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The Role of Scenarios in Business Strategy Development
GARP Conference
May 2011
Richard Walsh, Director, SAMI Consulting
Scope of presentation
• Business strategy is very broad....• Which business?
– Here I will concentrate on financial services but there are links to BS in:
– Governments – National, Global and local– Other sectors – eg health, environment etc etc
• And what timescale?– Now?– 3-5 years time?– 5-10 years time?– 10 – 20+ years time?
• Its a complex world and its not all going as it “should”
© SAMI Consulting www.samiconsulting.co.uk 2
Bank Bailouts
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Expenditure $US bn 2008
S&L crisis2009-12 Obama stimulus plan
2008 tranche of the bank bailout
Marshall plan
Louisiana purchase
NASA, less moon shot
Moon shot
Korean warThe New Deal
Iraq war
Viet Nam
Outcomes by country – what we thought – but for how long?
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Banking crisis remain chronic, as does state intervention
Banking crisis is settled relatively quickly
Japan
India
UK US
Middle income industrialising China
Euro zone
Prolonged depression,
growing statist environment
Slow grind to expunge debt;
some deliberate use of monetary
inflation
Business grows as
before
Slow return to health; US consumer
stage centre
World Economic Forum - 2011
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1000
100
Per
ceiv
ed im
pact
U
S B
N $
Perceived likelihood in next 10 years
London population forecasts – its demographics so it’s certain???
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0
1
2
3
4
5
6
7
8
9
1951 1971 1991 2006 2016
ActualForecast now
A trend is a trend until it bends
1991 forecast
Forecasts miss the point?
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Trends Range of other uncertainties
Uncertain timing
Single point forecast
Today
Scenario planning
Scenario planning attempts to describe what is possible.
The result of a scenario analysis is a group of distinct futures, all of which are plausible.
They are mental models.
FuturePresent
B
C
D
A
Nu
mb
er o
f P
oss
ible
Fu
ture
Wo
rld
s
9www.samiconsulting.co.uk
Using scenarios
• Scenarios are artifacts – mental models• Are used to test existing strategies – “wind-tunnelling”• Communication depends on audience
– Actuaries, business development, government– Engineers & scientists – comparator tables– Managers – brief– “Public” – visualisation & stories
• All audiences helped by early indicators– Newspaper headlines now if this scenario is developing
• All audiences need time to internalise, eg– “What are the implications for me/the organisation? “– “How would I/the organisation manage in this scenario?”
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Long finance scenarios – 2030...2050
• Gresham College and Z/Yen have initiated a Foundation to study Long Term Finance
• Issues tackled so far include the future of mortgages, the history and future of coinage, and a systems view of the credit crunch
• the Long Finance Forum of Futurists (L3F) has formulated scenarios for the future of finance
• SAMI consulting have worked as part of this enterprise and we have involved many stakeholders
© SAMI Consulting www.samiconsulting.co.uk 11
What we can forecast for 2050
• Predicting the future is fraught: there is always a tension between the evolution of existing trends and “a trend is a trend until it bends”. Our scenarios assume that:
• Global population will grow to 9 billion and get older• Major shifts of centres of economic power• Technology (info, cogno, bio, nano) will continue to
introduce changes• ICT will underpin much of society• Ecological, energy and environmental limits tested or
breached.
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What are the uncertainties?
• Will our economy and society be similar to now,– called the Washington consensus – or – will there be a new paradigm based on community (of
interest or geography?)
• (for financial services) Does geography matter? – eg City states or– Will markets be global and so largely virtual?
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Scenarios for 2050
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Community based
Washington consensus
Virtual connectionsGeography matters
Long handMany hands
Second hand Visible hand
CURRENT TRENDS & DRIVERS
STATUS QUO, MOMENTUM, INERTIA
EMERGING ISSUES OF CHANGE 1st horizon
2nd horizon
3rd horizon
Time
Dominanceof paradigm / worldview
Pockets offuture found
In present
“present” - 2011 “future” - 2050
Fading paradigms & technologies
Transition paradigms & technologies
Invent, Develop, Deploy
Research,Demonstrate,
Disrupt
Envision, Explore, Embody
Timeline - Three Horizons
2030
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Implications
• Depends on your audience• We looked at:
– Investors– Guarantors – insurers and re-insurers– Corporates and governments– Traders– Consumers
• For today, lets look at investors and guarantors
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Second hand
• Capitalism, nation states, democracy and western value systems still dominant as concepts, – though not all countries/regions are moving to embrace these
• Nearest to current paradigm but– Degradation of state capability– Technology has sustained population– Individual “singularity” & common bio-engineering– Health care better for the rich
• How to handle global commons?– What efficiencies are lost?
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Early indicators – second hand
• US and Europe maintain military strength but lose economic strength
• States fail to provide pensions, leaving provision to individuals
• Large corporates play an important role in international “Washington” consensus
• Food technology reports breakthroughs which will feed more people without more land
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Implications for investors – second hand
• Implications for Investors in 2050– The investment picture by 2050 will be dominated by
the tailing off of population growth and an increase in aggregate wealth.
– Nations will be increasingly desperate to attract funds to pay pensions and invest in infrastructure
• Implications for Investors now – no surprises!– State has an increasing role as regulator of pensions
and security.– Individuals have increasing personal responsibility for
pensions and security.
