, as well as the process paying for it, the potential for rapid success through a high market penetration seems much better. The important advantage is that you can still be rational and efficient on the inside without having to internalize the understanding of complex and continuously changing customer behavior. Reducing complexity in an offer means that there is a better chance of finding a more natural interface between customer logic and production logic. A really important achievement in an increasingly complex and transparent world. This means basically that instead of trying to increase the service content in order to increase the value of a service, many of the successful companies are actually doing the opposite and reducing the width of the service, but instead excel in providing a simplistic but high quality function with global reach.

The rise of low end and distributed innovation – Increasing abilities of innovation among the other 4 billion people is changing the focus of innovation from exclusive and advanced top end innovation, which describe the majority of development in the West, to inclusive low end innovation for the masses, which is what seems to emerge elsewhere. Companies are slowly starting to realize that in the low end of innovation lies both the future for the rest of the world, but also a pretty huge untapped market. One really interesting effect of this is that a lot of our advanced western innovations, which are adapted to our situation, will be re-innovated in other parts of the world and under completely different circumstances and cost pressure. And when people realize that great many of these new innovations solves basically the same problem as we have here, but to a fraction of the cost, we are going to import these in great quantities in about the same fashion we today import a lot of produced goods from the rest of the world.

We can talk about the last one in more general ways as the rise of mass-collaboration, mass-amateurization and mass-innovation as well, but for my purpose here this description level suits me.

Another development that could be mentioned here is the Open Source/Open Content/Open X development, but as I see it is just a way of organizing innovation which of course will have a huge impact on how the different innovations will be developed, but will make less of an impact on how the future of personal mobility will develop.

If we consider these driving forces as important, but yet uncertain in how the might impact the automotive industry, how will they play out. What might happen??

Scenario 1 – The car (industry) is slowing down – to crash

The legal system is reinforcing the inertia in the western traditional industrial mindset when it comes to change how we transport ourselves. In the rest of the world a vast palette of new low cost transport technologies are seeing the dawn of light. Many of them builds on the bicycle and different kinds of individual vehicles propelled by solar powered electricity. We in the west shows again that we are simply unable to adopt innovations coming from outside of our own ranks.

Due to no alternative working transportation solutions, people in the western cities are being forced to increasingly use their bicycles and public transportation systems. One reason is that many of them will not even own a car. This development will reveal a number of problems with our current city planning when it comes to both managing bicycles as well as public transportation.

The automotive industry will continue it’s slide downward and will basically crash. Maybe some of the leftovers will be reconfigured to smaller companies selling their increasingly expensive cars in the rural and niche markets that will remain.

Scenario 2 – The low end reinvention of the car – “The car is dead! Long live the car!!”

In this scenario the car is reinvented through the innovation powers that rise among the other 4 billion. Instead of an expensive car that is intelligent and safe, the new car is small and comes in many (but smaller) varieties. Some of them will more resemble a concealed moped with place for one person, while others will have room for both a family and a few bags. The main point is that these vehicles are both light, simple and cheap to buy and drive. They will most likely also be very rugged to survive in a crowded city as well as adapted to small parking areas by being foldable in different ways.

The automotive industry at last realize that if the want to survive in the market of mobility, the will have to enter the new emerging market by buying moped manufacturers and invest in different innovation models and market in the developing world. It means that they will radically widen their view of what a vehicle is and by using what is left of their financial muscle they will have maybe have enough resources to invest in the development of these new cars. It will be bad, but they will at least have a plan and an industry to compete in!

Scenario 3 – Personal mobility is reinvented – mobility as function

In this world the concept of mobility is changed from being based on vehicles, on to other ways of moving people and goods. By taking the perspective of how functions (rather than products or services) can solve the problem of urban and trans-urban mobility in more efficient ways, the breakthrough comes from a completely other direction. Instead a vast numbers of new public transportation innovations see the light of day. Old science fiction ideas like moving sidewalks and different kinds of light and continuous train-like systems are being experimented with in different places.

Suddenly people understand that one of the major competitors to today’s car manufacturers are companies like Otis, who have the advantage that they understand how to transport people both horizontally and vertically. By getting rid of the mental connection between mobility and owning/driving a vehicle and regard mobility as a function new possibilities of transportation is opened up.

Traditional car manufacturers realize that they have to engage in the development of transportation systems rather than vehicles. Cars will not disappear but will have a smaller market share and will be thought of as an urban complement to the integrated city system.

