The world is changing

Transcription

1 Powering the Future for Our Customers Navigating the Infinite Possibilities for the Future Adam Tucker August 15, 2017 The world is changing BY 2030 UNEVEN R E G U L A T O R Y E N F O R C E M E N T R E A L BU S I N E S S E F F E C T S Inability to sell products supply chain disruption material price volatility competition for metals and minerals community distress

2 and we re faced with big questions as an industry The railroads are in trouble today not because that need was filled by others but because it was not filled by the railroads themselves they assumed themselves to be in the railroad business rather than in the transportation business. Theodore Levitt Harvard professor and economist 1960 Insert Data Classification 3 What is Scenario Planning? A tool to highlight the critical uncertainties about the future A scenario is an internally consistent view of what future might turn out to be-not a forecast but a potential outcome- Michael Porter, 1985 Knowledge of uncertainties is critical in deciding future strategic direction Cummins Objective: Ensure that Cummins investment plan is informed and contemplates all major scenarios that would impact the business on an ongoing basis and that looks beyond our normal planning window. 4 4

3 We scenario plan every day 5 Scenario planning process 1 4 IDENTIFY IDENTIFY DRIVING OUTCOMES & FORCES IMPLICATIONS 2 IDENTIFY CRITICAL UNCERTAINTIES 5 CONTINUALLY MONITOR & ACT ACCORDINGLY 3 DEVELOP PLAUSIBLE SCENARIOS???? 6

4 Identify critical drivers MEGA TRENDS Climate Change Evolution of advanced tech Geopolitical shifts Increasing urbanization Strain on aging/insufficient infrastructure Intensified competition for resources Strain on ecosystems Population Growth Diverging global population Diseases and pandemics Continued economic growth World Powers (unipolar v.multipolar) Filtered based on high uncertainty and impact to biz CRITICAL THEMES Extreme but plausible manifestations of critical themes SCENARIOS Filter 1 Filter 2 Inputs Primary and secondary research Primary and secondary research expert interviews Internal and External expert interviews 7 Identify critical uncertainties Megatrends Risk Map Impact to key industries LOW HIGH Geopolitical shifts LOW HIGH Uncertainty of megatrends evolution 8

5 Develop plausible scenarios Sustainable Planet Strong action against climate change Carbon Regulation Technology Acceleration Technology Advancement ent Economic Barriers Global Trade Barriers Faster evolution technology transforms industry Baseline Geopolitical change reduces transnational trade 9 Scenarios Identified MEGA TRENDS Climate Change Evolution of advanced tech Geopolitical shifts Increasing urbanization Strain on aging/insufficient infrastructure Intensified competition for resources Strain on ecosystems Population Growth Diverging global population Diseases and pandemics Continued economic growth World Powers (unipolar v.multipolar) Filtered based on high uncertainty and impact to biz CRITICAL THEMES 1.Climate change and carbon regulations 2.Evolution of advanced technologies 3.Geopolitical shifts Extreme but plausible manifestations of critical themes SCENARIOS Baseline 1. Sustainable planet 2. Technology acceleration 3. Global trade barriers Filter 1 Filter 2 Inputs Primary and secondary research Primary and secondary research expert interviews Internal and External expert interviews 10

6 Identify implications and outcomes Diesel Adoption in NA Truck (historical example) Methodology and Key Points Adoption driven by economics of technologies Infrastructure requirements of technologies and customer profile impacts the adoption rates Technologies evaluated based on their maturities Internal and external expert inputs integrated Signposts are being identified to monitor the potential changes in technological evolution Cummins Confidential 11 Model to understand drivers of change Market Share (%) 100 Diesel Tech A Tech B Time Disruption-When and which technology Example Substitution Curve Adoption Rate Maximum Adoption Rates 12 12

7 Substitution analysis 13 Continually monitor and act accordingly We need to understand: When could we have a product in the market? What other conditions must be present to make the market attractive? How predictable are the leading indicators? Technology Cost Continually monitor and advance/delay investment as the leading indicator moves. Economically Attractive Level

8 Major learnings from this process There is a lot of uncertainty around critical factors such as technology costs, fuel costs and government policies In 12 years, forecasts of US oil consumption dropped 40%! Forecasts of US Oil Consumption Solar power installations consistently grow much faster than IEA forecasts Forecasts of Solar power installations Source: Energy Information Administration Source: Aurora Energy Research, IEA 15 Major learnings from this process Don t be constrained by your current paradigm Allow room to challenge your assumptions and your current identity. Seek to disrupt yourself, but don t assume everything has to change There isn t a right answer In reality, we will experience a combination of multiple scenarios Need to monitor the critical signposts and be flexible to react to the changes in the market 16

9 So what? Cummins will power a more prosperous future by excelling in our core business and expanding into new markets and new technology solutions In order to do so, scenarios help us understand how the world is changing and adapt A Reliable Diesel Engine Manufacturer A Global Technology Leader With a Broad Portfolio of Solutions Advanced Diesel Alternative Fuels Natural Gas Electrification Automated Technologies Digital Solutions Questions? 18