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

1. The Art of Strategic ConversationTesting strategies via Scenario Planning Adrian Said

2. Corporate Strategic Planning Integrated Organization Effort Satisfy Customer Needs Focus on Long-Term Success

3. Stage 1 Stage 2 Stage 3 Stage 4 Environmental Scanning Strategy Formulation Strategy Implementation Evaluation and Control Feedback Strategic Thinking FrameworkThe approach adopted for this Workshop

4. Defining the business and developing a vision Translating the mission into specific long-range and short-range performance objectives Crafting a strategy to achieve the performance objectives Implementing and executing the strategy Evaluating performance, reviewing the situation, and initiating corrective adjustments Revise as needed Revise as needed Improve/change as needed Improve/change as needed Recycle to tasks 1,2,3, or 4 as needed The Strategic Planning Process

5. Corporate Strategic Planning 1 2 3 4

6. Industry Key Success Factors Competitive Advantage Strategy Organizational Capabilities RESOURCES Intangible Intangible Human Specialized Skills Physical Reputation & Knowledge Communicative & Financial Technology Interactive abilities Culture Motivation Strategic Thinking FrameworkThe approach adopted for this Workshop

7. Environment Regulatory Social Environment People Businesses C V Media Economic Environment Technological Environment Strategic Partners Political Environment DESCRIBING THE ENVIRONMENT Customers

8. DESCRIBING THE ENVIRONMENT Economic • Public Deficit/Fiscal/Monetary policy • Employment • Investment level • Tourist arrivals • Inflation • Disposable income • Rate of interest • FDI

9. DESCRIBING THE ENVIRONMENT Political • EU • Direction/Stability = VISION • Government fees • Privatisation • Industrial Policy • Welfare State • Education

10. DESCRIBING THE ENVIRONMENT Social • Working mothers • Increased female participation • Ageing population • Shorter working weeks • University student intake

11. DESCRIBING THE ENVIRONMENT Technology • Working from home (remote technology) • E-commerce/M-commerce • Substitutes • Convergence of technologies

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

13. The Competitive Environment SUPPLIER POWER Factors determining power of supplier relative to producers same as those determining power of producers relative to buyers RANKING: HIGH MEDIUM LOW THREAT OF SUBSTITUTES RANKING: HIGH MEDIUM LOW

14. The Competitive Environment BUYER POWER Is the buyer in a position to dictate? RANKING: HIGH MEDIUM LOW THREAT OF ENTRY RANKING: HIGH MEDIUM LOW RIVALRY RANKING: HIGH MEDIUM LOW

15. Overall Industry Competitiveness Low/Medium/High

16. Introduction to Scenario PlanningForecasting techniques Models are often used to anticipate real life: • Wind tunnels are used to test car shapes • Airframe designers use fatigue tests to reveal potential stresses and cracks • Mathematical and computer models are used to schedule and allocate resources Production planning for factories Agricultural production models Hospital meal consumption

17. Introduction to Scenario PlanningForecasting techniques Typical Forecasting Techniques • Econometric modeling • Delphi Method • Scenarios

18. The Danger in Forecasting is……..

19. Introduction to Scenario Planning Forecasts based on current trends or estimated based on history are dangerous if the environment is changing rapidly The emphasis has moved from forecasting to foresight

20. 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

21. Scenario Utilization • Method of studyingthe most important driving forces affecting our futures. • A team process that encourages exchange of knowledge and issues important to the future • Purpose: To devise strategies to counter adversities and anticipate potential opportunities • Deliverables: A set of scenarios and a set of strategies for each scenario • Examples: Military, business, environmental study, politics

22. Scenarios – 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)

23. Scenarios – A Case Study Delta case study A company involved in the blending, bottling, and distribution of alcoholic spirits Set in a historic context of long periods of incremental change in the business environment

24. Scenarios – A Case Study Prior to the scenario intervention, the risks were seen as not serious if the company kept to its original strategy

25. Scenarios – A Case Study “Most of our clients come to us for mainly historical reasons. In this business, the crux is ‘word of mouth’. People need to know who you are.” “Our investment is geared towards our existing business, both quality and throughput. It is not intended to serve major new business opportunities.” “The main constraint to expanding our business is the demand for the type of services we offer.” “Our facilities are the key. We must continue to spend on them.”

26. Scenarios – A Case Study And the risks of continuing with the current strategy were minimised.

27. Scenarios – A Case Study “The wider industry is looking for ways to reduce stocks and working capital, but at the same time to increase variety and choice to the market. If we find some magic formula here we have got it made.” “Although we are not any longer a cost centre, we will continue to live with the dilemma that if we improve our efficiency our customers will expect a lower price. There is no other price standard to look at than our cost. There is no ‘going market rate for the job’. Also we are very close to our customers. We will therefore never be extraordinary profitable. And we can prosper only under the protective arm of the Group.”

28. Scenarios – A Case Study “In the 70’s the parent Group bought a food company. This proved a disaster. The company has been disposed of. But the memory lingers on. This is one thing we will never do again. It is unlikely that the Group will diversify from spirits.”

29. Scenarios – A Case Study The organizational “jolt” invoked by the intervention provided a new understanding.

30. Scenarios – A Case Study The management team came to the realization that the current configuration of operational activities resulted in the company absorbing suppliers’ and customers’ risk Supplier risk arose from Delta Co. holding, and paying for, large stocks of empty bottles, labels, packages and bottle caps. Customer risk revolved around the fact that customers were requesting orders at short notice and, to accommodate these, Delta Co. had to regularly amend production schedules, significantly increasing their operating costs.

31. Scenarios – A Case Study I never thought about this before … I am depressed, we are being stuffed by our customers, we are locked into the risk of customers. Delta Co. gives value, creates value for others, why? Delta takes a worthless product and creates value in the process, for little reward. [Here the participants were reflecting on their experience and considering the lack of scope Delta Co. had to plan production - due to short lead-time demands from customers]

32. Further insights from the workshops There was a realization within the team that the industry structure 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

33. Further insights from the workshops The outcome of the scenario intervention was to introduce challenge or “jolt” to business-as-usual thinking at Delta Co, causing a re-conceptualisation of Delta’s business idea

34. Further insights from the workshops Prior to the intervention, Delta had not explicitly articulated any major concern(s) regarding the contextual environment and had indicated that the key managerial issue was simply the desire for a growth in bottling of 25% (to reduce unit cost of production). .

35. Further insights from the workshops • 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. • .

36. Approach Start Determine time frame Set boundaries Similar Scenarios Consistency and plausibility check N Y Identify unpredictable and Uncontrollable forces Formulate scenarios Formulate strategies Merge Scenarios Monitor Express scenario (story) Evaluate Need to restart? N Terminate Y

37. Conclusion • 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