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For the Greater Good

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It is vital that all organisations have a strategic outlook and a good understanding of how they are going to get to where they want to be. Here we explain why.

Strategy development and the need for scenario planning

The strategy development cycle can vary considerably by organisation, be it length or depth. Factors that affect the frequency and intensity of the cycle can include the executive team’s commitment to the purpose of the business and strategy as a means to evolve what is done; executive team’s intentional leadership (actively measuring strategy execution); the business’s access to capital, infrastructure requirements and, indeed, access to resources (skills, talent and time). Some planning horizons or strategic outlooks are less than a year for some businesses; for others it can be more than a decade. Nonetheless, it is vital that all organisations have a strategic outlook and a good understanding of how they are going to get to where they want to be.

The strategy development cycle itself has several phases: environmental scan and internal analysis phase, option generation phase, option evaluation and choice phase, implementation phase, review and amend phase. There are many variations to this, but this is the general idea. An organisation might have a reasonable idea about where it’s heading and the factors that will affect its likely success or otherwise, and this may make certain strategic options seem obvious. However, as we all know, plans don’t always materialise the way we envisaged and the same is true of strategy. We all get blindsided from time to time. The ability for a firm to recognise potential disruption, reassess its options and make necessary tweaks or even wholesale change can affect its ability to succeed. Indeed, it can be argued that a business that has a strong grasp of its strategic options, the risks and opportunities that may lie on either side of those options, is best positioned to take advantage of those opportunities if and when they materialise.

 

What is Scenario Planning?

Scenario planning is the practise of expecting the unexpected.

Being prepared for materially adverse (or favourable) events outside your control isn’t just sensible, arguably it’s a prerequisite business practice that all organisations should consider undertaking on a schedule fit for their industry. This is particularly so for industries with large infrastructure or capital requirements such as heavy manufacturing, logistics or construction.

Some organisations do this very well. For example, those industries that are more susceptible to external factors outside their immediate control often conduct scenario planning and risk mitigation exercises. This is highly useful for understanding the ‘What if?’ scenarios that might play out and the impact of each. Other industries can experience significant turbulence including consolidation which can often disrupt supply chains as organisations merge or acquire others within the industry vertical.

 

Examples of basic questions that business should ask of themselves include:

  • What if demand for our product or service changes dramatically?
  • What if our supply chain is disrupted?
  • What if our competitors merge or are acquired by a larger entity with greater resources?
  • What if there is a skills shortage in a sector change affecting our ability to scale up?
  • What if there are regulatory changes?
  • What if access to capital or other financial resources is constrained, or alternatively, becomes more freely available or at lower cost?

 

Plus many more

 

 

For many industries, these are all very real possibilities and whilst it’s not possible to predict every scenario or outcome, is a very useful exercise to identify the top risks and opportunities that might happen. This isn’t to say that you should deviate from your chosen strategy on a whim, this is more to say “be prepared” and be ready to move if necessary before your competitors can.

So, when should a business conduct scenario planning? This will vary by industry, but it will come as no surprise that many organisations include this as part of their annual strategy development cycle. And the beauty of this, is that through the usual strategy development process, many businesses have already identified many scenarios that will help or hinder them (in the option evaluation and choice phase).

Let us explain.

Choosing an appropriate strategy is, in its own right, an exercise in assessing risks and possible adverse scenarios to find the best path to your vision. So, don’t throw this assessment out – there is much valuable information in this process. Use the analysis, the collective thinking, the creatives in your team, to capture the main possibilities. Don’t be shy about listing seemingly unlikely scenarios. The likelihood may be small that a particularly left field idea materialises, but the process itself – often best done with a facilitator – can flush out scenarios that were previously unthought of.

 

Here is a sample framework we have used previously:

 

  1. Complete the first half of your strategy development cycle (environmental scan/internal analysis phase, option generation phase, option evaluation)
  2. Capture the possible scenarios that could impact your chosen strategy, good and bad
  3. Assess each for likelihood, and impact
  4. Decide on a mitigation strategy for each, or in the case of a favourable scenario, an optimisation strategy
  5. Assign responsibility to someone to manage it
  6. Keep your eyes open, and review regularly

 

Crystal ball? Not quite, but the next best thing. The lessons are clear – scan the environment continuously, assess your options, understand the risks, and be ready to change direction if needs be. But don’t wait for the next planning cycle to commence, after all this isn’t a budgeting exercise.

Remember, the best strategies are still susceptible to outside pressures, or worse, can be rendered totally ineffective by events outside your control. Don’t get caught unawares…

 

Jamie Crain

Enterprise Director, Dattner Group