scenario planning mini-course teigland
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Slides from my mini-course on scenario planning.TRANSCRIPT
Scenario Planning
MBA in Executive FormatStockholm School of Economics
Robin [email protected]
www.knowledgenetworking.orgwww.slideshare.net/eteigland
RobinteiglandJanuary 2014
Who am I? (LinkedIn Inmaps)
SSE
Exec Ed
Industry
Research
Wharton
Stanford
McKinseySSE MBA
4
Learning Objectives
To experience the process and challenges of scenario planning and its strengths and weaknesses as a technique for assessing and anticipating the future
To gain an understanding of political, economic, sociological, technological, environmental, and legal trends and their interrelationships
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Schedule
Thursday afternoon Lecture: Introduction to scenario planning Groupwork: UPS Case Guest Lecture: Mats Lindgren, Founder and CEO,
Kairos Future, and Author of Scenario Planning, Palgrave Macmillan
Friday morning Groupwork: Scenario planning Group presentations and discussions
"...when the rate of change outside an organization is greater than the rate of
change inside, the end is near...."
Jack Welch…
Increasing pace of change
From 1920s to 2010s Average lifespan of S&P 500 company fell from
67 years to 15 years From 2000 to 2010
40% of companies on Fortune 500 list replaced Predictions
In next few years, 70% of Fortune 1000 companies replaced
By 2020, >75% of S&P 500 companies we do not know today
By 2025, >45% of Fortune 500 from emerging markets
Fast Company, McKinsey & Inc
Did You Know: Shift Happenshttp://www.youtube.com/watch?v=cL9Wu2kWwSY&feature=search
1. What trends do you recognize?
2. How are these trends affecting you and your organization?
Note – This video is from 2008. Notice how much has changed since then
10 jobs that did not exist 5 years ago
1. iOS developer2. Android developer3. Zumba instructor4. Social media assistant5. Data scientist6. UI/UX designer7. Big data architect8. Beachbody coach9. Cloud service specialist10.Digital marketing specialist
10http://www.dn.se/ekonomi/tio-jobb-som-inte-fanns-for-fem-ar-sedan/
Strength of Capability(strategic thinking, culture, configuration, knowledge
management)
Need for Peripheral
Vision(complexity and volatility
of environment)
High
Low
Low High
Vulnerable(myopic)
Vigilant(20/20)
Neurotic(ADD)
Focused(laser-beam)
How is your organization’s peripheral vision?
Schoemaker, Scanning the periphery
Domain Opportunities in Periphery
Who Saw It Who Missed It
Technological Digital revolution Apple and iPod Music industry
White LED lighting LED companies Light bulb manufacturers
Open-source software Linux, IBM Microsoft and Sun Microsystems
CD-ROM encyclopedias Microsoft Encyclopedia Britannica
Rapid spread of GSM Nokia Iridium
Economic Overnight package delivery FedEx, UPS USPS, United Airlines
Search engine potential Google Microsoft
Discount point-to-point airlines Southwest, Ryanair and EasyJet
United, Delta, Lufthansa
Societal Sports and New Age drinks Snapple, Gatorade Coke, Pepsi (initially)
Popularity of reality shows Reality show producers Game shows
Age compression and demand for more sophisticated dolls
Bratz Mattel (Barbie)
Political Generic AIDS drugs in Africa Indian pharmaceutical companies
Major global pharma companies
Social discontent in Venezuela Hugo Chavez Establishment (PDVSA)
Role of “exurbs” in changing US voter patterns
George Bush and Karl Rove John Kerry
Opportunities in weak signals
Schoemaker: http://www.youtube.com/watch?v=6aLvCVL6bGw
Why do organizations get blindsided?
1. Reactive leadership Narrowed focus on current business Lack of curiosity about the periphery
2. Strategic planning process Inside out rather than outside-in Fear of cannibalization
3. Inward looking culture No willingness to listen to scouts
4. Limited information sharing Across organizational boundaries
5. Organizational configuration Limited windows on the larger world
Schoemaker
15http://www.youtube.com/watch?v=vJG698U2Mvo
Please do NOT say anything if you have seen this before!
Why think about the future?
What we don’t know we don’t know
What we know we
don’t know
Most of what we need to know to make good decisions today is outside our comprehension: we
don’t even know it’s there.
All our knowledge is about the past, but all our decisions are about the future.
What we
know
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“I think there’s a world market for maybe five
computers.”Thomas Watson, Chairman of
IBM, 1943
“There is no reason anyone would want a
computer in their home.”
Ken Olson, President, Chairman and
Founder of Digital Equipment
Corporation, 1977
“Heavier-than-air flying machines are impossible.”
