Slide 1

Professor Michael Mainelli, Executive Chairman, Z/Yen Group
Monday, 10 May 2000

cover slide

Good afternoon ladies and gentlemen.

It’s been a real pleasure to watch CFDG grow in size, scope and activity over the past decade and a real honour to be asked back to give a plenary speech on such a dramatic subject – Strategic Scenarios of the 21st Century. It’s also great to see so many familiar faces in the audience – and even some friendly ones. I guess that’s hardly surprising as we at Z/Yen are very interested in charities, finance and directorships, just not always in that order. When we began 6 years ago, Ian Harris and I hardly foresaw that 30% of our revenue would come from NGO’s. So you may ask, if we got that wrong, what hope of success have we in looking forward for the sector at your conference.

STRATEGY FRAMEWORK

Nevertheless, it is only right and proper to reflect before moving forward. Despite the Millennium hype, I am happy to punctuate our reflection based on time periods – every thousand years, every decade, every 5 year plan, every New Year’s Eve’s review of the Top 40 – every annual budget round. Jenny and Shirley and the other organisers have permitted me this year 2000 opportunity to speculate on the next century.

The tool I have chosen to use for this speculation is the use of scenarios. Scenarios fit into an overall strategic framework – where were we? where are we now? where are we going? But like an existentialist play, the question or answer to Where is of little use without the question or answer to Why – why or how did we get here? why or how do we go there?

In today’s brief talk, I would like to cover five topics:

  • the importance of stories and scenarios in strategy;
  • how we classify and construct scenarios at Z/Yen;
  • three fun scenarios for NGO’s - looking to the year 2020 and beyond;
  • how scenarios might be useful for charity finance directors.

 

Before we get going – how many of you know real option theory???

How many of you know the story of Ali Baba and the 40 Thieves???

You already know the power of stories.

And how I would measure the success of today’s talk? Later, you’ll believe me when I say – this talk is a success if you go back to your organisation and tell a story or two.

Once upon a time, about 400 BC in China, a man, Sun Tzu he was called, discovered strategy. Over the years, strategy as a managerial tool has settled down in its organisational place. We have learned a lot about what strategy is Not. Strategy is neither the be all and end all of organisational life, yet it remains an important tool. We have moved a long way from the military style of strategic planning as well as a long way from the rah-rah vision and mission merchants (apologies Tony). We have realised that strategy is not just about planned direction, but also about recognising emerging patterns from the environment and the environment’s reaction to our responses. Finally, we have begun to realise that strategy is not about the long-term rather than the short-term, but about the high-risk/high-reward decisions, rather than the day-to-day. At Z/Yen, we couch our strategic planning within a risk/reward framework, but whatever your methodology, most people recognise that strategic planning has a crucial, if circumscribed, place in improving organisational performance.

LIMITS OF PLANNING

Interestingly, the increasing acceptance of strategic planning coincides with growing academic scepticism about provable results. Objectively, we are unable to correlate performance and strategic planning, as demonstrated in one deep Z/Yen study six years ago. When looking at the evidence; we cannot prove that strategic planning gets results; we offer a number of excuses. Our first excuse is that things are changing too fast – but why bother planning then? We also blame the methods – too much analysis for instance – but what good workman blames his or her tools – perhaps we don’t know how to do it well? We also find ourselves going around in cause and effect circles – we are the largest organisation and that is our strategy, you know, to stay the largest, because we are the largest. We have also looked deeper and tried to blame the Cosmos – chaos theory proves that all our strategic planning is derailed by a butterfly fluttering somewhere deep in a Brasilian rainforest!

Finally, we suffer from my Catholic problem – damned if we do and damned if we don’t. After agonising over a predictive plan, we suffer when an opportunity arises. If our plan didn’t predict the opportunity we feel guilty following the plan (because it now feels fallible) and we feel guilty not following it (because we throw away all that effort). To Paraphrase Harold Macmillan – “Opportunity guilt is our way of not dealing with events dear Boys, Not dealing with events.”

