We turn attention from describing surprising changes to a system for detecting, analyzing, and responding to them. This system is now receiving increasing attention from firms.
Why Strategic Issue Management?
A strategic issue is a future development, either inside or outside of the organization, which is likely to have an important impact on the ability of the enterprise to meet its objectives. An issue may be welcome: An opportunity to be grasped in the environment, or an internal strength which can be exploited to advantage. Or it can be unwelcome: an external threat, or an internal weakness which imperils continuing success, even survival of the enterprise. Frequently, external threats, because they signal significant discontinuities in the environment, can be converted into opportunities by aggressive and entrepreneurial management . In fact, such ability to convert threats into opportunities has been one of the most prized characteristics in the history of US management.
The concept of strategic issues evolved from strategic planning. When strategic planning was first introduced, the expectation was that strategies would be revised annually. But experience quickly showed this to be both impractical and unnecessary. Impractical because strategy revision is an energy- and time-absorbing exercise. If conducted annually it overloads management capacity. Unnecessary because a strategy is a long-term thrust which takes several years to implement. Instead of improving a strategy, annual revisions will cause vacillations in managerial behavior and prevent a fair test of the strategy.
As this understanding grew, business firms began to space comprehensive revisions of strategies several years apart. In the beginning of each year’s planning cycle, a review of last year’s progress focused attention on business areas which had encountered important strategic issues . A comprehensive analysis of environmental trends and prospects identifies additional strategic issues. Resolution of these strategy- and environment-derived issues becomes the central preoccupation of the annual planning process. Thus, strategic issue analysis (analysis of impact and response to significant developments) was added to strategy analysis (determination of thrusts for the future development of the enterprise).
In recent years, two considerations have made it desirable to separate strategic issue analysis from the annual strategic planning cycle . The first is that some organizations either cannot afford, or do not need, the cumbersome paraphernalia of annual strategic planning. The former is the case of smaller enterprises which must cope with environmental turbulence, but do not have the managerial capacity nor resources for comprehensive planning . The latter is the case of an enterprise whose basic strategic thrusts arc clear and relatively stable, but whose environment is turbulent.
The second factor has been a growing incidence of events which come from unexpected sources and impact quickly on the organization. The combination of speed and novelty of such issues may make them too fast to permit timely perception and response within the annual planning system. Some of these issues, which occur between planning cycles, may impact too quickly to be delayed until the next cycle; others, which occur during the planning cycle, may impact before the planning period is over.
When one or both of these factors are present, it becomes desirable to separate issue resolution from the annual planning cycle.
What Is a Strategic Issue Management System?
A strategic issue management system (SIM) is a systematic procedure for early identification and fast response to surprising changes both inside and outside an organization.
Unlike budget control, long-range planning and strategic planning systems, which address issues during an annual planning period, SIM is ‘real time’—continuously alert to strategic issues throughout the year. In practice, this continuous engagement requires periodic reviews (say monthly) and maintaining a list of key strategic issues.
SIM also requires continuous surveillance, both inside and outside the enterprise for ‘fast’ issues which may arise between the reviews. When issues arise, a ‘red light signal’ alerts management of the need for immediate attention.
The responsibility for managing the system is assumed by a senior management group which has the resources and the authority to initiate prompt action without unnecessary delays.
If necessary, SIM cuts across normal hierarchical organizational lines. The senior management group assigns responsibility for individual issues directly to units which are best equipped to deal with the issue, even if this means reaching across several hierarchical levels. If, as is often the case, an issue is not specific to one unit, an ad hoc project is formed, composed of both affected and expert individuals. Resources are assigned directly to the project, and the project reports directly to the senior management group.
The assigned responsibilities are not for planning the response but for resolving the issue. Thus, SIM is a management action system (not only for planning). With several projects underway and continuous updating and revision of the strategic issue list, the usual separation between planning and implementation periods is not visible in an SIM.
Strategic issue management system
- 1.
