SCENARIO planning
Building scenarios at
Roland Berger Strategy Consultants
August 2013
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2013-08_RBSE_Building Scenarios.pptx
Contents
A. Strategy development today
Why scenario planning is important now
B. The Roland Berger-HHL scenario approach
Our approach to building scenarios
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© Roland Berger Strategy Consultants
Page
3
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2013-08_RBSE_Building Scenarios.pptx
A. Strategy development today
Why scenario planning is important now
2013-08_RBSE_Building Scenarios.pptx
Today our economy faces very high volatility
GLOBAL REAL GDP
GROWTH [%]
DOW JONES
[index value]1)
5.3 5.4
Highest
value
14,165
Oct 2007
5.1
EUR/USD EXCHANGE RATE
[EUR/USD]1)
+ 8,995
15,542
Highest
value
Apr 2008
3.9
1.46
3.2
1.60
1.50 1.48
2.8
1.34
1.32
1.32
10,718
-7,618
1.27
-0.7
2006 2007 2008 2009 2010 2011 2012
Lowest value
Mar 2009
Dec 2005
6,547
1.18
Jul 2013
Dec 2006
1.23 1.23
Lowest value
Jan 2006
Jul 2013
1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are on daily basis
4
SOURCE IMF, Bloomberg
2013-08_RBSE_Building Scenarios.pptx
Due to the high volatility forecasts are extremely difficult –
and very often fail to predict the future
Example: Development of forecasts of
German real GDP growth 2011 [%]
3.4
3.3
2.9
3.0
2.8
2.5
2.2
1.9
1.7
Aug 10
5
SOURCE Consensus
> Economic forecasters use
complex models of economic
development – but they often
failed, e.g. in predicting the crisis
> Economic trends are unreliable
and future developments unclear
– decisions must still be made
> Our job is to interpret the key
factors driving future economic
development
Dec 11
2013-08_RBSE_Building Scenarios.pptx
Another consequence of the high volatility is that traditional
planning cycles are no good any more
4.8
STRATEGIC
PLANNING
7-10
TRADITIONAL
ORGANIZATIONAL
STRUCTURE
7 years
MEDIUM-TERM
PLANNING
3.2
3-5 years
OPERATIONAL
PLANNING
1
2000
2012
Time horizons of traditional corporate planning
and global GDP growth, 2000-2012 [%]
6
SOURCE IMF
2013-08_RBSE_Building Scenarios.pptx
And finally follows that traditional strategy tools have
become unreliable
Traditional strategy tools …
volatility
… can't cope with complexity
… don't consider different views
… fail to reflect
ANSOFF MATRIX
7
SOURCE ROLAND BERGER
GENERIC COMPEEXPERIENCE
TITIVE STRATEGIES CURVE
FIVE FORCES
PORTFOLIO
ANALYSIS
2013-08_RBSE_Building Scenarios.pptx
But the planning questions
remain the same
Which regions of the world will grow most?
How can our company benefit from that?
How sharply will commodity and energy prices rise?
Can we replace expensive commodities with less
expensive ones?
How will demand for our products change?
What competing products will jeopardize our business?
How will regulations change in my markets?
Will the changes open up new markets overseas?
