When are scenarios appropriate?

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Scenario Planning in

Strategy Development

Short Hills, NJ, Jan. 20, 2003

Ulrich Goluke goluke@blue-way.net

http://www.blue-way.net

© 2003, Ulrich Goluke

All Rights Reserved

Scenario Planning in Strategy Development goluke@blue-way.net

Short Hills, NJ, Jan 20 2003

Slide 1

Plan for the morning

Why another tool?

When are scenarios appropriate?

Stories of the Future

How are they done?

The upside

So what?

Embedding scenario skills

Example “Biotech”

Links & resources

Questions and discussion throughout


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Slide 2


Time spent

100%

80%

60%

40%

20%

0%

Material constrained

???

Service

Manufacturing

Agriculture

1700 1850 now

Meaning constrained

2050 2100


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Slide 3


Time spent

100%

80%

60%

40%

20%

0%

Material constrained Meaning constrained

???

Service

M an ufactu ri ng

Agriculture

1700 1850 now 2050 2100

Rudimentary commerce

Make & Sell

Sense & Respond

Shape & Anticipate


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Slide 4


Rudimentary commerce

Make & Sell

Sense & Respond

Shape & Anticipate

Being there!

Quality &

Efficiency &

Logistics

Perspectives as Variables

Sensemaking

Context creation


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Slide 5


•

Four levels of uncertainty

– Clear enough future

– Alternate futures

– A range of futures

– True ambiguity

Harvard Business Review, Strategy under Uncertainty , Nov-Dec 97


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Slide 6



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• Clear enough future

– A single forecast precise enough for determining strategy

– “Traditional” strategy toolkit

– e.g. Strategy against low cost airline entrant



Slide 7



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• Alternate Futures

– A few discrete outcomes that define the future

– Decision analysis

– Option valuation models

– Game theory

– e.g. Capacity, siting strategies



Slide 8



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• A Range of Futures

– No “natural” outcome

– Latent-demand research

– Technology forecasting

– Scenario Planning

– e.g. Entering emerging markets



Slide 9



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• True Ambiguity

– No basis to forecast the future

– Analogies and pattern recognition

– Non-linear dynamic models

– Scenario stories

– e.g. disruptive change & technologies



Slide 10


•

Four levels of uncertainty

– Clear enough future

– Alternate futures

– A range of futures Scenario Planning

– True ambiguity Space


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Slide 11


Uncertain

No. of

Decision

Elements

Forecast

Scenario

Planning

Space

Hope or

Despair

Predetermined now


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VALUE = Current Profit Profit Potential

Finding the right strategy

Creating the right strategy process


TIME


Slide 12


“A good [business] model tells a good story … A business model is a story of how an enterprise works. Like all good stories, a business model relies on the basics of character, motivation, and plot.”

What management is , Joan Magretta, Free Press, 2002


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Slide 13


Business Model:

Story of the Enterprise

Business

Planning


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Novel

Options

Option Risk Evaluation: strategic financial competitive operational


Macro Uncertainty captured as

Scenario Stories

“influencing the world”


Slide 14


•

Scenarios

•

… are novel, challenging & consistent stories about the future

•

… in order to increase the future success of decisions taken today


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Slide 15

How are they done? Method

Understand & respect the individual talk to them, more formally, interview them

In a group:

Develop the two most important and most uncertain drivers

Why two?

List the Givens


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Slide 16


In a group: Arrange the two drivers as axis

Trust

Calibrate the axis

Define the endpoints:

Units & timehorizon

Gummy Bears


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Slide 17


In four groups: Sketch a first story

Trust

From the center

(now) to the edge of each quadrant


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Gummy Bears


Together:

Present, explain, discuss


Slide 18


In four groups, for each quadrant:

Trust

Causality, not Chronology

Timeline

Actors

Events

Dilemmas

Tensions, Givens

Title

Keep the eyes on the future

Maintain Positve Energy

Gummy Bears

Together: Present, explain, discuss, improve


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Slide 19


Cardinal Sins:

Gummy Bears

Trust

Least common denominator

(including to much)

Novel, plausible, challenging hitting only 2 out of 3

Owning only part of the space

Fight ‘reasonableness’

Fight ‘the discount rate mentality’

Fight the ‘fear of the participants of big issues’


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Slide 20


Cardinal Pleasures:

Trust

Mystery

Visuals

Music, Rhythm

Character

New Language

Gummy Bears

Character

Motivation

Plot


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Slide 21


Creating Scenarios…

… is like learning to ride a bicycle:

For stability, you need a certain speed

At some point, the training wheels need to go


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Slide 22

How are they done? Process

•

Buy-in

•

People

•

Workshops

•

Output

•

Miscellaneous


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Slide 23

Process: Buy-in

•

Selling

– Clarity, clarity, clarity

•

Interviews

– Open ended, qualitative questions

– Ask about expectations

•

Updates, Newsletter, Website


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Slide 24

Process: People

•

Core Team

– 4 facilitators

– Project director (facilitates also plenary)