A staff group which is concerned with detection of trends , evaluation of their impact and timing, assessing the time required for response and alerting decision makers about sudden and important issues. This group is also responsible for maintaining a ‘war room ‘—an up-to-date display of the key issue list , their priorities and the status of the projects. The staff group concerns itself with monitoring the progress of the various projects toward their assigned objectives.
- 2.
The second approach is a general management group (which in a small firm may be the same as the staff group) which is responsible for assessing the relative importance of the issues, selecting the key strategic issue list , deciding on how the respective issues are to be treated, and assigning responsibilities for their resolution.
- 3.
The third group of participants are the workers—the units or ad hoc projects which have been assigned the responsibility for specific issues. On occasion, when the strategy of response to an issue is not clear, these groups may be asked to act as planners and to submit action recommendations. But the success of SIM depends on making the projects responsible for action, not just planning for issues. Experience shows that, unless this role is clearly established, SIM may degenerate into ‘paralysis by [repeated] analysis.’
Since urgent issue projects will frequently be started before their dimensions and implications are fully understood, the early stages will progressively make clear the strategic dimensions of the issue: the extent of its impact and the urgency. As work progresses, attention will progressively shift to the operating results.
Therefore, as Fig. 19.1 shows, it is important to assess success of the project teams not only for their operating results but also for their success in clarifying the strategic implications . If general management fails to exercise strategic control , projects tend to acquire a life of their own and continue even after it becomes clear that their impact on the firm will not be significant.
Issue Identification
Strategic issue analysis
Environmental trends
1. | Trends in the global market place (protectionism ie. ‘America First’ vs. free trade ) |
2. | Growth of govenment as a customer |
3. | Economic growth of Pacific rim countries |
4. | Chinese challenge |
5. | Loss of American competitiveness |
6. | Economic and political trends in developing countries |
7. | Monetary trends |
8. | Inflationary trends |
9. | Emergence of the multinational firm |
10. | Developing technology |
11. | Size as a competitive tool |
12. | Saturation of growth |
13. | Technological breakthrough |
14. | Growth in the service sector |
15. | Affluency of consumers |
16. | Changes in age distribution of consumers |
17. | Selling to reluctant consumers |
18. | Social attitudes toward business |
19. | Government controls |
20. | Consumer pressures |
21. | Union pressures |
22. | Concern with ecology |
23. | Impact of ‘zero-growth’ advocates |
24. | Shortening of product life cycles |
25. | Intra-European nationalism |
26. | Conflict between multinational firms and national interests |
27. | Public distrust of business |
28. | Difficulty in forecasting |
29. | Strategic surprises |
30. | Competition from developing nations |
31. | Changing work attitudes |
Internal trends
1. | Size |
2. | Complexity |
3. | Structure |
4. | Systems |
5. | Communications |
6. | Power structure |
7. | Role definition |
8. | Centralization/decentralization |
9. | Values and norms |
10. | Management style |
11. | Management competence |
12. | Logistic (workforce) competence |
13. | Capital intensity |
14. | Technological intensity |
15. | Product diversification |
16. | Market diversification |
17. | Technology diversification |
18. | Other |
Objectives
1. | Growth |
2. | Profitability |
3. | Cyclical stability |
4. | Flexibility |
5. | Invulnerability to environmental surprises |
6. | Solvency |
7. | Debt/equity |
8. | Invulnerability to hostile take over |
9. | Competitive leadership |
10. | Innovativeness |
11. | Market share |
12. | Internal social climate |
13. | External social responsiveness |
14. | Good citizenship |
15. | Work satisfaction |
16. | Responsiveness to aspirations of internal constituencies (identify both constituency and aspirations) a. b. c. d. |
17. | Responsiveness to external constituencies a. b. c. d. |
18. | Other |
All organizations (both for-profit and not-for-profit) which find themselves in a complex and rapidly changing environment should identify major environmental trends. It is particularly important to identify possible major future discontinuities which have the potential for a major impact on the organization. Table 19.1 provides a starting point for issue identification . The procedure is to cross out the issues which are not relevant to the firm and to add others which are identified from scanning of the environment.