Technorati Tags: automotive, Driving forces, Foresight, future, mobility

Coming back from vacation a sieving through the mail box I found an article where scenario planning was mentioned in an interview with Nassim Nicholas Taleb, author of the very interesting book “The Black Swan: The Impact of the Highly Improbable”(Amazon UK). / “The Black Swan: The Impact of the Highly Improbable” (Amazon US). Even if I don’t totally agree with what claims in his book I totally agree that he is pointing at some terribly important issues which concerns everybody who deals with foresight and long range decision making. When it comes to scenario planning he is doing some implicit points in his book but in an interview in Condé Nast Portfolio he speaks up.

The thing you have to be aware of most obviously is scenario planning, because typically if you talk about scenarios, you’ll overestimate the probability of these scenarios. If you examine them at the expense of those you don’t examine, sometimes it has left a lot of people worse off, so scenario planning can be bad. I’ll just take my track record. Those who did scenario planning have not fared better than those who did not do scenario planning. A lot of people have done some kind of “make-sense” type measures, and that has made them more vulnerable because they give the illusion of having done your job. This is the problem with risk management.

In my position of scenario planning consultant I can only agree. This is exactly why I try to end my courses and seminars by trying to underline the point that scenario planning is not a method in the traditional sense, but more of an art – a way of thinking that will broaden your thought patterns and open up your perceptions in order to be able to see things you otherwise wouldn’t recognize.

This is exactly why attributing probabilities to the different scenarios is irrelevant – or even dangerous. I think that scenario planning should occur at an earlier stage of reflection when you are still aiming at understanding what is happening around you. First after the scenario process have sunken in you can revisit it and identify some important insights of the process.

If you treat scenario planning as a direct method for decision making the risk is obvious that either the result will be irrelevant and nobody listens or worse, that you succeed in creating a false sense of security. If you on the other hand put some effort to understand the result of a scenario process from a more reflective standpoint it can be an invaluable tool to widen the discussion and the collaborative reflection process within the organization.

Technorati Tags: Foresight, risk management, scenario planning

• Seth Godin’s blog
• John Robb’s Global Guerillas
• Richard Gatarski’s Weconverse

Recent news tell us that e g US Air Force is also blocking blogs as reported by Wired recently:

The Air Force is tightening restrictions on which blogs its troops can read, cutting off access to just about any independent site with the word “blog” in its web address. It’s the latest move in a larger struggle within the military over the value — and hazards — of the sites. At least one senior Air Force official calls the squeeze so “utterly stupid, it makes me want to scream.”

[From Air Force Blocks Access to Many Blogs | Danger Room from Wired.com]

What might all this mean?

To me these events resonate with something much bigger. Is it a coincidence that these actions mirrors what leaders in China, Burma and other totalitarian regimes have been taken to protect their positions? I think this is a chain of events that are on it’s way to spread on a global scale and is the result of a number of conflicting driving forces

• The information and communication technology changes human organizations much deeper than we think – the whole traditional way of building static hierarchies are losing out
• Leaders in one hierarchy after another are waking up to the fact that they are becoming increasingly powerless, and maybe even in the long term irrelevant and the main culprit seems to be be modern communication technology – by trying to restrict and control Internet they think they can decrease the chaos and again return to control
• Because of the 9/11 and the growing threats of viruses, stealing sensitive information through the Internet and global terrorism
  (1) the security industry is booming and provide a vast range of better and better tools to restrict certain kind of use as well as gather and analyze enormous amount of information much easier than before and
  (2) citizens and employees are in a psychological state when safety and order is regarded as a goal of higher priority than many other things

This development wouldn’t be something to worry about if this “shut-the-gates” behavior was just occurring in totalitarian states and old and rigid corporations. But I think we should be a bit worried when we see it being spread elsewhere. What maybe is starting out is a war against free horizontal communication and Internet is the target. 9/11 can be seen as the pivotal event because it started a chain of reactions that eventually turned what could have been a contained shift of organizational models into an open battle between the leaders and the rest.

Some effects of the changing human communication capabilities are inevitable since the old model must make place for new ones. But how this transformation will develop is dependent on many factors. Some uncertainties I see right now are

• how far will the major influential global powers go when it comes to maintain/regain control?
• will the fragile democratic processes actually work when it comes to redefine the power structures according to the new communication reality?
• how much is people in general willing to sacrifice to achieve to some level of (superficial) order and safety?
• which real world power will the horizontal networks gather before one of the major conflicts occur?
• will there be a wide spread awareness of the nature of the conflict or will other issues (like e g the environment)?

Four possible outcomes for the next 20 years?

I think there are four possible scenarios for the future of the relation between the new communication paradigm and models of governance.

