Events
that disrupt business occur every day. While it is impossible to predict
exactly where and when these disruptions might happen, scenario planning can
help organizations protect revenue streams, increase profitability, and ensure
business continuity despite major upheavals.
In Scenario
Planning –Part 3 Are you ready for disruptions?, we discussed three
examples of companies that were caught flat-footed by disruptive innovation. What
could these companies have done with effective scenario planning? In each case,
there were early signs:
· Blockbuster— by Netflix and Redbox
(Coinstar), now video streaming. Customer dissatisfaction with the inconvenience of
having to travel to physical locations, pricing, and late fees - in
Blockbuster’s case. New business models (mail and kiosk) addressed customer
dissatisfaction with the cost and inconvenience of brick and mortar stores. Video
streaming has been coming for over a decade. The primary driver to its arrival
as a mainstream competitor was the availability and speed of broadband and wireless.
Was anyone at Blockbuster watching this? Was anyone listening to customer
dissatisfaction with exorbitant late fees? Perhaps, if Blockbuster management
was monitoring its own customer response (complaints) and tracking the scaling
of broadband, it could have initiated steps to provide alternatives – either
through internal pilots, new products, or acquisitions. Instead, it viewed
competition in a traditional manner - as coming from the other brick and mortar
video rental companies. When new competitors began to gain steam, Blockbuster’s
response was slow and awkward. Clearly
they had been totally unprepared and management had not thought through what competitive
actions or responses should be taken.
· Encyclopedia Britannica – by the internet providing content online. We
could lump many print publishers in this category. In fairness, the inability to decide how to monetize
online content has paralyzed many management teams in the publishing business. However,
lessons learned in other industries dating back to the transistor radio have
taught us that many times disruptions occur first on the fringes or lower end
of markets. Wikipedia (the “free encyclopedia”) may have seemed to be a joke to
EB executives at first, if they noticed it at all, but the sheer volume of
visitors to the Wikipedia site could have been seen as a precursor to today’s
online content world.
·
Kodak—transition from physical
media to digital media. Kodak may be the poster child for the need for
effective scenario planning. Kodak actually invented the disruptive technology
– digital photography. In Kodak’s case, management clearly did not want digital
technology to cannibalize its “golden goose”, the exceptionally profitable film
world. So rather than understanding, monitoring, and acting on the drivers of
digital photography, Kodak management spent years executing defensive
strategies, attempting to protect the existing revenue stream.
Disruptions have occurred in just about every market
over time. Mature industries with little change for decades, are now being
transformed by technology which is enabling changes to business models,
industry economics, and competitive balance. You cannot prevent disruptions
from occurring, but you can be aware, prepared, and capable of turning
disruptions into opportunities.
Business benefits of scenario planning
As the Boy Scout motto
indicates, “Be prepared.” Disruptions are a risk only if businesses aren’t
prepared. Effective scenario planning requires senior managers to take a
broader view of their roles. By being prepared, companies can avoid the
pitfalls of becoming irrelevant through disruptive innovation. Scenario
planning benefits include:
·
Management preparedness and confidence. By reviewing possible scenarios and the impact on
competitive balance, management can “rehearse” the appropriate steps that would
be taken in the event a certain scenario begins to occur. Just as an athlete
visualizes his or her performance in a certain critical game situation, when
potential disruptions occur, management can respond in a calm, confident,
thoughtful manner.
·
Building an adaptable culture. By developing a flexible approach to
planning, companies can build adaptability into the culture. Adaptable teams
perform far better than those that are mired in a static approach or limited
view of the world.
·
Greater
customer loyalty and retention. Companies that know where they are headed instill greater confidence in their customers.
This confidence often translates into greater loyalty, which protects important
revenue streams. In addition, by moving swiftly when disruptions occur,
companies can keep their customers from worrying and switching to other
vendors. Don’t underestimate the “coolness factor” of being a leader – Apple
benefits from a “halo effect” for being on top of latest innovations, being
fearless about cannibalizing previous products and models, etc. Customers want
to be “seen” using Apple products because Apple is perceived as knowing where
they are headed.
·
Increased
revenues.
Companies that are prepared for disruptions can attract more customers. This is because customers want suppliers
on whom they can rely on for a steady stream of products and services.
·
Reduced costs. Companies become
inefficient when they don’t have a roadmap. By establishing confidence and a clear direction based their ability to monitor,
predict, and react to, possible disruptions, companies can be more effective
and efficient.
·
Enhanced
employee productivity and retention. A common direction also instills confidence in employees, increasing their productivity
and company loyalty.
·
Creating new
business opportunities. By anticipating market disruptions and technology trends, visionary companies can create and
enter new markets to ensure future revenue streams.
¹ Excerpts from Scenario Planning: Are You Ready? By Dave
Evans and Rick Hutley, Cisco IBSG Innovations Practice
Next: Why every
company should engage in scenario planning