In large and complex firms, environmental surveillance should be supplemented by identification of important internal trends and events which are expected to have a significant impact on organizational performance. This is necessary because, when an organization passes a certain size and complexity, general management begins to lose track of the developments in culture , managers, structure, systems, and capacity, which can have both positive and negative impact on the efficiency and/or on the responsiveness to the environment.
Internal trend identification becomes particularly important in fast-growing small and medium-sized firms, because at certain sizes, major weaknesses develop in organizational capability to handle new complexities brought about by size. For example, the passage from small to medium is typically accompanied by a loss of control and perspective by the founding entrepreneur . Table 19.2 provides a starting list of internal trends.
The list of objectives, shown in Table 19.3, can be used to develop important additional information about issues. To use this list for issue management , the first step is to identify the objectives which the firm is pursuing and the relative priorities which are assigned to them. Typically, this will reduce the long list of Table 19.3 to no more than four or five lines.
Once the objectives are identified they can be compared to the performance trends . In firms with systematic annual planning, the objectives and trends will already be available in the form of forecasts. A comparison of performance objectives to forecasts will be a part of the annual planning cycle.
The comparison identifies what in Fig. 19.2 is called the objectives gap : anticipated deficiencies in future performance. The gaps are usually diagnosed to determine the causes. Many of the causes are can be traced to inefficiencies in performance or ineffectiveness of the firm’s strategy, and corrections are programmed into annual plans. But some causes will be traceable to environmental threats or to organizational weaknesses. Such environmental threats or internal weaknesses would be added to the list of issues, to be treated outside (but in parallel with) the annual planning-implementation process.
In summary, threats, opportunities plus future strengths and weaknesses can be identified from the three sources shown at the top of Fig. 19.2. The performance trends can be analyzed during regular performance reviews, but environmental trends and internal trends should be scanned continuously throughout the year to ensure identification of sudden, fast-moving and potentially surpriseful changes .
*Estimating Impact/Urgency
Returning to Fig. 19.2, the next step (at the center of the figure) is to assess the potential future impact of the trends on the future performance of the enterprise. The ideal approach is to estimate impact on the attainment of the firm’s objectives, which have been identified in Table 19.3. But in many practical situations, the necessary information may not be available or the method for making the estimate may not be clear. A practical substitute is to use management judgment to assign a number (say, on a scale of +10 to −10) to the impact of each trend or event. The estimate is arrived at by a group of ‘experts’—including managers and outsiders to the firm who possess the relevant knowledge and experience. In addition to the impact, it is also necessary to estimate the probability and timing of the impact strength.
The impact may be positive or negative or both. The latter case may indicate either a range of uncertainty in the evaluation or the expectation that the trend will be both beneficial (in meeting some of the objectives) and harmful (in depressing performance on other objectives).
Impact/urgency of environmental trends
Trends | Impact | Time before impact | Needed response time | Urgency | Issue assignment |
|---|---|---|---|---|---|
. |
- 1.
If the difference between the timing of the event and the response time is such that the firm must respond immediately, the event is labeled urgent.
- 2.
If the response can be delayed until the next planning cycle (but not much longer), the event is labeled delayable.
- 3.
If, according to the present estimates, the response can be delayed indefinitely until better estimates of impact can be made, the event is labeled postponable.
Based on the estimates of impact and urgency, the next step is to assign issues to one of four categories illustrated in Fig. 19.4 (see also the lower portion of Fig. 19.2).
Issue assignment
The process is completed by describing the nature of threats and opportunities posed by the each issue. Threats and opportunities should be arranged in the order of priority according to their expected impact. The result is the key issue list of the firm, which is used in managing the issue system. It is changed and updated as some issues are resolved, others dropped because their impact turns out to be minor, and new issues are added as a result of issue surveillance.
