Advances in Business Research
2010, Vol. 1, No. 1, 53-61
Huffman
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Management
Brian Huffman, University of Wisconsin - River Falls
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Black Swans cannot be predicted although they look predictable in retrospect. This paper focuses on the negative
Black swans, the disasters. Since disasters cannot be predicted the ability to quickly recognize and react to them is
the key. This paper recommends the processural strategic paradigm as the correct approach to strategic management
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The wargames represent situations that could, but not necessarily will, happen; they are not intended to be accurate
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Just as money is the root of all evil, risk is the root of all irony. For example, credit default swaps, designed
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$/$#D(,D"(," .$"'!/02$E"$2$' #('"0!1$#" #-%(,D"$,F(#!,/$, "67!'."G"H&,#$& .$#+"899I;<"?.- "0-#-%(D/J"K.$"!,$"
pioneered by Enron…a corporation that was bankrupt almost before that book hit the bookstores.
When most people think of risk management they think of insuring against foreseeable risks like auto accidents
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.- "'!&2%"%$) #!5"&);"C$'-&)$"1$"1(22",$F$#")$$" .$/"'!/(,D<"M".!) "!A"-& .!#)+"(,'2&%(,D" .()"!,$"67&AA/-,+"899N;+"
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Machinery” was dead wrong precisely at the three points in time when the oil company faced disaster.
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realm of regular expectations. Black Swans can be both positive and negative (winning the lottery is a positive Black
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%$)'#(C$)" .#$$"'!/0$ (,D")'.!!2)"!A" .!&D. "(,") #- $D('"/-,-D$/$, >" .$"#- (!,-2() +"$F!2& (!,-#5+"-,%"0#!'$))&#-2"
paradigms. The rationalist paradigm is incompatible with the nature of negative Black Swans because it attempts to
“predict and control” the future. This paradigm assumes a stabile business environment that no longer exists.
Both the evolutionary and processural paradigms reject the belief that managers can improve their corporation’s
chances of survival by predicting the future and then crafting the right strategy to meet it. The evolutionary paradigm
is completely pessimistic in regard to management; it not only denies management’s ability to forecast disasters,
but even recommends that they do not attempt any centralized reaction to them once they happen. This paradigm
suggests that strategies must be left to evolve by themselves as businesses adapt to their environment; strategies
are not to be developed by top management, but evolve as many employees at various levels muddle through. The
processural paradigm is slightly less pessimistic; while it agrees that the right strategy cannot be developed before
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handling disasters as long as the decision makers are engage in ongoing perception, thinking, and action.
Van der Heijden recommends “scenario planning” (a balanced approach to strategic management compatible with
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here focuses exclusively on the processural paradigm. Only that paradigm strikes the proper balance between what
can and cannot be done. It recognizes that managers can recognize and react to disasters, but cannot predict them.
That paradigm emphasizes the importance of focusing management’s attention on negative Black Swans because
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this point too; he notes, for example, that half of the returns in the U.S. stock market over the last 50 years can be
explained by only the 10 most extreme days!
53
Advances in Business Research
2010, Vol. 1, No. 1, 53-61
Huffman
Since disasters cannot be predicted, businesses will either survive or fail not on how they plan and act, but on
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more details about why disasters cannot be predicted and about the resulting need to be able to recognize and react
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approach compares and contrasts with scenario planning.
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ability to foretell what is going to happen tomorrow, next week, next month, and next year - and to have the ability
afterwards to explain why it didn’t happen.”
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-#$") -,%(,D") (22JX"
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guru who was endless optimistically about our ability to produce world-class products and about the worker’s desire
to do a good job, nevertheless pessimistically though that survival was a lofty enough goal for business. He was
clearly well aware of disaster’s potential.
There is no doubt that many incorrectly believe the future of a particular business or even the entire economy
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$'!,!/5"()".$-%$%eX"[-&D.-,"G"[-&D.-,"6899:;+"%$)0( $")!/$"%-#*"2-,D&-D$"!,"0&#$"#()*+",$F$# .$2$))") - $" .- "
the objective of risk management is “to guarantee that the organization is not prevented from achieving its other
objectives by the losses that might arise out of pure risk.” If risk management could really guarantee anything, then
1.- "$E02-(,)" .$"BV"%()-) $#"(," .$"Q&2AJ
We do use forecasting methods to predict a lot of things such as the demand for products in retail, or the weather at
an airline. These predictions work fairly well as long as conditions do not change. That is, they work well only in the
short run. These predictions are not much more than extrapolations of short-term trends. We can predict the number
of gallons of milk that we will sell next week because we will probably have roughly the same number of customers
-,%" .$(#"C&5(,D".-C( )"0#!C-C25"1(22",! "'.-,D$" .- "W&('*25<"` "1!&2%"C$")(225" !"0#!\$' "/(2*"%$/-,%"!& "-"%$'-%$"
)(,'$"-,5",&/C$#"!A"%()-) $#)"'!&2%"/-*$",!,)$,)$"!A" .- "A!#$'-) >"!&#" !1,"'!&2%"2!)$"0!0&2- (!,"%&$" !"-"A-' !#5"
closing, the percentage of children in the population could change, etc.
Disasters can’t be extrapolated since they don’t happen on any regular basis…there is nothing to extrapolate.
Furthermore, business disasters invariably involve human interactions which do not conform to a deterministic
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mathematical tractability.
The physics paradigm refers to the deterministic approach to prediction that works in physics problems. It
is possible to accurately predict the future position, velocity, and acceleration of an object using Newton’s Laws
of Motion, but it is impossible to predict the actions of humans in the market. Many authors contend that it was
economists’ pursuit of the high degree of forecast reliability they saw in hard sciences like physics that temped them
to apply the physics paradigm to the world of business and economics. But wishing economics was a hard science
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Prize in economics in 1974.
