Table of contents
Volume 31 Number 1 2003
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Editors letter
Robert M. Randall
The strategic leader 56
Understanding the triad of great
leadership context, conviction
and credibility
Brian Leavy
What is the essence of great leadership?
After a decade of research, the author
believes that leadership effectiveness at the
highest level can be better understood in
terms of three main elements the context
for leadership, the conviction of the leader,
and the flow of credibility over time and
tenure.
Quick takes 61
These brief summaries contain the key
points and action steps to be found in the
feature articles in this issue of Strategy &
Leadership.
Feature articles
2 Scenario planning after 9/11: managing the impact of a catastrophic
event 4
3
Peter Kennedy, Charles Perrottet and Charles Thomas
Managers need to use a scenario framework for assessing various kinds of risk and
uncertainty that will continue to confront corporate decision makers as the 9/11 event plays
out over the following months and years. The lessons learned from coping with the current
situation will be applicable to catastrophic events that could occur. Executives should
establish an explicit futures orientation that contemplates multiple alternative conditions as
a backdrop for both very short-term tactical thinking and long-term planning.
Decision-driven scenarios for assessing four levels of uncertainty 14
Hugh Courtney
Some classes of scenario planning tools and techniques are designed to inform near-term
strategic decisions. Of these, some are more appropriate for lower levels of uncertainty, and
others are best suited for highly uncertain, truly ambiguous business environments. The
authors typology of scenario planning tools and techniques enables managers to select the
right scenario planning tool for near-term strategy decisions, based on the degree of
uncertainty they face.
Scenarios and strategies: making the scenario about the business 23
David H. Mason and James Herman
To persuade top management to actively participate in a scenario development effort linked to
major decision making, this method makes the client organization and its strategy alternatives
the central focus of the scenarios. A compelling benefit of this form of scenario planning is
that it pushes management to see the business and its environment as a system co-evolving
over time. The process can become a forum for a healthy debate concerning the scope of
the business and the importance of emerging environmental changes.
Competitor scenarios 32
Liam Fahey
Several leading companies have employed scenarios to better understand both current
competitors potential moves as well as the possible emergence of new rivals. They have
mastered several principles and some ways to avoid process pitfalls. Experienced managers
use competitor scenarios as a source of learning about the broader competitive context and
of the implications for their firms strategy and operations.
Using scenarios to focus R&D 45
Gill Ringland
Scenarios provide managers of R&D programs with alternative views of the future societies
and markets. By previewing what research would be a priority in these possible future
environments and what would be constrained or unmarketable, a number of firms have
successfully used scenario planning to improve current R&D decision making. A case study of
scenarios for an information and communication technology R&D program details the process
and its implications for corporate planners.
VOL. 31 NO. 1 2003, p. 1, MCB UP Limited, ISSN 1087-8572
| STRATEGY & LEADERSHIP
| PAGE 1
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Editors letter
In this issue we look at innovative scenario methodologies for managing discontinuity
in the near term. Five feature articles describe various ways of using decision-driven
scenarios to gain foresight concerning the next few months and years.
J Scenarios for planning post 9/11: managing the impact of a catastrophic event
by Charles Thomas, Peter Kennedy and Charles Perrottet.
J Decision-driven scenarios for assessing four levels of uncertainty by Hugh
Courtney.
J Scenarios and strategies: making the scenario about the business by David H.
Mason and James Herman.
J Competitor scenarios by Liam Fahey.
J Using scenarios to focus R&D by Gill Ringland.

By publishing this theme issue we join a long running debate over the proper answer
to the question, What are scenarios for?. Traditionalists practitioners of the art of
the long view, a time horizon sometimes measured in decades believe scenarios are
group learning experiences and culture change exercises that ultimately promote
better decisions. But critics complain that traditional scenario planners have spent
too much time going down paths that most of the organization didnt feel were the
slightest bit relevant. As a result, middle and senior managers often find that time-
consuming scenario planning efforts are distractions that provide little insight into the
crucial strategic decisions at hand.
Recently a few practitioners have begun to use scenarios as decision support
methodology suitable for short-term strategy making and execution. In this context, I
believe they are still a form of group learning, but the lessons are less about creatively
imagining alternative business and social environments and changing cultural
awareness and more about understanding the operational implications of devising
and implementing strategy in a rapidly evolving business and societal environment. It
also seems to me that long and short term scenario planning are complementary.
Keep in minds that the techniques described in this issue are experimental. It can be
proudly noted that these articles present some of the first accounts of this new
technology in practice. But research reports they are not.
However, the results of readers experiments with these techniques should be known
fairly soon in months perhaps, and certainly in a few years. Managers practicing the
techniques offered here can quickly observe whether or not they help ready the
organization for discontinuity and speed up decision making. In contrast, the full value
of traditional scenarios with a five-, ten-, or 20-year horizon cannot be determined
during the tenure of most managers.
So we invite readers to put these experimental scenario practices to the test, and to let
us know how they perform in your organization. Your comments and case studies are
invited.
We will be publishing more articles on scenario planning in the next issue. A number of
them are about using scenarios to enrich executive insight about the variety of
potential medium- and long-term futures.
Robert M. Randall
Editor

VOL. 31 NO. 1 2003, p. 3, MCB UP Limited, ISSN 1087-8572

| STRATEGY & LEADERSHIP
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Scenario planning after 9/11: managing
the impact of a catastrophic event
Peter Kennedy, Charles Perrottet and Charles Thomas
Charles Thomas, Peter Kennedy, and
Charles Perrottet, all former senior
practioners at The Futures Group, Inc. have
been part of the Strategy Practice of Deloitte
Consulting for the past four years. They have
recently formed their own firm in
Connecticut The Futures Strategy Group,
LLC (pkennedy@futurestrat.com,
cperrottet@futurestrat.com, and
cthomas@futurestrat.com)
PAGE 4
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| VOL. 31 NO. 1 2003, pp. 4-13, MCB UP Limited, ISSN 1087-8572
For the last year, line managers and planners have been wrestling with a serious and
potentially paralyzing dilemma: the extent to which corporate plans, strategies and
short-term actions need to incorporate the events of September 11, 2001. As they
ponder, many corporate executives, still smarting from the dot-com meltdown and
ensuing recession, have deferred important decisions because of turbulence and
potential risk still playing out in the marketplace. This is an understandable reaction,
yet dangerous in the extreme, for it could be years before world events and markets
return to anything resembling the robustness and relative predictability of the 1990s.
Managers need a framework for dealing with various kinds of risk and uncertainty that
will continue to confront corporate decision makers as the 9/11 event plays out over
the following months and years. Its important to put this process in place now
because the lessons learned from coping with the current situation will be applicable
to future events that have yet to occur. In the year and a half since terrorists destroyed
the World Trade Center towers and set fire to the Pentagon, we have worked with
many executives grappling with the short-, medium- and long-term decisions that
have to be made in one of the most unsettling and confusing business environments
since the Depression. Our own observations and the experiences of our clients point
to the need to support both very short-term tactical thinking and long-term planning
with a futures methodology that contemplates multiple alternative backdrops to
decision-making.
We conclude that scenario planning can and should inform decision-making at
each point along the decision spectrum, from short-term/tactical to long-term/
strategic. We suggest an innovative scenario process, one that provides business
continuity planning and medium-term operational planning with a more rigorous
analytical grounding, but without overburdening the process with excessive and
ultimately counter-productive complexity. In the first two of the three mini-case
examples that follow, we show how the scenario process was modified to meet
the more immediate operational challenges following 9/11. The third mini-case
highlights a 1998/1999 scenario-based planning process that effectively contem-
plated the kind of external threat that the 9/11 terrorist acts have now come to
characterize. (Editors note: Readers new to scenario planning might want to read
DOI 10.1108/10878570310455006
case three first. It demonstrates a classic use of scenario planning for long-term
strategy. The other two cases are innovations on this basic technique.)

Pervasive 9/11 effects

The aftermath of the 9/11 attack has been neither brief nor transitory. A year and a half
later we see direct and indirect evidence of how the event continues to affect and
shape the business environment. Because of 9/11, for example:
J The airline industry is, metaphorically speaking, on its knees.

J Military spending is on the rise and an entire new industry formed around
homeland security has been born.
J Consumer and investor confidence have been seriously shaken even more so
now after the Enron and the Wall Street scandals.
J Security controls affecting cargo, shipping and logistics threaten to disturb or
complicate supply chains, globally.
J Heightened and pervasive uncertainty over domestic security and war, combined
with mounting US federal deficits, could lead to a 1970s-like period of prolonged
economic stagnation.

For managers and planners, the important question is how to think about 9/11 the
totality of the phenomena, not merely that days event in the course of developing
strategy, making business plans and executing day-to-day operations. One can argue
that 9/11 could turn out to be one of those redefining events, like the 1973 OPEC oil
embargo, that has a profound and enduring impact on society, markets and the
overall business environment. Alternatively, it is possible to imagine 9/11 as only a
horrific event that mobilizes governments and society in the short term but fades in
importance, perhaps because homeland security provisions make possible a
significant return to normalcy or alternatively because even worse conditions take
center stage.

Trying to anticipate one of these extremes or the other is a phony choice. Indeed, the
truly agile business planner or strategist should always contemplate the broadest
possible, yet plausible, range of future business conditions and assume the
inevitability and unpredictability of change. That said, there is a real and practical
need for a focused and balanced integration of 9/11 thinking into decision-making
at each stage in the decision-making process, from the very short-term and tactical, to
the long-term and the strategic.

