The Art of Strategic Conversation Testing strategies via Scenario Planning Adrian Said

The Art of Strategic The Art of Strategic ConversationConversation

Testing strategies via Scenario Planning Testing strategies via Scenario Planning

Adrian SaidAdrian Said

SatisfyCustomer

Needs

SatisfyCustomer

Needs

IntegratedOrganization

Effort

IntegratedOrganization

Effort

Focus onLong-Term

Success

Focus onLong-Term

Success

Corporate Strategic PlanningCorporate Strategic Planning

Strategic Thinking FrameworkStrategic Thinking FrameworkThe approach adopted for this WorkshopThe approach adopted for this Workshop

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation and Control Fe

edb

ack

Stage 1

Stage 2

Stage 3

Stage 4

The Strategic Planning ProcessThe Strategic Planning Process

Translating the mission

into specific

long-range and short-

range performanc

e objectives

Crafting a strategy to achieve the performanc

e objectives

Implementing and

executing the

strategy

Evaluating performanc

e, reviewing

the situation,

and initiating corrective

adjustments

Defining the

business and

developing a vision

Revise as needed

Improve/change as

needed

Improve/change as

needed

Recycle to tasks 1,2,3, or 4 as needed

Revise as needed

Corporate Strategic PlanningCorporate Strategic Planning

External AppraisalExternal Appraisal

Threats andOpportunities in

Environment

Threats andOpportunities in

Environment

Key Success

Factors

Key Success

Factors

Internal AppraisalInternal Appraisal

Strenghts andWeaknesses of

Organisation

Strenghts andWeaknesses of

Organisation

DistinctiveCompetencies

DistinctiveCompetencies

Creation ofStrategy

Evaluation andChoice ofStrategy

Implementation of Strategy

1

2

3

4

Strategic Thinking FrameworkStrategic Thinking FrameworkThe approach adopted for this WorkshopThe approach adopted for this Workshop

Industry Key Success Factors

Industry Key Success Factors

StrategyStrategyCompetitive Advantage

Competitive Advantage

Organizational CapabilitiesOrganizational Capabilities

RESOURCES

Intangible

Physical

Financial

Intangible

Reputation

Technology

Culture

Human

Specialized Skills & Knowledge

Communicative & Interactive abilities

Motivation

DESCRIBING THE ENVIRONMENT

CV

Media

PeopleBusinesses

Strategic Partners EconomicEnvironment

Regulatory

Environment

SocialEnvironment

TechnologicalEnvironment

PoliticalEnvironment

Customers

Economic

Public Deficit/Fiscal/Monetary policy

Employment

Investment level

Tourist arrivals

Inflation

Disposable income

Rate of interest

FDI


Political

EU

Direction/Stability = VISION

Government fees

Privatisation

Industrial Policy

Welfare State

Education


Social

Working mothers

Increased female participation

Ageing population

Shorter working weeks

University student intake


Technology

Working from home (remote technology)

E-commerce/M-commerce

Substitutes

Convergence of technologies


The Competitive Environment

SUPPLIER POWER

Factors determining power of supplier relative to producers same as those determining power of producers relative to buyers - see “Buyer Power” box.

SUPPLIER POWER

Factors determining power of supplier relative to producers same as those determining power of producers relative to buyers - see “Buyer Power” box.

INDUSTRY RIVALRY• concentration • diversity of competitors• product differentiation• excess capacity & exit barriers• cost conditions

INDUSTRY RIVALRY• concentration • diversity of competitors• product differentiation• excess capacity & exit barriers• cost conditions

THREAT OF ENTRY• economies of scale• absolute cost advantage• capital requirements• product differentiation• access to distribution

channels• governmental and legal

barriers• retaliation by established

producers

THREAT OF ENTRY• economies of scale• absolute cost advantage• capital requirements• product differentiation• access to distribution

channels• governmental and legal

barriers• retaliation by established

producers

THREAT OF SUBSTITUTES• buyer propensity to

substitute• relative price performance

of substitute

THREAT OF SUBSTITUTES• buyer propensity to

substitute• relative price performance

of substitute

BUYER POWER

Price sensitivity• cost of product relative to total costs• product differentiation• competition between buyers

Bargaining Power• size and concentration of buyers relative to

suppliers• buyers’ switching costs• buyers’ information• buyers’ ability to backward integrate

BUYER POWER

Price sensitivity• cost of product relative to total costs• product differentiation• competition between buyers

Bargaining Power• size and concentration of buyers relative to

suppliers• buyers’ switching costs• buyers’ information• buyers’ ability to backward integrate


SUPPLIER POWERFactors determining power of supplier relative to producers same as those determining power of producers relative to buyers

RANKING: HIGH MEDIUM LOW

THREAT OF SUBSTITUTES



BUYER POWERIs the buyer in a position to dictate?


