Scenario Management—An Approach for Strategic Foresight Alexander Fink and Oliver Schlake Scenario Management International AG
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Scenario Management—An Approach for Strategic Foresight Alexander Fink and Oliver Schlake Scenario Management International AG EXECUTIVE SUMMARY Scenarios are an effective tool for helping a company to be successful in its competitive environment. The authors show how CI professionals can develop corporate, industry, market, and global scenarios. This is explained by the case study of the German pump industry. The authors also describe the integration of scenarios into the processes of competitive intelligence and strategic management. This includes specific methodolog- ical approaches to identify the consequences of certain scenarios, to develop new strategies, and to assess existing strategic guidelines and current strategic decisions. In addition, they show how to combine scenarios and early-warning systems within a process of strategic foresight. © 2000 John Wiley & Sons, Inc. To guarantee competitiveness, enterprises must identify management approaches are based on a separate consider- upcoming opportunities and threats very early and inte- ation of individual fields and influencing factors. There- grate them into strategic planning on time. Therefore, fore, they are doomed to fail. In the course of their they should not look only for a single visionary view planning, not only companies but also organizations and that most likely corresponds with their expectations. administrations thus need to consider the development Instead, they should try to acquire multiple views that and the behavior of complex systems. describe a whole “window of opportunities.” Scenarios promise a way to better cope with growing Future-open Thinking: It is increasingly difficult to uncertainties. As shown in Figure 1, the concept of Sce- make precise predictions of future trends and develop- nario Management is based on three main principles: ments. Therefore companies and organizations have to unlearn the idea that there exists a single predictable fu- Systems Thinking: There is ever greater diversity and ture. Instead they have to include alternative options in dynamic in entrepreneurial activity. Many traditional their calculations of how influencing factors will develop. Competitive Intelligence Review, Vol. 11(1) 37–45 (2000) © 2000 John Wiley & Sons, Inc. 37 Fink and Schlake Scenario Preparation (Phase 1) The main goal of a scenario project is to support entre- preneurial decisions. This process always focuses on a particular object, e.g., an enterprise (What core compe- tencies should be built up?), a product (What require- ments should be met by a product?), or a technology (What solution approach should be realized?). This focus of a scenario-project is called the decision field. It stands in the center of the scenario management process. Before alternative visionary views in the form of sce- narios are developed, the decision field should be as- sessed in its current situation. Therefore, conventional Figure 1. management tools such as strength-weakness profiles and portfolios can be used. Complex decision fields can be Main principles of scenario management. split up into single components. The result of the sce- nario preparation is called the scenario base, because it is Strategic Thinking: In former times, companies focused both the starting point of the scenario creation (phases 2 only on the control factors liquidity and success. With the to 4) and the scenario transfer (phase 5). first post-war depression and the oil crises in the 1970s, the “Age of Continuity” came to an end. Enterprises Pump Industry Example: The German pump industry could no longer strive for short-term profit maximization is dominated by small- and medium-sized enterprises only. They also needed to take the creation and preserva- (SME) that reached a leading position on the global mar- tion of requirements for future success into account. This kets. Main success factors were product quality and tech- led to a new strategic control factor called success poten- nological leadership. Their position was threatened by tial. The sooner enterprises identify success potentials and new and inexpensive competitors who improved their the better they develop them, the greater their success will quality and technological standards. In addition, the be in the future. Strategic thinking is therefore a prerequi- global disadvantages of Germany as a high-labor-cost site for successful action in a complex and turbulent envi- country were a critical success factor, too. In studies, most ronment. consultants recommended cost reduction programs and Figure 1 also shows some traditional approaches in this outsourcing of production. To identify alternative strategic field: System Dynamics is a combination of systems thinking options and to work out new research programs, the in- and strategic thinking—but without the multiple perspective dustrial organization developed market scenarios. (A). Most deductive approaches of scenario planning are based on future-open thinking and strategic thinking—but they Scenario Field Analysis (Phase 2) ignore the complexity in the future sphere (B). Other, To support entrepreneurial decisions, scenarios have to more technocratic approaches—mostly from Continental be created and precisely adjusted to the decision-making Europe—create very complex scenarios but often fail with process. In addition to the above-mentioned decision the integration into strategic management (C). Scenario field, a specific scenario field is defined. It describes the Management combines methods of systems thinking, future- subject of scenario creation. As shown in Figure 3, the open thinking, and strategic thinking. most frequently used scenario fields are: Corporate Scenarios: The center of the scenario field Phases of a Scenario Project is the company or a specific business unit. The corpo- Relying on the principles of systems thinking and future-open rate environment includes four influence areas: the in- thinking, we define a scenario as a generally intelligible de- dustry (ϭ field of competitors), the markets, substitutes, scription of a possible situation in the future, based on a and complementary products and services. The global complex network of influence factors. A scenario project environment includes the influence areas policy, econ- supports entrepreneurial decisions by the creation and use omy, society, and technology. of scenarios. As shown in Figure 2, a scenario project typi- Industry Scenarios: Here the competitive situation cally runs through the following five phases. within the industry is the center of the scenario field. 38 Scenario Management Figure 2. Five phases of scenario management. The industrial environment is characterized by suppliers, Depending on the different decision situations, three markets, substitutes, and complementors. The global general types of scenarios can be created: environment has to be added. Market Scenarios: The center of these kinds of scenario External Scenarios: The scenario field can concentrate fields is a specific market. The market environment in- on non-influenceable, external factors. A small manufac- turer who wants to start a joint venture in China can use cludes the industry (not only one’s own company), final scenarios to describe possible socioeconomic developments users, substitutes, and complementors. In addition, the in Eastern Asia that he cannot influence. External sce- global environment has to be taken into account. narios describe possible external conditions. Global Scenarios: These scenarios focus on specific global issues, e.g., the future of electronic commerce. Internal Scenarios: The scenario field focuses on inter- Around these issue are a specific “issue environment” nal factors. Internal scenarios are fully influenceable. A and the global environment. government can create scenarios to describe different possi- The next three phases can be summarized as scenario ble actions and their results. A company can create sce- creation. As shown in Figure 2, visionary views of the narios to figure out possible product specifications. future of the specific scenario field are worked out dur- Systems Scenarios: A scenario field can include both inter- ing these phases. Every scenario field consists of a large nal and external factors. These scenarios are easy to create number of influence factors. Sometimes up to 150 fac- but different to deal with. They are only influenceable in tors can be identified in a highly creative team process. parts and alternate between actions and side conditions. This process can be supported by specific methods such as brainstorming, brainwriting, or the method 6–3–5. To use the full number of the identified influence fac- The scenario team should also take a look at the balance tors during scenario creation would lead to scenarios that of the influence factors within the environmental areas. are too complex and too blurred. Only those factors are 39 Fink and Schlake Figure 3. Systemic structure of a scenario field. selected that are either characteristic for the development Pump Industry Example: The industrial organization or play a great role in the determination of the scenario wanted to know how the global pump market and its field. They are called key factors. They can be extracted relevant environment might develop in the future. There- with the help of an influence analysis (Fig. 4, mid-left). fore they defined all those external factors that may have The influences between all internal and external factors are a direct effect on as their scenario field. During a work- recorded in an influence matrix. The sums