2003 strategy and leadership.pdf

Table of contents

Volume 31 Number 1 2003

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Editor’s letter 3Robert M. Randall

The strategic leader 56Understanding the triad of great

leadership – context, conviction

and credibility

Brian Leavy

What is the essence of great leadership?

After a decade of research, the author

believes that leadership effectiveness at the

highest level can be better understood in

terms of three main elements – the context

for leadership, the conviction of the leader,

and the flow of credibility over time and

tenure.

Quick takes 61These brief summaries contain the key

points and action steps to be found in the

feature articles in this issue of Strategy &Leadership.

Feature articles

Scenario planning after 9/11: managing the impact of a catastrophic

event 4Peter Kennedy, Charles Perrottet and Charles Thomas

Managers need to use a scenario framework for assessing various kinds of risk and

uncertainty that will continue to confront corporate decision makers as the 9/11 event plays

out over the following months and years. The lessons learned from coping with the current

situation will be applicable to catastrophic events that could occur. Executives should

establish an explicit ‘‘futures’’ orientation that contemplates multiple alternative conditions as

a backdrop for both very short-term tactical thinking and long-term planning.

Decision-driven scenarios for assessing four levels of uncertainty 14Hugh Courtney

Some classes of scenario planning tools and techniques are designed to inform near-term

strategic decisions. Of these, some are more appropriate for lower levels of uncertainty, and

others are best suited for highly uncertain, truly ambiguous business environments. The

author’s typology of scenario planning tools and techniques enables managers to select the

right scenario planning tool for near-term strategy decisions, based on the degree of

uncertainty they face.

Scenarios and strategies: making the scenario about the business 23David H. Mason and James Herman

To persuade top management to actively participate in a scenario development effort linked to

major decision making, this method makes the client organization and its strategy alternatives

the central focus of the scenarios. A compelling benefit of this form of scenario planning is

that it pushes management to see the business and its environment as a system co-evolving

over time. The process can become a forum for a healthy debate concerning the scope of

the business and the importance of emerging environmental changes.

Competitor scenarios 32Liam Fahey

Several leading companies have employed scenarios to better understand both current

competitors’ potential moves as well as the possible emergence of new rivals. They have

mastered several principles and some ways to avoid process pitfalls. Experienced managers

use competitor scenarios as a source of learning about the broader competitive context and

of the implications for their firm’s strategy and operations.

Using scenarios to focus R&D 45Gill Ringland

Scenarios provide managers of R&D programs with alternative views of the future societies

and markets. By previewing what research would be a priority in these possible future

environments and what would be constrained or unmarketable, a number of firms have

successfully used scenario planning to improve current R&D decision making. A case study of

scenarios for an information and communication technology R&D program details the process

and its implications for corporate planners.

VOL. 31 NO. 1 2003, p. 1, MCB UP Limited, ISSN 1087-8572 | STRATEGY & LEADERSHIP | PAGE 1

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Editor’s letterIn this issue we look at innovative scenario methodologies for managing discontinuity

in the near term. Five feature articles describe various ways of using decision-driven

scenarios to gain foresight concerning the next few months and years.

J ‘‘Scenarios for planning post 9/11: managing the impact of a catastrophic event’’

by Charles Thomas, Peter Kennedy and Charles Perrottet.

J ‘‘Decision-driven scenarios for assessing four levels of uncertainty’’ by Hugh

Courtney.

J ‘‘Scenarios and strategies: making the scenario about the business’’ by David H.

Mason and James Herman.

J ‘‘Competitor scenarios’’ by Liam Fahey.

J ‘‘Using scenarios to focus R&D’’ by Gill Ringland.

By publishing this theme issue we join a long running debate over the proper answer

to the question, ‘‘What are scenarios for?’’. Traditionalists – practitioners of the art of

the long view, a time horizon sometimes measured in decades – believe scenarios are

group learning experiences and culture change exercises that ultimately promote

better decisions. But critics complain that traditional scenario planners have ‘‘spent

too much time going down paths that most of the organization didn’t feel were the

slightest bit relevant’’. As a result, middle and senior managers often find that time-

consuming scenario planning efforts are distractions that provide little insight into the

crucial strategic decisions at hand.

Recently a few practitioners have begun to use scenarios as decision support

methodology suitable for short-term strategy making and execution. In this context, I

believe they are still a form of group learning, but the lessons are less about creatively

imagining alternative business and social environments and changing cultural

awareness and more about understanding the operational implications of devising

and implementing strategy in a rapidly evolving business and societal environment. It

also seems to me that long and short term scenario planning are complementary.

Keep in minds that the techniques described in this issue are experimental. It can be

proudly noted that these articles present some of the first accounts of this new

technology in practice. But research reports they are not.

However, the results of readers’ experiments with these techniques should be known

fairly soon – in months perhaps, and certainly in a few years. Managers practicing the

techniques offered here can quickly observe whether or not they help ready the

organization for discontinuity and speed up decision making. In contrast, the full value

of traditional scenarios with a five-, ten-, or 20-year horizon cannot be determined

during the tenure of most managers.

So we invite readers to put these experimental scenario practices to the test, and to let

us know how they perform in your organization. Your comments and case studies are

invited.

We will be publishing more articles on scenario planning in the next issue. A number of

them are about using scenarios to enrich executive insight about the variety of

potential medium- and long-term futures.

Robert M. Randall

Editor

VOL. 31 NO. 1 2003, p. 3, MCB UP Limited, ISSN 1087-8572 | STRATEGY & LEADERSHIP | PAGE 3

Scenario planning after 9/11: managingthe impact of a catastrophic event

Peter Kennedy, Charles Perrottet and Charles Thomas

Charles Thomas, Peter Kennedy, and

Charles Perrottet, all former senior

practioners at The Futures Group, Inc. have

been part of the Strategy Practice of Deloitte

Consulting for the past four years. They have

recently formed their own firm in

Connecticut – The Futures Strategy Group,

LLC ([email protected],

[email protected], and

[email protected])

For the last year, line managers and planners have been wrestling with a serious and

potentially paralyzing dilemma: the extent to which corporate plans, strategies and

short-term actions need to incorporate the events of September 11, 2001. As they

ponder, many corporate executives, still smarting from the dot-com meltdown and

ensuing recession, have deferred important decisions because of turbulence and

potential risk still playing out in the marketplace. This is an understandable reaction,

yet dangerous in the extreme, for it could be years before world events and markets

return to anything resembling the robustness and relative predictability of the 1990s.

Managers need a framework for dealing with various kinds of risk and uncertainty that

will continue to confront corporate decision makers as the 9/11 event plays out over

the following months and years. It’s important to put this process in place now

because the lessons learned from coping with the current situation will be applicable

to future events that have yet to occur. In the year and a half since terrorists destroyed

the World Trade Center towers and set fire to the Pentagon, we have worked with

many executives grappling with the short-, medium- and long-term decisions that

have to be made in one of the most unsettling and confusing business environments

since the Depression. Our own observations and the experiences of our clients point

to the need to support both very short-term tactical thinking and long-term planning

with a ‘‘futures’’ methodology that contemplates multiple alternative backdrops to

decision-making.

We conclude that scenario planning can – and should – inform decision-making at

each point along the decision spectrum, from short-term/tactical to long-term/

strategic. We suggest an innovative scenario process, one that provides business

continuity planning and medium-term operational planning with a more rigorous

analytical grounding, but without overburdening the process with excessive and

ultimately counter-productive complexity. In the first two of the three mini-case

examples that follow, we show how the scenario process was modified to meet

the more immediate operational challenges following 9/11. The third mini-case

highlights a 1998/1999 scenario-based planning process that effectively contem-

plated the kind of external threat that the 9/11 terrorist acts have now come to

characterize. (Editor’s note: Readers new to scenario planning might want to read

PAGE 4 | STRATEGY & LEADERSHIP | VOL. 31 NO. 1 2003, pp. 4-13, MCB UP Limited, ISSN 1087-8572 DOI 10.1108/10878570310455006

case three first. It demonstrates a ‘‘classic’’ use of scenario planning for long-term

strategy. The other two cases are innovations on this basic technique.)

Pervasive 9/11 effects

The aftermath of the 9/11 attack has been neither brief nor transitory. A year and a half

later we see direct and indirect evidence of how the event continues to affect and

shape the business environment. Because of 9/11, for example:

J The airline industry is, metaphorically speaking, on its knees.

J Military spending is on the rise and an entire new industry formed around

‘‘homeland security’’ has been born.

J Consumer and investor confidence have been seriously shaken – even more so

now after the Enron and the Wall Street scandals.

J Security controls affecting cargo, shipping and logistics threaten to disturb or

complicate supply chains, globally.

J Heightened and pervasive uncertainty over domestic security and war, combined

with mounting US federal deficits, could lead to a 1970s-like period of prolonged

economic stagnation.

For managers and planners, the important question is how to think about 9/11 – the

totality of the phenomena, not merely that day’s event – in the course of developing

strategy, making business plans and executing day-to-day operations. One can argue

that 9/11 could turn out to be one of those ‘‘redefining events’’, like the 1973 OPEC oil

embargo, that has a profound and enduring impact on society, markets and the

overall business environment. Alternatively, it is possible to imagine 9/11 as only a

horrific event that mobilizes governments and society in the short term but fades in

importance, perhaps because homeland security provisions make possible a

significant return to normalcy or alternatively because even worse conditions take

center stage.

Trying to anticipate one of these extremes or the other is a phony choice. Indeed, the

truly agile business planner or strategist should always contemplate the broadest

possible, yet plausible, range of future business conditions and assume the

inevitability and unpredictability of change. That said, there is a real and practical

need for a focused and balanced integration of ‘‘9/11 thinking’’ into decision-making

at each stage in the decision-making process, from the very short-term and tactical, to

the long-term and the strategic.

Innovations around scenario planning

Traditional scenario planning is extremely effective in working through uncertainties,

probing conventional wisdoms, and exposing faulty assumptions inherent in even the

most expansive planning exercises. The post-9/11 world screams out for this kind of

treatment, if for no other reason that so much is still unknown. And yet, at the same

time, the actual 9/11 events are not speculative; they happened and other terrorist-

inspired events could happen again, almost anywhere, on a frighteningly large scale.

For many companies then the need is not to simply dress rehearse big disruptive

events, but actually assume one or more will occur and have ironclad continuity plans

in place.

This unfortunate reality suggests a different kind of scenario planning approach. We

have introduced alternative scenario-based tools to respond to this specific need for

continuity assurance and near-term operations planning. As the following cases show,

VOL. 31 NO. 1 2003 | STRATEGY & LEADERSHIP | PAGE 5

we divided our clients’ needs into three areas: business continuity planning, near-term

operations planning, and strategic planning. For business continuity planning (with its

tactical decision focus) our clients found that a tightly focused set of scenarios using a

very simple two-by-two scenario space matrix (only four possible scenarios) worked

well. This was because the client’s prime concern was being prepared for specific

exogenous events – not anticipation of entire alternative business environments, as is

typically the case in classic strategy-oriented scenario planning. Similarly, for

operations planning, we found that a three-dimension matrix was adequate, but

the focus shifted from the ‘‘event’’ to the range of plausible outcomes that follow the

event. Finally, within the context of strategic planning, we have found that our

standard process (and four to five dimensions) has stood the test of time.

Exhibit 1 summarizes and compares the three types of planning. Note the contrast

between the relatively simple scenario framework for business continuity planning,

where the focus tends to be very short-term and on specific event anticipation, versus

scenario-based strategy, where the timeframe is longer, complexity is greater and

therefore more rather than fewer scenario dimensions are typically used. Essentially,

the dimensions represent the critical, high-level defining features of the scenario

uncertainty space. The more dimensions used, the wider the angle of the scenario

lens. And the further out in time one plans, the wider the lens one should use.

Case one: business continuity planning (BCP)

Across industries, there is heightened concern and urgency around business

continuity in the wake of the September 11 terrorist attacks. And this is perhaps most

true in the Wall Street-based financial service sector, which on that day lost many

hundreds of experienced, talented people and suffered paralyzing disruptions in

operations.

In the aftermath of that tragedy, the management of one leading global financial

services firm committed to a process of identifying and remedying gaps in the

Exhibit 1 Three types of planning

Planning need Scenario type Scenario focus Decision focus Project time

Business continuity Two dimensions Tactical; many key drivers arebusiness model and ‘‘event’’

focused

Actions taken within near andmedium term to ensure

business continuity

Approximately6 weeks

One-to three year

operations planning

Three dimensions Business and Industry-model

focus with moderate

examination of external drivers,

especially those affectingreactions

Actions and plans taken to

compensate for the political

and economic aftermath of ‘‘an

event’’ and the national andglobal reactions that followed

Approximately

6 weeks

Strategy Four or moredimensions

The external drivers outside ofclient control, with relatively

little attention to specific events

Develop new business modeland strategies that are robust

no matter how the future

unfolds

4 to 6 months

‘‘ Executives are grappling with the short-, medium-and long-term decisions that have to be made inone of the most unsettling and confusingbusiness environments since the Depression. ’’

PAGE 6 | STRATEGY & LEADERSHIP | VOL. 31 NO. 1 2003

recoverability of its key assets. They decided that the best way to ensure truly

‘‘robust’’ BCP was by adopting a scenario-based approach. In essence, this meant

driving toward a set of BCP strategies that was tested across a range of market

environments.

The initial discovery phase of the engagement was a detailed evaluation of

vulnerabilities across all asset categories in each of the firm’s major operating

groups. A client-consultant team assessed risks and exposures in facilities location,

business partners, technology, human resources, and vital records. Gaps were

identified between target states of readiness and actual preparedness. These gaps

were the subject of separate strategy workshops in New York and London.

The essential goal of the workshops was to develop strategies that would close

unacceptable asset recovery gaps. To ensure creative and rigorous thinking, the

team developed two very different business-environment backdrops against which

workshop participants devised BCP solutions. Each of these two scenarios

characterized essential financial service industry conditions and events from 2002

to 2004. One scenario included a return to relatively healthy market conditions with no

new significant government intervention. The other scenario described a world with

challenged markets, increasing governmental intrusion in financial services, and global

conflict and instability.

Intentionally, the financial services firm limited the range of structural variability in the

scenario set. The scenario ‘‘uncertainty’’ space was kept at a very high level, focusing

mostly on underlying equity market growth and stability and government regulations.

The very short-term nature of the planning task required that external complexity be

limited and manageable.

Importantly, however, ‘‘wildcard’’ events that represented direct threats to the

continuity of the firm’s operations were explicitly played out. The potential for natural

Exhibit 2 Gaps in readiness and remedial steps

Existing levels of assetreadiness and recoverability

Required levels of asset readiness and recoverability

Variances between states ofasset readiness levels

The activities and plans that are designed to close the gaps between current andtarget states of asset readiness

Current Stateof Asset Readiness

Target Stateof Asset ReadinessGap

Strategies

‘‘ For many companies then the need is not tosimply dress rehearse big disruptive events, butactually assume one or more will occur and haveironclad continuity plans in place. ’’


(hurricane) and man-made (terrorist) disasters was present in each of the two

scenarios. And indeed, the final stage of the BCP workshops was to stress test

scenario-contingent BCP strategies against a range of different ‘‘shocks’’ that could

directly affect operations.

Workshop participants in New York and then in London wrestled with both the

challenges of the future business environments and the impacts of specific shocks.

The draft strategies that emerged are, understandably, confidential to the client. At a

high level, the scenario-based BCP process yielded the following value for the client:

J Confirmation around a set of ‘‘must do’’ actions that could be accomplished with

acceptable costs and manageable disruption.

J Greater understanding of costs and trade-offs associated with more complex and

potentially far-reaching decisions around, for example, facilities location, business

relationships and alliances.

J The start of an important internal dialogue among the firm’s executives, business

heads and business continuity managers with respect to BCP goals and priorities

going forward.

Case two: medium term operational planning

A professional services firm in the weeks that followed 9/11 wanted to evaluate the

plausible range of impacts on their business and operations as the US and the world

decided on a course of action (whether successful, or not) and terrorist groups

responded further. This firm had used scenario planning for its strategic planning in

the past. Their requirements were that: (1) this exercise had to be done quickly – in a

month and a half; (2) the focus had to be operational – affecting one to three year

decisions; and (3) the creativity and rigor of scenario planning, as they had

experienced it in the past, had to be preserved.

As with BCP, we again modified our standard approach to scenario planning. Some

things remained constant, however. The critical defining features (‘‘dimensions’’) of

the planning space remained factors outside of client control. The focus of the

strategy effort was on how future customer demands would shift and change in the

scenarios and how the regulatory environment might alter. In other words, like all good

scenarios, these were still to focus on future market demands and constraints.

Some aspects of our approach were customized. First, to shorten and simplify the

scenario selection process, we used only three dimensions (rather than the more

sophisticated, but complex use of four or more). Thus the client had only eight

possible scenarios from which to choose. Second, and more radical, we focused the

scenarios and business drivers on near-term issues under the assumption that

the fundamentals of the global business environment would not shift dramatically in

the next few years. For long-term scenario practitioners, this was a difficult step.

However, the client made clear that, while they valued scenario planning for its ability

to provide solutions to the full range of future uncertainties, this exercise was not about

that. They wanted guidance about market dynamics and the required operational

changes that would result from variations on successes or failures in homeland

security and the war on terrorism. While not as focused or tactical as business

continuity, this planning activity was to be far more tightly targeted than a scenario-

based strategy process.


The goal of the project was to gain insight into three critical aspects of the firm’s

business model in the aftermath of 9/11:

J New services their clients would need.

J Existing services that should be strengthened, altered or abandoned.

J New service delivery models (possibly requiring a major re-engineering of service

delivery).

The interview and research phase was very brief for four reasons:

(1) We knew the firm and its current strategies very well.

(2) We had recently completed extensive scenario planning work for part of the

Intelligence Community and were quite familiar with emerging national security

issues.

(3) We had completed scenario planning work for the US Coast Guard two years

previous where both terrorism and issues of homeland security had received

significant focus.

(4) The client was already well versed in scenario planning.

Business driver identification was more focused than is typical and resulted in a list of

about 75 business drivers, rather than a more typical number such as 300 (plus). Only

about 30 of those drivers eventually made it into the scenario development matrix. All

75 drivers, however, contributed to the synthesis process that gave us three defining

dimensions for the client’s scenario planning space (see Exhibit 3). Those dimensions

were: economic dislocation, perceived security threats, and barriers to global

commerce.

The four named scenarios above are those selected by the client for planning

purposes. It is worth remembering that these scenarios (and this matrix) were not

chosen or designed to capture the full range of threats and opportunities for the

client’s business. They were focused on helping the client think about the impacts of

the potential 9/11 aftermaths on their clients needs and their competitive position. A

brief summary is shown in Exhibit 4.

The work done here helped this global services firm stress test their existing strategies

against a narrowly defined overlay of additional environmental uncertainties. They

looked for, and found, new opportunities as well as new vulnerabilities. Outcomes fell

into three broad categories. First, our client identified three new service offerings that

Exhibit 3 Global services scenario space: post 9/11 3-year horizon

Economic dislocationPerceived security

threatBarriers to UScommerce

Limited Extreme Low High Low High

New normalcy

Water torture

Pyrrhic victory

Enduring conflict


their clients would need in the few years following 9/11 and the range of aftermaths

that were considered. Second, our client redesigned the way the firm would staff

some types of projects. (For example, hypothetical regional project management and

staffing models were devised in anticipation of future restrictions in air travel.) Third, a

new higher priority was assigned to one of the robust strategies from their original

scenario planning work (on the strategic level). The results of the ‘‘9/11 exercise’’

highlighted the enduring (but more urgent) utility of that strategy.

Case three: strategic horizon

Scenario planning was developed classically to help handle the ambiguities and

uncertainties of planning over a strategic time horizon. It is not about prediction; it is

not about ‘‘the certainty’’ that events will happen nor is it about specific preparations

for any event. It is about managing the range of uncertainty to be faced and the

strategies you can put into place that will provide competitive advantage no matter

what specific events unfold. In short, the twin goals of scenario planning are

opportunity identification and risk mitigation.

The measure of success in preparing for massively discontinuous events in a strategic

setting, therefore, lies in the ability of scenario planning to anticipate the impact of

such disruptive events (as a class) within the larger context of all the forces for change

acting within future operating environments. How is that to be done?

While there are many steps to building scenarios that will help one anticipate future

market needs or missions, the critical point in the process is selecting the dimensions

or boundary conditions of the planning space. Dimensions are the parameters of

Exhibit 4 Four alternative views of the future to 2004


one’s future operating environment, the elements of future uncertainty the planner

cares most about. For example, a manufacturer and marketer of infant products

seeking insight into long-term market needs will want to know about future economic

growth, in the US and beyond, as well as some indication of household income. This

planner will also want to know about fertility trends. Insight into future distribution

models might be important, as well as trade relationships and supply chain trends.