All of these troubles lead organisations to classify planning as irrelevant or reject planning altogether. Yet at the same time, there are a lot of unprovable things in the world which we do in sincere belief or good faith, for instance, much of the important work in your organisations.

FUNDAMENTAL PREMISE / PARADOX

We face a paradox, particularly as financial people – you can’t make rational decisions without planning – yet that requires placing an unprovable value on non-financial inputs and outcomes. People often ask why Ian, I and other members of our team enjoy working with the voluntary sector. The answer is straightforward – we like to challenge our intellect and the voluntary sector is the most demanding one we know because it is so difficult to place a value on inputs and outcomes of decisions in the sector.

I may not be the best people person, but I have learnt the hard way that only people can give these values. It is at this point that I turn to stories. My first story is about the new charity finance director who went to her first trustee meeting. Fired up with enthusiasm for her new role and full of strategic planning advice got on the cheap from an inebriated Z/Yen consultant she met at a CFDG drinks party, she was determined to make her mark. Her trustee presentation was filled with eyeball-popping pie charts, fantastic flip charts, detailed spreadsheets incorporating real option theory and even a handy-dandy phonecard with the new strategy inscribed in 8,000 micro-dots. You know the end of this story – they didn’t understand a word and did what they felt like doing anyway.

What she needed, what we all need, is a way of making strategy and planning with numbers mean something to real people – hence the focus on scenarios, a fancy strategy word for stories.

While you read the business text from the slide, I want to read to you a paragraph or two about stories written by a storyteller. This passage comes from one of Terry Pratchett’s 20 Discworld novels called Witches Abroad. Terry’s fantasy humour world is based on sound principles. In the Discworld you don’t have to believe in absurd ideas like quantum physics. The Discworld is soundly based on legends of a flat spinning world on the backs of four enormous elephants who in turn march in a circle on the back of a gigantic turtle who swims endlessly through outer space. A lot more believable, eh:

“… on the Discworld, people take things seriously. Like stories.
Because stories are important.
People think that stories are shaped by people. In fact, it’s the other way around.
Stories exist independently of their players. If you know that, the knowledge is power.
… And they have evolved. The weakest have died and the strongest have survived and they have grown fat on the retelling…
Stories etch grooves deep enough for people to follow in the same way that water follows certain paths down a mountainside. And every time fresh actors tread the path of the story, the groove runs deeper.
This is called the theory of narrative causality and it means that a story, once started, takes a shape. It picks up all the vibrations of all the other workings of that story that have ever been.
This is why history keeps on repeating all the time.
So a thousand heroes have stolen fire from the gods.
A thousand wolves have eaten grandmother, a thousand princesses have been kissed…
It is now impossible for the third and youngest son of any king, if he should embark on a quest which has so far claimed his older brothers, not to succeed.

Stories don’t care who takes part in them. All that matters is that the story gets told, that the story repeats. Or if you prefer to think of it like this: stories are a parasitical life form, warping lives in the service only of the story itself.”

During the rest of the novel, three witches try to make sure a servant girl doesn’t marry a prince – it’s a very big job – you can’t fight a Happy Ending.

Back to the not so real world - some of the biggest organisations, starting with Royal Dutch Shell, have spent many years and much money learning how to tell stories – in order to improve their ability to handle uncertainty.

 Now I’m not trying to turn a bunch of accountants into the firm of Grimm, Grimm & Grimm or Hans Christian Arthur Andersen. Scenarios are stories with a boring cost/benefit equation attached – Shell doesn’t spend that money to bring out kiddies books - Z/Yen does, but that’s another story about our multicultural publisher, Milet.

One of the biggest problems we faced doing strategies and scenarios for clients was developing stories which had the right spread of events to help the business. In other words, we needed to be able to ‘map’ the universe of useful scenarios, not just make up tales. Naturally, we started with risk profiling. We find that almost all of our work can use risk profiling about individuals and organisations to ensure the correct spread of scenarios. We can also start to guess which story will most help which type of individual.

