BOOKS: 2015/2016

Words of wisdom

The latest book releases from the School, from scenario planning and resilience in the auto industry to the tools of finance and conscious consumerism.

Words: David Turner
Illustration: Toby Morrison

Strategic Reframing: The Oxford Scenario Planning Approach

By Rafael Ramirez and Angela Wilkinson
Oxford University Press; March 2016

We are in a world teeming with TUNA, according to Strategic Reframing: The Oxford Scenario Planning Approach, but it has nothing do with fish.

TUNA is an acronym for Turbulent, Uncertain, Novel and Ambiguous conditions, says Rafael Ramirez, Director of the Oxford Scenarios Programme, Senior Fellow in Strategy at Saïd Business School, and co-author of Strategic Reframing: The Oxford Scenario Planning Approach.

In response, Dr Ramirez and co-author Angela Wilkinson, Strategic Foresight Counsellor at the Organisation for Economic Cooperation and Development and Associate Fellow at Saïd Business School, advocate “scenario planning”: using scenarios to reframe challenges and see them in new ways.

The Oxford Approach, more specifically, is based on the principle that there are multiple futures and multiple strategic contexts. Strategists adopt the mentality of learners as they work in groups to develop and critique a number of “stories” about plausible future contexts. This enables them to look with new eyes at their own interests and options in the present.

‘In scenario planning you consider the very widely differing contexts in which your contingencies might play out

Dr Ramirez argues that this can be applied to a variety of fields, including business, politics, healthcare and warfare.

‘In scenario planning you consider the very widely differing contexts in which your contingencies might play out,’ says Dr Ramirez. He contrasts this with ‘predict-and-control approaches to strategy development,’ where leaders use factual evidence and trends to forecast the future in a narrower way.

The book includes case studies, where the Oxford Approach was used, that show the value of scenario planning for both companies and governments.

One example is Wärtsilä, a Finnish company that makes and services engines and other equipment for ships and energy companies.

Dr Ramirez says that Wärtsilä’s senior managers considered the scenario of a more ‘commoditised’ world for the product sectors in which it operated, where it would be placed under increasing margin pressure because of low-cost production in lower-wage developing economies. Reacting to this scenario planning and to other forms of long-term thinking, the company decided to become a strategic partner with its customers, such as shipbuilders and shipping companies. This made it less reliant on highly competitive commoditised markets and enabled it to take advantage of its huge expertise to add value to its partners’ operations.

Another policy example in the book was the scenario planning among governments, policy experts and other stakeholders regarding HIV/AIDS in Africa. Dr Ramirez says that because of this work, organisations such as UNAIDS, the United Nations agency, put greater emphasis on a long-term vision in responding to AIDS, and developed a growing sophistication in addressing the link between poverty, other forms of social inequity and AIDS.

Dr Ramirez thinks that Brexit provides a classic example of the need for scenario planning: because it is a one-off event, by definition, there is no data from the past that can be used to predict what it will mean.

Crises revisited

He cites some intriguing examples from the past where the absence of scenario planning led to disaster. For example, Russia’s Romanov royal family failed to consider the scenario of a revolution that led to its overthrow in 1917.

‘History is littered with examples of once-successful organisations that failed to imagine and anticipate game-changing events in time to adapt to the new environment’

During the same era, the French, British and Germans did not sufficiently consider the scenario of trench warfare, which gave overwhelming power to the defenders and led to stalemate and millions of casualties in fruitless offensives.

Kodak, for so long dominant in the camera industry, failed to give enough thought to the scenario of a digital future, and was eventually forced to file for bankruptcy protection in 2012.

‘History is littered with examples of once-successful organisations that failed to imagine and anticipate game-changing events in time to adapt to the new environment,’ says Dr Ramirez.

He goes on to warn: ‘What Kodak underwent may very well be what happens to car companies if Uber, Tesla and other companies that were not in the car business five years ago take a commanding position in a newly configured industry because they understand digital better than long-established car companies.’

However, Dr Ramirez also sees examples from history of where the methods which he espouses have worked. He cites the Cuban missile crisis of 1962, when US President John F Kennedy and his brother Robert rejected the rigid analysis of the military and instead used scenario planning to come up with the concept of a naval blockade that defused the crisis. ‘Scenario planning saved the world from a nuclear war,’ says Dr Ramirez.

