Organizational Culture and Scenario Planning

By Paul J.H. Schoemaker, Ph.D.,
     Chairman and CEO, Decision Strategies International
& Sandra M. Martinez, Ph.D.,
     Consultant in Leadership Development and Organizational Change

Introduction

Practitioners of scenario planning have long recognized that culture plays a significant role in the everyday life of organizations.¹ The routines and behaviors of the organization, together with its social values and norms, define the culture. This in turn influences everything from leadership style to core objectives, competencies, management, performance, and the planning, implementation, and ultimate success of new initiatives. Unfortunately, scholars and practitioners still know far too little about organizational culture, leadership, and practice worldwide, especially in our rapidly changing global environment. As part of an on-going attempt to bridge this knowledge gap, the Global Leadership and Organizational Behavior Effectiveness (GLOBE) Research Program, an international, multi-phase project at the Wharton School, has recently published the results of a cross-cultural survey focused on the inter-relationships between societal cultures, organizational cultures and practices, and the attributes of effective leadership.

A collaborative effort among 170 social scientists and management scholars worldwide, Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies (2004) analyzed and interpreted culture and leadership questionnaires completed by more than 17,000 middle managers, in 62 societies, representing some 825 organizations involved in food processing, financial services, and telecommunications. Reflecting GLOBE's main objective to develop theories to describe, understand, and predict the influence of cultural variables on leadership, organizational processes, and the effectiveness of both in every major region of the globe, the report has stimulated further discussion about the complex relationship between globalization, cultural diversity, multi-national organizations, and strategic planning. ²

We summarize some of the GLOBE research team's findings below and then examine how these insights can enhance the scenario planning process as well as other strategic planning initiatives.

Organizational Culture and the GLOBE Framework

During 1991, Professor Robert J. House of the Wharton School conceived of and launched GLOBE, the initiative which quickly expanded into a global network of scholars interested in developing cross-cultural theories of leadership, and a better understanding of the relationships between culture and managerial processes around the globe, with particular emphasis on the attributes of effective leadership. During the start-up phase of the project, GLOBE researchers developed concepts and research instruments to measure the attributes, behaviors, and societal endorsements of leaders, as well as cultural dimensions of organizations and societies. The results of Phase 2 of GLOBE revealed two kinds of leadership behaviors and attributes: those that are universally endorsed across all cultures as contributing to or inhibiting effective leadership and others whose impact is specific to certain cultures or cultural subsets.

The cross-cultural comparisons resulted in GLOBE's "nine dimensions of culture" that distinguish societies and organizations. Employing constructs used by inter-cultural researchers, as well as redefining or developing other ones, the GLOBE team depicted their "nine dimensions of culture" along a 7-point continuum (with 1 and 7 representing the extremes), and labeled those dimensions: Uncertainty Avoidance; Power Distance; Collectivism I (or Societal Emphasis on Collectivism); Collectivism II (or In-Group/Familial Collectivist Practices); Gender Egalitarianism; Assertiveness; Future Orientation; Performance Orientation; and Humane Orientation. The following table briefly describes these dimensions:

GLOBE's Cultural Dimensions

Phase 2 of the GLOBE project was devoted to collecting questionnaire data, assessing societal-level cultural dimensions, as well as testing hypotheses about the relationships among culture, organizations, leadership, and social/economic settings. Asking survey participants to rank their societies, organizations, and leaders along As Is and Should Be scales, GLOBE researchers developed 21 first-order factors and leader-attribute items to reflect culturally influenced differences in managerial beliefs, values, and styles. They then grouped those items into six global leader behavior dimensions which reflect leadership styles commonly referenced in the leadership literature as well as perceptions about effective or ineffective leader attributes and behaviors on which members of each sample culture could agree.³ The following table describes each dimension:

GLOBE Leadership Dimensions

Scenario Planning and GLOBE's Cultural Dimensions

Cultural attributes not only play an important role in leadership styles and organizational forms and effectiveness, they also influence the strategic planning process. One effective tool for mapping complex and uncertain environments is scenario planning, which asks decision makers to explore the interaction of external forces that may jointly creative vastly different futures. By identifying the trends, uncertainties, stakeholders, drivers (or catalysts) and other forces that may influence those different futures, scenario planning results in alternative perspectives about how the future might unfold.