These are all examples of potential dimensions. If you do not get the dimensions right,

you might as well stop the process until you do. Unfortunately, the critical judgment

about whether or not one has them right is not subject to rules and categories. The

dimensions and the variability one chooses for them are a matter of creativity and

judgment – the inventiveness and business (mission) judgment of the client project

team and the creativity and experience of the consultant.

As a case example we often draw on work done for the federal government because it

is a matter of public record and most details of the project do not violate client

confidentiality (as they would for our private sector clients). The lessons apply to the

private sector; it is just the dimensions themselves that change. Three years ago we

supported the US Coast Guard in developing and using scenarios for very long range

strategic planning for their Long View Project[1]. After two months of client-consultant

research, interviews and workshops, we developed a scenario space from the

following dimensions:

J Role of the federal government in US society.

J US economic vitality.

J Perceived threats to US society.

J Demand for maritime services.

The USCG scenario space, from which the Coast Guard chose five scenarios, is

illustrated in Exhibit 5.

From these scenarios, the Coast Guard developed ten basic strategies that would be

effective in all five future operating environments. The fourth strategy was ‘‘Acquire full

Exhibit 5 USCG long view scenario planning space

Role of federal

government US economic vitality Perceived threats to USA

Demand for maritime

services

Limited Substantial Weak Strong Low High Low High

Balkanized America

Planet enterprise

Taking on water

Pax AmericanaPan American highway


maritime domain awareness’’. Specifically, this set as a goal for the Coast Guard the

ability to acquire, track, and identify in real time any vessel or aircraft entering

America’s maritime domain. Within two years, then-Commandant James Loy and

Captain Bob Ross wrote a paper highlighting this particular strategy and placing it at

the center of US Coast Guard’s strategic intentions. Maritime domain awareness

(MDA) turned out to be highly relevant for USCG decision making both before and

after 9/11.

This is an example of how strategic scenarios are supposed to help anticipate large

discontinuous events. The Coast Guard chose their scenario space successfully and

developed the specific scenarios fully. The result was a set of strategies (like MDA) that

heightened their preparedness for the tragic events of 9/11 and proved well suited to

the new and demanding mission priorities set for the USCG in an era of heightened

border and port security in the aftermath of the attack.

Observations on scenario planning as a strategic and operational tool

For planners and strategists, a common consequence of a major shock event like 9/

11 is loss of perspective. The tendency to over-estimate impacts in the short-term and

under-estimate (or even ignore) impacts once the immediate shock recedes is

common. And yet achieving and maintaining a sense of balance in perspective is

critical – all the more so with every indication that the world is headed into a prolonged

period of acute turmoil and uncertainty.

We have long known that scenario planning is an effective and powerful strategy tool

for dealing with long-term uncertainty. The Coast Guard example depicts a classic use

of scenarios that enabled an extraordinary degree of preparedness for the events and

aftermath of 9/11. While the actual 9/11 events were not, of course, predicted in the

Coast Guard scenario set, a range of terrorist and homeland security threats were

explored across multiple scenario worlds. This informed the ultimate scenarios that

were developed and the resulting strategies, which continue in large part to be

followed by the Service. It is worth noting that of all the major US federal services

involved in the 9/11 response operation, the Coast Guard was singled out for its agility

and preparedness.

The scenarios developed for the financial services firm and the professional services

company break with classic scenario planning practices in that the uncertainty space

was intentionally constrained and the outputs from the process more focused. Neither

firm sought long-term, fundamental changes in strategic direction. Yet both firms

recognized that assumptions around the business environment into which they were

heading were important. The financial services company built its Business Continuity

Plans on the basis of a highly simplified two-scenario set, but stress tested its recovery

strategies with relevant and plausible wild-card events. The professional services

company in case two leveraged a classic scenario-based plan by working critical

operational issues through four more narrowly focused business environments to

‘‘ While the actual 9/11 events were not predictedin the Coast Guard scenario set, a range ofterrorist and homeland security threats wereexplored across multiple scenario worlds. ’’


ensure maximum preparedness for challenges to employee mobility, project

management and new business development.

In both cases, even with weighty and pressing operational agendas, the process of

examining alternative assumptions and planning backdrops proved fruitful. Scenario

planning brought a larger pool of executives into the decision-making process than

would typically be the case and as a result plans and actions were more carefully

developed. Finally, we observed that for all these reasons the scenario experience

engendered significant confidence in planning outcomes, contributing important

clarity and energy to subsequent implementation tasks.

We conclude that scenario planning offers not only long-term direction to the business

strategists, but also guidance and support to a range of operational decisions. In fact,

scenarios can greatly enhance operational efficiency by confronting ambiguity head-on

and forging critical alignment around big issues. While the classic scenario building and

strategy development processes need to be re-scoped and in other ways altered to

meet a different set of outcomes, the added rigor and creativity that scenario planning

brings is essential for executive preparedness in the face of unknowable shocks and

crises. This is perhaps the best safeguard against ‘‘failures of imagination’’.

Note

1. This project enjoyed the active participation of Admiral James Loy, then Commandant of the

USCG, and was supervised by Captain Joel Whitehead who assembled the key requirement

of a successful scenario planning project - a gifted and hard-working core team.


Decision-driven scenarios for assessingfour levels of uncertainty

Hugh Courtney

Hugh Courtney is a lecturer at the University

of Maryland’s R.H. Smith School of

Business, a senior fellow at the Mack Center

for Technological Innovation at The Wharton

School, and a management consultant

([email protected]). He is the

author of 20/20 Foresight: Crafting Strategy

in an Uncertain World, Harvard Business

School Press, 2001.

Scenario planning would seem to be the perfect tool for managers making

strategic decisions in today’s highly uncertain, turbulent business environ-

ments. Yet according to a Bain & Company survey, a declining number of

business executives use scenario planning tools[1]. Why have so many companies

abandoned scenario planning at a time when one might expect it to be most useful?

In too many cases, scenarios have been designed to clarify longer-term visions,

without regard for shorter-term decisions. As a result, middle and senior managers

often find that time-consuming scenario planning efforts are distractions that provide

little insight into the crucial strategic decisions at hand. Too often, scenario planners

have ‘‘spent too much time going down paths that most of the organization didn’t feel

were the slightest bit relevant[2]’’.

These efforts likely failed because there was a fundamental mismatch between what

the management team hoped to achieve and what the scenario planning process was

designed to achieve. Managers wanted decision-driven scenarios, yet the process

was designed to develop vision-driven scenarios.

Vision-driven scenarios help management teams think ‘‘outside the box’’ and

question their assumptions about the future. They are used primarily to generate new

strategic options, facilitate learning and dialogue throughout an organization, and

develop a shared commitment to the need for change. Such scenarios, however, are

not usually tied directly to any near-term strategic decisions.

Decision-driven scenarios, on the other hand, are used to inform a well-specified

strategic choice – a choice where the ‘‘best’’ option is unclear due to uncertainty over

‘‘ Decision-driven scenarios are used to inform awell-specified strategic choice – a choice wherethe ‘best’ option is unclear due to uncertaintyover the impact of that choice. ’’


the impact of that choice. For example, decision-driven scenarios have been used to

help companies decide whether to launch new products given uncertain consumer

demand, and whether to build new plants given uncertainty over the capacity-

expansion plans of their competitors. In such cases, scenarios are used to evaluate

explicit strategic options, determining their pay-offs across different scenarios and

their overall risk-return profiles.

As Exhibit 1 summarizes, vision-driven and decision-driven scenario planning

processes are designed to address very different company needs. If you pick the

wrong process, you will undoubtedly be disappointed by the results of your scenario

planning exercise. The first essential step in any successful scenario planning process,

then, is to clarify the purpose of the process, including its expected end products.

These expectations will define which of the two very distinct scenario-planning

techniques you will want to consider[3].

Tailoring decision-driven scenarios to the four levels of uncertainty

For those focused on near-term strategic decisions, there is no one-size-fits-all

approach to developing effective decision-driven scenarios. Whether you should build

such scenarios, and if so, how to build them depends on which one of the four levels

of uncertainty that you face (Exhibits 2 and 3)[4].

Level 1: a clear enough future

Decision-makers face Level 1 uncertainty when the range of possible outcomes is

narrow enough that this uncertainty does not matter for the decision at hand. This

does not imply that the future is perfectly predictable, but rather that the future is

predictable enough to identify a dominant strategy choice that is best across the

range of potential outcomes. As you might guess, decision-makers in well-established

markets that are not prone to external shocks or internal upheaval are the most likely

to face Level 1 uncertainty.

Exhibit 1 Vision-driven vs. decision-driven scenarios

Vision-driven scenarios Decision-driven scenarios

Nature of

scenarios

J Emphasis on broad,

macroeconomic and global

drivers of changeJ Longer term (5-10-20+ years)

J Focused on specific

uncertainties that drive

decisionJ Generally shorter term (driven

by time necessary to evaluate

pay-off to decision)

Nature of process J Emphasis on divergentthinking and broad

perspectivesJ Heavy reliance on outside

experts, consultants andfacilitators

J Data-driven and analyticalwhen possible

J Heavy reliance on internal

expertise and industry

experts (unless majorconfidentiality concerns)

How scenarios are

used

J Generate new strategic ideasJ Develop shared sense of

possible futures and need for

changeJ Launch follow-on projects

and analyses to furtherdevelop implications of the

scenarios

J Test options for a specific

decision against the range ofpotential outcomes and

develop implications for which

option to choose


McDonald’s, for example, generally faces Level 1 uncertainty when it makes its

US restaurant location decisions. It can study potential customer demographics,

traffic patterns, supply logistics, and the extent of competition in a given location

and come up with a reasonably precise forecast of future restaurant earnings. And

while such forecasts will be far from perfect, they will tend to be predictable enough to

make a dominant yes-no decision on any potential US restaurant location. For

example, McDonald’s will not be able to predict a variable like traffic patterns with

complete certainty, but it will be able to conclude – say with 95 percent confidence –

that the traffic pattern either will or will not support a restaurant in any particular

location.

Since uncertainty is so low, and dominant strategy choices can be identified,

scenarios provide limited insight in Level 1 situations. In such cases, simple

simulations and sensitivity analyses are preferred to more time- and expense-

consuming scenario planning efforts.

McDonald’s, for example, might vary its traffic pattern parameters within the range of

possible outcomes to determine the impact of alternative assumptions on the

expected earnings of a new franchise location. Such analyses would help quantify

pay-off uncertainty (the ultimate pay-off to the decision is uncertain) even where there

is no strategic uncertainty (the pay-off uncertainty is narrow enough that it does not

matter for the decision at hand). Sensitivity analyses are easy to automate using

standard spreadsheet programs and thus are almost costless to implement, yet

Exhibit 2 The four levels of uncertainty

Level of uncertainty Description Example sources of uncertainty

A clear enough future: can define point forecasts thatare ‘‘close enough’’ for the decision at hand

J Returns on ‘‘common’’ investments in mature, stablemarkets

J Customer and competitor reactions to strategies that

reposition well-established brands

Alternate futures: can define a limited set of possiblefuture outcomes, one of which will occur

J Potential regulatory, legislative or judicial changesJ Unpredictable competitor movesJ All-or-nothing industry standards competition

A range of futures: can define a range of possible

future outcomes

J Demand for new products or servicesJ New technology performance and adoption ratesJ Unstable macroeconomic conditions

True ambiguity: cannot define even a range of

possible future outcomes

J The outcomes of major technological, economic or

social discontinuitiesJ Market evolution in markets that are just beginning to

form

‘‘ Organizations that face Level 2 uncertainty candefine a mutually exclusive, collectivelyexhaustive set of possible outcomes. ’’


still provide useful information for financial planning purposes. Sensitivity analyses are

a more cost-effective alternative to scenario planning techniques in such relatively

predictable, Level 1 situations.

Level 2: alternate futures

Decision-makers face Level 2 uncertainty when they can define a limited set of

possible future outcomes, one of which will occur, and when the best strategy to

follow depends on which outcome ultimately occurs. For example, investors in the US

stock market faced Level 2 uncertainty in trying to determine the identity of the next

president of the USA throughout the fall of 2000. There was a well-defined set of

possible outcomes, one of which would occur – the next president would be either

George W. Bush or Al Gore. However, on election day, and even weeks later, no one

could say for sure who had won. This uncertainty mattered to investors since the

candidates proposed policies that might have divergent effects on the share prices of

companies in certain industries. It was widely thought, for instance, that health

insurance companies would benefit from a Bush victory.

Exhibit 3 A typology for decision-driven scenario planning

Nature of scenarios J N/A J Mutually exclusive,

collectively exhaustive

(MECE) set of scenariosthat describes each

potential outcome

J Representative set of

3-5 scenarios that

largely covers the rangeof potential outcomes

J Integrated sets of

assumptions that one

would have to believeabout the future to

support different

proposed strategicoptions

Nature of process J Model the impact of

uncertainty throughsensitivity analysis, if at

all

J Develop implications –

financial and otherwise– of each outcome for

the industry and

companyJ Assign probabilities to

each outcome, if

possibleJ Describe the dynamic

path to each outcome

J Choose representative

points along thecontinuum of possible

outcomesJ Develop implications

financial and otherwiseof these outcomes for

the industry and

companyJ Describe the dynamic

path to each outcome

J Work backwards from

potential strategicoptions to scenarios

that would support such

optionsJ Test for logic, likelihood

and internal consistency

through analogies and

reference cases

How scenarios are

used

J N/A J Assess the pay-offs to

each strategic option ineach scenario

J Assess how each

strategic option may

influence the probabilityof each scenario

J Combine these

assessments withdecision analysis

techniques to choose

the optimal strategic

option

J Assess the pay-offs to

each strategic option ineach scenario

J Assess how each

strategic option may

influence the likelihoodof different points along

the continuum of

outcomesJ Combine these

assessments with

qualitative decision

analysis logic to choosethe desired strategic

option

J Test scenario

assumptions throughcomparison with

analogies, reference

cases, and executive

team experiencesJ Determine the set of

assumptions (i.e. the

scenario) that themanagement team is

most comfortable

supporting at this time


Organizations that face Level 2 uncertainty can define a mutually exclusive, collectively

exhaustive (MECE) set of possible outcomes. One, and only one, of these outcomes

will actually occur. Potential regulatory, legislative, or judicial changes are often

sources of Level 2 uncertainty. Will a proposed environmental legislation be passed?

Will new regulations be imposed? Will the merger pass antitrust review or not?

Similarly, unpredictable competitor moves and countermoves often create Level 2

uncertainty for business strategists. Will a competitor build a new plant? Enter a new

market? The potential answers to all of these questions usually define a clear, MECE

set of possibilities.

Scenario planning exercises under Level 2 uncertainty must define in great detail the

MECE set of possible outcomes, and specify the implications each outcome has for

the decision at hand. For example, what are the implications for the cost structure of a

proposed new chemical plant if a pending environmental regulation is approved or if

the regulation is rejected? What does this imply for the decision to build the new plant

or not?

Scenario builders in this case should also attempt to determine the relative

probabilities of these different outcomes, and to specify the dynamic path to each

scenario. Will change come quickly, say, following a regulatory decision? Or will it be a

gradual evolution, as in the establishment of a new technological standard? This is

important information in Level 2 situations since it determines which market variables

should be monitored most closely. As events unfold and the perceived probabilities of

alternative scenarios change, it is likely that one’s view of the ‘‘best’’ strategy will

change. For example, as the chemical company receives more information on

whether or not the environmental regulatory ruling is likely to favor new plant

construction, it might choose to either accelerate, decelerate, or shut down its

construction plans altogether.

Once scenarios and their probabilities (or at least a range of probabilities) have been

defined, and strategies have been properly evaluated across each scenario, it is time

to make decisions. By definition, in Level 2 situations you will not find a strategy that is

dominant (has the highest pay-off) across all scenarios (dominant strategies are a

feature of Level 1 situations, not Level 2). The strategist must choose between

strategic options with different risk-return profiles across the different scenarios.

Decision analysis tools can be used to facilitate decision-making when there is no

dominant strategy. Given your objectives – in particular, your willingness to accept

risk – decision analysis techniques allow you to value strategic options that show

different pay-off profiles across a set of scenarios. If you are risk neutral, for example,

the strategy with the highest expected value across scenarios should be chosen.

Risk-averse decision-makers, on the other hand, will prefer strategies with the most

stable pay-offs, choosing to avoid strategies with high pay-off variances across the

different scenarios.[5]

In any event, keep in mind that the probabilities of different scenarios can be highly

dependent on a company’s strategy choices. For example, if you face Level 2

uncertainty over whether or not a competitor will enter a new market, you must take

into account the fact that the probability of either scenario may be influenced by your

company’s own decision to enter the market or not. Therefore, when evaluating the

pay-off to different strategies across scenarios, you must focus on two questions:

1. What is the pay-off to this strategy in each scenario?

2. How does this strategy change the relative probabilities of each scenario?


Level 3: a range of futures

In some respects, Level 3 uncertainty is like Level 2 uncertainty: one can identify the

range of possible future outcomes, but no obvious point forecast emerges. In both

cases, this range is wide enough to matter for the decision at hand, but there is a very

important difference: strategists facing Level 3 uncertainty can only bound the range

of future outcomes – they cannot identify a limited MECE set of outcomes, one of

which will occur. For example, they might be able to conclude that the five-year

market penetration rate of a new consumer electronics product will fall somewhere

between 5 percent and 40 percent, but they will not be able to conclude that the rate

will be either 5 percent, 20 percent, 30 percent, or 40 percent. Any other rate between

5 percent and 40 percent is also a possibility in this case.

Customer demand for new products and services, and new technology performance

and adoption rates, are both common sources of Level 3 uncertainty. Airbus, for

example, faced Level 3 uncertainty when deciding whether or not to build its new

A380 super-jumbo jet. Estimates of the size of the super-jumbo jet market ranged

from 350 to 1,500 planes, and Airbus knew that it must sell approximately 500 planes

to break even on the A380 investment.

Unstable macroeconomic conditions may also create Level 3 uncertainty for decision-

makers. Macroeconomic instability in Argentina, for example, creates Level 3

uncertainty over the growth rate of demand for new telecommunication services there,

a key variable for BellSouth to consider when making infrastructure investments in

South America.

To illustrate the preferred decision-driven scenario approach in Level 3 situations,

return to the A380 super-jumbo example. Market research indicates that the demand

for super-jumbo jets will fall somewhere between 350 and 1,500 planes. Does this

imply that one must develop different scenarios for every market size between 350

and 1,500 planes, determining the implications each would have for Airbus’ product

launch and promotion strategies? Or should one instead merely choose a limited set

of plausible, representative outcomes between 350 and 1,500 planes to fully develop

into scenarios? And if one chooses this route, how does one choose which outcomes

to build scenarios around?

There are no simple answers to these questions, but there are a few general rules to

follow. First, develop only a limited number of representative scenarios; the complexity

of juggling more than four or five alternatives tends to hinder rather than facilitate

sound decision-making. Second, avoid developing redundant scenarios that have no

unique implications for strategic decision-making. Make sure each scenario offers a

distinct picture of the future. Third, develop a set of scenarios that collectively

accounts for at least the probable, if not possible, range of outcomes. Some

companies prefer to develop ‘‘best’’ and ‘‘worst’’ case scenarios at the extreme ends

of the spectrum of possible outcomes, while others develop ‘‘best’’ and ‘‘worst’’ case

scenarios that span a tighter range of more probable outcomes. Either approach can

work well so long as the ‘‘extreme’’ scenarios are not so extreme that they lose

‘‘ Strategists facing Level 3 uncertainty can onlybound the range of future outcomes. ’’


credibility within the organization, and the ‘‘probable’’ scenarios are not so closely tied

to the status quo that they provide a false sense of future stability and predictability.

As with Level 2 situations, once scenarios are defined, the next step is to identify

potential dynamic paths to each outcome, and to evaluate each strategic option

across each scenario. However, assigning probabilities to different scenarios does not

make sense in Level 3 situations. When assigning probabilities you are implicitly

assuming that you have identified a collectively exhaustive set of scenarios, one that

includes all possible outcomes. But in Level 3 situations, in contrast to Level 2, your

scenarios will only represent a subset of possible outcomes.

Since probabilities cannot be defined, it is impossible to calculate the expected

value, standard deviation, and other key statistics that summarize the risk-return

characteristics of a given strategic option. Nonetheless, the logic for evaluating

strategic options is very similar in Level 2 and Level 3 situations. In either case,

evaluating each option against each scenario allows managers to determine how

robust different strategies are, and to assess the overall risk-return characteristics of

these strategies. And in either case, companies can assess which scenarios become

more and less likely based on their own strategy choices. The only difference is that in

Level 3 situations, absent scenario probabilities, these evaluations cannot be reduced

to the simple decision-making metrics such as expected values and other key

statistics that are so useful to Level 2 decision makers. This implies that while the

same, rigorous decision analysis logic applies to both Level 2 and Level 3 situations,

qualitative ‘‘business judgment’’ factors will inevitably play a more prominent role

under Level 3 uncertainty.

