Using Trends: Scenarios and Justifying Responses

1. Using Trends: Scenarios and Justifying Responses Management Futures Lecture 4 Zoe Dann

2. Learning Outcomes By the end of this session, you should be able to: • Define and evaluate a response • Understand and critique the use of scenarios

3. Defining and Justifying/Evaluating Responses

4. Signals (Trends) and Reaction Times

5. What do we mean by a response? • Reaction to a stimulus, an answer • Response to a threat… • Change in resources • Change in product or service • Change in policy (public and private)

6. Obesity as a threat … "a potential crisis on the scale of climate change", (Alan Johnson, Health Secretary, 2007) • Development of expertise/capacity • Campaigns to encourage exercise and healthy eating • Legislative change • Latest campaign • Change in product?

7. Evaluation • Suitability • Evidence base to support change • If you have identified the start of a trend, what are the warning signs or early indicators? • What are the drivers? What trends are interacting to create this need? • Are there any trends that may inhibit the need for your proposal? • Addresses genuine need • Reduces or circumvents threat (turns it into an opportunity? E.g. plate) • Acceptability • Risk reward has been evaluated e.g. Cost v benefit • Stakeholder satisfaction • Parallels and precedents (has it been done before) • Ethics? • Feasibility • Plausible action that could be taken • Timing of action appropriate

8. Evaluation Using Scenarios

9. The falacy of prediction • “Computers in the future may weigh no more than 1.5 tons.” (Popular Mechanics,forecasting the relentless march of science, 1949) • “I think there is a world market for maybe five computers.” (Thomas Watson, Chairman of IBM, 1943). • “Airplanes are interesting toys but of no military value.” (Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre, ±1910).

10. Precisely wrong?

11. Range of Possible Futures “it was better to be vaguely right than to be precisely wrong” – John Maynard Keynes

12. Source: Pillkhan, 2008

13. Trend analysis: point forecast v alternative forecast Source: Pillkhan, 2008

14. Qualitative v Quantitative Analyses over time Source: Pillkhan, 2008

15. Using Scenarios

16. “We can either stumble into the future and hope it turns out alright or we can try and shape it. To shape it, the first step is to work out what it might look like.”Stephen Ladyman – UK Minister for Transport – said at the launch of Foresight’s Intelligent Infrastructure Systems project in January 2006

17. Scenarios: What are they? • Stories of the future ‘Thinking the unthinkable’ • RAND corporation Post War • Used by Shell to prepare for oil supply shock • Test bed for strategic thought • ‘Future proofing’ strategies • Reponses to threats and opportunities

18. Shell’s Scenarios: Why Shell? • Shell • The imperative is to use this tool to gain deeper insights into our global business environment and to achieve the cultural change that is at the heart of the group strategy…I know that they broaden one’s mind set and stimulate discussion. (Van Der Veer, 2005)

19. Manager roles and use of scenarios • Strategist • Generate options • Corporate manager • Make choices- are objectives, robust, redundant or need modification • Set up scenario watch if necessary • Line manager • Business plan wind-tunnel • Portfolio management • Pattern recognition • Market planning • Skills planning • Early warning signs (Source: Ringland, 2006)

20. Scenario Process Source: Pillkhan, 2008

21. Approaches to Scenario Writing • Identify the context e.g. global, national, industry • Perform a PESTLE analysis • Identify • Constants/paradigms • Trends • Contradictions • Uncertainties (form axes of matrix 2x2) • Wild cards

22. ‘Food Futures’ • Constants/Certainties (in each scenario) • Health is vital for well being (S) • Access to adequate fresh water and food is vital (S) • Trends • Increasing obesity (S) • Health eating (S) • Heart Disease and Diabetes (S) • Increasing population (S) • Increasing environmental concerns (Env) • Blockers (contradictions) • Readily available food is not necessarily healthy (S) • Ready access to energy can cause us to become lazy and can diminutions our health (S)

23. ‘Food Futures’ • Uncertainties (uncertain about the direction or speed of change) • Food supply • Energy supply • Cost of energy and food (E) • Disposable incomes (E) • Availability of medicine for disease (TS) • Acceptance GM food use (TS) • World wide distribution of food • Political stability (P) • Control of import/export (L) • Wild cards • Plague (S), pestilence (S), new technology to increase yield of products (T), food scares (T), natural disasters (E)

24. Food futures Energy rich WOOBLY WORLD SIZE 20 WORLD Food shortages Abundant food FARMER’S WORLD SKINNY WORLD Energy poor