Innovations around scenario planning

Traditional scenario planning is extremely effective in working through uncertainties,
probing conventional wisdoms, and exposing faulty assumptions inherent in even the
most expansive planning exercises. The post-9/11 world screams out for this kind of
treatment, if for no other reason that so much is still unknown. And yet, at the same
time, the actual 9/11 events are not speculative; they happened and other terrorist-
inspired events could happen again, almost anywhere, on a frighteningly large scale.
For many companies then the need is not to simply dress rehearse big disruptive
events, but actually assume one or more will occur and have ironclad continuity plans
in place.

This unfortunate reality suggests a different kind of scenario planning approach. We

have introduced alternative scenario-based tools to respond to this specific need for
continuity assurance and near-term operations planning. As the following cases show,

VOL. 31 NO. 1 2003

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 Executives are grappling with the short-, medium-
and long-term decisions that have to be made in
one of the most unsettling and confusing
business environments since the Depression.

we divided our clients needs into three areas: business continuity planning, near-term
operations planning, and strategic planning. For business continuity planning (with its
tactical decision focus) our clients found that a tightly focused set of scenarios using a
very simple two-by-two scenario space matrix (only four possible scenarios) worked
well. This was because the clients prime concern was being prepared for specific
exogenous events not anticipation of entire alternative business environments, as is
typically the case in classic strategy-oriented scenario planning. Similarly, for
operations planning, we found that a three-dimension matrix was adequate, but
the focus shifted from the event to the range of plausible outcomes that follow the
event. Finally, within the context of strategic planning, we have found that our
standard process (and four to five dimensions) has stood the test of time.

Exhibit 1 summarizes and compares the three types of planning. Note the contrast
between the relatively simple scenario framework for business continuity planning,
where the focus tends to be very short-term and on specific event anticipation, versus
scenario-based strategy, where the timeframe is longer, complexity is greater and
therefore more rather than fewer scenario dimensions are typically used. Essentially,
the dimensions represent the critical, high-level defining features of the scenario
uncertainty space. The more dimensions used, the wider the angle of the scenario
lens. And the further out in time one plans, the wider the lens one should use.

Case one: business continuity planning (BCP)

Across industries, there is heightened concern and urgency around business
continuity in the wake of the September 11 terrorist attacks. And this is perhaps most
true in the Wall Street-based financial service sector, which on that day lost many
hundreds of experienced, talented people and suffered paralyzing disruptions in
operations.

In the aftermath of that tragedy, the management of one leading global financial
services firm committed to a process of identifying and remedying gaps in the

Exhibit 1 Three types of planning

Planning need Scenario type Scenario focus Decision focus Project time

Business continuity
One-to three year
operations planning
Strategy
Two dimensions Tactical; many key drivers are
business model and event
focused
Three dimensions Business and Industry-model
focus with moderate
examination of external drivers,
especially those affecting
reactions
Four or more The external drivers outside of
dimensions client control, with relatively
little attention to specific events
Actions taken within near and Approximately
medium term to ensure 6 weeks
business continuity
Actions and plans taken to Approximately
compensate for the political 6 weeks
and economic aftermath of an
event and the national and
global reactions that followed
Develop new business model 4 to 6 months
and strategies that are robust
no matter how the future
unfolds

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| VOL. 31 NO. 1 2003
Exhibit 2 Gaps in readiness and remedial steps

Current State Target State

Gap
of Asset Readiness of Asset Readiness
Existing levels of asset Variances between states of Required levels of asset
readiness and recoverability asset readiness levels readiness and recoverability

Strategies

The activities and plans that are designed to close the gaps between current and
target states of asset readiness

recoverability of its key assets. They decided that the best way to ensure truly
robust BCP was by adopting a scenario-based approach. In essence, this meant
driving toward a set of BCP strategies that was tested across a range of market
environments.

The initial discovery phase of the engagement was a detailed evaluation of

vulnerabilities across all asset categories in each of the firms major operating
groups. A client-consultant team assessed risks and exposures in facilities location,
business partners, technology, human resources, and vital records. Gaps were
identified between target states of readiness and actual preparedness. These gaps
were the subject of separate strategy workshops in New York and London.

The essential goal of the workshops was to develop strategies that would close
unacceptable asset recovery gaps. To ensure creative and rigorous thinking, the
team developed two very different business-environment backdrops against which
workshop participants devised BCP solutions. Each of these two scenarios
characterized essential financial service industry conditions and events from 2002
to 2004. One scenario included a return to relatively healthy market conditions with no
new significant government intervention. The other scenario described a world with
challenged markets, increasing governmental intrusion in financial services, and global
conflict and instability.

Intentionally, the financial services firm limited the range of structural variability in the
scenario set. The scenario uncertainty space was kept at a very high level, focusing
mostly on underlying equity market growth and stability and government regulations.
The very short-term nature of the planning task required that external complexity be
limited and manageable.

Importantly, however, wildcard events that represented direct threats to the

continuity of the firms operations were explicitly played out. The potential for natural

For many companies then the need is not to

simply dress rehearse big disruptive events, but
actually assume one or more will occur and have
ironclad continuity plans in place.

VOL. 31 NO. 1 2003

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 (hurricane) and man-made (terrorist) disasters was present in each of the two
scenarios. And indeed, the final stage of the BCP workshops was to stress test
scenario-contingent BCP strategies against a range of different shocks that could
directly affect operations.

Workshop participants in New York and then in London wrestled with both the
challenges of the future business environments and the impacts of specific shocks.
The draft strategies that emerged are, understandably, confidential to the client. At a
high level, the scenario-based BCP process yielded the following value for the client:
J Confirmation around a set of must do actions that could be accomplished with
acceptable costs and manageable disruption.
J Greater understanding of costs and trade-offs associated with more complex and
potentially far-reaching decisions around, for example, facilities location, business
relationships and alliances.
J The start of an important internal dialogue among the firms executives, business
heads and business continuity managers with respect to BCP goals and priorities
going forward.

Case two: medium term operational planning

A professional services firm in the weeks that followed 9/11 wanted to evaluate the
plausible range of impacts on their business and operations as the US and the world
decided on a course of action (whether successful, or not) and terrorist groups
responded further. This firm had used scenario planning for its strategic planning in
the past. Their requirements were that: (1) this exercise had to be done quickly in a
month and a half; (2) the focus had to be operational affecting one to three year
decisions; and (3) the creativity and rigor of scenario planning, as they had
experienced it in the past, had to be preserved.

As with BCP, we again modified our standard approach to scenario planning. Some
things remained constant, however. The critical defining features (dimensions) of
the planning space remained factors outside of client control. The focus of the
strategy effort was on how future customer demands would shift and change in the
scenarios and how the regulatory environment might alter. In other words, like all good
scenarios, these were still to focus on future market demands and constraints.

Some aspects of our approach were customized. First, to shorten and simplify the
scenario selection process, we used only three dimensions (rather than the more
sophisticated, but complex use of four or more). Thus the client had only eight
possible scenarios from which to choose. Second, and more radical, we focused the
scenarios and business drivers on near-term issues under the assumption that
the fundamentals of the global business environment would not shift dramatically in
the next few years. For long-term scenario practitioners, this was a difficult step.
However, the client made clear that, while they valued scenario planning for its ability
to provide solutions to the full range of future uncertainties, this exercise was not about
that. They wanted guidance about market dynamics and the required operational
changes that would result from variations on successes or failures in homeland
security and the war on terrorism. While not as focused or tactical as business
continuity, this planning activity was to be far more tightly targeted than a scenario-
based strategy process.

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| VOL. 31 NO. 1 2003
 Exhibit 3 Global services scenario space: post 9/11 3-year horizon

Perceived security Barriers to US

Economic dislocation threat commerce

Limited Extreme Low High Low High

New normalcy

Water torture

Pyrrhic victory

Enduring conflict

The goal of the project was to gain insight into three critical aspects of the firms
business model in the aftermath of 9/11:
J New services their clients would need.

J Existing services that should be strengthened, altered or abandoned.

J New service delivery models (possibly requiring a major re-engineering of service

delivery).

The interview and research phase was very brief for four reasons:

(1) We knew the firm and its current strategies very well.

(2) We had recently completed extensive scenario planning work for part of the
Intelligence Community and were quite familiar with emerging national security
issues.

(3) We had completed scenario planning work for the US Coast Guard two years
previous where both terrorism and issues of homeland security had received
significant focus.

(4) The client was already well versed in scenario planning.

Business driver identification was more focused than is typical and resulted in a list of
about 75 business drivers, rather than a more typical number such as 300 (plus). Only
about 30 of those drivers eventually made it into the scenario development matrix. All
75 drivers, however, contributed to the synthesis process that gave us three defining
dimensions for the clients scenario planning space (see Exhibit 3). Those dimensions
were: economic dislocation, perceived security threats, and barriers to global
commerce.

The four named scenarios above are those selected by the client for planning
purposes. It is worth remembering that these scenarios (and this matrix) were not
chosen or designed to capture the full range of threats and opportunities for the
clients business. They were focused on helping the client think about the impacts of
the potential 9/11 aftermaths on their clients needs and their competitive position. A
brief summary is shown in Exhibit 4.