Human interactions caused the BP well blowout in the Gulf. Human interactions caused the stock market
to plummet on October 19, 1987. Economists have used the physics paradigm to describe human interaction in
aggregate just as physicists use it to describe the motion of atomic particles in aggregate. The problem is that humans
do whatever they please while atomic particles always follow the rules.
Statistical distributions may be useful to explain motion in a physics problem, but they are useless to explain human
interaction. If the sum of human interactions that causes stock market movements were really normally distributed
6-)".-%"0#$F(!&)25"C$$,"-))&/$%;+" .$," .- ") !'*"/-#*$ "%#!0"(,"IR:S"6-"_"8S") -,%-#%"%$F(- (!,"/!F$/$, ;"1!&2%"
be expected only once in 10160 days. Since the universe itself is only about 5 trillion days old (5 times 1012"%-5);+"
54
Advances in Business Research
2010, Vol. 1, No. 1, 53-61
Huffman
.$#$"-#$",!"1!#%)"-%$W&- $" !"%$)'#(C$".!1"&,2(*$25" .- "%#!0"1!&2%".-F$"C$$,"6d-'*1$# ."-,%"g&C(,) $(,+"IRRc;
Still, the optimist might say that prediction errors are due to overly simplistic assumptions such as assuming that
stock market movements are normally distributed. He or she might say that the fault isn’t the physics paradigm per se,
but the simplifying assumptions or lack of detail in the prediction models. That might be true, but adding complexity
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a very simple but certainly deterministic system, Bak’s sandpile, yields intractability once there are more than just
a few grains of sand.
The “sandpile effect” states that there is no way to determine whether a single grain of sand added to a sandpile
will trigger an avalanche or have no apparent effect whatsoever. Thus prediction methods cannot even distinguish
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physics or mathematics could tell you what was going to happen next.” Since nobody would seriously argue that
human interactions are more deterministic than the motion of grains of sand in the sandpile the conclusion is simple
enough. Business disasters cannot be predicted, period.
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guides action. One is to “feed a cold and starve a fever” so if the diagnosis is a cold then the prescription is feeding.
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Incorrect recognition leads to incorrect reaction; therefore it is vitally important to get recognition right. Business
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followed by the formation of theories which are tested by new experiences…and the loop continues for another cycle.
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beginning of each learning loop is a disaster which may be real, simulated, or vicarious. Real experience comes
from having “been there and done that.” Simulated experience comes from having been involved in simulations such
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with nearly every type of problem he faced. He knew what would work because he knew what had worked. He had
previous real experience from having served in government at the highest levels including a stint as First Lord of the
Admiralty in WWI; this is the sort of extremely costly-to-obtain experience that very few people have, and cannot
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Those who lack an historical imagination will have trouble both in recognizing a disaster and reacting to it.
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he offers his students a deal with the devil in which they receive a perfect prediction of the news one day in advance.
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with the right reaction.
All that Prechter’s devil demands in return is that any reaction the student takes on the ill-gotten news must
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news before it happened, had to properly recognize disasters himself, had to devise and execute a reaction, and his
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succeeded while the students failed miserably.
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!".-F$".-%"$( .$#" .$"#$-2"!#" .$"F('-#(!&)"$E0$#($,'$"1( ."%()-) $#" .- "a.&#'.(22".-%<"@(,'$"%()-) $#)"-#$"&,'!//!,+"
it is unlikely that business people would have learned from their own real experience with a WWI when faced with
a WWII. Since most business people are not business historians it is also unlikely that they would have read enough
history to be able to recall an analogous situation to the disaster they are presently battling.
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Advances in Business Research
2010, Vol. 1, No. 1, 53-61
Huffman
Since business decision makers will probably not have the previous real or vicarious experience to recognize and
react to a disaster, it is important that they be given simulated experiences. While these simulated experiences will
help them recognize and form a reaction to a disaster, there is still no guarantee that they will actually react. That
fact is considered next.
Failure to React
People do not always react even when they know they must. A graphic example of a failure to react can be found
in Night, Elie Wiesel’s account of his life as a prisoner in Auschwitz and Buchenwald concentration camps (Wiesel,
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Wiesel’s village until he and all other foreign Jews had been rounded up by the Hungarian police. These foreign
Jews were taken to Poland where the Gestapo had them dig their own graves before machine gunning them all.
Moishe was left for dead, but miraculously survived and returned to Wiesel’s village around the end of 1942. He told
everyone of the horror he had survived thus warning them of their impending doom.
Despite the fact that the villagers hated the Nazis and expected the worst from them, they nevertheless “not only
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in search of sympathy. In the end most of the villagers died horribly in concentration camps when they had until the
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too! While Moishe’s ‘tales’ might have been too unbelievable for the villagers to process, what could explain his own
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members chose not only to ignore the explicit warnings of improprieties related to them by Armando Falcon, Director
!A" .$"jA4'$"!A" .$"O$%$#-2"7!&)(,D"Z, $#0#()$"jF$#)(D. "6 .$"Q!F$#,/$, 3)"!1,"#$D&2- !#;"C& "-' &-225"- -'*$%"
and chastised him A!#"#$0!# (,D" .$"C-%",$1)"6a"@VMf"8+"899N;<"j,$"/(D. "-#D&$" .- " .$"a!//( $$")(/025"%(%,3 "
believe Mr. Falcon, but what possible reason would he have had to lie especially when his report made his own
-D$,'5"2!!*"(,'!/0$ $, J"M,%" .()"()",! "-,"()!2- $%"'-)$L"1.- "$E02-(,)"a!,D#$))3"2-'*"!A"#$-' (!," !"-"/5#(-%"!A"
1$22_*,!1" ('*(,D" (/$"C!/C)>"@!'(-2"@$'&#( 5+"=$%('-#$+"=$%('-(%+"$ '<J
All these stories involve a failure to react. This isn’t the sort of panic-driven paralysis one sees in “no pull”
parachuting accidents. In those instances sky divers fail to pull their ripcords because they are temporarily unable to
#$-' " !" .$"i!!%"!A"&,,- &#-2") (/&2- (!,"i!1(,D"(, !" .$(#"C#-(,)"6h$-'."G"Q#(A4 .+"899:;<"K.- ")!# "!A"0-#-25)()"
doesn’t last more than a few minutes, but the type of failure to react discussed here plays out over much longer
periods of time.
