the role of scenarios in business strategy development garp conference may 2011 richard walsh,...

The Role of Scenarios in Business Strategy Development

GARP Conference

May 2011

Richard Walsh, Director, SAMI Consulting

Scope of presentation

• Business strategy is very broad....• Which business?

– Here I will concentrate on financial services but there are links to BS in:

– Governments – National, Global and local– Other sectors – eg health, environment etc etc

• And what timescale?– Now?– 3-5 years time?– 5-10 years time?– 10 – 20+ years time?

• Its a complex world and its not all going as it “should”

© SAMI Consulting www.samiconsulting.co.uk 2

Bank Bailouts


Expenditure $US bn 2008

S&L crisis2009-12 Obama stimulus plan

2008 tranche of the bank bailout

Marshall plan

Louisiana purchase

NASA, less moon shot

Moon shot

Korean warThe New Deal

Iraq war

Viet Nam

Outcomes by country – what we thought – but for how long?


Banking crisis remain chronic, as does state intervention

Banking crisis is settled relatively quickly

Japan

India

UK US

Middle income industrialising China

Euro zone

Prolonged depression,

growing statist environment

Slow grind to expunge debt;

some deliberate use of monetary

inflation

Business grows as

before

Slow return to health; US consumer

stage centre

World Economic Forum - 2011


1000

100

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ed im

pact

U

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N $

Perceived likelihood in next 10 years

Here be dragons....


London population forecasts – its demographics so it’s certain???


0

1

2

3

4

5

6

7

8

9

1951 1971 1991 2006 2016

ActualForecast now

A trend is a trend until it bends

1991 forecast

Forecasts miss the point?


Trends Range of other uncertainties

Uncertain timing

Single point forecast

Today

Scenario planning

Scenario planning attempts to describe what is possible.

The result of a scenario analysis is a group of distinct futures, all of which are plausible.

They are mental models.

FuturePresent

B

C

D

A

Nu

mb

er o

f P

oss

ible

Fu

ture

Wo

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9www.samiconsulting.co.uk

Using scenarios

• Scenarios are artifacts – mental models• Are used to test existing strategies – “wind-tunnelling”• Communication depends on audience

– Actuaries, business development, government– Engineers & scientists – comparator tables– Managers – brief– “Public” – visualisation & stories

• All audiences helped by early indicators– Newspaper headlines now if this scenario is developing

• All audiences need time to internalise, eg– “What are the implications for me/the organisation? “– “How would I/the organisation manage in this scenario?”

www.samiconsulting.co.uk 10

Long finance scenarios – 2030...2050

• Gresham College and Z/Yen have initiated a Foundation to study Long Term Finance

• Issues tackled so far include the future of mortgages, the history and future of coinage, and a systems view of the credit crunch

• the Long Finance Forum of Futurists (L3F) has formulated scenarios for the future of finance

• SAMI consulting have worked as part of this enterprise and we have involved many stakeholders


What we can forecast for 2050

• Predicting the future is fraught: there is always a tension between the evolution of existing trends and “a trend is a trend until it bends”. Our scenarios assume that:

• Global population will grow to 9 billion and get older• Major shifts of centres of economic power• Technology (info, cogno, bio, nano) will continue to

introduce changes• ICT will underpin much of society• Ecological, energy and environmental limits tested or

breached.


What are the uncertainties?

• Will our economy and society be similar to now,– called the Washington consensus – or – will there be a new paradigm based on community (of

interest or geography?)

• (for financial services) Does geography matter? – eg City states or– Will markets be global and so largely virtual?