You see before you a mapping of individuals taken from John Adams’ Risk structure. Adams and others, such as Geert Hofstede working on culture, have begun classifying people’s views of risk as ways of classifying their views and their cultures. His first axis, the horizontal, divides people into those who look at collective risk versus those who look to themselves. His second axis, the vertical looks at those who see the world as one at the top where authority sets the rules, equally applied even if unfair, and the bottom where people make the rules themselves. The four resulting risk character types, each view a different world.

Before I get deep into libel and slander, let me emphasise that people exhibit different risk profiles at different times and in different situations. Profiles are merely tools to help us make a small amount of sense of a confused world. Organisations too have different risk profiles within different functions, e.g. accounts versus fundraising, etc. Nevertheless, let’s have a bit of fun using these stereotypes.

  • The Individualist is almost a parody of an 80’s yuppie. Nature is benign – it won’t hurt him or her. If they hit you with their German-built Rover, well, let them know how much they owe – see you later. At the extreme, we could put quite a few fund-raisers into this category – for the right deal a bit of tobacco sponsorship may be a good thing, after all the money was going to go somewhere.
  • The Uber-egalitarian is almost a parody of a 60’s or 70’s socially-conscious individual – the Good Life. Nature is ephemeral, about to be overwhelmed at any minute, twenty years ago it was the coming Ice Age, today it’s global warming. The uber-egalitarian mode could be assumed to be the working mode of most activists. Their battle cry is often “there ought to be a law…”.
  • The Hierarchist sees nature as something to be overcome, but manageable. The hierarchist is a natural bureaucrat and loves decisions based on sound thinking, however irrational the result. He or she is most likely to be the only one of the four character types who would value cost/benefit analysis. Some would say that most finance directors are in this mode during their working life. They are in conflict over rules with the Uber-egalitarians, but agreed that the Individualists (fund-raising) need to be contained.
  • The Fatalist sees nature as capricious. At best, it’ll all come back and bite ’em. At first glance, these folk are the least interesting, after all they just sit there and take it. Strangely, after you do this a few times, this position gets more and more interesting – it’s how most of us react to the vast majority of decisions we face every day, including things like not turning out to vote for the London mayor or not contesting an invalid parking ticket or not changing our mortgage ’cause they’re all the same in the end. If we had more time, I’d love to explore this further.

I repeat – all this risk profile stereotyping is a crude tool. Individuals inhabit different positions at different times in different circumstances for different decisions. I may be a fatalist about comet disasters, an individualist about my children’s education (sorry Tony), a hierarchist about corporate rules and an uber-egalitarian about corporate pollution.

We can also map these risk profiles back to strategic work. Depending on your view of the world, you are more likely to deploy a different risk profile based on high or low risk and reward environments. Some people find it easier to remember AA Milne’s Winnie-the-Pooh risk profiling. Pooh is the individualist who sees it all coming right in the end – there’s always a hunnypot. Owl is the hierarchist who wants to understand the order in the world and make sure that others follow it. Eeyore is obviously the fatalist and Piglet probably the uber-egalitarian.

By now, you probably ought to be asking for a bit of harder-edged realism than a few fairy tales. Well, let’s see how these four risk profiles map on to different scenarios.

In the two columns before you, I set out some of the characteristics we expect in a Fatalist scenario. We won’t spend time today on the fatalist. He or she would expect us to ignore them. Don’t mind me, nothing matters, why does it always rain on me? This risk profile can be the most interesting – as I said earlier – but takes a bit of time and discussion. I will just leave you with one thought, possibly an unsettling one, that this is the risk profile we most often give to our beneficiaries, whether they fit there or not. A discussion for another day.

For the next three risk profiles, I ask you to sit back and listen to three stories from the Year 2020, if you haven’t read most of one of them already in today’s Guardian. CFDG has kindly provided a hardcopy of the three scenarios which you can grab on your way out – so don’t worry about taking notes, just imagine…

Power Brokers - Hierarchist

The voluntary sector has grown significantly from 2000. The voluntary sector in Britain and the USA is now 15% of GDP, the result of sustained 10% real growth relative to the regular economy. European and Asian voluntary sectors are showing similar growth, albeit about a decade behind. With size has come recognition. The first meeting of the C8 in 2010 revealed that their combined annual expenditure was larger than Italy’s economy. Today, IMF and World Bank meetings honour the Observer status of the C8’s General Treasurer, while the UN Peacekeeping forces frequently report to the C8’s Commander of Voluntary Relief in non-combat situations. C8 Councils, and the new Voluntary Parliament, have struggled to inform public opinion while working with, and within, the larger international organisations. In particular, the ISO21000 standard, and its enforcement through the C8, has led to better practices and clearer delineation of the charitable sector from activists.

