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Scenario Planning Managing for the Future 2 nd edition first published in 2006 Gill Ringland Electronic version (c) Gill Ringland: gill.ringland@samiconsulting.co.uk.: this has kept to the original text of 2006, as requested by readers. Parts II, III and IV are published as separate pdf s. 2
Drivers analysis - sources of external data We found that the main problem was identifying the relevant data from the mass available. In the Vision 2000 and Software 2000 projects we had identified good sources for a wide range of IT industry data, telecoms research and on technology in general. For economic data, the Economist Intelligence Unit and the OECD provided good background. The key to relevance is having a mental model of the factors which will be important, and populating the model with values for these. In our case, we understood that our future would be in a restructured information industry. So information - about consumer electronics, telecoms, publishing, media and professional services - was important, in addition to data on the traditional computer industry. We also knew that, although the business is global, being based in Europe is different from being based in the US. So data relating to the development of Europe, and its social model, was key to our scenarios. Thus, populating the model with data should be straightforward. But, the problem is spotting which factors change radically when a paradigm changes, and which new dimensions or concerns may turn out to dominate a scenario. For instance, when do the changes in behaviour of individuals as the Information Society takes shape change the value chain for our customers? Are there other new developments which could change the rules? The areas we found difficult were those relating to the wider information industry and to new developments like digital cash. For these consumer related sectors, we found that often the financial analysts were the best source of both data and opinion. 3
Developing the list of relevant factors We added to the 60 factors that the interviewees had identified a number from our researches, e.g. the effect of 2 billion teenagers. We categorized the factors as either trends or uncertainties. A view of the trends is derived from the best available sources, and from wide agreement. "Uncertainties" in the jargon, are `factors over which there are major question marks". So, for instance, the continuing increase in processing power at a given price is a trend. However, it is uncertain whether consumers will switch from TV to PCs as a result. The trends were collated from a number of sources and reflected "best educated guesses" about directions. These would be common to all the scenarios. A judgement was taken on which trends were already incorporated in ICL's thinking and processes. For instance, the decreasing role of national governments in Europe and the increasing reliability of hardware are all significant, but perhaps no longer needed spelling out. Even with a well-understood trend, there could be surprises in the pace at which the trends would develop. So that forecasting, even based on trends, is a fraught exercise Figure 3.9 Forecasts miss the bulls-eye Forecasts are over-precise Today Trends Range of Uncertainties Timing? 4
TABLE 3.6 SCOPING THE DATA We found that it was easy to get carried away in researching interesting trends, and following up ideas from futurists and newspaper or journal articles. We needed a discipline to constrain this: but we felt that to confine ourselves to issues explicitly identified in the interviews would have run the risk of missing major forces for change. So we decided to range fairly wide in our searches but, in developing the storyline of the scenarios, use examples which our target audience would recognize. Two examples We read Samuel Huntington's -The Clash of Civilizations and the Remaking of World Order, (Huntington, 1989) with its argument that, following the end of the Cold War, the balance of power will change to one in which cultural communities are replacing the Cold War blocs, and the fault lines and conflicts are becoming those between civilizations rather than national states. The implication of this for our scenarios was expressed in terms like The US and China continue trade hostilities over Chinese non-recognition of IPR, and the denial of US markets to China" and "On the other hand the distinction between countries is blurred, with many sharing similar employment and inflation indicators. Fragmentation of regions along ethnic and cultural boundaries has been a feature". We could see changes in social attitudes arising from the changing role of women and the disappearance of much traditional "heavy' man's work. We expressed the effect of this in the scenarios in ways which were directly relevant to ICL s markets e.g. "Low economic growth has increased the gap between the unemployed and those in Mac jobs and those in stable long-term employment. Unemployment, especially among the young, who may be third generation unemployed, is increasingly a problem for governments; both as a financial burden and in terms of social unrest" and "The level of economic growth and pace of change have eventually created a more mobile work force. More people are working but often less hours and in more flexible, less secure jobs. In some industries such retailing and increasingly in financial services the majority of the workforce is made up of contract staff with no guaranteed income. The gap between the haves and have-nots has increased. The bottom 10% of the population who are unskilled have found it increasingly difficult get out of the poverty trap, and the social security safety net is weak." On the other hand we tried to include in full the topics raised the interviews, and to expand on them. 5
