expertise and experience in scenario planning introducing analysys mason amrish kacker q3 2007
TRANSCRIPT
Expertise and Experience in Scenario Planning
Introducing Analysys Mason
Amrish Kacker
Q3 2007
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Summary
Reliance on market predictions is risky. The pace and complexity of telecoms development make long-term forecasts very uncertain
Analysys Mason offers scenario planning as a means of tackling the diversity of future possibilities, in order to:
gain a fundamental understanding of the forces that are shaping the future
assess the risks and rewards of different business options
develop flexibility in responses to unforeseen change
We combine in-depth knowledge of the telecoms sector with process consulting skills, working with clients to reach practical business decisions
The following slides present:
the benefits of our approach
the principles of scenario planning
the scenario-planning process
checklist for success
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Benefits of scenario planning
Scenario planning helps you to develop the agility required to gain business advantage from changes in the telecoms environment. The benefits include:
early warning of business risks and opportunities
objective decision support which balances the risks and returns of business options
innovative business ideas
challenge to any assumptions of business-as-usual
common language for strategic debate which helps to capture divergent views across the business
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Our approach
We go beyond descriptive scenarios to explore the details of business options
We help our clients by:
designing an efficient planning process that is tailored to meet each client’s needs
facilitating workshops to engage, stimulate and challenge the client team
analysing the risks and rewards of options in order to support decisions
managing the process to deliver results on time
The aim should be to embed scenario planning in the everyday business management process
We therefore like to work closely with our clients in a single integrated team, to encourage skills transfer and total transparency
We encourage the client team to take ownership of the process and the results
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The principles of scenario planning
“Too many forces work against the possibility of getting the right forecast … accept uncertainty, try to understand it, and make it part of our
reasoning.” Pierre Wack (Harvard Business Review 1985)
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The maze of future possibilities
Telecoms is subject to rapid and unpredictable change, driven by a wide range of issues such as:
fixed–mobile convergence
merger activity
growth in emerging markets
broadcast–telecoms integration
fast growth in data traffic
new value chains for the Internet
development of regulation
impact of satellite
new technologies
development in competition
These drivers interact not only with each other but with any number of macro-economic, technological, regulatory, political and social issues. The interactions generate yet more complexity. The telecoms business environment could evolve along a myriad of different paths
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The dangers of relying on one forecast
Deeper research tends to reveal more complexity. The temptation is to stop gathering detail and select one path forward that seems the most likely
There is a danger, however, that this forecast will become a straitjacket for strategic thinking. Significant business risks could be ignored
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Understanding uncertainty
Scenario planning combines possibilities to form a manageable set of scenarios
It broadens, rather than narrows, the vision of the business planning team
It endeavours to:
capture all the uncertainties faced by the business
highlight the issues that may have a significant impact on the business
study the relationships between these critical issues
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Drawing on forecasts
Scenario planning addresses issues beyond the time horizon of predictable events. The scenarios make sense of changes across the whole business environment and provide a basis for strategic debate
On the other hand, forecasting and mathematical modelling are necessary for developing a detailed understanding of specific issues over shorter timescales. They can be used to:
underpin the scenarios with detailed information on specific issues
explore the value of specific options
test the performance of the business plan in each scenario
understand which parameters have a critical effect on the business
The two techniques work together for business planning
Timescale
Scope
Forecasting
Scenarioplanning
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What is a scenario?
