Expertise and Experience in Scenario Planning

1. Introducing Analysys Mason Expertise and Experience in Scenario Planning Amrish Kacker Q3 2007

2. Summary • Reliance on market predictions is risky. The pace and complexity of telecoms development make long-term forecasts very uncertain • Analysys Mason offers scenario planning as a means of tackling the diversity of future possibilities, in order to: • gain a fundamental understanding of the forces that are shaping the future • assess the risks and rewards of different business options • develop flexibility in responses to unforeseen change • We combine in-depth knowledge of the telecoms sector with process consulting skills, working with clients to reach practical business decisions • The following slides present: • the benefits of our approach • the principles of scenario planning • the scenario-planning process • checklist for success

3. Benefits of scenario planning • Scenario planning helps you to develop the agility required to gain business advantage from changes in the telecoms environment. The benefits include: • early warning of business risks and opportunities • objective decision support which balances the risks and returns of business options • innovative business ideas • challenge to any assumptions of business-as-usual • common language for strategic debate which helps to capture divergent views across the business

4. Our approach • We go beyond descriptive scenarios to explore the details of business options • We help our clients by: • designing an efficient planning process that is tailored to meet each client’s needs • facilitating workshops to engage, stimulate and challenge the client team • analysing the risks and rewards of options in order to support decisions • managing the process to deliver results on time • The aim should be to embed scenario planning in the everyday business management process • We therefore like to work closely with our clients in a single integrated team, to encourage skills transfer and total transparency • We encourage the client team to take ownership of the process and the results

5. The principles of scenario planning “Too many forces work against the possibility of getting the right forecast … accept uncertainty, try to understand it, and make it part of our reasoning.” Pierre Wack (Harvard Business Review 1985)

6. Telecoms is subject to rapid and unpredictable change, driven by a wide range of issues such as: fixed–mobile convergence merger activity growth in emerging markets broadcast–telecoms integration fast growth in data traffic new value chains for the Internet development of regulation impact of satellite new technologies development in competition These drivers interact not only with each other but with any number of macro-economic, technological, regulatory, political and social issues. The interactions generate yet more complexity. The telecoms business environment could evolve along a myriad of different paths The maze of future possibilities

7. Deeper research tends to reveal more complexity. The temptation is to stop gathering detail and select one path forward that seems the most likely There is a danger, however, that this forecast will become a straitjacket for strategic thinking. Significant business risks could be ignored The dangers of relying on one forecast

8. Scenario planning combines possibilities to form a manageable set of scenarios It broadens, rather than narrows, the vision of the business planning team It endeavours to: capture all the uncertainties faced by the business highlight the issues that may have a significant impact on the business study the relationships between these critical issues Understanding uncertainty

9. Scenario planning addresses issues beyond the time horizon of predictable events. The scenarios make sense of changes across the whole business environment and provide a basis for strategic debate On the other hand, forecasting and mathematical modelling are necessary for developing a detailed understanding of specific issues over shorter timescales. They can be used to: underpin the scenarios with detailed information on specific issues explore the value of specific options test the performance of the business plan in each scenario understand which parameters have a critical effect on the business The two techniques work together for business planning Drawing on forecasts Scope Scenarioplanning Forecasting Timescale

10. What is a scenario? “An outline of future development which shows the operation of causes.” Chambers English Dictionary • Describes a possible future business environment, but is not a prediction • Explores the extremes which challenge the existing business model • Engaging, interesting, challenging and credible • Logically consistent with the known facts • A set of scenarios is mutually exclusive and collectively exhaustive • A set of scenarios describes a range of possible futures • Ideally, develop no more than four scenarios, or it becomes difficult to manage them • Scenarios can be presented in many different forms, such as in a script or a timeline, or within a discussion

11. The descriptive scenarios need to be supported by numerical analysis, which should: test the credibility of each scenario explore the magnitude of changes in the environment evaluate the impact of those changes Main assumptions ______ ______ ______ ______ ______ Underpinning scenarios with analysis Drivers of change Scenario scripts Impact ____ ____ ____ Risk versus reward ____ _____ ____ _____ ____ Uncertainty New business Risk Critical proposal Systems parameters _______ dynamics model ____ ____ _______ ____ _______ $ value ____ _______ _____ ____ _______ _____ ____ Cashflow by scenario Business plan cashflow $ Time

