Building logical future scenarios in uncertain times

Nette Lehtinen, Managing Consultant|Wednesday, 14 March 2018

The fourth industrial revolution increases uncertainty about the future. Many traditional companies are afraid of losing direct contact with the consumers as new players aim to gain control over the customer interface. Businesses are being developed As-a-Service, forcing also the manufacturing industry to develop new business models. Disruptive technologies have the power to break down the business logic of an entire industry. Network effects create intense competition in markets where the best digital ecosystems allow the winner(s) take it all. Also, previously geographically restricted markets face new kind of international competition in which the physical presence is no longer needed.

Understanding the cause-effect relationships and seeing the BIG PICTURE instead of fragmented streams of news and events

Identifying potential future operating environments in advance makes strategic decision-making stronger and more thorough, for instance when making decisions on specific investments, geographical markets or business areas. Future scenarios help to visualize the cause-and-effect relationships of major events concerning the industry, competitive field, clients, technologies, legislation and so forth. In effect, alternative and plausible scenarios help the company to connect individual events to bigger phenomena.

SCENARIO BUILDER enhances the ability to identify and build up consistent scenarios. 

An effective scenario method produces consistent and logical scenarios that are relevant to strategic decision-making. At Capful, we have developed a new solution to improve the efficiency, quality, and functionality of scenario work. Scenario Builder relies on mathematical algorithms – also used in machine learning – and draws on consistency analysis to assess the interconnections and logical inconsistencies between multiple alternative scenarios.

A process utilizing Scenario Builder proceeds as follows:

  1. Influencing factors in the organization’s operating environment are identified. Key uncertainties and trends are pinpointed through an impact-uncertainty analysis and a cross-impact analysis.
  2. Uncertainties are placed on a Futures Table, which defines the alternative outcomes for each uncertainty. These outcomes are defined through expert interviews, surveys, and industry analyses.
  3. Scenario Builder assesses and compares the inconsistencies and combinations within the scenarios and selects for example hundred most logical and consistent scenarios for further exploration. (Notice that a Futures Table equipped with ten uncertainties, with four outcomes in each, would generate over one million scenarios, all different from one another, but most of these scenarios would be inconsistent or vague).
  4. Scenario Builder’s algorithm identifies the scenarios most similar to each other and visualizes them as clusters on an informative and interactive scenario map, making it possible to identify and choose for example 3-6 most interesting and different scenarios for further assessment.
  5. The selected scenarios are described, visualized, quantified and tested in various ways.
  6. Once the scenarios are complete, the final step is to conduct an impact analysis. This analysis enables identification of the company’s key opportunities, risks, and strategic options. In this phase, the current strategy, business plan or investment plan is tested in different scenarios.

Based on the impact analysis, necessary strategic decisions and actions are drafted and concrete back-up plans for alternative future developments created.

Scenario Builder helps to evaluate the potential developments within a multidimensional business environment. Moreover, it enables a comprehensive assessment of individual events and their relationships with one another. The probability of ignoring plausible scenarios decreases and the efficiency and quality of the scenario process improves. Scenarios can later be used as a framework for monitoring the changes taking place in the organization’s operating environment. If or when a certain scenario appears to be materializing, the organization is able to update their strategic plans accordingly.

 

Would you like to hear more about Scenario BuilderTM and how it can be used in your scenario and strategy work?

Please contact us here!

nette2

Nette Lehtinen

Managing Consultant

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Master’s Thesis: Generation of strategic growth alternatives – Empirical evidence from large companies listed on NASDAQ OMX Helsinki

Tuomas Paananen, Aalto University School of Business|Thursday, 22 December 2016

“The investor of today does not profit from yesterday’s growth.” – Warren Buffett

In order to serve the underlying purpose of any business, to make a profit for its shareholders, companies regardless of size, industry or geographical location need to consider and seek growth. However, creating growth is not a simple task but requires thorough thinking and decision making from top executives steering their businesses.

Objective of the study

The objective of this study is to find out the factors or approaches that companies take into consideration when generating strategic growth alternatives. Also the sources of these inputs are examined. In addition, the study aims to address the ways in which the growth alternatives are communicated to the decision makers.

Methodology

The theoretical foundation of this thesis lies on rational strategic decision making and strategic growth alternatives. The empirical data for the study was gathered from 13 semi-structured thematic interviews with top level executives responsible for strategy in their organizations. At the time of the research, all the companies were listed on NASDAQ OMX Helsinki and had a market capitalization in excess of 250 million euros. The interviewed strategy executives represented the following companies: TeliaSonera, Neste Oil, Elisa, Cargotec, Valmet, Tieto, Sanoma, Aktia, Oriola-KD, Basware, F-Secure, Finnair and Lemminkäinen. The interviews were interpreted through thematic analysis using a systematic coding process. Data collection and data analysis were conducted as an iterative process building on the theoretical framework constructed based on earlier research on the topic.

Findings

Generation of strategic growth alternatives is a multi-dimensional process including various inputs. Based on the findings, the outside-in approach, in which external operating environment is essential, is emphasized when creating strategic growth alternatives. Especially customers are seen as an invaluable source for growth opportunities. High priority factors from the external environment are also market growth and the competitive field. In addition, the relevance of widely discussed static positioning strategies seems to be eroding. Core competencies, capabilities and even organizational culture are replacing the older underpinnings when it comes to new business development. Growth generation needs to be continuous – not tied to the calendar year.

 

Keywords: strategic management, strategic decision making, new business development, strategic
growth alternatives, growth, NASDAQ OMX Helsinki

Download the full article.

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