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Implications for guarantors – second hand
• Implications for guarantors in 2050
– Depends on whether volatility has become manageable: bigger bets and systemic risk tend to increase volatility and damaged internal consensus unable to cope
– Much more focused insurance – specific risks etc – using ICT connections & analysis
– Insurance much more global and broader based – different countries; based on commodities; gold
– More trading areas – fragmentation
• Implications for guarantors now
– Empowerment of middle classes
– Social networking growth – sporadic clamp downs will not halt this growth
– Role of information - readily available – no value; commercially useful – very valuable
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Visible hand
• Capitalism, democracy and western values still dominant– Significant stand-outs and international tensions– Global markets– National governments in retreat
• Evolution of Washington consensus– Rethinking of taxation & pensions– Food revolution successful– ICT underpins all
• State as shelter from volatile world– Some welfare state provision
• How to learn to handle global commons?– Lack of diversity
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Early indicators – visible hand
• States place citizens’ benefits and education as priority over other expenditure
• States work with affinity groups to provide pensions
• Large corporates play an important role in an international consensus
• Food technology reports breakthroughs which will feed more people without more land
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Implications for investors – visible hand
• Implications for Investors in 2050– The investment picture by 2050 will be dominated by
the tailing off of population growth and an increase in aggregate wealth.
– The state has a powerful role in regulation and provision of pensions and investment products.
• Implications for Investors now – back to the future– State has an increasing role as regulator and supplier
of pensions and security.
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Implications for guarantors – visible hand
• Implications for guarantors in 2050– Depends on whether volatility has become manageable: bigger bets and
systemic risk tend to increase volatility and national states not able to cope– People will look for self-protection with like minded people, insurance largely
national– Those dependent on benefits in Europe will suffer hardship and organise –
revolution and organised crime for some; prudence and financial self help for others
• Implications for guarantors now– Decreasing tax returns from national systems – welfare systems suffer –
opportunity for guarantors– Rise of affinity groups as source of purchasing power– Role of information - readily available – no value; commercially useful – very
valuable
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Long hand
• Community rather than nation states dominate– Multiple value systems accommodated– Democracy not seen as universal good– Break caused by extreme weather in 2030’s
• Rethinking of the economic and social challenges– Technology has not solved global problems, eg ecology, energy– Technology redefines financial services– Location less important in forming groups, eg religious, ethnic,
hobbyist, professionals, companies, employees, -----
• How to enforce global regulation – International as sum of communities vs nations
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Early indicators – long hand
• States cannot finance state benefits• Increase bartering and skills exchange• Decreasing tax returns from individuals, switch
to consumption/sales taxes• Rise of affinity groups for financial transactions:
growth in private pensions/insurance: strengthening of some communities, including emergence of 21st century “guilds” across national boundaries
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Implications for investors – long hand• Implications for Investors in 2050
– The investment picture by 2050 will be dominated by the tailing off of population growth and an increase in aggregate wealth.
– This scenario could result from the collapse of Visible Hand due to inefficiencies of global giants.
– Assets allocated by the market and intermediated by technology– Affinity groups across national boundaries, growth in private
pensions/insurance• Implications for Investors now – new opportunities
– Affinity groups across national boundaries have increasing role in providing pensions and security.
– Opportunities in personal wealth management, not just High Net Worth individuals
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Implications for guarantors – long hand
• Implications for guarantors in 2050 – People will look for self-protection with like minded people– A lot of excluded people: those dependent on benefits in UK will suffer severe
hardship – unable to buy basic foodstuffs: the excluded will get together too – revolution and organised crime for some; prudence and financial self help for others
– Overall world is running out of water, populations increasing – and uneven distribution – communities will try to create a ring fence around resources - food, water, mining, agriculture
• Implications for guarantors now– States cannot finance state benefits– Increased bartering and skills exchange (you do this for me and I will do that for
you)– Decreasing tax returns from national systems– Rise of affinity groups as source of purchasing power.
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Many hands
• Community is organising concept– Cities as wealth clusters “brands”– Sees the failure of nation states– Democracy, capitalism and western values competing with other
organising concepts, UN etc disappear– Break caused by extreme weather in 2030’s
• Rethinking of the social and economic challenges– High mobility of people for economic self interest– Borrowing person to person, mediated via technology– Corporations with global span strong; media important
• Global commons abandoned– Conflicts in values, fewer implicit norms
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Early indicators – many hands
• States cannot finance state benefits: decreasing tax returns from individuals, switch to property taxes
• ICT companies stepping back from integration/open systems, failing of the Cloud due to security issues
• Failing of the euro• States reduce fiscal transfer to country regions.
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Implications for investors – many hands
• Implications for Investors in 2050– The investment picture by 2050 will be dominated by the tailing
off of population growth and an increase in aggregate wealth – Equity trading focused on local companies – few global players– Security of supply a valued asset– International regulation weak
• Implications for Investors now – resource boom continues– Growing importance of fundamental resources: build capabilities
around resources trading/investing– “Ethical” investments aligned to resource management– Invest in intelligence gathering, analysis and reputation
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Implications for guarantors – many hands
• Implications for guarantors in 2050 – Depends on whether volatility has become manageable: bigger bets and
systemic risk tend to increase volatility but city state structure dampens– Much more focused insurance – specific risks etc – using ICT connections &
analysis– Insurance much more global and broader based – different countries;
commodities and scarcity– End of single currency and instability– More trading areas – fragmentation
• Implications for guarantors now– Empowerment of middle classes – Social networking growth – sporadic clamp downs will not halt this growth– Role of information - readily available – no value; commercially useful – very
valuable
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Bets for 2030?
• Investors– Bet on growing population, scarcity of
resources, growing economies?
• Guarantors– Bigger bets, but systemic risks leading to
greater volatility?
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Bets for 2050?
• Investors– Bet on tailing off of population growth but
increase in aggregate wealth?
• Guarantors– Depends whether world has learnt to manage
volatility, eg through localism – who knows?
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