Crash Course in Scenario Planning
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Scenario Planning MBA in Executive Format Stockholm School of Economics Robin Teigland [email protected] www.knowledgenetworking.org www.slideshare.net/eteigland Robinteigland December 2014
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Slides from my one day module on scenario planning at SSE for the Exec MBA program in Dec 2014
Transcript of Crash Course in Scenario Planning
Scenario Planning
MBA in Executive Format
Stockholm School of Economics
Robin Teigland
www.knowledgenetworking.org
www.slideshare.net/eteiglandRobinteigland
December 2014
Who am I? (LinkedIn Inmaps)
SSE
Exec Ed
Swedish Industry
Research
Wharton
Stanford
McKinsey
vonorange.com
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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
Tuesday morning Lecture: Introduction to scenario planning Groupwork: UPS Case Group presentations and discussions
Tuesday afternoon Groupwork: Scenario planning Group presentations and discussions
If the rate of change on the outside (of an organization)
exceeds the rate of change on the 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
“Old” Film from 2008Did You Know: Shift HappensURL: http://www.youtube.com/watch?v=cL9Wu2kWwSY&feature=search
1. What trends do you recognize?
2. How are these trends affecting you and your organization?
3. What leadership challenges do these trends lead to?
10 jobs that did not exist 5 years ago
1. iOS developer
2. Android developer
3. Zumba instructor
4. Social media assistant
5. Data scientist
6. UI/UX designer
7. Big data architect
8. Beachbody coach
9. Cloud service specialist
10.Digital marketing specialist
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http://www.dn.se/ekonomi/tio-jobb-som-inte-fanns-for-fem-ar-sedan/
People• “Net generation”• 24x7 “mobile” workforce• Knowledge via MOOCs• Sharing not consuming• Sustainability
Technology • Broadband access• The Cloud• Mobile phones• Internet of Things • Big Data• 3D printing• Robotics/AI• VR/AR
Open Source• Software
• Hardware• Physibles
Numerous weak signals
Finance• Microlending/microfinance • Crowdfunding/equity/P2P• Non-fiat cryptocurrencies• Mobile money/payments
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
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Why do organizations getblindsided, i.e., miss the signals?
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
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
18Schoemaker: 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?
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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
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Schedule
Tuesday morning Lecture: Introduction to scenario planning Groupwork: UPS Case Group presentations and discussions
Tuesday afternoon 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
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. ScenariosCreation
• Scenario framework • Characteristics and narratives that
describe scenarios
15 min25 min
65 min90 min
4. OptionsConsideration
• 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 during lunch hour?
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?
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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
33Note on Strategic Planning, HBSP
Drivers of change
Key uncertaintiesBasic trends
Rules of interaction
Multiple scenarios
Stage 2: Building blocks for scenarios
Schoemaker
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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
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?
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Hi
Hi
Lo
Lo
Uncertainty
Impact
Certain & Important
CriticalUncertainties
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
40Note 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
4141
UncertB
Scenario 3
UncertB
Uncert A
Scenario 2Scenario 1
Scenario 4
Uncert A
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
43Adapted 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
45Note on Strategic Planning, HBSP
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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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
52Note 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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