Scenario planning differs from contingency planning, sensitivity analysis, computer simulation, and other strategic planning methodologies in significant ways. Scenarios explore the joint impact of various uncertainties, changes multiple variables at a time without trying to keep others constant (the way sensitivity analysis does). The scenarios should capture new states that will develop after major shocks or significant deviations occur in multiple variables, and explores the extremes to gain insights on the possibilities in between. The future often contains elements not easily included in formal models, such as changes in regulations, public attitudes, technology, and, of course, the complex interaction of global cultures, events, organizations, political-economies, and societies.

Although scenario planning engagements can take a variety of forms, all involve some basic steps. We list below the key questions that arise in a scenario planning exercise in order to discuss later how the answers will be influenced by organizational culture.

WHAT: What is the time frame and scope of the scenario planning exercise? We have conducted scenario projects looking just one year ahead as well as ones that truly take the long view, such as 20 years or more. The proper time frame depends on the nature of the investments to be made, the duration of technological or political cycles, the time frames of competitors, and whether deep reinvention or mostly fine tuning is desired. Similarly, decisions must be made about the scope of the exercise, from regional to global as well in terms of technologies and markets studied.

WHO: Who participates within the organization (across levels and boundaries) as well as perhaps from the outside? Some scenario exercises involve hundreds of people in the organization, through discussion groups, surveys and printed communications. And in other exercises, a small task force of 5 to 10 people performs the lion share of the work. Likewise, some companies draw in outsiders, such as customers, suppliers, regulators, academics or industry analysts, whereas as other companies prefer to keep it a closed shop.

HOW: How analytical and detailed should the process be in studying the key external and internal issues? The exercise can rely primarily on the views and beliefs of the team members, or insist on empirical validation of key trends or relationship by referencing published studies or conducting original research. In addition, whether the inputs are more subjective or data-based, decisions need to be made about how formally the scenarios are build and tested. Some prefer a light flipchart approach whereas other companies invoke the help of statistical techniques and formal systems modeling to explicate the deeper relationships.

WHY: Is the primary aim more to learn, to test, or to get buy-in? How important are these various objectives? At Royal Dutch/Shell, scenario planning was mostly viewed as a learning exercise aimed at challenging managerial mindsets. In other companies, it is primarily viewed as a stress test for existing strategies in order to "future proof" the organization. And in one special case, a company orchestrated a scenario session with its main alliance partners just to see who in their network were the most strategic thinkers, in terms of visions and insights into the future.

WHEN: Is the process to be conducted over an extended period of time or concentrated in a few sessions? The process can be conducted over a period of one month vs. a year or longer, depending on the urgency of the analysis and the complexity of the issue. In one case, an organization was not even ready to begin the exercise because the main participants lacked sufficient knowledge and perspective on key developments outside their immediate area of focus. We first launched an education phase in which team members read various books and articles, interviewed customers and suppliers, and were given time to develop strategic insights about the external world.

WHERE: Who owns the process and its output; how does it connect with other planning activities? In some cases the process is driven from the CEO office but it may also reside in the planning function or within various business units. The process seldom succeeds without a strong champion who is usually an executive of considerably standing and preferably someone with line authority as well as bottom line responsibility. Often outside consultants are brought in, either to facilitate the process or to offer substantive advice as well about the industry's future.

STYLE: What leadership style would be most effective to use during the scenario planning process and during the implementation stage? In many cases, a scenario planning off-site of two or three days is more effective without the CEO, especially if that person has a domineering personality or for other reasons causes participants to edit and filter their viewpoints. Ideally, a highly participative style is adopted with a mindset of trust and mutual respect, independent of the person's formal position. But in many cases this ideal is utopian. In one exercise with the military, it proved impossible to have generals, colonels and majors converse as equals. The GLOBE research project speaks directly to this issue.

SHARING: Which stakeholders should see the results of the scenario planning exercise? Some organizations share the scenario results broadly in order to challenge people's thinking, educate them and invite them to test their strategies or plans against a wide range of possible future. Or the broad sharing may be aimed at influencing outsides, from either a public relations perspective or in terms of fostering collaborative efforts within the industry. In others cases, however, the scenarios may be viewed as highly confidential. Access to the scenarios may be restricted due to novel competitive insights, sensitivities relating to regulatory oversight or say ongoing negotiations with unions.

