UK: Strategy in a box?

UK: Strategy in a box? - When it comes to formulating strategy, some pioneers are opting to invest in IT where once they might have called in the consultants.

by Jane Bird.
Last Updated: 31 Aug 2010

When it comes to formulating strategy, some pioneers are opting to invest in IT where once they might have called in the consultants.

If in doubt, call in an expert. Sound advice, particularly in areas of corporate decision-making such as strategy or business planning, where the opportunities for acquiring empirical expertise can be few, and the costs of error or failure commensurately high. Such thinking has certainly helped power the management consultancy industry to its present position as a global $40 billion (£24 billion) fee-earner with yearly growth rates as high as 20% or 30%.

But consultants are notoriously pricey - can IT offer an alternative?

As computer power has increasingly replaced human brainpower in the execution of complex tasks, the question is one of growing relevance in the context of the decision-intensive analyses that are the bread and butter of the consultancy world. Is it possible to program a computer to ask the same questions, follow the same thought processes, and reach the same conclusions as its physical consultant counterpart?

While the idea of the robo-consultant may seem laughable, it's worth noting that consultancies themselves are arguably doing much the same thing, without (thus far, at least) taking the final step of entering their wisdom into a computer. In their efforts to stretch their most skilled experts over an ever-greater number of assignments - and ones that can also be carried out by cheaper junior personnel - many firms have distilled the knowledge of their top people into pre-packaged methodologies. In a number of firms, the resultant loss of creativity has been marked. At Andersen Consulting, for example, it has spawned the uncomfortably mechanical nickname for the firm's consultants: Andersen androids (although given that Andersen is the largest consultancy in the world, with one of the best growth records, such jibes have something of a whiff of sour grapes about them).

Truly creating or recreating the expert-in-a-box will require full-scale artificial intelligence capability. This (when it arrives) will probably incorporate technologies such as neural networks (which learn in a manner analogous to the human brain), speech recognition, natural language, computer vision and expert systems. While most of these are still some way off the required level of sophistication, expert systems, which were very fashionable a few years back, have now matured to the point where applications with a realistic potential have been developed.

Expert systems are, essentially computer programs that mimic human experts' approach to decision-making, normally (but not necessarily) by asking for information on a particular problem, and applying rules of thumb.

The process continues until a conclusion is reached or a course of action determined. The system then explains its line of questioning, the reasoning process used and the importance of particular courses of action.

Fine in theory, but how realistic is the approach in an abstract area with as many variables as business strategy? One insight comes from a software product jointly developed by two Hertfordshire-based organisations: Ashridge College, a management training centre, and Softa & Co, a management consultancy. Christened the Sextant, the program takes its inspiration from the navigation tool developed in the first half of the 15th century. The name also alludes to the deliberately restricted extent of the program's capabilities: rather than telling sailors where to go, the sextant provided them with a continuous update of where they were.

Similarly, the Sextant toolkit aims to give managers a simple dynamic view of their organisation's present strategic position, not quite a consultant-in-a-box, but a step in the right direction, and an undeniable advance, according to Stephen Arnold, Softa's chairman. Many systems which attempt to help with strategy planning focus on individual departments, activities or product lines, he says. The Sextant, he claims, is 'holistic and connected' and able to span the entire organisation, looking at strategy in a truly cross-functional way.

Boot up the program, and the headings which come up illustrate the route map ahead, and emphasise the need to begin at the beginning. Only after users have defined their current market situation, and put in as much information as possible about the existing markets and 'where are we now?', does the program allow them to progress from the present to the future.

From current scenarios, the software - and the accompanying Ashridge consultant - then take the user through conventional consultancy-style SWOT (strengths, weaknesses, opportunities, threats) and other analyses, to work out the company's strategic aims and key performance indicators. In other words, the program aims to enable users to work out where they want to go, and identify the landmarks that will indicate they are making the desired progress.

In terms of the journey through the program, the prompts which appear on screen are intended as signposts to help direct users' thinking, so, for instance, when it comes to a screen concerned with the degree of competitive intensity a firm is experiencing, the work of competitiveness guru Michael Porter is brought in to force the user to look at the issue from all the relevant angles. What is the threat, the software asks, of new entrants to the market? How great is the power of suppliers or customers? What threat is posed by substitute products? And how fierce is the rivalry between existing players? Of course, such verbal prompts are backed up by the program's spreadsheet capabilities.

The user is not expected to simply go through these steps parrot fashion.

Screens have a pop-up prompt to explain the basics (the thinking behind a SWOT analysis, for example) as well as electronic note pads, for users to jot down tangential thoughts that may be useful later on. In addition, a large red exclamation mark device signals the existence of notes, figures or larger reports that can be summoned up to further guide one's responses.

At £7,500, the Sextant isn't exactly cheap, especially considering that it is only sold with a week of an Ashridge consultant's time, which can easily double the price. Despite the program's ease of use, the consultancy is necessary, claim Ashridge and Softa, to ensure 'users get off on the right foot'. After this, a company is, in theory, knowledgeable enough to continue using the package without an outside expert, at which point the program does effectively become a strategy consultant in a box. Pricing, however, isn't likely to be most businesses's chief concern, £15,000 being relatively small change in the world of consultancy billing. More to the point is the question, does it work?