The work done here helped this global services firm stress test their existing strategies
against a narrowly defined overlay of additional environmental uncertainties. They
looked for, and found, new opportunities as well as new vulnerabilities. Outcomes fell
into three broad categories. First, our client identified three new service offerings that

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Exhibit 4 Four alternative views of the future to 2004

their clients would need in the few years following 9/11 and the range of aftermaths
that were considered. Second, our client redesigned the way the firm would staff
some types of projects. (For example, hypothetical regional project management and
staffing models were devised in anticipation of future restrictions in air travel.) Third, a
new higher priority was assigned to one of the robust strategies from their original
scenario planning work (on the strategic level). The results of the 9/11 exercise
highlighted the enduring (but more urgent) utility of that strategy.

Case three: strategic horizon

Scenario planning was developed classically to help handle the ambiguities and
uncertainties of planning over a strategic time horizon. It is not about prediction; it is
not about the certainty that events will happen nor is it about specific preparations
for any event. It is about managing the range of uncertainty to be faced and the
strategies you can put into place that will provide competitive advantage no matter
what specific events unfold. In short, the twin goals of scenario planning are
opportunity identification and risk mitigation.

The measure of success in preparing for massively discontinuous events in a strategic

setting, therefore, lies in the ability of scenario planning to anticipate the impact of
such disruptive events (as a class) within the larger context of all the forces for change
acting within future operating environments. How is that to be done?

While there are many steps to building scenarios that will help one anticipate future
market needs or missions, the critical point in the process is selecting the dimensions
or boundary conditions of the planning space. Dimensions are the parameters of

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| VOL. 31 NO. 1 2003
 ones future operating environment, the elements of future uncertainty the planner
cares most about. For example, a manufacturer and marketer of infant products
seeking insight into long-term market needs will want to know about future economic
growth, in the US and beyond, as well as some indication of household income. This
planner will also want to know about fertility trends. Insight into future distribution
models might be important, as well as trade relationships and supply chain trends.
These are all examples of potential dimensions. If you do not get the dimensions right,
you might as well stop the process until you do. Unfortunately, the critical judgment
about whether or not one has them right is not subject to rules and categories. The
dimensions and the variability one chooses for them are a matter of creativity and
judgment the inventiveness and business (mission) judgment of the client project
team and the creativity and experience of the consultant.

As a case example we often draw on work done for the federal government because it
is a matter of public record and most details of the project do not violate client
confidentiality (as they would for our private sector clients). The lessons apply to the
private sector; it is just the dimensions themselves that change. Three years ago we
supported the US Coast Guard in developing and using scenarios for very long range
strategic planning for their Long View Project[1]. After two months of client-consultant
research, interviews and workshops, we developed a scenario space from the
following dimensions:
J Role of the federal government in US society.

J US economic vitality.

J Perceived threats to US society.

J Demand for maritime services.

The USCG scenario space, from which the Coast Guard chose five scenarios, is
illustrated in Exhibit 5.

From these scenarios, the Coast Guard developed ten basic strategies that would be
effective in all five future operating environments. The fourth strategy was Acquire full

Exhibit 5 USCG long view scenario planning space

Role of federal Demand for maritime

government US economic vitality Perceived threats to USA services

Limited Substantial Weak Strong Low High Low High

Balkanized America
Planet enterprise

Taking on water

Pax Americana
Pan American highway

VOL. 31 NO. 1 2003

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 maritime domain awareness. Specifically, this set as a goal for the Coast Guard the
ability to acquire, track, and identify in real time any vessel or aircraft entering
Americas maritime domain. Within two years, then-Commandant James Loy and
Captain Bob Ross wrote a paper highlighting this particular strategy and placing it at
the center of US Coast Guards strategic intentions. Maritime domain awareness
(MDA) turned out to be highly relevant for USCG decision making both before and
after 9/11.

This is an example of how strategic scenarios are supposed to help anticipate large
discontinuous events. The Coast Guard chose their scenario space successfully and
developed the specific scenarios fully. The result was a set of strategies (like MDA) that
heightened their preparedness for the tragic events of 9/11 and proved well suited to
the new and demanding mission priorities set for the USCG in an era of heightened
border and port security in the aftermath of the attack.

Observations on scenario planning as a strategic and operational tool

For planners and strategists, a common consequence of a major shock event like 9/
11 is loss of perspective. The tendency to over-estimate impacts in the short-term and
under-estimate (or even ignore) impacts once the immediate shock recedes is
common. And yet achieving and maintaining a sense of balance in perspective is
critical all the more so with every indication that the world is headed into a prolonged
period of acute turmoil and uncertainty.

We have long known that scenario planning is an effective and powerful strategy tool
for dealing with long-term uncertainty. The Coast Guard example depicts a classic use
of scenarios that enabled an extraordinary degree of preparedness for the events and
aftermath of 9/11. While the actual 9/11 events were not, of course, predicted in the
Coast Guard scenario set, a range of terrorist and homeland security threats were
explored across multiple scenario worlds. This informed the ultimate scenarios that
were developed and the resulting strategies, which continue in large part to be
followed by the Service. It is worth noting that of all the major US federal services
involved in the 9/11 response operation, the Coast Guard was singled out for its agility
and preparedness.

The scenarios developed for the financial services firm and the professional services
company break with classic scenario planning practices in that the uncertainty space
was intentionally constrained and the outputs from the process more focused. Neither
firm sought long-term, fundamental changes in strategic direction. Yet both firms
recognized that assumptions around the business environment into which they were
heading were important. The financial services company built its Business Continuity
Plans on the basis of a highly simplified two-scenario set, but stress tested its recovery
strategies with relevant and plausible wild-card events. The professional services
company in case two leveraged a classic scenario-based plan by working critical
operational issues through four more narrowly focused business environments to

While the actual 9/11 events were not predicted

in the Coast Guard scenario set, a range of
terrorist and homeland security threats were
explored across multiple scenario worlds.

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| VOL. 31 NO. 1 2003
ensure maximum preparedness for challenges to employee mobility, project
management and new business development.

In both cases, even with weighty and pressing operational agendas, the process of
examining alternative assumptions and planning backdrops proved fruitful. Scenario
planning brought a larger pool of executives into the decision-making process than
would typically be the case and as a result plans and actions were more carefully
developed. Finally, we observed that for all these reasons the scenario experience
engendered significant confidence in planning outcomes, contributing important
clarity and energy to subsequent implementation tasks.

We conclude that scenario planning offers not only long-term direction to the business
strategists, but also guidance and support to a range of operational decisions. In fact,
scenarios can greatly enhance operational efficiency by confronting ambiguity head-on
and forging critical alignment around big issues. While the classic scenario building and
strategy development processes need to be re-scoped and in other ways altered to
meet a different set of outcomes, the added rigor and creativity that scenario planning
brings is essential for executive preparedness in the face of unknowable shocks and
crises. This is perhaps the best safeguard against failures of imagination.

Note
1. This project enjoyed the active participation of Admiral James Loy, then Commandant of the
USCG, and was supervised by Captain Joel Whitehead who assembled the key requirement
of a successful scenario planning project - a gifted and hard-working core team.

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Decision-driven scenarios for assessing
four levels of uncertainty
Hugh Courtney

Hugh Courtney is a lecturer at the University
of Marylands R.H. Smith School of
Business, a senior fellow at the Mack Center
for Technological Innovation at The Wharton
School, and a management consultant
(hcourtney@rhsmith.umd.edu). He is the
author of 20/20 Foresight: Crafting Strategy
in an Uncertain World, Harvard Business
School Press, 2001.
cenario planning would seem to be the perfect tool for managers making
S strategic decisions in todays highly uncertain, turbulent business environ-
ments. Yet according to a Bain & Company survey, a declining number of
business executives use scenario planning tools[1]. Why have so many companies
abandoned scenario planning at a time when one might expect it to be most useful?
In too many cases, scenarios have been designed to clarify longer-term visions,
without regard for shorter-term decisions. As a result, middle and senior managers
often find that time-consuming scenario planning efforts are distractions that provide
little insight into the crucial strategic decisions at hand. Too often, scenario planners
have spent too much time going down paths that most of the organization didnt feel
were the slightest bit relevant[2].

These efforts likely failed because there was a fundamental mismatch between what
the management team hoped to achieve and what the scenario planning process was
designed to achieve. Managers wanted decision-driven scenarios, yet the process
was designed to develop vision-driven scenarios.

Vision-driven scenarios help management teams think outside the box and
question their assumptions about the future. They are used primarily to generate new
strategic options, facilitate learning and dialogue throughout an organization, and
develop a shared commitment to the need for change. Such scenarios, however, are
not usually tied directly to any near-term strategic decisions.

Decision-driven scenarios, on the other hand, are used to inform a well-specified

strategic choice a choice where the best option is unclear due to uncertainty over

Decision-driven scenarios are used to inform a

well-specified strategic choice a choice where
the best option is unclear due to uncertainty
over the impact of that choice.

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| VOL. 31 NO. 1 2003, pp. 14-22, MCB UP Limited, ISSN 1087-8572 DOI 10.1108/10878570310455015
the impact of that choice. For example, decision-driven scenarios have been used to
help companies decide whether to launch new products given uncertain consumer
demand, and whether to build new plants given uncertainty over the capacity-
expansion plans of their competitors. In such cases, scenarios are used to evaluate
explicit strategic options, determining their pay-offs across different scenarios and
their overall risk-return profiles.

