Four Possible Scenarios of the future: How would your company respond?¹

[Editor's Note: When we initially published this article in 2008, most business leaders were still expecting a "normal" recession and recovery cycle. We now know that we have seen a combination of uncertainty and slow growth. While many companies have reacted relatively passively, some are changing the dynamics. I hope you find this useful. - DPM]

 

Four Possible Scenarios of the future: 

How would your company respond?¹

 

1. Paralysis/Survival: This describes a situation where external events will be unknown and surprising, and companies will respond to them in a predominantly passive and reactive manner.

 

This, clearly, is the worst-case scenario. In this situation, "unexpected and disruptive events will increase over the next three years, and companies (and/or economies) will react by pulling into a protective shell." The external shocks could include economic developments such as the nationalization of major global industries (like oil, banking, auto) and significant disruptions to global material flows. On the political front, terrorist attacks could escalate in different parts of the world, and the U.S. led anti-terrorism coalition could fall apart. Isolationism and protectionism may be revived. Companies (could) react by trying to protect existing assets with layoffs, reduced R&D investment, reduced product development, and lower foreign direct investment. Consumers may compound the problem by reducing spending dramatically.

 

  The bottom line in this scenario: A long, global recession

 

2. Slow Growth:This scenario predicts a future where external events will be known and expected, but companies will respond passively to them.

 

This, too, is a grim scenario, though not as irredeemably dismal as the previous one. In this case, "disruptive events with moderate impact continue, and while seen as normal, they result in an economic malaise." This scenario would be marked by debt and currency problems in key world economies, though a full-blown long-term global recession is avoided. Unemployment would be higher but manageable, but consumer confidence would be low. Politically, the war against terrorism could head toward a stalemate situation. Companies would get used to the risks of terrorism and learn to cope with their losses. They would make modest investments.

 

The bottom line in this scenario: Life becomes an overpowering shade of gray

 

3. Thriving With Chaos: Here, external events will be unknown and surprising, but companies will respond mostly in an active and opportunistic fashion.

 

In this scenario life is still gray, but sunlight begins to filter through the gloom in some areas. "Unpredictable disruptive external events" would continue, but "corporate and national resolve to be successful in the face of adversity" would drive modest prosperity. While uncertainty would continue, it would be considered a cost of doing business. Companies would try to seize business opportunities amid the disruption and uncertainties, and make increasing investments in areas that seem to be potentially profitable. In the political arena, the continued global realignment of the U.S. with Russia and China would continue to open up new market opportunities, but the Islamic and developing nations would be shut out of these new alliances. The war against terrorism would continue without a clear victory.

 

The bottom line: Life could be better, but there's money to be made if you know where to look.

 

4. Global Growth: In this scenario, external events will be known and expected, and companies will respond actively and aggressively.

 

This, clearly, is the best-case scenario, one in which "countries and peoples of the world recognize common goals and focus on economic development and peace as the route to permanent stability." The key features of this scenario would be that the recession proves short-lived and the business cycle would return to normal; the global coalition against terrorism would evolve into a coalition for peace and commerce, and the threat of terrorism would fade. Investments in new technologies for energy management would reduce the role of oil in Middle Eastern politics. Consumers would feel confident about the future, increase their spending, and lay the foundations of a sustained economic recovery. Trade barriers would be lowered and the developing economies would grow in tandem with the developed ones.

 

If these four scenarios - or a combination of them - represent what lies ahead in the next three years, what strategies should companies put in place today to deal with them?  Clearly, though, neither these scenarios nor the strategies that follow from them will apply across the board. The scenarios will play out differently not only in different industries, but also in various regions of the world. Accordingly, the strategies that companies develop to cope with these situations will need to vary to reflect these differences.

 

It would be a mistake to allow the uncertainties that prevail today to put business decision making on hold. The future may be unclear, but one thing is certain: In today's circumstances, scenario planning is more than a tool. It is a weapon to combat uncertainty, and the future will belong to companies and executives that wield it well.   

      

How well is your company prepared to respond? Are you taking control of the things that you can? Are your actions strengthening your company  - or weakening it? Are you building flexibility into your plans? Have you changed your approach to planning?

The Mead Consulting Group helps dozens of companies and organizations - like yours - every year with scenario planning. The process has helped our clients consistently outperform  their competition.

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Scenario Planning – Part 4: Benefiting from disruptions - benefits of scenario planning

Editor's Note: This is the fourth 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. 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

Scenario Planning - Part 3 - Are you ready for disruptions?

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

Colorado success stories: GolfTEC

Changes in strategic focus help GolfTEC thrive and grow

By David P. Mead

Editor's note: This is the second in a series of Colorado company success stories as told by CEOs and business owners that we are writing for ColoradoBiz Magazine. We are interviewing clients and friends whose companies have thrived during the economic recession through disruptive innovation, new business models or superior execution. (This article was originally published in ColoradoBiz on Feb 7th)

Recently I sat down with Joe Assell, co-founder and CEO of GolfTEC to review the strategies and approaches that the company has taken to reach its current level of success.

Mead: How did you decide to get into the business?

Assell: I was a golf pro and in 1994-95, co-founders Mike Clinton, Clayton Cole and I could see new technologies emerging (PC’s, the internet, etc.). Golf lessons essentially had been conducted the same way by golf professionals for years. We decided to find a better way to give a golf lesson, utilizing technology. In 1995 we opened our first location - as an experiment. It booked quickly and we added a second location.

