PATTERN BASED STRATEGY is as full of complexity as it is of promise. The challenge is the efficient and structured determination of:
- Area of focus (i.e. what to look for and why)
- Content and event sources (i.e. where to look and why)
- Mechanics of pattern and signal detection
- Reaction to signal and pattern detection
- Refinement of hypotheses, patterns, signals (i.e. approach to continuous improvement)
Evangelists of Pattern Based Strategy focus on Pattern Detection technologies and say little of the mechanics behind determination of area of focus, content and event sources, reaction to detected patterns (be they weak or strong) and reaction to contradiction.
Figure 1 A three-cog model for Pattern Based Strategy, source: Steve Nimmons
The ‘three cog model’ in Figure 1 aims to address these deficiencies.
Pattern Based Strategy and PEST Analysis
PEST Analysis is suggested as a strategic thinking framework to focus on Political, Economic, Social and Technological forces (be they opportunities or threats).
To help reduce complexity and filter irrelevant forces, a VPEC-T frame (Figure 3) surrounds the PEST analysis activity.
Pattern Based Strategy and VPEC-T
VPEC-T analysis is a thinking framework comprising a collection of mental filters or guides. It provides a “simplified ‘language’ for preventing loss in translation from business needs to IT solutions” and is used when analyzing the expectations of multiple parties having different views of a system in which they all have an interest in common, but have different priorities and different responsibilities. System, here is used in the broad sense of a set of interacting or interdependent entities, real or abstract, forming an integrated whole. It is applied to ‘systems’ that range from those as small as a performance appraisal, to ones as large as a criminal justice system. [Source: Wikipedia]
Lost In Translation: A handbook for information systems in the 21st century (origins of VPEC-T)
VPEC-T (by Carl Bate and Nigel Green) in this context is a useful frame with which to surround PEST analysis to ensure focus and filtering of candidate hypotheses. The first step is to populate a VPEC-T filter, such as that (somewhat simplistically) pictured in Figure 3. Recognising that some analysts extend PEST to PESTEL (including Environmental and Legal forces) the VPEC-T filter includes legal considerations under the Policy dimension and environmental considerations under the Values dimension (in the guise of sustainability).
Figure 2 – The 5 Dimensions of VPEC-T, source – Lost in Translation by Carl Bate and Nigel Green
Figure 3 – An Illustrative VPEC-T Filter to frame PEST analysis, source: Steve Nimmons
The purpose of the left-most cog in Figure 1 is therefore:
- Define relevance filter using VPEC-T analysis. This constrains the PEST analysis
- Use PEST analysis to determine relevant forces across Political, Economic, Social and Technological domains. There is an argument for introducing Porter’s Five Forces analysis, however for simplicity this is suggested as an extension rather than a foundational element. The key point here is that PEST is about taking a wide view of all potential forces, and the VPEC-T filter is honing in on those of greatest relevance to the specific business
- The output is a filtered PEST analysis which presents a set of forces which the business will likely be subjected to
This feeds into a Scenario Planning cog described later.
PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.
It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. [source: Wikipedia]
Figure 4 – PEST Analysis Mind Map, source: Steve Nimmons
There is a significant body of published work on Scenario Planning, however this snippet from Wikipedia is useful for context:
Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.
The purpose of the ‘Scenario Planning’ cog is:
- Based on filtered inputs, create a set of scenario hypotheses
- Prioritise the hypotheses (likelihood of occurrence, timescale, impact on business etc.)
- Define the patterns intrinsic in the scenario set(s)
- Define the signals (positive and negative) that indicate the scenario is developing or likely to develop
- Define the information sources where those signals may be present (again having framed the PEST analysis with VPEC-T, there has been an early opportunity to focus on the Content dimension and hence identify important information sources (which may be internal or external)
Exiting this cog we have a strong definition of ‘patterns to seek’, why (based on Scenario Planning), how we will react if the pattern is detected, the signals that will indicate detection of the pattern and the information sources to monitor for those signals.
The Pattern Detection cog now has an important technical role in correlation or contradiction.
Pattern Based Strategy and Pattern Detection
Having systematically defined the patterns, related signals and information sources, the algorithmic wizardry of predictive analytics and complex event processing take over. Not to downplay the complexity of scanning significant volumes of real-time, unstructured data and combining data sets in new ways to look for patterns, this area of Pattern Based Strategy is much more widely represented.
I like the idea of triangulation as a means of signal reinforcement, however the strategist must also understand the need for tolerances. For example, reacting to a weak signal in a scenario with potentially disastrous outcomes requires quick intervention. In other cases a ‘wait and see’ approach may be more suitable. This level of sophistication needs to be considered to ensure the right reaction at the right time. The window of strategic advantage may be very small.
My hypothesis is that the Pattern Detection cog also creates an elegant feedback loop to the PEST cog. It is purely theorising, but it seems highly plausible that developing deeper understanding of scenarios, patterns and signals will sharpen the PEST analysis and VPEC-T filtering leading to increasingly sophisticated results.
source: Steve Nimmons
Further Reading on Strategy and Scenario Planning
- Scenario Thinking: Practical Approaches to the Future
- Scenario Planning in Organizations: How to Create, Use, and Assess Scenarios
- Transformative Scenario Planning: Working Together to Change the Future
- Creating Better Futures: Scenario Planning as a Tool for Social Creativity
- Scenario-based Strategic Planning: Developing Strategies in an Uncertain World