Lord Kelvin, President, Royal Society, 1895
From controlling risk to navigating uncertainty
19Schoemaker: http://www.youtube.com/watch?v=6aLvCVL6bGw
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How can we look into the future?
Forecast How we think the future will be
Vision How we want the future to be
Scenario What the future can be
……. Scenarios: More pictures of the future
????
Distance into “the future”
Uncertainty
Predictability
F S H
Forecasting Scenario planning “Hoping”
Ranges of usefulness
t
U
Adapted from K. van der Heijden
Scenario planning
It is a method of preparing for the future regardless of what happens.
But not a vehicle for predicting the future.
It helps make sense of an uncertain future and enable better decisions.
Also, a tool for collective learning in organization
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Possible - “might” happen (future knowledge)
Plausible – “could” happen (current knowledge)
Probable - “likely to” happen (current trends)
Preferable - “want to” happen (value judgments)
Types of futures
Conway 2003
Types of futures
Time
Today
Possible
Plausible
Probable
Preferable
Scenario
“Wildcard”
Conway 2003
UPS Case – Prepare 10 min presentation
What are the strengths and weaknesses of scenario planning?
What is your evaluation of UPS’s 1997 scenario planning exercise? Its Horizon 2017 planning exercise? How do the two efforts compare?
What are the other key elements of UPS’s approach to strategic planning? In particular, what is your evaluation of the UPS Charter? The Centennial Plan? The Strategy Road Map?
Why was John McDevitt put in charge of “strategic integration?” Should he remain in that role?
How does UPS’s strategic planning process compare with the approach at your organization? 26
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Why scenario planning?
Expands strategic thinking More possible futures imagined and
analyzed Uncovers inevitable and near-inevitable
scenarios
Promotes motivation and creative thinking Protects against groupthink Challenges conventional wisdom
Can be used as a management/ communication tool Holde
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
28Note on Strategic Planning, HBSP
Short Scenario Planning Exercise (2 hours)
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Stage End Product Time Total
1. Orientation
• Big question and time dimension 15 min 15 min
2. Exploration
• Driving forces (PESTEL)• Ranking of critical uncertainties
20 min15 min
35 min50 min
3. Scenarios Creation
• Scenario framework • Characteristics and narratives that
describe scenarios
15 min25 min
65 min90 min
4. Options Consideration
• Strategic implications and potential actions
20 min 110 min
5. Integration
• Early warning signals• Actions to communicate results to
organization
10 min 120 min
Adapted from Note on Strategic Planning, HBSP
Preparation for tomorrow (Stage 1)
Individually… Review readings and course slides
In your group… Choose an organization for the scenario planning exercise
Should be for the organization of one of the group members. For what part of the organization is this? E.g., whole organization,
specific division/unit, geographical location, department? Start discussing what is the “Big Question” for the organization
(Stage 1)? E.g., new product/service, new market, new business model
What is the time horizon? Short enough to create probable scenarios but long enough within
which important changes will occur What elements of the current situation are important?
Strategy, competitors, technology?
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Stage 1: “Big Question”
Broad yet strategic query serving as anchor for scenarios Critical to future of unit/organization now Often emerges from today’s major challenges
“What keeps you up at night?” “What one question would you ask a real psychic?”
Choose “horizon year” as distance into future that scenarios will extend Short enough that probable, but long enough for
impact The further out – the greater suspension of disbelief
(the “that won’t happen” reaction)
31Conway 2003
Examples of the “Big Question”
Should we introduce a completely new product or service?
Should we retain our current “value proposition”?
Should we integrate our various businesses so they contribute more value to our organization?
Does our R&D need redirecting? Should we buy a certain competitor? Should we enter (or exit) a geographical
market? What competences do we need in the future? How is our competitive advantage affected by
developing events?32
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Schedule
Thursday afternoon Lecture: Introduction to scenario planning Groupwork: UPS Case Guest Lecture: Mats Lindgren, Founder and CEO,
Kairos Future
Friday morning Groupwork: Scenario planning Group presentations and discussions
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
34Note on Strategic Planning, HBSP
Drivers of change
Key uncertaintiesBasic trends
Rules of interaction
Multiple scenarios
Stage 2: Building blocks for scenarios
Schoemaker
36
Macro environment
Industry
Company
Politics and government
Environment Technology
Legal structure
Social and Demographic
structure
International/nationaleconomy
PESTEL
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PESTEL – A closer look Political
Global, regional, and national political development (administration, political parties)
Taxation policy Foreign trade regulations Labour market politics Government stability
Socio-cultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Attitudes to consumerism Levels of education Changes in values/attitudes Education conditions Work environment conditions Health conditions
Environmental Ecology Pollution conditions ”Green” energy Energy conservation Waste handling
Economic Business cycles GNP trends Interest rates & Exchange rates Money supply Inflation Unemployment Wage level Private consumption and
disposable income Public finances Energy availability and cost
Technological Government spending on research Government and industry focus of
technological effort New discoveries/development Speed of technology transfer Rates of obsolescence New patents and products
Legal Development in price and
competitive legislation Labour market legislation Product safety and approvals
Some search tips
Global scenarios for 2025 Shell International Limited U.S. National Intelligence Council World Economic Forum
Futures studies organizations Decision Strategies International Institute for the Future Kairos Future McKinsey Global Institute
Other tips Blogs, wikipedia, slideshare, twitter Search words: scenario, foresight, trend,
trendspotting, trendwatching, future studies, institute for future
But take a critical perspective of your sources
Author and authority Author credentials? Publisher credentials?
