Every good business leader knows that after a big project, the first thing you do is conduct a post-mortem assessment to determine what went wrong and how to avoid making the same mistakes again. But there's another equally important assessment that many leaders skip: a pre-mortem. Before your next quarter starts, you should be looking forward to sniffing out any potential issues before they even happen.
One of the best ways to do so is through scenario planning. Scenario planning is defined as a structured way for organizations to think about the future. There are countless examples of companies conducting a pre-mortem with scenario planning that's helped avoid potentially catastrophic events from occurring, from catching a minor bug that might've taken ages to fix, to discovering how a new restructure would've eventually ended in failure.
The key to a successful scenario planning session is making sure that everyone completely understands what is going on so that all minds can be focused on planning for the future. In this article we'll discuss how boiling down each scenario into a simple diagram can help highlight the key elements and prevent any confusion in such an important meeting.
The Process for Scenario Planning
The bottom-line goal of scenario planning is to anticipate any potential situation that you may have to face in the next quarter and be prepared for it.
There is no one right way to do scenario planning and different sources will suggest varying steps to follow. Keep in mind that an entire scenario project can take a few months if done in-depth, so it's important to find the process that works for your company so you're not wasting your time.
One process you can try is the methodical eight-step process recommended by Forbes. These eight steps are broken up into two groups:
- Steps #1-#5 focus on choosing which scenario logics to flesh out
- Steps #6-#8 then tell the actual story
[Source: Forbes]
Let's break down what you should be looking at and accomplishing in each of these steps:
1. Focal Issue
Finding your focal issues means finding the central thing you should be addressing throughout the scenario planning process. This could be a very specific question like “Should we invest in company X?” or more open-ended like “How will this process change affect our current strategy?” Nailing down a concrete issue sets you up for an effective scenario planning process.
2. Key Factors
Once you have an issue of focus, brainstorm factors that may affect this issue. Your team should make an effort to think out of the box and come up with potential factors that may not be obvious or traditional to make sure you're covering all your bases. This could include things like your customers' shifting interest to a different type of product or changing material prices.
3. External Forces
As much as we may think our company operates in its own personal microcosm, it's important to remember that it can be affected by greater worldwide external forces. These forces aren't necessarily all positive or negative, but disregarding them can definitely lead to failure. Make sure to factor in things like currency fluctuations, environmental issues, new technologies and breakthroughs into your planning.
4. Critical Uncertainties
While steps two and three focused on brainstorming a range of possible factors and forces that may affect your key issue, step four is when you reign in those ideas and prioritize them. You should develop criteria to give priority votes for each factor or force you've determined. Once the votes are counted and items are categorized, you'll be left with a short list of critical uncertainties to start working on.
5. Scenario Logics
Taking these uncertainties and structuring them in terms of addressing your focal issue will help determine potential scenarios for your team to evaluate. But it's likely that you'll have way too many potential futures to reasonably cover in the amount of time you've set aside, so you'll need to narrow it down to just a few. The best way to do this is to decide on two critical uncertainties to serve as the axes of a 2-by-2 matrix. Four scenario logics are then generated from the labels on the ends of the two axes. An example from the Detroit Three Automakers is shown below. The vertical axis compares high-priced vs. low-priced automobiles, while the horizontal axis compares neo-traditional consumer values vs. inner-directed values.
6. Scenarios
Moving into the second part of scenario planning, it's time to take these scenarios and turn them into stories. Start by workshopping the scenario with your team to generate “newspaper headlines” that isolate the main outcome of the scenario. Then break out into smaller core teams that each write out the narrative of a full scenario.
7. Implications and Options
Once the scenarios have been fleshed out, reconvene your team and hold another workshop that dives into the implications of each scenario. Your team should come up with strategic options to help address each of these implications and as you play through each scenario, see which of these strategic options continue to come up. These are the options that your company should start working on immediately as they could be applicable to any potential situation.
8. Early Indicators
No matter how much planning or practice you've done to address each potential scenario, you'll never really know which scenario will play out (if any at all). Keeping a close ear to the ground and looking for early indicators can help ensure that you don't miss the signs that indicate movement toward one scenario or another. These indicators can be anything from newspapers talking about the rise of a new technology, or certain customers behaving in a certain way. Once you know which scenario is being played out, you'll be able to start moving on the strategy you've planned to take advantage of it.
These explanations have been fairly general and can be applied to almost any field. Let's take a look at two specific fields and show how they would play out a scenario planning session.
Moving Product Marketers From Tactical to Strategic
One challenge that PMs often run into is focusing too much on “tactical-only” product marketing. Because they're one of the few job functions that interact with Product, Marketing and Sales to make sure things are running smoothly, product marketers often find themselves spending most of their time internally. Whether it's responding to tactical requests or coordinating between teams, they are always looking inward. They end up acting like a support team for sales and marketing and start to be excluded from strategic discussions and sales calls.
This is a problem because PMs provide important insights into the product and the company that no other job function can see.
Breaking Down the Scenario Planning
Let's walk through an example of how a company might address the issue of setting in place a strategic approach to product marketing.
1. Focal Issue: They key issue here is: How can we create a comprehensive product marketing strategy that leads and coordinates all product efforts within the company and among the various departments?
2. Key Factors:
- Coordinating between departments, like sales and product development
- Creating a product positioning that aligns with the vision of the company
- Find ways to drive and/or increase demand for the product while taking into account customer feedback and reviews
- Understanding the general market landscape and how/where your specific product positioning fits in
3. External Factors:
- What technological advancements are predicted in the near future (“future” being the project's timeline, i.e. until launch or within the first year of launch)?
- What does the greater economic landscape look like?
- What kind of pricing would make sense for the product?
- What would customers be willing (and able) to pay?
