General Motors: a failure of corporate philosophy

Scenario planning essentially consists of four steps. The first is to lay out a wide range of possible futures, called scenarios that depict the external environment beyond the control of the company or the strategizing agent. The next step would be to ask if the strategies that currently are in place are sufficiently flexible to accommodate these different scenarios. The third step is then if and usually, the strategies are not sufficiently flexible so then the third step is to build in more flexibility and start to view your strategy as a portfolio of options, all options on the future and as with financial options, if you buy some, you need to monitor, in the case of financial options, to strike price to see if you're under money or not. In the case of real options, business options that has embedded in the strategies. You need to monitor multiple parameters around the project to see if you need to expand the investment or perhaps reduce it in size.

The hardest part in scenario planning is to challenge the dominant logic or the deepest mental models that are driving people's thinking in an organization. This slide illustrates how General Motors at its peak, had a mindset, a corporate philosophy if you will, that needed to be challenged. The key assumptions in that mindset were things like General Motors not just being in the business of making cars, but really making money and that meant they were diversifying out of cars. Secondary emphasis on technology, believing that the game in the automotive industry was mostly about rapid adaptation. Cars were viewed going back to Alfred Sloan, as status symbol. People start with the Chevrolet go to the Buick Oldsmobile and Cadillac. The car market was isolated from the rest of the world and fuel was presumed to remain abundant and cheap. These assumptions start to act like a filter and when weak signals come in. The weak signal would be Honda getting a foothold in the motorcycle industry. When these signals come in and they don't fit this mental model, then the company will be blindsided and scenario planning should be aimed at challenging some of these deeper, deeper assumptions.