Unit 6 IP Scenario Planning

 

 

Planning and Forecasting 2

 

Michael Pry

Colorado Technical University

CS875 Futuring and Innovation

Unit 6 IP

Dr. Calongne

September 25, 2022

(Please note that some of the material in the Benefit of Scenario planning section was a reuse of my material from the Unit 5 DB1 assignment.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Benefit of Scenario Planning to Support Planning and Innovation for Change:

The process of scenario planning is very beneficial in the planning process. The scenario planning methodology goes beyond traditional forecasting by adding an analysis of the P.E.S.T that affect a business (Wade, 2014). P.E.S.T. represents the external forces that affect business strategy, including political changes, economical movements, societal changes, and technology trends (Wade, 2014). Examples include laws, regulations, new technologies, changes in attitudes, and different competitors. Within this framework, organizations will define the forces that affect them and then make a short list of the most critical uncertainties (Wade, 2014). When two necessary forces are identified, they will be plotted on a cross chart depicting each uncertainty's extremes. The result is four quadrants representing the four most likely scenarios that could play out based on those two critical uncertainties (Frum, 2013). The scenarios created within each quadrant represent stories of how a certain future might happen. In this regard, it is similar to traditional forecasting using planning assumptions. However, scenario planning is not using planning assumptions as it identifies likely events that may create an effect that will move the organization in one direction or another. Scenario planning does not seek to make a prophecy that any certain future will happen but instead shows what future scenarios may be possible based on the myriad of different forces. Scenario planning is a valuable tool for business leaders to use when developing their strategic plans and can help them prepare for various possible futures. 

Scenario planning's structure of thinking and ability to model different risk conditions is helpful for an organization to predict high-impact risks and to manage the organization in such a way as to avoid them. However, the structure of scenario planning can also be such that it is used to model opportunities and risks. For example, an organization may facilitate a scenario planning session where the team brainstorms possible new possibilities and uses the 4 square methods of scenario planning to identify the potential opportunities that would impact the organization most. This knowledge could then be used to guide research and development and to support the very innovation that may make possible the realization of the opportunity.   For example, a Global Manufacturing Company in Latrobe, Pennsylvania, called Kennametal Inc., utilized scenario planning to identify ideas for their research and development department to explore. One of the identified opportunities was helping racecar owners find new ways of being competitive in the popular NASCAR races. From identifying the opportunity to support this emerging market, further idea modeling occurred that identified the need to improve the combustion of race car engines. Kennametal went on to innovate the use of Play-Doh mixed with particles of Tungsten Carbide to be used as a type of high-pressure sandpaper that could smooth out the cylinders in the engines, resulting in less friction of the pistons and more power to the machine. This entire chain of innovation and discovery started with visualizing the opportunity during a scenario planning session. 

Forces of Impact:

Suppose we model the primary four domains of scenario planning of political changes, economic movements, societal changes, and technology trends from an innovation perspective. In that case, we have the opportunity to flush out the most likely forces of impact that can affect scenario planning (Wade, 2014). For example, in 2022, the current position of the Biden Presidency is to limit domestic gas production in favor of green energy. For green energy enthusiasts, this is a positive environment. However, this is a loss for those with a financial interest in domestic gas production. Still, the potential of a political change in the next election may bring about the desired change. Purely from a scenario planning perspective, both parties (those for and those against domestic gas production) should now be modeling the impact of a possible political change in 2024. The next dimension of the model is economic change. A scenario planner must account for potential economic changes affecting their organization.   Automobile manufacturers may find raising interest rates to cool inflation risk to their business model.