Level 4: true ambiguity

Future outcomes for Level 4 uncertainties are both unknown and unknowable.

Analysis cannot even identify the range of possible future outcomes with certainty, or

the most likely scenarios within that range.

Level 4 situations are rare, and they tend to degrade over time to lower levels of

uncertainty. They are most likely to occur in markets during and immediately after

major technological, economic or social discontinuities, as well as in markets that are

just beginning to form. For example, a manager attempting to formulate United

Airlines’ security strategy on 12 September 2001 faced Level 4 uncertainty. In the

immediate aftermath of the horrific terrorist attacks that occurred on 11 September,

even the most prescient security experts could not confidently bound the range of

future terrorist activity.

Under conditions of Level 2 and 3 uncertainty, strategists analyze the situation to

bound the range of possible future outcomes, and then develop scenarios that

describe alternative outcomes within that range. Since this is impossible in Level 4

situations, the alternative is to work backward from potential strategic options to

define ‘‘what you would have to believe’’ about a future scenario to support this

option. For example, a manager was unable to bound the range of demand estimates

for a new gene therapy, but he was able to ‘‘back out’’ what demand levels would be

necessary to support the proposed research and development investment he was

considering. Likewise, the United Airlines’ security manager could work backwards to

identify which set of assumptions about future terrorist threats would make it

worthwhile to arm pilots or train all flight attendants in the martial arts.

In Level 4 situations, a ‘‘scenario’’ is then an integrated set of assumptions about the

future that supports a given strategic option. There is no analysis that you can do to

determine conclusively whether any such scenario is likely or not; that is the definition


of Level 4 uncertainty. However, analogies and references cases can be useful in

testing the logic, likelihood and internal consistency of Level 4 scenarios. If a proposed

strategy requires faster consumer adoption rates than those observed for any

analogous product launch, for example, it will probably make sense to reject this

strategy in favor of another.

Given how different scenario planning exercises are in Level 4 situations, it should

come as no surprise that the decision-making model is also unique. The decision

analysis techniques favored in Level 2 and Level 3 situations are impossible to

implement since the range of outcomes cannot be bounded. Instead, a qualitative, yet

systematic checklist of key considerations should drive decision-making:

(1) Which sets of integrated assumptions (i.e. scenarios) about the future seem

credible given what can be learned from analogous situations and executive team

experiences?

(2) Of these credible scenarios, which support options that have the lowest downside

risk? Highest upside reward? Which are most consistent with our organizational

capabilities and long-term strategic goals?

(3) Are there likely to be real first-mover advantages, or can commitments be staged

over time? Which options allow for such staging, and which require upfront ‘‘big

bets?’’

In the end, strategic decision making under Level 4 uncertainty should involve ‘‘getting

comfortable’’ with the logic, likelihood and internal consistency of the future scenario,

or set of scenarios, that support your chosen strategy.

Getting the most out of scenario planning efforts

The typology summarized in Exhibits 1 and 3 can help you identify the scenario

planning technique that is most appropriate given your company’s goals and the level

of uncertainty that it faces. But identifying the right tool for the job does not necessarily

guarantee success. Fortunately, three decades of business scenario planning

applications have identified a number of best practices that help increase the

Exhibit 4 Keys to successful scenario planning regardless of which

approach you take

J Ensuring top management sponsorship and involvement

J Collecting diverse inputs (internal and, when appropriate, external)

J Linking explicitly to strategic planning and capital allocation processes

J Crafting internally consistent scenarios, each supported by a dynamic story that makes

sense

J Relying upon fact- and logic-based discussions and support analyses

J Avoiding the tendency to be overconfident in one s ability to predict the future

J Focusing on both adapting to and shaping future scenarios

J Maintaining an ongoing process to monitor and update scenarios over time

‘‘ Future outcomes for Level 4 uncertainties are bothunknown – and unknowable. ’’


probability of success regardless of which particular technique you choose to follow

(see Exhibit 4)[6].

Armed with the right techniques and the right support practices, your scenario efforts

are more likely to generate the valuable foresight that leads to clearer strategic visions

and better strategic decisions.

Notes

1. Only 21.5 percent of North American executives in the Bain survey used scenario planning in

1999, a usage rate that was approximately 50 percent lower than the rate in 1994. For more

Bain survey results, see Darrel Rigby (2001), ‘‘Management tools and techniques: a survey’’,

California Management Review, Vol. 43 No. 2, Winter, pp. 139-59; Darrel K. Rigby (2001),

‘‘Putting tools to the test: senior executives rate 25 top management tools’’, Strategy &

Leadership, Vol. 29 No. 3, pp. 4-12; and www.bain.com.

2. Darrel Rigby, Director, Bain & Company, as quoted in Bruce Melzer (2001), ‘‘The uncertainty

principle’’, CIO Insight, Vol. 1 No. 2, 1 June.

3. Exhibit 1 also suggests that vision- and decision-driven scenario techniques are both essential

components in any company’s strategy toolkit. Companies should use concrete, decision-

driven scenarios to make the right capital investment, marketing campaign and other strategic

decisions when uncertainty implies that there is no ‘‘obvious’’ answer. At the same time,

companies that sponsor vision-driven exercises every 1-3 years will be best positioned to

recognize and capture the new opportunities and manage the risks inherent in today’s rapidly

changing business environments. These exercises help set valuable strategic and

organizational priorities, and provide the necessary context for all decision-driven scenario

efforts. Vision and decision-driven exercises are highly complementary, and the typology in

Exhibit 1 tells you when – not if – to apply either one.

4. For more details on and examples of the four levels of uncertainty, see Hugh Courtney (2001),

20/20 Foresight: Crafting Strategy in an Uncertain World (Harvard Business School Press);

and Hugh Courtney et al. (1997), ‘‘Strategy under uncertainty’’, Harvard Business Review,

November-December, pp. 66-79.

5. For more information on decision analysis, consult one of the many practitioner-oriented

textbooks such as Robert T. Clemen (1996), Making Hard Decisions: An Introduction to

Decision Analysis (Duxbury Press), or David C. Skinner (1999), Introduction to Decision

Analysis: A Practitioner’s Guide to Improving Decision Quality (Probabilistic Publishing).

6. For more on scenario planning best practices and pitfalls, see Paul J.H. Schoemaker (1998),

‘‘Twenty common pitfalls in scenario planning’’, in Liam Fahey and Robert M. Randall (Eds),

Learning from the Future: Competitive Foresight Scenarios (John Wiley & Sons). The Fahey

and Randall compilation is a fine general resource for scenario planning techniques and best

practices.


Scenarios and strategies: making thescenario about the business

David H. Mason and James Herman

David Mason, a veteran scenario developer,

is a Partner in Skylight Associates LLP. He

was President of Northeast Consulting

Resources, the organization that created

and trademarked ‘‘Future Mapping’’, now

owned by NerveWire

([email protected]). James

Herman, a Partner in Skylight Associates

LLP, is an information technology and

management consultant, with experience

helping large, global organizations develop

strategies for coping with business and

technology change

( [email protected]).

Scenario development has traditionally been an outward looking process designed to

enhance awareness of potential change in the external business environment. A set of

techniques is presented here for bringing the business and its internal issues directly

into the scenario development effort from the beginning. By casting strategies as

scenarios, companies can gain many of the benefits of traditional scenario planning

while accelerating the strategic decision making for organizations in high change

environments.

Perhaps the greatest challenge for scenario practitioners is engaging the manage-

ment team fully and creatively. The problem of achieving such engagement is

especially severe if you try to get top management (corporate officers, board

members, etc.) to consider radically different business conditions that may occur in

the future. It is typically easy to recruit lower-level managers and senior staff for these

exercises, which are often fun and provide an opportunity to take a wider perspective

on the environment in which the business operates. Most large companies, we find,

have a cadre of ‘‘professional meeting goers’’: people who sign up for one task force

or committee after another. These people love scenario planning! But, they usually

have little or no influence on the key business decisions of strategic direction, future

investment, business scope, new partnerships, or acquisitions/divestitures. To really

have an impact on the business, you must get senior management to participate in

scenario development and consideration of the decisions implied by the results.

Making scenarios relevant to business managers

As a start they must be convinced of the relevancy of the scenario exercise to the

current challenges facing the business or the decisions that must be made now.

Unless top managers can be persuaded to actively participate in a scenario

development effort linked to major decision making, they are unlikely to learn much

that is useful from the process.

To find ways to make scenario development more immediately relevant to senior

management at both the corporate and business unit levels, our solution was to

experiment with ways to incorporate the future of the client’s business itself into the

scenarios we were developing about the external business environment. At first, this

DOI 10.1108/10878570310455024 VOL. 31 NO. 1 2003, pp. 23-31, MCB UP Limited, ISSN 1087-8572 | STRATEGY & LEADERSHIP | PAGE 23

meant asking management to hypothesize how they would respond if a particular

external environment materialized at some point in the future. For each external state,

there was a future state for the business. If an external scenario described a new,

much lower cost, approach to similar markets, for example, one response is to adopt

a low cost strategy, a second might be to provide value-added services aimed at

vertical markets. It is the alternative responses that get management thinking in new

ways.

Traditionally, scenario developers strive to consider the external environment

independent of the business in order to ensure that they were really considering a

full range of possible outcomes, not just those that were easy for management to deal

with (e.g. political upheaval, cyclical economics, long term demographic shifts and

consumption patterns, to name a few). However, this process was often just too

theoretical for our clients. In addition, most industry leaders cause change in their

industry; co-evolution is more common than independence.

Ultimately, we got to the point where we actually made the client organization the

central focus of the scenarios – the scenarios were about the business strategy

alternatives (e.g. low cost, differentiate, focus on products offered or markets served).

Although this technique has some drawbacks and may not be the ideal way to use

scenario planning, on balance it was a good approach because it did engage top

managers and forced them to make critical decisions while they still had time to

employ their resources effectively to manipulate the future.

‘‘Future Mapping’’ scenarios

Our ability to introduce the client organization itself into the heart of the scenario

development process is, in part, due to the way scenarios are structured in our

Future Mapping methodology. First, we work with the participants in the scenario

development process to propose multiple outcomes for the industry, market,

technology and/or society the organization operates within. We call these outcomes

endstates. Each imagines a set of outcomes on the organization’s planning horizon

(usually 3 to 10 years in the future) involving the range of issues management needs to

consider to develop a business strategy (e.g. Internet adoption as: mass market

media; a business platform; and a personal communications system). These logically

consistent endstates describe how things turn out in the future without precisely

defining how these conditions came to be.

Next we divide the participants into teams, where each team considers one of the

endstates. They are challenged to think about what must happen between the

present and the timeframe of their endstate in order for the endstate to come about.

We ask them to also consider what must not happen for their endstate to occur. They

write out newspaper headlines that describe the specific events that would drive

toward their endstate (e.g. ‘‘broadband Internet services purchased by 60 percent of

US households’’). The event path leading to an endstate constitutes a scenario in this

‘‘ Unless top managers can be persuaded toactively participate in a scenario developmenteffort linked to major decision making, they areunlikely to learn much that is useful from theprocess. ’’


approach. A different event path would make the Internet a business platform vs. a

mass market medium.

Scenarios and strategies

Given this method, it is relatively easy to introduce the client organization and its

strategy into the process from the very beginning of the exercise. An endstate, which

already describes a consistent set of outcomes for an industry (competition,

regulation, technology adoption, economic cycles, politics, etc.), now includes a

section describing an outcome for the organization itself, including such things as

scope of the business, partnerships, market position, internal organization, culture,

etc. If the client wanted to develop a strategy dependent upon the Internet as a mass

market media, their actions would obviously be different than a strategy aimed at

using the net as a business platform. Specifics would depend upon the nature of the

client’s business; a telephone company, a computer vendor and a drug company

would approach each strategy differently.

Scenarios and strategies

Events are no longer entirely external, but include actions the client organization might

take. Now, the scenarios incorporate both internal and external events, a subset of

which translates readily into the skeleton of an implementation plan e.g. for critical

events, a desired outcome, tactics, resources and timeframe for a shortlist of events).

Importantly, the client’s own actions are complemented by a list of external events that

must ‘‘go right’’ for the strategy to succeed (e.g. broadband penetration into US

households). The scenarios can also be complemented with a timeline of changes in

critical business metrics (e.g. market share, margins, adoption rates by customers,

etc.), which serve as milestones along the way to the endstate. This approach puts

forth a rich notion of strategy that combines a clear definition of the aspirations of the

business – what it wants to become or attain – with a timeline of specific internal and

external actions and interventions that are needed in order to succeed.

Often, the business will want to move forward with more than one of these strategies –

either to be prepared to shift strategy if conditions do not go the way they want, or

because each strategy is expected to produce results on different timescales (e.g. one

might be a short-term play that pays off within two years while another is a long term

bet that will not really unfold for three or more years). For this work to pay off the client

organization must track the actual events and metrics (internal and external) that occur

to see which scenarios are really developing (Key event occurrences then trigger

strategy re-evaluation and course correction). For example, if only 15 percent of

households ever subscribe to broadband by 2007, the net will fail as a mass media in

that timeframe.

Many of our clients were determined to try to create the conditions needed for their

success rather than just waiting to see what happens around them. For example, a

‘‘ Ultimately, we actually made the clientorganization the central focus of the scenarios –the scenarios were about the business strategyalternatives. ’’


major computer systems manufacturer had a significant position in the high-end

personal workstation market that was under threat from a shift toward server-based

computing (so-call ‘‘thin client’’ model). The manufacturing firm developed five

endstates (A through E) that outlined their major ideas for business strategies over the

next five years:

J A. Consolidation: consolidate this maturing industry, aim for market share that is

3› the nearest competitor, and play out the end game. You can grow revenue and

profit in a shrinking industry.

J B. Focus and harvest: focus on existing customers and harvest cash from the

business and related services and add-ons, investing the proceeds in strategic

initiatives elsewhere across the company, ensuring market leadership in newer,

faster-growing markets.

J C. Low cost: co-opt the competitive PC value chain, leveraging its superior

economics and scale to dramatically lower costs and increase volumes in the

workstation business.

J D. Solutions: focus on solution-oriented segments requiring traditional compe-

tencies of systems design, graphics performance, reliability, transparent network-

ing, and applications focus, pulling these into an overall horizontal or vertical

solution that cannot be matched by competitors’ systems.

J E. Create a new product set: morph the whole business into a new product

concept – create mass-produced, low-cost, flexibly interconnected CPU boxes

that can be deployed in configurations tailored to various classes of customers.

These strategy options assumed a variety of changes in technology architecture and

industry structure, as well as refocusing of the client’s own business. The client

managers were not content to wait and see where the industry went. They were going

to decide which outcome they wanted and strive to intervene in ways to ensure that

these conditions came about. These managers were so knowledgeable about their

competitive situation that they did not need to use scenarios as an environmental

scan. Instead they needed the scenario process to establish a context for a structured

debate of the strategy choices they were facing.

Different scenarios for different clients

Over the years we experimented with different ways of incorporating the business into

scenario development, driven by client objectives and unique needs. In the above

example, the scenarios are very explicitly strategies, incorporating both the outcome

achieved and the means to that end. External events and conditions play a secondary

role. But the strategies are designed to have a major impact on the industry and

market – in some cases causing restructuring and economic disruption. In that sense,

they remained outwardly focused.

In other situations, the scenarios were more inwardly focused on the future of the

organization, its mission, vision and values, and the ways in which it must transform to

remain healthy and competitive as in the Los Alamos Lab example below. Here

the endstates described the culture and structure of the Lab in the future. Events

were primarily decisions the organization had to make about scope of activity,

organizational structure, work process re-engineering, new investment, partnerships,

outsourcing, etc. Used this way, the scenario exercise became an early stage change

management effort. The exercise enabled managers (sometimes at many levels) to

envision the behavioral changes required on their own part in order to achieve the

desired organizational transformation.


Our work at Los Alamos National Laboratory in the mid 1990s is a good example of

this use of scenario planning. The Lab explicitly wanted to redefine itself in the post-

cold war era and engaged us to help them create five scenarios for the future of the

Lab:

J A. The National Security Lab: the Lab is almost completely focused on a broad

array of military oriented national security issues.

J B. Leading the environmental cleanup: with military spending significantly reduced

and national security issues defined more in terms of environmental and economic

concerns, the Lab is now refocused on a wide array of efforts under the banner of

sustainable development technologies.

J C. Leading work at the intersections of disciplines: the Lab has focused on

problems at the interfaces of converging fields of science (e.g. bio/mechanical,

opto/electronic oceanic/atmospheric, nanotech machines, artificial life, evolutionary

software, information physics, etc.).

J D. Entrepreneurial Lab: the Lab is primarily focused on individuals, rather than

programs or specialized facilities. The Lab is working on many more projects and

fewer big programs.

J E. The virtual Lab: the Lab’s strategy is to use the nation’s advanced

communications and information infrastructure and its strong relationships with

leading research partners to become an important participant in the nation’s

emerging virtual laboratory system.

This kind of exercise is appropriate if there is a lot of knowledge and little controversy

over the evolution of external conditions. This is often not the case, and client

assertions that it is, should be suspect. Some clients do not even have agreement on

current conditions, much less future expectations. These situations require more

basic groundwork. Thus, we do encourage clients to engage in a traditional, externally

focused scenario planning exercise prior to attempting one focused on business

strategy or organizational transformation. This allows for development of a consensus

around the evolution of the external environment. The second step can be to consider

the mix of strategies the organization will pursue. The problem with this two-stage

approach is that it is time consuming and costly. Many clients do not have the

resources or management commitment to conduct such a thorough exercise. To

abbreviate the process but retain some of its best features, in some cases we tried an

approach in which we developed both a set of external endstates and a set of

strategies the client might pursue. After some period of developing the external

scenarios, the participants were then asked to pick one or more strategies that they

believed would serve the business well under the conditions posited in their external

scenario. But it is a rare management team that can think through all this is a typical

workshop timeframe. Most of these engagements are now structured so enough

analysis is done beforehand to suggest the most promising pairings of endstate and

‘‘ We do encourage clients to engage in atraditional, externally focused scenario planningexercise prior to attempting one focused onbusiness strategy or organizationaltransformation. ’’


strategy. Then, a single scenario development exercise was held with an equal

balance of external and internal content. The endstates described a set of future

external conditions and an outcome for the business. The following two examples

illustrate these kinds of scenarios.

In the first case, a regulated monopoly (called ABC here) was preparing for a more

free-market oriented existence in an ever-more integrated Europe. The endstates here

embody this mixture of internal and external drivers for change and transformation:

J A. The customer-centric company: focusing on the customer, customer

interfaces, and knowledge about the customer are the winning strategies for

value creation. ABC puts its investment into customer-facing capabilities and

services for customer management. It outsources and divests back-end production

assets, creating a business with strong returns on capital.

J B. The ‘‘clicks and mortar’’ company: rapid rise in the use of online services has

led to a drop in the traditional, physically oriented side of the business. ABC

straddles the physical and virtual worlds, becoming adept at converting bytes to

atoms and vice versa. Investment has been directed toward developing a rich set of

e-services and modernizing core physical services.

Different scenarios for different clients

J C. The distribution and supply chain services leader: changes in global

competition and restructuring of value chains create increased opportunities for

outsourced logistics and distribution services. ABC focuses its investment in

becoming a leader in this area.

J D. The financially managed company: ABC manages itself as a highly profitable

public portfolio company. It exits unprofitable businesses, including most logistics

services and invests in those parts of the business that deliver profitable business

growth.

This illustrates how the scenario development process can become a forum for a

healthy debate among the management team concerning such topics as focus and

scope of the business, the importance of environmental changes like the Internet, and

the governance and decision-making principles on which they will run the business.

In the next example, the endstates are about the technical architecture of the public

network in a major European country and the investment options that this large

incumbent carrier (here called PTT) faced with regard to it:

J A: Play to win in the low cost battle: traditional public net services are subject to

severe price competition. Customers choose voice and dial-up data services largely

based on price, and are unwilling to pay more for advanced services. PTT focuses

on driving as much cost out of its network operation as possible in order to stay

competitive and hold onto as much of its customer base as possible. It structures

the Public Net Services Division as a separate unit.

J B. Narrowband services keep moving forward: narrowband access to the Internet

remains sufficient for the vast majority of users and applications. Broadband-only

sites are a niche business. Customers prefer the added sound quality and value-

added features of the traditional wire line network to the poorer quality wireless or

Internet offerings of competitors. PTT continues to enhance and extend its


narrowband services delivered through the digital switched network and its copper

wire plant.