12. Scenarios are used to challenge existing business models and stimulate new ideas. They form the basis of a strategic debate which is radically different to the traditional business planning cycle Scenario planning creates a flexible plan for the business which is composed of a variety of options. The business moves forward by shifting its weight between these options. This enables the business to adapt its plans to the evolving environment. The aim is to maintain a balance between risks and rewards Using scenarios for business planning Scenario 1 Option C Option A Scenario 2 Present Option E Option B Option D Scenario 3

13. The process of scenario planning • This diagram shows our basic process for scenario planning. We work within this framework to tailor solutions to suit our clients’ needs Set objectives Build scenarios Create options Refine options Maintain learning Identify key issues

14. Set objectives • Setting the objectives is the essential starting point for scenario planning, in order to define boundaries and establish focus • A client-side strategy manager should be appointed at this earliest stage of the process. This manager will provide the point of communication between Analysys Mason and the stakeholders • The objectives for the scenario planning project must be clearly stated and agreed with the key stakeholders. They should include the following: • time horizon for the scenarios • geographical scope of the scenarios • business units or product areas to be addressed by the project • unavoidable constraints on future plans • definition and deadline for deliverables

15. Identify key issues • The main threats and opportunities facing the company need to be explored in preparation for the scenario-building activities • This is best achieved through interviews with the key stakeholders, either individually or in small groups. These interviews provide an opportunity to: • secure the stakeholders’ acceptance of the scenario-planning process • gain the stakeholders’ trust • listen to their views and concerns • locate important sources of information for later analysis • choose participants for workshops • The interviews follow a simple process: • prepare an interview script containing a provocative survey of markets, technologies, competitors, etc, expressed in terms of dilemmas and choices • use this script to gently guide interviews with the stakeholders • collate the information and analyse the results to identify the key issues • feed the analysis back to the stakeholders for review and agreement

16. Brainstorm the drivers of change, in workshops held with stakeholders. These drivers may include: business factors technology factors socio-economic factors Agree upon the impact and likelihood of each driver Establish what is inevitable and, therefore, must occur in all scenarios Build scenarios [1] Inevitable Significant Impact Insignificant Uncertainty

17. Identify the critical uncertainties, and group them to understand how they may act together to split the future into different scenarios Check: the inter-relationships between the drivers with simple causal networks that the scenarios are mutually exclusive and collectively exhaustive that each scenario constitutes a challenging view of the future Develop engaging descriptions of the scenarios supported by research and analysis Build scenarios [2] Uncertain change Inevitable change

18. The next step is to use the scenarios to brainstorm business solutions Additional workshops are held to examine each scenario in turn and generate many possible business solutions From these we derive one simple plan for each scenario. The set of plans for each scenario are then compared: the common elements form the core business plan those differentiated by scenario become options for the future Establish core plan for all scenarios Brainstorm solutions for each scenario Outline simple plans for each scenario Compile series of options Create options

19. The core plan is now established. This next stage refines the options and finalises the overall business plans There is a choice of attitude to take towards the options: focused drive for one future? cautious experimentation? low-risk contingency planning? The approach chosen will depend upon the balance between risk and reward that the stakeholders wish to maintain The various business options are tested in the different scenarios to evaluate their performance. Tests can involve script-writing, war-gaming or mathematical modelling The options are synthesised in one plan and the decision points defined, in order to achieve the business objectives Check core plan in all scenarios Establish parameters for each scenario Synthesise and test complete plan Check options in relevant scenarios Refine decision points Refine options

20. Scenario planning should not be a one-off exercise: the greatest benefit is gained by continually developing and applying the scenarios Long-term, scenario planning will capture ongoing business learning as it evolves In the short term, an effective early-warning system can be created by establishing processes such as: short-listing critical parameters summarising significant scenario events defining how to track critical parameters and significant scenario events agreeing management process for tracking maintaining a strict schedule of reviews allocating clear responsibilities for tracking establishing processes for rapidly assessing consequences of events keeping the stakeholders up-to-date with regular bulletins adjusting business plans to keep pace with change in the business environment Maintain learning Adjust plans Track critical factors Review scenarios

21. What is the checklist for success? • Set a clear objective for the scenario-planning project in close consultation with the stakeholders in the business • Build a creative and diverse team integrating client personnel with Analysys Mason team members • Appoint a champion for scenario planning within the business, to lead the project with support from the Analysys Mason team • Gain the commitment of key stakeholders, including board-level sponsorship • Agree and follow a sound process, based on our experience but tailored to the client needs