– Writer / Editor

– Person for Logistics

– Person for Design / Production


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Slide 25

Process: People

•

Core Team Meetings

– 1 day of workshop = 1 day of preparation

– During workshop once a day

– During project, once every 6 weeks


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Slide 26

Process: People

•

Experts / Oracles / Provocateurs

– Don’t pay honorarium

– Insist on them being there the whole workshop

– Get right personality profile


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Slide 27

Process: Workshops


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– 3 full days

– Prepare detailed plan for each day

– Remain flexible / Time for reflection

– Dinner conversation on day “0” about passion, “stick-holders”

– Entertainment for one evening

– Visit location before

– Be alert to cultural sensitivities



Slide 28

Process: Output

•

Interview analysis

– Confidentiality

– Transcripts

– Content analysis

– Light structure / Work in progress

– Summary presentation

– Used only as input for 1st workshop


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Slide 29

Process: Output

•

Record of each workshop

– Pictures of all flips

– Use chronological structure

– Very light editing

– Produce within 10 days of workshop

– Only for those present at workshop


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Slide 30

Process: Output

•

Book

– Design must match purpose

– Editor has “editorial control”

– 2-3 months after last workshops

– Give every participant the opportunity to see / comment before release


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Slide 31

Process: Output

•

Slides

– Prepare slide show you would use

– Develop 2 to 3 times as many slides so that participants can pick & choose


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Slide 32

Process: Miscellaneous

•

“Nuggets”

– Keep your participants happy

•

Manage the confidentiality / public boundary very well

•

Offer process / facilitation help with the private follow-on work

•

Celebrate when it’s done


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Slide 33

Process: Public / Private

The Self

Macro Uncertainty captured as Foresight

Stories

New Possibilities

Evaluation


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Slide 34

The Upside

•

As we move towards “sense & respond” and “shape & anticipate”, by giving context & sense, you design the playing field .


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Slide 35

So what?

1 talk to those who shun you: scenarios allow you to engage outsiders in constructive conversations that they would otherwise not participate in. Why? Because you are shaping the future, rather than arguing about the present.

2 get inside the strategic conversations: similarly, scenarios allow you ‘to get to tables’ from which you may have been excluded because of your lack of credibility.

3 sing from the same sheet: scenarios are one of the better mechanisms to align your workforce, your management and your board towards a common purpose. And don’t forget your supply and distribution chain – all the way to the end consumer!


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Slide 36

So what?

4 tell a convincing story: since scenarios are rigorously researched and carefully constructed stories you have a rich communication tool. You may wish to break it down into ‘powerpoint-type’ sound bites, but the real value of the tool is to engage others in open debate. You will always win, because you know more detail, and you have all the ‘red threads’ necessary to convince.

5 design the playing field: make your scenarios public: you force the market and all stakeholders to react to your views. If you find it strange to make strategic insight public, consider this: In order to gain sustainable competitive advantage, you need to continuously align your company with the market. Scenarios ‘merely’ capture the macro uncertainties of emerging and future markets. The ‘Self’ always remains private.


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Slide 37

So what?

6 be ahead of the pack: don’t worry that you won’t be able to predict the future. No one can. But you have a far better understanding of what might be than your competitors, your regulators and even your customers.

7 rehearse: far too many resources are spent on worrying about the question: will it happen? Use your – always – limited resources to answer a different question: what would you do if it did happen?

8 improve your strategy: you can use the set of scenarios to challenge and improve your strategy, at whatever level of the company you choose (see next slides)

And always remember that the average lifetime of a Fortune 500 company is a mere 40 years.


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Slide 38

So what?

Action 1

Action 2

Future 1 Future 2 Future 3

++

+

+

—

—

++

…

Action n

+

--

±

--

+

++ put put robust call

“actions” are functions of where they are done. They can be plans, policies, resource allocation and investment decisions


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Slide 39

So what?


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The World out there…

Transactional

Space

The

Self


Courtesy of

Paul de Ruijter


Slide 40

Embedding scenario skills

•

Shell went from 0 to 60 to 10 people

•

“Median” is 3 to 5 full time, supplemented by juniors / interns

•

Savvy ‘consumer’ / task master of the process


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Slide 41

Two reminders:

The Stone Age did not end because of a lack of stones.

“Chance only favors the prepared mind,” said Louis Pasteur.


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Slide 42

Links:

Global Business Network

Adam Kahane / Joe Jaworski

Centre for Scenario Planning and Future Studies

Society for Organizational Learning

BCC and other consultancies www.blue-way.net

www.blue-way.net/resources


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Slide 43

When are scenarios appropriate? - blue

Scenario Planning in

Strategy Development

Plan for the morning

Why another tool?

Why another tool?

Why another tool?