?-'*"6IR:]-;"!C)$#F$%" .()"2!,D$#_#&,,(,D"A-(2&#$" !"#$-' "(,"- "2$-) " 1!" .(#%)"!A" .$"%$'()(!,"/-*$#)"- "@.$22<"
K.$)$"/-,-D$#)"A-(2$%" !" -*$"-00#!0#(- $"/$-)&#$)" !"#$%&'$"#$4,$#5"-,%"%() #(C& (!,"'-0-'( 5"1.$," .$5"1$#$"1$22"
-1-#$" .- "'#&%$"!(2")&002($)"1!&2%"C$"A-22(,D<"M")$'!,%"0-0$#"C5"?-'*"6IR:]C;"/$, (!,$%"A!&#"! .$#"/-\!#"'-)$)"(,"
! .$#"C&)(,$))$)",! (,D" .- "(,"$-'."(,) -,'$" .$"/-,-D$#)"T(,-00#!0#(- $"C$.-F(!#"6 .$(#"A-(2&#$" !"#$-' ;"$E $,%$%"
over several months or even years...”
P$"Q$&)"6IRRS;"'!,'2&%$%" .- " .$)$"A-(2&#$)"#$)&2 $%"A#!/"T-"'#()()"!A"0$#'$0 (!,"#- .$#" .-,"A#!/"0!!#") #- $D('"
reasoning.” De Geus outlined the work of neurobiologist David Ingvar on this issue. Ingvar found that humans are
'!,) -, 25"-,%")&C'!,)'(!&)25"/-*(,D"/-,5"-2 $#,- (F$"02-,)"A!#" .$"A& &#$<"B(22(!,)"!A"0($'$)"!A"%- -"i5"C5" .$"
typical business person every day so the subconscious mind must be selective, grabbing only those bits that will be
useful for the alternative futures it is planning.
De Geus describe one example of this process which concerned a traveling business person who intends to take
a car ferry from England to France. This person’s subconscious mind locks onto a radio news report about a strike at
the ferry port that others would have ignored. The traveler’s subconscious immediately begins to build new plans for
the future. It builds not one plan but several alternatives that provide “memories of the future” (possible courses of
-' (!," .- "/-5"2- $#"C$"&)$A&2" !" .$"'!,)'(!&)"/(,%"(,"%$-2(,D"1( ." .$") #(*$;<""
De Geus noted that companies are not hard-wired to produce these memories of the future. Therefore, Shell
developed scenario planning to do for the organization what the subconscious mind does for the individual…explore
alternative futures in order to build decision makers memories of the future. But scenario planning has failed to take
decisions makers all the way around the learning loop. The decision makers had the simulated experiences and may
.-F$"#$i$' $%"&0!," .$/" !")!/$"$E $, +"C& " .$(#"$E() (,D"/$, -2"/!%$2)"%(%",! "'.-,D$<"K.&)" .$5".-%",! "2$-#,$%"
to form new theories and test their implications.
M2 .!&D."?-'*"6IR:]C;"1-)"!0 (/() ('"-C!& " .$"0!1$#"!A")'$,-#(!"02-,,(,D" !"'.-,D$"-"/-,-D$#3)"/$, -2"/!%$2+"
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$F$,".$"!AA$#$%")!/$".() !#('-2"$E-/02$)" .- "'-22$%" .- "!0 (/()/"(, !"W&$) (!,<"`,"!,$"$)0$'(-225"1!##()!/$"'-)$"
the majority of Shell executives still considered the supply of oil to be fairly reliable despite having been subjected
to a scenario in which it was practically proven that the supplies would not remain reliable. What hope is there for
2$-#,(,D"(,")'$,-#(!"02-,,(,D"1.$,"/-,5")'$,-#(!)"1(22")$$/"-"2! "2$))"(,$F( -C2$J
The wargame approach recommended here would seem to have more power to affect mental models and therefore
get managers to recognize and react to disasters. It will be seen that the decision makers being trained would not be
given an inevitability in a prepared scenario, but would have to discover it themselves in the wargame. People are
more likely to believe something they discover for themselves; for example, it is one thing to be told that tic-tac-toe
()"&,1(,,-C2$"-D-(,) "-,"!00!,$, "1.!"*,!1)" .$" #('*+"C& "( "()"W&( $"-,! .$#" .(,D" !"%()'!F$#" .- "(,$F( -C(2( 5"C5"
playing the game.
