The most dangerous, hideously misused and thought-annihilating piece of technology invented in the past 15 years has got to be the electronic spreadsheet. Every day, millions of managers boot up their Lotus 1-2-3s and Microsoft Excels, twiddle a few numbers and diligently sucker themselves into thinking that they're forecasting the future.
In truth, number-crunching with spreadsheets is like computationally pumping iron: You bulk up on data but do virtually nothing for your conceptual quickness or flexibility. It's an intellectual exercise that stretches the fingers more than the mind. But managers are just infatuated with those matrices of laser-printed numbers just the same. There's something comforting about them.
"Companies are more comfortable in the formal sense with simple quantification because it reduces the apparent complexity of the problem," observes Peter Schwartz, president of Global Business Network, an Emeryville, Calif.-based think tank and consulting firm. "I use the word 'apparent' deliberately. . . . Most managers believe that if they get the right spreadsheet, the right formula, the right methodology, all that complexity will disappear."
Of course, it won't. Businesses can deny that the complexity exists or that it matters, but as Schwartz notes, "by the act of denial, they're increasing the risk and turning themselves into gamblers, not businessmen. Because real businessmen understand risk."
You can't understand risk--let alone manage or reduce it--by cramming it into a spreadsheet or the quantitative "flavor of the month." You need techniques that let you creatively explore risk and vivisect it.
One of the best techniques for doing so is generating scenarios: Instead of twiddling the numbers, twiddle the fundamental assumptions. What happens to the cosmetics industry if androgyny is highly valued by the pop culture? If pay-per-view television becomes a mass medium, how should advertisers participate? If immigration restrictions are significantly reduced, how will that change America as a site for low-cost manufacturing?
In other words, build understanding by creating stories, not spreadsheets. Historically, scenario creation has played a significant role in military planning. However, unlike hierarchical command-and-control organizational structures, scenarios are one military management technique that has not captured the imagination of the corporate world--although there was a brief flurry of interest after Herman Kahn's 1962 work on nuclear war, "Thinking About the Unthinkable."
The charismatic Kahn (who some people swear was the inspiration for Stanley Kubrick's Dr. Strangelove character) was a forceful advocate for using scenarios as a medium to get people to confront the issues that they'd rather not think about.
Global Business Network's Schwartz found himself in much the same position when he was at Royal Dutch Shell in the 1980s. While there, he and a team of planners used scenarios to get top management to consider what might happen if oil prices dropped dramatically. Instead of dismissing this as idle speculation, management confronted it.
The result? When the price crashed, Shell managed better than any other oil giant. "Before, Exxon was No. 1," says Schwartz, whose new book, "The Art of the Long View," describes scenario management techniques. "After the crash, we were. What's more, we didn't have to mortgage our future. We could make investments for the long term."
As you might suspect, scenario planning has made little impact in MBA circles. Students are too busy analyzing cases to create scenarios of their own. Interestingly, Harvard Business School once had one of Royal Dutch Shell's top scenarists teaching there but, according to one of the man's students, "this is too abstract for Harvard MBAs."
Look at any one of 100 business plans today and you won't even find a glimpse of assumption-challenging. This ranges from the smallest of venture capital-backed start-ups to America's largest corporations. The pre-Jack Welch General Electric used scenario planning extensively; today, it's fallen into disrepute as intellectual thumb-sucking. At giants such as General Motors and International Business Machines, isolated groups generate provocative scenarios, but they have never become part of the organization's world view or vocabulary. People talk in market share numbers and trend lines, not about basic assumptions or how their customers view the world.
A few firms such as Nissan, BellSouth, Pacific Gas & Electric and Inland Steel do successfully practice scenario generation as a way to keep management alert. "I've been at this 20 years," Schwartz says, "and I can't tell you more than half a dozen companies doing this well."
The issue here isn't predicting the future; it's embracing uncertainty in new ways. Of course, if you really want provocative scenarios, go to an expert: Hire a science fiction writer. Who's better positioned to extrapolate technological discontinuities and their social implications than a cyberpunk novelist?
In fact, many U.S. companies would be better off hiring one good science fiction writer for a month than buying 1,000 IBM Personal Computer spreadsheets for a year. The future is no longer a simple extrapolation of the past; it's an incredibly rich array of stories waiting to be told. Scenarios are one way to counterbalance the tyranny of spreadsheets. Maybe when it's as easy to boot up scenario software as it is a spreadsheet, we'll see more of them.