2-scenario planning - october 2012 - bruno colmant · "a4rb_premium" – 20110913_v01 –...
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1 Scenario Planning - October 2012 - Bruno Colmant.pptx
Amsterdam, March 2013
Making decisions in volatile times
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SCENARIO planning
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2 Scenario Planning - October 2012 - Bruno Colmant.pptx
Value of Risk
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Macro-economics + socio-economics instability
Technology
Others
Market (predictive value)
Regulation
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Expect a volatile world
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> Free market economy: – A set of a moving pieces – Deeper/faster cycles – No anchoring
> Echoing of fact (fact ➨ market ➨ fact interpretation ➨ market …) Example: – Accounting: fair value – Finance: no more risk free rate
> Difficulty to data abundance and systemic complexity – Added-value of technology – Interface IT/Business
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Assess risk / uncertainty
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> The economy is as per se an ongoing and holistic risk assessment > Economy is a stochastic process, no determinism > Difficult to assess boundaries of parameters
– Fractal event (black Swans) – Correlation between events unknown (cross-over between systems)
> Contribution of Lucas (Nobel Prize 1995) – Theory of rational expectation – Anticipation by economic agents of the consequences of their behavior – Explanation for cognitive biais
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Illustration: The World of Stock Exchange
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> Past state: – Monopoly – Shareholders = broker, banks – Capture of "transaction" profit
> Introduction of IT/Loss of monopoly > Today
– Oligopoly – Market shareholders – Erosion of profit – Introduction of heuristic HFT/robots thanks to IT
> Before info ➨ trade > Today info ➨ trade ➨ info (creation of information loops) > Role of Regulators
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The history of scenario planning
A.
From the historic roots to contemporary scenario planning
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The origins of scenario planning can be traced back as far as Sun Tzu’s and Plato‘s first writings
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A.1
Source: Bradfield, R. et al. (2005), The origins and evolution of scenario techniques in long range business planning. In: Futures 37(8): 795–812; Wilson, I. ( 1978 ). Scenarios. In: J. Fowles ( Ed. ), Handbook of futures research ( pp. 225-247 ). Westport, CT: Greenwood Press
(544-496 B.C.) Sun Tzu Plato (427-347 B.C.)
Book: "Art of War" A tool to explore the future of society and its institutions Scenarios to anticipate enemies’
actions on the battlefield Scenario development in the form of treatises, utopias and dystopias Scenarios formulated as stories to project possible future developments
Novelty: Public administration and wider societal issues taken into account
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Generals von Moltke and von Clausewitz advanced the idea of thinking in scenarios on the battlefield
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A.2
Source: von Reibnitz, U. (1988): Scenario Techniques, McGraw-Hill, Hamburg
(1780-1831) von Clausewitz von Moltke (1800-1891)
Military campaigns can only partially be planned
Only the start of a military campaign can be planned
General principals set reference frames for officers on which
strategic decisions are based
Strong delegation of military decisions to officers based on pre-planned scenarios
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Scenario planning today does not aim at predicting the future, but rather to open up strategic thinking
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A.3
Source: Ringland, G. (2006): Scenario Planning: Managing for the Future. John Wiley and Sons, Chichester
Computer-Driven Simulations
Shaping Factors
Creativity Scenarios
Wild Card Scenarios
Idea Correlating multiple factors to generate scenarios and simulate management decisions
Running a delphi consultation to identify factors that shape the future and use these to construct scenarios
Starting with a specific decision or near future strategic issue and thoroughly thinking it "from the inside out"
Imagining abnormal or unpredictable events such as natural disasters and developing scenarios how these unfold
Testing decision under uncertain circumstances to widen perspectives
Showing practitioners how relevant influence factors can be used to shape the future
Opening creative solution oriented thinking given a companies available resources
Testing if current strategy and ope-rations can handle unpredictable events
Aim
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Strategy development today B. Why scenario planning is important now
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… fail to reflect volatility
… can't cope with complexity (amount of data)
… don't consider different views
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GENERIC COMPETITOR STRATEGIES
ANSOFF MATRIX EXPERIENCE CURVE FIVE FORCES PORTFOLIO
ANALYSIS
Traditional strategy tools …
B.1
Traditional strategy tools have become unreliable
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B.2
But the planning questions remain the same
How will regulations change in my markets? Will the changes open up new markets overseas?
How sharply will commodity and energy prices rise? Can we replace expensive commodities with less expensive ones?
How will demand for our products change? What competing products will jeopardize our business?
Which regions of the world will grow most? How can our company benefit from that?
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… provides different images of the future to reflect volatility
… considers numerous influence factors to cope with complexity
… combines internal and external views to identify blind spots
B.3
SCENARIO PLANNING …
SCENARIO I
SCENARIO II
SCENARIO III
FUTURE
TODAY
Disruption
Counter- action
The solution? Scenario planning can overcome the shortcomings of traditional planning instruments
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Macro-level scenarios build the framework for industry and company scenarios Meso-level scenarios describe different futures of a branch or a region Micro-level scenarios focus on possible futures of one specific company
CHARACTERISTICS of our 3-TIERED APPROACH MACRO-LEVEL
MESO-LEVEL
Global scenarios
Regional and industry scenarios
MICRO-LEVEL Company-specific scenarios
We differentiate between micro-, meso- and macro-scenarios
B.4
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My Perception
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> Deep dive in market economy > Walras: World is becoming a big auction room (at the margin) > Old economy was deductive/free market economy is inductive > Address risk with a holistic approach > Develop induction, flexibility, versatility > Think of the "unthinkable" > Get rid of cognitive basis, promote a mindset of their fast end flexibility > IT + Data develop analytical predictive intelligence systems > Be a "humanist"