What is critical is for managers to form a fully developed understanding
of the market they are in and to establish the strategic issues that could
have an impact on the business in the longer term. This will allow them to
establish the key areas where changes in the environment could affect crit-
ical factors such as the industry’s structure, market demand or competi-
tive reactions. Effectively this entails establishing the key questions that
need to be answered in order to form a view of the future. These questions
are unlikely to be important in terms of the day-to-day operation of the
business but will be crucial to its long-term direction. Forecasting can be
an effective way of identifying these strategic questions.
There are various forecasting techniques that can be used by an organisa-
tion (see Figure 6.2). A simple method is trend extrapolation.
Developing a future orientation 113Technique Percentage of companies
reporting use of techniques
Expert opinion 86
Trend extrapolation 83
Alternate scenarios 68
Single scenarios 55
Simulation models 55
Brainstorming 45
Causal models 32
Delphi projections 29■ Trend extrapolation
This technique purely takes a historical trend overtime and extrapolates
where the trend line will be if extended into the future. The general assump-
tion is that whatever happened in the past will continue in the future. In
some areas this may be an entirely suitable way to establish what the situ-
ation will be in the future. For instance demographic trends are slow moving
and therefore more predictable. However trend lines can mislead planners
if they fail to understand the underlying nature of a market. Car ownership
in the UK has been on an upward growth curve for years. The assumption is
that this will continue causing escalating problems in terms of congestion
and pollution. However it is unlikely these growth estimates will be ful-
filled precisely because roads will become more overcrowded and less easy
to use. Consumers will switch to other forms of transport. Even where
trends can provide reasonable forecasts it is usually in areas that are not of
major strategic importance. Issues that have a major impact on the organi-
sation’s strategy are likely to occur where a development in the future
Figure 6.2
Forecasting
techniques used by
large industrial
organisations
(Source: Adapted
from Diffenbach,
1983)