Scenario 1 – a smooth sail

It will turn out as the technology people are predicting. New communication possibilities will revolutionize the world and the existing governing structures will first be bypassed and then step by step become irrelevant and eventually disappear as a new organizational paradigm will rise from the rubble of the pieces of the old ones.

This will not happen without conflicts but the conflicts will be contained and of a small scale. In most case reason will win and new rules and regulations will emerge from bottom up.

Scenario 2 – back in line

After seeing some of the consequences of a horizontal and anarchic world almost all top leaders agree on the dangers of entering the unknown and collectively decide that this can’t be allowed. The strategy will be to fuel image of the external threats and convince people that we will not be able to solve all these global problems if we allow communication to be completely free.

Some major events will also help to make it very clear to most of us that the price to pay for that relatively small freedom of communication will not weigh up all the chaos that will follow in the trace of dismounting our governing structures and hope new ones will arise.

Scenario 3 – full scale war

It is perfectly clear that most of the leaders of influential hierarchical organizations and countries will not tolerate that new communication technology will change and maybe even destroy the current governing models as well as the nation state – the perceived foundation for stability of the world. In order to maintain order and recreate a well needed economical stability almost all possible means will be used to diminish any further effects of new communication technology. The strategies will differ. Most countries will start off with the nice path of surveillance and infuse a silent threat in order to keep some people afraid and silent. When this fails because of the emergence of DarkNets they will be forced to take the path of the more brutal governments and pull the plug to the public Internet completely. Instead new and restricted channels for financial and corporate use will be developed and financed by e g the dying but now revitalized phone companies.

Countries who still naïvely believes in democracy and liberalism and accept and tries to adopt to the new communication paradigm will not be able to stand outside of this but will be drawn in to the conflict by the large and more totalitarian countries like China, United States and Russia. The world will be divided between the countries who have invested too much in the hierarchical governance model and actually relies on it for it’s existence and the rest of the world who will have a better chance if the game is redefined in a less hierarchic manner.

Scenario 4 – many small wars in different areas at different times

The perceived negative effects of changing communication models are not evenly spread. It is almost impossible to decide on one line of action and the war of organizational paradigms will pop up in different arenas and will be followed by actions in isolation to this area. Each conflict could be geographically contained (within China, Burma or United States), contained within an industry or area (traditional industry organizations or military organizations) of activity or even be contained in an aspect of other things (copyright, terrorism).

This scenario could be a prequel to both scenario 2 and scenario 3, and it could maybe even be perceived as a prequel to scenario 1, but it will be the most tedious and slow chain of events. It is unlikely that this scenario will work since the world is more connected than ever. A conflict of governing models within an area will most certainly spread to other areas very quickly.

This is just a short and shallow analysis that might be severely flawed so please comment on it if you have something to say…

I couldn’t agree more. My concern is that this isn’t understood in the IT community at all. But in order to try to change this I will here give you CIO:s and IT architects a tip.

Being a consulting scenario planner with a (too) long history in a big IT-department my basic method is to use scenario planning and add a simple cross matrix analysis in order to understand the business effects of the IT choices you have to make.

In practice this means that you

1. develop a set of future scenarios, each describing the future needs and structure of a possible business situation (or get the already dnoe scenarios from the strategy department)
2. describe the different possible IT-related directions you can take
3. identify the evaluation parameters which is used to measure the real business value of IT and scale them from 1 to 5 (1-5)
4. workshop through all the quadrants where you evaluate how well that particular IT-direction will work out in that particular business scenario.
5. Summarize, present and evaluate the result

The trick here is to have good evaluation parameters as well as involving bot high level IT people with high level business people in the process. If you don’t give the participants too long time to dig down into (irrelevant) details you will have a (usually non-existent) strategic discussion about both IT and business at the same time.

Förr i tiden, när organisationer hade långa och tröga beslutsprocesser (vilket, tyvärr, fortfarande vissa har) så var scenarioanalysen verktyget man arbetade med för att förutspå framtiden. Man fixerade det som i sin natur ständigt förändras för att kunna känna sig säkrare i sitt beslutsfattande. Idag har de flesta företag insett att de måste byta ut långa, tröga processer och beslut för ett mer dynamiskt, snabbrörligt sätt att arbeta. Vi fattar beslut snabbare så att vi snabbare kan få resultat (och snabbare inse varför vi misslyckades så vi kan justera). Då passar scenarioanalysen mycket dåligt och istället måste vi arbeta med trendspaning, d.v.s. att löpande och kontinuerligt följa skeenden i vår omvärld och samla på oss artiklar, citat och insikter.

