Preparing Your Organization for the Future
Developing scenarios is more than a theoretical exercise. It is a fundamental, practical and important part of a manager’s role. If managers are not preparing the organisation for the future, its future will be dependent upon hoping that it can respond to changes after they occur. Understanding Markets and Strategy author Malcolm Morley takes us through the key tenets of scenario planning.
Markets remain subject to change at home and abroad. The interconnected world means that changes in one part of the world can have a significant impact in another. Take, for example, the slowdown in China affecting the price of commodities in Australia.
Western Australia has seen a decade-long buoyant market for iron ore supplying the insatiable Chinese market. Today that market has reduced significantly and since peaking at US$190 a ton in 2011 iron ore prices have seen a reduction of approximately 70% to US$50 a ton; a change that creates fundamental challenges to not only the mining companies involved but to the economy of Australia.
This is just one example of how market changes in one part of the globe can affect domestic markets and the importance of scenario planning. Another can be seen to relate to the outcome of elections and other political changes. What if Labour had won the election in the UK or sanctions on oil production in Libya are lifted?
Changes in competition occur all of the time with takeovers and mergers and global companies deciding to withdraw from, or seek to penetrate, markets. Innovation or the ending of protection of patents, as with the pharmaceutical patents, can have a major impact on how competition in markets develops.
Companies need to be able to analyse markets to identify the key variables that affect both demand and competition. They need to be able to develop scenarios for markets to enable them to consider their impact and to plan for the future as it unfolds. They need to be able to put themselves and their competitors within the dynamic evolving market context of now and the future and to be able to identify the strategic options for their future success.
Developing scenarios is more than a theoretical exercise. It is a fundamental, practical and important part of a manager’s role. If managers are not preparing the organisation for the future, its future will be dependent upon hoping that it can respond to changes after they occur.
I have found that where scenarios for the future are based on one person’s view the understanding of it, and the commitment to it, in the organisation is limited. This leads to a lack of engagement within the organisation, strategy documents being viewed as irrelevant and individual decision-making being inconsistent. In this situation I have also found that the scenario development is so limited that the identification of options and strategy for the future is very narrow. In some cases only a ‘bet the company’ scenario is developed. Not a good place to be!
Understanding Markets and Strategy provides a practical framework for the development of scenarios and to achieve the necessary engagement of managers in the process. In this way, differing views and assumptions are considered and the outcome gains the commitment necessary for investment and consistent decision-making. Using the tools and frameworks provided along with Practitioner Tips and Questions, key issues can be identified and addressed to ensure that the organisation is prepared for the future.