THREAT OF ENTRY


RIVALRY


Overall Industry Competitiveness

Low/Low/Medium/HighMedium/High

Introduction to Scenario PlanningForecasting techniques

Models are often used to anticipate real life:Models are often used to anticipate real life:

Wind tunnels are used to test car shapesWind tunnels are used to test car shapes

Airframe designers use fatigue tests to reveal potential Airframe designers use fatigue tests to reveal potential stresses and cracksstresses and cracks

Mathematical and computer models are used to schedule Mathematical and computer models are used to schedule and allocate resourcesand allocate resources

Production planning for factoriesProduction planning for factoriesAgricultural production modelsAgricultural production modelsHospital meal consumptionHospital meal consumption

Introduction to Scenario PlanningForecasting techniques

Typical Forecasting TechniquesTypical Forecasting Techniques

Econometric modelingEconometric modeling

Delphi MethodDelphi Method

ScenariosScenarios

The Danger in Forecasting is……..

To d a y

Ra ng eo f

Unc e rta intie sTre nd s

Tim ing

Sing le p o int fo re c a st

Y ou get it wr ong!

So urc e : IC L

Introduction to Scenario Planning

Forecasts based on current trends or Forecasts based on current trends or estimated based on history are estimated based on history are dangerous if the environment is dangerous if the environment is

changing rapidly changing rapidly

The emphasis has moved from The emphasis has moved from forecasting to foresightforecasting to foresight

What is Scenario Planning?What is Scenario Planning?

Scenario planning is a particular methodology that allows organizations, and individual units, to develop a clearer understanding of what the future strategic environment might be like.

Scenario planning focuses on key drivers of change which are critical to the future of an organization. The scenario development process allows staff to explore

how those drivers might affect the organization, and to make better informed decisions about how to position the

organization for the future

Method of studyingMethod of studying the most important driving the most important driving forces affecting our futures.forces affecting our futures.

A team processA team process that encourages exchange of that encourages exchange of knowledge and issues important to the futureknowledge and issues important to the future

Purpose:Purpose: To devise strategies to counter adversities To devise strategies to counter adversities and anticipate potential opportunitiesand anticipate potential opportunities

Deliverables:Deliverables: A set of scenarios and a set of A set of scenarios and a set of strategies for each scenariostrategies for each scenario

Examples:Examples: Military, business, environmental study, Military, business, environmental study, politicspolitics

Scenario UtilizationScenario Utilization

Scenarios – A Case StudyScenarios – A Case Study

“In times of rapid change,

an inability to see

an emergent novel reality

by being locked inside obsolete assumptions

often causes strategic failure,

particularly in large,

well-run companies.”

(Pierre Wack, HBR 1980)

Delta case studyDelta case study

A company involved in the blending, bottling, and A company involved in the blending, bottling, and distribution of alcoholic spiritsdistribution of alcoholic spirits

Set in a historic context of long periods of incremental Set in a historic context of long periods of incremental change in the business environmentchange in the business environment


Prior to the scenario intervention,Prior to the scenario intervention,

the risks were seen as not seriousthe risks were seen as not serious

if the company kept toif the company kept to

its original strategyits original strategy


““Most of our clients come to us for mainly historical Most of our clients come to us for mainly historical reasons. In this business, the crux is ‘word of mouth’.reasons. In this business, the crux is ‘word of mouth’.People need to know who you are.”People need to know who you are.”

““Our investment is geared towards our existing business, Our investment is geared towards our existing business, both quality and throughput. It is not intended to serve both quality and throughput. It is not intended to serve major new business opportunities.”major new business opportunities.”

““The main constraint to expanding our business is the The main constraint to expanding our business is the demand for the type of services we offer.”demand for the type of services we offer.”

““Our facilities are the key. We must continue to spend on Our facilities are the key. We must continue to spend on them.”them.”


And the risks of continuing with the currentAnd the risks of continuing with the currentstrategy were minimised.strategy were minimised.