He warns, however, against viewing scenario planning as a magic bullet, saying that there is no firm evidence that return on capital employed is higher for companies that practise it than for those that do not. Nonetheless, he argues that the Oxford Approach can help strategic teams to avoid ‘groupthink and blinkered vision’, and to stop relying on what has worked in the past when making decisions for the future.

Read more about the Oxford Scenarios Programme here.

Crisis, Resilience and Survival : Lessons from the global auto industry

By Matthias Holweg and Nick Oliver
Cambridge University Press; December 2015

Crisis, Resilience and Survival : Lessons from the global auto industry attacks the conventional wisdom that carmakers will succeed if they are efficient or large.

‘Efficiency and scale matter, but they’re not enough on their own to explain survival,’ says co-author Matthias Holweg, Professor at Saïd Business School.

The book, published in January 2016 and co-written with Nick Oliver, Professor at the University of Edinburgh Business School, argues that resilience in the auto industry stems from four factors: efficiency, size, market reach and the support of ‘benevolent stakeholders’.

Efficient operations provide a competitive offering in the marketplace, says the book: the leaner manufacturing is, the more a carmaker can compete on price.

It also notes that large production volumes enable economies of scale, though it acknowledges that there are certain brands able to go down the alternative path of producing low volumes and make up for this by charging a premium.

‘Chrysler is reasonably efficient and quite large, but very reliant on the US market, so every time the US market tanks, it has a crisis’

The authors also emphasise the importance of ‘market reach’: a presence in a range of markets to offset the effects of recession in any one market, and a presence in rapidly growing markets where margins are usually higher.

Professor Holweg cites the salutary lesson of the US carmaker Chrysler, now part of Fiat Chrysler Automobiles, saying: ‘Chrysler is reasonably efficient and quite large, but very reliant on the US market, so every time the US market tanks, it has a crisis.’

During the recession that followed the Lehman Brothers collapse, Chrysler was hit so badly by falling US demand that it filed for bankruptcy protection filed for bankruptcy protection and was bailed out by the Federal Government.

‘There is also a fourth factor which is important if the first three are not enough,’ says Professor Holweg: the support of powerful stakeholders committed to the continued operation of the firm, which provide support and concessions during troughs when all other measures have failed.

He says that these stakeholders can include governments, ‘benevolent shareholders’, customers, suppliers and trade unions. He notes that the US Government’s support for Chrysler is just one of many examples of how governments have bailed out or supported various car companies.

‘Given carmakers’ historical record, ‘the next crisis will inevitably come’’

Professor Holweg, warns, however, of the temptations that arise when pursuing the first three aims – efficiency, volume and market reach – at all costs. He cites the VW scandal of 2015, when a US regulator discovered that the carmaker had cheated on emissions tests for its diesel vehicles. VW was motivated, he says, by its pursuit of market reach, since its presence in the huge US car market was small.

Based on their analysis of the four crucial factors behind carmakers’ health, the authors assert that the most resilient car companies in the world are likely to be Hyundai, Toyota, Honda and General Motors. At the other end of the spectrum, Groupe PSA and Fiat Chrysler appear most susceptible to crisis. Professor Holweg warns that, given carmakers’ historical record, ‘the next crisis will inevitably come – and car companies are no more resilient than before’.

Click here to watch a short video about the book.

Social Finance

By Alex Nicholls (ed.)
Oxford University Press

Social Finance argues that mainstream financial models based purely on shareholder profit cannot solve the world’s problems, but that social finance can provide a solution.

Social finance is money invested to provide social benefit, rather a purely financial return. These benefits can include education, care or a better environment. Social finance accounts for under 1% of total money invested across the world by a narrow definition, but one-sixth of all investments – totalling trillions of dollars – by the widest definition, according to Professor Alex Nicholls, Professor of Social Entrepreneurship at Saïd Business School, and the editor of the book, which he describes as the first ever academic book on the subject.

‘The delivery of care, including education, health and services to the elderly, will be a growth market in the future,’ says Nicholls. He adds that social finance must step into

the breach in this area because shareholder-based capitalism often fails.

In the UK, which is the world leader in social finance, he cites recent scandals at care homes run by companies run for profit, and failings at listed companies that provide social services for the Government for a fee, such as Serco.

He also notes the strong potential supply of capital from wealthy individuals around the world with a social conscience. However, for social finance to develop, Nicholls says that providers of social benefit, such as care providers, need to supply more profitable opportunities. To do this, they have to learn to run surpluses – the equivalent of profits for non-profit-making institutions – from which they can pay investors.