Growth has not been painless. Events leading up to the formation of the C8 saw the suppression of heretical voluntary organisations, acting outside the Code of Government Co-operation agreed by the major organisations within the C8. Rogue organisations, frequently based in Charity Havens, have been using the internet and other surreptitious fund-raising activities to breach the agreed 15% expenditure level agreed with the major governments. Violation of the 15% GDP expenditure level will force governments, acting to preserve a reasonable economy for their tax base, to enforce even stricter definitions of voluntary work, as France recently required a “test of total unemployability” before exempting charitable staff expenditure. Other countries may soon also outlaw volunteers because of the effect on employment statistics.

All this growth owes quite a bit to the ever-more-aggressive and successful fund raisers. By uniting globally, and with a few public “outings” of non-givers, voluntary sector giving is trendy. Making the individual 5% Norm work led to the corporate 5% Norm being successful. By structuring the funding through payrolls, the C8 Councils have been able to increase their power through ensuring control of financial resources. Responsible funders now only deal through a Funding Manager. Funding Management Organisations in the Square Mile, controlling over £162 billion, are the only authorised fund distributors in the UK. Individual donors, as always, are able to donate directly, but only a few renegade, typically larger donors do so. Renegade donors need significant sums, in one Sunday Times exposé £10 million, before they can get attention. Much of this funding structure is USA-driven. USA regulations, in particular the GOECC (US Government Organization for the Environment, Charities and Care) rulings, are increasingly forcing charities worldwide to meet US listing standards.

Beneficiaries have not been forgotten in all the growth. Increasing leisure time, combined with an aged, but too-early-pensioned retirement generation, has allowed the voluntary sector to deploy increasing numbers of workers, although demographics indicates future staffing problems. The passing of the National Service Act of 2010 was a major help to voluntary organisations, particularly as it forced older people back into helping with care. It was ironic that some pensioners were caught by National Service both coming and going.

This second scenario draws heavily on one of the best debates on the voluntary sector I have attended – that was held by Sayer Vincent in March at CharityFair.

Free for All - Individualist

In a series of “smash and grab” raids, southern NAFTA non-profits have been taking unauthorised liberties with the EU voluntary sector. Displacing authorised giving in areas such as humanitarian aid, cancer research and environmental relief, these NAFTA nifties are being rooted out by the Continental Revenue and the EU Border Patrol. It is testimony to the impoverished state of NGO’s globally, that unauthorised NGO’s have targeted the richer European markets for smash and grab fund-raising. Nevertheless, EU authorities have also had to shut down over 50,000 European NGO’s in the last year for illegal activities in support of their causes.

Within Europe, NGO’s spend at least as much effort fighting their European brethren. Strongly-defined battle lines exist not just in the long-running abortion vs birth-control or slavery-purchase vs child-labour conflicts, but also in the pharmaceutical-cooperative versus patent-breaking malaria and AIDS conflicts, the children’s rights versus less-than-zero-tolerance conflicts and the legalise versus criminalise drugs conflicts. The Southern African Control Zone has banned all EU activist, and most relief, organisations since the incident in 2017 when a pitched battle and bombings led to a small-scale war with over 1,800 casualties. To this day, Swiss NGO staff still have trouble getting clearance because of their military service.

NGO’s have also struggled with middling growth. While some of the headline causes remain as popular as ever, donors seem to want evidence of smaller NGO’s intention to seek their own superfluity – “we hold ourselves accountable to both those we seek to assist and those from whom we accept resources”. This has driven some NGO’s to renounce all government funding as detracting from the main mission. Changing society’s commitment to causes through activism is believed to be far more important than the direct alleviation of need. Voluntary sector groups have witnessed severe schisms between those who will, and those who will not, work with government. Perhaps the most vivid illustration of these schisms was the cancellation last year of the EUCVO because of the successful “Say No to Government” boycott.