Scenarios for 2050


Community based

Washington consensus

Virtual connectionsGeography matters

Long handMany hands

Second hand Visible hand

CURRENT TRENDS & DRIVERS

STATUS QUO, MOMENTUM, INERTIA

EMERGING ISSUES OF CHANGE 1st horizon

2nd horizon

3rd horizon

Time

Dominanceof paradigm / worldview

Pockets offuture found

In present

“present” - 2011 “future” - 2050

Fading paradigms & technologies

Transition paradigms & technologies

Invent, Develop, Deploy

Research,Demonstrate,

Disrupt

Envision, Explore, Embody

Timeline - Three Horizons

2030

© SAMI Consulting 15www.samiconsulting.co.uk

Implications

• Depends on your audience• We looked at:

– Investors– Guarantors – insurers and re-insurers– Corporates and governments– Traders– Consumers

• For today, lets look at investors and guarantors


Second hand

• Capitalism, nation states, democracy and western value systems still dominant as concepts, – though not all countries/regions are moving to embrace these

• Nearest to current paradigm but– Degradation of state capability– Technology has sustained population– Individual “singularity” & common bio-engineering– Health care better for the rich

• How to handle global commons?– What efficiencies are lost?


Early indicators – second hand

• US and Europe maintain military strength but lose economic strength

• States fail to provide pensions, leaving provision to individuals

• Large corporates play an important role in international “Washington” consensus

• Food technology reports breakthroughs which will feed more people without more land


Implications for investors – second hand

• Implications for Investors in 2050– The investment picture by 2050 will be dominated by

the tailing off of population growth and an increase in aggregate wealth.

– Nations will be increasingly desperate to attract funds to pay pensions and invest in infrastructure

• Implications for Investors now – no surprises!– State has an increasing role as regulator of pensions

and security.– Individuals have increasing personal responsibility for

pensions and security.


Implications for guarantors – second hand

• Implications for guarantors in 2050

– Depends on whether volatility has become manageable: bigger bets and systemic risk tend to increase volatility and damaged internal consensus unable to cope

– Much more focused insurance – specific risks etc – using ICT connections & analysis

– Insurance much more global and broader based – different countries; based on commodities; gold

– More trading areas – fragmentation

• Implications for guarantors now

– Empowerment of middle classes

– Social networking growth – sporadic clamp downs will not halt this growth

– Role of information - readily available – no value; commercially useful – very valuable


Visible hand

• Capitalism, democracy and western values still dominant– Significant stand-outs and international tensions– Global markets– National governments in retreat

• Evolution of Washington consensus– Rethinking of taxation & pensions– Food revolution successful– ICT underpins all

• State as shelter from volatile world– Some welfare state provision

• How to learn to handle global commons?– Lack of diversity


Early indicators – visible hand

• States place citizens’ benefits and education as priority over other expenditure

• States work with affinity groups to provide pensions

• Large corporates play an important role in an international consensus

• Food technology reports breakthroughs which will feed more people without more land


Implications for investors – visible hand

• Implications for Investors in 2050– The investment picture by 2050 will be dominated by

the tailing off of population growth and an increase in aggregate wealth.

– The state has a powerful role in regulation and provision of pensions and investment products.

• Implications for Investors now – back to the future– State has an increasing role as regulator and supplier

of pensions and security.


Implications for guarantors – visible hand

• Implications for guarantors in 2050– Depends on whether volatility has become manageable: bigger bets and

systemic risk tend to increase volatility and national states not able to cope– People will look for self-protection with like minded people, insurance largely

national– Those dependent on benefits in Europe will suffer hardship and organise –

revolution and organised crime for some; prudence and financial self help for others

• Implications for guarantors now– Decreasing tax returns from national systems – welfare systems suffer –

opportunity for guarantors– Rise of affinity groups as source of purchasing power– Role of information - readily available – no value; commercially useful – very

valuable


Long hand

• Community rather than nation states dominate– Multiple value systems accommodated– Democracy not seen as universal good– Break caused by extreme weather in 2030’s

• Rethinking of the economic and social challenges– Technology has not solved global problems, eg ecology, energy– Technology redefines financial services– Location less important in forming groups, eg religious, ethnic,

hobbyist, professionals, companies, employees, -----

• How to enforce global regulation – International as sum of communities vs nations


Early indicators – long hand

• States cannot finance state benefits• Increase bartering and skills exchange• Decreasing tax returns from individuals, switch

to consumption/sales taxes• Rise of affinity groups for financial transactions:

growth in private pensions/insurance: strengthening of some communities, including emergence of 21st century “guilds” across national boundaries


Implications for investors – long hand• Implications for Investors in 2050

– The investment picture by 2050 will be dominated by the tailing off of population growth and an increase in aggregate wealth.