J C. Converged service bundles over diverse access: converged wireless and wire

line, voice and data services are very popular. Medium to large businesses are the

main users of broadband, while consumers and small businesses still largely use

narrowband services. PTT is organized into customer-facing, market-driven units

that offer integrated bundles of diverse services tailored to their respective

segments. It leverages a new, common optical broadband core network across all

of its lines of business (wireless, wire line voice, broadband for business), while

preserving the utility of its existing, diverse access networks.

J D. Broadband for everyone: consumers and businesses of all sizes adopt the

Internet and broadband communications services in large numbers. There is strong

competition from cable companies, broadband wireless access providers, and

startup carriers for the most desirable customers. Most narrowband services are

included for free with broadband offerings. PTT has invested in a major replacement

of the existing narrowband access and switching network with an end-to-end

broadband IP network.

By the end of this scenario development workshop, the participants had created a

map of the key external and internal events that would trigger the investment decisions

and other actions embodied in these strategies (e.g. a percentage of homes paying

subscription fees for broadband vs. narrowband services above or below certain

levels would trigger a change in the PTT’s investments going forward). It became the

basis for a decision tree with an associated timeline of events.

The major benefit of this approach is that it kept the business and its choices part of

the discussion throughout the exercise. These kinds of endstates, for example, were a

lot easier to get senior management excited about. This approach turned the scenario

development process into a strategy development process that balanced external and

internal issues.

Is this really scenario planning?

The heritage of scenario planning is external scanning – an ‘‘outward-in’’ approach

designed to get people to rise above the current concerns and viewpoints. Does the

inclusion of the organization itself in the scenarios let management get away with

internal think and avoid serious contemplation of future conditions they do not

particularly like?

The answer to this depends on the client and what they know about their industry,

whether they already have a good view into the likely evolution paths for the market or

industry, etc. For some clients, it is clearly a mistake to skip the development of

external scenarios that capture a full range of possible outcomes, some good and

‘‘ The scenario development process can become aforum for a healthy debate among themanagement team concerning such topics asfocus and scope of the business, the importanceof environmental changes like the Internet, andthe governance and decision-making principles onwhich they will run the business. ’’


some bad for them. For them, the two-stage approach described above is best.

But for many clients, especially those seeking a proactive approach to strategy

development, the more direct technique served them well and accelerated their time

to strategy decision-making.

This kind of application of scenario planning is based on a particular way of structuring

and developing scenarios as sequences of events leading to endstates. Traditional

scenario planning which focuses on finding the two dimensions of high external

uncertainty with the greatest impact on the business does not translate well into

creating scenarios about the organization itself. Typically, strategy development and

organizational change management are started after scenario development is

complete. The approaches we have tried, however, integrate them into a single,

sometimes very intense process that has been able to have a profound effect on the

participants and changed the course of the organization. We believe strongly that this

kind of approach to scenario development will be more successful and taken more

seriously than traditional, more intellectually pure exercises in many kinds of

companies.

Is this really scenario planning?

In our view, these kinds of techniques still confer most of the key benefits of scenario

planning, while integrating them into the strategy development process. They force

management to consider multiple, alternative strategies, just as traditional scenario

planning pushes management to consider more than outcome for the environment.

As we have seen above, going this route does not mean that external scenarios

are never developed. To the degree that time, budget and attention allow, external

scenarios are still developed, but they are integrated with potential strategies for the

business. In most cases, management develops strategies tailored to different kinds

of external environments and begins to execute on them to the degree they believe the

associated external conditions are coming about.

This evidence-driven approach to strategy management uses scenario planning as a

framework for gathering data that will be seen as immediately relevant to senior

management. The scenarios and paired strategies developed for a leading mid-west

US bank in the late 1990s illustrate how this can help management move quickly to

make major shifts in strategy. The bank had concluded from its scenario and strategy

development effort that it should focus on developing a set of IT-enabled premium

services in order to capture the most profitable and desirable customer base of the

future. They began to pursue that course. There was another scenario, however, in

which the US banking industry consolidated rapidly and in which this bank was surely

to be changed greatly through acquisition and mergers. About 15 months into the

execution of the first strategy, major financial services mergers began (e.g. Bank of

America and Nations Bank, Citibank and Travelers, Fleet and Bank Boston to name

the biggest) and the management team changed course almost immediately toward

the associated strategy for the consolidation scenario.

In considering multiple strategies, these techniques often promote the introduction of

new, radically different strategies, rather than merely incremental tweaks to existing

strategies. In some cases, they have unleashed the imagination and creativity of the

participants, generating truly fresh insights and new ideas. Such a process can give

airtime to advocates of strategic shifts or force consideration of what have been to

date taboo issues or looming problems that, for whatever reason, have remained


unacknowledged by the management team as a whole. By introducing these issues

or new strategies anonymously through the endstate development process, some

aspects of internal politics can sometimes be defused that inhibit clear consideration

of all the possible strategic directions for the organization.

Perhaps the most compelling benefit of this form of scenario planning is that it pushes

management to think in a dynamic timeline seeing the business and its environment

as a system co-evolving over time. Helping management to gain perspective about

business change over time is one of the defining purposes of scenario planning.

In our experience, these approaches push management to develop more unique

strategies. As Harvard’s Michael Porter emphasizes, a strategy must be distinctive

and make hard trade-offs to be effective. The future-proof strategies created by some

scenario practitioners are, almost by definition, me-too strategies that have a little of

everything. In contrast, making scenarios that are strategies allows an organization to

define targeted strategies that exploit specific future conditions that may emerge. In a

few cases, the organization was actually able to bring about the events that drove the

external scenario they wanted to develop in order to maximize the success of their

selected strategy.

Client demands for a faster, more relevant scenario process drove us to develop these

techniques. By integrating scenario and strategy development, you shorten the time

to strategy decision when there is limited by allocated by management for this kind of

process, while still retaining many of the benefits traditionally associated with

scenarios.

‘‘ Perhaps the most compelling benefit of this formof scenario planning is that it pushesmanagement to think in a dynamic timeline –seeing the business and its environment as asystem co-evolving over time. ’’


Competitor scenarios

Liam Fahey

Liam Fahey is internationally recognized as a

leading consultant on competitor analysis,

competitive strategy, and scenario learning

([email protected]). Of the

seven books he has published on these

topics, his three most recent are: Learning

from the Future (1998), Competitors:

Outwitting, Outmaneuvering and

Outperforming (1999), and The Portable MBA

in Strategy, Second Edition (2001). Based in

Needham, Massachusetts, he is an adjunct

professor of strategic management at Babson

College, a visiting professor of strategic

management at Cranfield School of

Management in the UK, a founder and

principal of Leadership Forum Inc, and a

Contributing Editor of Strategy & Leadership.

Editor’s note

This is the second Strategy & Leadership article in Professor Fahey’s series on

understanding competitors. The first one, ‘‘Invented competitors: a new competitor

analysis methodology’’ appeared in the November/December issue, Vol. 30 No. 6.

Scenario learning and competitor assessment are two tools for looking at the

future that leading edge companies are learning to use efficiently and

effectively in combination. Given other demands on management attention,

not many companies can expend the resources to annually investigate a wide range of

future possibilities via scenario planning. Likewise, few companies can afford to

continually track the details of their competitors’ every strategic move. But almost all

companies need to periodically weigh potential competitive threats, and now a proven

methodology provides a look at rivals new and old in several scenario settings.

Managers need to be familiar with scenarios of future markets that are not merely

extrapolations of current trends. This is because history teaches that the most

potent competitors often emerge unexpectedly – from surprising sources and under

unanticipated circumstances. For example, a decade ago book-retailing chains were

expanding at a record pace as they decimated their competition, small locally owned

bookshops. However, the overnight success of Amazon.com’s Internet store – a

potent combination of new marketing concepts, new technology, and new channel

strategy – forced the chains to reassess the future of book retailing and as a

consequence make significant changes to their historic strategy.

‘‘ History teaches that the most potent competitorsoften emerge unexpectedly – from surprisingsources and under unanticipatedcircumstances. ’’

Liam Fahey

PAGE 32 | STRATEGY & LEADERSHIP | VOL. 31 NO. 1 2003, pp. 32-44, MCB UP Limited, ISSN 1087-8572 DOI

Even long-time competitors sometimes do things completely out of character with

their strategic and organizational modus operandi. For example, large diversified firms

may suddenly decide to shed many businesses to concentrate on a few products and

technologies. Another shift of marketplace power can occur unexpectedly when rivals

make acquisitions that provide them with new competitive potential.

Scenarios are a proven means to identify and examine pathways into alternate futures

for which most managers, because of their focus on taking advantage of current

conditions, are currently unprepared. Scenarios of futures where the business

environment is distinctly different from current or anticipated conditions can help

managers project and analyze competitors’ futures: what competitors might do, how

they might do it, and why. After a few years of experience, several leading companies

that employ scenarios to better understand both current competitors’ potential moves

as well as the possible emergence of new rivals have learned several principles and

some ways to avoid various pitfalls. Their basic technique, and their suggestions for

avoiding missteps, can now be shared. In almost all cases, competitor scenarios

produced actionable insights about these firms’ own strategy alternatives.

To demonstrate how this competitor scenario process works in practice, this article

has a three-part structure:

J First, to acquaint managers with the typical content of a competitor scenario.

J Second, to explain the different types of competitor scenarios that can be created

and the purposes associated with them.

J Third, to show what managers can learn from different competitor scenarios and

how they can use the understanding and information gained to improve strategy

development and execution.

Competitor scenarios: purposes, key elements, and principles

A competitor scenario starts with a logical narrative that considers what a competitor

might do over some specified time period, how its managers would do it, and why

they would choose to do so. As with all scenarios, we must remember that any

competitor scenario represents one projection of what a competitor might do. It is not

a prediction of what it will do.

The following competitor scenarios examine three broad aspects of marketplace

strategy: in which product-customer segments the competitor chooses to compete

(scope); how it competes (competitive posture); and what it seeks to achieve (goals).

Competitor scenarios, of course, often focus on other issues or topics including:

J How a competitor might guide and manage its R&D efforts.

J How a competitor might build and manage an integrated supply chain.

J How a competitor might develop and manage a networked enterprise around a

series of alliances with many types of external entities.

Competitor scenarios consist of the four key elements common to all scenarios:

an end-state, plot, logics, and driving forces. For a brief description of each of the

elements, see Exhibit 1. Note that there is no one right way to develop and interrelate

these four elements. As will become evident in the following discussion, constructing

competitor scenarios is an iterative process[1]. End-states are shaped by what is

learned in the process of articulating and detailing the plot and the driving forces. In

this article, we start the scenario process by asking different types of what-if questions


about competitors’ likely future marketplace strategies. From the answers we craft the

end-states that describe what the competitor strategy would look like.

Competitors serve as one useful, and in some respects, ideal focal point for scenarios

for a number of reasons. First, competitors are always at the heart of every significant

analysis of the competitive or industry context[2]. Thus, competitor scenarios

provide one critical means of learning about the current and potential competitive

environment. Second, strategy, however designed and executed, must win against

current, emerging, and potential competitors in the marketplace. Customers and

channels almost always possess the option to switch to rivals. Thus, competitor

scenarios enable unique insights into the rivals that will shape the nature, direction,

and intensity of marketplace rivalry. Third, once the notion of relevant competitors

extends beyond large market share rivals, competitor scenarios generate learning

about both competitors and the competitive context that would otherwise be unlikely

to occur. Finally, because of the frequently intense emotions and feeling about rivals,

managers and others often bring heightened energy and commitment to constructing

and learning from competitor scenarios.

Principles

Some fundamental principles should always guide the construction and use of

competitor scenarios (Exhibit 2). Sometimes these principles may seem counter-

intuitive. For example, why should learning about competitors not be the prime goal of

competitor scenarios? The answer is that too often, competitor scenario developers

become enamored of the possibility of crafting the most perfect scenario about

the competitor – one that is surprisingly comprehensive, self-evidently internally

Exhibit 1 Competitor scenarios: key elements

The components of every competitor scenario are: an end-state, plot, logics, and drivingforces.

End-state The end-state details the competitor’s marketplace strategy – scope,

posture, and goals at the end of the scenario period. A radical new

strategy would require the scenario developers to lay out what isradical about the strategy: how the products are revolutionary, what

changes the products would imply for channels and customers, and

other ways in which the strategy would be dramatically different fromrivals’ current approaches to competing and winning in the

marketplace.

Plot The plot or story describes what the competitor must do to get to theend-state. What would the competitor have to do to develop, design,

manufacture, market and sell the revolutionary products? Frequently,

such plots must also address change within the competitor – for

example, the change in culture, systems, operating processes, assets,and leadership that would be required to facilitate and lead the drive

toward a radical new marketplace strategy.

Driving forces Driving forces constitute the forces that shape or drive the plot. Someforces may be what is happening or likely to happen in and around the

marketplace: what customers may do, trends related to sales of

particular products, the emergence of new entrants, and governmental

policies and regulations. Other forces are specific to the competitorsuch as changes in its goals or leaders, culture, competencies, etc.

Logic Finally, the scenario logic constitutes the explanation or rationales for

the content, direction and intensity of changes postulated in the plot.The logic addresses the why questions: Why does the competitor

want to pursue a revolutionary strategy? Why would customers

respond to the proposed products in one particular way or another?


consistent, elegantly articulated, and of course strikingly imaginative in everything it

addresses and says about the competitor. Ultimately this commitment to constructing

the perfect scenario limits the usefulness of the scenario project and consumes

resources that are better employed elsewhere. Experienced managers instead use

competitor scenarios as a source of learning about the broader competitive context

and of the implications for their firm’s strategy and operations. Competitor scenarios

work best when they produce knowledge and insight that broadly informs and

prepares decision makers to act rapidly as competitive conditions change.

Which competitors should be the focus of competitor scenarios? The guiding principle

should be, apply scenario thinking beyond your current large market share rivals. The

reason is, competitor scenarios that address functional substitute rivals, small

emerging rivals, and even invented rivals (that is, rivals that do not exist today but

might exist at some point in the future) generate insights into the emerging and

potential marketplace that often simply cannot be obtained no matter how acutely

managers develop scenarios around the leading market share rivals.

There are two distinct types of competitor scenarios that originate in two quite different

forms of what-if questions: unconstrained what-if scenarios and constrained what-if

competitor scenarios.

Exhibit 2 Competitor scenarios: guiding principles

Scenario purposes

1. The purpose of competitor scenarios is not to learn about competitors

2. Competitor scenarios should be used to learn about the competitive context beyondcompetitors (both the competitive or industry context and the macro environment)

3. Competitor scenarios should serve as one input to identifying, challenging and

refining the organization’s knowledge (including its beliefs, assumptions andprojections about future)

4. Competitor scenarios should also serve as one input to outwitting, outmaneuveringand outperforming rivals

5. The ultimate purpose of competitor scenarios is to develop knowledge and insight

that aids decision makers (in identifying strategy alternatives, making decisionsfaster, etc)

Scenario analysis

6. Scenario construction and scenario assessment require distinct frames of reference,

skills, and knowledge

7. A competitor scenario should be fully constructed before it is assessed for itscompetitive, strategy, and organization implications

8. However, strategy developers should not seek the perfect scenario before moving toassessment

9. Scenario developers need to disengage themselves from their own firm

10. Competitor scenarios should be constructed for a range of rivals (and not just large

market share rivals)

‘‘ Several leading companies have employedscenarios to better understand both currentcompetitors’ potential moves as well as thepossible emergence of new rivals. ’’


Unconstrained what-if scenarios

Unconstrained or open-ended questions encourage scenario developers to pose any

question that occurs to them pertaining to one or more rivals’ marketplace strategies.

Unconstrained what-if questions are limited only by the experience, imagination and

creativity of those involved in thinking about the possible strategies of rivals. Four

categories of what-if questions lead to competitor scenarios with different foci.

Standard questions

The standard questions that are frequently used to initiate unconstrained scenarios

are noted in Exhibit 3. These questions have high relevance to most firms. Shaping

these questions leads to determination of the relevant end-state – a statement of what

the competitor’s marketplace strategy might be. Clearly, such statements can be

detailed considerably beyond the examples cited in Exhibit 3. However, they should

not exceed a half-page of carefully constructed narrative.

A plot can then be detailed that leads to the end-state. This stage severely tests the

knowledge and foresight of the scenario developers. Indeed, plot development all too

often points up issues and questions that require access to external expertise. In this

way, articulation of plots becomes a source of extensive knowledge for those involved.

Sometimes plot elaboration forces managers and others to come face-to-face with

issues and questions that are as challenging and insightful as they as unexpected. As

one computer peripherals firm found, for example, in shaping the plot that explained

how a rival’s marketplace strategy resulted in product and technology dominance, it

suddenly discovered how critical alliances in particular components would be to any

firm’s future success in this product space.

Base question scenarios

A different but related way to generate unconstrained competitor scenarios stems from

asking a set of questions that are frequently raised in firms about rivals’ strategies.

These, unfortunately, rarely receive any kind of formal analysis (see Exhibit 4). This

Exhibit 3 Unconstrained what-if competitor scenarios: some typical

questions

J What if the competitor commits to a diversification of its product line (new products for

existing and new customers) through a combination of current and new technologies?

J What if the competitor launches a series of new products (source internally andexternally)?

J What if the competitor launches a sequence of extensions to its current product lines

(with the specific aim to attract new customers into the market)

J What if the competitor suddenly divests a number of its product lines and/or pulls out of

a number of geographic regions

J What if the competitor moves rapidly to a customization-driven strategy?

J What if the competitor fundamentally changes its core value proposition—how it

competes to win customers in the marketplace?

J What if the competitor commits to gaining significant market share (and to do so as

quickly as possible) without regard to the its long-term consequences (either for the firm

itself or for the marketplace)?


method often produces unique insights into competitors’ strategies and their

implications.

These base-question scenarios exemplify how rich insights can many times be

gleaned without fully elaborating and detailing the relevant end-states, plots and

logics. This is so in part because end-states and associated plots and logics based

upon these what-if questions lead in turn to further questions (and insights) about

rivals that in all likelihood would remain unasked (and not obtained).

A case

Consider the case of one electronics firm that asked the ‘‘dumb’’ what-if question:

What strategic move might the competitor make that would be least in its own

strategic interest? After an extensive analysis of the change in the marketplace,

including emerging technologies and the recent emergence of new competitors

promoting new product forms, the analysis team concluded that the least

advantageous future strategy for this particular market share leading competitor

would be to stick tenaciously to its current strategy – that is, continue to incrementally

improve its current products and to enhance its value added for customers in small

but consistent steps. The team concluded that this strategy would be ‘‘dumb’’

because the competitor would likely find itself losing the competitive, market and

technology war that was about to breakout in this particular market space.

A number of significant strategy implications emerged that required the electronics

firm’s immediate attention:

J First, it needs to quickly analyze whether it would suffer a similar fate if it too did not

radically shift from its current product portfolio.

J Second, the firm had to develop one or more projections, in scenario form, of the

potential paths the technologies might take, and their potential interactions, over

the next five years.

New competitors

Unconstrained competitor scenarios are ideal for tackling one of the most

fundamental issues that confronts the creators and advocates of any strategy:

Exhibit 4 Competitor scenarios: baseline questions

Scenario title Basic question Why create the scenario Scenario benefits

The ‘‘dumb’’ scenario What might the competitor dothat would be least in its own

strategic interest?

Learn what could mostnegatively affect one or more

rivals

May be possible to ‘‘aid’’ thecompetitor to commit to these

actions

The ‘‘ideal’’ scenario What would be the ideal

strategy for the competitor?

Learn what might be in the

short-term interest of thecompetitor

May be possible to inhibit some

of these benefits accruing to thecompetitor

The ‘‘best long-term’’ scenario What would be in the

competitor’s long-term bestinterest?

Learn what the competitor

would have to do to win in thelong-term

Some of these decisions and

actions may also be appropriatefor us

The ‘‘most helpful’’ scenario Which strategy might the

competitor pursue that wouldmost ‘‘help’’ our firm?

Learn how and why a

competitor’s actions mightbenefit our firm

May indicate new ways to view

actions of rivals; may indicateactions we should take

The ‘‘most hurtful’’ scenario What strategy might the

competitor pursue that wouldmost ‘‘hurt’’ our firm?

Learn how a competitor could

make our firm most vulnerable

May be possible to identify

preemptive actions


Howmight new types of competitors come into the market? New types of competitors

include any organization that would provide a product or solution unlike the firm’s

current product or solution but which customers would purchase instead of its

offering.

Although issues and questions pertaining to the emergence of potential new types of

competitors often arise in the course of strategy discussions inside most firms, few

firms seem to devote any serious analytical thinking to them. Most do not consider the

potential impact of such new entrants until either they actually have products in the

market or they announce their imminent arrival. Indeed some management teams

have remained aloof from any attention to such rivals even after the relevant staff teams

such as a competitor analysis unit or a team with strategic planning responsibility had

documented the (potential) emergence and threat of these rivals.

