1. 1 Scenario Planning

2. What problems do dynamic anduncertain environments pose forstrategic planning? How can we make planning more useful? Faster decision processes Preparing for the unpredictable: Frameworks and processes2 Scenario Planning 3. But its the #1 mgt tool &least likely to be dropped--California Management Review3Scenario Planning 4. Where weHow weWhere weare now get there want to be Business Definition,Vision Statement, External/InternalPhilosophy Strategy AssessmentsKey Result AreasObjectivesGoals The mission of the School ofThe vision of the School of Business is to create ideas Business is to be internationallyand alumni that have maximum renowned for our ability toimpact on business.create knowledge and leaders.4Scenario Planning 5. Frame the problemIdentifydecision criteria Weigh eachcriterion Identify alternativesEvaluatealternatives Implement best alternative5 Scenario Planning 6. Fast Decision-Makers Slow Decision-Makers Build multiple Develop one alternative,simultaneous alternativesgo to 2nd if the 1st fails Seek advice from Seek advice haphazardlyexperienced counselors (e.g., unqualified people) Resolve conflict using Resolve conflicts usingconsensus w/qualificationconsensus or deadlines Integrate the decision w/ Consider the decision inother decisions or tactics isolation.* Eisenhardt, K.M. 1989. Making Fast Strategic Decisions in High-Velocity Environments. Academy of Management Journal, 32(3): 543-576.6Scenario Planning 7. 7 Scenario Planning 8. 1. Identify assumptions about underlying sources of uncertainty.2. Build scenarios by exploring interactions of the sources of uncertainty.3. Estimate the likelihood of each scenario.4. Identify trigger points when the early signs of each scenario should be visible.5. Develop action plans for likely scenarios.6. Watch for trigger points as you implement.8Scenario Planning 9. Vision: Build the tallest free-standing tower withone Builderific set in 3 min.Planning: You get 10 min to organize your firm& plan the tower. Develop plans for at least 2 scenarios. Dont assemble pieces during planning. Bring your vision to the front ASAP. Start with all pieces back in the box. Only use materials from the box. Measured from the base to the top. Cant be leaning against anything.9Scenario Planning 10. 10 Scenario Planning 11. 12 Scenario Planning 12. Type of task: How is this like strategic planning in firms? Is this a fair analogy? Planning process: Time on management vs. engineering/architecture? How did you develop your scenarios? Was there a systematic exploration of what might go wrong? Unforeseen events? Did anything unexpected happen? How did you adjust? How can you plan effectively in this setting?13Scenario Planning 13. It takes 5 miles tostop this thing If you see ice 3 miles ahead...14Scenario Planning 14. What are the sources of uncertainty? How might these interact to form scenarios? What are the trigger points to identify the scenarios? How can you prepare for the scenarios?15 Scenario Planning 15. Consensus:Delphi Technique Discuss until agreement is Collect ideas via survey reached. Compile results & return. Ask members for new insights. Brainstorming: Repeat the cycle until a consensus No idea editing/evaluation. emergesNominal Group Technique: Devils Advocacy Individual written analysis Assign people to challengebefore discussionproposals and assumptions. Take turns presenting ideas Include members who disagree.(no editing or evaluation yet) Discuss & evaluate ideas Dialectic Inquiry Individually rank ideas Subgroup develops alternative Select best alternativeusing different assumptions. Debate alternative plans.17 Scenario Planning 16. Paralysis. When facing the unknown it can be hardto know where to begin. Start with several of themost plausible scenarios. Communicating a vision with multiple scenariosappears non-committal. Still, analysis promotespreparedness and cautious statements. Dont dismiss low probability events since they dooccur and can be highly impactful. Illusion of control can result from the analysis encouraging groupthink. Interactions among variables lead to rich scenarios(e.g., mkt demand x competitor response).Source: Charles Roxburgh (2009), The Use and Abuse of Scenarios. McKinsey Quarterly18Scenario Planning 17. Planning hazards in a dynamic environment: Implementation. Resources dont come together as was assumed. External changes challenge initial assumptions Rigidities result from sticking to game plan. Coping strategies: Contingency planning: 1) Requires a clearsignal to switch; 2) Cant identify everythingbut may still help Process interventions can help identifycritical assumptions.19Scenario Planning 18. Please sit with your teams today26Scenario Planning 19. 27 Scenario Planning 20. Exercise: Dating Game Decision Sources of uncertainty How do they interact to create scenarios? Exercise: Google/Motorola Tree Sources of uncertainty How do they interact to create scenarios? How to integrate into financial models28Scenario Planning 21. 29 Scenario Planning 22. 1. Identify assumptions about underlyingsources of uncertainty. 2. Build scenarios by exploring interactions ofthe sources of uncertainty. 3. Estimate the likelihood of each scenario. 4. Identify trigger points when the early signsof each scenario should be visible. 5. Develop action plans for likely scenarios. 6. Watch for trigger points as you implement.30Scenario Planning