The trends Trends are more likely to be seen in two areas: those related to demographics and those related to technology. While surprises can occur - for instance between censuses in the US, the size and pattern of Catholic immigrant families changed the predicted demographic balance significantly - these are rarer than in the political or social arenas. Economic/Geographic Trends 1. Increasingly sophisticated and demanding customers. More and more educated consumers ask for up-to-date, high performance and competitive products. The mass market will be fragmented into many niches. Competition will be fierce and based on price and quality of service. 2. Growth in South East Asia/India/China, with an expanding middle class. In 2010, the middle class in South East Asia (about 700 million) will be larger than that of Europe (about 300 million) and the Americas (about 200 million) combined. 3. Two billion teenagers In 2001, there will be two billion teenagers world-wide, most of them in Asia and Latin America. That is fifty times the number of teenagers in America in the peak years of the baby boom. Many of them will be in constant contact with each other through technology. 4. Increase in the older population in industrial countries. Medical advances and better life conditions leads to the ageing of the population, mainly in developed countries where the birth rates are low. The demographic shift to an ageing population will require adjustment in many service industries like healthcare, leisure and travel. As the costs of the elderly, particularly with health, increases, service industries and governments will look for areas of productivity through IT. 5. Continuous restructuring of corporations. The restructuring of corporations will be dominated by the following trends: globalization of markets, outsourcing of non-strategic jobs, and investments directed to the regions which offer the best profit potential. An increasing number of small companies will be linked through networks. Competition for customers will be intense and delocalized. 6. Outsourcing of IT is used by half of all Fortune 500 companies. This trend will change the structure of the IT industry: there will be large potential growth for outsourcing and technology used as a support of outsourcing businesses. 6
7. Increasing environmental concerns. More environmental concerns force companies on occasion to do business differently. It has positive implications in the sense of more business and some negative ones with possible increases in production costs to conform to environmental pressures. Technology Related Trends 1. Bandwidth explosion and development of the Internet. Large infrastructure investments increase cable and wireless networks. The volume of traffic increases due to price decreases in network bandwidth. The opportunities for exploiting high bandwidth networking drive traffic. The Internet continues to grow. 2. Processing power increases and processing becomes pervasive. Moore's law of the power of processing on a chip doubling every 18 months continues to apply for products shipped over the next decade. New generation of more powerful microprocessors emerge. However, the costs of developing those new chips are high. Processing will be used in more mission-critical applications. There will be an increasing use of embedded systems, and more IT devices will be available. 3. Ease of use. Computers and electronic devices will be more and more friendly, with five year-olds using mobile phones. 4. Digitalization of content and growth of multimedia. Information is held digitally, whether context is text, video or audio. Games, videos, media will be delivered either on electronic storage as an alternative to paper, or increasingly through on-line services. 5. Changes in sources of value added in the IT industry. As the industry matures, IT will be increasingly embedded in products. New sources of value added relate to ease of use, access, information security etc. 6. Litigation in IT increases. The risk for IT providers of being sued for mis-performance or non-performance increases. 7. Semiconductor content of electronics increases. 7
The content of electronics devices changes from 7% semiconductor to 27% semiconductor over 15 years to 2000. This changes the power and added value in the information industry. Dealing with uncertainties Scenarios are constructed from a number of trends - as above - and a number of uncertainties. For instance, while the change in processing power or bandwidth is clearly a trend, the question of whether a consumer market will open up can be treated as an uncertainty: we need to think about the effects if it does, or if it does not. Figure 3.10 represents this difference, using as an example our core uncertainty - will customers want to take advantage of the technically feasible innovations or will there be a backlash? 3.11 shows the factors that we regarded as uncertain, and how we grouped them. Some of the factors that we had initially identified were seen to be important to us, but with an unpredictable outcome in ten years' time. For each of these uncertain factors we built a correlation matrix looking to see how they related to each other. For example, did one increase, decrease or remain unaffected by another? The intellectual activity to correlate these was one of the hardest of the project. For each factor, we determined whether it was positively correlated against every other (on a scale 1 to 3), negatively, or not at all (0). Then the factors were sorted, giving the list below in Figure 3.11. 8
Some of the factors were inherently unknowable and not causally linked to any of the others - for instance, the occurrence of a major earthquake in the USA was not caused by any of the other factors - though it could contribute to a factor like "more terrorist actions". The factors which were not linked were called "wild cards". We found that the best way of treating these was to identify where in the organization the policy for dealing with these should rest, and discussing them, exploring the processes and responsibilities, and getting policies established, rather than building them into the scenarios. 9