Strategic insights (excerpt)

A report for the UK Government Foresight programme

Ariel Research Services March 2013
Written by Michael Reilly +44 (0)7986599791 michael@arielresearchservices.com www.arielresearchservices.com
Prospero and Ariel by Steering for North 2012 All rights reserved

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February 2013

The evolution of strategic thinking Strategy is not a detached rationality that is imposed on a system. On the contrary, it will emerge from the system itself, released by a unique perspective. Good strategy is a source of power - a pivot point that multiplies the effectiveness of effort. For example, Walmart in the US broke through an industry hard ceiling - that a full-line discount store needs a population base of at least 100,000. Its source of power was the strategic insight that large stores in small towns were possible if all of its stores were managed as an integrated network. This pivot was the unique perspective of Sam Walton, Walmarts leaderentrepreneur. Strategy is synthesis rather than analysis. Steve Jobs, who founded Apple, famously fused creativity with technology whilst producing coherent end-to-end consumer experiences. Strategists moulding public policy in pluralistic, liberal democratic societies, governed by coalitions of political views, will rarely have the license of Sam Walton or Steve Jobs. Nevertheless, strategy requires choice and coherence. Richard Rumelt, considered by McKinsey as the strategists strategist, warns vehemently against strategy by committee: Scan through template-style planning documents and you will find pious statements of the obvious presented as if they were decisive insights. More insightful choice cascades are preferable to help organisations make winning strategic plays (see Figure E.1). Enter Disruption Clayton Christensen, a professor of business administration at Harvard Business School, found that many large resourceful organisations were caught out by disruptive technologies because they were designed to sustain their past innovations: As long as the organization continues to face the same sorts of problems that its processes and values were designed to address, managing the organization can be straightforward. But because those factors also define what an organization cannot do, they constitute disabilities when the problems facing the company change fundamentally. Anticipating disruption is essential to Foresights license to operate. Christensen concluded that disruptive innovations required heavyweight teams invulnerable to an organisations values. If organisational processes are an impediment, the team should be spun out. In Foresight projects, scientific experts are insulated from Civil Service processes by an independent Government Chief Scientific Adviser. But the innovation dilemma is not entirely solved. If internal horizon scanners are focussed too much on sustaining innovation and career progression to the expense of disruptive syntheses then this could produce a preponderance of scenario analyses with negligible strategic insight. Performing a successful strategic pivot that embraces disruptive innovation is very difficult for large resourceful organisations. What proves key is: the formation of an alternative coalition with management that anticipatee strategic drift; the creation of a culture of challenge; and the exploitation of events to push through strategic changes.

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Strategy under uncertainty Strategic choices should be underpinned by an appreciation of the level of system uncertainty. Choices usually fall into three categories shaping the system, adapting to it, and cautiously reserving the right to play. The key way to win is to provide a fresh diagnosis of uncertainty with which to adequately frame the strategic choice, and explore a portfolio of policies in this context - shaping bets, options and no regrets moves. For example, the Global Food and Farming Futures project, based a diagnosis of the supply-side of the food system, the strategic imperative of food security, and on deterministic scenarios of future food prices, concluded the key shaping bet was increased investment in agricultural productivity. Knowledge of some systems such as such as the computer trading system may be so ambiguous that Foresight has to propose ways to reduce the high level of residual uncertainty left over after its expert synthesis. The first lesson here is surely that at the very beginning of the project selection process a provisional uncertainty assessment may be required. The second lesson is that the correct methodology should be chosen based on this level of uncertainty. Too often a small number of deterministic scenarios are produced without reference to the systems actual level of uncertainty. The third lesson is that skilful horizon scanning of important systems with high levels of uncertainty could have a massive strategic payoff if this monitoring discovers a tractable opportunity to play. And based on what we know about strategy, a purely analytical mind-set is unlikely to be sufficient. If it can develop capability, Foresight could play to win in areas where complex systems affect policy. Possible methods include developing a more flexible, adaptive, whole-ofgovernment mind-set, game theory, agent-based modelling, and heuristic decision-making. Scenarios are, of course, just one of many heuristics. The options for intervention into complex systems are not yet well developed vague concepts such as resilience predominate. Experts wary of epistemic risk may be reluctant to consider scenarios and risks outside their comfort zone or to engage when information is incomplete. Together this can lead to what intelligence analysts categorise as a failure of imagination. Foresight projects not only have to nurture alternative coalitions of decision-makers in order to facilitate, where it is necessary, strategic transformation. Eliciting the strategic insights needed to power this transformation also requires an alternative yet experienced coalition of lead experts. The lead experts of the Migrations and Global Environmental Change are arguably an exemplar of an alternative yet experienced coalition. Its chair, Richard Black owned a high level of intuitive experience in the reality of migration. But it may also be worth experimenting in the future by involving specialists such as Richard Rumelt with a proven expertise in identifying strategic insight as project knowledge synthesises. Epistemic risk may mean that academic experts need a shove to make a strategic leap. There will often be instances in projects where synthesis does not produce clear strategic insight because the level of system uncertainty is such that the research question being posed remains intractable. Synthesis could actually increase the level of uncertainty. More usually, the residual uncertainty left over after synthesis will require a hedging strategy with a mix of different though coherent objectives. In these circumstances, a wider assessment and franker communication of uncertainty may be merited. Such a plural conditional approach coupled with a wider assessment of residual uncertainty could surface unique perspectives that might aid strategy formation and improve hedging. An Integral Futures framework may

