Gerard Hodgkinson for his input to our thinking on this paper Scenario planning interventions in organizations : an analysis of the causes of success and future

This paper presents a case analysis of a successful scenario intervention in an organization. This intervention is compared and contrasted with an unsuccessful one reported in Hodgkinson and Wright [1]. We demonstrate that analysis of the answers given by workshop participants in a pre-intervention interview can be helpful in determining the receptiveness of an organization to a subsequent scenario intervention. We theorise that strategic inertia characterized by coping patterns of bolstering failing strategy, procrastination (over a strategic dilemma) and buckpassing (the responsibility for the dilemma‟s resolution), can be caused by the psychological attenuation of the perceived level of environmental threat to the organisation, culminating in unconflicted adherence to the currently-followed strategy. We contend that the expression of such coping behavior is antithetical to a subsequent successful scenario exercise since, if the exercise fails to identify an unconflicted strategic alternative, the sharp focus of the scenarios on futures unfavourable to business-as-usual strategy will re-activate the cognitive stressreduction mechanisms. Strategic inertia will thus be reinforced. We conclude with a review of the implications of our diagnosis for reflective practitioners. Our paper is divided into four sections. In section one, we overview writings on inertia in strategic decision making. We pay especial attention to identifying potential causes of inertia. Next, we present Janis and Mann‟s [2] views of the psychological processes invoked by conflicted decisions and analyse the relevance of this laboratory-based theory to provide a psychological explanation of strategic inertia. Finally, we briefly describe the scenario intervention process and argue that it contains the potential to overcome strategic inertia. In section 2, we review an already-published study of an unsuccessful scenario planning intervention which illustrates the operation of components of Janis and Mann‟s model. Next, in section 3, we focus on our own case investigation of a successful scenario planning intervention. The early part of this section documents the “success”, whilst the latter part analyses the causes of the success – again using the components of Janis and Mann‟s model. We conclude in Section 4, where we compare and contrast the application of Janis and Mann‟s model to both cases and we demonstrate that application of the model to pre-intervention interview data can aid the practitioner determine, at the outset, whether or not the organizational context will be receptive to the intervention. 1 INERTIA IN STRATEGIC DECISION MAKING Writers on strategic management have argued that for continued survival an organization‟s strategic decision making must achieve the retention of the organization‟s alignment with the external environment. (Hamel [3], Hamel and Pralahad [4], van der Heijden [5]. Failure to achieve this results in strategic drift Johnson [6]. Huff et al [7] contend that inertia in such (re)alignment, defined as the degree of the level of commitment to the organisation‟s current strategy, will grow over time as current ways of operating become deeply embedded in an organization, regardless of, and generally without reference to, developments in the environment. Commitment to the status quo will, they argue, escalate in a smooth, undisturbed fashion over time with incremental adjustments to the current strategy and little conscious attention to strategic choice, so long as organizational performance is satisfactory. However, if and when it becomes evident within the organisation that there is no longer an appropriate alignment between its strategy and the requirements of the environment, “pressure for change” will inevitably develop. While the causes of degree of pressure for change are not fully developed in their paper, reference is made to specific events such as „inventions‟, „executive succession‟, and „poor performance reports‟ (p.58). Barr et al [8] address the issue of why some organisations are able to realign their strategy with a changing environment, whilst others are not, offering a cognitive explanation for the lack of organizational renewal. They argue that „human (cognitive) frailties‟ mean that managers‟ mental models of the competitive environment may be incomplete or inaccurate, and that these models „often fail to change in a timely manner in response to a changing environment‟ (p.17). Wack [9] suggests that in times or relative environmental stability there is generally a reasonably good match between the mental models of successful decision-makers and “unfolding reality”. In times of rapid change however, the decision makers‟ mental models become “a dangerously mixed bag; rich detail and understanding can co-exist with dubious assumptions, selective inattention to alternative interpretations of evidence and