As Exhibit 1 summarizes, vision-driven and decision-driven scenario planning

processes are designed to address very different company needs. If you pick the
wrong process, you will undoubtedly be disappointed by the results of your scenario
planning exercise. The first essential step in any successful scenario planning process,
then, is to clarify the purpose of the process, including its expected end products.
These expectations will define which of the two very distinct scenario-planning
techniques you will want to consider[3].

Tailoring decision-driven scenarios to the four levels of uncertainty

For those focused on near-term strategic decisions, there is no one-size-fits-all
approach to developing effective decision-driven scenarios. Whether you should build
such scenarios, and if so, how to build them depends on which one of the four levels
of uncertainty that you face (Exhibits 2 and 3)[4].

Level 1: a clear enough future

Decision-makers face Level 1 uncertainty when the range of possible outcomes is
narrow enough that this uncertainty does not matter for the decision at hand. This
does not imply that the future is perfectly predictable, but rather that the future is
predictable enough to identify a dominant strategy choice that is best across the
range of potential outcomes. As you might guess, decision-makers in well-established
markets that are not prone to external shocks or internal upheaval are the most likely
to face Level 1 uncertainty.

Exhibit 1 Vision-driven vs. decision-driven scenarios

Vision-driven scenarios Decision-driven scenarios

Nature of J Emphasis on broad, J Focused on specific

scenarios macroeconomic and global
drivers of change
J Longer term (5-10-20+ years)
Nature of process J Emphasis on divergent
thinking and broad
perspectives
J Heavy reliance on outside
experts, consultants and
facilitators
How scenarios are J Generate new strategic ideas
used J Develop shared sense of
possible futures and need for
change
J Launch follow-on projects
and analyses to further
develop implications of the
scenarios
uncertainties that drive
decision
J Generally shorter term (driven
by time necessary to evaluate
pay-off to decision)
J Data-driven and analytical
when possible
J Heavy reliance on internal
expertise and industry
experts (unless major
confidentiality concerns)
J Test options for a specific
decision against the range of
potential outcomes and
develop implications for which
option to choose

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Exhibit 2 The four levels of uncertainty

Level of uncertainty Description Example sources of uncertainty

A clear enough future: can define point forecasts that J Returns on common investments in mature, stable
are close enough for the decision at hand markets
J Customer and competitor reactions to strategies that
reposition well-established brands

Alternate futures: can define a limited set of possible J Potential regulatory, legislative or judicial changes
future outcomes, one of which will occur J Unpredictable competitor moves
J All-or-nothing industry standards competition

A range of futures: can define a range of possible J Demand for new products or services
future outcomes J New technology performance and adoption rates
J Unstable macroeconomic conditions

True ambiguity: cannot define even a range of J The outcomes of major technological, economic or
possible future outcomes social discontinuities
J Market evolution in markets that are just beginning to
form

McDonalds, for example, generally faces Level 1 uncertainty when it makes its
US restaurant location decisions. It can study potential customer demographics,
traffic patterns, supply logistics, and the extent of competition in a given location
and come up with a reasonably precise forecast of future restaurant earnings. And
while such forecasts will be far from perfect, they will tend to be predictable enough to
make a dominant yes-no decision on any potential US restaurant location. For
example, McDonalds will not be able to predict a variable like traffic patterns with
complete certainty, but it will be able to conclude say with 95 percent confidence
that the traffic pattern either will or will not support a restaurant in any particular
location.

Since uncertainty is so low, and dominant strategy choices can be identified,

scenarios provide limited insight in Level 1 situations. In such cases, simple
simulations and sensitivity analyses are preferred to more time- and expense-
consuming scenario planning efforts.

McDonalds, for example, might vary its traffic pattern parameters within the range of
possible outcomes to determine the impact of alternative assumptions on the
expected earnings of a new franchise location. Such analyses would help quantify
pay-off uncertainty (the ultimate pay-off to the decision is uncertain) even where there
is no strategic uncertainty (the pay-off uncertainty is narrow enough that it does not
matter for the decision at hand). Sensitivity analyses are easy to automate using
standard spreadsheet programs and thus are almost costless to implement, yet

Organizations that face Level 2 uncertainty can

define a mutually exclusive, collectively
exhaustive set of possible outcomes.

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Exhibit 3 A typology for decision-driven scenario planning

Nature of scenarios J N/A J Mutually exclusive, J Representative set of J Integrated sets of

Nature of process J Model the impact of
uncertainty through
sensitivity analysis, if at
all
How scenarios are J N/A
used
collectively exhaustive 3-5 scenarios that
(MECE) set of scenarios largely covers the range
that describes each of potential outcomes
potential outcome
J Develop implications J Choose representative
financial and otherwise points along the
of each outcome for continuum of possible
the industry and outcomes
company J Develop implications
J Assign probabilities to financial and otherwise
each outcome, if of these outcomes for
possible the industry and
J Describe the dynamic company
path to each outcome J Describe the dynamic
path to each outcome
J Assess the pay-offs to J Assess the pay-offs to
each strategic option in each strategic option in
each scenario each scenario
J Assess how each J Assess how each
strategic option may strategic option may
influence the probability influence the likelihood
of each scenario of different points along
J Combine these the continuum of
assessments with outcomes
decision analysis J Combine these
techniques to choose assessments with
the optimal strategic qualitative decision
option analysis logic to choose
the desired strategic
option
assumptions that one
would have to believe
about the future to
support different
proposed strategic
options
J Work backwards from
potential strategic
options to scenarios
that would support such
options
J Test for logic, likelihood
and internal consistency
through analogies and
reference cases
J Test scenario
assumptions through
comparison with
analogies, reference
cases, and executive
team experiences
J Determine the set of
assumptions (i.e. the
scenario) that the
management team is
most comfortable
supporting at this time

still provide useful information for financial planning purposes. Sensitivity analyses are
a more cost-effective alternative to scenario planning techniques in such relatively
predictable, Level 1 situations.

Level 2: alternate futures

Decision-makers face Level 2 uncertainty when they can define a limited set of
possible future outcomes, one of which will occur, and when the best strategy to
follow depends on which outcome ultimately occurs. For example, investors in the US
stock market faced Level 2 uncertainty in trying to determine the identity of the next
president of the USA throughout the fall of 2000. There was a well-defined set of
possible outcomes, one of which would occur the next president would be either
George W. Bush or Al Gore. However, on election day, and even weeks later, no one
could say for sure who had won. This uncertainty mattered to investors since the
candidates proposed policies that might have divergent effects on the share prices of
companies in certain industries. It was widely thought, for instance, that health
insurance companies would benefit from a Bush victory.

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 Organizations that face Level 2 uncertainty can define a mutually exclusive, collectively
exhaustive (MECE) set of possible outcomes. One, and only one, of these outcomes
will actually occur. Potential regulatory, legislative, or judicial changes are often
sources of Level 2 uncertainty. Will a proposed environmental legislation be passed?
Will new regulations be imposed? Will the merger pass antitrust review or not?
Similarly, unpredictable competitor moves and countermoves often create Level 2
uncertainty for business strategists. Will a competitor build a new plant? Enter a new
market? The potential answers to all of these questions usually define a clear, MECE
set of possibilities.

Scenario planning exercises under Level 2 uncertainty must define in great detail the
MECE set of possible outcomes, and specify the implications each outcome has for
the decision at hand. For example, what are the implications for the cost structure of a
proposed new chemical plant if a pending environmental regulation is approved or if
the regulation is rejected? What does this imply for the decision to build the new plant
or not?

Scenario builders in this case should also attempt to determine the relative
probabilities of these different outcomes, and to specify the dynamic path to each
scenario. Will change come quickly, say, following a regulatory decision? Or will it be a
gradual evolution, as in the establishment of a new technological standard? This is
important information in Level 2 situations since it determines which market variables
should be monitored most closely. As events unfold and the perceived probabilities of
alternative scenarios change, it is likely that ones view of the best strategy will
change. For example, as the chemical company receives more information on
whether or not the environmental regulatory ruling is likely to favor new plant
construction, it might choose to either accelerate, decelerate, or shut down its
construction plans altogether.

Once scenarios and their probabilities (or at least a range of probabilities) have been
defined, and strategies have been properly evaluated across each scenario, it is time
to make decisions. By definition, in Level 2 situations you will not find a strategy that is
dominant (has the highest pay-off) across all scenarios (dominant strategies are a
feature of Level 1 situations, not Level 2). The strategist must choose between
strategic options with different risk-return profiles across the different scenarios.