New competitors

Two avenues have proved especially useful in identifying new types of competitors –

the search for functional substitute rivals and interactions across technologies.

Functional substitute rivals

Here the dominant unconstrained what-if question is quite straightforward: How might

functional substitute products or solutions come to be and what kind of firm might

create and bring them to the market?

Developing even tentative answers to these questions, however, is not nearly quite so

straightforward. One reason why this is so quickly becomes evident when a team of

managers and others begin to develop this type of competitor scenario. It requires

considerable knowledge and expertise outside the firm’s historic comfort zones. Yet

even preliminary efforts to develop this scenario can generate substantial returns

in terms of new knowledge about current and emerging technologies, changing

customer needs, potential new marketplace dynamics, and new competencies in

many functional areas including R&D, manufacturing, marketing, and sales.

The basic what-if question is: What if a functional substitute emerged that had the

following specific product features? Consider the case of a medical equipment

manufacturer manager who asked: What if a pharmaceutical firm were to develop a

drug that would relieve or eliminate the medical problem for which one of our product

lines is used in surgery? The analysis team then had to call upon many external

sources of knowledge and expertise to identify which pharmaceutical firms were

conducting relevant research or already had potential products in the early stages of

development or clinical trials. Then they had to determine what the development and

product lifecycle of such products might be. They used this data to generate an end-

state that specified what the product might be, the strategy required to take it to

market, the plot that described how the firm could develop, test, and introduce the

‘‘ Experienced managers use competitor scenariosas a source of learning about the broadercompetitive context and of the implications fortheir firm’s strategy and operations. ’’


product, and a set of logics explaining why the firm would go through with the

research, commit the resources required for an expensive product launch, and

eventually win in the market against a number of existing products. In sum, a

pharmaceutical product might be chosen by hospitals and doctors instead of a

surgical procedure as a preferable form of treatment for the particular medical

condition for which surgeons now use one of the firm’s product lines.

Consideration of this competitor scenario led to new understanding into:

J How and why pharmaceutical products evolve.

J How they could compete against the firm’s traditional medical instruments.

J The forces shaping treatment decisions within hospitals.

J How and why the firm’s long established and highly successful products could be

vulnerable to products that many managers simply did not see as being part of ‘‘the

industry’’.

Technology linkages

As evident in the discussion of functional substitutes, technology change leads to the

emergence of new products and solutions. The critical question guiding the efforts of

competitor scenario developers thus becomes: How might technology developments

interact to give rise to new customer offerings? Ultimately, this question becomes:

What if these technologies were to develop in particular ways?

When technology is defined broadly to include all spheres of R&D, technology linkages

as a source of competitor scenarios prove to be critical for firms in almost every

industry. But even in product areas not thought to be technologically advanced,

linkages across a variety of technologies, some of which may seem at first glance not

terribly related, can sometimes give rise to new competitors. Some financial services

companies now find themselves competing directly for the same customers with far

smaller providers who have used Internet and communications technologies along

with database and related technologies to deliver superior value along a number of

dimensions.

Invented competitors

A distinct class of competitor scenarios revolves around invented competitors[3], that

is, competitors that do not exist today but which could exist at some point in the

future[4]. Invented competitors possess the great merit of shifting the frame of

reference in projecting and assessing rivals’ strategies from current or emerging rivals

to one or more rivals that, by definition, are strikingly dissimilar to any rival managers

have had to contemplate to date. As a consequence, invented competitors enable

managers and others to challenge their underlying assumptions – indeed their whole

world-view of competition – in a unique way. Unconstrained what-if questions are

personified by the notion of invented competitors: only the imagination and creativity of

those involved limits the range and character of the competitors that might be invented.

Let us take the case of a financial services firm that used an invented competitor

scenario to establish a radically distinct perspective on its future marketplace from

which to assess its current strategy and its key underlying assumptions. The guiding

what-if question was, What if a competitor emerged that possessed a marketplace

strategy characterized by:

J Interactions with external entities – principally channels and customers – that were

exclusively electronic.


J A full commitment to attracting new customers into the market.

J A driving aim to ‘‘dominate this particular market segment’’.

In detailing this end-state, the team carefully built a rich narrative around the following:

J How the firm would reach customers and channels electronically.

J How many types of customers could be reached.

J The electronic methods employed to reach customers.

J How the methods would be used to develop two-way flows of information.

J How the firm could use data and information gathered from customers in almost

real time to amend the ‘‘offer’’ to individual customers.

J What the elements of the product offer or solution would be to customers (that is,

what the financial product would be that customer would actually be purchasing).

For the next step, the team had to detail what plot or story would explain how the

invented competitor reached this end-state over the next four years. Each year’s plot

affected what would or could take place in subsequent years. A significant element of

the plot described how the invented competitor would actually come to be, that is,

what would have to happen for it to come into existence and then grow and develop

as a company. The chronology of the plot revolved around the following items:

J A small group of individuals with extensive experience in the relevant product

domain exiting an existing financial services firm.

J Select individuals from other financial services firms then join them.

J This set of individuals then initially develops a loose alignment with a small boutique

with considerable expertise in a variety of aspects of doing e-business.

J The firm develops a technology platform to interact with customers.

J At the same time, it begins to develop the first outlines of what the ‘‘offer’’ would be

to customers.

J It then works with one large institutional customer as a ‘‘test-bed’’ for the offer as a

location to develop a serious trial of the platform technology.

Because of the radical nature of the proposed strategy and especially because of the

degree of change involved for customers – for example, all facets of how they would

interact with a financial services provider – it was critical to set out and assess the

logics underlying the plot. Central issues and questions were identified for each major

step in the plot and for the plot as a whole. Key questions included:

J Why would different segments of the invented competitor’s customers move to an

electronic mode of doing business?

J What advantages would its customers gain from buying via e-business?

J How would developments in e-technologies facilitate what the invented competitor

wanted to achieve?

J In what ways, might the invented competitor be able to leverage success with the

proposed customer solutions into other customer offerings?


Constrained what-if competitor scenarios

Constrained competitor scenarios start from a common point of departure: What

would the competitor do if a specific set of marketplace or macro environmental end-

states or conditions were to arise? These scenarios start with some specification of

what the world would look like at some point in the future and then ask, ‘‘What would

the competitor do under these conditions?’’. Thus, these scenarios explore the

initiatives a competitor might take if it were to find itself in a particular world end-

state (such as emerging new technologies and new product regulations) or how it

might react to the strategic moves of rivals. They are therefore constrained what-if

questions.

Constrained competitor scenarios are especially appropriate when your firm wants to

identify and assess:

J What would a particular competitor do under specified marketplace conditions?

Constrained what-if competitor scenarios

J Why a competitor would adopt one strategy rather than another?

J Which marketplace changes might lead one or more competitors to adopt a

particular strategy?

The competitive context that serves as the ‘‘constrained what-if’’ can be established

in at least two distinct ways. First, industry or competitive scenarios, if already

developed for other purposes, provide one ideal context.

Second, carefully articulated what-ifs that describe a brief set of future competitive

conditions can also serve as the backdrop for constrained competitor scenarios. A

number of such constrained what-ifs are briefly described in Exhibit 4. Although at

first glance they may seem relatively simple and obvious, more often than not,

development of such short what-if lists typically requires extensive reflection on what

could happen in the next few years and which what-if questions would give rise to the

most productive competitor scenarios. It may require considerable dialogue around

what could happen, before scenario developers converge on one or two what-ifs that

raise interesting and perplexing questions about how one or more categories of rivals

might respond to the stipulated competitive conditions. For example, a projected

competitive context dominated by e-business may not lead to difficult strategy

choices for a particular competitor but the potential emergence of a substitute product

might lead to strategy choices ranging from divestment from the industry to acquiring

or aligning with a provider of the substitute product.

When existing industry or competitive scenarios constitute the first critical step in

shaping and using constrained competitor scenarios, the end-states serve as the

principle focus of the competitive conditions. Although industry or competitive

‘‘ Competitor scenarios work best when theyproduce knowledge and insight that broadlyinforms and prepares decision makers to actrapidly as competitive conditions change. ’’


scenarios can be created in multiple ways, constrained industry or competitive end-

states are typically crafted around a small set of key uncertainties. Exhibit 5 illustrates

one such set of constrained competitive end-states constructed by a research and

development intensive company that was confronting two key uncertainties:

(1) A number of emerging ‘‘technologies’’ at varying stages of development that may

or may not advance further, but if they did, they could dramatically affect research

breakthroughs and thus new products; and

(2) Considerable regulatory flux that could directly effect the ability of all current rivals

to market and sell new and existing products or major product line extensions in

various channels and to different end-customer segments.

The four scenario cells shown in Exhibit 5 depict four quite different worlds. A strategy

designed to win in one world, for example, extended status quo, could well fail

miserably in the unbridled battle world.

The steps in constructing competitor scenarios are then relatively straightforward:

J Identify the strategy issues for the competitor.

J Develop the scenario plot outline.

J Detail the scenario plot.

J Articulate the logics.

J Determine the business issues to be addressed.

When a firm identifies key competitor strategy issues associated with each end state –

new marketplace opportunities, threats to traditional ways of competing or to the

firm’s planned strategies – it establishes a more refined understanding of the

competitive context within each end-state. As a result its managers can better

understand the strategy challenges that would confront the competitor in each end-

state. For example, a preview of the intensive nature of the vehement rivalry unleashed

Exhibit 5 Four competitive end-state worlds

Modest regulatory change Extensive regulatory change

Low level of

technology change

Status quo

In this end-state, rivals continue

to slowly adapt their customersolutions in the historic

customer segments. Rivalry is

moving toward an emphasisupon service elements. Rivals

are still prohibited from entering

significant market segments

Customer skirmish

In this end-state, rivals compete

with slowly changing products.But they now compete fiercely

in the pursuit of new customer

segments. Rivalry is nowintense as the number of rivals

has increased in all customer

segments

High level of

technology change

Product fragmentation

In this end-state, product

modifications unfold at a rapid

rate. Some new productschallenge the dominance of old

solutions in some customer

segments. Customers can

choose from clearlydifferentiated solutions. Rivalry

has shifted to product or

solution superiority

Unbridled battle

In this end-state, both product

change and market change

persist. Continuous productchange keeps shifting the range

of available customer solutions.

And, rivals can aggressively

pursue most customersegments


in the unbridled battle end-state clarifies the what-if set of conditions in which the

competitor will have to identify and choose its preferred strategy:

J A blizzard of new products.

J The relentless search for new opportunities to enter into any channel.

J Offering an entirely new range of enticements to customers and channels.

In order to develop a scenario plot (and sometimes perhaps more than one) for each

end-state represented in Exhibit 5, the core competitor scenario question must now

come to the fore: What would the competitor do (that is, what strategy would it

pursue) were it confronted with the competitive context in each end-state? It is

important to note that the strategy options may vary dramatically from one end-state

to another. For example, the competitor staring into the unbridled battle world might

consider:

J Divesting entirely out of this product range (due to the intensity of the rivalry and the

absence of the necessary resources to stay the course).

J Concentrate on one product segment (perhaps as a way to avoid the head-on

clashes guaranteed with other firms if it develops a full product portfolio).

J Develop a full line of products (perhaps by developing alliances with a number of

other firms).

J Move to become more of a research and development firm and less of a

manufacturer and distributor (perhaps by leveraging its current and potentially

accessible technology skills and capabilities).

Execution

Once a scenario plot has been outlined, managers can then detail what it would take

to execute the projected strategy. In other words, choosing a strategy option does

not identify or explain how it could be executed. Indeed, understanding how the

competitor might execute a particular strategy often represents the core learning that

emanates from these constrained competitor scenarios. Scenario developers gain

insight not only into how the strategy might win in the marketplace but also into what

the competitor would have to do both in the marketplace and within the firm in order to

realize the opportunity at the heart of the strategy.

The logics in these competitor scenarios address one fundamental question: Why

would the competitor pursue this strategy? What forces within and external to the

competitor would support or drive the competitor to adopt this strategy becomes the

Exhibit 6 Examples of constrained what-if competitive conditions

J What if our competitive context in four years time is dominated by e-businessconnections between all players in the industry, resulting in solution segmentation,

consolidation in traditional channels, and competitor fragmentation?

J What if over the next three years, technology propels the emergence of new products,

including functional substitutes that are significantly more sophisticated than currentproducts?

J What if rivalry intensifies but it is solely among the current dominant players in this

specific product space and all firms commit extensive new resources to the battle?

J What if the economy continues in stagnation and technology increases in importance

as the platform for both new products and new ways of competing in the marketplace?


central question. The relevant external forces and how they affect a projected strategy

may be specific to individual end-states (see Exhibit 5). In the unbridled competitive

end-state, specific regulatory developments (not evident at all in the status quo world)

might lead the competitor to seriously consider reducing its presence in, or even

withdrawing entirely from the product-market sector.

As a last step, it is essential to ask: What business issues emerge from each scenario

that pose opportunities and threats that the organization must explore? Again, the

issues can vary significantly across the end-states.

The reward: insight and alternatives

Competitor scenarios provide a methodology to enable managers and others to

construct and assess a variety of potential strategies that rivals might adopt. They

require both imagination and creativity on one hand, and considerable knowledge and

understanding of what strategies might be available to rivals, and how and why they

might pursue them. In almost all cases, competitor scenarios lead to rich insight into

the firm’s own strategy alternatives – and sometimes to alternatives that were

previously not on the firm’s radar screen.

Notes

1. For a more elaborate and detailed discussion of the generic analysis process involved in both

constructing and assessing competitor scenarios, see Liam Fahey, ‘‘Competitor scenarios:

projecting a rival’s marketplace strategy’’, in Liam Fahey and Robert M. Randall (1998),

Learning from the Future: Competitive Foresight Scenarios (John Wiley & Sons), pp. 223-45.

2. Readers interested in constructing industry or competitive scenarios, see Liam Fahey,

‘‘Industry scenarios’’, in Liam Fahey and Robert M. Randall (1998), Learning from the Future:

Competitive Foresight Scenarios (John Wiley & Sons), pp. 189-222.

3. For a discussion of the invented competitors, see Liam Fahey, ‘‘Invented competitors: a new

competitor analysis methodology’’, Strategy and Leadership, Vol. 30 No. 6, November/

December.

4. Invented competitors, of course, can be used to identify potential new forms of competitors.


Using scenarios to focus R&D

Gill Ringland

Gill Ringland, a Fellow of St Andrew’s

Management Institute (SAMI), focuses on

using future studies and scenarios to

improve decision making in the present

([email protected]). She first

worked with scenarios while Group

Executive, Strategy, for ICL, now part of the

Fujitsu Group. She is the author of three

recent books – Scenarios in Business,

Scenario Planning: Managing for the Future,

and Scenarios in Public Policy.

Traditional methodologies for selecting R&D projects

Most managers with responsibility for a number of research & development projects

routinely employ a number of portfolio management tools explicitly designed for

ranking R&D projects and managing R&D programs. For instance Philip A Roussel’s

‘‘Third Generation R&D’’, published by Harvard Business School Press, describes a

portfolio method for prioritizing projects. Three axes measure the relative potential

cost/benefit/competitive position of R&D projects:

J Competitive position and technological maturity.

J Size of reward and probability of success.

J Annual budget and years to completion.

Managers then plot portfolio of possible projects on these three axes, providing a

framework for discussion and decision with corporate planners and marketing.

Stanford Research Institute (SRI) uses a similar method for labeling a portfolio of R&D

projects to facilitate discussion of priorities. They normally choose the axes:

J Timescale of market impact.

J Cost of project.

The costs, timetables and budgets in an R&D project are usually well understood, if

not precisely predictable – for instance the time from the lab to development, or the

rate of development of technological capability can usually be estimated. But the

market factors – the competitive position, the size of reward, probability of success

and the market impact are harder to anticipate. In judging these factors, R&D

managers, corporate planners and marketers will normally base their judgment on the

trends to date.


But many new products emerge into a changing world, with:

J New competitors.

J Changed user wants and needs.

J Changed price structures.

J Changed regulatory environment.

These factors are determined by changing industry structures, by new global

competitors, and most particularly by changes in user perceptions, lifestyles and

desires.

To preview these possible future environments, a number of firms have successfully

used scenario planning to improve R&D decision making. Scenario developers have

helped managers explore a range of possible futures encompassing uncertainties,

such as the rate of adoption of technology. The R&D manager can then compare the

sensitivity of the R&D projects’ success criteria to the detailed assumptions about the

future.

As a case in point, microwave ovens were available at least 20 years before they

became popular for their efficiency at heating up pre-cooked frozen meals at high

speed. The changes in society that made them popular after two decades were the

number of working women who needed meals that could travel from freezer to

microwave to dinner table in minutes. So, if the inventors of the microwave oven had

developed alternative views of the future, one in which most women worked away

from the home and another in which most women were at home cooking gourmet

meals with gas and electric ovens, they would have realized that the sales of

microwave ovens would be dependent on lifestyle changes increasing the number of

working women.

Forecasts, scenarios and foresight

Three important terms are widely used in the process of thinking about and assessing

the future:

(1) Forecast: a conjectural estimate, based on present indications, of the course of

events or condition in the future[1].

(2) Scenarios: a set of logically consistent but distinctly different views of what the

future might be[2].

(3) Foresight: a process for developing research policies with a long-term perspective

using networks of knowledgeable agents who possess improved anticipatory

intelligence[3].

So, a forecast combines current trends and renders them into a single value or range

of values for a variable. Forecasts of timescale, cost, etc are widely used for

technology developments, because there is a well-trodden path from the lab to the

‘‘ One range of possibilities was the extent towhich communities were rigid or evolving,represented by two extremes: ‘community open’or ‘community closed’. ’’


customer. Forecasts are usually based on expert opinion, often collected by the

iterative Delphi process.

Forecasts are an important component of scenarios for the future. Given the forecasts

of the available technology, scenarios can then explore the possible future societies

and how they may react to these products. So in the case of the microwave oven,

scenarios of alternative futures could have been developed, and the potential markets

for microwave ovens explored in each. Affecting the market would be growth in

wealth, business activity, and social changes (such as single person or single parent

households), increasing education of women, the nature of leisure activities, and the

move away from rural areas to cities. It is sometimes possible to identify specific

events that would give early indicators of a scenario playing out.

Scenarios provide a simple but powerful way of capturing and exploring multiple

images of the future.

The analytical process of using a combination of scenarios and forecasts to ensure

that an organization focuses its R&D on the most effective areas is what we call

‘‘Foresight’’. This typically combines desk-based investigations and literature

searches, forecasting, use of a wide range of inputs for building of scenarios, and

the use of business intelligence or market intelligence to monitor early indicators.

This article focuses on the scenarios part of this process, while recognizing that

without good forecasts and an ongoing decision process, the scenario stage will be of

limited value. The role of scenarios is to provide the tool for understanding the major

areas of uncertainty.

Glen Hiemstra[4] identifies key areas of uncertainty over the next 50 years as:

J The impact of:

j The digital revolution, biotechnology and nanotechnology.

j Shrinking populations in the developed world.

j The preponderance of the aged in the developed world.

J The nature of:

j Work – its duration, location, content.

j The home - returning perhaps to its pre-industrial revolution role.

j Education, learning and information gathering.

J The balance between:

j National governments and NGO’s in handling major problems.

j The private sector and government in handling infrastructure issues, with the

funding and timescale implications.

Scenarios used to formulate an R&D portfolio in information,

communications, and technology

The ‘‘Business in the Third Millennium’’ (BIT3M) program was a consortium to study

the effect of ICT on business. It was run by Watts Wacker of think tank FirstMatter

(www.firstmatter.com) and was active from 1996 to 1999. The delegates of the

member companies of the consortium used scenarios to define and prioritize research

projects to be initiated by the consortium. Both the company I worked for then, ICL

(now Fujitsu Services), as well as Fujitsu Business Consulting of Japan, were partners.


The hypothesis behind BIT3M was that the combination of Information, Commu-

nication, and Technology (ICT) would have a major impact on the way business

evolves – or changes discontinuously – in the next few decades. While the supply

chain and the customer interface have already been substantially changed by ICT, we

hypothesized that an even more radical shift could be happening – that the balance of

power between the company and its customer was beginning to change. Since it was

possible even probable – that this effect might appear differently in Asia, the USA and

Europe, the consortium sought members based in all three geographies to ensure

sensitivity to the potential cultural differences.

The BIT3M program started with the construction of scenarios to describe possible

ways that digital information could influence and change society. When we started we

described society as being composed of three entities: business, the consumer, and

government.

We soon added another entity – community. Traditionally, communities are local, as in

a village community or a university community. However a major change facilitated by

information, communications and technology was the creation of communities of

interest that communicate electronically. These communities were showing signs of

forming very effective lobbying groups, and also banding together for purchasing, or

for sharing information on parenting, products, and diseases and their treatment

(Exhibit 1).

