Released by: Manager@Work, The Edge
Date: 23 February 2009
Managing in today's complex, volatile, fast changing and globally impacted business environment is a daunting task for managers. Many managers believe that their job is to solve problems that arise but they often forget an important part of their job is to prevent potential problems from arising in the first place. And if those potential problems do arise, how do managers quickly resolve them with
a ready contingency plan in place. Scenario or future management not only allows you to foresight the threats and dangers that are emerging or looming and to deal with them effectively. It also provide you with the ability to seek out opportunity and allows you to grasp better odds on the future and business intelligence that can be used to gain significant competitive advantage. Furthermore, it
synthesises and reduces the amount of urgent issues experienced by the business to allow you to see the "forest for the trees" which will allow you to focus and deal with the key issues that will impact your business - its
survival and sustainable growth.
Managing into the Future
Scenario management or future foresighting is becoming an important tool and practice for business survival and success. Technology today is making it possible to gather, store and access massive quantities of data which is then transformed to information, knowledge and business intelligence or actionable knowledge. Computing power and processing speed have advanced to the point where data can be
manipulated and converted into business analytics and transmitted as events and occurrences are happening in real-time. Soon, having a complete and easily accessible picture of the past and current trends will be an essential business requirement to stay ahead of the game. The real differentiation is significant where top business performers will look over the horizon, anticipate future
eventualities and take action to optimise outcomes and prevent problems.
According to Accenture's ongoing research into high-performance business, the organisations which are investing in robust business intelligence capabilities can be utilised as competitive advantage in the near future. These organisations do not have perfect answers about what will happen exactly but they'll be making far more informed decisions, even while operating at the dramatically accelerated
speed of today's volatile and global business environment.
Adoption of Scenario Management
Some industry leaders like Shell and many technology companies such a Microsoft are already exploring how scenario capabilities can help them anticipate and seize market opportunities and deal with threats. Retail leader Wal-Mart, used scenario management to stock some company stores in preparation for a major storm and by doing so it equipped them with the kind of foresight that would meet
specific customer needs. As Hurricane Frances approached the US coast at the end of August 2004, Wal-Mart CIO, Linda M. Dillman challenged her staff to mine data collected a few weeks earlier, when Hurricane Charley had struck. Plowing through trillions of bytes of stored data the analysts found that, as might be expected, flashlights had sold well before the previous storm. More surprising, the
top-selling item had been beer and strawberry Pop-Tarts had sold at seven times their normal rate just before Hurricane Charley hit. With this insight and with the ability to quickly send inventory to stores in Frances's path,
Wal-Mart served its customers while turning a profit in the bargain. Similarly, Google is using search statistics to forecast patterns and trends in consumer and global happenings.
So in your own business are you alert of the trends, emerging challenges and developments in your industry to foresight such opportunities or impending challenges?
Here are some management insights that you can consider to implement scenario or future management in your organisation:
Management Insight #1: Analyse the Organisation Decisions
For scenarios to be useful in decision making, they must be decision-focused that is, their analysis of alternative futures must zoom in on the specific issues that are important to the organisation's strategy, concerning both present and future decisions. This ensures that the resulting scenarios are focused on those trends, events and uncertainties that are strategically relevant to the
decision-making process. It defines the scope of the analysis by concentrating on key organisational decisions with long range consequences such as capital allocation, diversification, infrastructure investment, market strategies and people competency.
Management Insight #2: Identify Key Decision Factors
Once the key decision set is defined, factors which most directly influence decision outcomes must be identified and studied. The more is known about these factors, the better the quality of decision making. Standard management analysis tools such as PESTEL, SWOT, CSF analysis, Porter's 5-forces Competitive Analysis, BCG Matrix Analysis or Blue Ocean Value Curve Analysis is usually suffice for
identifying these key factors. The factors must form the basis for the future scenarios.
Management Insight #3: Analyse Environmental Forces
This step will shape the future business strategy. Environmental forces may be analysed in two categories: micro level (internal and local) forces which most directly impact the key decision factors, and macro level (external and global) forces that set the overall context for the business environment. The analysis may utilise environmental monitoring and scanning systems, business models, special
information services, general literature about the future and outside consultants who study the future (futurists). Another relevant categorisation of the environmental forces distinguishes forces on which the organisation has some influence: (market, main competitors and new product development), from those which cannot be controlled and are external to the organisation: viz: government
regulations, political situation, resource availability, terrorism, natural catastrophes and health epidemic, etc). Often, the organisation's decisions but not the macro-level forces can influence the micro-level forces.
Management Insight #4: Study Implications for Decisions and Strategies
This step establishes the basic structure of the future scenarios. Scenario logic involves organising themes, principles, hypotheses and assumptions that provide each scenario with a coherent, consistent and plausible logical underpinning. Scenario logic should encompass most of the conditions and uncertainties identified in the preceding steps. Trial and error is usually necessary in arriving at
useful scenario logic. The logic does not simply consist of optimistic or pessimistic scenarios. Instead, it describes future alternatives. This step involves also the selection of models and procedures used to determine the environmental factors and their implications on the organisation's status.
Management Insight #5: Define Scenario Logic and Rationale
Determining the implications of each scenario has on the decisions and strategies are a critical step for management, planning, control and monitoring. Typical questions that might arise include, but are not limited to:
- What do the scenarios imply for the design and timing of particular strategies?
- What threats and opportunities do the scenarios suggest to the future environment?
- What critical issues emerge from the scenarios? and
- What kind of flexibility do the scenarios suggest are necessary from the organisation's planning perspective?
Management Insight #6: Building the Future Scenarios, Strategies and the Action Plans
Having identified the various future scenarios, these have to be pulled together into a coherent strategic plan with the appropriate strategies and execution plan kept in place and monitored real-time. When the foresighted scenario emerges then the action plan can be quickly executed.
It is imperative that organisations learn to operate and survive in the uncertain environment. Coca-Cola was the leader in the soft-drink market ownership for nearly 100 years after introduction of the beverage in 1886. Traditional cola demand has become increasingly uncertain in recent years with the introduction of Red Bull, the health conscious popularity of water and general consumer demand
for variety. The venerable Cola-Cola Corporation, attempting to answer uncertainty with scenario management releases Diet Coke, contains around 1.3 calories (5 kilojoules) compared to 142 calories (595 kJ) for a regular can of Coca-Cola which capitalised the markets of people who require low sugar regimens, such as diabetics, athletes and people concerned with calorie intake.
High-performance businesses and organisations need to focus on out-executing their competition. Scenario insights can offer the opportunity to stay one step ahead not only of competitors and customers but of the current reality as well.
Dr Wilson Tay, MMIM, MIM-CPT is CEO of the Malaysian Institute of Management, the national management organisation of Malaysia. MIM invites companies and professional managers to be members. Contact MIM Membership Support and Outreach at (603) 2164 5255; fax (603) 2165 4681; e-mail: enquiries@mim.org.my or visit www.mim.org.my.