8
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
The solution? Scenario planning can overcome the
shortcomings of traditional planning instruments
SCENARIO PLANNING …
TODAY
Counteraction
SCENARIO
I
… provides different images
of the future to reflect
volatility
SCENARIO
II
… considers numerous
influence factors to cope
with complexity
SCENARIO
III
… combines internal and
external views to identify
blind spots
Disruption
FUTURE
9
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
But traditional scenario planning often does not meet all
requirements imposed by modern strategic planning
REQUIREMENTS of MODERN
SCENARIO PLANNING …
1
2
3
4
5
Reflecting
volatility …
… through development of alternative futures
Coping with
complexity …
… through consideration of
numerous influence factors
Identifying
blind spots …
… through involvement of internal
and external experts
Speed and
simplicity …
… based on a set of management
tools that support an easy process
Flexibility
concerning
planning
horizon …
… by applicability of different time
horizons
QUOTATIONS FROM USERS
regarding WEAKNESSES …
Scenario projects are
extremely complex
Processes are not standardized
and highly variable
Traditional scenario projects
usually take min of 5 months and
can last as long as 1 year
Methodologies are not well
described and not fully disclosed
Fulfilled by traditional scenario planning
10
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
Therefore our new approach builds upon the strengths of
traditional approaches and overcomes their weaknesses
11
… BUILDING ON STRENGTHS
… OVERCOMING LIMITATIONS
> Planning based on multiple
possible futures
> Integration of outside perspectives
> Broadening management's
perspective
> Increased adaptability to changes
in the environment
> Standardized method that is easily
replicable for planning purposes
> Tool based approach eases
application
> Quick execution of scenario-based
strategic planning process
> Applicable for shorter time
horizons of less than 5 years
SOURCE ROLAND BERGER
ROLAND
BERGER-HHL
APPROACH
to scenario-based
strategic planning
2013-08_RBSE_Building Scenarios.pptx
B. The Roland Berger-HHL scenario approach
Our approach to building scenarios
2013-08_RBSE_Building Scenarios.pptx
We differentiate between
macro-, meso- and micro-scenarios
MACRO-LEVEL
CHARACTERISTICS
of our 3-TIERED APPROACH
Global scenarios
MESO-LEVEL
Regional and industry scenarios
MICRO-LEVEL
Company-specific scenarios
13
SOURCE ROLAND BERGER
Macro-level scenarios build the
framework for industry and
company scenarios
Meso-level scenarios describe
different futures of a branch or a
region
Micro-level scenarios focus on
possible futures of one specific
company
2013-08_RBSE_Building Scenarios.pptx
We cooperate with the HHL Center for Strategy and
Scenario Planning
Selected activities
of the HHL Center for Strategy
and Scenario Planning
HHL – Leipzig Graduate School of Management
> One of the worldwide leading business schools
> Regularly ranked as one of the top 3 German
business schools
14
SOURCE ROLAND BERGER
> Constant exchange with academia,
international think tanks and business over
scenario contents and methods
> Concrete support on scenario projects of
Roland Berger
> Carrying out scenario studies together with
Roland Berger
> Conducting scenario workshops and
seminars for Roland Berger
> Supervising Roland Berger fellows and
PhD candidates
2013-08_RBSE_Building Scenarios.pptx
EXAMPLES
Roland Berger has advised large clients worldwide to
successfully structure, execute and adopt scenario planning
Sample scenario planning client engagements
15
CLIENT
COUNTRY
PROJECT DESCRIPTION
Multinational oil and gas
company
UK
> Developed 2020 scenarios for Industrial and Marine business, and built up
organizational capabilities
Multinational insurance
company
UK
> Built scenarios in life insurance and pension to guide long-term strategy
development across 14 countries to guide pan-European strategy
Large chain of home
improvement stores
USA
> Created scenarios describing different consumer behavior
Multinational pharmaceutical company
USA
> Described and quantified the potential impact of healthcare reform through
scenario planning
Multinational automotive manufacturer
France
> Developed 2020 scenarios and action plans to enhance aftersales strategy
for Europe and China
Multinational, producing
construction and high
performance materials
France
> Created a scenario planning tool to model business impact of different market
conditions and to inform capacity investment decisions
Multinational automotive
manufacturer
Germany
> Developed global scenarios to plan manufacturing data and different sales
strategies according to the scenarios
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
EXAMPLES
Book publications and scenario studies demonstrate thought
leadership
Selected scenario planning documents
Book describing the
RB/HHL scenario
planning approach
16
SOURCE ROLAND BERGER
Scenarios for The European
Airline Industry
Emerging Market
Future Scenarios
2013-08_RBSE_Building Scenarios.pptx
As an overall framework for our scenario studies and
projects we developed the Trend Compendium 2030
Trend Compendium 2030: Seven Megatrends that will shape the world
Analyzed relevant trend and future
studies
Discussed and verified data
and statements in global Roland
Berger network
Detailed seven megatrends, each
with three business driving
subtrends
Outlined recommendations for
actions for every megatrend