12!'3456"#&"7!'899#)"+2'
K.$"a`Y1-#D-/$" #-(,(,D"#$'!//$,%$%".$#$"'!,)() )"!A" .#$$") $0)>"O(#) +"'!/0$ ( (F$"(, $22(D$,'$"6a`;"()"&)$%"
!"4,%"!& "-22" .- "'-,"$ .('-225"-,%"2$D-225"C$"%()'!F$#$%"-C!& " .$"'!/0-,53)"'!/0$ ( (F$")( &- (!,<"@$'!,%+")$F$#-2"
future scenarios are developed which incorporate what the company knows about itself, and what it learns about its
'!/0$ ( (F$")( &- (!,"A#!/"a`<"K.$)$")'$,-#(!)"-#$"2(*$" .!)$"&)$%"(,"-(#'#-A ")(/&2- !#)L" .$5"%$)'#(C$")( &- (!,)" .- "
could happen but are not intended to be accurate predictions of the future. We do not worry about whether or not one
)'$,-#(!"()"/!#$"2(*$25" .-,"-,! .$#" !"-' &-225".-00$,<"K.(#%+"/-,-D$#)"6$)0$'(-225" !0"/-,-D$/$, ;"0#-' ('$" .$(#"
%$'()(!,"/-*(,D"(,"1-#D-/$)"C-)$%"!," .$)$")'$,-#(!)<"V2-5(,D" .$)$"1-#D-/$)"0#$0-#$)"/-,-D$/$, " !"W&('*25"
recognize disaster, formulate the correct reaction, and react.
6"#&"7%$&'%$'G!$!#"F
Business wargaming generally involves a role-playing simulation in which teams representing various business
stakeholders compete over a series of rounds in which they execute moves and countermoves within the context of
-"D(F$,")'$,-#(!<"K.()"0-0$#"1(22",! "D$ "(, !" .$"/$'.-,(')"!A"C&)(,$))"1-#D-/(,D+"C& "H&# ^"6899b;"0#!F(%$)"-,"
excellent description of that level of detail.
?- )!,"6899:;"%$)'#(C$)" .#$$"&)$)"A!#"C&)(,$))"1-#D-/(,D<"` "'-,"C$"&)$%" !"&,%$#) -,%"'.-,D$)"(," .$"C&)(,$))"
$,F(#!,/$, +" !" A-'(2( - $" ) #- $D('" 02-,,(,D+" -,%" !" 4,%" 0#$F(!&)25" &,%$ $' $%" .#$- )<" f!,$" !A" .$)$" .#$$" &)$)"
$E-' 25"4 " .$"0&#0!)$".$#$+"C& " .$"4,-2"!,$"'!/$)"'2!)$) <"`,"a`Y1-#D-/(,D" .$"0&#0!)$"()",! "\&) " !"4,%"0#$F(!&)25"
&,%$ $' $%"6-,%" .$#$A!#$"-2#$-%5"$E() (,D;" .#$- )+"C& " !" #-(,"/-,-D$#)" !"4,%"C! ."0#$)$, "-,%"A& &#$" .#$- )"-,%" !"
#$-' " !" .$/<"K.$"%() (,' (!,"()")(D,(4'-, L"4#) +"%$ $' (!,"1( .!& "#$-' (!,"(),3 "$,!&D."-,%")$'!,%"a`Y1-#D-/(,D"()"
valuable even if no threats currently exist since threats are like busses…there is always another one coming.
Kurtz, also, describes the uses of business wargaming, but he does it in terms of “hard” and “soft” deliverables.
This author is skeptical the ability to achieve the hard deliverables which represent an immediately obvious bang for
.$"C&'*<"7-#%"%$2(F$#-C2$)"'-,"C$"%!'&/$, $%"- "( )"6 .$"1-#D-/$3);"'!,'2&)(!,"(,"-,"k-A $#"-' (!,"#$0!# 3<"K.$)$"-#$"
.(,D)")&'."-)" .$"(%$, (4'- (!,"!A"$F$, )"!#" #$,%)" .- "'!&2%"!''&#+" .$"0#!C-C(2( 5"!A" .$(#"!''&##$,'$+"-,%")0$'(4'"
steps that could be taken to deal with them.
a`Y1-#D-/$)"-#$"$E'2&)(F$25"!#($, $%" !1-#%)"H&# ^3)")!A "%$2(F$#-C2$)<"K.$"(, $, (!,"()"6-)".$"0& )"( ;" !"'.-,D$"
.$"0-# ('(0-, )3".$-# )"-,%"/(,%)<"j .$#"-& .!#)+")&'."-)"a.&))(2"6899S;+"/$, (!,"-,! .$#")!A "%$2(F$#-C2$>"-"'!//!,"
2-,D&-D$<"K.$"a`Y1-#D-/$"-00#!-'."()")&''$))A&2"(A"/-,-D$#)"C$'!/$"-C2$" !"%$ $' "-,%"#$-' " !"%()-) $#)+"-,%"0-# "
of reacting to the disaster will necessarily entail having the common language to be able to describe it to others.
3)79!(%(%H!'4$(!FF%&!$+!'%$'6"#&"7%$&
?(*(0$%(-" %$4,$)" a!/0$ ( (F$" `, $22(D$,'$" C#!-%25" -)" .$" -' (!," !A" %$4,(,D+" D- .$#(,D+" -,-25^(,D+" -,%"
distributing intelligence about products, customers, competitors and any aspect of the environment needed to
)&00!# " /-,-D$#)" (," /-*(,D" ) #- $D('" %$'()(!,)" A!#" -," !#D-,(^- (!,<" `," a`Y?-#D-/(,D+" .$" 0&#0!)$" !A" a`" ()" !"
0#!F(%$"(,A!#/- (!,"A!#"%$)(D,(,D"02-&)(C2$"A& &#$")'$,-#(!)"A!#"1-#D-/(,D<"`,"! .$#"1!#%)+"a`"()"C$(,D",! "&)$%" !"
support strategic decisions directly, but to support them indirectly by building scenarios that can be used to develop
managers’ historical imaginations.