– This scenario could result from the collapse of Visible Hand due to inefficiencies of global giants.

– Assets allocated by the market and intermediated by technology– Affinity groups across national boundaries, growth in private

pensions/insurance• Implications for Investors now – new opportunities

– Affinity groups across national boundaries have increasing role in providing pensions and security.

– Opportunities in personal wealth management, not just High Net Worth individuals


Implications for guarantors – long hand

• Implications for guarantors in 2050 – People will look for self-protection with like minded people– A lot of excluded people: those dependent on benefits in UK will suffer severe

hardship – unable to buy basic foodstuffs: the excluded will get together too – revolution and organised crime for some; prudence and financial self help for others

– Overall world is running out of water, populations increasing – and uneven distribution – communities will try to create a ring fence around resources - food, water, mining, agriculture

• Implications for guarantors now– States cannot finance state benefits– Increased bartering and skills exchange (you do this for me and I will do that for

you)– Decreasing tax returns from national systems– Rise of affinity groups as source of purchasing power.


Many hands

• Community is organising concept– Cities as wealth clusters “brands”– Sees the failure of nation states– Democracy, capitalism and western values competing with other

organising concepts, UN etc disappear– Break caused by extreme weather in 2030’s

• Rethinking of the social and economic challenges– High mobility of people for economic self interest– Borrowing person to person, mediated via technology– Corporations with global span strong; media important

• Global commons abandoned– Conflicts in values, fewer implicit norms


Early indicators – many hands

• States cannot finance state benefits: decreasing tax returns from individuals, switch to property taxes

• ICT companies stepping back from integration/open systems, failing of the Cloud due to security issues

• Failing of the euro• States reduce fiscal transfer to country regions.


Implications for investors – many hands

• Implications for Investors in 2050– The investment picture by 2050 will be dominated by the tailing

off of population growth and an increase in aggregate wealth – Equity trading focused on local companies – few global players– Security of supply a valued asset– International regulation weak

• Implications for Investors now – resource boom continues– Growing importance of fundamental resources: build capabilities

around resources trading/investing– “Ethical” investments aligned to resource management– Invest in intelligence gathering, analysis and reputation


Implications for guarantors – many hands

• Implications for guarantors in 2050 – Depends on whether volatility has become manageable: bigger bets and

systemic risk tend to increase volatility but city state structure dampens– Much more focused insurance – specific risks etc – using ICT connections &

analysis– Insurance much more global and broader based – different countries;

commodities and scarcity– End of single currency and instability– More trading areas – fragmentation

• Implications for guarantors now– Empowerment of middle classes – Social networking growth – sporadic clamp downs will not halt this growth– Role of information - readily available – no value; commercially useful – very

valuable


Bets for 2030?

• Investors– Bet on growing population, scarcity of

resources, growing economies?

• Guarantors– Bigger bets, but systemic risks leading to

greater volatility?


Bets for 2050?

• Investors– Bet on tailing off of population growth but

increase in aggregate wealth?

• Guarantors– Depends whether world has learnt to manage

volatility, eg through localism – who knows?


Who knows?

• No one

• So scenarios can help strategists etc test their bets for robustness

• Early warning signs?

• What would you do in all scenarios?

• Which are most likely in which timeframe


the role of scenarios in business strategy development garp conference may 2011 richard walsh,...

Documents

sami consulting slide

forecast slide

uk11 slide

stakeholders sami

scenarios scenarios

bank bailouts sami

long finance scenarios

years time