The key issue list helps solve a problem which is commonly encountered when issues are analyzed for the first time. The problem is that the number of issues exceeds the firm’s capacity to respond. The key issue identification procedure helps reduce the size of the list and also assigns priorities within the limits of the available resources.
The procedure described above is based on the impact analysis technique, which analyzes one event or trend at a time and does not concern itself with their interdependence.
A somewhat more complex procedure called cross-impact analysis can be added in order to estimate the likelihood of simultaneous occurrence of several events or trends. The cross-impact analysis produces clusters of events/trends which are likely to impact together on the firm and permits identification of probable future disaster scenarios in which the firm may be severely damaged by a series of threats or weaknesses. It also allows for opportunity scenarios (futures in which the firm will enjoy a series of attractive opportunities/strengths).
*Coupling Opportunities and Threats to Strengths and Weaknesses
Impact analysis and cross-impact analysis respond to issues on the basis of their urgency and impact on the firm.
The SWOT matrix
The SWOT matrix | Opportunities O 1 O 2 O 3 O 4 | Threats T 1 T 2 T 3 T 4 | |
|---|---|---|---|
Strengths | S 1 S 2 S 3 S 4 | High priority response | High priority response |
Weaknesses | T 1 T 2 T 3 T 4 | Do not respond | Convert weaknesses (in capabilities) into strengths |
- 1.
Opportunities which can be captured using the firm’s relevant strengths are given high priority.
- 2.
Opportunities which require capabilities which are weak in the firm are not pursued.
- 3.
Threats which can be avoided using the firm’s strengths are vigorously avoided.
- 4.
Capabilities which are too weak for response to serious threats are built up and converted into strengths.
Thus, the outcomes of the SWOT analysis are decisions on opportunities which will be pursued, threats which will be countered, and organizational weaknesses which will be remedied. The underlying assumption in the SWOT analysis is that the historical strengths and weaknesses will remain strengths and weaknesses in the future. The reader will recall from the strategic diagnosis (see Chapter 6) that this assumption remains valid up to turbulence level 3. Beyond level 3, it is highly probable that some historical strengths may become future weaknesses and vice versa.
*The Eurequip Matrix
Interdependence between T/O and S/W
- 1.
the opportunity is likely to yield better than average positive impact and
- 2.
the strength will appear more attractive than it did before. The result is to increase the expectations and the priorities assigned to both.
An interesting result, shown in the lower left cell of the matrix in case 1, is the possible discovery that certain capabilities which had been previously regarded as weaknesses will become strengths in the perspective of new threats and opportunities . Instead of being eliminated, these ‘weaknesses’ should be enhanced. For example, a lack of tight cost controls and of clearly defined vertical lines of authority/responsibility, which in the past may have inhibited organizational efficiency, may become advantages if new opportunities demand fast organizational response and entrepreneurial risk-taking. As another example, the absence of a well-developed financial controller function, a weakness in the mass production age, made it easy to introduce more advanced forms of planning and control which are essential in the turbulent postindustrial environment.
The negative synergy case in the lower matrix of Fig. 19.4 illustrates the consequence of the negative cross-impact. Historical strengths become less attractive, threats must be taken more seriously than in the past, new opportunities lose appeal. A very important consequence to negative synergy is the need to identify new capabilities which must be developed in order to cope with new environmental challenges.
Impact/urgency of threat/opportunities after synergy analysis
Trends | Impact | Urgency | Threats | Opportunities | Firm’s decision | ||
|---|---|---|---|---|---|---|---|
Before synergy evaluation | After synergy evaluation | Before synergy evaluation | After synergy evaluation | ||||
. | |||||||
In summary, SWOT analysis is a sequel to the issue urgency and impact analysis which enables management to identify specific threats and opportunities to which it will respond. The simpler version of SWOT (Table 19.5) should be used in environments on turbulence levels 1–3. The more complex version (Fig. 19.4) should be used at turbulence levels 4–5.
