SCENARIO planning. Making decisions in volatile times. Brussels, December Scenario Planning - October Bruno Colmant.

Transcription

1 SCENARIO planning Making decisions in volatile times Brussels, December

2 Value of Risk Macro-economics + socio-economics instability Market (predictive value) Regulation Technology Others 2

3 Expect a volatile world > Free market economy: A set of a moving pieces Deeper/faster cycles No anchoring > Echoing of fact (fact market fact interpretation market ) Example: Accounting: fair value Finance: no more risk free rate > Difficulty to data abundance and systemic complexity Added-value of technology Interface IT/Business 3

4 Assess risk / uncertainty > The economy is as per se an ongoing and holistic risk assessment > Economy is a stochastic process, no determinism > Difficult to assess boundaries of parameters Fractal event (black Swans) Correlation between events unknown (cross-over between systems) > Contribution of Lucas (Nobel Prize 1995) Theory of rational expectation Anticipation by economic agents of the consequences of their behavior Explanation for cognitive biais 4

5 Illustration: The World of Stock Exchange > Past state: Monopoly Shareholders = broker, banks Capture of "transaction" profit > Introduction of IT/Loss of monopoly > Today Oligopoly Market shareholders Erosion of profit Introduction of heuristic HFT/robots thanks to IT > Before info trade > Today info trade info (creation of information loops) > Role of Regulators 5

6 A. The history of scenario planning From the historic roots to contemporary scenario planning 6

7 A.1 The origins of scenario planning can be traced back as far as Sun Tzu s and Plato s first writings ( B.C.) Sun Tzu Plato ( B.C.) Book: "Art of War" Scenarios to anticipate enemies actions on the battlefield Novelty: Public administration and wider societal issues taken into account A tool to explore the future of society and its institutions Scenario development in the form of treatises, utopias and dystopias Scenarios formulated as stories to project possible future developments Source: Bradfield, R. et al. (2005), The origins and evolution of scenario techniques in long range business planning. In: Futures 37(8): ; Wilson, I. ( 1978 ). Scenarios. In: J. Fowles ( Ed. ), Handbook of futures research ( pp ). Westport, CT: Greenwood Press 7

8 A.2 Generals von Moltke and von Clausewitz advanced the idea of thinking in scenarios on the battlefield ( ) von Clausewitz von Moltke ( ) Military campaigns can only partially be planned General principals set reference frames for officers on which strategic decisions are based Only the start of a military campaign can be planned Strong delegation of military decisions to officers based on pre-planned scenarios Source: von Reibnitz, U. (1988): Scenario Techniques, McGraw-Hill, Hamburg 8

9 A.3 Scenario planning today does not aim at predicting the future, but rather to open up strategic thinking Computer-Driven Simulations Shaping Factors Creativity Scenarios Wild Card Scenarios Idea Correlating multiple factors to generate scenarios and simulate management decisions Running a delphi consultation to identify factors that shape the future and use these to construct scenarios Starting with a specific decision or near future strategic issue and thoroughly thinking it "from the inside out" Imagining abnormal or unpredictable events such as natural disasters and developing scenarios how these unfold Aim Testing decision under uncertain circumstances to widen perspectives Showing practitioners how relevant influence factors can be used to shape the future Opening creative solution oriented thinking given a companies available resources Testing if current strategy and operations can handle unpredictable events Source: Ringland, G. (2006): Scenario Planning: Managing for the Future. John Wiley and Sons, Chichester 9

10 B. Strategy development today Why scenario planning is important now 10

11 B.1 Traditional strategy tools have become unreliable Traditional strategy tools fail to reflect volatility can't cope with complexity (amount of data) don't consider different views ANSOFF MATRIX GENERIC COMPETITOR STRATEGIES EXPERIENCE CURVE FIVE FORCES PORTFOLIO ANALYSIS 11

12 B.2 But the planning questions remain the same Which regions of the world will grow most? How can our company benefit from that? How sharply will commodity and energy prices rise? Can we replace expensive commodities with less expensive ones? How will demand for our products change? What competing products will jeopardize our business? How will regulations change in my markets? Will the changes open up new markets overseas? 12

13 B.3 The solution? Scenario planning can overcome the shortcomings of traditional planning instruments SCENARIO PLANNING SCENARIO I provides different images of the future to reflect volatility TODAY Disruption Counteraction SCENARIO II SCENARIO III FUTURE considers numerous influence factors to cope with complexity combines internal and external views to identify blind spots 13

14 B.4 We differentiate between micro-, meso- and macro-scenarios MACRO-LEVEL Global scenarios MESO-LEVEL Regional and industry scenarios MICRO-LEVEL Company-specific scenarios CHARACTERISTICS of our 3-TIERED APPROACH Macro-level scenarios build the framework for industry and company scenarios Meso-level scenarios describe different futures of a branch or a region Micro-level scenarios focus on possible futures of one specific company 14

15 My Perception > Deep dive in market economy > Walras: World is becoming a big auction room (at the margin) > Old economy was deductive/free market economy is inductive > Address risk with a holistic approach > Develop induction, flexibility, versatility > Think of the "unthinkable" > Get rid of cognitive basis, promote a mindset of their fast end flexibility > IT + Data develop analytical predictive intelligence systems > Be a "humanist" 15

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