Decision analysis tools can be used to facilitate decision-making when there is no

dominant strategy. Given your objectives in particular, your willingness to accept
risk decision analysis techniques allow you to value strategic options that show
different pay-off profiles across a set of scenarios. If you are risk neutral, for example,
the strategy with the highest expected value across scenarios should be chosen.
Risk-averse decision-makers, on the other hand, will prefer strategies with the most
stable pay-offs, choosing to avoid strategies with high pay-off variances across the
different scenarios.[5]

In any event, keep in mind that the probabilities of different scenarios can be highly
dependent on a companys strategy choices. For example, if you face Level 2
uncertainty over whether or not a competitor will enter a new market, you must take
into account the fact that the probability of either scenario may be influenced by your
companys own decision to enter the market or not. Therefore, when evaluating the
pay-off to different strategies across scenarios, you must focus on two questions:

1. What is the pay-off to this strategy in each scenario?

2. How does this strategy change the relative probabilities of each scenario?

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 Level 3: a range of futures
In some respects, Level 3 uncertainty is like Level 2 uncertainty: one can identify the
range of possible future outcomes, but no obvious point forecast emerges. In both
cases, this range is wide enough to matter for the decision at hand, but there is a very
important difference: strategists facing Level 3 uncertainty can only bound the range
of future outcomes they cannot identify a limited MECE set of outcomes, one of
which will occur. For example, they might be able to conclude that the five-year
market penetration rate of a new consumer electronics product will fall somewhere
between 5 percent and 40 percent, but they will not be able to conclude that the rate
will be either 5 percent, 20 percent, 30 percent, or 40 percent. Any other rate between
5 percent and 40 percent is also a possibility in this case.

Customer demand for new products and services, and new technology performance
and adoption rates, are both common sources of Level 3 uncertainty. Airbus, for
example, faced Level 3 uncertainty when deciding whether or not to build its new
A380 super-jumbo jet. Estimates of the size of the super-jumbo jet market ranged
from 350 to 1,500 planes, and Airbus knew that it must sell approximately 500 planes
to break even on the A380 investment.

Unstable macroeconomic conditions may also create Level 3 uncertainty for decision-
makers. Macroeconomic instability in Argentina, for example, creates Level 3
uncertainty over the growth rate of demand for new telecommunication services there,
a key variable for BellSouth to consider when making infrastructure investments in
South America.

To illustrate the preferred decision-driven scenario approach in Level 3 situations,

return to the A380 super-jumbo example. Market research indicates that the demand
for super-jumbo jets will fall somewhere between 350 and 1,500 planes. Does this
imply that one must develop different scenarios for every market size between 350
and 1,500 planes, determining the implications each would have for Airbus product
launch and promotion strategies? Or should one instead merely choose a limited set
of plausible, representative outcomes between 350 and 1,500 planes to fully develop
into scenarios? And if one chooses this route, how does one choose which outcomes
to build scenarios around?

There are no simple answers to these questions, but there are a few general rules to
follow. First, develop only a limited number of representative scenarios; the complexity
of juggling more than four or five alternatives tends to hinder rather than facilitate
sound decision-making. Second, avoid developing redundant scenarios that have no
unique implications for strategic decision-making. Make sure each scenario offers a
distinct picture of the future. Third, develop a set of scenarios that collectively
accounts for at least the probable, if not possible, range of outcomes. Some
companies prefer to develop best and worst case scenarios at the extreme ends
of the spectrum of possible outcomes, while others develop best and worst case
scenarios that span a tighter range of more probable outcomes. Either approach can
work well so long as the extreme scenarios are not so extreme that they lose

Strategists facing Level 3 uncertainty can only

bound the range of future outcomes.

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 credibility within the organization, and the probable scenarios are not so closely tied
to the status quo that they provide a false sense of future stability and predictability.

As with Level 2 situations, once scenarios are defined, the next step is to identify
potential dynamic paths to each outcome, and to evaluate each strategic option
across each scenario. However, assigning probabilities to different scenarios does not
make sense in Level 3 situations. When assigning probabilities you are implicitly
assuming that you have identified a collectively exhaustive set of scenarios, one that
includes all possible outcomes. But in Level 3 situations, in contrast to Level 2, your
scenarios will only represent a subset of possible outcomes.

Since probabilities cannot be defined, it is impossible to calculate the expected

value, standard deviation, and other key statistics that summarize the risk-return
characteristics of a given strategic option. Nonetheless, the logic for evaluating
strategic options is very similar in Level 2 and Level 3 situations. In either case,
evaluating each option against each scenario allows managers to determine how
robust different strategies are, and to assess the overall risk-return characteristics of
these strategies. And in either case, companies can assess which scenarios become
more and less likely based on their own strategy choices. The only difference is that in
Level 3 situations, absent scenario probabilities, these evaluations cannot be reduced
to the simple decision-making metrics such as expected values and other key
statistics that are so useful to Level 2 decision makers. This implies that while the
same, rigorous decision analysis logic applies to both Level 2 and Level 3 situations,
qualitative business judgment factors will inevitably play a more prominent role
under Level 3 uncertainty.

Level 4: true ambiguity

Future outcomes for Level 4 uncertainties are both unknown and unknowable.
Analysis cannot even identify the range of possible future outcomes with certainty, or
the most likely scenarios within that range.

Level 4 situations are rare, and they tend to degrade over time to lower levels of
uncertainty. They are most likely to occur in markets during and immediately after
major technological, economic or social discontinuities, as well as in markets that are
just beginning to form. For example, a manager attempting to formulate United
Airlines security strategy on 12 September 2001 faced Level 4 uncertainty. In the
immediate aftermath of the horrific terrorist attacks that occurred on 11 September,
even the most prescient security experts could not confidently bound the range of
future terrorist activity.

Under conditions of Level 2 and 3 uncertainty, strategists analyze the situation to

bound the range of possible future outcomes, and then develop scenarios that
describe alternative outcomes within that range. Since this is impossible in Level 4
situations, the alternative is to work backward from potential strategic options to
define what you would have to believe about a future scenario to support this
option. For example, a manager was unable to bound the range of demand estimates
for a new gene therapy, but he was able to back out what demand levels would be
necessary to support the proposed research and development investment he was
considering. Likewise, the United Airlines security manager could work backwards to
identify which set of assumptions about future terrorist threats would make it
worthwhile to arm pilots or train all flight attendants in the martial arts.

In Level 4 situations, a scenario is then an integrated set of assumptions about the

future that supports a given strategic option. There is no analysis that you can do to
determine conclusively whether any such scenario is likely or not; that is the definition

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 Future outcomes for Level 4 uncertainties are both
unknown and unknowable.

of Level 4 uncertainty. However, analogies and references cases can be useful in
testing the logic, likelihood and internal consistency of Level 4 scenarios. If a proposed
strategy requires faster consumer adoption rates than those observed for any
analogous product launch, for example, it will probably make sense to reject this
strategy in favor of another.

Given how different scenario planning exercises are in Level 4 situations, it should
come as no surprise that the decision-making model is also unique. The decision
analysis techniques favored in Level 2 and Level 3 situations are impossible to
implement since the range of outcomes cannot be bounded. Instead, a qualitative, yet
systematic checklist of key considerations should drive decision-making:

(1) Which sets of integrated assumptions (i.e. scenarios) about the future seem
credible given what can be learned from analogous situations and executive team
experiences?

(2) Of these credible scenarios, which support options that have the lowest downside
risk? Highest upside reward? Which are most consistent with our organizational
capabilities and long-term strategic goals?

(3) Are there likely to be real first-mover advantages, or can commitments be staged
over time? Which options allow for such staging, and which require upfront big
bets?

In the end, strategic decision making under Level 4 uncertainty should involve getting
comfortable with the logic, likelihood and internal consistency of the future scenario,
or set of scenarios, that support your chosen strategy.

Getting the most out of scenario planning efforts

The typology summarized in Exhibits 1 and 3 can help you identify the scenario
planning technique that is most appropriate given your companys goals and the level
of uncertainty that it faces. But identifying the right tool for the job does not necessarily
guarantee success. Fortunately, three decades of business scenario planning
applications have identified a number of best practices that help increase the

Exhibit 4 Keys to successful scenario planning regardless of which

approach you take
J Ensuring top management sponsorship and involvement
J Collecting diverse inputs (internal and, when appropriate, external)
J Linking explicitly to strategic planning and capital allocation processes
J Crafting internally consistent scenarios, each supported by a dynamic story that makes
sense
J Relying upon fact- and logic-based discussions and support analyses
J Avoiding the tendency to be overconfident in one s ability to predict the future
J Focusing on both adapting to and shaping future scenarios
J Maintaining an ongoing process to monitor and update scenarios over time

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 probability of success regardless of which particular technique you choose to follow
(see Exhibit 4)[6].

Armed with the right techniques and the right support practices, your scenario efforts
are more likely to generate the valuable foresight that leads to clearer strategic visions
and better strategic decisions.