Describes a possible future business environment, but is not a prediction
Explores the extremes which challenge the existing business model
Engaging, interesting, challenging and credible
Logically consistent with the known facts
A set of scenarios is mutually exclusive and collectively exhaustive
A set of scenarios describes a range of possible futures
Ideally, develop no more than four scenarios, or it becomes difficult to manage them
Scenarios can be presented in many different forms, such as in a script or a timeline, or within a discussion
“An outline of future development which shows the operation of causes.” Chambers English Dictionary
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Underpinning scenarios with analysis
The descriptive scenarios need to be supported by numerical analysis, which should:
test the credibility of each scenario
explore the magnitude of changes in the environment
evaluate the impact of those changes
Drivers of change
Uncertainty
Impa
ct Scenarioscripts
________________________
__________
New businessproposal
________________________
__________
Cashflow by scenario
Time
$ ca
shflo
wMainassumptions
______________________________
Criticalparameters
___________________________________
Risk versus reward
$ value
Ris
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Business plan
Systems dynamics model
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Using scenarios for business planning
Scenarios are used to challenge existing business models and stimulate new ideas. They form the basis of a strategic debate which is radically different to the traditional business planning cycle
Scenario planning creates a flexible plan for the business which is composed of a variety of options. The business moves forward by shifting its weight between these options. This enables the business to adapt its plans to the evolving environment. The aim is to maintain a balance between risks and rewards
Present
Option A
Option C
Option B
Option E
Option D
Scenario 1
Scenario 2
Scenario 3
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The process of scenario planning
This diagram shows our basic process for scenario planning. We work within this framework to tailor solutions to suit our clients’ needs
Build scenarios
Create options
Refine options
Maintain learning Identify key issues
Set objectives
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Set objectives
Setting the objectives is the essential starting point for scenario planning, in order to define boundaries and establish focus
A client-side strategy manager should be appointed at this earliest stage of the process. This manager will provide the point of communication between Analysys Mason and the stakeholders
The objectives for the scenario planning project must be clearly stated and agreed with the key stakeholders. They should include the following:
time horizon for the scenarios
geographical scope of the scenarios
business units or product areas to be addressed by the project
unavoidable constraints on future plans
definition and deadline for deliverables
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Identify key issues
The main threats and opportunities facing the company need to be explored in preparation for the scenario-building activities
This is best achieved through interviews with the key stakeholders, either individually or in small groups. These interviews provide an opportunity to:
secure the stakeholders’ acceptance of the scenario-planning process
gain the stakeholders’ trust
listen to their views and concerns
locate important sources of information for later analysis
choose participants for workshops
The interviews follow a simple process:
prepare an interview script containing a provocative survey of markets, technologies, competitors, etc, expressed in terms of dilemmas and choices
use this script to gently guide interviews with the stakeholders
collate the information and analyse the results to identify the key issues
feed the analysis back to the stakeholders for review and agreement
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Build scenarios [1]
Brainstorm the drivers of change, in workshops held with stakeholders. These drivers may include:
business factors
technology factors
socio-economic factors
Agree upon the impact and likelihood of each driver
Establish what is inevitable and, therefore, must occur in all scenarios
Impact
Uncertainty
Inevitable
Insignificant
Significant
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Build scenarios [2]
Identify the critical uncertainties, and group them to understand how they may act together to split the future into different scenarios
Check:
the inter-relationships between the drivers with simple causal networks
that the scenarios are mutually exclusive and collectively exhaustive
that each scenario constitutes a challenging view of the future
Develop engaging descriptions of the scenarios supported by research and analysis
Inevitable change
Uncertain change
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Create options
The next step is to use the scenarios to brainstorm business solutions
Additional workshops are held to examine each scenario in turn and generate many possible business solutions
From these we derive one simple plan for each scenario. The set of plans for each scenario are then compared:
the common elements form the core business plan
those differentiated by scenario become options for the future
Brainstorm solutions for
each scenario
Outline simple plans for each
scenario
Compile series of options
Establish core plan for all scenarios
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Refine options
The core plan is now established. This next stage refines the options and finalises the overall business plans
There is a choice of attitude to take towards the options:
focused drive for one future?
cautious experimentation?
low-risk contingency planning?
The approach chosen will depend upon the balance between risk and reward that the stakeholders wish to maintain
The various business options are tested in the different scenarios to evaluate their performance. Tests can involve script-writing, war-gaming or mathematical modelling
The options are synthesised in one plan and the decision points defined, in order to achieve the business objectives
Establish parameters for each scenario
Check core plan in all scenarios
Check options in relevant scenarios
Synthesise and test
complete plan
Refine decision points
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Maintain learning
Scenario planning should not be a one-off exercise: the greatest benefit is gained by continually developing and applying the scenarios
Long-term, scenario planning will capture ongoing business learning as it evolves
In the short term, an effective early-warning system can be created by establishing processes such as:
short-listing critical parameters
summarising significant scenario events
defining how to track critical parameters and significant scenario events
agreeing management process for tracking
maintaining a strict schedule of reviews
allocating clear responsibilities for tracking
establishing processes for rapidly assessing consequences of events
keeping the stakeholders up-to-date with regular bulletins
adjusting business plans to keep pace with change in the business environment
Review scenarios
Track critical factors
Adjust plans
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What is the checklist for success?
Set a clear objective for the scenario-planning project in close consultation with the stakeholders in the business
Build a creative and diverse team integrating client personnel with Analysys Mason team members
Appoint a champion for scenario planning within the business, to lead the project with support from the Analysys Mason team
Gain the commitment of key stakeholders, including board-level sponsorship
Agree and follow a sound process, based on our experience but tailored to the client needs