In the Classroom

Thinking Beyond the Downturn

When the only thing executives can be certain of is a future with more uncertainty, planning for success in that future depends on a deliberate change in thinking. Because there is no precedent for the economic downturn, those who rely on historical models on which to base their decisions are in a weak position. Instead, they need to be able to envision many possible future scenarios and be agile enough to take action when one or more of them becomes a reality.

“When there’s so much uncertainty, it’s hard to find patterns. Astute executives can pick up signals, but those signals are weak,” says Kathy Pearson, Wharton Adjunct Associate Professor of Operations and Information Management and academic co-director of Critical Thinking: Real-World, Real Time Decisions.

“When you’re used to framing every problem in terms of history and your experiences and biases, you’re stuck. That thinking doesn’t adequately address the issues facing businesses today.” Pearson stresses that those limits on thinking must be removed. She tells participants in the Critical Thinking program that allowing for possibilities you hadn’t previously considered leads to better decisions. “Reframing” means replacing your current view of the issues facing your organization with a more expansive one that encompasses a wider vantage point. You must allow for many more potential problems, solutions, and opportunities.

Scenario Planning

Pearson uses an exercise that has participants putting the cognitive skills they learn earlier in the program to the test. Scenario planning uses key uncertainties to develop a set of possible futures. This methodology differs from exercises that ask participants to determine most likely scenarios. “That approach still depends on the ability to predict the future. It uses natural biases. Our approach isn’t about predictions, so it is much less vulnerable to those biases.”

Pearson advises that these scenarios can then be used to test the strength of a company’s current strategy, or as a platform for ideation in innovation, or to determine core competencies that will be necessary in the future and that are robust across a wide range of scenarios.

For a group of executives from non-profit industries, that meant working together to choose a topic affecting their business, and then envisioning it seven years into the future. Pearson expected them to focus on health care, the one industry they all had in common despite coming from vastly different organizations. Instead, the group chose to examine the future of philanthropy. “I was impressed,” she notes. “Before we began the exercise, they were already taking a more expansive view of the factors that affect their operations.”

As the group considered four distinctly different scenarios around philanthropy, they found two elements that were necessary no matter what the future looked like. First, as changes in philanthropic giving take place, non-profits must be able to tap diverse funding channels. Reliance on a few donors or types of donors was too risky. Second, they needed to quantify their results. Using compelling personal stories to motivate giving no longer worked. The anecdote must be replaced with quantitative statistics measuring the organization’s impact on the population in question.

Pearson calls these elements Core Competencies. “When you can clearly identify the strengths your organization will need, no matter what scenario plays out, you are able to prioritize your strategic investments. Those non-profit executives left the Critical Thinking program knowing exactly what they needed to do going forward. Since investment dollars are fixed, it’s absolutely essential that you spend them on what will give you the biggest return. For that group, it meant exploring new revenue streams and compiling hard evidence of their positive impacts.”

An Advantage of the Downturn

Critical Thinking faculty have noted an interesting change in the past year: attendees are more willing to envision a greater range of possible scenarios. Pearson explains, “The financial crisis taught us all that what we thought was impossible is in fact possible, whether we’re talking about the collapse of Bear Stearns, or a collapsing auto industry. A year ago, I couldn’t get a group of real estate executives to take seriously a scenario in which housing prices fell. Now, everyone is willing to imagine a future in which anything might happen.”

• Critical Thinking: Real-World, Real Time Decisions