Lecture tools

Innovation Management Methods & Tools for the Consulting Project Katrin Hussinger (University of Luxembourg) g

Your project – your method • An overview on management tools 2015 • All types of methods briefly described with literature on 60 pages • http://www.bain.com/Im ages/BAIN_GUIDE_Ma nagement_Tools_2015 _executives_guide.pdf

Agenda • House of Quality • Benchmarking • Forecasting tools

Some resources •

House of Quality – Original publication: Hauser & Clausing (1988) in Harvard Business Review

•

Benchmarking – Tim Stapenhurst “The Benchmarking book” •

http://bbu.yolasite.com/resources/benchmarking_book.pdf

– Womack et al. (1990) The machine that changed the world •

•

https://masdukiasbari.files.wordpress.com/2011/04/the_machine_that_changed_the_world.pdf

Forecasting tools – Lindgren and Bandhold (2003) •

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwiaq5ba uubPAhUGOhQKHQkxA1IQFggeMAA&url=http%3A%2F%2Fwww.foresightfordevelopment.or g%2Fsobipro%2Fdownload-file%2F46-525%2F54&usg=AFQjCNF5XmR_P4bOgIsa8X6avdFjeIPhw

– Shell study •

http://www.shell.com/content/dam/shell/static/public/downloads/brochures/corporatepkg/scenarios/shell-energy-scenarios2050.pdf

On the knowledge management cycle • Mohapatra et al. (2016) Designing knowledge management, chapter 2 knowledge management cycles – http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web& cd=13&ved=0ahUKEwiQlvWbgefPAhWGvRQKHdheDysQFghh MAw&url=http%3A%2F%2Fwww.springer.com%2Fcda%2Fcont ent%2Fdocument%2Fcda_downloaddocument%2F9783319338 934-c1.pdf%3FSGWID%3D0-0-45-1578379p179965502&usg=AFQjCNEaYFSf4pXQ_eqHXMAFQbNJljjE9Q –

• Verba Allee The knowledge evolution – http://www.sciencedirect.com/science/book/9780750698429

Post • Targeting the youth/ Portuguese segment in Lu • Team: – Aleksandar – Alfred – Edouard – Sofia – Yao

QDF: HOUSE OF QUALITY •

Quality function deployment (QFD) is a planning tool used to fulfill customer expectations – The primary planning tool used in QFD is the house of quality (HOQ)

•

The house of quality – translates the voice of the customer into design requirements – that meet specific target values and – matches that against how an organization will meet those requirements – Compares to competitors offerings – Acts as a translation tools

Interrelationship between Technical Descriptors (correlation matrix) HOWs vs. HOWs +9

Strong Positive

+3

Positive

-3 -9

Negative Strong Negative

Technical Descriptors (HOWs)

Primary

Relationship between Customer Requirements and Technical Descriptors WHATs vs. HOWs

Secondary

+9 +3

Strong Medium

+1

Weak

Sales Point Absolute Weight and Percent

Scale-up Factor

Our Product Prioritized Technical Descriptors

Customer Competitive Assessment

Relative Weight and Percent

Target Value

Our Product A’s Product B’s Product Degree of Technical Difficulty Target Value Absolute Weight and Percent

Technical Competitive Assessment

A’s Product B’s Product Importance to Customer

Prioritized Customer Requirements

Customer Requirements (WHATs)

Primary

Secondary

Steps • Step 1: List Customer Requirements (WHATs) • Step 2: List Technical Descriptors (HOWs) • Step 3: Develop a Relationship Matrix between WHATs and HOWs • Step 4: Develop an Interrelationship Matrix between HOWs • Step 5: Competitive Assessments • Step 6: Develop Prioritized Customer Requirements • Step 7: Develop Prioritized Technical Descriptors

Before you start • Come up with a very clear problem statement • Define you target market exactly

HoQ • Step 1: Voc • VoC: The in-depth process of capturing a customer's expectations, preferences and aversions • How to get the VoC?

First • Check what is already there at the company

Interviews & surveys • Different types: – Interviews – Self-administered survey – Postal survey – Internet survey

Surveys •

Sample –

Sample precision • •

–

•

Low: convenience sample High: randome sample

Representativeness

Sampling types: –

Probability sampling: • •

–

Random sample Stratified sample

Convenience sampling: • •

Snowball sampling Quota sampling

•

Budget constraints

•

Requirement for participation?

