Scenario Planning Building Scenarios at Roland Berger 20130826

8/9/2019 Scenario Planning Building Scenarios at Roland Berger 20130826

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SCENARIO planningBuilding scenarios atRoland Berger Strategy Consultants

2013-08_RBSE_Building Scenarios.pptx1

August 2013


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Contents Page

A. Strategy development today

Why scenario planning is important now 3

B. The Roland Berger-HHL scenario approachOur approach to building scenarios 12

Roland Berger Strategy Consultants 2013-08_RBSE_Building Scenarios.pptx2


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A. Strategy development todayWhy scenario planning is important now

2013-08_RBSE_Building Scenarios.pptx


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Today our economy faces very high volatility

DOW JONES

[index value]

1)EUR/USD EXCHANGE RATE

[EUR/USD]

1)GLOBAL REAL GDP

GROWTH [%]

15,542

HighestvalueOct 2007

14,165+8,995

1.60

HighestvalueApr 2008

5.45.3 5.1

4 2013-08_RBSE_Building Scenarios.pptx

Dec 2005 Jul 2013

10,718-7,618

Dec 2006 Jul 2013

1.46 1.48

1.321.34

1.50

2.8

20072006 2012

3.2

2011

.

20102009

-0.7

2008

1.231.27 1.23

1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are on daily basis

1.186,547

SOURCE IMF, Bloomberg

Lowest valueMar 2009

Lowest valueJan 2006

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Due to the high volatility forecasts are extremely difficult and very often fail to predict the future

3.33.4

Example: Development of forecasts of

German real GDP growth 2011 [%]

> Economic forecasters use


Aug 10 Dec 11

1.71.9

2.2

2.5

2.82.9

.

SOURCE Consensus

development but they oftenfailed, e.g. in predicting the crisis

> Economic trends are unreliableand future developments unclear decisions must still be made

> Our job is to interpret the key

factors driving future economicdevelopment


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Another consequence of the high volatility is that traditionalplanning cycles are no good any more

TRADITIONALORGANIZATIONAL

STRATEGICPLANNING

7 years

7-104.8


Time horizons of traditional corporate planningand global GDP growth, 2000-2012 [%]

OPERATIONALPLANNING

MEDIUM-TERMPLANNING

STRUCTURE

2000

3-5 years

1

2012

.

SOURCE IMF


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fail to reflect volatility

can't cope with complexity

Traditional strategy tools

And finally follows that traditional strategy tools havebecome unreliable


don't consider different views

GENERIC COMPE-TITIVE STRATEGIES

ANSOFF MATRIX EXPERIENCECURVE

FIVE FORCES PORTFOLIOANALYSIS

SOURCE ROLAND BERGER


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But the planning questionsremain the same

How sharply will commodity and energy prices rise?Can we re lace ex ensive commodities with less

Which regions of the world will grow most?How can our company benefit from that?


How will regulations change in my markets?Will the changes open up new markets overseas?

expensive ones?

How will demand for our products change?What competing products will jeopardize our business?



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The solution? Scenario planning can overcome theshortcomings of traditional planning instruments

provides different imagesof the future to reflectvolatilit

SCENARIO PLANNING

SCENARIOI


considers numerousinfluence factors to copewith complexity

combines internal andexternal views to identifyblind spots


SCENARIOII

SCENARIOIII

FUTURE

TODAY

Disruption

Counter-action


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But traditional scenario planning often does not meet allrequirements imposed by modern strategic planning

QUOTATIONS FROM USERS

regarding WEAKNESSES

REQUIREMENTS of MODERN

SCENARIO PLANNING

1 Reflectingvolatility through development of alter-native futuresCoping with throu h consideration of

Scenario projects areextremely complex


Methodologies are not welldescribed and not fully disclosed

Processes are not standardizedand highly variable

Fulfilled by traditional scenario planning

complexity

numerous influence factors

4

Speed andsimplicity

based on a set of managementtools that support an easy process

5Flexibilityconcerningplanninghorizon

by applicability of different timehorizons

3Identifyingblind spots

through involvement of internaland external experts


Traditional scenario projectsusually take min of 5 months andcan last as long as 1 year