Notes
1. Only 21.5 percent of North American executives in the Bain survey used scenario planning in
1999, a usage rate that was approximately 50 percent lower than the rate in 1994. For more
Bain survey results, see Darrel Rigby (2001), Management tools and techniques: a survey,
California Management Review, Vol. 43 No. 2, Winter, pp. 139-59; Darrel K. Rigby (2001),
Putting tools to the test: senior executives rate 25 top management tools, Strategy &
Leadership, Vol. 29 No. 3, pp. 4-12; and www.bain.com.
2. Darrel Rigby, Director, Bain & Company, as quoted in Bruce Melzer (2001), The uncertainty
principle, CIO Insight, Vol. 1 No. 2, 1 June.
3. Exhibit 1 also suggests that vision- and decision-driven scenario techniques are both essential
components in any companys strategy toolkit. Companies should use concrete, decision-
driven scenarios to make the right capital investment, marketing campaign and other strategic
decisions when uncertainty implies that there is no obvious answer. At the same time,
companies that sponsor vision-driven exercises every 1-3 years will be best positioned to
recognize and capture the new opportunities and manage the risks inherent in todays rapidly
changing business environments. These exercises help set valuable strategic and
organizational priorities, and provide the necessary context for all decision-driven scenario
efforts. Vision and decision-driven exercises are highly complementary, and the typology in
Exhibit 1 tells you when not if to apply either one.
4. For more details on and examples of the four levels of uncertainty, see Hugh Courtney (2001),
20/20 Foresight: Crafting Strategy in an Uncertain World (Harvard Business School Press);
and Hugh Courtney et al. (1997), Strategy under uncertainty, Harvard Business Review,
November-December, pp. 66-79.
5. For more information on decision analysis, consult one of the many practitioner-oriented
textbooks such as Robert T. Clemen (1996), Making Hard Decisions: An Introduction to
Decision Analysis (Duxbury Press), or David C. Skinner (1999), Introduction to Decision
Analysis: A Practitioners Guide to Improving Decision Quality (Probabilistic Publishing).
6. For more on scenario planning best practices and pitfalls, see Paul J.H. Schoemaker (1998),
Twenty common pitfalls in scenario planning, in Liam Fahey and Robert M. Randall (Eds),
Learning from the Future: Competitive Foresight Scenarios (John Wiley & Sons). The Fahey
and Randall compilation is a fine general resource for scenario planning techniques and best
practices.

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Scenarios and strategies: making the
scenario about the business
David H. Mason and James Herman
David Mason, a veteran scenario developer,
is a Partner in Skylight Associates LLP. He
was President of Northeast Consulting
Resources, the organization that created
and trademarked Future Mapping, now
owned by NerveWire
(dave@skylightassociates.com). James
Herman, a Partner in Skylight Associates
LLP, is an information technology and
management consultant, with experience
helping large, global organizations develop
strategies for coping with business and
technology change
( jim@skylightassociates.com).
DOI 10.1108/10878570310455024
Scenario development has traditionally been an outward looking process designed to
enhance awareness of potential change in the external business environment. A set of
techniques is presented here for bringing the business and its internal issues directly
into the scenario development effort from the beginning. By casting strategies as
scenarios, companies can gain many of the benefits of traditional scenario planning
while accelerating the strategic decision making for organizations in high change
environments.
Perhaps the greatest challenge for scenario practitioners is engaging the manage-
ment team fully and creatively. The problem of achieving such engagement is
especially severe if you try to get top management (corporate officers, board
members, etc.) to consider radically different business conditions that may occur in
the future. It is typically easy to recruit lower-level managers and senior staff for these
exercises, which are often fun and provide an opportunity to take a wider perspective
on the environment in which the business operates. Most large companies, we find,
have a cadre of professional meeting goers: people who sign up for one task force
or committee after another. These people love scenario planning! But, they usually
have little or no influence on the key business decisions of strategic direction, future
investment, business scope, new partnerships, or acquisitions/divestitures. To really
have an impact on the business, you must get senior management to participate in
scenario development and consideration of the decisions implied by the results.
Making scenarios relevant to business managers
As a start they must be convinced of the relevancy of the scenario exercise to the
current challenges facing the business or the decisions that must be made now.
Unless top managers can be persuaded to actively participate in a scenario
development effort linked to major decision making, they are unlikely to learn much
that is useful from the process.
To find ways to make scenario development more immediately relevant to senior
management at both the corporate and business unit levels, our solution was to
experiment with ways to incorporate the future of the clients business itself into the
scenarios we were developing about the external business environment. At first, this
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| STRATEGY & LEADERSHIP
| PAGE 23
 Unless top managers can be persuaded to
actively participate in a scenario development
effort linked to major decision making, they are
unlikely to learn much that is useful from the
process.

meant asking management to hypothesize how they would respond if a particular
external environment materialized at some point in the future. For each external state,
there was a future state for the business. If an external scenario described a new,
much lower cost, approach to similar markets, for example, one response is to adopt
a low cost strategy, a second might be to provide value-added services aimed at
vertical markets. It is the alternative responses that get management thinking in new
ways.

Traditionally, scenario developers strive to consider the external environment

independent of the business in order to ensure that they were really considering a
full range of possible outcomes, not just those that were easy for management to deal
with (e.g. political upheaval, cyclical economics, long term demographic shifts and
consumption patterns, to name a few). However, this process was often just too
theoretical for our clients. In addition, most industry leaders cause change in their
industry; co-evolution is more common than independence.

Ultimately, we got to the point where we actually made the client organization the
central focus of the scenarios the scenarios were about the business strategy
alternatives (e.g. low cost, differentiate, focus on products offered or markets served).
Although this technique has some drawbacks and may not be the ideal way to use
scenario planning, on balance it was a good approach because it did engage top
managers and forced them to make critical decisions while they still had time to
employ their resources effectively to manipulate the future.

Future Mapping scenarios

Our ability to introduce the client organization itself into the heart of the scenario
development process is, in part, due to the way scenarios are structured in our
Future Mapping methodology. First, we work with the participants in the scenario
development process to propose multiple outcomes for the industry, market,
technology and/or society the organization operates within. We call these outcomes
endstates. Each imagines a set of outcomes on the organizations planning horizon
(usually 3 to 10 years in the future) involving the range of issues management needs to
consider to develop a business strategy (e.g. Internet adoption as: mass market
media; a business platform; and a personal communications system). These logically
consistent endstates describe how things turn out in the future without precisely
defining how these conditions came to be.

Next we divide the participants into teams, where each team considers one of the
endstates. They are challenged to think about what must happen between the
present and the timeframe of their endstate in order for the endstate to come about.
We ask them to also consider what must not happen for their endstate to occur. They
write out newspaper headlines that describe the specific events that would drive
toward their endstate (e.g. broadband Internet services purchased by 60 percent of
US households). The event path leading to an endstate constitutes a scenario in this

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 approach. A different event path would make the Internet a business platform vs. a
mass market medium.

Scenarios and strategies

Given this method, it is relatively easy to introduce the client organization and its
strategy into the process from the very beginning of the exercise. An endstate, which
already describes a consistent set of outcomes for an industry (competition,
regulation, technology adoption, economic cycles, politics, etc.), now includes a
section describing an outcome for the organization itself, including such things as
scope of the business, partnerships, market position, internal organization, culture,
etc. If the client wanted to develop a strategy dependent upon the Internet as a mass
market media, their actions would obviously be different than a strategy aimed at
using the net as a business platform. Specifics would depend upon the nature of the
clients business; a telephone company, a computer vendor and a drug company
would approach each strategy differently.

Scenarios and strategies

Events are no longer entirely external, but include actions the client organization might
take. Now, the scenarios incorporate both internal and external events, a subset of
which translates readily into the skeleton of an implementation plan e.g. for critical
events, a desired outcome, tactics, resources and timeframe for a shortlist of events).
Importantly, the clients own actions are complemented by a list of external events that
must go right for the strategy to succeed (e.g. broadband penetration into US
households). The scenarios can also be complemented with a timeline of changes in
critical business metrics (e.g. market share, margins, adoption rates by customers,
etc.), which serve as milestones along the way to the endstate. This approach puts
forth a rich notion of strategy that combines a clear definition of the aspirations of the
business what it wants to become or attain with a timeline of specific internal and
external actions and interventions that are needed in order to succeed.

Often, the business will want to move forward with more than one of these strategies
either to be prepared to shift strategy if conditions do not go the way they want, or
because each strategy is expected to produce results on different timescales (e.g. one
might be a short-term play that pays off within two years while another is a long term
bet that will not really unfold for three or more years). For this work to pay off the client
organization must track the actual events and metrics (internal and external) that occur
to see which scenarios are really developing (Key event occurrences then trigger
strategy re-evaluation and course correction). For example, if only 15 percent of
households ever subscribe to broadband by 2007, the net will fail as a mass media in
that timeframe.

Many of our clients were determined to try to create the conditions needed for their
success rather than just waiting to see what happens around them. For example, a

Ultimately, we actually made the client

organization the central focus of the scenarios
the scenarios were about the business strategy
alternatives.

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 major computer systems manufacturer had a significant position in the high-end
personal workstation market that was under threat from a shift toward server-based
computing (so-call thin client model). The manufacturing firm developed five
endstates (A through E) that outlined their major ideas for business strategies over the
next five years:
J A. Consolidation: consolidate this maturing industry, aim for market share that is
3 the nearest competitor, and play out the end game. You can grow revenue and
profit in a shrinking industry.
J B. Focus and harvest: focus on existing customers and harvest cash from the
business and related services and add-ons, investing the proceeds in strategic
initiatives elsewhere across the company, ensuring market leadership in newer,
faster-growing markets.
J C. Low cost: co-opt the competitive PC value chain, leveraging its superior
economics and scale to dramatically lower costs and increase volumes in the
workstation business.
J D. Solutions: focus on solution-oriented segments requiring traditional compe-
tencies of systems design, graphics performance, reliability, transparent network-
ing, and applications focus, pulling these into an overall horizontal or vertical
solution that cannot be matched by competitors systems.
J E. Create a new product set: morph the whole business into a new product
concept create mass-produced, low-cost, flexibly interconnected CPU boxes
that can be deployed in configurations tailored to various classes of customers.