@a`V"6 .$"@!'($ 5"!A"a!/0$ ( (F$"`, $22(D$,'$"V#!A$))(!,-2);"%$4,$)"a`"-)" .$"2$D-2"-,%"$ .('-2"'!22$' (!,"-,%"
analysis of information regarding the capabilities, vulnerabilities, and intentions of business competitors. Most
%$4,( (!,)" !A" a`" '!,)() " !A" $2$/$, )" A#!/" .$)$" 1!" %$4,( (!,)<" K.$" %$4,( (!,)" ) #$))" -,-25)()" 61.('." /-*$)" a`"
%(AA$#$, "A#!/" .$"/$#$"%())$/(,- (!,"!A"(,A!#/- (!,"%!,$"C5"2(C#-#($)"-,%"(,A!#/- (!,"'$, $#);<"K.$"%$4,( (!,)"-2)!"
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stress that the purpose of the analysis is to provide a perspective aimed at keeping the business competitive. Both
D!-2)"-#$"(,"*$$0(,D"1( ." .$"1-5"a`"()"&)$%".$#$<
` "()"D$,$#-225"#$'!//$,%$%" .- "a`" -)*").!&2%"C$"C&(2 "-#!&,%"V!# $#3)"]"O!#'$)"/!%$2"-,%"D&(%$%"C5"-")0$'(4'"
W&$) (!,<"K.$"]"O!#'$)"=!%$2"0#!F(%$)"-"D$,$#('"'.$'*2() "!A"$,F(#!,/$, -2"A-' !#)"A!#" .$"a`"0#!A$))(!,-2" !"#$)$-#'.>"
competitors, potential new entrants, suppliers, customers, and substitute products.
K.$"0&#0!)$"!A" .$")0$'(4'"W&$) (!,"()" !"A!'&)" .$"(,F$) (D- (!,<"?.(2$" .$"a`"2( $#- &#$"-,%" .$"a`"$E0$# " .()"
-& .!#"(, $#F($1$%"C! ."(,)() " .- "a`"/&) "C$"A!'&)$%"C5"-"W&$) (!,+"C! ."-2)!") #$))" .- " .$"W&$) (!,").!&2%",! "
C$")&'." .- "-,)1$#(,D"( "()" -, -/!&, " !"D(F(,D"-"#$'!//$,%- (!,"A!#"-' (!,<"B! ."a`"-,%"/(2( -#5"0#!A$))(!,-2)"
-D#$$" .- " .!)$"1.!"D- .$#"-,%"-,-25^$"(, $22(D$,'$").!&2%",! "#$'!//$,%"-' (!,)<"K.$"A$$2(,D"()" .- "1.$,"a`"
professionals intend to recommend a course of action, they will be blinded to any new intelligence that argues against
.$(#"#$'!//$,%- (!,"!,'$" .$5".-F$"(%$, (4$%"( <"M)"d$AA)!,"6IRR:;",! $)+" .()"%!$)",! "/$-," .!)$"(,"(, $22(D$,'$"
should operate ‘in the blind’ in regards to future operations, but it does mean that they should never be given the task
of providing support for a particular action.
a`"0#-' ( (!,$#)"-,%"/(2( -#5"(, $22(D$,'$"0$!02$"C! ."$/0.-)(^$"'#$- (F( 5+"!A $,"#$A$##(,D" !" .$(#"1!#*"-)"-,"
-# <"g-/!"6899R;",! $)" .- "@05/-) $#"M.-#!,"O-#*-).+"!,$"!A" .$"A$1".$-%)"!A"`)#-$2("/(2( -#5"(, $22(D$,'$" !")$#F$"
his full term, succeeded because of his creative use of information that would not normally be regarded of military
(/0!# -,'$<"O-#*-)." #($%" !"2!!*"- "0#!C2$/)"A#!/" .$"C! ." .$"(,)(%$"-,%" .$"!& )(%$"-,%" !"'!,)(%$#"W&-2( - (F$"-)"
1$22"-)"W&-, ( - (F$"%- -<"7$" .!&D. " .- "!2%"-00#!-'.$)" !"(, $22(D$,'$"1.('."'!,)() $%"0#(/-#(25"!A"W&-, ( - (F$"%- -"
F($1$%"A#!/" .$"!& )(%$"6)- $22( $"0.! !)+"QfV+"$ '<;+"'-&)$%"-,-25) )" !"A!'&)" !!"/&'."!,"1.- " .$5"'!&2%"/$-)&#$"
and not enough on what they could not. Farkash found value in unusual bits of information such as whether or not
people were out shopping in Beirut; he reasoned that if his enemy was shopping that was a pretty good indication
that their economy was doing well, that they were fairly happy, and thus less likely to launch an unprovoked attack.
a`" 0#-' ( (!,$#)" -2)!" $/0.-)(^$" .- " .$(#" %()'(02(,$" ()" -," $ .('-2" -,%" 2$D-2" C&)(,$))" 0#-' ('$" 6(," '!, #-) " !"
(,%&) #(-2"$)0(!,-D$;<"K.$(#"a!%$"!A"Z .(')"#$W&(#$)"'!/02(-,'$"1( ."-22"-002('-C2$"2-1)+"%!/$) ('"-,%"(, $#,- (!,-2L"
( "-2)!"#$W&(#$)" .$"-''&#- $"%()'2!)&#$"!A"-22"#$2$F-, "(,A!#/- (!,+"(,'2&%(,D"!,$3)"(%$, ( 5"-,%"!#D-,(^- (!,+"0#(!#" !"
all interviews.