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Therefore our new approach builds upon the strengths oftraditional approaches and overcomes their weaknesses

> Planning based on multiple

BUILDING ON STRENGTHS

> Standardized method that is easily

OVERCOMING LIMITATIONS


> Integration of outside perspectives

> Broadening management'sperspective

> Increased adaptability to changesin the environment

> Tool based approach easesapplication

> Quick execution of scenario-basedstrategic planning process

> Applicable for shorter time

horizons of less than 5 years

ROLANDBERGER-HHL

APPROACHto scenario-basedstrategic planning



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B. The Roland Berger-HHL scenario approachOur approach to building scenarios

2013-08_RBSE_Building Scenarios.pptx


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We differentiate betweenmacro-, meso- and micro-scenarios

Macro-level scenarios build the

CHARACTERISTICSof our 3-TIERED APPROACHMACRO-LEVEL

Global scenarios


frameworkfor industry and

company scenarios

Meso-level scenarios describedifferent futures of a branch or aregion

Micro-level scenarios focus onpossible futures of one specificcompany


MESO-LEVELRegional and industry scenarios

MICRO-LEVELCompany-specific scenarios


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HHL Lei zi Graduate School of Mana ement

We cooperate with the HHL Center for Strategy andScenario Planning

> Constant exchan e with academia,

Selected activitiesof the HHL Center for Strategyand Scenario Planning


> One of the worldwide leading business schools

> Regularly ranked as one of the top 3 Germanbusiness schools

international think tanks and business overscenario contents and methods

> Concrete support on scenario projects ofRoland Berger

> Carrying out scenario studies together withRoland Berger

> Conducting scenario workshops andseminars for Roland Berger

> Supervising Roland Berger fellows andPhD candidates



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Roland Berger has advised large clients worldwide tosuccessfully structure, execute and adopt scenario planning

CLIENT COUNTRY PROJECT DESCRIPTION

UK > Developed 2020 scenarios for Industrial and Marine business, and built uporganizational capabilities

Multinational oil and gascompany

-

Sample scenario planning client engagements

EXAMPLES


USA > Described and quantified the potential impact of healthcare reform throughscenario planning

France > Developed 2020 scenarios and action plans to enhance aftersales strategyfor Europe and China

France > Created a scenario planning tool to model business impact of different marketconditions and to inform capacity investment decisions

Multinational pharma-ceutical company

Multinational auto-motive manufacturer

Multinational, producingconstruction and highperformance materials

USALarge chain of homeimprovement stores

GermanyMultinational automotivemanufacturer

> Created scenarios describing different consumer behavior

> Developed global scenarios to plan manufacturing data and different salesstrategies according to the scenarios

development across 14 countries to guide pan-European strategycompany



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Book publications and scenario studies demonstrate thoughtleadership

EXAMPLES

Selected scenario planning documents


Emerging MarketFuture Scenarios

Book describing theRB/HHL scenarioplanning approach

Scenarios for The EuropeanAirline Industry



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As an overall framework for our scenario studies andprojects we developed the Trend Compendium 2030

Trend Compendium 2030: Seven Megatrends that will shape the world

Analyzed relevant trend and futurestudies

Discussed and verified data

17 2013-08_RBSE_Building Scenarios.pptxSOURCE ROLAND BERGER

and statements in global RolandBerger network

Detailed seven megatrends, eachwith three business driving

subtrendsOutlined recommendations foractions for every megatrend


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Definition of Scope

Together with the HHL Center we developed a clearlystructured process for scenario projects