–

•

E.g. Being already a customer; having a specific taste

Data quality: – –

Validity Reliability

Surveys • Lenght of questionnaire • Incidece rate – How many people do I need to contact until I find one that is has the desired characteristica

• Structure of questionnaire – Structured: closed questions – Unstructured: open questions

• Time schedule

Surveys • Errors in surveys • Random error – Error that results from variation – Chance variation – Can be reduced by increasing sample size

• Sysematic error – Results from mistakes in the survey design – Sampling design – Measurement error

Surveys • Which survey/sample would you select for the following?

– A survey commissioned by the government to find out about a country’s R&D expenses – A survey for a particular organization

Surveys • Choice of question type – Open, closed – Likert scales – Ranges

• Wording – Clear – Keep respondent in mind – Personalization

• Test the survey before you start it!

– Pilots

HoQ for services: Improving the reception service at a doctor’s office • Step 1: Voc

HoQ for services: Improving the reception service at a doctor’s office • Step 1: Voc • Interviews with doctors and patients • Patient concerns – – – – – – – – – –

Lenght of waiting time Waiting time for phone calls Time on hold I was passed from one person to another I was asked needless questions Use of automated phone system Responsiveness of personal too slow Insurance company recognized by office Insurance coverage processing properly ...

Translate to HoQ

Value customer voice by importance • Not all customer requirements are equally important • How to make the distinction?

Translate to HoQ

Design requirements • Step 2: design requirements

• In other words: which features would the product/service need to have in order to fulfill the customer requirements?

Brainstorming outcome

Method: Brainstorming by office personal

Organize design requirements in a tree diagram

Design requirements

Relation matrix • Step 3: Relationship between the client and design requirements

Relationship matrix

Benchmarking • Step 4: benchmarking • Patentients are asked to rate the services at other doctor offices

Benchmarking

Correlation matrix • Which design requirements fit well together? • Which requirements conflict with each other?

Concluding from the HoQ • With the HoQ you did: – – – – –

An analysis of the customer needs An analysis of the product/service features A competitor analysis (benchmarking) A translation from the VoC into technical features Same for competitor products

• Concluding from the HoQ: – Which needs are fullfilled/ which needs are not fulfilled – Which needs are filled by competitors/ which are not – recommendations

Ceratizit • How to adapt a knowledge mamagement cycle • Team: – – – – – –

Anastasia Dalia Gregory Pierre Rakib Santosh

Knowledge management principles •

KM is expensive (but not organizing knowledge flows can be expensive as well!)

•

Effective management of knowledge requires hybrid solutions of people and technology.

•

KM is highly political.

•

KM requires knowledge managers.

•

KM benefits more from map than models, more from markets than from hierarchies.

•

Sharing and using knowledge are often unnatural acts.

•

KM means improving knowledge work processes.

•

Knowledge access is only the beginning.

•

KM never ends.

•

KM requires a knowledge contract.

Source: Thomas Davenport, "Some Principles of Knowledge Management," http://www.utexas.edu/kman/kmprin.htm

Knowledge management principles • The more your share, the more you gain.

• The knowledge acquisition process should be part of the work process.

• Integration of knowledge from multiple disciplines has the highest probability of creating new knowledge and value-added.

• Knowledge valuation should be conducted from customers’ perspective.

• KM focus should be on core knowledge critical to sustaining company’s competitive edge.

Knowledge management cosmology Gathering

Organizing

• • • •

• • • •

Data entry, OCR Pull Search Voice input

Cataloging Filtering Indexing Linking

Knowledge Management Disseminating • • • •

Push Sharing Alert Flow

Refining • • • •

Compacting Collaborating Contextualizing Mining

Source: Adapted from Jeff Angus and Jeetu Patel, Knowledge-Management Cosmology, Information Week, March 16, 1998, p. 59.