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SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
Together with the HHL Center we developed a clearly
structured process for scenario projects
Task:
Identify core problems
and frame analysis
Tool: Framing Checklist
Result: Clear conception of
project goal
1
Definition of Scope
0.5 weeks1)
Task:
Identify assumptions and mental models
360° Stakeholder Feedback
Tool:
Result: Good understanding of internal (company) and external (industry) perception;
identification of blind spots, weak signals and influencing factors
2
Perception
Analysis
3-4 weeks1)
3
Trend and
Uncertainty
Analysis
0.5 weeks1)
6
Task:
Tool:
Monitor developments and
challenge assumptions
Scenario Cockpit
5
Deduct action plans for implementation
Tool:
Strategy Manual
Discuss and evaluate relevant trends
Tool:
Impact-Uncertainty Grid
Result: Identification and analysis of key trends and
key uncertainties
4
Monitoring
ongoing
Result: Track of external developments
Task:
Task:
Strategy
Definition
2 weeks1)
Scenario
Building
1 week1)
Task:
Develop scenarios based on key trends/uncertainties
Tool:
Scenario Matrix
Result: Map of possible scenarios and understanding of
which scenarios are most promising and which
are most dangerous to the client
Result: Clear blueprint for strategic
development of a company
1) Average duration of the specific project phase of a Roland Berger scenario project
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SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
1 – DEFINITION OF SCOPE
Reference project for the automotive industry1):
The scope was defined with the Framing Checklist
ELEMENTS and KEY QUESTIONS
IMPLEMENTATION, AUTOMOTIVE PROJECT
A
B
C
D
E
GOAL OF SCENARIO PROJECT
Definition of the question to be solved:
Focus of the scenario analysis
Focus on global development of automotive industry,
as our client was a global player in automotive
STRATEGIC LEVEL OF ANALYSIS
Shall the scenario planning process be conducted
for the macro, industry/region or company level?
Focus on industry level as this allows the broadest
analysis and discussion spectrum for scenarios
TIME HORIZON
What time horizon is the planning process tailored
to (1,2,5 years or longer)?
Focus on 10 year horizon as this was the focus of
capacity planning
PARTICIPANTS
How closely is top management involved in
the process? Which members of the respective
departments participate in the workshops?
Strategic advisors of the top management as well as
the department heads of trends, strategic planning
and capacity planning participated in the workshops
DEFINITION OF STAKEHOLDERS
Which key stakeholders shall be involved in the
360° Stakeholder Feedback?
Focus internally on top management, trend, planning
and macroeconomics experts and externally on
industry, trend and macroeconomics experts
1) The approaches and results shown here are only examples. They are not identical to the approaches and results of any specific project
19
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
2 – PERCEPTION ANALYSIS
To gain holistic view on future development in automotive
industry a 360° Stakeholder Feedback was conducted
INTERNAL STAKEHOLDERS
>
>
>
>
Top Management
Trend specialists
Macroeconomics specialists
Capacity planner
EXTERNAL SPECIALISTS
360°
Stakeholder
Feedback
> Industry specialists
> Trend specialists
> Macroeconomics specialists
EXTERNAL STAKEHOLDERS
> Key customers
> Key suppliers
> Shareholder
20
SOURCE ROLAND BERGER
The 360° Stakeholder Feedback
asks about
> Influencing factors and indicators
> Impact and uncertainty of relevant
factors
2013-08_RBSE_Building Scenarios.pptx
2 – PERCEPTION ANALYSIS
The 360° Stakeholder Feedback
comprises two consecutive questionnaires
1 Open question
concerning STEEP1) influencing factors and indicators:
> Which factors influence the future development of the world automotive
industry until 2020 most?
2 Closed questions
concerning rating of synthesized influencing factors on a scale from
1 to 10 regarding impact and uncertainty of each sector:
> How strong is the impact of the factor to the future development of the
world automotive industry?
> How certain is the occurrence of the respective factor within a time
frame until 2020?
1) STEEP: Societal, technological, economical, ecological and political/legal influence factors
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SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
2 – PERCEPTION ANALYSIS
We identified 30 influencing factors with the
360° Stakeholder Feedback
INFLUENCING FACTORS
Social
Technological
Economic
Environmental
Political/Legal
Decrease of consumer
confidence
Development of alternative
powertrains
Duration of crisis
Climate change
Decreasing political stability
Downsizing at customers
Improvements of traditional
powertrains
Low economic growth in
industrialized markets
Growing problems with the
production of biofuels
Tougher environmental
regulation, esp. CO2
Longer period of ownership
Increasing importance of car
assistance systems
Strong economic growth in
emerging markets
Increasing pollution of cities
Growing trade protectionism
Car's image as status symbol
declines
…
Growing middle class in
emerging markets
…
Continuing local content regulation in emerging markets
Increasing environmental
consciousness of consumers
Growing competition from
new carmakers
Subsidizing own car
industry in China
…
Rising oil price
…
Rise of new business
models (car sharing etc.)