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be a useful heuristic at the beginning of a project to ensure that its uncertainty assessment (eg Driver Reviews) begins with a sufficiently wide scope. The hard ceiling At certain stages of social development both the West and the East have faced a hard ceiling that required an extraordinary disruption or discontinuity to break through agriculture, cities, states, empires, fossil fuel capture, and so on. These hard ceilings are the outcome of what historian Ian Morris calls the paradox of development, that rising social development creates the very forces that undermine it. Looking at the projected levels of social development, Morris contends that if we remain on trend, we are fast approaching the greatest discontinuity in human history. If this is the case, whether the West or the East leads social development will be irrelevant because as a consequence of technological change we will probably be living in a post-human, postterrestrial age. In Morris words it will not so much end the race as transform the race and above all, transform the human race. On the other hand, without technological innovation, we may, alternatively, be about to experience a catastrophic paradox of development. This could unleash famine, disease, migration, state failure, which, in conjunction with climate change, could result in collapse. According to the immense longitude of Morris historical analysis such an occurence would not be unprecedented. When considering some of the strategic choices for its most powerful projects - Detection and Identification of Infectious Diseases, Global Food and Farming Futures, Migration and Global Environmental Change, International Dimensions of Climate Change, Technology and Innovation Futures, Reducing Risk of Future Disasters - Foresight is already well positioned to develop strategic insights for the UK on this 21st century hard ceiling for humanity. Conditioned by UK interests beyond political cycles, this is arguably where it should play and to what its activities should cohere. But the increasing burden of knowledge that will be required to break through the hard ceiling of social development presents new challenges to science policy. Policy will have to adapt to a new knowledge landscape. Conclusions Foresights winning aspiration should be to challenge government to think strategically about the future. It should play beyond the political cycle in cross-government policy areas with high, yet tractable levels of uncertainty. It should continue to develop a coherent programme that explores the challenges of breaking through the hard ceiling of social development whilst mitigating the paradox of development.

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Figure E.1, A Foresight choice cascade. Source: Ariel Research Services analysis. Foresight can win by developing expertise in uncertainty assessment, disruptive change, and by both identifying and mobilising alternative coalitions of experts and decision-makers in the pursuit of strategic transformation. To do so it needs improved capability in synthesis, horizon scanning, complex systems thinking, heuristics, game theory and participatory research methods. Its management systems will have to deftly incorporate outside expertise in historical analysis, science, and horizon scanning, without any deleterious exposure to exisiting values and processes. It will always be tempting to sustain innovation and satisfy the perceived needs of government departments but the unique selling point of Foresight should be eliciting powerful strategic insight. Finally, the challenge of strategic transformation through alternative coalitions inevitably calls for the highest excellence in stakeholder management.