Organizational knowledge management model KM Process Share

Leadership

Organization

Apply

Culture Create

Group Organize

Individual

Adapt

Identify

Collect Performance Measurement

Business Process

Technology Source: Adapted from Arthur Andersen and the American Productivity and Quality Center

Challenges of KM • Identify the relevant information/knowledge for the organization • Identify gaps in knowledge and latent or tacit knowledge • Identify expertise • Create strategies and policies to deal with these • Strive to integrate processes and systems

Knowledge assets Codified Knowledge Assets (Legally Owned) • • • • • •

Patents Copyrights Trademarks Documents

Tip of the iceberg

Working Solutions Web of Relationships Communities of Practice Experience Expertise and Theoretical Knowledge Database

Source: The Knowledge Evolution, p. 35

Four modes of knowledge conversion

To

Tacit knowledge

Tacit knowledge

Socialization

Explicit knowledge

Externalization

From Internalization

Combination 1+1

Explicit knowledge 3

Source: Knowledge-Creating Company, p. 62.

Japanese-Style vs. Western-Style Organizational Knowledge Creation

Japanese Organization • Group-based • Tacit knowledge-oriented • Strong on socialization and internalization • Emphasis on experience • Danger of group thinking & overadaptation to past successes • Ambiguous organizational intention • Group autonomy • Creative chaos through overlapping tasks • Less fluctuation from top management • Less redundancy of information • Requisite variety through crossfunctional teams

Western Organization • Individual-based • Explicit knowledge-oriented • Strong on externalization and combination • Emphasis on analysis • Danger of paralysis by analysis • Clear organizational intention • Individual autonomy • Creative chaos through individual differences • Less fluctuation from top management • Less redundancy of information • Requisite variety through individual differences

Enovos • How do companies in the energy distribution sector collaborate with start-up companies for innovation?

• Team – – – – – –

Angela Antony Fei Janet Lisa Micheli

Benchmarking • Comparison • Projection • Implementation

Benchmarking is about comparisons • Comparing the organization and its parts with the best in class organizations • Comparing business processes with similar processes in best in class organizations all • Comparing operational processes with the similar processes in best in class organizations • Comparing the organization's products and services with those of the best competitors • ...

Benchmarking is about projection • Projecting future trends in best practices and proactively leading to these trends • Meeting and exceeding customer expectations

Benchmarking is about implementation • Implementing defined best practices • Making improvements systematic, repeatable and reliable

Popularity

Source: Bain & Company (2013)

Overview management tools

Benefits • Effective ‘wake-up-call’ • Identifying performance gaps • Learning from other’s experiences • Become more competitive • Innovate and generate new ways of doing things • Sustainable growth

Keys to benchmarking • Adapt... Not adopt!

• You can’t manage, what you can’t measure • Numbers tell a story

What should be measured?

• Benchmarking should measure such things as – How fast – How good – How much and Where – When – How long – Size, shape, form, and fit

Some important dimensions • • • • • • • •

Financial Product quality and customer satisfaction Process efficiency Product and process innovation Competitive environment Quality/independence of management Human resource management Social responsibility

Some important measures • • • • • • • • •

Operating cost / sales per employee Product development time Rejection ratio Capacity utilization Number of new products developed Queuing time Customer complaints Service responsiveness Percent of returned orders

Types of benchmarking

Internal benchmarking • One of the easiest benchmarking investigations is to compare operations among functions within your own organization.

• This type of investigation is applicable to multidivisional or international firms.

• Purpose: – Develop or advance internal performance standards – Information sharing within the organization – Can be used as a benchmark for external benchmarking

Competitive/external benchmarking benchmarking • Direct product or service competitors are the most obvious to benchmark against.

• Can be applied to all firms.

• Although this information may be difficult to obtain, its value is high.

Functional benchmarking • Functional benchmarking investigates leaders in dissimilar industries.

• The relevance of comparison is maintained by defining the performance characteristics that must be similar to your own functions.

• Main advantage: – The chosen benchmark company might be more interesting in collaborating

When selecting functions consider the ones with the greatest opportunity for change • Which functions represent the greatest percentage of resource consumption?

• Which functions add the most value to the customers, shareholders, and internal organization?

• Which functions have the most room for improvement?

• Which functions can realistically be improved?

Generic benchmarking • It extends functional benchmarking by removing the constraints imposed by limiting the investigation to practices with similar characteristics.

• It requires broad conceptualization • Although it is the most difficult type of benchmarking to use, it probably provides the highest potential payoff.