25. “SIZE 20 WORLD” • Abundant food sourced globally, gluttonous energy use • Unsustainable use of resources • Health eating is prevalent • Increasing population is putting pressure on resources • Dependency on processed food • Dependency on leisure activities • Problems of obesity – diabetes and heart disease are high • High health costs • High numbers of long living elderly but deaths due to obesity and inactivity

26. “FARMER’s WORLD” • Energy resources are less abundant • Food is readily available but grown by many farmers who have access to small plots of land • There is a possibility to sell the food to other communities • Increased yield products are farmed by Biotechnology • Farmer’s are dependent on Biotec firms to provide seeds as the seeds are F1 Hybrids • There has been investment in sustainable farming methods • Much land has been used for growing crops

27. “SKINNY WORLD” • Energy requirements are low • Food is not readily available • Climatic conditions do not support growth of food • Political instability and local term conflict • Land is under utilized or under developed • Subsistence farming is interrupted by conflict and adverse weather conditions due to climatic change • Some land is sold to other countries • International support is available to create political stability

28. “WOBBLY WORLD” • Energy is abundant however is intermittent in supply due to political instability • Food supply is poor due to high prices caused by corruption or high taxes • Subsistence farming takes place to provide for families rather than feeding the nation • Investment in business is poor due to corruption making it difficult to grow businesses and invest in technology • Black market and crime activities are prevalent • Political intervention from other countries are necessary

29. Now What? Using the scenarios • Are they plausible, preferable? • Early warning sign detection • Test products and services e.g. Which futures would support Biofuel? Which futures would support sustainable energy sources? • Opportunities for growth e.g. Cheap sustainable food production • Responses/Contingency plans e.g. Diversify sources of energy and food production

30. Wind Tunnel Metaphor

31. Future of Work Source: Henley Management School Headlight Vision, 2007

32. The Future of Work? 1. In “Disciples of the Cloud” the notion of the workplace remains central to work. Among the reasons for this are the need to maintain the culture of the organisation, and to control intellectual property. 2. In “Electronic Cottages” the ‘workplace’ has shrunk because companies are increasingly virtual. Work takes place either in the home or in more local hub offices.  Employees have more control over when and where they work, but see value in being employed.

33. The Future of Work? 3. In “Replicants” organisations are highly distributed, physically and structurally. "Replicants" are 'fast followers' who thrive in a world of open innovation by using public knowledge (open source software, or expired patents) as the basis for service or process innovation. 4. In “Mutual Worlds” businesses operate as loose federations of independent contractors. Intellectual property is controlled by workers; service tends to be geographically located. These ventures are held together by flows of information, and also connected to similar ventures elsewhere, to share knowledge and realise some economies of scale.

34. Eg. How might these scenarios influence news papers industry? Raises questions for the media industry Technological pervasiveness is not even Are the scenarios competing or working together? Fragmentation of the industry? Large business unviable? Threat of more online services? Intellectual property erosion? New contacts for employment? Using the Scenario

35. Critique • 2x2 matrix is two simplistic • Other choices of uncertainties would lead to radically different scenarios • Other methods such as morphological analysis (See Pillkhan TV Example) • Dependent on implementers who may be adverse to change

36. So what??? Use it as a test bed for a response • Are your strategies robust across the range of scenarios? • Become alerted to arising future scenarios – can you spot the weak signals that indicate a change of future? • A means of changing mental schemas of the future (Mediocristan and Extremestan, Taleb)

37. Conclusion • Two methods • SAF, Scenarios (the wind tunnel!) • Scenarios are controversial – an art, playful – what’s the argument for using them? • Consider using them for evaluating your responses and future proofing your products and services

38. References and Further Reading Chermack, Thomas J., Susan A. Lynham, and Wendy E. A. Ruona. "A Review of Scenario Planning Literature." Futures Research Quarterly 7 2 (2001): 7-32. Gordon, A,(2008) “Future Savvy”, Chapter 9 Pillkhan (2008),’Using Trends and Scenarios as Tools for Strategy Development’, Siemens Schoemaker, Paul J.H. “Twenty Common Pitfalls in Scenario Planning,” in Learning from the Future. Wiley & Sons, 1998, pp 422-431. Shwartz, P. (1991) The Art of the Long View. Planning for the Future in an Uncertain World, Bantam Doubleday, New York. Ringland G. (2006), ‘Scenario Planning’, Wiley Teleb,N, (2007),”The Black Swan: The Impact of the Highly Improbable”