Clearly, some of the middling growth is down to the anti-tax-break movement of 2005. In a strong bid to catch up with the USA, the EU decided to unite on at least one tax-break area; all NGO tax exemptions were abolished as too arbitrary and unfair. Despite years of legal wrangling, this abolition has held up in the European courts and has intensified over the years as consumers refuse to deal with charities that take from government – “A Charity is for Life, Not Just a Tax Break”. There has been some silver lining to the removal of special exemptions. Commercial regulations and company law requirements reduced some voluntary sector specialisms, removed some arbitrary regulators and opened the sector to probity without special laws.

The removal of exemptions has led to the removal of gloves by charities, with a more aggressive, pro-beneficiary stance. More and more voluntary sector organisations help beneficiaries coerce government, locally through consumer-style aid and information, at a national level through lobbying and legal action. Some of the US organisations are in hot water over their use of Political Action Committees (PACs) in the last election, but globally, most seem to agree that given their independently-raised funds, charities have every right to participate fully in democracy.

In the following scenario, charities really get close to government:

Control Freaks - Uber-Egalitarian

NGO’s are the new glamour sector. Since the early 00’s emergence of the MCA (Master of Charities’ Administration), the voluntary sector has been the career of choice for more and more high-fliers. The sector’s closeness to government, particularly as the second career of choice for ex-Prime Ministers given the powerlessness of the House of Lords, has led to increasing power and influence. On the international scene, the voluntary sector is the new cavalry, riding to the rescue. Since AAA (Aid and Administration for Africa) took over the management of three African countries five years ago, with at least limited success in two of the three countries, NGO’s have been the mechanism of choice for dealing with international systemic failures.

Naturally, all this activity requires resource, currently up to 20% of OECD GDP is within the voluntary sector. Much of this is tax expenditure; NGO’s working for government, implementing government policy. Charities claim that they are there to realise a better society when government and the market are unwilling or unable. Critics claim that the larger charities are too cost-obsessed to take risks. More severe critics claim that the larger charities are government lackeys, “outsourced government”, unable to say No when confronted with an unjust or unworkable policy. Some of this has been mitigated through direct participation, for instance when the Red Cross was voted out of Korea on vote4me.com, although the Charities Council always retains the right to overrule these votes.

Voluntary sector overheads are also increasing rapidly. The sector has warmly welcomed the Government Approved NGO certificate. Critics complain of the bloated policy and administration, but charities have a tremendous amount of government regulation, particularly since the £24 billion “Hug the Globe” scandal of 2007. Charities are perhaps their own best cops. In fact, most government regulation has been proposed and pushed by the voluntary sector itself. Most of the charity scams over the past ten years have been reported to the authorities by other voluntary organisations, among whom the “Angels of Malfeasance” are probably the best known. Other overheads include the new, mandatory Beneficiaries’ Councils. While perhaps a great idea at the time, these groups are frequently hijacked by special interests. A case in point is probably the diversion last year of some AIDS serum from the developing countries back to the UK because of a temporary shortage in Britain for which the Beneficiary Council insisted on taking no chances.

Looking at longer-term beneficiary relationships has led to interesting dynamics. Some countries, notably the USA, have been testing CMO’s (Charity Maintenance Organisations). In these, members are tithed on a combination of income and voluntary time. In return, members in need are guaranteed a minimum level of CMO support if they fall on hard times. What distinguishes CMO’s from other membership schemes are strong government pushes for membership (perhaps compulsory in the future), the implicit guarantee of aid for members in preference to others and the government/employer support for existing members – although critics claim that this policy of CMO annuities is merely “milk the grannies” or “beat the legacy”.