Benchmarking process

Pitfalls • Bad data is worse than no data • Benchmarking focusing on selected companies – Change the benchmark and the laggard becomes a leader

• Data often lacks quality control, e.g. to deal with definitional differences  Benchmarking only gathers basic operational metrics without linkage to desired outcomes  Benchmarking does not take into account differences in work load mix, markets and culture

Benchmarking tool box • Flow charts – For processes – For knowledge flows – …

• • • • • • • •

Check sheets Run charts Spider web charts SWOT Price/performance ratios Life cycle analysis Technological strength analysis …

Critical success factors • Top management must actively lead and support the benchmarking process.

• Benchmarking projects should be embedded into each function's yearly business • There must be a commitment to a continuous, ongoing benchmarking effort that makes it part of the management process, not a "flavour of the month.“ • Small benchmarks are better

Xerox - benchmarking case Benchmarking against Japanese competitors, Xerox found out that it took twice as long as its Japanese competitors to bring a product to market, five times the number of engineers, four times the number of design changes, and three times the design costs.

After an initial period of denial, Xerox managers accepted the reality.

Xerox collected data on key processes of best practice companies. Xerox identified ten key factors. Each of these then became a target for improvement

Xerox - benchmarking case Xerox zeroed in on various other best practice companies to benchmark its other processes.

These included: American Express (for billing and collection) Cummins Engines and Ford (for factory floor layout) Florida Power and Light (for quality improvement) Honda (for supplier development) Toyota (for quality management) Hewlett-Packard ( for product development) Fuji Xerox (for manufacturing operations) DuPont (for manufacturing safety)

Xerox - benchmarking case - results  Highly satisfied customers for its copier/duplicator and printing systems increased by 38% and 39% respectively.  Customer complaints to the president's office declined by more than 60%.  Customer satisfaction with Xerox's sales processes improved by 40%, service processes by 18% and administrative processes by 21%.  Inventory costs reduced by two-thirds.  The financial performance of the company improved considerably .

Often used benchmarking companies

House of Training – Preparing for the future • Preparing for the future • Team: – Daria – Jérémy – Kay – Sadam – Valentina

Forecasting

(Why) do we need to forecast?

• In general, forecasts are often wrong.

– “Prediction is very difficult, especially if it's about the future.“ (Nils Bohr, nobel prize winner in physics) – “Those who have knowledge, don't predict. Those who predict, don't have knowledge” (Lao Tzu, Chines poet, 6th century) – “Wall Street indices predicted nine out of the last five recessions!” (Paul Samuelson, economist, nobel prize winner) – “If you have to forecast, forecast often.”(Edgar Fiedler, economist)

Overview on different methods • Qualitative methods: – Internal methods (brainstroming etc) – Customer and market surveys – Delphi method – Scenario planning – ...

• Quantitative methods – – – – –

Naive Moving average Time series analysis ...

Causal methods: • Regression analysis • ...

Types of forecast and time horizon Quantitative methods

• Short-range forecast – Usually < 3 months • Job scheduling, worker assignments

• Medium-range forecast

Detailed use of methods

– 3 months to 2 years • Sales/production planning

• Long-range forecast – > 2 years • New product planning

System of methods Qualitative Methods

Forecasting during the product life cycle Introduction

Qualitative models - Market research - Delphi method - Scenario planning -â&#x20AC;Ś

Growth

Maturity

Quantitative models - Time series analysis - Regression analysis

Sales Time

Decline

Quantitative methods Sales by Year, With Automatic Twenty Year Prediction 10000

Sales

8000 6000 4000 2000 0 1980

1990

2000

2010

Year

2020

2030

Naive quantitative forecast Wallace Garden - Naive Forecast

25

20

Sheds

15 Actual Value NaĂŻve Forecast 10

5

0 February

March

April

May

June

July Period

August

September

October

November

December

Moving averages Three Period Moving Average

25

20

Value

15 Actual Value Forecast 10

5

0 1

2

3

4

5

6

7 Time

8

9

10

11

12

Regression analysis

Sales of Autos (100,000)

Advantages & disadvantages of quantitative methods • Advantages: – Objective: Once the underlying model or technique has been chosen, the corresponding forecasts are determined automatically.

– They are fully reproducible by any forecaster.