a`3)"&)$"!A"2$D-2"/$-,)"-,%"0&C2('-225"-F-(2-C2$"(,A!#/- (!,"%!$)",! "0#$F$, "( "A#!/"0#!%&'(,D"-,-25)()" .- "!,$"
might think could only be obtained by espionage. Most managers would be shocked to learn what a clever competitor
'-,"4,%"!& "-C!& " .$/"A#!/" .$(#"0&C2('-225_-F-(2-C2$"42(,D)"1( ."D!F$#,/$, -2"-D$,'($)<"d!.,)!,"689I9;"0#!F(%$)"
a cookbook formula for legally spying on a competitor’s private aircraft with the help of government agencies and
0#(F- $" %- -" 4#/)<" K.()" -& .!#" F$#(4$%" d!.,)!,3)" A!#/&2-" (," !C -(,(,D" -(2" ,&/C$#)+" )$#(-2" ,&/C$#)+" -,%" /!%$2"
,-/$)"!A"Ib"0#(F- $"-(#'#-A "!1,$%"C5"b="a!#0!#- (!,<"K.$"-& .!#"-2)!"'!,4#/$%" .- "( "()"0!))(C2$" !"2() $,"(,"!,"
-(#" #-A4'"'!, #!2"'$, $#)"-,%"&)$"! .$#"2$D-2")!&#'$)" !"4,%" .$"'&##$, "2!'- (!,+"-2 ( &%$+"-,%")0$$%"!A"-(#'#-A "&,%$#"
-(#" #-A4'"'!, #!2<""
K.$"-& .!#"(, $#F($1$%"-"A!#/$#"$/02!5$$"!A"-"O!# &,$"I99"4#/"1.!".-%"C$$,"( )"!,25"A&22_ (/$"a`"$/02!5$$"A!#"
many years, and was surprised at the level of detailed knowledge that employee had legally collected concerning his
'!/0-,53)"'!/0$ ( !#)<"K.$"$/02!5$$"#$2- $%".!1".()"'!/0-,5".-%"'!/02$ $25"4D&#$%"!& " .$"'!/0$ ( (F$") #- $D5"
of a particular competitor, and how it had been possible to accurately predict how it would behave under nearly any
hypothetical circumstance.
`,"a`Y?-#D-/(,D+"a`"()"&)$%" !"%$)(D,"1-#D-/$)"1.('."-#$" !"C$"&)$%" !" #-(," !0"%$'()(!,"/-*$#)"\&) "-(#02-,$"
)(/&2- !#)"-#$"&)$%" !" #-(,"0(2! )<"K#-(,(,D"!,"1-#D-/$)"-,%"-(#'#-A ")(/&2- !#)"C! ."#$W&(#$" .$")(/&2- !#"( )$2A"
6 .$"0.5)('-2"/!%$2"!A" .$"$,F(#!,/$, ;"-,%"-"0-# ('&2-#"/())(!,Y)'$,-#(!" !"C$"$E02!#$%<"a`"()"&)$%" !"%$)(D,"C! ."
the competitive environment and scenarios to be used in wargames. The scenario-based planning used at Shell
also uses information about the environment to develop scenarios, but it is unclear if the information is gathered by
/$ .!%)" .- "-/!&, " !"a`<"j .$#"%(AA$#$,'$)"-,%")(/(2-#( ($)"C$ 1$$,"a`Y?-#D-/(,D"-,%")'$,-#(!_C-)$%"02-,,(,D"
are discussed in the next two sections.
:%7%F"#%(%!/'C!(I!!$'3456"#&"7%$&'"$-':+!$"#%)AJ"/!-'?F"$$%$&
?-#D-/(,D"(,"a`Y?-#D-/(,D"()")(/(2-#"(,")!/$"#$)0$' )" !" .$"1!#*"%!,$"(,")'$,-#(!_C-)$%"02-,,(,D"- "@.$22"
j(2"-)"%$)'#(C$%"(,"[-,"%$#"7$(\%$,"6899];<"@.$22"02-,,$#)".-%"(,( (-225".!0$%" !"%$F$2!0")'$,-#(!)" .- "-''&#- $25"
predicted the future. They soon discovered that predicting the future wasn’t possible, but found that there was
) (22"F-2&$"(," .$")'$,-#(!)"-)"T) !#($)" !"$E02!#$<X"a`Y?-#D-/(,D"2(*$1()$"#$\$' )" .$",! (!," .- " .$"A& &#$"'-,"C$"
0#$%(' $%"-,%"-2)!"4,%)"F-2&$"(,")'$,-#(!)"-)") !#($)" !"$E02!#$<""""
@.$22"A!&,%" .- " .$")'$,-#(!)"1$#$".$20(,D" .$/" !>"%$F$2!0"0#!\$' )"-,%"/-*$"%$'()(!,)" .- "1$#$"/!#$"#!C&) "
&,%$#"-"F-#($ 5"!A"0!))(C2$"A& &#$)+"%!"/!#$" .!#!&D." .(,*(,D"-C!& " .$"A& &#$"6)0$'(4'-225"-C!& "1.- "'-&)$)"!(2"
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0#('$)" !"'.-,D$;+"-,%"/!#$"W&('*25"#$'!D,(^$"-,%"#$-' " !"1.- "1-)".-00$,(,D<"K.$"4,-2"C$,$4 "6W&('*"#$'!D,( (!,"
-,%"#$-' (!,;"()" .$"!,$") #$))$%"(,"a`Y1-#D-/(,D<""
Scenarios in scenario-based planning and wargaming both combine the predictable or “predetermined elements”
and unpredictable “uncertainties.” In both cases all scenarios contain the same predetermined elements while the
unpredictable uncertainties vary from one scenario to the next. Using the aircraft simulator analogy, the simulator
itself represents the predetermined elements; it is constructed and programmed to react in exactly the same way the
real aircraft would to any control action taken by the pilot or any environmental condition provided by the scenario.
The simulator itself doesn’t change from one training scenario to the next.
