Why every company should be doing scenario planning: How well are you prepared for what you don't think will happen?

[Editor's Note: Happy New Year! I recently listened to several economic forecasts for 2019 and was struck by an interesting caveat made by the economists: When the economy is continuing to go up month after month, optimism about the momentum and duration of the economic upturn tends to blur our vision. History tells us that most of us tend to ride on our optimism and miss the turns in the economy until they are upon us. (Think the tech bubble of the late 1990's or the big surprise in 2008).

 

Do we really know how this is going to play out over the next few years? There are a number of different views of where the markets and economy may go. But, we all need to chart a direction for our companies. What is universally true is uncertainty. With great uncertainty and multiple different views of the future, a company needs to do scenario planning, so that it thinks about the different possible views of the future and how it would move or adapt to best position itself for success.

The Mead Consulting Group utilizes scenario planning to help clients build flexibility into planning and execution and to help leaders think "broader." This last recession was a game-changer. 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. Contact me for more information,  - dpm] 

Why every company should be doing scenario planning: How well are you prepared for what you don't think will happen?  

 

Why every company should be doing scenario planning 

If your business or industry is predictable, you need not continue reading. If, however, there is uncertainty about the future of your markets or industry, then your company should examine the way it plans. It isn't just healthcare companies, either. I would submit that there is little real predictability in most industries.

 

Making assumptions gives us a false sense of security and puts blinders on us. What is the old line about the word "assume" making an "ass out of you and me?" Not to be profane, but traditional strategic planning totally botched the economic downturn/recovery of 2008 - 2018. Traditional strategic planning is based on assumptions. The planning group makes certain assumptions about the future - about variables such as economic, political, social, technological, regulatory, environmental, etc. Making assumptions is just another way of saying we are attempting to predict the future.

 

Really? I would suggest that there are situations where economic, social, political, technological, regulatory, and environmental factors will drive fundamental change in every business and industry of every person reading this e-Letter. It's really only a question of degree, pace, and timing.

 

Various organizations/industries could have avoided significant market pain by utilizing scenario planning. Without being overly critical, these organizations/industries were complacent - and they made assumptions about the future that proved to be very wrong. Each was overtaken by disruptive forces that were not within their traditional industry competitive analysis.

 

Have the courage to consider the tough questions. How will your business be impacted by the following?    

 

*  Technology - How much will technology change your industry?

• Example: Efficient visibility and management of supply chains (from end user order entry - directly impacting each step of the supply chain - think blockchain.
• Amazon ....everywhere...

 

*   Geopolitical - Where to start - the list is endless. Tariffs, Refugees, Immigration, Changes in international influence....

 

*   Social/Environmental

• Power moving to the consumer (away from institutions)

 

*    Changes in culture, attitudes (Millennials and i-Gen or Generation Z vs. Boomers and GenX)

 

*    Demographics - Is your customer base affected by demographics?

• Aging population in certain markets
  • What does the negative birth-rate and aging population mean for European economies like Greece, Spain, Italy, or Iran and Iraq. What about Japan?
  • Baby boomers retiring, selling businesses, eldercare, etc.

 *    Economic

• Is the U.S. facing a period of long-term labor shortages?
• Will increasing labor rates continue to make China less competitive? How will outsourcing look in 5-10 years?
• What will happen to Europe after Brexit?
• Impact of trade wars
• Impact of Cryptocurrencies 

*    Regulatory - This list is also endless...

• Healthcare / Affordable Care Act
• FDA
• EPA
• Trade
• Future of taxation)

 Companies can no longer ignore uncertainty or try to assume it away. Some organizations will say scenario planning is too difficult and elect to take a simpler course.  Most organizations perform traditional strategic planning or business planning/ budgeting because it is comfortable and addresses a short timeframe. However, we now know that the world is uncertain and interconnected. Companies can no longer ignore uncertainty or try to assume it away.  As author H.L. Mencken is quoted, "For every complex problem, there is an answer that is clear, simple, and wrong."

That is your opportunity. Since the 2008 downturn, the number of our clients that are doing scenario planning has more than tripled.  Companies that are scenario planning are examining different possibilities of the future and determining their competitive response. They are modifying the trends and information that they monitor so that they can develop "early warning" signs. These companies are building flexibility into their planning and adaptability into their leadership and culture.

Did you accomplish your goals in 2018? What's your plan for 2019?

Did you accomplish your goals in 2018? What's your plan for 2019?

As we begin a new year, it might be a good time for reflection. Did you accomplish your business and personal goals for 2018?  If not, what will you do differently in 2019?

 

What changes are you planning for 2019? 

Is your plan for 2019 just another financial plan? Is your plan merely a rehash of last year's? Are you taking new steps to ensure solid execution?

 

Do something bold and different. Does your plan for 2019 position your company to take advantage of competitive advantages and opportunities? Does your plan allow you to be successful without depending on a rising economy? (Many believe the next recession may start as early as the 4^th quarter.) Do you have the right people and resources in place to execute the plan? Have you broken the plan into actions with specific metrics, dates, and responsible people? Have you subjected your plan to the reality test? Have you thought about both positive and negative scenarios of the future and what steps your company should take in each case? Is there an element of fun and adventure to your plan? Does your plan make your company more valuable at the end of this next year?

 If you can't answer YES to each of these questions, perhaps you are planning more of the same in 2019. As the saying goes: What is the definition of insanity? Doing the same things over and over and expecting different results. 

 

Think it's too late to affect 2019 -2020? Don't you expect more from yourself and your company? It's not too late to put a different approach to work that elevates your company and its prospects. It's not too late to act to maximize the next couple of years. Uncertainty makes many of us uncomfortable - but it also brings opportunities to those who can get in front of the market disruptions.

