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For each uncertainty, determine possible outcomes e. You may also want to identify relationships among these uncertainties, since not all combinations may occur. Later I show how a correlation matrix can help identify such linkages among all pairs of key uncertainties. Construct Initial Scenario Themes. Once you identify trends and uncertainties, you have the main ingredients for scenario construction. A simple approach is to identify extreme worlds by putting all positive elements in one and all negatives in another.

Note that positive or negative is defined here relative to the current strategy. What seems to be a negative scenario at first may later prove to be one of innovation and hidden opportunity. Alternatively, the various strings of possible outcomes which jointly define a scenario can be clustered around high versus low continuity, degree of preparedness, turmoil, and so on.

Another method for finding some initial themes is to select the top two uncertainties and cross them as illustrated later in the Anglo-American case. This technique makes the most sense if some uncertainties are clearly more important than others. Check for Consistency and Plausibility. The simple worlds you have just made are not yet full-fledged scenarios, because they probably have internal inconsistencies or lack a compelling story line.

There are at least three tests of internal consistency, dealing with the trends, the outcome combinations, and the reactions of major stakeholders. First, are the trends compatible within the chosen time frame? Second, do the scenarios combine outcomes of uncertainties that indeed go together? As noted above, full employment and zero inflation do not go together, so eliminate that possible pairing or scenario.

Third, are the major stakeholders e. For example, OPEC may not tolerate low oil prices for very long. If so, your scenario will evolve into another one.

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Try to describe this end scenario, which is more stable. The stakeholder test is especially critical when building macroscenarios involving governments, international organizations e. Develop Learning Scenarios. From this process of constructing simple scenarios and checking them for consistency, some general themes should emerge. The initial scenarios provide future boundaries, but they may be implausible, inconsistent, or irrelevant.

The goal is to identify themes that are strategically relevant and then organize the possible outcomes and trends around them. Although the trends, by definition, appear in all the scenarios, they can be given more or less weight or attention in different scenarios. Naming the scenarios is also important.

Scenarios and Forecasting: Planning for Uncertainty | Texas Executive Education

A scenario is a story; by capturing its essence in a title, you make the story easy to follow and remember. At this stage, you have constructed learning scenarios, which are tools for research and study, rather than for decision making. The titles and themes are focal points around which to develop and test the scenarios. Identify Research Needs.

At this point, you may need to do further research to flesh out your understanding of uncertainties and trends. The learning scenarios should help you find your blindspots. For example, do you really understand how a key stakeholder say, a regulator or judge will behave in a given scenario? Often, companies know a lot about their own industry but little beyond the fringes, from which the innovations may come. So you may wish to study new technologies that are not yet in the mainstream of your industry but may be someday. Consider the developments in multimedia, where personal computers, telecommunication, entertainment, databases, and television are merging into new products and markets.

Rehearsing The Future – Making Better Strategic Decisions

A company like Apple Computer, traditionally focused on making personal computers, must now master new domains, such as electronic miniaturization to exploit portability , artificial intelligence to make PCs smarter , information highways to connect , and so on. Develop Quantitative Models. After completing additional research, you should reexamine the internal consistencies of the scenarios and assess whether certain interactions should be formalized via a quantitative model.

As managers imagine different outcomes of key uncertainties, they can use formal models to keep from straying into implausible scenarios.

Strategic Planning and Management Insights

Evolve toward Decision Scenarios. Finally, in an iterative process, you must converge toward scenarios that you will eventually use to test your strategies and generate new ideas.

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Retrace steps one through eight to see if the learning scenarios and any quantitative models from step nine address the real issues facing your company. Are these the scenarios that you want to give others in the organization to spur their creativity or help them appreciate better the up- and downside risks in various strategies? If yes, you are done. If not, repeat the steps and refocus your scenarios the way an artist judges the balance and focal point in a painting. Half of this judgment is art, half is science. How can you determine if your final scenarios are any good?

The first criterion is relevance. To have impact, your scenarios should connect directly with the mental maps and concerns of the users e.