- How would different price points affect product positioning and messaging?
- What's the current social climate around our product use/need?
- What social changes are likely to take place for our target demographic?
- How may they affect our positioning?
- What does the general marketing environment for products of our type and related ones look like?
- What are the latest marketing trends?
4. Critical Uncertainties:
- Will consumers' values turn towards efficiency (i.e. a simpler product that gets a task done) or towards creative freedom (a more complex product that when understood fully—which may take time—can offer various solutions)
- Will technology in this sector advance quickly or slowly?
- How quickly will competitors replicate us / begin offering similar options? (If the product has a unique feature.)
- Which marketing efforts will begin being viewed by consumers as trite/overused and how soon?
5. Scenario Logics: Similar to the example given above, now let's create a quadrant to generate scenario logics. The vertical axis focuses on product simplicity vs. complexity while the horizontal axis will focus on quick vs. slow technological advancements. This gives us:
- (Simplicity + Quick technological advancements) Versatility Challenge: Focus on quick incorporation of customer feedback and technology advancements
- (Simplicity + Slow technological advancements) Trust & Accountability: Coordinate product messaging and positions around long-term trust for product
- (Complexity + Slow technological advancements) Customer Education: Focus marketing and messaging efforts of customer educations—how to best use your product, how to get the greatest benefits, variety of tasks they can accomplish, etc.
- (Complexity + Quick technological advancements) Constant Product Refinement: Coordinate departments for quick and multiple product update releases
6. Scenarios: In this step, you should be hosting workshops where various departments, including sales, engineering, marketing, and product management, gather to contribute their story lines and perspectives for each of your possible scenarios. Taking into consideration all input, create a unified story for each scenario that takes all factors from each department into account.
7. Implications and Outputs: Strategic actions you may identify here could be:
- Define a clear process for creating reports from customer feedback. Who's responsible? Who owns them? Who double checks?
- Set a clear and efficient process for delivering reports to the various departments.
- Set report discussion sessions where members of each department discuss implications and understanding of report results to better coordinate efforts.
8. Early Indicators: Make sure to identify potential early indicators to help you know what initiatives to put in place. Examples of early indicators may be:
- What new technologies relevant to our product are being developed/released?
- What kind of products are becoming popular with consumers? (Simple or complex ones?)
- What does our customer feedback say about satisfaction and frustration with different features?
Operations Managers Must Keep the Company in Balance
One of the most essential economics problems is that of supply and demand. In an organization, reconciling that problem falls to the operations managers.
Operations managers are tasked with overseeing the production of goods and/or provision of services to customers and it's their job to make sure the organization is running as smoothly as possible. They must maintain high-quality goods at a reasonable price to satisfy customers and remain competitive in the market, while also making a profit. Operations managers much ensure that the trade-off between cost, quality, quantity and time is maintained to keep the company afloat.
Breaking Down the Scenario Planning
Let's walk through an example of how a company might address the issue of striking a balance between product quality and market price.
1. Focal Issue: How can we offer a high-quality product that doesn't break the bank for our customers but also keeps our company profitable (with as high a margin as possible) and our suppliers/service providers happy?
2. Key Factors:
- Market prices for relevant products/services
- Cost of production and maintaining stable production to meet market need
- Customers' perception regarding value of product/service to them
- Company profits - margins for profitability
- Setting standards for quality control and ensuring they're met
3. External Factors:
- What alternative materials could we be using (could appear on the market) for production of our product?
- How does the current political and economic climate affect our production, such as laws or regulations or economic incentives?
- If product requires parts/labor from other countries, what are the social, political, and economic conditions there?
4. Critical Uncertainties:
- Will energy prices rise or fall? (This could affect a number of costs from production, to importation, to distribution)
- Will consumers' environmental values experience a radical shift towards eco-friendly products or remain more “traditional”?
- Will production technology advance quickly or rapidly?
5. Scenario Logics: In this quadrant, the vertical axis will compare High Quality vs. Low Quality and the horizontal axis will compare Eco Friendly Values vs. Price Over Ecology.
- (High Quality + Eco friendly) Pricing challenge: Manage production costs (which rise with both quality and eco-friendly options) to maintain company profitability while offering product at a less-than-astronomical price
- (High Quality + Price over Ecology) Cost Challenge: Research lowest cost materials/services with high-quality standards to maintain high-quality production standards
- (Low Quality + Eco friendly) Sourcing Challenge: Find balances between consumers' desire for a lower-quality product that uses eco-friendly materials
- (Low Quality + Price over Ecology) Production Challenge: Find ways to keep production costs low to achieve desired market price and balance company profits and low market prices
6. Scenarios: Again in this step, host workshops where the various departments contribute ideas and input that come together to create a unified story for each scenario, and that takes all factors from each department into account.
7. Implications and Outputs: Strategic actions you may identify here could be:
- Optimizing the production process to minimize costs irrespective of quality/source of materials used
- Evaluating profit margins and keeping a close eye on company health
- Conducting independent marketing research to gauge health of market and forecast future demand
8. Early Indicators: Make sure to identify potential early indicators to help you know what initiatives to put in place. Examples of early indicators may be:
- What's the consumer trend in your industry regarding eco-friendly products, and how is it changing?
- Are people opting for cheaper options due to expense concerns rather than quality?
- Are there rising costs of source materials due to political or economic upheavals?
Thinking Ahead Helps You Be Ready for Anything
While it's impossible to predict what will happen in your next quarter (until a time machine is invented!) that doesn't mean you can't be prepared. Setting yourself up with a well-thought-out scenario planning session will mean that you're ready to put in place strategic initiatives that will make sure you're ready for any changes that may come your way.
By mapping out your process, you can make sure your whole company is on the same page in terms of what may come and everyone will be ready to take on the next period.