Again, using the aircraft simulator analogy, an uncertainty would be something unpredictable like an engine
A-(2&#$"!," -*$!AA<"Z-'.")'$,-#(!"1!&2%"0#$)$, "( )"!1,"&,(W&$"&,'$# -(, ($)+"-,%").!&2%"#$0#$)$, ")!/$ .(,D" .- "
could conceivably happen. However, prediction isn’t the goal and just as the training scenarios in aircraft simulators
are unlikely to exactly match the actual disaster a pilot eventually faces, so to scenarios in both wargames and
scenario-based planning are unlikely to exactly match anything that actually ends up happening. That said, if the
)'$,-#(!"()")&A4'($, 25"1$22"%!,$+"%$-2(,D"1( ."( "1(22"C$"&)$A&2"(,"C&(2%(,D" .$"/-,-D$#3)".() !#('-2"(/-D(,- (!,"-,%"
his or her ability to recognize and handle real world disasters.
O!#" $E-/02$+" %$)0( $" .$" A-' " .- " U@" M(#1-5)" a-0 -(," @&22$,C$#D$#" /&) " .-F$" .-%" -" D#$- " %$-2" !A" 0#$F(!&)"
actual and simulated learning prior to the disaster he faced during Flight 1549, he had never experienced the exact
'(#'&/) -,'$)".$"A-'$%"!," .- "i(D. <"@ (22".()" #-(,(,D"-,%"$E0$#($,'$".-%"A!#/$%".()".() !#('-2"(/-D(,- (!,"-22!1(,D"
.(/" !"W&('*25"#$'!D,(^$" .$"%()-) $#".$"A-'$%"-,%"$E$'& $" .$"0#!0$#"#$-' (!,<
@$F$#-2"-& .!#)".-F$"$E0#$))$%"!0(,(!,)"-C!& " .$"W&-2( ($)")'$,-#(!)").!&2%"-,%").!&2%",! ".-F$<"K.$)$"W&-2( ($)"
1!&2%"C$"%$)(#$%"(,"$( .$#")'$,-#(!_C-)$%"02-,,(,D"!#"1-#D-/(,D<""O!#"$E-/02$+" .$")'$,-#(!)"/&) >
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l"
a-&)$"-"C#!-%"-,%"(, $,)(F$"%$C- $"(,F!2F(,D" $'.,('-2"())&$)"-,%") #- $D('"#$0$#'&))(!,)<
B$"#$2$F-, " !" .$"'!/0-,5"(,"W&$) (!,<
Provoke surprise and even emotion responses … they should be disturbing.
Not be sold as exact predictions.
Be done with top operating managers as participants.
.%//%7%F"#%(%!/'J!(I!!$'3456"#&"7%$&'"$-':+!$"#%)AJ"/!-'?F"$$%$&
Despite the similarities just described, the wargaming recommended here is fundamentally different from Shell’s
scenario-based planning in that in the Shell-model the scenario is presented in its entirety before decision makers do
.$(#" #-(,(,D"1.(2$" .$")'$,-#(!"()"!,25")2!125"#$F$-2$%"(,"a`Y?-#D-/(,D<"K.$"@.$22"-00#!-'."()"$W&(F-2$, " !" $22(,D"
the test pilot that the upcoming exercise will involve a dead-stick landing. In that case operating managers train by
making strategies, developing plans, or devising projects with the complete scenario in mind.
`,"a`Y1-#D-/(,D"%$'()(!,"/-*$#)"/&) ") #&DD2$" !"#$'!D,(^$" .$")( &- (!,"1.(2$" .$5")(/&2 -,$!&)25"- $/0 " !"
make decisions. Since they do not know the nature of the scenario, it will be much harder for them to make strategies,
develop plans, or devise projects.
This difference in the way the scenario is revealed implies a difference in the role of those facilitating the
)(/&2- (!,<"?-#D-/(,D"()"-,-2!D!&)" !" .$"1!#*"%!,$"C5" .$" $) "0(2! )"(,"4,%(,D" .$"#(D. "1-5" !"i5<"K.$")(/&2- !#"
operator subjects the test pilot to the scenario, but does not give hints as to what is happening and certainly does not
0#$)&/$" !"D(F$".(, )"-)" !".!1" !"%$-2"1( ."( <"O2(D. ")(/&2- !#"!0$#- !#)"-,%"1-#D-/$"A-'(2( - !#)"-#$",! "$W&(00$%"
to teach test pilots and decision makers respectively how to recognize and react to problems. The test pilot will
#$'!D,(^$"-"0#!C2$/"C5" .$"(,) #&/$, "#$-%(,D)+" .$"A$$2"!A" .$"-(#'#-A +".()Y.$#".() !#('-2"(/-D(,- (!,+"$ '<"h(*$1()$"
.$"%$'()(!,"/-*$#"1(22"#$'!D,(^$" .$"0#!C2$/"C5" .$"(,A!#/- (!,"i!1(,D"A#!/" .$")(/&2- (!,"-,%".()Y.$#".() !#('-2"
imagination.
In contrast, those facilitating the scenario-based planning begin by telling the decision makers all about the
scenario. Since decision makers often have the ego of test pilots, they will most likely have trouble accepting the
scenario’s inevitabilities if they are simply given to them. In order to believe in them they must discover them for
.$/)$2F$)<"K.$"/-(,"%(AA$#$,'$"C$ 1$$," .$")'$,-#(!"02-,,(,D"- "@.$22"-,%" .$"a`Y?-#D-/$"-00#!-'."()" .- "(," .$"
wargame approach players must discover inevitabilities for themselves.
