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Scenario Planning Approach to Strategic Management of Small Travel Business in Malaysia

xxxxxxxxx^a, *xxxxxxxxxx xxxxxxxxx^b

^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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