Increasing concentration of
car makers
S
22
SOURCE ROLAND BERGER
T
…
E
E
P
2013-08_RBSE_Building Scenarios.pptx
2 – PERCEPTION ANALYSIS
The results were systematically analyzed to understand blind
spots, weak signals and influencing factors
BLIND SPOT ANALYSIS (EXCERPT, ILLUSTRATIVE):
IMPACT, INTERNAL/EXTERNAL
THREEFOLD RESULT
ANALYSIS
BLIND SPOTS
Factors, which are deliberately or
unconsciously disregarded
WEAK SIGNALS
First indicators for important
developments and external changes
INFLUENCING FACTORS
Influencing factors for the scenario
development
Development of
alternative powertrains
Tougher environmental regulation
Competition from
new carmakers
Car's image as status
symbol declines
Longer period of
ownership
10,0
8,0
6,0
4,0
2,0
0,0
Rising oil price
Downsizing at
customers
Economic growth in
industrialized countries
Economic growth in emerging
markets
By comparing the perception of company insiders and outsiders
we identified management's blind spots
External
23
Internal
SOURCE ROLAND BERGER
Blind spot
2013-08_RBSE_Building Scenarios.pptx
3 – TREND AND UNCERTAINTY ANALYSIS
The most important trends and uncertainties in the industry
were identified with the Impact-Uncertainty Grid
High
Ec
TRENDS
Growing environmental
consciousness of S
consumers
Growing economic
growth in emerging
markets
S
S
En
Improvements of
traditional power
trains
T
Ec
S
Potential
Impact
Ec
CRITICAL
UNCERTAINTIES
Decrease in
Duration of crisis Ec
T
CRITICAL UNCERTAINTIES define the axes of
P
S
the scenarios – we identified 6 critical uncertainties
Ec
consumer
P
S
confidence
Rising oil Decreasing
political
price
En
stability
Climate change Ec
Alternative T
Growing middle
powertrains
P
class in emerging
Competition from
Ec new carmakers
markets
> Duration of crisis
> Decreasing political stability
> Competition from new
carmakers
En
S
Ec
Local content
regulations
En
> Decrease of consumer confidence
> Rising oil price
> Development of alternative
powertrains
P
S
T
T
Ec
SECONDARY ELEMENTS
Low
Low
High
Uncertainty
TRENDS (relatively secure developments) define the cornerstones of – and remain the same in – the different scenarios.
Based on our questionnaires we identified 15 trends along 5 categories (for example)
Economic
> Growing economic growth in
emerging markets
> Growing middle class in emerging
markets
> …
S
24
Social
T
Technological
SOURCE ROLAND BERGER
Environmental
> Climate change
> …
Social
> Increasing environmental consciousness of consumers
> …
Political
> Continuing local content
regulation in emerging markets
> …
Technological
> Improvements of traditional power trains
> …
En Environmental
Ec Economic
P
Political
2013-08_RBSE_Building Scenarios.pptx
4 – SCENARIO BUILDING
The Influence Diagram was used to structure the critical
uncertainties and condensed them in two key dimensions
Growing economic growth
in emerging markets
Time
Growing middle class
in emerging markets
Duration of
crisis
Increasing environmental
consciousness
Decreasing
political stability
Decrease of consumer
confidence
Economic
development
25
Climate
change
Rising oil price
Competition of new
carmakers
Development of
alternative powertrains
Innovation
dynamics
2013-08_RBSE_Building Scenarios.pptx
4 – SCENARIO BUILDING
By varying key uncertainties and influence factors we were
able to formulate comprehensive scenario storylines
KEY DIMENSIONS
> Economic development
> Innovation dynamics
CHARACTERISTICS
-
FOUR SCENARIOS DEVELOPED
for global automotive industry until 2020
+
High innovation dynamic
INFLUENCING FACTORS
>
>
>
>
>
>
Duration of crisis
Decreasing political stability
Decrease of consumer confidence
Rising oil price
Competition of new car makers
Growing economic growth in
emerging markets
> Growing middle class in emerging
markets
> Climate change
> Increasing environmental
consciousness of consumers
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SOURCE ROLAND BERGER
Forced
Technological
Evolution
Golden
Decade
High
economic
growth
Economic
stagnation
Industry
Decline
Dangerous
Saturation
Low innovation dynamic
2013-08_RBSE_Building Scenarios.pptx
4 – SCENARIO BUILDING
The quantitative assessments were used to estimate new
registrations via an automotive specific simulation tool
We took the values/strengths of the key factors and on
this basis set parameters (e.g. GDP growth,
unemployment rate, inflation rate, interest rate) on
a country-by-country basis for each of the scenarios
We then used the parameters in a simulation tool
specially developed for the automotive industry.