M(#'#-A ")(/&2- !#)"'-,"C$"&)$%" !"$E02!#$"-")'$,-#(!"A!#" .$"4#) " (/$"-,%" !"%()'!F$#"-"1-5" !"%$-2"1( ."( +"!#" .$5"
'-,"C$"&)$%" !" $-'."/$ .!%)"A!#"i5(,D"-,%"%$-2(,D"1( .")'$,-#(!)" .- "! .$#)".-F$"%()'!F$#$%<"B! .")'$,-#(!_C-)$"
02-,,(,D"-,%"1-#D-/(,D"-#$"A!#"$E02!#(,D")'$,-#(!)"A!#" .$"4#) " (/$L"C! ."-#$"A!#"T $) "0(2! )<X"B& " .- ")-(%+" .$" 50$"
of the exploration is very different.
In the Apollo 13 disaster, an earth-based simulator was used to discover the correct way to boot up systems in
59
Advances in Business Research
2010, Vol. 1, No. 1, 53-61
Huffman
the real command module out in space. The procedure developed by trial-and-error in safety on earth was radioed to
.$"-' &-2")0-'$'#-A "1.$#$" .$"-) #!,-& )".-%" !"D$ "( "#(D. " .$"4#) " (/$<"K.$" 50$"!A"$E02!#- (!,"%!,$"C5" .$"$-# ._
C-)$%" $) "0(2! )"(," .- "%()-) $#"()")(/(2-#" !"$E02!#- (!,"%!,$"(,")'$,-#(!"02-,,(,D>"-"'!/02$ $%")'$,-#(!"()"0#$)$, $%"
to business managers who then work out a course of action for dealing with it.
`," '!, #-) +" a`Y1-#D-/(,D" ()" /!#$" 2(*$" .$" /!#$" .$' ('" 50$" !A" $E02!#- (!," .- " 1-)" %!,$" C5" .$" M0!22!" Ib"
-) #!,-& )"!& "(,")0-'$<"K.$5".-%" !"4,%"-"1-5" !".-,%2$" .$")0-'$'#-A "-A $#" .$"$E02!)(!,<"K.$5"1$#$,3 ")&#$"$E-' 25"
1.- " .$5"1$#$"%$-2(,D"1( ."1.$," .$5"1$#$"%$F$2!0(,D" .$(#" .$!#($)"-,%"#$-' (,D"!," .$"i5<"K.$5".-%" !"2$-#,"-)"
the events happened.
@'$,-#(!_C-)$%" 02-,,(,D" .-)" ( )" C$,$4 )<" @.$22" $E$'& (F$)" 2$-#,$%" !" '#-A " )!2& (!,)" -(2!#_/-%$" !" .-,%2$" -22"
aspects of the scenarios they are exploring. The problem is that the executives are not trained to recognize a growing
disaster or to react to it as it plays out. Also, as mentioned earlier, this may explain the fact that many Shell executives
did not have their mental models changed; they didn’t believe the inevitabilities imbedded in the scenario because
they hadn’t discovered them for themselves.
Shell executives under their scenario-based planning are like football coaches who have watched game videos of
.$(#",$E "'!/0$ ( !#<"`," .$"-' &-2"D-/$" .$"'!-'.$)"1(22"C$"W&('*$#" .-," .$5"1!&2%".-F$"C$$," !"#$'!D,(^$"1.- " .$"
'!/0$ ( !#"()" #5(,D" !"%!"6-))&/(,D" .$"'!/0$ ( !#"%!$),3 "/-*$"-,5"A&,%-/$, -2") #- $D('"'.-,D$);+"-,%"'-,"'-22"
.$"02-5" .$5"%$)(D,$%" !"%$-2"1( ."( <"P$Q$&)"6IR::;")-(%" .- " .$"@.$22"/-,-D$#)" #-(,$%"(,")'$,-#(!_C-)$%"02-,,(,D"
1$#$"(,"A-' "W&('*$#" .-," .$(#"&, #-(,$%"'!/0$ ( !#)"- "#$'!D,(^(,D"-"0-# ('&2-#")( &- (!,+"C& " .$"-' &-2")( &- (!,)"
they recognized might have been atypically easy to recognize because they happened to resemble the scenarios the
/-,-D$#)".-%" #-(,$%"!,L" .$"/-,-D$#)"/(D. ",! ".-F$"C$$,"-C2$" !"#$'!D,(^$"!#"#$-' " !"-"%()-) $#"(A"( ".-%"C$$,"W&( $"
a bit different from the scenarios.
M2 .!&D." .$" 0#!0$#" -002('- (!," !A" '!/0$ ( (F$" (, $22(D$,'$" (," a`Y?-#D-/(,D" ()" (, $,%$%" !" 5($2%" )'$,-#(!)"
which are plausible and therefore should have some chance of resembling what actually happens, there is always the
0!))(C(2( 5" .- "-"0#!C2$/"1(22"'!/$"'!/02$ $25"!& "!A"2$A "4$2%<"@&#$25" .!)$"1.!"-#$" #-(,$%"C5"a`Y?-#D-/(,D" !"
formulate a response to an unknown situation would have an advantage over those who are used to having the entire
problem laid out for them.
a!#0!#- $"/-,-D$#)"1.!"02-5"1-#D-/$)" ).!&2%"C$" W&('*$#" !" 0#!0$#25"#$'!D,(^$" -" %()-) $#"-)"( " &,A!2%)" -,%"
better at inventing reactions under pressure. In short, wargaming would have all of the advantages of scenario-based
training and leave the manager in a better position to deal with unforeseeable real world disasters.
*K@K*K;3K:
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J#%"$'L<==7"$'is a professor of management and chair of the department of management and marketing at the
University of Wisconsin - River Falls. He received his Ph.D. in management for the University of Minnesota. His
research interests include computer simulation, strategy, and organizational behavior. He has published in INFORMS
Transactions on Education, Business Horizons, Review of Business Research, and others.
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