 

Perhaps 2019 should be the year you start planning to sell? Many knowledgeable people expect that 2019 will continue to be among the best years of any over the next few years for business owners to sell at greatest value. The dynamics of many potential buyers, low inflation, lots of available private equity capital, higher valuations for performing companies - all bode well for sellers over the near future. These dynamics are expected to change for the worse during the next few years as inflation rises, recession looms, and the stock market adjusts causing lower valuations, etc. One veteran of many company sales explains it this way: "If you are planning to possibly sell over the next 5 years, you should be planning to sell in this market - or you may wind up missing the window."

 

Start preparing now - run your business for value. Whether or not you plan to sell, it always makes sense to run your business to increase value. If your business in recent years has become more of a lifestyle business than a growth/value business, make 2019 the year to change that. Learn what adds value to prospective buyers, and reduce or eliminate the discounters of value. How ready is your business to maximize value?  

Contact me

  to set up a no cost conversation. We have coached many businesses to achieve better market positioning and greater value.   

Why every company should be doing scenario planning: How well are you prepared for what you don't think will happen?

[Editor's Note: I recently listened to several economic forecasts for 2019 and was struck by an interesting caveat made by the economists: When the economy is continuing to go up month after month, optimism about the momentum and duration of the economic upturn tends to blur our vision. History tells us that most of us tend to ride on our optimism and miss the turns in the economy until they are upon us. (Think the tech bubble of the late 1990's or the big surprise in 2008).

Do we really know how this is going to play out over the next few years? There are a number of different views of where the markets and economy may go. But, we all need to chart a direction for our companies. What is universally true is uncertainty. With great uncertainty and multiple different views of the future, a company needs to do scenario planning, so that it thinks about the different possible views of the future and how it would move or adapt to best position itself for success.

The Mead Consulting Group utilizes scenario planning to help clients build flexibility into planning and execution and to help leaders think "broader." This last recession was a game-changer. 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] 

Why every company should be doing scenario planning: How well are you prepared for what you don't think will happen?  

Why every company should be doing scenario planning 

If your business or industry is predictable, you need not continue reading. If, however, there is uncertainty about the future of your markets or industry, then your company should examine the way it plans. It isn't just healthcare companies, either. I would submit that there is little real predictability in most industries.

Making assumptions gives us a false sense of security and puts blinders on us. What is the old line about the word "assume" making an "ass out of you and me?" Not to be profane, but traditional strategic planning totally botched the economic downturn/recovery of 2008 - 2018. Traditional strategic planning is based on assumptions. The planning group makes certain assumptions about the future - about variables such as economic, political, social, technological, regulatory, environmental, etc. Making assumptions is just another way of saying we are attempting to predict the future.

Really? I would suggest that there are situations where economic, social, political, technological, regulatory, and environmental factors will drive fundamental change in every business and industry of every person reading this e-Letter. It's really only a question of degree, pace, and timing.

Various organizations/industries could have avoided significant market pain by utilizing scenario planning. Without being overly critical, these organizations/industries were complacent - and they made assumptions about the future that proved to be very wrong. Each was overtaken by disruptive forces that were not within their traditional industry competitive analysis.

Have the courage to consider the tough questions. How will your business be impacted by the following?    

*  Technology - How much will technology change your industry?

• Example: Efficient visibility and management of supply chains (from end-user order entry - directly impacting each step of the supply chain. Think blockchain.
• Amazon ....everywhere...
• AI, Machine Learning, 
• Electric Vehicles

*   Geopolitical - Where to start - the list is endless. Tarriffs, Refugees/Immigration, Instability of certain governements...

*   Social/Environmental

• Power moving to the consumer (away from institutions)

*    Changes in culture, attitudes (Millennials and i-Gen or Generation Z vs. Boomers and GenX)

*    Demographics - Is your customer base affected by demographics?

• Aging population in certain markets
  • What does the negative birth-rate and aging population mean for European economies like Greece, Spain, Italy, or Iran and Iraq. What about Japan?
  • Baby boomers retiring, selling businesses, eldercare, etc.

 *    Economic

• Is the U.S. facing a period of long-term labor shortages?
• Will increasing labor rates continue to make China less competitive? How will outsourcing look in 5-10 years?
• What will happen to Europe after Brexit?
• Impact of trade wars
• Impact of Cryptocurrencies

   

*    Regulatory - This list is also endless...

• Healthcare / Affordable Care Act
• FDA
• EPA
• Trade
• Future of taxation)

Companies can no longer ignore uncertainty or try to assume it away. Some organizations will say scenario planning is too difficult and elect to take a simpler course.  Most organizations perform traditional strategic planning or business planning/ budgeting because it is comfortable and addresses a short timeframe. However, we now know that the world is uncertain and interconnected. Companies can no longer ignore uncertainty or try to assume it away.  As author H.L. Mencken is quoted, "For every complex problem, there is an answer that is clear, simple, and wrong."

That is your opportunity. Since the 2008 downturn, the number of our clients that are doing scenario planning has more than tripled.  Companies that are scenario planning are examining different possibilities of the future and determining their competitive response. They are modifying the trends and information that they monitor so that they can develop "early warning" signs. These companies are building flexibility into their planning and adaptability into their leadership and culture.

A number of companies are so concerned that they are doing scenario planning in Q1 of 2019 because they did not get to it in 2018. If you want to discuss scenario planning or want more information on the Mead Consulting approach to scenario planning, please contact me at meaddp@meadconsultinggroup.com.