Using Scenario Analysis to Manage the Strategic Risks of Reengineering

Major business reengineering efforts represent an organization’s commitment of millions of dollars for redesigning internal organizational processes, changing fundamental product delivery and customer service procedures, and often reexamining and repositioning corporate strategy. These efforts are inevitably accompanied by millions of dollars for replacing the information infrastructure and developing new application code to support the new processes, procedures, and strategies. Just as inevitably, after completing a reengineering project, the organization lacks both resources and will to undertake a second reengineering effort to resolve the first project’s major deficiencies; thus reengineering generally constitutes a lasting legacy, and whatever is decided about the organization’s future design and built into the information systems will constrain the corporation for years. Reengineering projects are inherently risky and uncertain. While the individual risk components associated with the projects are the same as those of any other large systems undertaking, the specific risk profile of reengineering projects is fundamentally different. In particular, the risks either of building the wrong systems or of terminating prematurely and thus completing no systems are both greater. Successful business reengineering must begin by examining an organization’s future and its operating environment; based on this, reengineering must determine which of the organization’s fundamental assumptions about the future to reexamine and which strengths based on these assumptions must change. Techniques like scenario planning can greatly reduce risk and help executives properly focus their reengineering efforts.

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References

1. Michael Hammer and James Champy, Reengineering the Corporation (New York: HarperCollins, 1993).

2. C. Argyris, Overcoming Organizational Defenses (Needham, Massachusetts: Allyn & Bacon, 1990).

3. Currently, New York and Tokyo, the two largest stock exchanges, have foreign volume that is a single-digit share of domestic volume, while in London, foreign volume actually exceeds domestic volume.

4. P.J.H. Schoemaker, “Scenario Planning: A Tool for Strategic Thinking,” Sloan Management Review, Winter 1995, pp. 25–40.

5. J. Russo and P.J.H. Schoemaker, Decision Traps (New York: Doubleday, 1989); and Schoemaker (1995).

6. J. Keegan, The Second World War (New York: Penguin Books, 1989).

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M. Tushman and E. Romanelli, “Organizational Evolution: A Metamorphosis Model of Convergence and Reorientation,” in L.L. Cummings and B.M. Staw, eds., Research in Organizational Behavior 7 (1985): 171–222.

8. Tushman and Anderson (1986); and

Tushman and Romanelli (1985).

9. P. Schwartz, The Art of the Long View (New York: Doubleday, 1991).

Schwartz provides an excellent, easy-to-read introduction to scenario analysis. My description of scenario creation and use is based on exercises conducted with Global Business Network and is described in more detail by Schwartz. A different methodology, leading to equivalent results, is described in Schoemaker (1995).

10. This is surprisingly difficult. U.S. business culture places considerable value on executives who are decisive and in charge. Executives competing to see who can be least certain about future trends and events that most influence the company, strategy, and performance can easily be seen as competing to demonstrate who is least qualified for his or her current position. An outside facilitator is important.

11. Schoemaker (1995).

12. Schwartz (1991); and

Schoemaker (1995).

13. Schoemaker (1995).

Acknowledgments

Lawrence Wilkinson of Global Business Network helped me understand the scenario planning process and facilitate scenario planning workshops for several clients’ reengineering efforts.