Editor's Note: This is the third of a five-part series
on the impact of scenario planning. The Mead Consulting Group has been
utilizing scenario planning to help clients build flexibility into planning and
execution for almost 20 years. While scenario planning was once conducted
primarily with our larger clients, today, over half of our clients
(owner-operated, strategic, and private-equity- backed) have discovered the
benefits of scenario planning. - DPM
Events that disrupt business occur every day. And
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.
Disruptions can be sorted into four primary groups:
1.
Market disruptions (new competition, market transitions, technology advances).
Many
companies have been caught off-guard by market changes such as shifting
consumer preferences, significant technology advances, and unexpected
competition. Sony, for example, created the market for portable music players
with the company's Walkman device, but missed the transition from hardware-only
solutions to an ecosystem of products that includes integrated hardware,
software, and services.
2. Natural and biological disasters (earthquakes, hurricanes,
tornadoes, pandemics).
Even
though natural disasters are difficult to predict, it is relatively easy to
prepare for them, because we know where they are likely to occur. For example,
companies based in California need to be prepared for disruptions caused by
earthquakes, while businesses located in the Gulf of Mexico and on the East
Coast should be ready for the effects of the annual hurricane season.
Pandemics, while in the same category, are harder to predict. From history, we
know a pandemic is coming, but we don't know exactly when it will occur or how
severe it will be. Many companies have not prepared for the impact of natural
and biological disasters on the overall business. Businesses must be prepared
to answer questions such as:
●
How can employees continue to work if they can't go to the office?
●
How will we communicate with customers?
●
How will we continue to manufacture or source our products?
●
How will our business strategies change?
3. Political or social change (terrorist attacks, new
regulations, new social
trends).
Most
terrorist attacks are nearly impossible to foresee, while increasing
regulations from a shift in political parties can be relatively easy for which
to prepare. As businesses become more global, preparing for political and
social disruptions becomes more complex since each region of the world is
subject to different political and social forces. Complicating matters further,
we tend to think about the world from our own vantage points.
Google,
for example, was caught off-guard by China's action to block its service.
Google's stock price has dropped more than 15 percent (as of September 23) from
its 2010 peak, in large measure over concerns about the China standoff.
4. Unexpected events.
Companies
can prepare for and respond to unexpected events by creating business and
technology architectures that are agile and flexible.
Impact of Disruptions
The
impact of not being prepared includes missed revenue opportunities, increased
costs, and even going out of business. The following examples highlight some of
the risks of failing to prepare for the types of disruptions just discussed.
●
Blockbuster-The world's largest movie-rental company filed for bankruptcy in
September 2010 after failing to adapt its storefront model to online technology
pioneered by rivals. Conversely, Netflix grew by renting movies online and
through the mail, while Coinstar prospered by placing Redbox vending machines
offering $1 DVD rentals in supermarkets, drugstores, and other convenient
locations. Subsequently, Netflix is now under stress from streaming rivals.
● Encyclopedia
Britannica-This provider did not fully envision how disruptive the Internet
would be to its business. By the time executives recognized that most customers
no longer wanted the company's content in book form, it was almost too late.
The company has since done a good job of transforming itself by offering a mix
of printed and online products.
●
Kodak-Once known as a leading innovator in the photography market, Kodak's
business was severely disrupted by the transition from physical media to digital
media.
While
these examples highlight the risks of losing focus and not preparing for future
events, for most companies, the impact is much less dramatic. By not being
prepared, however, businesses can expect higher costs and longer recovery time,
potentially causing decreased customer loyalty and confidence. It is important
to note that many companies have used disruptions to their advantage.
Amazon.com, for example, helped transform retailing by enabling people to buy
products online. YouTube created an entire business from the positive
disruption of inexpensive, prolific video-camera technologies. And Facebook is
benefiting from peoples' desire to connect and share information.
Next
- Benefiting from Disruptions
Check
out the full scenario planning series on our blog - as it unfolds.Comment on your experiences with scenario
planning.
¹ Excerpts from Scenario Planning: Are You Ready? By
Dave Evans and Rick Hutley, Cisco IBSG Innovations Practice
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