These strategy options assumed a variety of changes in technology architecture and

industry structure, as well as refocusing of the clients own business. The client
managers were not content to wait and see where the industry went. They were going
to decide which outcome they wanted and strive to intervene in ways to ensure that
these conditions came about. These managers were so knowledgeable about their
competitive situation that they did not need to use scenarios as an environmental
scan. Instead they needed the scenario process to establish a context for a structured
debate of the strategy choices they were facing.

Different scenarios for different clients

Over the years we experimented with different ways of incorporating the business into
scenario development, driven by client objectives and unique needs. In the above
example, the scenarios are very explicitly strategies, incorporating both the outcome
achieved and the means to that end. External events and conditions play a secondary
role. But the strategies are designed to have a major impact on the industry and
market in some cases causing restructuring and economic disruption. In that sense,
they remained outwardly focused.

In other situations, the scenarios were more inwardly focused on the future of the
organization, its mission, vision and values, and the ways in which it must transform to
remain healthy and competitive as in the Los Alamos Lab example below. Here
the endstates described the culture and structure of the Lab in the future. Events
were primarily decisions the organization had to make about scope of activity,
organizational structure, work process re-engineering, new investment, partnerships,
outsourcing, etc. Used this way, the scenario exercise became an early stage change
management effort. The exercise enabled managers (sometimes at many levels) to
envision the behavioral changes required on their own part in order to achieve the
desired organizational transformation.

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 Our work at Los Alamos National Laboratory in the mid 1990s is a good example of
this use of scenario planning. The Lab explicitly wanted to redefine itself in the post-
cold war era and engaged us to help them create five scenarios for the future of the
Lab:
J A. The National Security Lab: the Lab is almost completely focused on a broad
array of military oriented national security issues.
J B. Leading the environmental cleanup: with military spending significantly reduced
and national security issues defined more in terms of environmental and economic
concerns, the Lab is now refocused on a wide array of efforts under the banner of
sustainable development technologies.
J C. Leading work at the intersections of disciplines: the Lab has focused on
problems at the interfaces of converging fields of science (e.g. bio/mechanical,
opto/electronic oceanic/atmospheric, nanotech machines, artificial life, evolutionary
software, information physics, etc.).
J D. Entrepreneurial Lab: the Lab is primarily focused on individuals, rather than
programs or specialized facilities. The Lab is working on many more projects and
fewer big programs.
J E. The virtual Lab: the Labs strategy is to use the nations advanced
communications and information infrastructure and its strong relationships with
leading research partners to become an important participant in the nations
emerging virtual laboratory system.

This kind of exercise is appropriate if there is a lot of knowledge and little controversy
over the evolution of external conditions. This is often not the case, and client
assertions that it is, should be suspect. Some clients do not even have agreement on
current conditions, much less future expectations. These situations require more
basic groundwork. Thus, we do encourage clients to engage in a traditional, externally
focused scenario planning exercise prior to attempting one focused on business
strategy or organizational transformation. This allows for development of a consensus
around the evolution of the external environment. The second step can be to consider
the mix of strategies the organization will pursue. The problem with this two-stage
approach is that it is time consuming and costly. Many clients do not have the
resources or management commitment to conduct such a thorough exercise. To
abbreviate the process but retain some of its best features, in some cases we tried an
approach in which we developed both a set of external endstates and a set of
strategies the client might pursue. After some period of developing the external
scenarios, the participants were then asked to pick one or more strategies that they
believed would serve the business well under the conditions posited in their external
scenario. But it is a rare management team that can think through all this is a typical
workshop timeframe. Most of these engagements are now structured so enough
analysis is done beforehand to suggest the most promising pairings of endstate and

We do encourage clients to engage in a

traditional, externally focused scenario planning
exercise prior to attempting one focused on
business strategy or organizational
transformation.

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 strategy. Then, a single scenario development exercise was held with an equal
balance of external and internal content. The endstates described a set of future
external conditions and an outcome for the business. The following two examples
illustrate these kinds of scenarios.

In the first case, a regulated monopoly (called ABC here) was preparing for a more
free-market oriented existence in an ever-more integrated Europe. The endstates here
embody this mixture of internal and external drivers for change and transformation:
J A. The customer-centric company: focusing on the customer, customer
interfaces, and knowledge about the customer are the winning strategies for
value creation. ABC puts its investment into customer-facing capabilities and
services for customer management. It outsources and divests back-end production
assets, creating a business with strong returns on capital.
J B. The clicks and mortar company: rapid rise in the use of online services has
led to a drop in the traditional, physically oriented side of the business. ABC
straddles the physical and virtual worlds, becoming adept at converting bytes to
atoms and vice versa. Investment has been directed toward developing a rich set of
e-services and modernizing core physical services.

Different scenarios for different clients

J C. The distribution and supply chain services leader: changes in global
competition and restructuring of value chains create increased opportunities for
outsourced logistics and distribution services. ABC focuses its investment in
becoming a leader in this area.
J D. The financially managed company: ABC manages itself as a highly profitable
public portfolio company. It exits unprofitable businesses, including most logistics
services and invests in those parts of the business that deliver profitable business
growth.

This illustrates how the scenario development process can become a forum for a
healthy debate among the management team concerning such topics as focus and
scope of the business, the importance of environmental changes like the Internet, and
the governance and decision-making principles on which they will run the business.

In the next example, the endstates are about the technical architecture of the public
network in a major European country and the investment options that this large
incumbent carrier (here called PTT) faced with regard to it:
J A: Play to win in the low cost battle: traditional public net services are subject to
severe price competition. Customers choose voice and dial-up data services largely
based on price, and are unwilling to pay more for advanced services. PTT focuses
on driving as much cost out of its network operation as possible in order to stay
competitive and hold onto as much of its customer base as possible. It structures
the Public Net Services Division as a separate unit.
J B. Narrowband services keep moving forward: narrowband access to the Internet
remains sufficient for the vast majority of users and applications. Broadband-only
sites are a niche business. Customers prefer the added sound quality and value-
added features of the traditional wire line network to the poorer quality wireless or
Internet offerings of competitors. PTT continues to enhance and extend its

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 The scenario development process can become a
forum for a healthy debate among the
management team concerning such topics as
focus and scope of the business, the importance
of environmental changes like the Internet, and
the governance and decision-making principles on
which they will run the business.

narrowband services delivered through the digital switched network and its copper
wire plant.
J C. Converged service bundles over diverse access: converged wireless and wire
line, voice and data services are very popular. Medium to large businesses are the
main users of broadband, while consumers and small businesses still largely use
narrowband services. PTT is organized into customer-facing, market-driven units
that offer integrated bundles of diverse services tailored to their respective
segments. It leverages a new, common optical broadband core network across all
of its lines of business (wireless, wire line voice, broadband for business), while
preserving the utility of its existing, diverse access networks.
J D. Broadband for everyone: consumers and businesses of all sizes adopt the
Internet and broadband communications services in large numbers. There is strong
competition from cable companies, broadband wireless access providers, and
startup carriers for the most desirable customers. Most narrowband services are
included for free with broadband offerings. PTT has invested in a major replacement
of the existing narrowband access and switching network with an end-to-end
broadband IP network.

By the end of this scenario development workshop, the participants had created a
map of the key external and internal events that would trigger the investment decisions
and other actions embodied in these strategies (e.g. a percentage of homes paying
subscription fees for broadband vs. narrowband services above or below certain
levels would trigger a change in the PTTs investments going forward). It became the
basis for a decision tree with an associated timeline of events.

The major benefit of this approach is that it kept the business and its choices part of
the discussion throughout the exercise. These kinds of endstates, for example, were a
lot easier to get senior management excited about. This approach turned the scenario
development process into a strategy development process that balanced external and
internal issues.

Is this really scenario planning?

The heritage of scenario planning is external scanning an outward-in approach
designed to get people to rise above the current concerns and viewpoints. Does the
inclusion of the organization itself in the scenarios let management get away with
internal think and avoid serious contemplation of future conditions they do not
particularly like?

The answer to this depends on the client and what they know about their industry,
whether they already have a good view into the likely evolution paths for the market or
industry, etc. For some clients, it is clearly a mistake to skip the development of
external scenarios that capture a full range of possible outcomes, some good and

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 some bad for them. For them, the two-stage approach described above is best.
But for many clients, especially those seeking a proactive approach to strategy
development, the more direct technique served them well and accelerated their time
to strategy decision-making.

This kind of application of scenario planning is based on a particular way of structuring

and developing scenarios as sequences of events leading to endstates. Traditional
scenario planning which focuses on finding the two dimensions of high external
uncertainty with the greatest impact on the business does not translate well into
creating scenarios about the organization itself. Typically, strategy development and
organizational change management are started after scenario development is
complete. The approaches we have tried, however, integrate them into a single,
sometimes very intense process that has been able to have a profound effect on the
participants and changed the course of the organization. We believe strongly that this
kind of approach to scenario development will be more successful and taken more
seriously than traditional, more intellectually pure exercises in many kinds of
companies.

Is this really scenario planning?

In our view, these kinds of techniques still confer most of the key benefits of scenario
planning, while integrating them into the strategy development process. They force
management to consider multiple, alternative strategies, just as traditional scenario
planning pushes management to consider more than outcome for the environment.
As we have seen above, going this route does not mean that external scenarios
are never developed. To the degree that time, budget and attention allow, external
scenarios are still developed, but they are integrated with potential strategies for the
business. In most cases, management develops strategies tailored to different kinds
of external environments and begins to execute on them to the degree they believe the
associated external conditions are coming about.

