2-Scenario Planning - October 2012 - Bruno Colmant · "A4rb_Premium" – 20110913_v01 – do not...

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1 Scenario Planning - October 2012 - Bruno Colmant.pptx

Amsterdam, March 2013

Making decisions in volatile times

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SCENARIO planning



Value of Risk

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Macro-economics + socio-economics instability

Technology

Others

Market (predictive value)

Regulation



Expect a volatile world

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>  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



Assess risk / uncertainty

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>  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



Illustration: The World of Stock Exchange

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>  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


6 Scenario Planning - October 2012 - Bruno Colmant.pptx 6

The history of scenario planning

A.

From the historic roots to contemporary scenario planning



The origins of scenario planning can be traced back as far as Sun Tzu’s and Plato‘s first writings

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A.1

Source: Bradfield, R. et al. (2005), The origins and evolution of scenario techniques in long range business planning. In: Futures 37(8): 795–812; Wilson, I. ( 1978 ). Scenarios. In: J. Fowles ( Ed. ), Handbook of futures research ( pp. 225-247 ). Westport, CT: Greenwood Press

(544-496 B.C.) Sun Tzu Plato (427-347 B.C.)

Book: "Art of War" A tool to explore the future of society and its institutions Scenarios to anticipate enemies’

actions on the battlefield Scenario development in the form of treatises, utopias and dystopias Scenarios formulated as stories to project possible future developments

Novelty: Public administration and wider societal issues taken into account



Generals von Moltke and von Clausewitz advanced the idea of thinking in scenarios on the battlefield

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A.2

Source: von Reibnitz, U. (1988): Scenario Techniques, McGraw-Hill, Hamburg

(1780-1831) von Clausewitz von Moltke (1800-1891)

Military campaigns can only partially be planned

Only the start of a military campaign can be planned

General principals set reference frames for officers on which

strategic decisions are based

Strong delegation of military decisions to officers based on pre-planned scenarios



Scenario planning today does not aim at predicting the future, but rather to open up strategic thinking

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A.3

Source: Ringland, G. (2006): Scenario Planning: Managing for the Future. John Wiley and Sons, Chichester

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

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 ope-rations can handle unpredictable events

Aim


10 Scenario Planning - October 2012 - Bruno Colmant.pptx 10

Strategy development today B. Why scenario planning is important now



… fail to reflect volatility

… can't cope with complexity (amount of data)

… don't consider different views

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GENERIC COMPETITOR STRATEGIES

ANSOFF MATRIX EXPERIENCE CURVE FIVE FORCES PORTFOLIO

ANALYSIS

Traditional strategy tools …

B.1

Traditional strategy tools have become unreliable



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B.2

But the planning questions remain the same

How will regulations change in my markets? Will the changes open up new markets overseas?

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?

Which regions of the world will grow most? How can our company benefit from that?



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… provides different images of the future to reflect volatility

… considers numerous influence factors to cope with complexity

… combines internal and external views to identify blind spots

B.3

SCENARIO PLANNING …

SCENARIO I

SCENARIO II

SCENARIO III

FUTURE

TODAY

Disruption

Counter- action

The solution? Scenario planning can overcome the shortcomings of traditional planning instruments



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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

CHARACTERISTICS of our 3-TIERED APPROACH MACRO-LEVEL

MESO-LEVEL

Global scenarios

Regional and industry scenarios

MICRO-LEVEL Company-specific scenarios

We differentiate between micro-, meso- and macro-scenarios

B.4



My Perception

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>  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"



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