““The wider industry is looking for ways to reduceThe wider industry is looking for ways to reducestocks and working capital, but at the same time tostocks and working capital, but at the same time toincrease variety and choice to the market. If we findincrease variety and choice to the market. If we find

some magic formula here we have got it made.”some magic formula here we have got it made.”

““Although we are not any longer a cost centre, we willAlthough we are not any longer a cost centre, we willcontinue to live with the dilemma that if we improve ourcontinue to live with the dilemma that if we improve our

efficiency our customers will expect a lower price.efficiency our customers will expect a lower price.There is no other price standard to look at than ourThere is no other price standard to look at than our

cost. There is no ‘going market rate for the job’. Alsocost. There is no ‘going market rate for the job’. Alsowe are very close to our customers. We will thereforewe are very close to our customers. We will thereforenever be extraordinary profitable. And we can prospernever be extraordinary profitable. And we can prosper

only under the protective arm of the Group.”only under the protective arm of the Group.”


““In the 70’s the parent Group bought a foodIn the 70’s the parent Group bought a food

company. This proved a disaster. The company hascompany. This proved a disaster. The company has

been disposed of. But the memory lingers on. Thisbeen disposed of. But the memory lingers on. This

is one thing we will never do again. It is unlikely thatis one thing we will never do again. It is unlikely that

the Group will diversify from spirits.”the Group will diversify from spirits.”


The organizational “jolt” invoked by theThe organizational “jolt” invoked by theintervention provided a new understanding.intervention provided a new understanding.


The management team came to the realization that the The management team came to the realization that the current configuration of operational activities resulted in current configuration of operational activities resulted in the company absorbing suppliers’ and customers’ riskthe company absorbing suppliers’ and customers’ risk

Supplier risk arose from Delta Co. holding, and paying Supplier risk arose from Delta Co. holding, and paying for, large stocks of empty bottles, labels, packages and for, large stocks of empty bottles, labels, packages and bottle caps.bottle caps.

Customer risk revolved around the fact that customers Customer risk revolved around the fact that customers were requesting orders at short notice and, to were requesting orders at short notice and, to accommodate these, Delta Co. had to regularly amend accommodate these, Delta Co. had to regularly amend production schedules, significantly increasing their production schedules, significantly increasing their operating costs.operating costs.


I never thought about this before … I am depressed,we are being stuffed by our customers, we are lockedinto the risk of customers.

Delta Co. gives value, creates value for others, why?

Delta takes a worthless product and creates value inthe process, for little reward.

[Here the participants were reflecting on their experienceand considering the lack of scope Delta Co. had to planproduction - due to short lead-time demands from customers]


Further insights from the workshopsFurther insights from the workshops

There was a realization within the team that the industrystructure had moved from three tiers (raw materials, blending and bottling, and brand management) to two tiers (production and customer relationships).

Delta Co. had almost no involvement with external customers and therefore no intelligence about market demand.

This lack of involvement resulted in little internal understanding of the relationship between the brand and customers, and Delta’s role in that relationship

The outcome of the scenario interventionwas to introduce challenge or “jolt” tobusiness-as-usual thinking at Delta Co,

causing a re-conceptualisation of Delta’sbusiness idea


Prior to the intervention, Delta had notexplicitly articulated any major concern(s)regarding the contextual environment and

had indicated that the key managerialissue was simply the desire for a growthin bottling of 25% (to reduce unit cost of

production)..


At the conclusion of the intervention, the response being formulated had moved from a situation of reactive production systems, to cope with uneven demands.

The new focus was in managing the overall supply chain through partnerships with customers and suppliers. Delta’s new business idea achieved:

evenness / predictability in both supply and customer demands

lower unit cost of production..


Determine time frame

Setboundaries

Identifyunpredictable

and Uncontrollable

forces

Formulatescenarios

Expressscenario(story)

Evaluate

Consistency and plausibility check

SimilarScenarios

MergeScenarios

Formulatestrategies

Monitor

Need to restart?Terminate

N Y

N

Y

Start

ApproachApproach

ConclusionConclusion

What are scenarios?

What we ARE NOT trying to do is:• predict the future

What we ARE trying to do is:• engage in an interesting conversation about the

future• explore what might happen and why• challenge some individual and shared mental

models

Documents

The Art of Strategic Conversation Testing strategies via Scenario Planning Adrian Said