For you English speaking crowd I have a translation attempt below:

In the old days, when organizations had long and sluggish decision process (which, unfortunately, some still have) scenario analysis was the tool of choice to predict the future. You fixated what was in continuous change to feel more safe in your decision making. Today most companies have realized that they have to replace their long and sluggish decision processes in favor of more dynamic and agile way of working. We take decisions quicker so that we can get a quicker result (and a quicker insight in why we failed so we can adjust the course). Then scenario planning fits very badly and we must instead word with trend spotting, i e continuously follow the development in our business environment and collect articles, quotes and insights.

Reading this it is easy to believe that

• just because companies have decided to have shorter decision cycles, they succeed in that
• all important decisions have short term implications
• trend spotting is a replacement for scenario analysis (and other more long term tools)

I don’t disagree at all with that many companies would benefit from shorter decision cycles and continuous trend spotting activities. The business landscape is today changing in such an unpredictable way that it is important that all parts of the organization are active in the business analysis process and to participate in the feedback and decision process.

First, all decisions does not just have short term implications! Think for instance on the decision to start a new business. Or deciding to invest in a new house or factory. These decisions still have to be managed the long and pretty sluggish way since they require participation of many people, capital and long term commitments.

OK, there are an increasing group of e g network knowledge companies that can avoid these kinds of decisions by just being fluid. Fair enough, but in countries like Sweden the companies that still is bringing home the bacon is not that kinds of companies at all. And probably not for some years to come.

But just because it is important with the short term perspective doesn’t mean that the long term perspective is unimportant. I would argue rather the opposite, taking the long view in turbulent times is more important than ever! But maybe for somewhat different reasons than to make long term plans.

What is missed is the other roles scenario analysis have in the organizational intelligence process. Here are merely two of the, but I think these are pretty important.

• trend spotting just provides scattered information chunks which doesn’t have any sensible meaning to your organization if it isn’t fitted into a larger context – scenario analysis provides that analytical tool, that larger context, by which you could interpret, analyze and prioritize your trend observations so they provide any real world meaning

• when doing a scenario analysis, the participants are working together imagining a number of of synthesized possible futures, a process which part from the analytical values also have emotional values which today is recognized as vital to get both groups and individuals to actually change their perceptions, prioritations in order to increase their preparedness and value as trend spotters

In turbulent times it is the organizational ability to interpret and react in an intelligent and decisive way to changes that is the competitive edge, not just spot what is happening and react. I see that as the current most important role of scenario analysis.

So, Magnus I would suggest that you added some more of longer term pattern recognition in form of scenario planning as a analytical base for your trend spotting. Just a tip!

PS. I just remembered that I wrote something connected to this a short while ago and showed a sketch that maybe is valid here as well.

Technorati Tags: Scenario planning, scenarioplanering, trender, trends & driving forces

“Don’t fiddle around asking questions about the future! Focus on fixing the basic organizational issues first, because otherwise the issues about the future are irrelevant.”

These kinds of result wasn’t unheard of some years ago, but is much more common now. Almost a standard result from both commercial and public sector scenario planning exercises.

Based on my view of the future it isn’t strange and also seems to resonate pretty well with the conclusions in e g the book “Navigating the Badlands: Thriving in the Decade of Radical Transformation” (Mary OHaraDevereaux) (Amazon US) where the message is:

• We are in a decades long transition period
• Hunt down your obsolete (and sometimes even dangerous) ideas and methods
• Start from scratch from where you are and innovate and build new structures from the new prerequisites that slowly and unpredictably emerge

If this is true, what does it say about the role of scenario planning and foresight? Does this render long range foresight useless?

One interpretation of this could be yes, looking into the future isn’t helpful at all when it comes to survival. Being pragmatic, down to earth and focus on the result is. This is without question a valid interpretation but I believe it is flawed and too quick conclusion. Ignoring the big picture is always dangerous and even more so in volatile times. The reason is simply that everything that can help you interpret and make some order in all the small seemingly contradictory signs will in the long term help you take the right decision.

But what seems to have changed is that foresight is not directly helping companies to take any mid- to long term decisions any more – i e strategic decisions. At least if we by strategic decisions mean long term decisions about investments and choice of options which reaches 5-10 years into the future. The reason is that in turbulent times nothing can help us taking what we used to call long term decision.

But that doesn’t mean that we shall ignore the big picture. Understanding the big picture of current change is mandatory, but it is not anymore a tool for identifying the next big decisions. Long range foresight is rather a meta-strategic activity which creates a higher level of understanding of the situation which is invaluable for taking the small and important steps towards the future.

