Mtm8 white paper scenario analysis

BCG Growth/Share Portfolio Matrix
ITOTW 1
All Rights Reserved to Aurora WDC Page 1 of 9
Scenario Analysis
Intelligence Collaborative - Mastering the Methods Series

Scenario Analysis
This White Paper is #8 in a series of intelligence methods being offered to members of the
Intelligence Collaborative. It was developed by Dr. Craig S. Fleisher to provide a concise
overview of how to apply key intelligence methods to support analysis. Although every
effort is made to ensure that the information is accurate and fit for its purpose, the author
and Aurora WDC make no implied or explicit warranties as to its applicability or use in
your particular work context.
Please direct any questions about this paper to its author at the following:
Craig S. Fleisher, Ph.D.
Aurora WDC
Email: craig.fleisher@aurorawdc.com
http://IntelCollab.com
Other White Papers are available on a regular basis from http://IntelCollab.com. Related
Methods in the series are:
STEEP/PEST Analysis
Enhanced SWOT Analysis
Value Chain Analysis

Scenario Analysis
Copyright ©2013 Intelligence Collaborative powered by Aurora WDC. To order copies or request permission to
reproduce materials, please call Dr. Craig Fleisher at +1.608.630.5869, write to him at Intelligence
Collaborative powered by Aurora WDC, 215 Martin Luther King Blvd #32, Madison, Wisconsin, 53701,
USA or go to http://IntelCollab.com. No part of this publication may be reproduced, stored in a retrieval
system, used in a spreadsheet, or transmitted in any other form or by any means – electronic,
mechanical, photocopying, recording, or otherwise – without the permission of Intelligence Collaborative
powered by Aurora WDC.

Scenario Analysis
Abstract
Scenario analysis (SA) is meant to help companies and their executives explore into the future on the
basis of current trends and developments. Underlying the method is the premise that the future often
unfolds in different ways (these are the “scenarios” underlying scenario analysis). This analysis method
is meant to support the organization and its employees to be more ready to deal with whatever the
future will bring.
The Method’s Primary Value
When used specifically for the purpose of competitive analysis, scenarios help us to generate
understanding of rival’s potential strategies, capabilities, and actions. They:
• Provide opportunities to generate knowledge about current and future competitors’ strategy
choices.
• Help us explore the nature and type of competitive dynamics that might characterize various
future product-customer segments.
• Generate critical input to the development, execution, and monitoring of the organization’s own
strategies and action plans.
When effectively performed, scenario analysis pushes executives to consider what lies ahead, around
the corner, encroaching on the industry/market periphery, and what actions their company should
undertake now to get ready for and stay ahead of alternative future contexts.

Scenario Analysis
Overview of the Method
Scenario analysis is a structured analytical method to help executives assess different views of what may
transpire in the future. It is commonly used as an aid to financial, operational, and strategic planning. It
was first used in the business world within the energy industry, most prominently at Royal Dutch Shell in
the 1970s, where its application was widely credited with helping the company weather the 1973 oil
crisis more effectively than most of its rivals. Since then, scenario planning has been used by a diverse
array of organizations in every sector such as the Finland Government, British Airways, Corning, Disney,
The “Generals” - Electric and Motors, The US Department of Homeland Security, Mercedes, Procter &
Gamble, UPS, and The World Bank, among many others.
All scenarios will have the following four elements in common:
1. End-state – what the competitor’s goals, scope, and posture will be at the end of the scenario
period.
2. Story – describes what the competitor must do to get to the end state.
3. Driving forces – forces (often specific to the competitor) that help shape the competitor’s
evolution toward end-state. I would encourage you to review the Mastering the Methods
resources on driving forces analysis to learn more about these.
4. Logics – explanations for the content of the story (answers why will forces or people behave as
they do?).
Where the Method Fits in Planning and Strategy
Contemporary enterprises in today’s globally competitive and uncertain environment do not have the
luxury of anchoring themselves to one view of what the future may look like and then putting all their
eggs into that basket. Advancing technology, innovative business models, ever-changing consumer
preferences, and global economic interdependence increase complexity and uncertainty for
organizations. It does not take long for ones who fail to adapt to the new realities to fail; tomorrow’s
winners will be those that are able to respond effectively and quickly in seizing opportunities and
disempowering threats. Scenario analysis enables organizations to plan for an uncertain future, and
empowers them to adapt to it with confidence in a more-timely manner.
Scenario analysis will be of highest benefit in the following kinds of situations:
• Managers facing high uncertainty about the future of key business lines, products, technologies
or their industry
• Industries where costly (to their company, at least) surprises occurred in past
• Firms that have great difficulty in generating or perceiving new opportunities
• Companies where the quality of strategic thinking is lower than desired
• For executives in industries experiencing/about to experience significant change
• Where the company needs common language and frameworks without stifling thought
• Strong differences of merit-worthy opinions are held among key executives
• Competitors use the technique to their advantage and your disadvantage