In contrast, credit card companies will find it benefits their business model.   From an innovation perspective, rising interest rates across the country will create an opportunity where consumers are seeking low-cost alternatives to what they have now. The credit card company that can innovate may find that they can offer a new product to the market that will be well received. The third force of impact is technology change. Consider the impact of digital photography on the film manufacturing industry. Kodak was a famous manufacturer of camera files and had the dominant market share for many years. It is not known if they used scenarios or planning. Still, they did not adapt to the change when the photography industry abruptly changed to digital photography from film photography. Had Kodak modeled this change, they might have invested more into innovation and migration to support digital photography (Lucas, 2009). "Information technology has the potential to transform industries through the creation of new digital products and services. Kodak's middle managers, culture, and rigid, bureaucratic structure hindered a fast response to new technology, which dramatically changed the process of capturing and sharing images. The film is a physical, chemical product, and despite a succession of new CEOs, Kodak's middle managers could not transition to thinking digitally. Kodak has experienced a nearly 80% decline in its workforce, loss of market share, a tumbling stock price, and significant internal turmoil due to its failure to take advantage of this new technology (Lucas, 2009)." There is no doubt that disruptive technology can be a force of impact.

Finally, there are societal changes that offer a force of impact to be aware of. Sometimes the views and values held by society change quickly because of "flashpoint" events. These events occur and almost immediately bring about a culture change. Perhaps the change has been building up for years, but the "flashpoint" event ignites the change. Several examples include America's focus on race issues after George Flood's arrest and in Iran with the death of Mahsa Amini following her arrest by the Iranian morality police. Companies must consider the effect changes in society may have on their business model from a risk management perspective. Still, they can also forecast the potential opportunity these changes may create and then innovate to embrace them. The P.E.S.T model of political, economic, societal, and technological forces of impact should be considered by organizations when conducting scenario planning both for risk management and innovation planning. 

Illustration:

To illustrate a successful case study of scenario planning, let us compare and contrast British Airways and Game Stop. British Airways is the world's largest international passenger airline and one of the most profitable. The Corporate Strategy department successfully introduced Scenario Planning to the airline's management in 1994 and 1995 (Moyer, 1996). British Airways use scenario planning to identify "the official future" that organizational leadership has based on their assumptions and views of the business. They then went on to use scenario planning as a way to challenge those assumptions and opinions and model alternative futures  (Moyer, 1996).

In contrast to British Airways's success with scenario planning, another company called Game Stop did not plan for future scenarios and, as a result, suffered grim results. Game Stop is a US video game retailer struggling in recent years due to competition from digital distribution services as well as the economic effects of the COVID-19 pandemic. As a result, GME stock price declined (reaching an all-time low of $2.57 on April 3, 2020), leading many hedge funds to short-sell the stock (Mancini, 2022). Scenario planning has proven benefits that can be found by examing the outcomes of those organizations that use it and those that do not. 

Future Use of Scenario Planning:

The social impact of change is an essential component of scenario planning as it accounts for some of the most disruptive and unpredictable forms of change possible. As we look into the future and possible changes society may embrace, those related to religion, family values, sexual identity and behavior, people's view of their responsibility to the globe, gun rights and even topics like work ethic fall into scope. Those involved in scenario planning should consider using societal impact as a domain for analysis in future scenario-planning models.

I will use scenario planning to help my clients in their strategic management process by assisting them in model and forecast possible scenarios that may impact their organizational risks or opportunities for innovation. I will also consider using scenario planning for modeling ideas for research and publication so that I can find innovative and valuable ideas to research.  

 

 

 

 

 

 

 

 

 

 

 

 

References

Lucas Jr, H. C., & Goh, J. M. (2009). Disruptive technology: How Kodak missed the digital photography revolution. The Journal of Strategic Information Systems, 18(1), 46-55.

Moyer, K. (1996). Scenario planning at British Airways—A case study. Science Direct, 172-181.

Mancini, A., Desiderio, A., Di Clemente, R. et al. Self-induced consensus of Reddit users to characterize the GameStop short squeeze. Sci Rep 12, 13780 (2022). https://doi.org/10.1038/s41598-022-17925-2

Wade, W. [GLOBIS???]. (2014, September 3). Woody Wade: "Scenario planning" - Thinking differently about future innovation [Video]. YouTube. https://www.youtube.com/watch?v=MKhUKHzE8hk

 

 

 

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