Scenario Planning

Fiona Urquhart, BA, MBA, MCIM, MIPD, MIBC

Ruthless killer

Brain the size of my fist for a body the size of a bus

Both wiped out by climatic changeIf they had done scenario planning, maybe

the world would have looked different

• Frog doesn’t notice change in temperature because it is gradual

• Lulls him into sleep & death

Internal environmentIndustry environment Buyers, suppliers, competition, substitutes, new entrants

External environmentSociocultural,

technological Economic, Environmental,

Political, Legal, Ethical

Managing from the outside in (Gareth Morgan, 1988)

You can’t read the label when you’re sitting inside the jar!

Increasingly hard to influence or change

TOWS/SWOT

Strength Weakness

Opportunity Threat

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Negative

Internal

External

Understanding the outside environment (hardest to change) first enables organisations to create a flexible and responsive internal environment (easiest to change)

Understanding the environment

There are two ways to be fooled.

One is to believe what isn’t true

The other is to refuse to believe what is true

Kierkegaard

Keeping up to date: some questions to ponder

• How do you keep up to date with information in your chosen field?

• What can you do to limit and refine input

• Why do people resist knowledge?

Why scan?

• View of the future improves forecasting accuracy and reduces uncertainty (Makridakis, S.,1978)

• Outside in & Proactive mindsets (Morgan, G.,1986)

• Mega-marketing (Kotler,P.,1986) (strategic co-ordination of economic, psychological, political and public relations skills to gain the co-operation of a number of parties in order to enter or operate in a given market)

Scanning the environment

• What to Scan (STEEPLE)• Three goals- Understanding, intelligence, strategic thinking

(Fahey & Narayan , 1986)• Prerequisites - commitment, review objectives, links to

strategy, culture, flexibility• Four modes of scanning (Aguilar, 1967)

– Undirected viewing– Conditioned viewing– Informal search– Formal search

• Dealing with weak signals (John Naisbitt)

Two Phase Research Process

Design Objectives

Qualitative Research

Final Design

Survey Data Collection

Initial Analysis

Interpretation

Final Analysis

Action Points

Question Interpret

Sociocultural Issues

• Modernism, post modernism, post Fordism, post materialism

• Class• Income & Wealth• Gender• Life course stages• Demography• Lifestyles ( consumer

culture, neighbourhoods, institutions, friends and colleagues, common activities)

• Ethnicity (Disadvantaged minorities, regional variations, low employment rates)

Technological Issues

• Three types of force for technological change– demand-led– technology-led– ideology-led

• Four categories:– Technological Revolutions– System changes (new technologies)– Radical changes (discontinuous events)– Incremental changes (low-level improvements)

Economics Issues

Micro-Economics Issues

• Takeovers, bankruptcy, competition

• Transaction cost analysis (downsizing, outsourcing, contracting, make or buy)

• Labour costs

• To understand how the industry operates

Macro- Economics

• GDP, unemployment rates, price indices

• National income, output, consumption, international trade, inflation

• to understand how the whole economy functions.

Politics

• Prisoners dilemma

• Tit For Tat

• Zero sum games

• Pay-off matrices

• Voter theory

• Press & PR influencing political environment

• Pressure Groups

• Lobbying

Interpreting environmental scanning information

• Look at all the post it notes you have gathered, and decide whether the changes they identify will be important or unimportant and certain or uncertain

• Place them in the relevant quadrant of the matrix on the next slide

• The quadrant of interest is the Important/Uncertain one. Important/Certain should be addressed by short term planning

Importance/ Uncertainty matrix

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Formulate scenarios

• In groups, select six or seven post it notes from the Important/Uncertain sector.

• These may all relate to one area of the environment, or may involve a combination of these areas.

• Now, imagine what the world would be like if all these aspects coincided.

• Give your picture of the world a descriptive title e.g. Fortress Europe, “Grey” Domination etc.

• As a group describe your scenarios to the entire audience

Stages of scenario planning

• Decide on drivers for change

• Bring drivers together in a framework

• Produce initial (7-9)mini scenarios

• Write the scenarios

• Identify issues arising

TOWS

• Now, looking at your scenario, draw up a summary of the threats & opportunities for your organisation

• What strategies would enable you to ward off threats?

• What strategies would enable you to exploit opportunities fully?

Corporate strategy V Robust Strategy

Corporate Strategy

• Objectives– Optimising performance

• Characteristics– Short term

– Single Focus

• Outcomes– Effectiveness

– Commitment

• Recipients of benefits– Individual profiteers

Robust strategy

• Objectives– Ensuring Survival

• Characteristics– Long Term

– Divergent coverage

• Outcomes– Comprehensiveness

– Understanding

• Recipients of benefits– Stakeholder communities

Generic strategies

Compare & Steer

Scenario forecasting &

Robust Strategies

Forecasting/

Budgeting & Corporate Strategy

Generic Strategies

Key Turning Points: Business School

MOST IMPORTANT

LEAST IMPORTANT

LEAST LIKELY MOST LIKELY

Microsoft enters ‘edutainment’ business

Government funds masters education

Managers want networking club

Demise of MBA

Requirement for ongoing education recognised by managers

Integrating Scenario Planning with Corporate Strategy

Isolate Turning Points

Decide Robust Strategies

Test Against Corporate Strategy

Decide Strategic Changes

Translate to Action

Generic Robust Strategies

• Customer Franchise• Rule of 123 ( brand leader has a share double that of the second brand,

and triple that of the third)• Branding, segmentation, positioning• Opinion Leaders/peer pyramid• Relationships with Customers

– CRM– Service– complaints

• Relationships with Competitors– Collaborators & Cartels

• Inner marketing– Stages– Managed suggestions– Culture

References

• Fahey, L., & Narayanan, V. K. (1986). Macroenvironmental Analysis for Strategic Management (The West Series in Strategic Management). St. Paul, Minnesota: West Publishing Company.

• Aguilar, F.J., Scanning the business environment,Macmillan, 1967

• Marketing Strategy: The Challenge of The external Environment, David Mercer (The Open University 1988)

• Riding the cutting edge of change, Gareth Morgan, (San Francisco: JosseyBass 1988)

• Philip Kotler, 'Megamarketing', Harvard Business Review (March–April 1986)

• Makridakis,S. & Wheelwright, S.C.,Forecasting: methods and applications, Wiley, 1978