In parallel with the rise of virtual communities we noticed that the boundary between

people’s behavior as a citizen and behavior as a consumer was blurring. People

expected governments to provide services as the private sector does, and they

changed their consumption choices in line with political opinions. Boycotts of goods

were evolving into selective investment in ethical trusts. The individual – operating

variously as consumer, citizen, leader, manager, and increasingly enabled by the

information, communication and technology infrastructure – had increased power in

the post-ICT world.

These individuals gain added leverage by joining communities that have political or

market clout. For instance, an ad hoc buying club for Lexus cars negotiated major

discounts from a dealer. Greenpeace[5], using email effectively, organized across

country boundaries to humble Shell Oil Company over the disposal of an oilrig in the

North Sea. In many ways, there are signs that the balance of power in the new world is

Exhibit 1 Role of the individual


shifting towards the individual and ad hoc communities, and away from business and

governments.

In contrast, one of the projects set up by the consortium identified the decreasing

capability of national governments to control business, community or individual

activities within their geography. For instance, legalized gambling has now moved

back into many countries after the realization that revenues were leaking offshore. In

spite of the best efforts of the Chinese, Saudi and Iranian governments, individuals

there access information electronically. Governments face problems in ensuring a

stable tax base as individuals become mobile and choose their domicile. These and

similar observations led us to institute a watch for signs and signals that this trend was

strengthening or waning.

We also observed the increasing role of NGOs in the business environment. For

instance, NGOs were the main drivers in defining the International Kyoto Treaty

environmental agreement standards.

Four scenarios for 2010

By 1998, we wanted to explore the potential effects of these factors on business. So

we built some scenarios at a workshop of the consortium delegates during three days

of interactive work. The scenarios also utilized information from literature searches,

expert interviews and discussions.


Two key drivers of the scenarios were:

J The nature of communities, whether geographic or virtual. The major question was

the extent to which communities were rigid or evolving, represented by two

extremes: ‘‘community open’’ or ‘‘community closed’’. We observed that the sense

of community is strongly linked to individual and lifestyle choices.

J The capability of business to adapt to a new environment with a potentially changed

power structure. We expected that the ability of government to adapt would usually

lag that of business. We assumed that the adaptability of both the social

infrastructure – education, health, law and order – and technical infrastructure –

were linked to business agility. The two extremes in this range of possibilities were

‘‘business traditional’’ and ‘‘business agile and adaptive’’.

These two drivers produce four scenarios describing the business environment in

2010 (Exhibit 2).

In Liberation Works, a sense of local community develops to provide a rich and well-

balanced social environment, while business practices remain those of the 1990s.

This is a ‘‘Greenpeace’’ world that reconciles global and ecological concerns with

business and individual interests. Government funds the majority of technology

infrastructure.

‘‘ The two extremes in the other range of scenariopossibilities were ‘‘business traditional’’ and‘‘business agile and adaptive’’. ’’


In Gung Ho, there is also a sense of community, but since the business and social

infrastructures have adapted to the newly powerful individual, many of these

communities will be dependent on common interests rather than geography.

Business has found ways of meeting their customers’ new demands. Lags in the

adaptability of government mean that business has taken over some of the regulatory

roles of government, and has taken a lead in implementing the technology

infrastructure.

MegaCorp is a world in which large companies have established new rules. Virtual

communities of individuals, geographic communities, and governments, are less

powerful because of the rules imposed by the MegaCorp organizations. This is a

divided world, with gated communities and social unrest. This is the nearest scenario

to the future envisioned by Aldous Huxley in Brave New World. In it, the private sector

implements Infrastructure.

Finally, in Organization Rules there is a strong sense of community, but it acts to

reduce business agility, a result perhaps of the hierarchic constraints of society. The

technology infrastructure is supported by state investment and may also be operated

by the state.

Research portfolio

In developing the portfolio of research projects from the scenarios, we brainstormed

the different topics that would be relevant in each scenario. Then we looked to find

common themes and topics to explore the underlying drivers of the scenarios.

So for instance, in all four scenarios, since the basic science was already evident, we

assumed that the technological rate of advance would continue in the laboratory for

the next decade. After then, the differing assumptions about the scope of government

Exhibit 2 Scenarios for 2010

‘‘ The scenario process, by delineating the socialissues that might prevent technology adoption,helped participants build more robust R&Dprograms and set up early warning indicators tomonitor the pace and the directions ofevolution. ’’


start to make an impact on technology availability. For instance the extent of local loop

broadband or third generation wireless technology will depend on:

J Who will pay for the upfront investment in networks and will this be different in the

USA, Europe and Asia?

J Are there any new disruptive technologies and where would they emerge?

J Who will lead the adoption of new technology and how much will they be willing to

pay?

Under the heading of community and the related lifestyle issues, we saw that the there

would be major differences in each scenario. For instance, local communities would

be strong under Liberation Works, and virtual communities of special interest groups

would be important players in Gung Ho.

This meant that we needed to investigate the sources and nature of the differences,

seeking answers to questions such as:

J How does the relationship between the individual and society change in each

scenario?

J How will this alter customer’s expectations of business?

J What are the forces driving business in the third millennium?

Research topics, which emerged on lifestyles and communities, included:

J How do communities evolve in each of the scenarios?

J What are the role models – people and organizations – for each scenario?

J What is the evolution path of each scenario as seen in terms of individual/

community decisions such as election results?

J What causes each scenario to flourish or become unstable?

J How and why are the boundaries between work and leisure different in each

scenario?

J In what ways are the individual and community uses of visual and verbal media

different in each scenario, and what effect does this have?

J What are the types of community and how are they changing? For instance, would

Gung Ho support more or fewer virtual communities and NGO’s than MegaCorp?

The Business Agility axis prompted research topics related to the way in which digital

information accelerated or held up change in organizations.

J What is the role of information, communication and technology in making

organizations more agile in Gung Ho and MegaCorp? Which scenario is more

sustainable for businesses influenced by MegaCorp but not aspiring to be a

dominant international player?

J Which scenario creates most value and which least?

J How do the culture and business processes differ in each scenario? For instance,

we could see that businesses in a Gung Ho world would need processes that were

flexible and reviewed regularly

J What are the new value chains in each scenario, if any?

The governance environment will also be different for each scenario: the research

topics are: How will governments evolve to meet the new environment? In what ways


will regulation encourage or discourage the new world? How will governments fund

themselves?

So, in MegaCorp, regulation would be strongly influenced by a few market leaders,

and their investment would be aligned to increasing the penetration of the virtual

world, at least in cities where connection costs are lower. Governments find it difficult

to control and predict tax revenues in this world, due to the power and international

nature of dominant international organizations.

In contrast, Organization Rules is a world in which governance is by nation states and

there is little momentum for change.

Early indicators

Early indicators are specific events that are relatively easy to watch for and which can

give an indication of which way the world is evolving. So for instance the rise of a

political party or politician can indicate that changes are likely and the direction that

they will take. One example of this is Shell’s decision on investment in North Sea gas

fields. The bidding was intense and prices high: Shell asked the question, Would

Russia’s extensive gas fields start to contribute to international supply? They identified

this key indicator: if a politician named Mikhail Gorbachev moved into national

prominence it was likely that Russia would open up. They saw his career start to

develop, and so did not take part in the bidding war for North Sea reserves. Shell later

bought gas from Russia at an advantageous price.

Early indicators

In BIT3M, we saw some early indicators being satisfied for both MegaCorp and Gung

Ho, for instance:

J The rise of defacto standards in telecoms, media and computing industries

replacing slower traditional mechanisms of agreements between national bodies

J The rise of virtual communities for hobbies, health and family information sharing,

and for trading online

J The success of some brick and mortar retailers in creating electronic trading arms

(for instance food retailers in the UK and restaurants in the USA), as well as the

survival of some dotcom start-ups.

J Regulation moving away from national governments towards NGO’s, for instance in

the computer industry and for Internet and Web standards.

As a result we proposed that some industries at least would evolve along the

MegaCorp or Gung Ho. So we focused our research project portfolio into digital

information in the retailing, ICT and media industries.

Prioritizing research projects

The participants in the consortium workshop then categorized the list of 30 possible

research projects into three groups:

J Expensive – those costing the entire budget for at least one year.

J Medium – we could afford 3-5 of these.

J Quick/cheap – less than 10% of the budget.


Once we had a defined and costed set of research projects we categorized them into

high, medium and low impact projects, and which scenario they were relevant to

(Exhibit 3). Some projects were central to an understanding of all the scenarios; others

were of interest only under one or two. We focused on projects relevant to MegaCorp

and Gung Ho.

The projects that the participants felt had the most impact on Business in the Third

Millennium related to:

J The role of ICT in making organizations more or less agile.

J The changes in the value chain.

J Who would pay for network implementation?

J Disruptive technologies.

J The nature of virtual communities and their interaction with business.

J Mobility of individuals across national boundaries.

J What were the early indicators for MegaCorp vs. Gung Ho?

Three of the projects, those on network implementation, disruptive technologies and

early indicators were in the quick/cheap category. We scheduled the study of network

implementation and early indicators, but left the research project on disruptive

technologies until later.

We could only afford to do one of the other three projects, on value chains, the

connection between information, communication and technology and agility, or virtual

communities and business. We chose to study the interaction of virtual communities

and business, across both scenarios, since we could see other groups working on

value chains and to a lesser extent on information, communication and technology

and business agility. We found a think tank that was willing to share results with us on

the effect of mobility of individuals across national boundaries, and the effect of this on

the tax base of governments.

Lessons for practitioners

We used scenarios to define a portfolio of research projects twice in the BIT3M

Program. In both cases, the portfolio of projects that emerged was significantly

different from our initial instincts.

Exhibit 3 Prioritizing research projects


By going back to the underlying forces and asking questions about the discontinuities

that may emerge, the scope of the portfolio widened and many new potential research

questions were raised. Our list of research topics was dauntingly long before we

applied the prioritization process – about 30 separate topics – costing about seven

times our budget. By looking at the early indicators, we could narrow down the

number of scenarios to consider from four to two, and the projects from 30 to 20.

We then decided to focus on the projects that were important in both of the scenarios,

and to delay others until some of the early indicators leading to either MegaCorp or

Gung Ho had been observed.

We had expected that the internal issues for business such as value chains and ICT

and agility would have emerged as top priority topics. Instead we found that the

questions of the inter-relation of business with its customers emerged from the

process as most significant.

Conclusions

The BIT3M case study used scenarios to:

J Widen the range of discussion about the research program. Many of the

participants were from technology companies. Introducing scenarios helped them

to think about the adoption of technology, market issues and the effect of ICT on

society

Conclusions

J Engage sponsors and stakeholders in exploring the context of the proposed

research topics in the program, as a prelude to decision-making and funding. The

process, with interviews before the workshop and three days of interaction within a

disciplined process at the workshop, underpinned the efforts of the participants to

sell the research program back into their organizations.

J Link technological issues into societal issues. This required an examination of a

wider set of backgrounds than was traditional for planning R&D. The role of Watts

Wacker, a consumer futurist skilled at exploring societal issues, was crucial.

J Build a more robust research program by understanding the social issues that

might prevent technology adoption and set up early warning indicators to monitor

the pace and the directions of evolution. The participants shared the monitoring of

early indicators among their business intelligence groups. Key questions related to

investment in network infrastructure and sources of regulation.

J Prioritize research topics for investment, through use of the early warning systems,

which showed indicators for MegaCorp and Gung Ho. By focusing on MegaCorp

and Gung Ho we were able to focus on the role of business, and to define a portfolio

of research projects spanning these two scenarios.

Implications for corporate planners

Lessons corporate planners can learn from the case study are:

J Business agility is a key requirement in the present business climate. Many of the

factors originally identified by BIT3M are central to today’s business climate.


J The range of factors that need to be considered in plans is now much wider than

only a few years ago. Markets have changed from product push to consumer desire

driven, a result of changes in lifestyles and increased consumer information. These

factors are more difficult to forecast than technological issues.

J In considering the shape of society and new forces, scenarios can capture some of

the dimensions of uncertainty, allow for the creation of robust strategies and

understanding of early warning indicators of new phenomena.

However, a word of caution. Scenario development projects do not always produce

transformational insights and innovative thinking. In scenario work as in forecasting, it

is difficult for planners to shake off the blinders of their current worldview. Veteran

scenario developer Barbara Heinzen[6] enumerates many ways in which scenarios

may fail to tackle the seminal issues for an organization, and the reasons why they

flounder. Causes of failure include: planners taking too narrow a view of the topic, not

getting the attention of decision makers, or accepting a culture that cannot confront

the question of change. As an example of this last pitfall, she recalls asking the

question while building scenarios for Asia in 1996, ‘‘Could we have a financial crisis?’’

and getting the answer, ‘‘That is not possible’’.

Nevertheless scenarios surely fit among the toolkit of every manager responsible for

planning. They provide a process, mechanism and framework for anticipating change,

watching for early warning signs, and creating more robust plans.

Notes

1. Oxford Compact Dictionary (1991), Clarendon Press, ISBN 0-19-861258-3.

2. Porter, M. (1985), Competitive Advantage, Free Press, New York, NY, ISBN 0-68484-146-0.

3. Irvine, J. and Martin, B.R. (1984), Research Foresight, Continuum International Publishing,

ISBN 0-861-87496-X.

4. Ringland, G. (2002), Scenarios in Business, Wiley, ISBN 0-470-84382-9.

5. Davis-Floyd, R. (1997), ‘‘Storying corporate futures: the Shell scenarios’’, International Journal

of Futures Studies, Vol. 1.

6. Ringland, G. et al (1999), ‘‘Shocks and paradigm busters’’, Long Range Planning, October.



Gill Ringland

Gill Ringland, a Fellow of St Andrew’s

Management Institute (SAMI), focuses on

using future studies and scenarios to

improve decision making in the present

([email protected]). She first

worked with scenarios while Group

Executive, Strategy, for ICL, now part of the

Fujitsu Group. She is the author of three

recent books – Scenarios in Business,

Scenario Planning: Managing for the Future,

and Scenarios in Public Policy.

Traditional methodologies for selecting R&D projects

Most managers with responsibility for a number of research & development projects

routinely employ a number of portfolio management tools explicitly designed for

ranking R&D projects and managing R&D programs. For instance Philip A Roussel’s

‘‘Third Generation R&D’’, published by Harvard Business School Press, describes a

portfolio method for prioritizing projects. Three axes measure the relative potential

cost/benefit/competitive position of R&D projects:

J Competitive position and technological maturity.

J Size of reward and probability of success.

J Annual budget and years to completion.

Managers then plot portfolio of possible projects on these three axes, providing a

framework for discussion and decision with corporate planners and marketing.

Stanford Research Institute (SRI) uses a similar method for labeling a portfolio of R&D

projects to facilitate discussion of priorities. They normally choose the axes:

J Timescale of market impact.

J Cost of project.

The costs, timetables and budgets in an R&D project are usually well understood, if

not precisely predictable – for instance the time from the lab to development, or the

rate of development of technological capability can usually be estimated. But the

market factors – the competitive position, the size of reward, probability of success

and the market impact are harder to anticipate. In judging these factors, R&D

managers, corporate planners and marketers will normally base their judgment on the

trends to date.


But many new products emerge into a changing world, with:

J New competitors.

J Changed user wants and needs.

J Changed price structures.

J Changed regulatory environment.

These factors are determined by changing industry structures, by new global

competitors, and most particularly by changes in user perceptions, lifestyles and

desires.

To preview these possible future environments, a number of firms have successfully

used scenario planning to improve R&D decision making. Scenario developers have

helped managers explore a range of possible futures encompassing uncertainties,

such as the rate of adoption of technology. The R&D manager can then compare the

sensitivity of the R&D projects’ success criteria to the detailed assumptions about the

future.

As a case in point, microwave ovens were available at least 20 years before they

became popular for their efficiency at heating up pre-cooked frozen meals at high

speed. The changes in society that made them popular after two decades were the

number of working women who needed meals that could travel from freezer to

microwave to dinner table in minutes. So, if the inventors of the microwave oven had

developed alternative views of the future, one in which most women worked away

from the home and another in which most women were at home cooking gourmet

meals with gas and electric ovens, they would have realized that the sales of

microwave ovens would be dependent on lifestyle changes increasing the number of

working women.

Forecasts, scenarios and foresight

Three important terms are widely used in the process of thinking about and assessing

the future:

(1) Forecast: a conjectural estimate, based on present indications, of the course of

events or condition in the future[1].

(2) Scenarios: a set of logically consistent but distinctly different views of what the

future might be[2].

(3) Foresight: a process for developing research policies with a long-term perspective

using networks of knowledgeable agents who possess improved anticipatory

intelligence[3].

So, a forecast combines current trends and renders them into a single value or range

of values for a variable. Forecasts of timescale, cost, etc are widely used for

technology developments, because there is a well-trodden path from the lab to the

‘‘ One range of possibilities was the extent towhich communities were rigid or evolving,represented by two extremes: ‘community open’or ‘community closed’. ’’


customer. Forecasts are usually based on expert opinion, often collected by the

iterative Delphi process.

Forecasts are an important component of scenarios for the future. Given the forecasts

of the available technology, scenarios can then explore the possible future societies

and how they may react to these products. So in the case of the microwave oven,

scenarios of alternative futures could have been developed, and the potential markets

for microwave ovens explored in each. Affecting the market would be growth in

wealth, business activity, and social changes (such as single person or single parent

households), increasing education of women, the nature of leisure activities, and the

move away from rural areas to cities. It is sometimes possible to identify specific

events that would give early indicators of a scenario playing out.

Scenarios provide a simple but powerful way of capturing and exploring multiple

images of the future.

The analytical process of using a combination of scenarios and forecasts to ensure

that an organization focuses its R&D on the most effective areas is what we call

‘‘Foresight’’. This typically combines desk-based investigations and literature

searches, forecasting, use of a wide range of inputs for building of scenarios, and

the use of business intelligence or market intelligence to monitor early indicators.

This article focuses on the scenarios part of this process, while recognizing that

without good forecasts and an ongoing decision process, the scenario stage will be of

limited value. The role of scenarios is to provide the tool for understanding the major

areas of uncertainty.

Glen Hiemstra[4] identifies key areas of uncertainty over the next 50 years as:

J The impact of:

j The digital revolution, biotechnology and nanotechnology.

j Shrinking populations in the developed world.

j The preponderance of the aged in the developed world.

J The nature of:

j Work – its duration, location, content.

j The home - returning perhaps to its pre-industrial revolution role.

j Education, learning and information gathering.

J The balance between:

j National governments and NGO’s in handling major problems.

j The private sector and government in handling infrastructure issues, with the

funding and timescale implications.

Scenarios used to formulate an R&D portfolio in information,

communications, and technology

The ‘‘Business in the Third Millennium’’ (BIT3M) program was a consortium to study

the effect of ICT on business. It was run by Watts Wacker of think tank FirstMatter

(www.firstmatter.com) and was active from 1996 to 1999. The delegates of the

member companies of the consortium used scenarios to define and prioritize research

projects to be initiated by the consortium. Both the company I worked for then, ICL

(now Fujitsu Services), as well as Fujitsu Business Consulting of Japan, were partners.


The hypothesis behind BIT3M was that the combination of Information, Commu-

nication, and Technology (ICT) would have a major impact on the way business

evolves – or changes discontinuously – in the next few decades. While the supply

chain and the customer interface have already been substantially changed by ICT, we

hypothesized that an even more radical shift could be happening – that the balance of

power between the company and its customer was beginning to change. Since it was

possible even probable – that this effect might appear differently in Asia, the USA and

Europe, the consortium sought members based in all three geographies to ensure

sensitivity to the potential cultural differences.

The BIT3M program started with the construction of scenarios to describe possible

ways that digital information could influence and change society. When we started we

described society as being composed of three entities: business, the consumer, and

government.

We soon added another entity – community. Traditionally, communities are local, as in

a village community or a university community. However a major change facilitated by

information, communications and technology was the creation of communities of

interest that communicate electronically. These communities were showing signs of

forming very effective lobbying groups, and also banding together for purchasing, or

for sharing information on parenting, products, and diseases and their treatment

(Exhibit 1).

In parallel with the rise of virtual communities we noticed that the boundary between

people’s behavior as a citizen and behavior as a consumer was blurring. People

expected governments to provide services as the private sector does, and they

changed their consumption choices in line with political opinions. Boycotts of goods

were evolving into selective investment in ethical trusts. The individual – operating

variously as consumer, citizen, leader, manager, and increasingly enabled by the

information, communication and technology infrastructure – had increased power in

the post-ICT world.