Perception Trend and Task: Discuss and evaluate relevant trends

Task: Identify core problemsand frame analysis

Task: Identify assumptions and mental models

Tool: Framing Checklist Tool: 360Stakeholder Feedback

Result: Clear conception ofproject goal

Result: Good understanding of internal (company) and external (industry) perception;identification of blind spots, weak signals and influencing factors

3322110.5 weeks1)


Uncertainty

Analysis

ScenarioBuilding

StrategyDefinition

Moni-toring

Tool: Impact-Uncertainty Grid

Result: Identification and analysis of key trends andkey uncertainties

Task: Develop scenarios based on key trends/uncertainties

Tool: Scenario Matrix

Result: Map of possible scenarios and understanding ofwhich scenarios are most promising and whichare most dangerous to the client

Task: Deduct action plans for implementation

Tool: Strategy Manual

Result: Clear blueprint for strategicdevelopment of a company

Task: Monitor developments andchallenge assumptions

Tool: Scenario Cockpit

44

55

66


Result: Track of external developments

ongoing

3-4 weeks1)

0.5 weeks1)

1 week1)

2 weeks1)

1) Average duration of the specific project phase of a Roland Berger scenario project


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Reference project for the automotive industry1)

:The scope was defined with the Framing Checklist

ELEMENTS and KEY QUESTIONS IMPLEMENTATION, AUTOMOTIVE PROJECT

Focus on global development of automotive industry,as our client was a global player in automotive

GOAL OF SCENARIO PROJECTDefinition of the question to be solved:Focus of the scenario analysis

STRATEGIC LEVEL OF ANALYSIS

Focus on industry level as this allows the broadest

A

1 DEFINITION OF SCOPE


for the macro, industry/region or company level?

DEFINITION OF STAKEHOLDERSWhich key stakeholders shall be involved in the360 Stakeholder Feedback?

TIME HORIZONWhat time horizon is the planning process tailoredto (1,2,5 years or longer)?

Focus internally on top management, trend, planningand macroeconomics experts and externally onindustry, trend and macroeconomics experts

Strategic advisors of the top management as well asthe department heads of trends, strategic planning

and capacity planning participated in the workshops

Focus on 10 year horizon as this was the focus ofcapacity planning

E

C

D

PARTICIPANTSHow closely is top management involved in

the process? Which members of the respectivedepartments participate in the workshops?

1) The approaches and results shown here are only examples. They are not identical to the approaches and results of any specific project



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To gain holistic view on future development in automotiveindustry a 360 Stakeholder Feedback was conducted

> Industry specialists

> Trend specialists

INTERNAL STAKEHOLDERS

> Top Management

> Trend specialists

360Stakeholder

EXTERNAL SPECIALISTS

2 PERCEPTION ANALYSIS


The 360Stakeholder Feedbackasks about

> Influencing factors and indicators

> Impact and uncertainty of relevant

factors

> Macroeconomics specialists

EXTERNAL STAKEHOLDERS

> Key customers

> Key suppliers

> Shareholder

> Macroeconomics specialists

> Capacity planner



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The 360 Stakeholder Feedbackcomprises two consecutive questionnaires

Open questionconcerning STEEP1) influencing factors and indicators:> Which factors influence the future development of the world automotive

industry until 2020 most?

1



Closed questionsconcerning rating of synthesized influencing factors on a scale from1 to 10 regarding impact and uncertainty of each sector:

> How strong is the impact of the factor to the future development of theworld automotive industry?

> How certain is the occurrence of the respective factor within a timeframe until 2020?


2

1) STEEP: Societal, technological, economical, ecological and political/legal influence factors


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We identified 30 influencing factors with the360 Stakeholder Feedback

Social Technological Economic Environmental Political/Legal


Downsizing at customers

Lon er eriod of ownershi

Development of alternativepowertrains

Improvements of traditionalpowertrains

Increasin im ortance of car

Climate change

Growing problems with theproduction of biofuels

Low economic growth inindustrialized markets

Stron economic rowth in Increasin ollution of cities

Decrease of consumerconfidence

Duration of crisis

Tougher environmentalregulation, esp. CO2

Growin trade rotectionism

Decreasing political stability

INFLUENCING FACTORS


S T E E P

assistance systems

Car's image as status symboldeclines

emerging markets

Growing middle class inemerging markets

Growing competition fromnew carmakers

Rising oil price

Rise of new businessmodels (car sharing etc.)

