PREPARING FOR UNCERTAINTY: DEFINING AND TESTING STRATEGIES (STEP 4)
To get further ahead in the decision process, the LEGO Group has added a systematic approach to defining and testing strategies. As Hans notes, "We are going one step further upstream in the decision process with what we call 'Prepare for Uncertainty.' This is a strategy process, and we're looking at the trends of the world. The industry is moving; the world is moving quite rapidly. I just saw a presentation that indicated that the changes the world will see between 2010 and 2020 will be somewhere between 10 and 80 times the changes the world saw in the twentieth century, compressed into a decade."
He offers the following story to illustrate the forces of change the company is facing: "My seven-year-old granddaughter came to me and asked, 'Granddad, why do you have a wire on your phone?' She didn't understand that. She'd never seen a wire on a phone before. We need to address that level of change and do it proactively."
Four Strategic Scenarios
A group of insightful staff people (Hans and a few from the Consumer Insight function) defined a set of four strategic scenarios based on the well-documented megatrends defined by the World Economic Forum in 2008 for the Davos meetings. Hans commented:
"We presented and discussed these with senior management in 2009, prior to their definition of 2015 strategies, to support that they would look at the potential world of 2015 when defining strategies and not just extrapolate present-day conditions.
"Having done that, we then prepared to revisit each key strategy vis-a-vis all four scenarios to identify issues (i.e., risks and opportunities) for that particular strategy if the world looks like this particular scenario.
"This list of issues is then addressed via a PAPA model whereby a strategic response is defined and embedded in the strategy.
"This way, we believe that we have reasonably ensured our strategies will be relevant if/when the world changes in other ways than we originally planned for."
During the past two years, LEGO refined the process and used it actively, the reason being that the original scenarios did in fact not lead to much explicit action. Today a scenario session is a five-hour workshop where participants focus on one particular strategy (e.g., market entry in China). The workshop is with the management team that owns the strategy and its implementation.
• The first hour they discuss and agree on two key drivers of uncertainty to their strategy (the axes of the 2×2 scenarios). Hans's team comes with a battery of potential drivers – and they (after some discussion) end up with two – leading to four quadrants of a 2×2 matrix.
• The next two hours the team describes the four quadrants one at a time. First, they individually use Post-it notes to write down descriptive elements or key success factors for the scenario (the Post-it session is to avoid groupthink). Then they share their descriptions and discuss their way into a reasonably consistent image of that scenario, before they move on to the next.
• The fourth hour is used to define strategic issues – again Post-it notes and sharing. Here they are diligently coached to be aware that any issue may be an opportunity (if they choose to pursue this in time). If they do not pursue this, it may become a risk, and if they still don't do anything and the risk materializes, it becomes a problem. The sharing process includes a prioritization discussion in LEGO's PAPA model (see later in this chapter).
• The last hour focuses first and foremost on actions to be taken. The team discusses and agrees on explicitly "who is doing what by when" to ensure action on the issues that the team members have themselves decided are important, likely, and fast moving.
The role of Hans's team is to coach the process, including asking provocative questions and ensuring that team members get out of their comfort zone (where the real world is). The process is mandatory for business planning and strategy definition, and in 2013 Hans's team was involved with doing 25 of these workshop sessions as the company business plans were to be updated. Subsequently it was documented that 75 percent of these business plans had taken on explicit actions on issues they had not seen prior to the session – hence the value.
Hans explains, "Once we have decided on the strategy and defined what we're going to do, we test the strategy for resilience. We very simply take that particular strategy and, together with the strategy owner, discuss: If this scenario happens, what will happen to the strategy? Some of these issues will be highly probable, and some of them will be less probable. Some of them will happen very fast; some others will happen very slowly. This is where the PAPA model comes in."