These individuals gain added leverage by joining communities that have political or

market clout. For instance, an ad hoc buying club for Lexus cars negotiated major

discounts from a dealer. Greenpeace[5], using email effectively, organized across

country boundaries to humble Shell Oil Company over the disposal of an oilrig in the

North Sea. In many ways, there are signs that the balance of power in the new world is

Exhibit 1 Role of the individual


shifting towards the individual and ad hoc communities, and away from business and

governments.

In contrast, one of the projects set up by the consortium identified the decreasing

capability of national governments to control business, community or individual

activities within their geography. For instance, legalized gambling has now moved

back into many countries after the realization that revenues were leaking offshore. In

spite of the best efforts of the Chinese, Saudi and Iranian governments, individuals

there access information electronically. Governments face problems in ensuring a

stable tax base as individuals become mobile and choose their domicile. These and

similar observations led us to institute a watch for signs and signals that this trend was

strengthening or waning.

We also observed the increasing role of NGOs in the business environment. For

instance, NGOs were the main drivers in defining the International Kyoto Treaty

environmental agreement standards.


By 1998, we wanted to explore the potential effects of these factors on business. So

we built some scenarios at a workshop of the consortium delegates during three days

of interactive work. The scenarios also utilized information from literature searches,

expert interviews and discussions.


Two key drivers of the scenarios were:

J The nature of communities, whether geographic or virtual. The major question was

the extent to which communities were rigid or evolving, represented by two

extremes: ‘‘community open’’ or ‘‘community closed’’. We observed that the sense

of community is strongly linked to individual and lifestyle choices.

J The capability of business to adapt to a new environment with a potentially changed

power structure. We expected that the ability of government to adapt would usually

lag that of business. We assumed that the adaptability of both the social

infrastructure – education, health, law and order – and technical infrastructure –

were linked to business agility. The two extremes in this range of possibilities were

‘‘business traditional’’ and ‘‘business agile and adaptive’’.

These two drivers produce four scenarios describing the business environment in

2010 (Exhibit 2).

In Liberation Works, a sense of local community develops to provide a rich and well-

balanced social environment, while business practices remain those of the 1990s.

This is a ‘‘Greenpeace’’ world that reconciles global and ecological concerns with

business and individual interests. Government funds the majority of technology

infrastructure.

‘‘ The two extremes in the other range of scenariopossibilities were ‘‘business traditional’’ and‘‘business agile and adaptive’’. ’’


In Gung Ho, there is also a sense of community, but since the business and social

infrastructures have adapted to the newly powerful individual, many of these

communities will be dependent on common interests rather than geography.

Business has found ways of meeting their customers’ new demands. Lags in the

adaptability of government mean that business has taken over some of the regulatory

roles of government, and has taken a lead in implementing the technology

infrastructure.

MegaCorp is a world in which large companies have established new rules. Virtual

communities of individuals, geographic communities, and governments, are less

powerful because of the rules imposed by the MegaCorp organizations. This is a

divided world, with gated communities and social unrest. This is the nearest scenario

to the future envisioned by Aldous Huxley in Brave New World. In it, the private sector

implements Infrastructure.

Finally, in Organization Rules there is a strong sense of community, but it acts to

reduce business agility, a result perhaps of the hierarchic constraints of society. The

technology infrastructure is supported by state investment and may also be operated

by the state.

Research portfolio

In developing the portfolio of research projects from the scenarios, we brainstormed

the different topics that would be relevant in each scenario. Then we looked to find

common themes and topics to explore the underlying drivers of the scenarios.

So for instance, in all four scenarios, since the basic science was already evident, we

assumed that the technological rate of advance would continue in the laboratory for

the next decade. After then, the differing assumptions about the scope of government

Exhibit 2 Scenarios for 2010

‘‘ The scenario process, by delineating the socialissues that might prevent technology adoption,helped participants build more robust R&Dprograms and set up early warning indicators tomonitor the pace and the directions ofevolution. ’’


start to make an impact on technology availability. For instance the extent of local loop

broadband or third generation wireless technology will depend on:

J Who will pay for the upfront investment in networks and will this be different in the

USA, Europe and Asia?

J Are there any new disruptive technologies and where would they emerge?

J Who will lead the adoption of new technology and how much will they be willing to

pay?

Under the heading of community and the related lifestyle issues, we saw that the there

would be major differences in each scenario. For instance, local communities would

be strong under Liberation Works, and virtual communities of special interest groups

would be important players in Gung Ho.

This meant that we needed to investigate the sources and nature of the differences,

seeking answers to questions such as:

J How does the relationship between the individual and society change in each

scenario?

J How will this alter customer’s expectations of business?

J What are the forces driving business in the third millennium?

Research topics, which emerged on lifestyles and communities, included:

J How do communities evolve in each of the scenarios?

J What are the role models – people and organizations – for each scenario?

J What is the evolution path of each scenario as seen in terms of individual/

community decisions such as election results?

J What causes each scenario to flourish or become unstable?

J How and why are the boundaries between work and leisure different in each

scenario?

J In what ways are the individual and community uses of visual and verbal media

different in each scenario, and what effect does this have?

J What are the types of community and how are they changing? For instance, would

Gung Ho support more or fewer virtual communities and NGO’s than MegaCorp?

The Business Agility axis prompted research topics related to the way in which digital

information accelerated or held up change in organizations.

J What is the role of information, communication and technology in making

organizations more agile in Gung Ho and MegaCorp? Which scenario is more

sustainable for businesses influenced by MegaCorp but not aspiring to be a

dominant international player?

J Which scenario creates most value and which least?

J How do the culture and business processes differ in each scenario? For instance,

we could see that businesses in a Gung Ho world would need processes that were

flexible and reviewed regularly

J What are the new value chains in each scenario, if any?

The governance environment will also be different for each scenario: the research

topics are: How will governments evolve to meet the new environment? In what ways


will regulation encourage or discourage the new world? How will governments fund

themselves?

So, in MegaCorp, regulation would be strongly influenced by a few market leaders,

and their investment would be aligned to increasing the penetration of the virtual

world, at least in cities where connection costs are lower. Governments find it difficult

to control and predict tax revenues in this world, due to the power and international

nature of dominant international organizations.

In contrast, Organization Rules is a world in which governance is by nation states and

there is little momentum for change.

Early indicators

Early indicators are specific events that are relatively easy to watch for and which can

give an indication of which way the world is evolving. So for instance the rise of a

political party or politician can indicate that changes are likely and the direction that

they will take. One example of this is Shell’s decision on investment in North Sea gas

fields. The bidding was intense and prices high: Shell asked the question, Would

Russia’s extensive gas fields start to contribute to international supply? They identified

this key indicator: if a politician named Mikhail Gorbachev moved into national

prominence it was likely that Russia would open up. They saw his career start to

develop, and so did not take part in the bidding war for North Sea reserves. Shell later

bought gas from Russia at an advantageous price.

Early indicators

In BIT3M, we saw some early indicators being satisfied for both MegaCorp and Gung

Ho, for instance:

J The rise of defacto standards in telecoms, media and computing industries

replacing slower traditional mechanisms of agreements between national bodies

J The rise of virtual communities for hobbies, health and family information sharing,

and for trading online

J The success of some brick and mortar retailers in creating electronic trading arms

(for instance food retailers in the UK and restaurants in the USA), as well as the

survival of some dotcom start-ups.

J Regulation moving away from national governments towards NGO’s, for instance in

the computer industry and for Internet and Web standards.

As a result we proposed that some industries at least would evolve along the

MegaCorp or Gung Ho. So we focused our research project portfolio into digital

information in the retailing, ICT and media industries.

Prioritizing research projects

The participants in the consortium workshop then categorized the list of 30 possible

research projects into three groups:

J Expensive – those costing the entire budget for at least one year.

J Medium – we could afford 3-5 of these.

J Quick/cheap – less than 10% of the budget.


Once we had a defined and costed set of research projects we categorized them into

high, medium and low impact projects, and which scenario they were relevant to

(Exhibit 3). Some projects were central to an understanding of all the scenarios; others

were of interest only under one or two. We focused on projects relevant to MegaCorp

and Gung Ho.

The projects that the participants felt had the most impact on Business in the Third

Millennium related to:

J The role of ICT in making organizations more or less agile.

J The changes in the value chain.

J Who would pay for network implementation?

J Disruptive technologies.

J The nature of virtual communities and their interaction with business.

J Mobility of individuals across national boundaries.

J What were the early indicators for MegaCorp vs. Gung Ho?

Three of the projects, those on network implementation, disruptive technologies and

early indicators were in the quick/cheap category. We scheduled the study of network

implementation and early indicators, but left the research project on disruptive

technologies until later.

We could only afford to do one of the other three projects, on value chains, the

connection between information, communication and technology and agility, or virtual

communities and business. We chose to study the interaction of virtual communities

and business, across both scenarios, since we could see other groups working on

value chains and to a lesser extent on information, communication and technology

and business agility. We found a think tank that was willing to share results with us on

the effect of mobility of individuals across national boundaries, and the effect of this on

the tax base of governments.

Lessons for practitioners

We used scenarios to define a portfolio of research projects twice in the BIT3M

Program. In both cases, the portfolio of projects that emerged was significantly

different from our initial instincts.

Exhibit 3 Prioritizing research projects


By going back to the underlying forces and asking questions about the discontinuities

that may emerge, the scope of the portfolio widened and many new potential research

questions were raised. Our list of research topics was dauntingly long before we

applied the prioritization process – about 30 separate topics – costing about seven

times our budget. By looking at the early indicators, we could narrow down the

number of scenarios to consider from four to two, and the projects from 30 to 20.

We then decided to focus on the projects that were important in both of the scenarios,

and to delay others until some of the early indicators leading to either MegaCorp or

Gung Ho had been observed.

We had expected that the internal issues for business such as value chains and ICT

and agility would have emerged as top priority topics. Instead we found that the

questions of the inter-relation of business with its customers emerged from the

process as most significant.

Conclusions

The BIT3M case study used scenarios to:

J Widen the range of discussion about the research program. Many of the

participants were from technology companies. Introducing scenarios helped them

to think about the adoption of technology, market issues and the effect of ICT on

society

Conclusions

J Engage sponsors and stakeholders in exploring the context of the proposed

research topics in the program, as a prelude to decision-making and funding. The

process, with interviews before the workshop and three days of interaction within a

disciplined process at the workshop, underpinned the efforts of the participants to

sell the research program back into their organizations.

J Link technological issues into societal issues. This required an examination of a

wider set of backgrounds than was traditional for planning R&D. The role of Watts

Wacker, a consumer futurist skilled at exploring societal issues, was crucial.

J Build a more robust research program by understanding the social issues that

might prevent technology adoption and set up early warning indicators to monitor

the pace and the directions of evolution. The participants shared the monitoring of

early indicators among their business intelligence groups. Key questions related to

investment in network infrastructure and sources of regulation.

J Prioritize research topics for investment, through use of the early warning systems,

which showed indicators for MegaCorp and Gung Ho. By focusing on MegaCorp

and Gung Ho we were able to focus on the role of business, and to define a portfolio

of research projects spanning these two scenarios.

Implications for corporate planners

Lessons corporate planners can learn from the case study are:

J Business agility is a key requirement in the present business climate. Many of the

factors originally identified by BIT3M are central to today’s business climate.


J The range of factors that need to be considered in plans is now much wider than

only a few years ago. Markets have changed from product push to consumer desire

driven, a result of changes in lifestyles and increased consumer information. These

factors are more difficult to forecast than technological issues.

J In considering the shape of society and new forces, scenarios can capture some of

the dimensions of uncertainty, allow for the creation of robust strategies and

understanding of early warning indicators of new phenomena.

However, a word of caution. Scenario development projects do not always produce

transformational insights and innovative thinking. In scenario work as in forecasting, it

is difficult for planners to shake off the blinders of their current worldview. Veteran

scenario developer Barbara Heinzen[6] enumerates many ways in which scenarios

may fail to tackle the seminal issues for an organization, and the reasons why they

flounder. Causes of failure include: planners taking too narrow a view of the topic, not

getting the attention of decision makers, or accepting a culture that cannot confront

the question of change. As an example of this last pitfall, she recalls asking the

question while building scenarios for Asia in 1996, ‘‘Could we have a financial crisis?’’

and getting the answer, ‘‘That is not possible’’.

Nevertheless scenarios surely fit among the toolkit of every manager responsible for

planning. They provide a process, mechanism and framework for anticipating change,

watching for early warning signs, and creating more robust plans.

Notes

1. Oxford Compact Dictionary (1991), Clarendon Press, ISBN 0-19-861258-3.

2. Porter, M. (1985), Competitive Advantage, Free Press, New York, NY, ISBN 0-68484-146-0.

3. Irvine, J. and Martin, B.R. (1984), Research Foresight, Continuum International Publishing,

ISBN 0-861-87496-X.

4. Ringland, G. (2002), Scenarios in Business, Wiley, ISBN 0-470-84382-9.

5. Davis-Floyd, R. (1997), ‘‘Storying corporate futures: the Shell scenarios’’, International Journal

of Futures Studies, Vol. 1.

6. Ringland, G. et al (1999), ‘‘Shocks and paradigm busters’’, Long Range Planning, October.


The strategic leader

Understanding the triad of great leadership –context, conviction and credibilityBrian Leavy

Brian Leavy is AIB Professor of Strategic

Management and former dean at Dublin City

University Business School

([email protected]). His research is focused

on strategic leadership, competitive analysis

and supply chain strategy. The author of

more than 40 articles on these topics, he

has also published two books – Strategy and

Leadership, 1994 (co-authored with David

Wilson) and Key Processes in Strategy, 1996

(and reprinted in 2001).

What is the essence of great

leadership? Every time a leadership

guru proposes a new theory that tries

to define it in terms of particular

personality traits or styles of behaviour,

we can easily think of successful

executives who do not fit their model.

For example, few experienced

managers would disagree that Jack

Welch, former CEO of General Electric,

is one of the outstanding business

leaders of his generation. Yet Welch is

hardly a prime example of either of two

leadership traits that researchers have

identified as essential in two recent

best-selling books. Not to take anything

away from his accomplishments, Welch

does not personify either ‘‘emotional

intelligence’’ (Daniel Goleman) or

‘‘level 5’’ leadership (Jim Collins).

Though concepts like emotional

intelligence and level 5 leadership may

be useful, they fall well short of

providing insight into the essence of

outstanding leadership, particularly at

the institutional level.

Theories based on traits or styles work

well at middle management level, but

tend to provide less insight into

institutional leadership, where whole

organisational populations have to be

inspired but leaders have little

opportunity for personal interaction. A

decade of research has led me to the

view that leadership effectiveness at

this highest level can be better

understood in terms of three main

elements – the context for leadership,

the conviction of the leader and the

flow of credibility over time and tenure.

Context – defining the opportunity

Leadership impact at the institutional

level is always shaped by context.

Great leaders make history, but not

always in circumstances of their own

choosing (to paraphrase Karl Marx).

Former US president Richard Nixon

proposed that the formula for placing

any leader among the great had three

elements, ‘‘a great man, a great

country and a great issue’’. Without the

second two, he believed, potential

greatness will remain unrecognised and

unfulfilled. Churchill once said of a

talented predecessor that he was

unfortunate to have lived at a time of

great men and small events. In the

movies, an Oscar-winning performance

begins with securing the right role, a

truth that applies to real life as well.

In the business world, leadership roles

are shaped by corporate history and

the context of the time. If General

Electric had chosen Stan Gault to be

CEO in 1981, and Jack Welch had

gone to Rubbermaid, how would they

both be viewed today? In many ways,

Gault’s performance over the years

was just as impressive as Welch’s, but

Rubbermaid is like off-Broadway

‘‘ Leadership effectiveness at this highest level can bebetter understood in terms of three main elements, thecontext for leadership, the conviction of the leader andthe flow of credibility over time and tenure. ’’


theatre compared with the scale of

drama at GE.

Business leaders typically play out one

of three main roles, builders, revitalisers

or inheritors. The first two offer the

greatest opportunity to make a

personal mark, whether through

building great enterprises like Bill Gates

(Microsoft) or Ted Turner (Turner

Broadcasting), or revitalising formerly

great companies, as Roberto Goizueta

did at Coca-Cola or Michael Eisner did

at Disney. In contrast, the contributions

of skilful inheritors, like David Glass at

Wal-Mart, tend to be seen as less

dramatic, making it more difficult for

them to stand out or to be seen as

charismatic.

Conviction – providing the drive

Having the opportunity to make an

impact, however, is not the same as

making one, and the individual leader

must still have the talent to meet the

challenge and the conviction to rise

to it.

At the CEO level, imagination and drive

are more likely to distinguish

outstanding performance than

professional expertise. Yet many of the

categorizations of the energy and

enterprise of great CEOs are too

generic, and fail to uncover the deeper

wellsprings of inspirational leadership,

which are always context specific. Take

the idea of executive vision, for

example. Without context, it is little

more than image or fantasy. This is one

reason many corporate mission

statements turn out to be ineffective

and lack ‘‘gut-grabbing meaning’’, as

Built to Last authors Jim Collins and

Jerry Porras have often argued.

Leadership that truly transforms is deeply

rooted in values, convictions and

principles of a more transcendent nature.

For psychologist Howard Gardner, the

essence of inspirational leadership lies

in the ability to create and act out

compelling stories, particularly stories of

collective identity, which appeal to both

reason and emotion. Great enterprises,

like Wal-Mart, are built on potent

founding stories, embodied in larger-

than-life characters like Sam Walton.

Talented inheritors, like David Glass,

keep the spirit alive and maintain its

momentum. In their turn, great

revitalizers reinterpret shared legacy

and make it relevant to new and

formidable challenges. For example, in

the aftermath of the 11 September

terrorist attack, the world watched

mayor Rudolph Giuliani brilliantly

rediscover the spirit and resilience of

‘‘The New Yorker’’ and articulate it in a

new and compelling way that helped

rally the city at a time of great

uncertainty and distress. Likewise, over

more than a decade, we have seen

how Jack Welch has re-interpreted the

spirit of General Electric and rekindled

the American dream within the

country’s leading business institution.

What Welch accomplished reaffirms to

the business world that entrepreneurial

flair need not be lost with scale, in spite

of much depressing evidence to the

contrary.

Credibility – generating the currency

The third element in this perspective is

credibility. All great leaders recognise

credibility as the dynamic currency of

leadership, yet it rarely figures in

traditional theories. Any theory of

institutional leadership has to concern

itself with how credibility is created and

destroyed over time. In the first place,

an examination of credibility helps us to

recognise our natural tendency to

romanticise our leaders and exaggerate

the credit that we give to them for the

things that happen, both good and

bad. However, arguments over whether

leadership is more style than substance

miss a key truth. As a case in point,

veteran Washington correspondent

Helen Thomas continues to rate

president Kennedy ahead of his

successors because he rallied

Americans to aspire to noble goals at a

time of national self-doubt. What the

‘‘Camelot’’ presidency illustrates is how

symbol and substance can work

together to be transforming.

The flow of credibility also depends on

performance in the arena, and leaders

are continually trading in this currency

throughout their tenures at the top. The

focus on styles and attributes tends to

make us too preoccupied with how

leadership capacity differs from person

to person. However, it is just as

important to understand how it varies

in any given individual over time. Too

much credibility can be as harmful as

too little. As credibility grows, the line

between confidence and hubris often

becomes very thin, as Jack Welch

learned several times in his GE CEO

job, and again in his ‘‘retirement’’ years

too. Another problem develops when

the senior executives who report to the

CEO start to behave like acolytes, an

ominous sign that credibility has shifted

to credulousness. For instance, former

president of Honda, Kiyoshi

Kawashima, stepped down early when

he found that his senior people had

taken to agreeing with him much too

often. It’s a pity more leaders do not

follow his example.

At the other end of the spectrum,

credibility can be lost in trying to move

too quickly in advance of key

constituencies. Jacques Nasser’s failed

bid to re-invent Ford Motors as a

consumer services company is a

dramatic example. At the time of his

appointment as CEO, Nasser was

widely seen as the best in the

business, yet, ‘‘somehow during the

course of his tenure he managed to

‘‘ Another problem develops when the senior executiveswho report to the CEO start to behave like acolytes, anominous sign that credibility has shifted tocredulousness. ’’


create a lack of trust among virtually

every constituency’’, as one of his

board members put it. Other leaders

lose their effectiveness over time

because their spirits get tired or their

stories get old.

Thomas Jefferson once described the

US presidency as a ‘‘splendid misery’’,

and no incumbent aged more quickly

over his years in office than Lincoln,

one of the greatest American

presidents. Clearly exemplary

leadership takes its toll.

Even where great leaders manage to

remain strong in body and spirit over

lengthy tenures, few are able to

reinvent themselves and their stories

when the original version no longer

excites and emboldens those they

would lead. Margaret Thatcher still felt

like she could go ‘‘on and on’’ at the

time that her political career ended in

tears and she failed to recognise that

her story had run its course. As

another example, Ken Olsen of Digital

was lionised in the business press for

more than 20 years, but arguably he

undermined a great legacy by holding

on to the top job too long. Jack Welch

recognised this danger at General

Electric when he told a forum of Asian

business leaders that he was ‘‘not

retiring because I’m old and tired’’ but

because ‘‘an organization has had 20

years of me’’ and has to ‘‘renew itself’’.