This means also that the role of strategic and top level management have changed. They cannot anymore think about the big picture and then take the big and important decisions at the same level. Their role is more and more to provide the big picture and then let the required decisions being taken at the right level. Or maybe more correctly their role is to provide the structures and resources so the organization can achieve really good big pictures to help them take all those small decisions that takes the organizations forward. This means that the major long term decisions top management must take is to open up the structures so that tomorrows new structures can emerge.

I heard Gary Hamel used a interesting phrase that connects to this: The CEO and the board should increasingly be editors of strategy, not creators of strategy.

So, yes! Focus on fixing the basic organizational issues because the way the world works is changing dramatically from the ground up. But remember that understanding the big picture is essential to take the right decisions even if you don’t recognize it in the line of fire.

In Wikipedia we can read this about Fermi problems:

The classic Fermi problem, generally attributed to Fermi, is How many piano tuners are there in Chicago? A typical solution to this problem would involve multiplying together a series of estimates that would yield the correct answer if the estimates were correct. For example, we might make the following assumptions:

1. There are approximately 5,000,000 people living in Chicago.
2. On average, there are two persons in each household in Chicago.
3. Roughly one household in twenty has a piano that is tuned regularly.
4. Pianos that are tuned regularly are tuned on average about once per year.
5. It takes a piano tuner about two hours to tune a piano, including travel time.
5. Each piano tuner works eight hours in a day, five days in a week, and 50 weeks in a year.

From these assumptions we can compute that the number of piano tunings in a single year in Chicago is

(5,000,000 persons in Chicago) / (2 persons/household) × (1 piano/20 households) × (1 piano tuning per piano per year) = 125,000 piano tunings per year in Chicago.

And we can similarly calculate that the average piano tuner performs

(50 weeks/year)×(5 days/week)×(8 hours/day)×(1 piano tuning per 2 hours per piano tuner) = 1000 piano tunings per year per piano tuner.

Dividing gives

(125,000 piano tuning per year in Chicago) / (1000 piano tunings per year per piano tuner) = 125 piano tuners in Chicago.

It is really about having a reasonable correct estimate (at least the right magnitude) based on what you already know rather than having a correct answer. The point is that sometimes this is enough for your purpose. Especially when that information is all you have at the moment.

When working with the future you never have enough information and you have to use the information you have in an intelligent way in order to understand what this means for the future. The point then is not to predict the future in a deeper sense but using your brain and available data to produce at least some intelligent conclusions about the future which will help us take decisions today. I would argue that these conclusions are similar to the Fermi estimates you do when not having enough information.

Today Art Hutchinson pointed me to Guy Kawasakis blog and the post on Michael Raynor’s book The Strategy Paradox called How to Change the World: Ten Questions With Michael Raynor. It struck me as Kawasakis post set the light on a very good example on how to talk about strategy within it’s own realm. E g taking little, if any, notice of the fundamental changes at lower levels which is what both changing the game radically, but also underpins the fundamental uncertainty today.

I started to get real interested when Raynor started to talk about the different levels:

The rest of the solution lies in calibrating the focus of each level of the hierarchy to the uncertainties it faces.

Yes, this sounds terrific! But then he ends at the middle manager level saying:

Managers should ask: How can we best execute on the commitments that have been made in order to achieve our performance targets? To put it on a bumper sticker, they have to “show us the money.” There are no strategic choices to make at this level, because the time horizons are too short—six to twenty-four months. Strategies simply can’t change that fast.

By the last sentence he is defining the whole game from a strategic level where the uncertainties are believed to come come from the outside the organisation which makes the lower levels strategically irrelevant. The point I was trying to make in my (to long) post Mind the gap a couple of days ago was that this exclusive view from top of “Mount Strategy” is a fundamental part of the problem. And even more so in the future. When Raynor refers to Stephen Wolfram saying:

First, any system must have boundaries that define it, since any system without boundaries would be the universe itself. Second, no system is entirely closed. Therefore, every system is subject to exogenous, and necessarily unpredictable, shocks that introduce randomness into the system.

he is right! But Raynor misinterpret what this means. The shocks that introduce randomness into the system can also come from what is thought to be the conceptual foundation for the strategic level of thinking. Strategic thinking is actually constituted by and dependent on the work at the lowest level. In this sense the strategic world could be a separate system not just from the outside world, but also from the lower levels on which depends and claims to include.

Yes, I agree with Art’s post, that

A need for divergent scenarios that empower management teams to think systemically across and around boundaries–recognizing but not being hemmed in by them [my emphasis]. The goal: strategic resilience whatever may come.

But to do that you have to cross the gap and embrace both levels to do a good job.