Scenario Analysis
• The organization is open to making changes and establishing multi-directional dialogue
• There is at least one executive champion who supports the scenario process
• There is enough time available before needing to take action to step back for reflective and
creative conversation
• The necessary resources can be mobilized for a successful initiative (including good facilitator)
Cautions with Applying this Method
A potential SA shortcoming of scenario analysis occurs when companies use it to replace strategy
formulation and planning. Scenario analysis allows a company to see the possible consequences of a
predetermined strategy, whether it is the company’s current or possible future strategy. As such, this is
an analytical technique. While it may support, decompose, and formalize a particular strategy, it does
not, in and of itself, create new strategies.
The tendency to select the scenario that best fits the company’s current strengths must also be avoided.
Analysts need to divorce themselves from this natural tendency and remain objective to the very real
possibility of each scenario materializing independent of the company’s current competitive position.
The need to get management to agree on scenarios is critical but not always a task that is easy to
manage. As scenarios often include both “soft” and “fuzzy” as well as quantitative and analytical
information, getting people to agree on their labels can require much effort and time. There are always
trade-offs to be made in developing simple versus complex scenarios.
Scenarios are also often appealing due to their conceptual simplicity. A difficult trade-off to make in
scenario development is that between “accuracy” and “direction.” However, getting managers and
decision makers to drill down from base scenarios to the level of competitive and financial implications
can be difficult, given that most scenarios are constructed at a broad, macro level.
Applying the Method

Scenario Analysis
The process we describe here for developing scenarios is the one promoted most notably by
Schoemaker1
.
1. Define the scope of the analysis. Set the timeframe and the scope of the analysis in terms of products,
markets, customer groups, technologies or geographic areas. The timeframe is dependent on several
factors, including industry or product life cycles, political elections, competitors’ planning horizons, rate
of technological change, economic cycles and so on. Once the appropriate timeframe has been
determined, ask what knowledge would be of the highest value to your company at that point in time.
2. Identify the major stakeholders. What parties will have an interest in the development of issues of
importance in the future? Who will be affected by these parties and who will affect them? Identify the
stakeholders’ current roles, interests and power positions, and then assess how they have changed over
time.
3. Identify basic trends. What industry and STEEP trends are likely to affect the issues you identified in
the first step? Briefly explain each trend, including how (positively, negatively or neutrally) and why it
influences your company. Those trends in which there is disagreement over their likely continuation are
dealt with in the following step.
4. Identify uncertainties. What outcomes and events are uncertain or will significantly affect the issues
you are concerned about? For each uncertainty, determine possible outcomes (that is, legislation passed
or defeated, or technology developed or not developed). Also attempt to determine whether
relationships exist among these uncertainties and rule out those combinations that are implausible (for
example, steadily increasing government and private debt and deficits with steadily declining interest
rates).
5. Construct initial scenario themes. Several approaches can be utilized, including (a) selecting the top
two uncertainties and evaluating them; (b) clustering various strings of possible outcomes around high
versus low continuity, degree of preparedness, turmoil and so on; or (c) identifying extreme worlds by
putting all positive elements in one scenario and all negative elements in another.
6. Check for consistency and plausibility. Assess the following (a) are the trends compatible within the
chosen timeframe? If not, remove those trends that do not fit. (b) Do the scenarios combine outcomes
of uncertainties that indeed fit together? If not, eliminate that scenario. (c) Are the major stakeholders
placed in positions they do not like and can change? If so, your scenario will evolve into another one.
7. Develop learning scenarios. Some general themes should have emerged from performing the previous
steps. Your goal is to identify themes that are strategically relevant and then organize the possible
trends and outcomes around these themes. Although the trends appear in each scenario, they should be
given more or less weight or attention in different scenarios, as appropriate.
1
. Schoemaker, P. J. H. (1992a). ‘How to link strategic vision to core capabilities. Sloan Management Review, 34(1), 67–81.
— — — . (1992b). ‘Multiple scenario development: Its conceptual and behavioral foundation.’ Strategic Management Journal,
14, 193–213. Also - (1995). ‘Scenario planning: A tool for strategic thinking.’ Sloan Management Review, 36(2), 25–39.

