Operations: Benefits of a Measure and React Approach to Strategic Planning

by Dan White

Casino operators have learned many powerful lessons as a result of the pandemic. These lessons have affected everything from guest service to standard operating procedures. Perhaps one of the most powerful lessons from the pandemic, however, is how strategic planning is approached. For years, organizations have applied a predict and control model for planning. Such an approach relies on the ability to effectively predict the future to some significant degree. The challenge with a predict and control approach to planning arises when highly unlikely, low-probability events occur, like the pandemic, that quickly shift the landscape and often render plans moot.

Baseball legend Yogi Berra has been credited (among others) with the phrase: “It’s tough to make predictions. Especially about the future.” This classic line, while humorous, conveys a much deeper truth; humans aren’t very good at making predictions about the future, particularly those who are considered experts in their field.

In Phil Tetlock’s 2005 book, Expert Political Judgment: How Good Is It? How Can We Know?, the political scientist details results from a twenty-year study designed to measure the ability of experts to make accurate predictions about the future. The research included more than 280 experts in a variety of fields. More than 82,000 predictions were collected and tracked over the proceeding years. The results were quite clear; we are not very good at making predictions. And perhaps worse; those with the most experience and expertise tend to be the poorest at making predictions. Another interesting finding was that confidence in making predictions was inversely correlated with the ability to make accurate predictions. In other words, those who were most confident about their predictions performed the worst.

So what does this have to do with strategic planning for casinos? A lot. Any form of long-term planning relies on a presumption that we understand much about what will happen in the future. Tetlock’s research, along with other studies, demonstrates the vulnerability with such an approach.

There are, of course, some things we are good at predicting, particularly in areas where we have significant historical data and the future that unfolds is similar to the history that produced those results. Many operators can forecast revenue over the next 12-month period with relative accuracy, as long as there are no high-impact, low-probability events that cause significant disruptions. But that is precisely the problem – nobody knows when the next big event is going to happen.

Typically, strategic planning results in allocation of resources like capital and operating budgets to execute a long-term plan. When all eggs are placed into one (strategic) basket, an organization is still vulnerable to the unexpected event. This makes a predict and control model susceptible to potentially extreme errors. It may rely on too narrow of a presumed future state in order to succeed. Fortunately, there is another way to approach strategic planning.

In his book, Everything Is Obvious, sociologist Duncan J. Watts describes another method for strategic planning; measure and react. A measure and react model recognizes the limitations in predicting future events and, instead, positions an organization to be better suited for a broader range of potential outcomes, trends and significant shifts in the market.

So how does an organization adopt a measure and react approach to strategic planning? Building on the ideas of Watts, along with concepts from Michael E. Raynor (The Strategy Paradox) and Nassim Nicholas Taleb (Antifragile, The Black Swan), we can identify some fundamental elements to infuse into strategic planning that will make an organization far better equipped to succeed in a world of uncertainty.
Embrace Uncertainty

In terms of strategic planning, there are a number of ways to not only acknowledge uncertainty, but to build it into the planning processes. This includes scenario planning. Developed in the 1950s by military leaders, scenario planning forces us to consider other outcomes and future events that could change the course of our operation and allows us to consider how we might respond to such changes. This is a good exercise for any organization to help better understand both the core elements of their plan (those elements that will work under many scenarios) and contingent elements (those that only work in specific scenarios).

Another way to embrace uncertainty is to start thinking (and talking) in probabilistic terms when planning. Framing assumptions about future outcomes as probabilities may help identify areas in which the plan is vulnerable.
Infuse Plans with Optionality

Optionality is akin to putting eggs into many baskets, instead of just one singular basket, or as Watts suggests, “creating a portfolio of strategies.” For casino marketers, this can be a highly effective approach to programming. Building out a wider range of promotions and programs to respond to emerging trends or circumstances can create a more responsive, agile and flexible approach to marketing efforts and improve overall performance. Instead of having an annual marketing plan set in stone, casinos can continuously measure performance and trends and select a promotion that best suits the circumstances that arise.
Avoid the Sunk Cost Fallacy

The sunk cost fallacy is the reluctance to abandon a course of action once resources like time, money or effort have already been invested. This type of error is more common in predict and control approaches to strategic planning because generally a far narrower potential future is considered, alternatives may not be apparent, or an organization may feel trapped by the original plan. Creating optionality in planning allows an organization to more quickly abandon projects that are no longer feasible and rapidly move to options that better address emerging trends.

Reduce Reliance on Plans that Require Multiple Conjunctives

Plans that require multiple, contingent variables to be successful are more prone to failure than those that have fewer contingent variables or conjunctives. Why? As soon as additional conjunctives are introduced, the probability of an event occurring is reduced. For example, if a casino justifies a major expansion on a variety of contingencies (fear of competition expanding, positive economic forecasts for the region and a brand-new loyalty program that will drive additional demand), it may falter if just one of those contingencies fail to materialize. The addition of each new contingency reduces the likelihood of that future state ever emerging. Recognizing this in planning efforts is an important first step. Identifying ways to make plans less reliant on such contingencies can make plans more robust and resilient to a broader range of future developments.

While adopting a measure and react approach to strategic planning may at first feel uncomfortable (we have been predicting the future for many years now), it can create a more agile, adaptable and responsive operation. An operation that is positioned to succeed under a far greater number of potential environments.

Dan White is Principal of Dan White & Associates, a casino marketing and strategy consulting firm. He can be reached by calling (360) 890-1433 or email [email protected].