• Disadvantages: – Need data – Quality of results depends on the assumptions made and the quality and richness of the data used – Difficult/impossible to use for long-term forecasts

Qualitative Forecasting Qualitative Forecasting

Internal approaches

Consumer and market analysis

Delphi approach

Smoothing

Models Scenarios

Internal approaches: Subjective or interactive approaches • These techniques are often used by committees or panels seeking to develop new ideas or solve complex problems.

• They often involve "brainstorming sessions".

• It is important in such sessions that any ideas or opinions be permitted to be presented without regard to its relevancy and without fear of criticism.

Customer or market surveys • These techniques are often used by companies seeking to get an idea about future customer needs.

• They involve surveys send to customers asking them for their future needs.

• Disadvantages: – Often customers have no clear idea about their future needs.

– Asking the “right questions” can be a challenge

Delphi approach • A panel of experts, each of whom is physically separated from the others and is anonymous, is asked to respond to a sequential series of questionnaires.

• After each questionnaire, the responses are tabulated and the information and opinions of the entire group are made known to each of the other panel members so that they may revise their previous forecast response.

• The process continues until some degree of consensus is achieved.

Scenarios â&#x20AC;˘ Scenario writing consists of developing a conceptual scenario of the future based on a well defined set of assumptions. â&#x20AC;˘ After several different scenarios have been developed, the decision maker determines which is most likely to occur in the future and makes decisions accordingly. â&#x20AC;˘ Current and alternative strategies are compared against the scenarios

Companies using Scenarios today Widely used in the strategy process

Companies using Scenarios: Royal Dutch Shell Have a look at shell.com Used scenarios since early 70s â&#x20AC;?Building scenarios is about widening perspectives.

Using scenarios is about widening optionsâ&#x20AC;?

Ged Davis, Shell

When to use scenarios?

Examples of predetermined trends Demographic:

population growth, birth rates

Technology:

growth rates, production capacity

Political:

power shifts, budget deficits

Cultural:

changing values, spending patterns

Economic:

disposable incomes, investment levels

Typical outcome of scenario planning • ‘This is what we have to do’ (developing new business opportunities) • ‘We better think again’ (understanding outcomes of plans better) • ‘We better watch those dots on the horizon’ (perceiving weak signals of new developments) • ‘We are in the right track’ (moving forward with more confidence)

How to get it wrong • Mechanical Extrapolation –

limits, ceilings, qualitative change

• Unexamined assumptions • Limited Expertise –

failure to see limits, connections

• Limited Vision –

failure to see outsiders, novelty, significant events

A model for a scenario case •

Step 1: Get background information

•

Step 2: Define the “big question”

•

Step 3: Brainstorm critical events

•

Step 4: Discuss trajectories for critical events

•

Step 5: Determine combinations of critical events

•

Step 6: Develop scenarios

•

Step 7: Compare scenarios and business strategy

•

Step 8: Recommendations

The future of the railway industry • The railway industry has a number of distinctive characteristics.

– The industry is very capital intensive – The industry is concentrated into a small number of major companies and independents – The industry is driven by the economy and subject to political intervention – The industry competes across RR’s and with other “modes” (e.g. truck vs. rail) both domestically and internationally – The industry is increasingly impacted by technological change and lack of skilled workers – The industry has much to learn from the experience of others

Scenario interview questions What are the issues on the minds of managers? What are the strategic issues the scenarios should address?

• • • • • • •

Past Changes – What has changed over the past 10 years that has had a significant impact on the industry / company?

Lessons from the Past – What has made the company successful in the past? What lessons do we need to remember? What do we need to forget?

Current Constraints – What things need to be changed for the company to be successful in the future? What are the barriers to innovation and change?

Critical Decisions – What important decisions are on the immediate horizon? What important decisions are being ignored that should be addressed?

Dark Spot – There is a dark spot on the horizon. It is not here and now but could have a major impact on the company / industry in the future. What is it?

Good Future – If you looked back 10 years hence and the company had been very successful, what went right? What does a good future look like and what needs to happen for that good future to occur?

Oracle – If you could spend time with an oracle or clairvoyant who knew the future, what question would you ask? What would you really like to know?

Developing the “Focal Question” The focal question identifies: • The key strategic issue facing the company / organization.

• The key decision facing the company.

• The key question you would like to answer.

The focal question should: • Focus on the company specifically (not the future of the world).

