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Scenario Planning Approach to
Strategic Management of Small Travel Business in Malaysia
xxxxxxxxxa, *xxxxxxxxxx
xxxxxxxxxb
aSchool
of business, University, Malaysia
bSchool
of business and Research Centre, University, Malaysia
*Corresponding author
Email address: sxaxxxxx@hotmail.com
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Abstract
Scenario planning, an alternative strategic
management tool, has given a new meaning and dimension to the way
strategy should be thought, discussed and implemented in
organizations. This paper introduces scenario planning in the way
the turbulent world should be better managed by looking for possible
futures and not predicting the only future. No matter how rational
strategic planners are, the complexity of the business environment
would still leave the planners guessing of their planned and
predicted future. This study undertaken using scenario planning
technique by looking at the future of the small travel business in
Malaysia. The three plausible scenarios discovered were ‘stormy
weather’, ‘blizzards’ and ‘occasional shower’. The study recommended
that strategic options available for the businesses were
‘differentiation’, ‘new services’, ‘diversification and
mergers/acquisition’. These options are applicable for all
scenarios.
Keywords: Scenario planning,
strategic management, entrepreneurship, small travel industry,
management imperfection, evolutionist, revolutionist
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INTRODUCTION
In recent times, change has become an ultimate
issue for organizational survival. To keep abreast with the latest
in products, designs and innovations of competitors and
incorporating a copycat strategy is not the recipe for long-term
success. Only organizations that have the ability to scan the
environment effectively with a shared mental model, leading to
innovation within can see success and profit potential in the long
run. This is the field of strategic management and scenario
planning, an alternative tool to strategic management, ensures
long-term sustainable survival of an organization. Many strategic
planners have found scenario planning as crucial part of strategic
management for envisioning the future by producing plausible
multiple futures (scenarios) (Van der Heijden, 1996).
Failures in
Organizational Practices
A failure to envision seeing the micro and
macro environment of an organization has by and large been the root
cause for ineffective strategic planning. The three main reasons
that have been identified to blind the organizations are:
Operational ineffectiveness
Operational ineffectiveness is one of the
causes for low profitability in organizations. Companies that are
able to get more out of their inputs, by way of eliminating waste,
employing advanced technology, and motivating employees, stand to
have higher profitability than competitors because they are able to
reduce operating costs. However, not all efficiency models and
theories need to be employed and organizations have a choice on
their preference. For example, ‘zero-defect’ can be introduced as a
Total Quality Management principle because it leads to efficiency
and overall lower expenditure in costs, but then again it is one
that a company can live without.
It must be emphasized that although operational
ineffectiveness is one of the contributors for failures in
organizational processes, it does not, however, drive a company out
of competition, at least in the short term. There is a false
assumption in organizations that operational activities are a part
of strategy. It is certainly an essential element in organizations
but however, its ineffectiveness is not the root cause for
organizational failures.
Business Successes
Strategic management rethink is more in need
for successful companies than those who are struggling. Successful
companies are in danger of suffering from strategic failure in times
of rapid change (Wack, 1985). Because of their success story they
will be locked into strong assumptions and therefore their
procedures and policies will be hard to change. In other words,
change is not in the agenda. For an instance, IBM, the dominant in
the mainframe computer market, failed to envision the growing market
for personal computers (Kay, 2001). However, the fact remained that
they were the best in mainframe computing. It was their position in
the comfort zone that led to their absence in organizational
learning coupled with lack of environmental scanning. Had they been
open to change, IBM could have very well been the market leader in
personal computers as well.
Over dependence on forecasting
Forecasting is important in businesses,
especially in situations when an industry is in a state of slow
incremental change. However, the limitations of forecasting are
overlooked by organizations that emphasizes on these figures for
their business development decisions. If the past is a good
indication of future, businesses can never fail. The answer seems
simple, the predictions went wrong, but the question then arises,
‘Can one or two years of failed predictions bring down a business?’
