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Scenario analysis is a method for creating strategic foresight that overcomes the shortcomings of traditional forecasting methods. It helps strategists and decision makers create a shared vocabulary and baseline for quality strategic planning.I delivered this presentation to the Society of Competitive Intelligence Professionals DC chapter on January 14, 2010.
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Scenario Analysis
August Jackson
Global Market & Competitive Intelligence
#scipdc
It's tough to make
predictions, especially about the
future.
Human Cognition, Systems Complexity and Fate Conspire to Thwart Our Efforts at Prediction
"This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” Western Union internal memo1876
Lehman Brothers bankruptcy leads to a near collapse of global
finance.
Scenario Analysis Overcomes Limitations of Traditional Forecasts
High Uncertainty Unlikely, Impactful Events Differences of Opinion
Scenario Analysis Does NOT Predict the Future!
Ingredients and Outcomes of a Good Scenario Exercise
Scenario Analysis Gives us a View of Multiple Possible Futures
Extreme Negative State
Extreme Positive State
Extre
me
Nega
tive
Stat
e
Extre
me
Posit
ive
Stat
e
Critical Uncertainty 1
Criti
cal U
ncer
tain
ty 2
Stages to Scenario Analysis
Use KITs to Define Your Scope
Example: Rural Wireless Broadband
Diversity of Expertise and Opinion Are Key to Identifying Critical Factors
Management Technical, Engineering, R&D Marketing & Sales
Customers Academics
Inte
rnal
Exp
erts
Exte
rnal
Exp
erts
Use Delphi Method to Engage Experts
STEEP Framework Captures External Factors
Social Technological Economic Environmental
Political
• Demography• Gender roles• Ethnicity• Culture• Tastes• Behaviors• Beliefs
• Innovation• Adoption• Application• Business Models
• GDP• Industries Driving Growth• Funding• Business Cycles
• Air quality• Water quality• Arable land• Climate change• Resources
• Laws• Regulations• Elections• Power distribution
An Example: STEEP for Rural Wireless Broadband
Social Technological
Economic Environmental
Political
• Rural Brain Drain• Aging population in rural communities
• Fiber back-haul• Roll-out of 4G Wi-Max and LTE• Use of analog TV spectrum
• Stimulus funding• Availability of Universal Service Funds (USF)• Pricing models• Lower costs of living• Lower median incomes
• Push for telecommuting• Availability of water in rural areas• Impact of climate change on agriculture
• USF reform• Network Neutrality regulation• “White space” spectrum policy• Local zoning for placement of network equipment
The Interplay of Critical Uncertainties Will Define Possible Alternative Futures
License Regime Unlicensed Use for WAN
USF
Limite
d to
Fixe
d Lin
eUS
F Av
aila
ble
for W
irele
ss
Availability of “White Space” Spectrum
Univ
ersa
l Ser
vice
Fund
Pol
icy
A Hundred Flowers Bloom• Competition between licensed and unlicensed broadband• Significant 4G build outRLEC’s Dream
• Broadband remains very expensive, limited market penetration• High ROC for RLECs for fixed-line
BYO Broadband• Many rural markets ceded to unlicensed providers• Municipal fiber in larger rural communities
4G Goes Rural• Incumbent wireless carriers compete w/RLECs• Wired voice & broadband becomes the exception
Develop Strategies for Each Scenario
License Regime Unlicensed Use for WAN
USF
Limite
d to
Fixe
d Lin
eUS
F Av
aila
ble
for W
irele
ss
Availability of “White Space” Spectrum
Univ
ersa
l Ser
vice
Fund
Pol
icy A Hundred Flowers Bloom• Lobby FCC and states to ensure only for licensed providers receive USF
RLEC’s Dream• Moderate 4G build-outs in rural markets, starting in largest markets
BYO Broadband• Slow 4G build-out in rural markets• Sell fixed-line assets in rural markets
4G Goes Rural• Create “cut the cord” bundles for rural markets• Accelerate 4G Build
Use Scenarios to Create Early Warning
Scenario 1
Scenario 2
Scenario 3
Event A
Event E
Event D
Event C
Event B
Event Z
Event V
Event W
Event Y
Event X
Event F
Event U
Scenario 4
Other Applications for Scenario Analysis?
Valuation model for early stage companies?
What do you think?
Thank you!
August Jackson+1 703 348 7337august (at) augustjackson (dot) nethttp://augustjackson.nethttp://www.twitter.com/8of12
Sources on Scenario Analysis
Blenkhorn, David, and Craig Fleischer. Managing Frontiers in Competitive Intelligence. New York: Quorum Books, 2000.
Bensoussan, Babette and Craig Fleischer. Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. New York: FT Press, 2008.
Day, George. "Looking in to Marketing's Future.” Marketing Management September/October 2009: 12-17.
Dewar, James. Assumption Based Planning: A Tool for Reducing Avoidable Surprise. New York: Cambridge University Press, 2002.