Mead: What is your differentiation?

Assell: We have capitalized on a “first to market” advantage. We offer proprietary software platforms: g- SWING where we match your swing to our database which includes the motions of 150 top tour players. So the lesson is based on facts and data about your swing, rather than opinion; CaddyMaster (our ERP system) provides business intelligence about customers, location performance, on-line scheduling. It allows us to run golf instruction as a sophisticated business.

Mead: Has the growth path always been smooth?

Assell: In 1997-98 technology was “hot” and we were talking to venture capitalists. To please them, we “foolishly” started trying to become a tech company and developed technology to deliver lessons over the internet and added expensive, experienced management. When the tech bubble burst, we could not get investors, and had to reverse direction and retool back to our original profitable model – but not until we had burned through $3 Million in capital. We were very close to the edge – within 1-2 months of folding. We were able to secure a bridge loan which saved us.

Mead: Weren’t there some good things that came from this expensive lesson?

Assell: Yes, we had the technology which has become a key to our success. Also, three things happened, starting in 2001.Gart Capital Partners invested in GolfTEC. They had a fabulous history of success in sports retail and helped us stabilize the business. We also started partnering with GolfSmith (we are now co-located in 56 of their stores). Third, we started franchising. Over the next five years, we had steady consistent growth - from 18 locations to 140 locations.

Mead: Joe, how did the current recession impact your business?

Assell: We are in the retail and recreation business and we could see that retail was taking a big hit, especially specialty and luxury retail. Some retailers were reporting 35% to 50% reductions in sales. We put a strategic plan in place to respond to these dynamics. Our team did a terrific job. We were fortunate that even in our worst period (Sept ’08 through August ’09), our sales were down only 7.7%.

Mead: What are some of the actions and new programs you took to sustain growth?

Assell: First, we adjusted our strategy to focus on equipment sales. Our IT team developed proprietary club-fitting software and we partnered with Golf Magazine and Golf.com. Second, we started offering monthly payment plans that spread the annual cost of lessons and helped our customers manage their cash flow. It was amazing that 18% of our customers adopted these plans. Third, we rewarded our loyal customers by offering discounts for renewals. We offered two different months during the year when renewing customers could sign on for another year at discounted rates. Not only did this build great goodwill, but these two months have become GolfTEC's two largest cash sales months. Our results have continued to steadily improve. In 2010, our business was up 15% over 2009.

Mead: What are the keys to continued growth over the next 5-10 years?

Assell: There is significant opportunity for growth, both in same location sales as well as new locations. The “TEC” in GolfTEC stands for Technique, Equipment, Conditioning. In technique (golf lessons), we are number one on the world. In equipment, we started focusing more attention. Our equipment sales were up 70% in 2010 and there is plenty of room for growth. Conditioning is a great opportunity and one that we really haven’t touched yet. As far as the market is concerned, we see the global market as having capacity for 750 GolfTEC locations and we are currently at 145 so we are only at about 20% penetration. We still have a long way to grow!

The Top Ten Lessons Learned from Crossing the Chasm

(from Issues for Growth Vol.18, No.16)

At a recent ACG Denver (www.acg.org/denver) luncheon, Chris Carrington, CEO of Alpine Access Corporation spoke about Alpine Access’ eleven year journey to cross the chasm and achieve significant adoption.

Alpine Access provides 100% virtual call center services for 24 x 7 x 365 outsourced customer care for Fortune 1000 organizations. They handle inbound calls for customer service, sales, tech support, and collections with 2,800 employees working from home in over 1,100 cities across the country.

While Alpine has emerged as a successful company today, it has been a long journey from 1998 to date. Mr. Carrington used Geoffrey Moore’s 1991 book, “Crossing the Chasm,” to describe the sometimes arduous and time-consuming process of gaining widespread adoption of a truly disruptive innovation. He provided his top ten lessons learned about moving from concept to adoption to the mainstream market. While the book, “Crossing the Chasm” is now 18 years old, it remains the bible for adoption of new concepts, whether they are new technologies, new business models, or other disruptive innovations. Our thanks to Chris Carrington for allowing us to share this with you. –DPM


The Top Ten:

#10. However much capital you think you will need, quadruple it

- The biggest mistake entrepreneurs make is not raising enough money

# 9. However much time you think you will need, double it

- See #10

# 8. Even the best business plans cannot account for market variables outside your control
- See # 10…again

# 7. Don’t underestimate the talent needed to cross the chasm
- You guessed it…see #10 again

# 6. There is no one way to cross the chasm…be prepared to change course
- See all of the above

# 5. No matter how different your start-up is, all successful companies have done what you are trying to do
- Read and internalize the blueprints of success

# 4. Chase really large markets
- Big fish, little pond…or little fish in a much bigger pond?

# 3. Differentiate yourself from your competitors
- Redefine the pond

# 2. Don’t underestimate the importance of informed intuition and gut feel
- Planning only gets you so far…much of success is being in the right place at the right time for when opportunity presents itself

# 1. Celebrate the wins

- Market traction is encouraging for your employees, your investors, and your clients

Is it time for your company to retool the offensive side of your business?
What steps are you taking? What is working for you? What is not working? Let us know your thoughts?