Scenario Analysis
8. Identify research needs. You may need to delve more deeply into your blindspots and improve your
understanding of uncertainties and trends; for example, consider if you really understand how
stakeholders are likely to behave in a particular scenario.
9. Develop quantitative models. Re-examine the internal consistencies of the scenarios and assess
whether certain interactions need to be formalized via a quantitative model. The models can help to
quantify the consequences of various scenarios and keep managers from straying toward implausible
scenarios.
10. Evolve towards decision scenarios. Iteratively converge toward scenarios that you will eventually use
to test your strategies and generate innovative ideas. Ask yourself whether the scenarios address the
real issues facing your company and whether they will spur the creativity and appreciation of your
company’s decision makers.
These steps should ideally culminate in three or four carefully constructed scenario plots. If the
scenarios are to function as learning tools, the lessons they teach must be based on issues which are
critical to the success of the decision. Only a few scenarios can be fully developed and remembered, and
each should represent a plausible alternative future, not a best case, worst case and most likely
continuum. Once the scenarios have been fleshed out and made into a narrative, the team identifies
their implications and the leading indicators to be monitored on an ongoing basis.
Complementary Methods
• Blindspot Analysis
• Competitive Simulations
• Functional Capability and Resource Analysis
• Industry Analysis
• Issue Analysis
• Stakeholder Analysis
• STEEP Analysis
• SWOT Analysis
Additional Resources
See chapter 10 (pg. 167-186) on Scenario Analysis in the (2013) book Analysis without Paralysis: 12
Tools to Make Better Strategic Decisions, 2nd
Ed., by Babette E. Bensoussan and Craig S. Fleisher, Upper
Saddle River, NJ: FT Press.
Business and Competitive Analysis: Effective Application of New and Classic Methods by Craig S. Fleisher
and Babette Bensoussan, 2007, Upper Saddle River, NJ: FT Press.

Scenario Analysis
Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition by Craig
S. Fleisher and Babette Bensoussan, 2003, Upper Saddle River, NJ: Pearson/Prentice Hall.
Schoemaker, Paul, J.H., “Scenario Planning: A Tool for Strategic Thinking,” Sloan Management Review,
1995, Winter, 36(2) pp.25-39.
Schoemaker, Paul, J. H. (1992a). ‘How to link strategic vision to core capabilities. Sloan Management
Review, 34 (1), 67–81.
Schoemaker, Paul, J.H. (1992b). ‘Multiple scenario development: Its conceptual and behavioral
foundation.’ Strategic Management Journal, 14, 193–213.
Wack, Pierre, "Scenarios: Shooting the Rapids," Harvard Business Review, 63(5), 1985, pp. 139-150.
Zentner, Rene, D., “Scenarios, Past, Present and Future,” Long Range Planning, 1982, June, 15(3) pp.12-
20.

Mtm8 white paper scenario analysis

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Mtm8 white paper scenario analysis

Similaire à Mtm8 white paper scenario analysis (20)

Plus de IntelCollab.com

Plus de IntelCollab.com (20)

Dernier

Dernier (20)

Mtm8 white paper scenario analysis