Answers to the above questions depend on what organizational participants hope to accomplish. However, they also reveal, in subtle ways, the organization's culture. By role-playing and bringing in outsiders such as customers, suppliers, strategic partners, regulators, consultants, and academics, the scenario planning process will stimulate strategic conversation. And the complex interactions it thus exposes will help surface the mental and cultural maps currently guiding individual and organizational perceptions of reality. Thus, scenario planning not only offers a view of the outside world but can also serve as mirror of the inner world of the organization.

Drawing on the existing literature and our own scenario planning experience, we linked GLOBE's cultural dimensions with the specific scenario design decisions described above. As the following matrix highlights, three areas of significant interaction emerged: (1) an organization's distribution of power and uncertainty avoidance will influence the time frame, scope, level of participation, and degree of formality of the scenario planning exercise; (2) future orientation and performance orientation will also significantly influence the planning process; and (3) various cultural dimensions will influence which leadership style is adopted as well as decisions about how to share the results of the scenario planning effort.

The Upper-Left Cluster

As the six cells clustered on the upper left of the matrix suggest, an organization's distribution of power and the degree to which its members avoid uncertainty, play critical roles in scenario planning decisions, particularly those focused upon time frame employed, scope of the undertaking, and the participants, formality, and level of detail anticipated for the process. For example, in organizations with high power distance scores, the rank-and-file tend to follow the wishes of leaders. In addition, if the same organization scores high on uncertainty avoidance, we would expect to find planners choosing a short time frame to study, fearing that a longer view would only increase uncertainty rather than inducing a sense (possibly an illusion) of control over the process. The converse would apply to open organizations, where leaders embrace uncertainty: they would also tend to embrace a longer scenario planning process with a wider scope.

Scenario planning requires deep knowledge sharing among participants. Organizations scoring high on power distance may find it difficult to orchestrate deep and open dialog across the organizational hierarchy. Similarly, a high score on uncertainty avoidance suggests that organizational leaders may not tolerate people who challenge prevailing views. Conversely, open organizations embracing uncertainty would welcome the participation of diverse members (both internal and external to the organization).

In organizations characterized by uncertainty avoidance, we would expect to find resistance to any project that adds to the uncertainty. Such organizations typically seek information to mitigate uncertainty rather than surface it. Human beings in general pursue science knowledge and technological development to reduce uncertainty in their environment. As such, uncertainty-avoiding institutions may actual welcome scenario planning as a way to master the future. And we would expect great formality and detail in the process if this is the underlying motivation. Such organizations would expect the process to yield in-depth knowledge about the environment. This in turn could guide the strategic decision-making process and thus create a sense (possibly an illusion) of control.

The Right-Hand Cluster

Future Orientation speaks directly to the overall appeal of scenario planning as a futuristic exercise. If an organization's members routinely plan and invest in the future, they would accept a longer time frame and broader scope in scenario planning. Similarly, if organizational members value performance highly, leaders may decide to include more participants and share their findings widely. We would also expect high-performance organizations to opt for a thorough scenario planning methodology, provided it promises visible and relatively immediate results.

The Bottom Cluster

The highlighted area across the bottom of the matrix reflects important relationships between various cultural dimensions and two key scenario planning questions: (1) which leadership style should guide the process; and (2) which stakeholders should share the outcomes of the scenario planning process. In general, we have found that future-oriented organizations, with leaders who value both planning and investing in the future, as well as a high degree of participation among organizational members, tend to embrace uncertainty. They see the scenarios planning process as integral to on-going strategic initiatives. We would expect such organizations to exhibit Charismatic, Value-Based, Team-Oriented, and Participative leadership traits. Leadership styles also influence decisions about sharing scenario results. For example, we would expect to find limited sharing in high Power Distance organizations with Self-Protective or Autocratic leaders.

Conclusion

Our brief discussion shows that frameworks such as GLOBE can increase our understanding about the role of organizational and national culture in designing as well as implementing strategic planning programs. At DSI, we link those insights to particular organizational and cultural settings to help managers craft customized approaches to scenario planning that will improve the chances for success. As organizations around the world learn how to navigate uncertainty better, so that they will succeed no matter what the global future brings, they will need to become more sensitive to the cultural dimensions of their internal and external environment. GLOBE provides a well-grounded framework to do so, with important links to the practical strategic planning issues addressed above.