Types of Scenario Planning

Second, the scenarios should be internally consistent and be perceived as such to be effective. Third, they should be archetypal. That is, they should describe generically different futures rather than variations on one theme. Fourth, each scenario ideally should describe an equilibrium or a state in which the system might exist for some length of time, as opposed to being highly transient. It does an organization little good to prepare for a possible future that will be quite short-lived. In short, the scenarios should cover a wide range of possibilities and highlight competing perspectives within and outside the firm , while focusing on interlinkages and the internal logic within each future.

The advertising industry has experienced a flurry of takeovers and mergers, which has resulted in giant agency systems like the Interpublic Group, Saatchi and Saatchi, the Omnicom Group, and Dentsu in Japan. A few years ago, I helped Interpublic develop scenarios to assess whether the global agency concept, which Marion Harper pioneered at the agency, was still viable.

When interviewing key advertising executives in , I asked them about past changes in the industry and its causes , current trends, key uncertainties and their interrelationships , and their overall views of the future. In the distant past, advertising agencies had been mostly order takers that simply executed ad placement. The traditional price structure of a 15 percent commission closely reflected the number of calls and paperwork needed for such placements.

To justify their higher profit margins, agencies started to add services for clients such as more sophisticated designs, market research, and elaborate pitches for new business. Around , clients began to view the continual addition of services as not worth the implicit price they were paying via the 15 percent commission. Skyrocketing media costs in the s and s for television created excessive commissions for agencies that became increasingly hard to justify with additional, but unnecessary, services.

Thus the 12 percent to 15 percent commission structure came under pressure, resulting in reductions in the percentage to as low as 5 percent to 7 percent or fee-for-service arrangements. In the meantime, however, the costs of delivering advertising had started to climb during the s, after many decades of gradual decline. These cost increases reflected the general shift away from broadcasting in which one message reaches many millions of consumers to narrowcasting where many messages reach small, targeted segments. Increasingly fine segmentation, due to reduced costs of identifying and addressing these segments, meant a fragmentation of media. For instance, Farm Journal recognizes about 5, different segments today, in terms of farming practices, regions, and crops, and it produces a slightly different edition for each. Sophisticated databases, improved software to manage relational databases, and more up-to-date information e. As I described earlier, step one involves identifying the relevant issues by studying the past, especially its sources of turmoil and change.

Table 1 reminds us of the scope and depth of changes in advertising during the past six decades. For this exercise, we decided to consider a seven-year time frame. Changes happen fairly quickly in the fickle world of advertising, so anything beyond seven years is quite uncertain and hard to act on. Planning horizons and budgets rarely extend beyond five years, since most investments in people, buildings, and equipment are reversible.

As assets become more specialized meaning that their salvage value is low relative to their costs , it pays to think longer term. Ad agencies, in contrast, are more like speedboats than tankers. They are agile and opportunistic; they can hire and fire quickly and continually adapt to their clients. Nonetheless, Interpublic had been paying premiums to acquire agencies in its quest for a global presence. Geier, Jr. In addition, it invested in Interactive Partners and embarked on a joint venture with Time Warner to exploit interactive marketing and entertainment media.

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In view of this, a time frame extending beyond five but less than ten years seemed most appropriate for this exercise. Table 2 lists the trends that industry experts, managers, and knowledgeable outsiders identified step three. The question was whether these trends were mutually consistent within the five- to ten-year time frame and what support existed for each. For example, what was the evidence that food, consumer, and high-tech products are most adaptable to global marketing?

Also, why might fee compensation, customary in consulting, legal, and accounting services, be less profitable to advertising agencies than a commission structure, which is common in real estate brokerage, sports promotion, and book writing? By asking such questions, we arrived at the trends in Table 2. After trend analysis, we needed to identify the critical uncertainties step four. Part A in Table 3 lists seven identified by industry respondents and our own analysis. Again, these presumed uncertainties should be examined further.

For example, one uncertainty was whether advertisers would remain sensitive to agency account conflicts when an agency serves competing clients. Yet agency account conflict appears not to be an issue in Spain or for Dentsu in Japan, which suggests that the assumptions underlying this uncertainty needed to be reconsidered.