Accuracy of research and data collection Choice of method? Data collection?
Accuracy and objectivity of document Are trends, findings supported by data,
references? Degree of objectivity? Logical conclusions?
39http://www.qou.edu/english/scientificResearch/eLearningResearchs/developingACritical.pdf
Stage 2: Driving forces
For the timeframe of your focal issue… Brainstorm list of PESTEL trends that could impact
focal issue Be specific as well as give a direction for each trend, ie a hypothesis
on a direction
Evaluate the identified trends. How predictable? Degree of impact on focal issue?
What are the Certain & Important trends? What are the Critical Uncertainties? Which 4-5 Critical Uncertainties have the highest
uncertainty and highest impact?
40
Hi
HiLo
Lo
Uncertainty
ImpactCertain & Important
CriticalUncertainti
es
Adapted from Lindgren & Bandhold 2009
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
41Note on Strategic Planning, HBSP
Stage 3: Build scenario framework
Test 4-5 most Critical Uncertainties in pairs in scenario framework
Must be very low correlation between pair of uncertainties Develop characteristics for each scenario
4242
UncertB
Scenario 3
UncertB
Uncert A
Scenario 2Scenario 1
Scenario 4
Must be completely
different scenarios
Uncert A
Requirements of each scenario
Unlike the present but likely and arguable Internally consistent yet distinct Relevant to the issue or question of interest Tailored to company Recognizable from early and weak signals of
change Challenging as it contains some elements of
surprise or novelty in directions where organization’s vision needs to be stretched
43Adapted from Miesing & Van Ness 2005
When writing scenario narratives…
Plausible, consistent stories describing the path and environment towards the End State of the scenario framework. A story needs a title, beginning, middle, and an end. The difference in scenarios should be clear and the
names are an important part of aligning them to different worlds.
A small set of variables will be identical in all scenarios.
Key variables should be quantified and early indicators listed.
Summarize in scenario table to see if really different
44Adapted from Ringland 2002
Who does what, with whom, when, where and
why?
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
46Note on Strategic Planning, HBSP
Scenarios provide ‘clues’ about what might be important drivers of change in the future, and how those drivers might interact and affect the organization.
Aim is to identify strategies that are robust across all scenarios, given what we know about how the future might develop.
Also, to identify ‘early warning indicators’ that events in the scenarios are happening – how will we respond?
Within the context of the focal issue….
From Scenarios to Strategy
Conway 2003
Strategic implications
What are the main opportunities and threats that each scenario poses for your organization?
How well prepared are you (or can you be) to seize these opportunities and avert or minimize the threats?
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Robust strategy - Perform well over the full range of scenarios considered - “Blue Chip”
Flexible - Keep options open and / or wait for as long as possible before committing - “Hedging”
Multiple coverage - Pursue multiple strategies simultaneously until future becomes clear - “Scattergun”
Gambling - Select one strategy which works very well, but in only one or two scenarios - “Bet the Farm”
Approaches to Strategy
Conway 2003
In the absence of well-developed set of scenarios, single-point forecasting and / or a reluctance to allow uncertainty (i.e., the “predict and control” mentality) leads to a (usually unconscious) projection of an “official” future, which is the one assumed to be coming ...
This approach is functionally equivalent to (and an unconscious form of) the Gambling / “Bet the Farm” approach
“Bet the Farm” is the common default
Conway 2003
From Scenarios to Decision / Strategy
Examine what could happen if these scenarios become reality, and what that can mean to your organization.
Consider both immediate and longer-term consequences for your organization for each of the scenarios.
What are the main opportunities and threats each scenario poses for your organization?
List contingencies that should be put in place now to deal with these scenarios.