The initial response to the idea of a pre-packaged consultant must be along the lines of Dr Johnson's pithy (if, these days, highly reprehensible) observations on a woman's preaching. '(It) is,' he observed, 'like a dog's walking on his hinder legs. It is not done well; but you are surprised that it is done at all.' Nevertheless, users' reactions are positive.

The UK division of St Paul International Insurance, for instance, claims that the Sextant helped it devise a new insurance product - a policy targeted at capital-intensive computer hardware and software companies where a high-level of cover is essential - thanks to the program's ability to highlight a strategic gap in the company's product portfolio.

Once the reason for the increased level of cover had been realised, explains David Bevan, national sales manager, St Paul was able to tailor a product to fill the gap. 'We can now provide cover of up to £100 million, a far greater risk than we were able to take on in the past.' Chiefly deployed by the firm specifically to research new markets and opportunities for insurance products, the software has also helped the company to devise an insurance policy aimed at manufacturing companies.

Bevan highlights the advantage of being able to capture thought processes during analysis sessions. 'It gets the brain juices flowing, and encourages you to debate issues relating to suppliers, distributors, competitors and customers.' He describes the Sextant as 'sitting there, looking at you, waiting for your thoughts'.

It is also the Sextant's ability to help formulate marketing strategies that appeals to Peter Taylor, director and general manager of product sales for Unipart International, the automotive parts supplier. Taylor sees 'tremendous benefits in being able to combine marketing theory and strategic thinking'. The program, 'lets us use disparate information then analyse the data more rapidly than a standard decision support system,' he adds.

BT's consulting arm, BT Teleconsult, is likewise prepared to sing the program's praises. Explains Bill Kerr-Smith, head of product management, 'It's an aid to make non-marketing members of the management team understand information without a hell of a lot of work.' BT Teleconsult has plans to customise the program and use it on some consultancy projects, particularly with an eye to overseas markets where telecoms operators - often still in state monopoly mindset - may be relatively new to marketing theory.

Comments Kerr-Smith, 'These are people for whom the new environment is a shock - the market is no longer engineering-led but customer-driven.

The program should be a very positive way of reinforcing things, of getting customers to understand the new dynamic.

'It may,' he concludes, 'all be absolutely marketing textbook stuff but it's wonderful because everything is all consolidated into one particular form.'

Of course, expert systems are not the only way in which computers can help businesses with strategy formulation. Apart from their price tag, systems that try to codify the thinking of a particular individual or methodology will always be constrained by the inherent capabilities of the initial human expert. Put simply, if Michael Porter's views become outdated or superseded, so too does any software incorporating his approach to competitive issues.

Such a rationale lies behind an alternative approach, one which leaves the strategic questioning to the humans, but uses computer power to model or forecast the consequences of their actions. Alternative scenarios can be thought through and fine-tuned on the computer, and only put into play in the real world when managers are happy with the policy options chosen. Financial modelling and spreadsheet software have long enabled managers to experiment with 'what if?' scenarios when looking at how to develop their businesses.

In the early days, these tools took hours to produce simple, linear graphs.

Now complex multi-dimensional problems can be solved in seconds thanks to advances in microprocessor and software technology. London-based Interactive Forecasting, for example, offers a modelling package which simulates real-life business so that directors can test-drive their plans through the various alternative scenarios with instant feedback. 'We create a virtual business which can look at the effect of business changes and act as a catalyst for debate,' says Geoff Bristow, the company's founder.

But the core capabilities of such modelling software are also being extended.

Advanced techniques, including the use of neural networking, are now being used in the latest modelling products, enabling software to accumulate expertise and learn in a similar way to the human brain. One UK-developed product which draws on these techniques, 4Thought, is claimed to have accurately predicted the end of the recession. It uses dynamic graphics to paint on-screen scenarios of business development plans. 4Thought is being deployed by companies such as Sears, Coca-Cola and Philip Morris to optimise pricing strategy and advertising spend.

Irrespective of the approach adopted, it is likely that for the foreseeable future computers will be limited to such relatively restricted strategic modelling. The views of Paul Freeman, a modelling consultant who spent 20 years at General Foods, are typical of those of a number of sceptical industry experts. 'Saying you can use IT to formulate the entire business strategy is like claiming to have discovered the secrets of the world.

You do very well if you can model small bits of it for a while, but it is a hugely complex task.'

And for the time being, this seems to suit users, few of whom, if pressed, would feel truly comfortable following a computer's recommendations in such a critical area without a great deal of corroborating evidence. St Paul's Bevan, for one, certainly doesn't regard the Sextant as a panacea.

'It doesn't give you any magical revelations, but it does let you form your thoughts,' he says. 'The result is that rather than having perhaps 20 key points all running around in your head, you are able to concentrate on the two or three that will have the biggest impact.'.

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