The perspective on leadership

presented here has three major

implications that should be considered.

Selecting leaders: matching talent and

role

Oscar Wilde once remarked

sardonically: ‘‘All the world’s a stage,

but the play is badly cast’’. Good

casting is key to leadership

effectiveness at institutional level, but

business history is littered with

examples of poor selections that have

destroyed value and damaged

reputations. Casting is an art in itself,

whether in business or the performing

arts, and there are few reliable guides

to getting it right.

Success in supporting roles is no

guarantee of effectiveness at

institutional level, because top

leadership is different in kind as well as

degree from that at all other levels of

management. Few expected Wal-Mart

to succeed so well under David Glass,

because Sam Walton was seen to be

an impossible act to follow. Even fewer

would have foreseen the tenures of

Jacques Nasser at Ford, Doug Ivester

at Coca-Cola or Eckhardt Pfeiffer at

Compaq all ending so abruptly. These

three talented executives had major

achievements to their credit prior to

taking the top job. For example, Nasser

first successfully ran Ford Europe.

Ivestor’s departure from Coca-Cola

was also hard to understand because it

was widely believed that no understudy

had ever been as well groomed for

succession. Pfeiffer’s firing was equally

unexpected. At the time of the Digital

acquisition in early 1998, Ben Rosen,

chairman of Compaq, described

Pfeiffer as ‘‘unquestionably one of the

industry’s most talented executives’’

with ‘‘a tremendous strategic sense, an

ability to execute and an ability to

lead’’. A year later, Rosen fired him,

and said he regretted not having done

it sooner.

The lesson to be learned is that

institutional leadership seems to require

the right blend of passion and

pragmatism, and most of the

miscasting that we see in the business

world tends to come from getting this

balance wrong. The right blend can

change over time. For example, we

have seen strong passion to achieve

unique technological solutions create

great enterprises like Polaroid and

Apple, and later the same passion

almost brought these enterprises to

their knees. The histories of enduring

enterprises tend to be marked by

cycles of gradual and radical change.

During the evolutionary phase, an

existing business model is clarified,

refined and finessed. This phase often

requires steady adaptation. During the

evolutionary phase, passionate

leadership can be dysfunctional, as

happened at Apple in the mid-1980s.

On the other hand, conviction

leadership is needed where great

enterprises have become over-adapted

to old realities and radical change is

required. For instance, in 1985, John

Ackers was the obvious choice of most

IBM watchers for CEO. At the time, Big

Blue looked as if it were on course to

dominate every segment of the

computer industry and become the

world’s biggest company within a

decade. Given this prospect, Ackers

had been chosen as a steady hand on

the tiller to keep this strategy on

course. He was neither cast for, nor

could he find the inspiration to fulfil, the

transformational leadership role that

IBM urgently required in the early

1990s.

In contrast, part of the genius of

General Electric to date has been the

effective selection of passionate and

pragmatic leaders to match its

revolutionary and evolutionary cycles

over its long history, according to the

renowned management consultant

Richard Pascale.

Educating leaders: perspective not

prescription

While good casting is essential, there is

no role that fully prepares someone for

leadership at the top, and new

incumbents must learn quickly once in

office. Most CEOs pick up their most

valuable professional skills and

knowledge on the way to the top. So

how do they upgrade their leadership

skills? Jeff Immelt, the new CEO at

General Electric, is an avid reader of

history and biography, but rarely reads

business books, and he is not unusual.

During his heyday at Citigroup, John

Reed read deeply into the history of

scientific ideas, studying ‘‘how ideas

evolve’’ and how great scientists


develop ‘‘a sense of where the breaks

are coming’’, and he was an unusually

innovative banker for his time.

What leaders like these seek most is

perspective, not prescription. Yet

academic and consultants continue to

bombard them with advice on

attributes, styles and behaviours and

wonder why so many take no notice. If

effectiveness depends on the ability to

create and embody a compelling story

that will reach into the hearts and

minds of every stakeholder, then CEOs

need to learn how to uncover the

deeper values that they share with their

followers. Then they need to articulate

these values in fresh and compelling

ways that link their company’s future

opportunities with its history. If too

many CEOs show little capacity for

visionary leadership, it is not because

they lack advice on lateral or creative

thinking. More likely it is because their

interests are too narrow, their deeper

values remain untapped and they are

failing to stretch themselves beyond the

‘‘completeness of a limited man’’, to

use the phrase of John Stuart Mill.

In these dynamic and uncertain times,

it seems timely to look again at the role

that the humanities might play in the

education of leaders, particularly at the

institutional level, where a humanist

perspective is most needed. ‘‘Wherever

did we get the notion that in

management there is a reasonable

separation of the intellect and the

spirit?’’ asks CEO James Autry of

Meredith Corporation. Yet, much of our

traditional approach to the training of

leaders seems to reflect this view. The

distinguishing mark of the liberal arts is

their emphasis on integration and

wholeness, and we might all now

benefit from recognising anew what

many business leaders and academics

of the post-war era believed over half a

century ago, that an immersion in the

humanities can help an executive

become not only a wiser, broader

person, but also a wider, broader

businessperson. Few advanced

executive development programs go

near to developing this capacity today,

and many do not even try.

During the early 1950s, the world was

embarked on a long struggle ‘‘between

opposing ideals, opposing ways of

life’’, as Donald David, then dean of

Harvard Business School, described it

at the time. Today, we are facing this

struggle afresh, at a time when

business has become the leading

institution in geo-political development,

and the need for the humanist

perspective at CEO level is now more

pressing than ever. In leadership

studies generally, we still do not know

fully know where great transcending

ambition comes from, but if history is

any guide, then the kind of ambition

that built the cathedral at Chartres,

painted the Sistine Chapel or

circumnavigated the globe for the first

time with a starving and mutinous

crew, does not come from personal

ego or the search for material success

alone. An earlier generation of business

leaders believed that management, like

the arts and education, should serve a

higher purpose than just the needs of

business. It now seems timely to

recover this value if our institutional

leaders hope to be able to inspire their

employees and help make working

lives more meaningful in this post-

modern world.

Changing leaders: protecting legacies and

reputations

Finally, inspired casting at the

institutional level is likely to remain very

challenging well into the future. Many

leadership tenures end prematurely due

to poor selection from the start, others

because incumbents fail to grow in

office. However, in today’s dynamic

and uncertain world, good selection

also comes unstuck because the

requirements of the role shift radically

over time. CEOs are being removed

more rapidly than ever before when

firms hit difficult times, and the process

is rarely handled well. Shareholders are

often outraged when they see massive

payoffs to failed executives, like the

deal Disney offered CEO Michael Ovitz.

For their part, departing CEOs, like

Jacques Nasser or Doug Ivester, feel

used and betrayed after years of

dedicated service, and many leave with

their confidence shattered and their

reputations in tatters. Stories of careers

being revived at this level are rare, and

this represents a shameful loss of talent

to the corporate world.

We have to find a better way, and the

main responsibility lies with the board.

Today, miscast CEOs tend to bear too

much of the blame. No wonder many

demand golden parachutes at the

outset, though few expect to use them.

If Ivester was basically wrong for Coca-

Cola, was this not a failure on the part

of Guizueta and the board? Boards

must held more accountable for

casting errors, and the argument for

separating the roles of chairman and

CEO seem more pressing than ever.

Strong boards with independent chairs

are also needed to take both timely

and appropriate action when leaders

who become miscast or lose their

credibility over time have to be

removed in the wider interest. This was

why Compaq was able to act faster

than most.

Some CEOs are one-strategy

specialists – ruthless cost cutters – like

Al ‘‘chainsaw’’ Dunlop, were brought in

to strengthen the balance sheet and

cash flow in times of difficulty but

proved to be incapable of growing the

business once the storm was

weathered. Moreover, those who are

‘‘ An immersion in the humanities can help an executivebecome not only a wiser, broader person, but also awider, broader businessperson. ’’


most effective at embodying their

original strategy may become so

typecast in the eyes of their followers

that they only generate confusion when

they try to re-invent themselves. There

are also times when companies need

to change their leaders for reasons

more symbolic than substantive. In

times of crisis, the drama associated

with leadership change itself can help

prepare an institution for

transformation, generating a self-

fulfilling dynamic. Several decades ago,

the choice of Don Petersen to lead a

Ford Motor Company that had grown

stodgy, symbolized the need to change

and helped to bring about ‘‘the

comeback of the 1980s’’ by

successfully implanting a compelling

new story of participative management

that was very foreign to the company’s

tradition.

Boards need to find a better approach

to the management of casting

problems and to deal in a more

equitable manner with CEOs who must

make way in the company’s overall

interest. The first consideration is

timing. Boards shouldn’t move too

quickly and remove a talented

executive at the first crisis he or she

encounters. If Coca-Cola CE Goizueta

had been axed after the New Coke

fiasco, or John Reed had been forced

out during Citgroup’s trauma of the

early 1990s, those firms would have

lost two of their most outstanding

CEOs. In other cases, however, boards

delayed too long because they judged

performance solely on the numbers

and fail to monitor internal morale. For

example, as the shares at Abbott

Laboratories soared, Bob Schoellhorn

became widely seen on the outside as

somewhat of a hero, while rapidly

losing the respect of his own

executives for the arrogance and

excess that eventually led to his

downfall. Boards also tend to delay too

long when a founding entrepreneur has

to go.

Rare are the CEOs who are right for all

contexts, and rarer still the casting

directors who never get it wrong.

Greater acceptance of these realities,

and greater care in distinguishing loss

of credibility from lack of competence,

will help boards take more timely

actions and explain them to their wider

publics.


Quick takes‘‘Quick takes’’ presents the key points and action steps in each of the feature articles

Page 4

Scenario planning after 9/11:

managing the impact of a

catastrophic event

Peter Kennedy, Charles Perrottet and

Charles Thomas

Post 9/11 is one of the most unsettling

and confusing business environments

since the Depression. Executives are

grappling with the short- medium- and

long-term decisions that must be made

in the face of unknowable shocks and

crises.

How to respond? Consider decision-

driven scenario planning, which is

extremely effective in working through

uncertainties, exposing faulty

assumptions, and probing conventional

wisdom. Scenarios focused on the near

term greatly enhance operational

efficiency by confronting ambiguity

head-on and forging critical alignment

around big issues.

Alternative scenario-based tools:

traditional scenario planning can be

retooled to address the current,

specific need for continuity assurance

and near-term operations planning.

Three areas of needs are described in

this article with case studies to show

how each matches a modified

scenario planning process. The

processes are:

J Business continuity planning – the

focus is on tactical responses to an

‘‘event’’; the use of a tightly focused

set of scenarios using a very simple

two-by-two scenario space matrix

works well. The case study is of a

financial services firm that used two-

scenario set to build its plan but stress

tested its recovery strategies with

relevant wild-card events.

J Near-term (1-3-year) operations

planning – the focus is on the range of

plausible outcomes that follow the

‘‘event’’. The case study works

through critical operational issues in

four narrowly focused business

environments to ensure maximum

preparedness for challenges to

employee mobility, project

management and new business

development.

J Strategic planning – the focus is on

development of new business model

and strategies that are robust no

matter how the future unfolds; four or

more dimensions are used.

J A third case describes the

development of a new strategy by the

US Coast Guard prior to 9/11. The

process has been credited with

helping this service quickly adjust to

the post 9/11 environment.

In the first two cases, scenario planning

brought in a larger pool of executives

into the decision-making process than

would typically be the norm. As a

result, plans and actions were more

carefully developed and the outcome

engendered greater confidence, clarity

and energy for subsequent

implementation. The greatest benefit,

though, may be the rigor and creativity

to defining ways to meet a different set

of outcomes. Scenario planning is an

excellent tool at this time. This is

perhaps the best safeguard against our

previous ‘‘failure of imagination’’.

Page 14

Decision-driven scenarios for

assessing four levels of uncertainty

Hugh Courtney

To get the most out of the scenario

planning efforts, select the process

designed for the outcome anticipated.

Practitioners should choose between

two basic techniques: vision-driven and

decision-driven scenario processes,

both essential components of any

company’s strategy toolkit. Companies

that sponsor vision-driven exercises

every 1-3 years will be best positioned

to recognize and capture the new

opportunities and manage the risks

inherent in today’s rapidly changing

business environment. These exercises

help set valuable strategic and

organizational priorities, and provide the

necessary context for all decision-

driven scenario efforts.

Catherine Gorrell is president of Formac,

Inc., a Dallas-based strategy consulting

organization ([email protected]), and

a contributing editor of Strategy & Leadership

VOL. 31 NO. 1 2003, pp. 61-64, MCB UP Limited, ISSN 1087-8572 | STRATEGY & LEADERSHIP | PAGE 61

This article focuses on the less well-

known decision-driven scenarios and

explains how to match the right process

with the level of uncertainty the scenario

addresses. Companies should select

concrete, decision-driven scenarios to

make the right capital investments,

marketing campaign and other strategic

decisions when uncertainty implies that

there is no ‘‘obvious’’ answer. Vision-

and decision-driven exercises are highly

complementary.

For those focused on near-term

strategic decisions, the use of decision-

driven scenarios should be tailored to

the correct level of uncertainty being

faced. Points are presented in the

article to assess when and how to

apply each type of process.

The four levels of uncertainty are:

J Level 1: The future is predictable

enough to identify a dominant strategy

choice, such as McDonald’s US

restaurant location decisions.

J Level 2: Alternative futures are

possible and the best strategy to

follow depends upon which outcome

occurs. The strategist must choose

between strategic options with

different risk-return profiles across the

different scenarios.

J Level 3: The range of futures is

unbounded. Customer demand for

new products and new technology

adoption rates are common sources

of Level 3 uncertainties. General rules

to follow are presented. Qualitative

‘‘business judgement’’ factors play a

more prominent role here than in

Levels 1 and 2.

J Level 4: True ambiguity equates to

future outcomes that are both

unknown and unknowable. Analysis

cannot identify the range of

possibilities, let alone scenarios within

the range. An example is formulating

an airline’s strategy on 12 September,

2001. At this level, it is best to work

backwards from potential strategic

options to define ‘‘what you would

have to believe’’ about a future

scenario to support this option. A

systematic checklist of key

considerations would drive decision-

making.

Armed with the right technique and

right support practices, scenario efforts

are more likely to generate valuable

foresight that leads to clearer strategic

visions and better strategic decisions.

Page 23

Scenarios and strategies: making the

scenario about the business

David H. Mason and James Herman

A methodology practiced by the authors

makes scenario planning more relevant

to senior business managers. ‘‘Future

Mapping’’ incorporates the future of the

client’s business itself into the scenarios

being developed about the external

business environment. For each external

state, there is a future state for the

business. The organization is the central

focus of the scenarios – scenarios about

the business strategy alternatives (e.g.

low cost, differentiate, focus on markets

served). This approach to scenario

planning offers three key benefits:

J It keeps the business and its choices

apart of the discussion throughout the

exercise

J It is much easier to get senior

management excited and engaged

J It turns the scenario development

process into a strategy development

process that balances external and

internal issues.

Overview of the steps:

J Step 1 is to propose multiple

outcomes for the industry, market,

technology and/or society within

which the organization operates.

J Step 2 is to develop an event path

linking today to the endstate. This is

the ‘‘scenario’’.

J Step 3 is to describe, for each

endstate, an outcome for the

organization itself. Events are not

longer entirely external, but include

actions that the organization might

take. (This co-evolution is more


realistic than consideration of the

external environment independent of

the business.) The company’s own

actions are complemented by a list of

external events that must ‘‘go right’’

for the strategy to succeed. The

scenarios can also be complemented

with a timeline of changes in critical

business metrics. This approach puts

forth a rich notion of strategy that

combines a clear definition of the

aspiration of the business – what it

wants to become or attain – with a

timeline of specific internal and

external action and interventions that

are needed in order to succeed.

Several variations of this approach, with

a different mixture of internal and

external focus and steps, allows this

scenario planning process to be

tailored to the unique needs of any

business. For example, using this

methodology, scenario planning can be

used as the first step for a change

management effort. Or it can be used

as the forum for a healthy debate

among the management team

concerning critical topics, such as the

scope of the business, the importance

of environmental changes like the

Internet, and the governance principles

upon which they will run the company.

Page 32

Competitor scenarios

Liam Fahey

Combining scenario learning and

competitor assessment provides a

methodology to enable managers to

efficiently and effectively assess their

rivals (both new and old) in a variety of

settings. Not only does this process

expand the thinking of managers (who

are usually only focused on current

conditions) but also offers them rich

insight into their company’s own

strategy alternatives (including ones not

yet on its radar).

This article demonstrates how the

competitor scenario process works in

practice and, with many examples,

offers learned principles and ways to

avoid various pitfalls.

Briefly, a competitor scenario starts

with a logical narrative that considers

what a competitor might do over some

specified time period, how its managers

would do it, and why they would

choose to do so. The scenarios can

focus on a variety of topics such as:

J Which product-customer segments

the competitor chooses to compete

(scope)

J How it competes (competitive

position).

J What it seeks to achieve (goals).

J How a competitor develops and

manages a network of alliances or an

integrated supply chain.

There are two distinct types of

competitor scenarios that originate in

two quite different forms of what-if

questions: unconstrained and

constrained what-if competitor

scenarios.

J Unconstrained (or open-ended)

questions encourage scenario

developers to pose any question

pertaining to one or more rivals’

marketplace strategies.

Unconstrained questions are limited

only by the experience, imagination

and creativity of those involved. The

questions can be mapped into four

categories that lead to competitor

scenarios with different foci.

J Constrained competitor scenarios

start from a common point of

departure: what would the competitor

do if a specific set of marketplace or

macroenvironmental end-states or

conditions were to arise? This type of

scenario work is best if your firm wants

to assess:

j What would a rival do under

specific market conditions?

j Why would a rival adopt one

strategy versus another?

j Which marketplace changes might

lead a rival to adopt a particular

strategy?

The five steps in constructing

competitor scenarios are relatively


straightforward; they are discussed with

examples. The last step being the

essential question: what business

issues emerge from each scenario that

pose opportunities and threats that the

organization must explore? The issues

will vary significantly across the end-

states. This is the power and richness

of the competitor scenario process.

Page 45


Gill Ringland

Scenarios provide a process,

mechanism and framework for

anticipating change, watching for early

warning signs, and creating more

robust plans. This case examines how

this applies to the research and

development decision-making

processes (ranking R&D projects and

managing the R&D programs). The

logic is simple:

J Business agility is a key requirement in

the present business climate.

J The range of factors that need to be

considered in planning R&D projects

are much wider now than only a few

years ago, increasing the difficulty to

successfully forecast.

J Scenarios can capture the dimensions

of uncertainty, thus allowing R&D

managers to create robust strategies

because they can anticipate change

and watch for early warning indicators

of new phenomena. This is possible

because mangers can view the

sensitivity of their R&D projects’

success criteria in terms of the

detailed assumptions about the future.

Three components – forecasting,

scenarios, and foresight – are all

important in the ongoing R&D decision

process. Forecasts combine current

trends and render them into a single

value or range of values for a variable

(timescale of market impact, cost of

project, competitive position). Scenarios

capture and explore the multiple

images of the possible future societies

and how they may react to the R&D

products. Foresight is the analytical

process of using a combination of

scenarios and forecasts to ensure that

the company focuses its R&D on the

most effective areas.

This case recounts the use of the

scenario process to discover ways that

digital information is influencing and

changing society. Emerging R&D

technology could be assessed in

scenarios that looked at how the

combination of Information,

Communication, and Technology (ICT)

was influencing the way business

evolves – or changes discontinuously.

When using scenarios to define a

portfolio of research projects,

experience has shown that the portfolio

that emerges is often significantly

different than the one defined by initial

instincts. This is just the first of several

benefits for using scenarios for

understanding the major areas of

uncertainty for R&D projects. Other

benefits are:

(1) Widen the range of discussion

about the research program to

encompass not just technology but

also market issues and the effect on

society.

(2) Engage sponsors and stakeholders

in exploring the context of the

proposed research topics in the

program as a prelude to decision

making and ‘‘selling’’ the research

program for company funding.

(3) Link technological issues to societal

issues

(4) Build a more robust research

program by understanding the social

issues that might prevent technology

adoption and set up early warning

indicators to monitor the pace and

directions of evolution.

(5) Prioritization of research topics for

investment though the use of the

early warning systems.


2003 strategy and leadership.pdf

Documents

scenario framework

decisiondriven scenarios

longterm planning

issue of strategy leadership

scenario development

firms strategy

leadership effectiveness

contextfor leadership