Important Reminders when Conducting Scenario Analysis
- 05.04.2014 –
World Class Market Intelligence
April 5, 2014. Companies that conduct scenario analysis on a regular basis are able to innovate ahead of their competitors and create sustainable long term strategies under conditions of uncertainty. Scenario planning looks into the "what if’s" for a business and involves developing a number of defined scenarios that show the possible futures of an organization’s business environment, together with the related opportunities and threats. What are the pitfalls to avoid?
Identifying possible future scenarios allows a company to preemptively develop early warning signals and corresponding strategies for each scenario. This way, companies won’t be taken by surprise and can immediately apply the right strategy for the scenario that eventually becomes reality.
This also allows companies to prepare ahead of time by proactively plugging any critical information gaps. By presenting key themes, trends and uncertainties for the business this way, the process also provides a comprehensive platform for strategic planning, business development as well as marketing and sales.
Three scenario planning cases
Here are some real life examples from M-Brain (formerly GIA) of some companies that have been able to benefit significantly from scenario planning, and inform not just their own management but also that of their industry stakeholders.
Case 1: Scenarios analysis to prepare for possible customer industry changes
In an effort to plan ahead of emerging trends that would radically affect customers in the oil and gas industries, a global mining technology company invited 200 of their key decision makers from around the world to participate in a major scenarios analysis exercise. Facilitated by a strategic advisory company, this involved a survey to collect internal views, extensive desk research on trends and uncertainties, and a series of workshops to develop four possible scenarios, development paths and signals. In-depth research was conducted on the megatrends and key uncertainties identified during the process, thus providing the company’s global management teams with the comprehensive insights needed to adapt their business model for future success. The company has been able to anticipate the changing global forces impacting their business.
Case 2: Future scenario development to inform all industry stakeholders
To order to identify how evolving global trends would affect local travel agencies and tour organizers, hotels, restaurants and other travel related businesses, a tourism board commissioned a strategic advisory company to assist it in a scenario planning program that consisted of megatrend analysis and a series of interactive workshops. As a result of the scenario analysis conducted, the tourism authority was able to clearly set out its long term strategy and vision in a book, which is today, a vital reference guide for industry stakeholders on how they can adapt their own businesses along important themes.
Case 3: Using market monitoring and intelligence software to anticipate scenarios
After it identified various future scenarios, a global insurance company used an intelligence portal to create customized executive scenario dashboards with personalized email alerts, monitoring the news for any signposts related to the scenarios and associated development paths identified. This raised the management’s awareness of early warnings to strategic shifts in their industry, or business opportunities and threats. The personal news alerts included executive newsletters as well as easy-to-retrieve reports.
Six important reminders
Scenario analysis is both an art and a science, and always requires careful planning and management of internal expectations. Even with the best intentions, organizations can get blindsided by internal politics and the idea that “the boss / expert knows best” when it comes to effective scenario analysis and planning.
The truth is we don’t know what we don’t know, and that hampers the ability to ask the right questions and move beyond the entrenched corporate mindset. Things become more complicated when the scenario planning project on hand is urgent, or when management have an exaggerated belief in their ability to influence the future. Truly innovative thinking can be stifled by corporate obedience to an official line.
Here are six helpful points to consider when planning your scenario analysis exercise.
1. Identify your critical business objectives and follow up plan.
Ensure your goals are clearly tied to critical issues for the business ““ scenario planning should not be about the “nice to know” but the “what we need to do next”. It is quite pointless to go through the motion of assessing all the industry, economic, political, technological, legal, or societal trends and uncertainties facing a company, and not to prepare for changes brought on by the trends.
2. Invite an external party to help with scenario planning.
Bringing on credible external industry or domain experts can be extremely helpful. Creativity needed for the exercise can be easily limited by company politics, current day-to-day issues, limited imagination etc.. Having an external, unbiased view to challenge entrenched models of thought and operations can facilitate “thinking out of the box”.
3. Map basic trends and drivers.
Be very careful to avoid mapping out the basic trends and driving forces only in relation to your own business or organization at this early stage of the process. Brainstorm about trends and their effects, regardless of whether they are related to your own company at the point of time. Otherwise, creativity can be limited.
4. Seek the views of important stakeholders.
The actions of governments, suppliers and strategic business partners will influence future scenarios – so don’t hesitate to validate the scenarios by sending them out to such stakeholders for some confidential verification and advice. Keep in mind that as industries evolve, their stakeholders may also change.
5. Validate before going further.
Invest in further research and analysis where necessary, to validate the scenarios developed. Speak to those at the forefront of similar scenarios, investigate the drivers for such scenarios, the legal framework etc. so that those who use the scenarios for brainstorming the company’s response will be able to appreciate them in a more comprehensive context.
6. Make it “real”.
Refine the scenarios by enriching the content as a story, a newspaper article, etc. so as to help your management see the “˜reality’ of the scenarios.
Regular scenario analysis sessions develop an organization’s ability to think flexibly and creatively, and help align key stakeholders on a shared vision; particularly when complicated issues are involved and a common understanding and language is needed for internal stakeholders. All this is critical to sustaining business growth, so identify your current and future stakeholders and select your external scenario planning partners carefully.