These three stories should help voluntary sector people deal with some looming uncertainties. They show the rich interaction of events, of power with money, of forces for working together or of forces for working apart. You can dip in at random, pick and choose. For instance, bits of Free for All should have you striving to develop deeper networks with other like-minded organisations while bits of Control Freaks should have you sucking up to government (we love ya’ Tony). Bits of Power Brokers should have you thinking about how your charity can consolidate its position within the charity power structure. Or, to take beneficiaries, Free for All should have you thinking about aggressive promotion of their agenda, while Control Freaks should have you thinking about the societal reaction to their needs and Power Brokers should have you thinking how to use the existing rules of the system to help them. Each scenario is a thought tool.

As I said, CFDG has kindly provided a hardcopy of the three scenarios which you can grab on your way out. I have also attached another page of ideas on characters, drivers, events and some provocation which may help you develop these scenarios further.

Feel free to use some of today’s session in an informal workshop with your own organisation. Develop scenarios you believe illustrate plausible tales for you – and then work backward to see how you could prepare today for the uncertainties they raise. Write them down. Use these tales as a shorthand description for outside behaviours – when legacy income collapses, how does your story – entitled Beat the Reaper – help explain what you might do?

Stories are a lot of fun. But as finance directors you need to turn these subjective risks and rewards into numbers and plans.

This is a deep subject. For the interested, I would suggest a good look at some spreadsheet add-ons, for instance @risk or Crystal Ball. It can be done – and you can do it. Let it suffice to say that scenarios are an excellent way to get your senior team to give you their real views on risk and rewards. All that’s left for you is to find a few tools to help you turn those views into semi-quantifiable outcomes. The tools do exist and Ian and I would be happy to point those of you who are interested in the right directions.

I hope I have begun to re-awaken childhood memories of the power of stories, but before we go overboard, there are some problems. A bit like the genie’s three wishes, suddenly you realise that with power come some unexpected responsibilities.

One of the first issues is realising that stories help you to comprehend, to cope or to visualise, but they don’t solve anything. Some of the most innovative things occur because people don’t follow an obvious story, e.g. landing on the moon, Amazon or Band-Aid. People applied the most far-out story to what appeared to be a stale tale.

Don’t worry, there are corporate storytelling experts, magicians, corporate fools, organisational shaman and all sorts of consultants who, as in the Wizard of Oz, hob-nob with each other in building professional scenarios. Yes, skilled practitioners can wring out a bit extra, but you can get a lot on your own as long as you manage the expectations. If you do take up my idea of going back and using stories to look ahead and then work back to today, realise the importance of culture. There is little point in any strategic planning, including scenarios, if the organisation does not genuinely wish to change.

Well then – to summarise. While there are difficulties getting agreement about soft inputs and outcomes in organisations, most especially NGO’s, it is needed and scenarios are very helpful. Scenarios and story-telling can help senior management teams to generate consistency amongst perceived risks and rewards and to share a shorthand internal set of stories which encapsulate these risk and rewards in comprehensible units.

At Z/Yen we sometimes like to claim that we use chance, risk and reward, to enhance organisations’ performance, or as I not so punnily say, to enchance organisations. Scenarios can help organisations, including yours, to deal with the uncertainty of the future by helping to measure the unmeasurable. When you have the day job of debits and credits, SORP, VAT and other things under control, this whole world of storytelling can help you deploy new stochastic tools and techniques.

I believe that some of you have already have, and most of you will – make the transition from critics to decision facilitators, improvers and integrators of your organisations. In fact, this must surely be the case – you are CFDG members because you want to improve yourselves and improve the sector. Some of you may be a bit apprehensive about this touchy-feely story stuff, but remember that as finance directors most of you are trained in one of the few professions where the key skill is how many creative stories you can tell from just one set of numbers.

Please feel free to use the copies of the scenarios outside. CFDG have also allowed us to present you with a chapter on strategy from Clean Business Cuisine, by Ian Harris and me, which is published this month by Milet. I hope you enjoy the chapter on strategy we selected from this humorous book which we meant to be a bit like Asterix and Obelix for organisations.

Scenarios are one tool which can help you deal with the 21st Century. Go back to your organisation and start to tell a story or two.

May you and CFDG live happily ever after.

THE END