Contingency Planning

Formal strategic planning is normally done based on events and possibilities which have high possibilities of happening. How-ever it ignores many less likely happenings which if occur can have a very significant impact on business. These events (example a hostile takeover attempt, key executive leaving the organization, stock crash etc) may require actions and approach which may be entirely different from long term plans and strategies of business. These events many times require managers to take strategically important decisions in very short span of time, leaving no time for analysis and thinking.

 

   

Contingency plans are basically preparation to take specific actions when an event not planned for in usual planning process actually takes place. Such plans place managers in a better position to take required decisions. Contingency planning eliminates fumbling and time delays in emergency situations and enables much rational response. For example a 'Corporate Defense Black-book' lays down list of jobs to be done by managers in case a takeover threat is identified. This ensures that managers can respond quickly when the need arises. As a proximal benefit, contingency planning process force managers to look at all the possible dimensions of environment. This exercise combined with their experience in normal strategic planning, develops managers' ability to deal with emergency situations.

 

There are a few disadvantages of Contingency planning as well. Contingency planning requires managers to thing about pessimistic possibilities and may simulate a negative and skeptical attitude.  Few contingency plans if revealed may generate fear in the organisation. For example contingency plans related to job cutting in case of drastic fall in sales or a plan to tackle labor strike in organisation may cause moral problems among employees.

 

Contingency Planning process:

 

1.  Identifying the contingencies:  The most important part of co

ntingency planning is to identify those rare events which if happen can pose a serious problem or a lucrative opportunity for organisation and will require a quick response. The range of events and conditions fitting these characteristics is quite wide and hence it is important to identify the events for which plans are to be made. Both the degree of criticality and degree of probability must be considered while choosing an event for contingency planning. There are various methods using which such events can be identified.

     

What-If:    One very usual method of identifying possible contingencies is to ask What-if questions. Examples: What if government regulations change?, What if a key executive dies?, What if company looses an important legal battle? What if stock price crashes? etc. These quest

ions will helping identifying severity of various possibilities.

 

Near-miss reporting: This process, normally used in industrial setups to identify safety threats, can be very useful. Managers while carrying out day to day functions many times witness possibilities of some adverse events which don't actually occur just because of chance. These are very subtle possibilities and may easily go unnoticed. In near miss reporting people are encouraged to note down such events and then think over the implications that may have occurred.

 

2.         Formulating Plans:

Once the events to be planned for have been identified, possible actions should be analyzed. Based on the analysis ideal set of actions should be formulated. But one should not forget that most of these events have very small probability if occurring and even when they occur there is probability of them occurring in a different form than the expectation. Hence the contingency plan many times provides a broad idea to decision maker and his own improvisation is needed to tackle the actual contingency.

 

3.      Trigger Points:

It is also important to pre-determine the trigger point at which a contingency plan will be implemented. Many time contingency conditions occur gradually and chance of natural recovery on is also there without needing the contingency plan. This presents a dilemma in front of manager which may cause delay in action. Hence a trigger point for a particular contingency plan ensures quick action as and when required. Deciding these trigger points (ex: A particular level of share price to make some public announcement) however is a tough job.

 

4.      Documentation:

There is not one correct method of documentation of contingency plans. Some times it may be in form of a booklet, some times a public notice board or some times it may be just in the brains of executives. If required such plans should be documented in a booklet with all the required details, important contacts, designated decision making authority etc.     

 

Contingency plans when exercised are usually result in short term actions. But contingency planning may be very important for preventing organization from loosing track of long term plans due to some short term crisis. This also indicates that even the contingency plans should be made keeping in mind organization’s mission and vision.

 

Reference: George A. Steiner, ‘Strategic Planning, A step by step guide: What managers should know’.

 

Memory of future: A neurological explanation

A few days back we, at XIMB, had an immersion course on Neuromarketing by one of our distinguished alumnae. It was a really interesting course which combined the concepts of branding and marketing with biological functioning of human brain. Basically it explained how important role the Neural- connections and mental heuristics play in determining human behavior. In this concept I found a very interesting explanation for the concepts of ‘memory of future’ and the ‘scenario planning’. Let me try to put this in words.

As per my understanding, Neuromarketing (See definition in the box) is based on the concept of Neural-connections or Priming. All the activities in our brain take place in form of electro-chemical signals. These signals are generated in and travel between neurons (See diagram). Brain consumes energy in generating and transmitting these signals. Once a new concept is introduced to the brain it works hard in generating new kind of signals and establishing new neural path for these signals to travel. But once this path is established, next time brain will process the similar concept with much ease, consuming less energy and taking very less time. These established neural paths act as a path of low resistance as compared to establishing a new path for signals to travel. Hence when brain is faced with a challenge to identify a concept which is somewhat similar to some old concept for which neural path already exist; it tends to process in similar way and it is more likely to understand it.

 

Neuromarketing is a new field of marketing that studies consumers' sensorimotor, cognitive, and affective response to marketing stimuli. Researchers use technologies such as functional magnetic resonance imaging (fMRI) to measure changes in activity in parts of the brain, electroencephalography (EEG) to measure activity in specific regional spectra of the brain response, and/or sensors to measure changes in one's physiological state (heart rate, respiratory rate, galvanic skin response) to learn why consumers make the decisions they do, and what part of the brain is telling them to do it.

Neuromarketing will tell the marketer what the consumer reacts to, whether it was the color of the packaging, the sound the box makes when shaken, or the idea that they will have something their co-consumers do not.

Priming: One of the main psychology principles behind marketing is the concept of priming. Priming a subject with a certain topic such as "dog" sets off an electrochemical reaction in the neural frameworks that code for dogs. Subsequent exposure to dog-related stimuli is processed faster because of the electrochemical priming. Assimiliation is the process by which new information is assimilated or incorporated into ones' existing neural structures. Advertising agencies know how important it is to repeat their messages so that priming and assimilation can take place. Priming usually occurs without the conscious awareness of the individual, even though the subsequent behavior of the individual may be altered by the priming.

Ref: http://en.wikipedia.org/wiki/Neuromarketing

 

Concept of memory of future I believe is due to this tendency of human brain only. When a person witnesses too many new things or concepts he is more likely to identify and understand  the concepts which are closest match to his past experiences.

In scenario planning we develop and present various possible scenarios which organizations may face in future. In scenario planning workshops, planners present those scenarios in form of comprehensible stories in front of people and make them think about various implications of those scenarios for organization. This exercise makes people process these concepts in their brain, developing the neural paths related to these new concepts.

The environment in which organizations work is usually a complex system. Environment normally doesn’t change all of a sudden. Various day to day events give subtle signals of impending change. Now the person, who already has some understanding of such changes through scenario planning workshops, is more likely to quickly identify those subtle signals of changes. This will reduce the organization’s response time in identifying and understanding the changing environment.