Increasing environmentalconsciousness of consumers

Increasing concentration ofcar makers

Continuing local content regu-lation in emerging markets

Subsidizing own carindustry in China


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The results were systematically analyzed to understand blindspots, weak signals and influencing factors

BLIND SPOTS

Factors, which are deliberately orunconsciously disregarded 10,0Tougher environ-

Risin oil rice

Development ofalternative powertrains

BLIND SPOT ANALYSIS (EXCERPT, ILLUSTRATIVE):

IMPACT, INTERNAL/EXTERNALTHREEFOLD RESULT

ANALYSIS



WEAK SIGNALSFirst indicators for importantdevelopments and external changes

INFLUENCING FACTORS

Influencing factors for the scenario

development

0,0

2,0

4,0

6,0

,

External Internal Blind spot

Economic growth inindustrialized countries

Competition fromnew carmakers

Car's image as statussymbol declines

Longer period ofownership

Economic growth in emergingmarkets

Downsizing atcustomers

By comparing the perception of company insiders and outsiderswe identified management's blind spots



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The most important trends and uncertainties in the industrywere identified with the Impact-Uncertainty Grid

PotentialImpact

High CRITICALUNCERTAINTIES

TRENDS

S

S

S S ST

Ec

S

EcEc

En

En

En

En

T

P

Ec

P

Ec

Ec

EcP

S

T

Decrease in

consumerconfidence

Climate change

Improvements oftraditional powertrains

Growing economicgrowth in emergingmarkets

Local contentregulations

Competition fromnew carmakers

Duration of crisis

Decreasingpoliticalstability

AlternativepowertrainsGrowing middle

class in emergingmarkets

CRITICAL UNCERTAINTIES define the axes of

the scenarios we identified 6 critical uncertainties> Decrease of consumer confidence> Rising oil price> Development of alternative

powertrains

> Duration of crisis> Decreasing political stability> Competition from new

carmakers

Rising oilprice

Growing environmentalconsciousness of

consumers

Ec

3 TREND AND UNCERTAINTY ANALYSIS


SECONDARY ELEMENTSLow

UncertaintyLow High

T

Social> Increasing environmental consciousness of consumers>

Technological> Improvements of traditional power trains>

Environmental> Climate change>

Political> Continuing local content

regulation in emerging markets>

Economic> Growing economic growth in

emerging markets> Growing middle class in emerging

markets>

EcT

SocialS TechnologicalT EnvironmentalEn EconomicEc PoliticalP

TRENDS (relatively secure developments) define the cornerstones of and remain the same in the different scenarios.Based on our questionnaires we identified 15 trends along 5 categories (for example)



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The Influence Diagram was used to structure the criticaluncertainties and condensed them in two key dimensions

4 SCENARIO BUILDING

Duration ofcrisis

Increasing environmentalconsciousness

Climatechange

Growing middle classin emerging markets

Growing economic growth

in emerging markets


Economicdevelopment

Innovationdynamics

Time

Development ofalternative powertrains

s ng o pr ce

political stability

Competition of newcarmakers

Decrease of consumerconfidence


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By varying key uncertainties and influence factors we wereable to formulate comprehensive scenario storylines

FOUR SCENARIOS DEVELOPEDfor global automotive industry until 2020

High innovation dynamic

> Economic development

> Innovation dynamics

KEY DIMENSIONS

INFLUENCING FACTORS

CHARACTERISTICS

- +

4 SCENARIO BUILDING


Higheconomicgrowth

Economicstagnation

IndustryDecline

DangerousSaturation

GoldenDecade

Forced

TechnologicalEvolution

Low innovation dynamic

> Duration of crisis> Decreasing political stability

> Decrease of consumer confidence

> Rising oil price

> Competition of new car makers

> Growing economic growth inemerging markets

> Growing middle class in emergingmarkets

> Climate change

> Increasing environmentalconsciousness of consumers



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The quantitative assessments were used to estimate newregistrations via an automotive specific simulation tool