• Highlight the key strategic question (e.g. growth, profitability, industry structure, competitive position, customer relations, etc.).

• Focus on a single concern (not compound issues).

Examples • How can ABC penetrate and gain dominance in market W? • How can LMN maximize growth opportunities?

• How can XYZ strengthen customer relationships?

• How can increase long-term profitability?

Interviews & Focal Question - RR Example • Issues emerging from interviews – – – – – – –

Railroad mergers New transport regulation New trade flows Truck competition Agricultural policies Customer industries (coal, paper, grain, steel, autos) Union power

• Focal Question – Can Railco improve its competitive position and capture growth?

Factors and forces All organizations are embedded in a larger context. The accompanying chart distinguishes the contextual environment (forces & factors) from the transaction space (actors). A key step in scenario development is to identify the forces driving change in the external environment. One approach in identifying major driving forces / factors in a workshop involves 3 steps.

1) “Take 4 or 5 minutes by yourself and identify 4 or 5 factors or forces (no real distinction is needed) which could impact the focal question.”

2) Go around the room and have each person describe the forces / factors they identified.

Summarize to 4 or 5 words and write them on large post-it notes.

3) Using volunteers, sort the post-it notes into clusters around common themes. Do not use a predefined framework. Select notes randomly and look for another with a common connection, etc.

Build up between 7 and 10 clusters. There should be no more than 10 post-it note ideas per cluster. Name the clusters reflecting the underlying theme.

The cluster themes may be interpreted as the “forces” driving future change. They also represent a framework for describing the future. Each “force” must be included in all of your scenario descriptions although with varying interpretations and importance.

Context of the firm Forces (external)

Contextual Environment Financial

Transaction Space

Social Customers Economic

â&#x20AC;&#x153;Firmâ&#x20AC;?

Communities Political

Suppliers Competitors

Regulators Politicians

Technological Environmental

Factors & Actors (Some Influence)

Key factors & forces - RR example Process • Brainstormed factors and forces • Grouped into clusters • Clusters labeled to reflect major theme / force

Factors & Forces • Macro-economics • Global / Asian growth • Rail performance & competition • Customer industries • Rail industry restructuring • Truck competition • Labour • Regulation & Politics • Ports & Water • Environment

Critical uncertainties - Rating importance & uncertainty Participants allocated 5 votes each for importance & uncertainty Macro-economics Global / Asian Growth Rail Performance & Competition Customer Industries Rail Industry Restructuring Truck Competition Labour Regulation & Politics Ports & Water Environment

Importance 6 3 8 11 5 3 4 2 2 1

Uncertainty 14 2 0 6 4 1 6 9 1 2

Critical uncertainties - Refining the definitions • Macro-economics (rate and structure of growth) was immediately identified as a critical uncertainty; Global / Asian growth could be incorporated into this dimension.

• Customer industries was a second candidate, but this appeared to be closely linked to macro-economics / growth • Was rail performance and competition predetermined (I.e. zero uncertainty)? When we unpacked this cluster it became evident that performance pressures were “inevitable” but not so clear.

• A second critical uncertainty emerged around competition and industry structure, which appeared interesting and challenging.

Example of a cluster Rail competition and performance • • • • • • • • • •

Improving asset utilization Railroad reliability Seamless intermodal service Ability to handle information Rail track / operation separation Seasonal operating difficulties Rising customer expectations Increasing rail to rail competition Move to schedule services Info systems in railroads

A wide array of factors grouped into a single cluster

Clusters help focus the process but can suppress critical factors

Scenario logics The dimensions are the critical uncertainties: label the 2 axes.

Then describe the ends of the spectrum (2 â&#x20AC;&#x201C; 3 words or phrases)

Scenario logic framework - RR example Restrained Competition

Economic Growth

Nationalistic Interventionist

& Structure Ind. Structure

Low Growth

Competition

Market Power Scale & Consolidation

Open Competition

Customer Driven Open Access

High Growth

Global Technology Productivity

Scenario names & characteristics

• • • • • • • •

• • • • • • • •

Scenario Logics - Railway Industry Restrained Competition

Dinosaur Park

Low Growth

Stagnant Growth •Desperate Customers •Interventionist

Competition

Economic Growth

•Global Trade •Consolidation •Bulk commodities

& Structure Industry Structure

•Contraction •Stable Regulation •Excess Capacity

Riding the Momentum

High Growth

Technology Forced

Open Competition

•Customer Demands •Services •Internal Pressure

Developing Storylines Scenarios are stories, engaging, logical and challenging. Stories need a plot through time. One way of developing the story through time is to have participants describe events consistent with the scenario logics in 3 time frames: near term, medium term and long term. Writing these as newspaper headlines is one approach which can add fun and creativity to the exercise (but can become trivial if you are not careful).