‘The potential for social transformation fuelled by new forms of capital markets is huge’

Moreover, the “infrastructure” of social finance needs to improve. The book outlines four ways in which it must do so. One is ‘governmental infrastructure’, including initiatives, regulations and tax changes. Nicholls gives the example of social investment tax relief in the UK.

Another is ‘facilitative infrastructure’: the intermediaries that can oil the wheels of social finance, such as lawyers, who are experts in the field.

A third is ‘intellectual infrastructure’, including a regular inflow of new ideas. Nicholls points to the growth in academic interest in social finance, at the Saïd Business School and elsewhere.

The fourth is the structures necessary to make investment effective and efficient, such as the provision of consolidated performance data showing what kind of social finance produces a good financial return. Nicholls thinks this is an important consideration for many wealthy people providing social finance.

As well as considering these issues, the book explores different types and methods of social finance. These include environmental finance, which has spawned a large market in green bond issuance, and Islamic finance, which combines the desire to make a good investment return with clear moral principles.

‘The potential for social transformation fuelled by new forms of capital markets is huge’, says Nicholls.

He concludes: ‘A global economy that is sustainable, just and forward-looking can only come about when there is infrastructure that enables the creation and growth of social finance investments across the board.’

Looking behind the Label: Global Industries and the Conscientious Consumer

By Tim Bartley, Sebastian Koos, Hiram Samel, Gustavo Setrini and Nik Summers
Combined Academic Publishers; May 2015

Looking behind the Labelis deeply sceptical of the idea that consumers in rich countries can improve the income and working conditions of workers in emerging economies through their ethical choices.

‘Following serious incidents such as the 2013 collapse of Rana Plaza’ collapse of Rana Plaza, the garment factory in Bangladesh, ‘consumers are increasingly conscious of the issues in the supply chain and weigh their purchase decisions accordingly,’ says co-author Hiram Samel, Associate Professor of International Business at Saïd Business School. ‘But our research indicates that purchase decisions have only a limited impact in affecting the complex global supply chains which lie behind the products on our high streets.’ He adds: ‘Shopping with a conscience is at best only a small part of a much larger solution.’

‘The book uses case studies of several industries, including wood and paper, food, apparel and footwear, and electronics, to consider the effectiveness of ethical consumption’

The book’s authors downplay the role of consumers partly because they are sceptical that voluntary standards demanded by consumers in one country can be enforced halfway across the world in another.

Professor Samel warns, further, that when consumers choose to pay extra for a brand in the hope of giving the workers who manufacture or extract the product higher wages,

the mark-up may not reach the people at the bottom. ‘In a hierarchy dominated by the head of a village that harvests coffee beans, that person may receive all the extra money,’ he says.

The book uses case studies of several industries, including wood and paper, food, apparel and footwear, and electronics, to consider the effectiveness of ethical consumption. But despite its scepticism, it is not pessimistic about the notion that workers in emerging economies will see progressively better pay and conditions.

‘Too much labour market flexibility can dampen productivity and economic growth’

The book questions the free-market consensus around how emerging economies should grow by saying that regulation – often seen as a brake on economic growth – is key to encouraging it. ‘Too often we think that liberal markets with their associated labour flexibility, are the best mechanism for supporting companies and encouraging growth,’ says Samel, ‘but the reality is that too much labour market flexibility can dampen productivity and economic growth, because it instils long-term management practices that, intentionally or not, promote worker turnover, rather than learning.’

The book cites the huge turnover in electronics manufacturing as an example, with average tenure among assembly workers in the industry only six months. The authors suggest that this churn keeps workforces unskilled: they have little time to learn and improve.

The authors urge policymakers to explore regulatory mechanisms to encourage companies to overhaul outdated management structures and practices to drive growth. 

Examples include encouraging apprenticeships and allowing independent trade unions, which in developed markets lobby for better pay and conditions, to thrive. Better pay will, says Samel, encourage employers to invest more in upskilling each worker, to keep them economically viable.

Asked how governments in developing markets can be persuaded to move towards higher-skill/higher-pay systems, Samel hopes that they will eventually see that it is in the best interests of their countries because it will boost national output.

Professor Samel’s co-authors are Tim Bartley, Associate Professor of Sociology at The Ohio State University; Sebastian Koos, Assistant Professor of Corporate Social Responsibility, Department of Politics and Public Administration, University of Konstanz; Gustavo Setrini, Assistant Professor of Food Studies at New York University; and Nik Summers, PhD candidate in Sociology at Indiana University.