Periodic Planning and Strategic Issue Management
SIM has emerged to fill a gap in periodic planning and not to replace it. The two types of system have complementary purposes. Periodic planning concerns itself with determining the basic thrusts of an enterprise and assuring coherence and cooperation among different parts of a complex enterprise. SIM deals with deviations from these thrusts which may occur as a result of new opportunities, threats, strengths, and weaknesses .
An organization which is well-coordinated (or too small to have coordination problems) and which has well-developed and promising strategic thrusts may need only a simple periodic planning system such as financial control or long-range planning. But if the external or internal environments are turbulent, the organization should use SIM.
Environmental and choice of systems
Environment System | Discontinuous | Surprising | Both |
|---|---|---|---|
Strategic planning | ✓ | ✓ | |
SIM | ✓ | ✓ |
Continuing issue detection-evaluation-selection
As Fig. 19.5 shows, the change programs generated by periodic planning become a part of a larger group of temporary projects; the other part being generated by SIM throughout the year. An important conclusion suggested by the figure is that the process shown in Fig. 19.5 can be used to manage all of the projects of the enterprise. When used in this enlarged capacity, it is called a project management system (see Chapters 17 and 25).
The Behavioral Factor
At first glance, SIM appears to be an easy system to put in place and to manage. It is lightweight, with a minimum of the ‘make-work’ often observed in periodic planning systems. In addition, SIM addresses pressing problems, it is compatible with other systems and organizational structures , it is responsive to change and does not have many of the bureaucratic self-perpetuating tendencies observed other planning systems.
But installation and acceptance of SIM are not likely to be simple. The difficulties come from two sources. The first is refusal of the top management group to submit itself to the discipline of SIM. Periodic planning is frequently used for organizing ‘the others’ in the enterprise. If top management refuses to become a part of the process, periodic planning can still make a useful contribution to the enterprise. But if top management pays lip service to SIM (and, e.g., appoints a staff planner to manage the war room ), then SIM will not work.
Refusal to take charge is frequently coupled with the mentality problem discussed in the last chapter—a refusal by top management to accept new and unfamiliar issues as relevant to the business of the enterprise.
Therefore, acceptance of SIM by top management is the major problem to solve. The solution is a ‘sales campaign’ by the ‘converted’ subgroup of general managers. Careful education and an involvement in confrontation of issues by the top group are more promising courses of action. In cases when the new realities require a transformation of mentality of key managers, the firm will probably need external help. We will have more to say about this in Part V.
Summary
- 1.
Timely anticipation of new developments.
- 2.
A quick internal reaction time.
- 3.
Response to problems which may arise from any source (economic, political, social, or technological).
- 4.
A ‘lightweight’ system, not affected by organizational size and complexity .
- 5.
Compatibility with most organizational structures and systems.
There is no one correct SIM technique for all situations and any one of them can significantly improve the responsiveness of the organization to external turbulence and internal complexity .
- 1.
The approach must be responsive to the complexity of the challenges.
- 2.
The approach must be as simple as the complexity permits.
- 3.
The approach must be feasible within the resources of the enterprise.
The advantages of SIM described in this chapter are that SIM can be used by organizations of any size and SIM requires very little prior experience with formal management systems.
The principal limitation of the SIM system is that while it reacts to departures from the historical dynamics, it does not focus management attention on rethinking and redefining these dynamics as is done in periodic strategic planning.
Strategic issue management cannot be made to work unless key managers in the organization accept a central role in the system. Getting key managers to submit themselves to the discipline demanded by the system and getting them to react to strategic issues which do not conform to historical experience are the two most difficult problems of introducing SIM into organizations.
Exercises
- 1.
As a member of the corporate planning staff, you have been asked to prepare a recommendation on whether your firm should install a strategic issue management system. What questions would you pose, what data would you gather, and how would you analyze them in order to prepare the recommendation?
- 2.
Using an organization well known to you or a case assigned by your instructor, follow the logic of Fig. 19.2 to arrive at the key issue list.