Develop a robust strategy that is resilient and viable regardless of which scenario actually does occur.
Consider the following: Given these possible futures, what is your overall assessment of the
organization’s strategy? Where is your strategy vulnerable? What major modifications do you
recommend to the strategy? Will you be flexible to change this strategy in response?
How will you know which scenario is actually unfolding? What are the “flash points” or “sign-posts” (either metrics or events)? Which key indicators must occur for that scene to become reality?
When should your vision change in response to environmental shifts?51Adapted from Miesing & Van Ness 2005
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
53Note on Strategic Planning, HBSP
Monitoring for early warning signals
B
C
D
Cycle 25
Cycle 36
2004
2014
A
Strategic Decision Point &Option Execution
Year 1
Cycle 1
Cycle 2
Cycle 3
Monitoring helps project the long term mean towards one scenario and also the shorter term variations/disruptions in
individual forces
Schoemaker
How to conduct scenario planning?
Stage 1: Orientation - what is key focal issue? Important long-range consequences for organization
Stage 2: Exploration - what are the driving forces? Trends that likely to affect, influence, and shape key focal issue
(PESTEL), predetermined trends and uncertainties Uncertainties that most likely to define or significantly change future
ranked by uncertainty and importance Stage 3: Scenarios - What scenarios build the framework?
2x2 matrix based on two axes of critical uncertainties Four plausible, alternative scenarios and their characteristics and
narratives Stage 4: Options – What are the robust strategies?
Implications of scenarios for key focal issue and organization Stage 5: Integration - What are the early warning signals?
Leading indicators and scenarios used to evaluate strategic options
55Note on Strategic Planning, HBSP
Prepare a max 10 min presentation
Some elements to include… Key focal issue and time horizon Critical uncertainties that most likely to define
or significantly change future ranked by uncertainty and importance
Scenario framework with four scenarios and accompanying narratives
Implications of scenarios for key focal issue and organization
Early warning signals Next steps – Communication in organization?
Sources and readings A Note on Scenario Planning, Harvard Business School. Strategic Planning at UPS, Harvard Business School Case. Six Rules for Effective Forecasting, Saffo, P. Harvard Business Review, 2012. The Current State of Scenario Development: An Overview of Techniques, foresight, 2007. Read about the PESTEL analysis (also known as STEEP, PESTLE, PEST, STEP) framework on the internet, e.g.,
http://pestel-analysis.com/. Scenario Planning: The Link between Future and Strategy, Lindgren, M. & Bandhold, H. Palgrave Macmillan. Eyes Wide Open: Embracing Uncertainty through Scenario Planning, July 22, 2009 in Knowledge@Wharton,
https://biblio.ugent.be/publication/1081542/file/1081543.pdf. Getting into Your Competitor’s Head, H. Courtney, J.T. Horn, & J. Kar, McKinsey Quarterly, 2009, 1, http://bit.ly/ReMZ1X. The Ambidextrous Organisation, J. Birkinshaw. AIM Report, http://bit.ly/S02Gen. Scenario-based Strategy Maps, F. Buytendijka, T. Hatch, & P. Michel, Business Horizons, 2010, 53, 335-347,
http://bit.ly/Sm5srs. The Black Swan: The Impact of the highly Improbable, Taleb, N. Random House Publishing Group. Minitrends: How Innovators & Entrepreneurs Discover & Profit From Business & Technology Trends: Between
Megatrends & Microtrends Lie MINITRENDS, Emerging Business Opportunities in the New Economy. Vanston, J. H. & Vanston, C. Technology Futures.
Trends in Connectivity Technologies and Their Socio-economic Impacts, J. Cave, C. Van Oranje, R. Schindler, A. Shehabi, Ph-B. Bruscher, N. Robinson, Final report of the study: Policy Options for the Ubiquitous Internet Society, For DG Information Society and Media, 2009, http://bit.ly/RuEmyk.
Foundations of Futures Studies, History, Purposes, and Knowledge - Volume I, W. Bell. New Jersey: Transaction Publishers.
Anatomy of a Trend. H. Vejlgaard. McGraw-Hill. The Trend Forecasterʼs Handbook. Martin, R. Laurence King Publishers. The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business,
Economics, Society and Nations. Surowiecki, J. Anchor Books. Additionally, you should regularly read strategy and future-related articles in publications such as the Wall Street
Journal, Business Week, Forbes, Wired, etc., as well as on online sites and blogs such as Mashable, Six Pixels of Separation, etc. I also encourage you to use Twitter applications, such as Tweetdeck or Hootsuite, and groups/online forums such as those on Facebook and LinkedIn, to follow strategy-related topics.
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