projections that are pretense”. For example, Porac et al [10] studied competitive models of senior managers in the Scottish knitwear industry. Although Scottish knitwear producers account for less than 5% of world production, when knitwear industry managers were asked to define their competitors, the serious competitors were almost exclusively nominated as Scottish. Hodgkinson [11] meanwhile found that UK residential estate agents‟ mental representation of competition remained stable despite a significant downturn in the market over the 12-18 month period of his study. The problem is that incomplete, inaccurate and otherwise inappropriate mental models may „prevent managers from sensing problems, delay changes in strategy, and lead to action that is ineffective in a new environment‟ (Barr et al [8]) In times of rapid change, Wack [9] contends, strategic failure “is often caused by a crisis of perception, that is, the inability to see an emergent novel reality by being locked inside obsolete assumptions, particularly in large, well-run companies”. Barr et al [8] suggest that munificent environments may confirm outdated mental models in that organizational weaknesses, even if recognised within organisations, may go unaddressed if the organisations continue to enjoy profitability (See also Whetten [12]). Perhaps more importantly, firms that survive or flourish in environments that become inhospitable will, they argue, evidence change in their managers‟ mental models. In an empirical study of these hypotheses, Barr et al [8] content-analysed the letters to shareholders published by two railroad companies over a 25-year period. The surviving firm created new strategy to more closely match a changing environment; the failing firm, in contrast, did not make any fundamental changes to its strategy until it was near bankruptcy at which point, a discontinuous change in strategy occurred, but came too late to save the company. Miller and Chen [13] found that „competitive inertia‟, defined as the (low) level of activity that a firm exhibits when altering its competitive stance, was driven by good past performance and counteracted by diversity in a firm‟s markets. Further evidence of strategic inertia comes from Johnson‟s [14] single longitudinal case study of the UK retail clothing industry. The focus of the study was on the (mis)match between changes in the firm‟s strategy as it sought to succeed in a changing environment, the objective of the study being to identify whether incremental changes in strategy were beneficial or harmful to overall survival and success. The study concluded that market signals of a failing strategy were not interpreted as such within the organisation, and that managers in a previously successful business sought to reduce the perceived importance of dissonant information, such that the prevailing strategy was not threatened. Johnson showed that resultant incremental change in strategy did not keep pace with environmental change, leading ultimately to strategic drift. The sensing of external signals it was reasoned, is muted within the organisation because the signals are not meaningful in themselves but take on relevance from the viewpoint of the managers‟ metal model. At the same time, political pressures within the organization act to quell dissonant or „deviant‟ opinion, which recognize the true, paradigm-threatening nature of the information (see also Miller and Friesen, [15]). The above studies point to the negative characteristics of inertia and incrementalism in strategic decision making. However, as Hannan and Freeman [16], Miller and Friesen [15] and Miller and Chen [13] have argued, in simpler less turbulent environments, inertia in some aspects of strategy may allow managers to focus on the most important issues and avoid costly blunders that come through making illconsidered step-changes in a well-aligned strategy. Clearly then, the appropriateness of strategic inertia and incrementalism need to be evaluated in light of the nature and degree of environmental change. Note that the causal mechanisms behind strategic inertia have not been well described or documented in the strategic management literature. Rumelt [17] has argued that motivational dampers (including direct costs of change, cannibalisation costs, and cross-subsidiary comforts), failed creative response (including reactive mindset and inadequate strategic vision), overwhelming pride in past success, potential deadlocks (including organizational politics and vested interests), and action disconnects (including leadership inaction and capability gaps) underpin inertia. Kisfalvi [18] has argued that the personalities of the chief executive can underpin inappropriate strategic persistance, (see also Knight et al [19], for discussion of the demographic characteristic of top teams and organizational performance). Barr et al [20] have argued that “. strategic change becomes more and more probable as the . pressure for change . resulting from various stimuli exceeds the current level of inertia (pressure to m