We took the values/strengths of the key factors and onthis basis set parameters (e.g. GDP growth,unemployment rate, inflation rate, interest rate) ona country-by-country basis for each of the scenarios

We then used the parameters in a simulation tool

Scenario I Scenario II Scenario III

GDP growth I,

unemployment I,

inflation rate I, period

GDP growth II,

unemployment II,

inflation rate II, period

GDP growth III,

unemployment III,

inflation rate III, period

4 SCENARIO BUILDING


spec a y eve ope or e au omo ve n us ry.

The tool used the values to calculate the number ofnew vehicle registrations in key markets for eachscenario, as a basis for volume planning

Key pointsIt is important to understand exactly how thesimulation tool works so that any extraordinaryeffects can be included

of owner-ship I,

(country-specific)

of owner-ship II,

(country-specific)

of ownership III,

(country-specific)

Newregistrations

I

Newregistrations

II

Newregistrations

III

SIMULATION TOOL



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On the basis of the different scenarioswe developed action plans for the management

The different scenarios showed very differentpatterns of how new vehicle registrationswould develop in the future

On the basis of these differences and otherfeatures of the scenarios, we developed

5 STRATEGY DEFINITION


We then presented the scenarios andaction plans to the Head of Sales

Scenarios and action plans must be consistent

management in a joint RB/client workshop

Creative solutions that workare theanswer to challenging scenarios

Scenario I Scenario II Scenario III


Key pointsAction plan I>

Action plan II Action plan III> >


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Finally we implemented a set of indicators to monitorwhat scenario pathway the company is currently on

We developed a Scenario Cockpit togetherwith the client

Indicators (e.g. GDP growth, industry-specificindicators such as length of ownership) helpmanagement understand what scenario

6 MONITORING


The Scenario Cockpit should have no morethan three clear indicators. This makes iteasy for top management to use

If certain thresholds are passed, anotherscenario comes into play and with it otheraction plans

pat way t e company s current y on

SCENARIO COCKPIT

Indicator 1 Indicator 2 Indicator 3


Key points


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The strengths of our scenario approach:State-of-the-art scenario building for our clients

Definition

of Scope11

Perception

AnalysisTrend and

Uncertainty

22 33

DIRECTLY APPLICABLE TO BUSINESSOur scenarios answer our clients' core strategic

and operational questions

1 INTERACTIVELY BUILTIn the scenario team, clients and consultants worktogether and internal and external experts are

2


Scenario

Building

Strategy

Definition

Moni-

toring44

55

66


DIRECTLY IMPLEMENTABLEDetailed recommendations enable immediateadjustment of business according to the scenarios

consulted as required

HIGH SPEEDThe scenarios are created within a few weeks, usingmodern information and communication methods

3SIMPLE COMMUNICATION

The scenarios are clearly formulated and thus easyto communicate internally and externally4

5


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To sum up: Today we need scenarios and we need to developthem quickly and systematically

Our world faces more and more volatility that's especially true for the economy1


To stay competitive in this environmentcompanies need to develop scenarios

The Roland Berger-HHL scenario processenables companies to quickly build scenarioswith an innovative, tool-based approach


2

3


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Do not hesitate to contact us in case you havequestions or comments


PROF. DR. BURKHARDSCHWENKER

[email protected]

+49 40 37631 4100

CHAIRMAN

DR. CHRISTIAN KRYSProduct owner

[email protected]

+49 160 744 2917

RBSE SENIOR EXPERT


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Documents

Scenario Planning Building Scenarios at Roland Berger 20130826