The tool used the values to calculate the number of
new vehicle registrations in key markets for each
scenario, as a basis for volume planning
Scenario I
Scenario II
Scenario III
GDP growth I,
unemployment I,
inflation rate I, period
of owner-ship I, …
(country-specific)
GDP growth II,
unemployment II,
inflation rate II, period
of owner-ship II, …
(country-specific)
GDP growth III,
unemployment III,
inflation rate III, period
of ownership III, …
(country-specific)
SIMULATION TOOL
Key points
It is important to understand exactly how the
simulation tool works so that any extraordinary
effects can be included
27
SOURCE ROLAND BERGER
New
registrations
I
New
registrations
II
New
registrations
III
2013-08_RBSE_Building Scenarios.pptx
5 – STRATEGY DEFINITION
On the basis of the different scenarios
we developed action plans for the management
The different scenarios showed very different
patterns of how new vehicle registrations
would develop in the future
On the basis of these differences and other
features of the scenarios, we developed
recommendations ("action plans") for top
management in a joint RB/client workshop
We then presented the scenarios and
action plans to the Head of Sales
Key points
Scenarios and action plans must be consistent
Creative solutions that work are the
answer to challenging scenarios
28
SOURCE ROLAND BERGER
Scenario I
Scenario II
Scenario III
Action plan I
Action plan II
Action plan III
> …
> …
> …
2013-08_RBSE_Building Scenarios.pptx
6 – MONITORING
Finally we implemented a set of indicators to monitor
what scenario pathway the company is currently on
We developed a Scenario Cockpit together
with the client
Indicators (e.g. GDP growth, industry-specific
indicators such as length of ownership) help
management understand what scenario
pathway the company is currently on
If certain thresholds are passed, another
scenario comes into play – and with it other
action plans
SCENARIO COCKPIT
Key points
Indicator 1
Indicator 2
Indicator 3
The Scenario Cockpit should have no more
than three clear indicators. This makes it
easy for top management to use
29
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
The strengths of our scenario approach:
State-of-the-art scenario building for our clients
1
2
DIRECTLY APPLICABLE TO BUSINESS
Our scenarios answer our clients' core strategic
and operational questions
INTERACTIVELY BUILT
In the scenario team, clients and consultants work
together and internal and external experts are
consulted as required
2
1 Definition
of Scope
3
Perception
Analysis
Trend and
Uncertainty
Analysis
6
3
4
5
30
HIGH SPEED
The scenarios are created within a few weeks, using
modern information and communication methods
SIMPLE COMMUNICATION
Monitoring
4
Scenario
Building
5
Strategy
Definition
The scenarios are clearly formulated and thus easy
to communicate internally and externally
DIRECTLY IMPLEMENTABLE
Detailed recommendations enable immediate
adjustment of business according to the scenarios
SOURCE ROLAND BERGER
2013-08_RBSE_Building Scenarios.pptx
To sum up: Today we need scenarios and we need to develop
them quickly and systematically
1
2
To stay competitive in this environment
companies need to develop scenarios
3
31
Our world faces more and more volatility –
that's especially true for the economy
SOURCE ROLAND BERGER
The Roland Berger-HHL scenario process
enables companies to quickly build scenarios
with an innovative, tool-based approach
2013-08_RBSE_Building Scenarios.pptx
Do not hesitate to contact us in case you have
questions or comments
32
SOURCE ROLAND BERGER
PROF. DR. BURKHARD
SCHWENKER
DR. CHRISTIAN KRYS
Product owner
CHAIRMAN
RBSE SENIOR EXPERT
burkhard.schwenker@rolandberger.com
christian.krys@rolandberger.com
+49 40 37631 4100
+49 160 744 2917
2013-08_RBSE_Building Scenarios.pptx
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2013-08_RBSE_Building Scenarios.pptx