Perhaps not, but the lead-time taken to rectify the situation may be
the cause. The oil crisis of 1973 is a perfect example. Since the
industry was used to an exponential growth of 6 per cent annually,
oil companies maintained their capacity expecting the same level of
growth. The demand started falling in 1973 and the industry took 2
years to discover that anything at all happened and then a further 6
years to work out the real impact of the crisis (Van der Heijden,
1996)
Forecasting requires identifying what is to be
forecasted. The fact that the forecaster always decides in advance
what he is going to forecast is crucial (Van der Heijden, 1996). The
mental model shuts out the unexpected environmental factors that may
influence the figures. Secondly, the lack of communication amongst
senior and middle management regarding the process in which the
forecast results were obtained. Implementers of strategy are given
the figures to act upon. Thus, they do not really ‘buy’ the idea
(the forecasted results) because they were not a part of the team
that established it. Thus, there is no ownership to the problem at
hand.
For a certain time period, forecasting could be
used for decision-making purposes. On the other end, there is a time
period beyond which no predictions or scenarios can be constructed
due to extremes in unpredictability and uncertainties (Van der
Heijden, 1996). This is the area that is called ‘Hope’. Scenario
planning comes in between Forecasting and Hope. Consequently, the
long-term survival of the firm will depend on the innovation arising
from the entrepreneurial vision of the management team.
It can be clearly seen that strategic planning
provides the answers for long term planning. Before discussing the
advantages of scenario planning, the two prominent and well
respected schools of thought will be discussed, the Rationalist and
the Evolutionist schools of thought.
REVIEW OF LITERATURE
Rationalistic School of Thought
The basic underlying assumption in the
rationalistic school is that there is one best solution and the
strategist(s) must attain to get as close as possible to this
outcome. Since there is only one answer, anyone given the right
resources, will attain this result. As a consequence, the internal
processes of the planning team and their perspectives are
irrelevant. This is the fundamental area of difference that makes
scenario planning different from the rationalist (Van der Heijden,
1996).
Very few strategists explore or question the
mission statements. It is likely that its origin dates back to the
entrepreneurial visions of the founders. The success stories that
followed over the years made them comfortable enough not to question
the mission statements. If the planners are living in a turbulent
world, then change may be inevitable even in its mission statements.
However, organizations only think of a change in times of crisis.
British Airways ‘World’s Favorite Airline’ slogan was born after a
new CEO was recruited. This only happened when the airline was faced
with many problems and issues were pointing towards a complete
change.
The next step in the process, the SWOT analysis
is crucial and important. It is expanded as ‘strengthens’,
‘weaknesses’, ‘opportunities’ and ‘threats’. The first two is
established from the internal factors prevailing in the company and
the last two are the results of environmental scanning. It is
important to mention that SWOT is also incorporated in scenario
planning processes.
The next in the strategy process is 'selecting
the best strategic option'. As mentioned earlier, the rationalistic
school goes in search of the ‘ultimate future’. In order to do this,
forecasting is made of the business environment against which
various strategic options are evaluated. After judging what the
future will look like, the forecasted utilities are compared with
the options. The one with the highest utility is the preferred
strategy. It is here that Scenario planning completely disagrees
with the rationalistic school. In the corporate world today,
rationalistic approach is well and alive and through its usage
companies have indeed moved forward from their earlier positions,
however, there have also been major failures (Mintzberg, 1994).
The major disadvantages that are commonly found
in strategic management literature are as follows:
1.
Everyone
thinking rationally will arrive at the same conclusion.
2.
A wrong
prediction of the future can be costly.
3.
The
individual mental models and thought processes of the individuals in
the planning team is irrelevant.
4.
Forecasting is used as one of the basis for long-term judgments.
Evolutionists School of Thought
The evolutionist school of thought (Mintzberg,
1994) works under the presumption that strategy can not be entirely
planned. The winning strategy is influenced by erratic environmental
changes that constantly must be monitored and incorporated in a
company’s strategy by constant check and balance. Thus, time should
not be spent in search of the ultimate future.
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