The descriptions should reinforce the overall logic of the scenario. They provide useful material in writing the stories and in developing material. A useful tool in developing the logic and story of a scenario is to map out the logic. An example of a “logic map” for the railroad scenario “Riding the Momentum” is shown in the next viewgraph.

Logic Map for â&#x20AC;&#x153;Riding the Momentumâ&#x20AC;?

Global Growth

Rail Consolidation Lower Costs & Market Power

Rising Transport Demand

Growth in Truck Traffic & Profits

Restrained Competition

Increased Profitability Increased Investment Ship / Rail Technology Long Haul Focus Constrained Competition

Mapping the logic helps in developing the story through time

Writing & Communicating Scenarios Scenario writing is an art. The written scenarios are intended to engage the mind of the reader. To draw them into the future. To encourage them to explore new ideas. To think differently. The stories must be logical, internally consistent and believable. The writer does not need to think through every detail. Indeed, this is counterproductive. The scenarios are necessarily incomplete to let the reader add ideas and examples from his / her experience.

There is tremendous opportunity to be creative in writing scenarios. Experiment. Try new things. Some have used dialogue; some have used “newspapers”; some prefer “bullets” to written prose; some have written in the future tense, present tense and past tense. (I prefer the past tense because stories seem more real and believable when written as if they have already occurred. ) Some include the logic leading up to the critical uncertainties in their reports; some include an overview before the stories (my preference); and others plunge right in. Some include both stories and “bullets” using a “summary comparison table” to encourage comparison across the scenarios (see next viewgraph).

Scenarios should be grounded in recent events. The same event(s) may appear in all scenarios but with different interpretations leading to distinctly different futures. This links the future to alternative interpretations of the present and anchors the stories in reality that readers are currently experiencing.

Written documents are only one form of communication. Presentations are another form. Others have developed videos; and others have used actors to bring the scenarios alive – literally. The only limit is writing and communication is your imagination (and budget).

Summary comparison table Characteristics

Scenario A

Scenario B

Scenario C

Tech Impact

+++

+

--

Globalization

Rapid

Protection

Slowing

Scenario D 0 Stable

Growth Prices

Volatile

Policy

Regulated

Free Mkt

Values

Authoritarian

Liberal

Flat

Rising Reregulated Tolerant

Falling Regulated Intolerant

Scenarios to strategies Scenarios Windtunnelling

Windtunnelling

New Strategies

Existing Strategies Implications

Strategic Objectives Strategic Plans

Scenarios as a tool - implications Questions • What are the threats and opportunities in each scenario?

• What factors are critical for success in each scenario?  Deepen understanding of the scenarios  Provide a broad context for more specific questions

Scenarios as a tool – competitors, suppliers & customers

• Who will be the major competitors in each scenario?

• How will these competitors respond to our new strategy?

• Could completely new competitors emerge in our business?

• What will be the impact on our relationship with suppliers?

• How will our customers change? What new needs will they have in each scenario?  Explicit consideration of key actors

Scenarios as a tool – existing strategies “Windtunnelling” – How will our current strategies fly in the future?

How would our existing strategies perform in each of the scenarios?

What are the pros and cons?

What are the risks? Where are we vulnerable?

Will our current strategies meet our strategic objectives?  Ensures articulation of existing strategies and objectives  Forces managers to think through the consequences of current strategies  Encourages discussion of risks and rewards

Scenarios as a tool – generating new strategies If scenario A (B, C, ..) occurred, what should we do?

What strategies should we pursue?

Scenarios

Generate New Strategies

Evaluate (Windtunnel)

Review Objectives

 Forced generation of different strategies  Active discussion of the consequences of specific choices

Scenario â&#x20AC;&#x201C; strategy comparison