This evidence-driven approach to strategy management uses scenario planning as a

framework for gathering data that will be seen as immediately relevant to senior
management. The scenarios and paired strategies developed for a leading mid-west
US bank in the late 1990s illustrate how this can help management move quickly to
make major shifts in strategy. The bank had concluded from its scenario and strategy
development effort that it should focus on developing a set of IT-enabled premium
services in order to capture the most profitable and desirable customer base of the
future. They began to pursue that course. There was another scenario, however, in
which the US banking industry consolidated rapidly and in which this bank was surely
to be changed greatly through acquisition and mergers. About 15 months into the
execution of the first strategy, major financial services mergers began (e.g. Bank of
America and Nations Bank, Citibank and Travelers, Fleet and Bank Boston to name
the biggest) and the management team changed course almost immediately toward
the associated strategy for the consolidation scenario.

In considering multiple strategies, these techniques often promote the introduction of

new, radically different strategies, rather than merely incremental tweaks to existing
strategies. In some cases, they have unleashed the imagination and creativity of the
participants, generating truly fresh insights and new ideas. Such a process can give
airtime to advocates of strategic shifts or force consideration of what have been to
date taboo issues or looming problems that, for whatever reason, have remained

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 Perhaps the most compelling benefit of this form
of scenario planning is that it pushes
management to think in a dynamic timeline
seeing the business and its environment as a
system co-evolving over time.

unacknowledged by the management team as a whole. By introducing these issues
or new strategies anonymously through the endstate development process, some
aspects of internal politics can sometimes be defused that inhibit clear consideration
of all the possible strategic directions for the organization.

Perhaps the most compelling benefit of this form of scenario planning is that it pushes
management to think in a dynamic timeline seeing the business and its environment
as a system co-evolving over time. Helping management to gain perspective about
business change over time is one of the defining purposes of scenario planning.

In our experience, these approaches push management to develop more unique

strategies. As Harvards Michael Porter emphasizes, a strategy must be distinctive
and make hard trade-offs to be effective. The future-proof strategies created by some
scenario practitioners are, almost by definition, me-too strategies that have a little of
everything. In contrast, making scenarios that are strategies allows an organization to
define targeted strategies that exploit specific future conditions that may emerge. In a
few cases, the organization was actually able to bring about the events that drove the
external scenario they wanted to develop in order to maximize the success of their
selected strategy.

Client demands for a faster, more relevant scenario process drove us to develop these
techniques. By integrating scenario and strategy development, you shorten the time
to strategy decision when there is limited by allocated by management for this kind of
process, while still retaining many of the benefits traditionally associated with
scenarios.

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Competitor scenarios
Liam Fahey

Liam Fahey is internationally recognized as a Editors note

leading consultant on competitor analysis,
competitive strategy, and scenario learning
(liam.fahey@leadershipforuminc.com). Of the
seven books he has published on these
topics, his three most recent are: Learning
from the Future (1998), Competitors:
Outwitting, Outmaneuvering and
Outperforming (1999), and The Portable MBA
in Strategy, Second Edition (2001). Based in
Needham, Massachusetts, he is an adjunct
professor of strategic management at Babson
College, a visiting professor of strategic
management at Cranfield School of
Management in the UK, a founder and
principal of Leadership Forum Inc, and a
Contributing Editor of Strategy & Leadership.
Liam Fahey
This is the second Strategy & Leadership article in Professor Faheys series on
understanding competitors. The first one, Invented competitors: a new competitor
analysis methodology appeared in the November/December issue, Vol. 30 No. 6.
cenario learning and competitor assessment are two tools for looking at the
S future that leading edge companies are learning to use efficiently and
effectively in combination. Given other demands on management attention,
not many companies can expend the resources to annually investigate a wide range of
future possibilities via scenario planning. Likewise, few companies can afford to
continually track the details of their competitors every strategic move. But almost all
companies need to periodically weigh potential competitive threats, and now a proven
methodology provides a look at rivals new and old in several scenario settings.
Managers need to be familiar with scenarios of future markets that are not merely
extrapolations of current trends. This is because history teaches that the most
potent competitors often emerge unexpectedly from surprising sources and under
unanticipated circumstances. For example, a decade ago book-retailing chains were
expanding at a record pace as they decimated their competition, small locally owned
bookshops. However, the overnight success of Amazon.coms Internet store a
potent combination of new marketing concepts, new technology, and new channel
strategy forced the chains to reassess the future of book retailing and as a
consequence make significant changes to their historic strategy.

History teaches that the most potent competitors

often emerge unexpectedly from surprising
sources and under unanticipated
circumstances.

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Even long-time competitors sometimes do things completely out of character with
their strategic and organizational modus operandi. For example, large diversified firms
may suddenly decide to shed many businesses to concentrate on a few products and
technologies. Another shift of marketplace power can occur unexpectedly when rivals
make acquisitions that provide them with new competitive potential.

Scenarios are a proven means to identify and examine pathways into alternate futures
for which most managers, because of their focus on taking advantage of current
conditions, are currently unprepared. Scenarios of futures where the business
environment is distinctly different from current or anticipated conditions can help
managers project and analyze competitors futures: what competitors might do, how
they might do it, and why. After a few years of experience, several leading companies
that employ scenarios to better understand both current competitors potential moves
as well as the possible emergence of new rivals have learned several principles and
some ways to avoid various pitfalls. Their basic technique, and their suggestions for
avoiding missteps, can now be shared. In almost all cases, competitor scenarios
produced actionable insights about these firms own strategy alternatives.

To demonstrate how this competitor scenario process works in practice, this article
has a three-part structure:
J First, to acquaint managers with the typical content of a competitor scenario.

J Second, to explain the different types of competitor scenarios that can be created
and the purposes associated with them.
J Third, to show what managers can learn from different competitor scenarios and
how they can use the understanding and information gained to improve strategy
development and execution.

Competitor scenarios: purposes, key elements, and principles

A competitor scenario starts with a logical narrative that considers what a competitor
might do over some specified time period, how its managers would do it, and why
they would choose to do so. As with all scenarios, we must remember that any
competitor scenario represents one projection of what a competitor might do. It is not
a prediction of what it will do.

The following competitor scenarios examine three broad aspects of marketplace

strategy: in which product-customer segments the competitor chooses to compete
(scope); how it competes (competitive posture); and what it seeks to achieve (goals).
Competitor scenarios, of course, often focus on other issues or topics including:
J How a competitor might guide and manage its R&D efforts.

J How a competitor might build and manage an integrated supply chain.

J How a competitor might develop and manage a networked enterprise around a

series of alliances with many types of external entities.

Competitor scenarios consist of the four key elements common to all scenarios:
an end-state, plot, logics, and driving forces. For a brief description of each of the
elements, see Exhibit 1. Note that there is no one right way to develop and interrelate
these four elements. As will become evident in the following discussion, constructing
competitor scenarios is an iterative process[1]. End-states are shaped by what is
learned in the process of articulating and detailing the plot and the driving forces. In
this article, we start the scenario process by asking different types of what-if questions

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 Exhibit 1 Competitor scenarios: key elements

The components of every competitor scenario are: an end-state, plot, logics, and driving
forces.
End-state The end-state details the competitors marketplace strategy scope,
posture, and goals at the end of the scenario period. A radical new
strategy would require the scenario developers to lay out what is
radical about the strategy: how the products are revolutionary, what
changes the products would imply for channels and customers, and
other ways in which the strategy would be dramatically different from
rivals current approaches to competing and winning in the
marketplace.
Plot The plot or story describes what the competitor must do to get to the
end-state. What would the competitor have to do to develop, design,
manufacture, market and sell the revolutionary products? Frequently,
such plots must also address change within the competitor for
example, the change in culture, systems, operating processes, assets,
and leadership that would be required to facilitate and lead the drive
toward a radical new marketplace strategy.
Driving forces Driving forces constitute the forces that shape or drive the plot. Some
forces may be what is happening or likely to happen in and around the
marketplace: what customers may do, trends related to sales of
particular products, the emergence of new entrants, and governmental
policies and regulations. Other forces are specific to the competitor
such as changes in its goals or leaders, culture, competencies, etc.
Logic Finally, the scenario logic constitutes the explanation or rationales for
the content, direction and intensity of changes postulated in the plot.
The logic addresses the why questions: Why does the competitor
want to pursue a revolutionary strategy? Why would customers
respond to the proposed products in one particular way or another?

about competitors likely future marketplace strategies. From the answers we craft the
end-states that describe what the competitor strategy would look like.

Competitors serve as one useful, and in some respects, ideal focal point for scenarios
for a number of reasons. First, competitors are always at the heart of every significant
analysis of the competitive or industry context[2]. Thus, competitor scenarios
provide one critical means of learning about the current and potential competitive
environment. Second, strategy, however designed and executed, must win against
current, emerging, and potential competitors in the marketplace. Customers and
channels almost always possess the option to switch to rivals. Thus, competitor
scenarios enable unique insights into the rivals that will shape the nature, direction,
and intensity of marketplace rivalry. Third, once the notion of relevant competitors
extends beyond large market share rivals, competitor scenarios generate learning
about both competitors and the competitive context that would otherwise be unlikely
to occur. Finally, because of the frequently intense emotions and feeling about rivals,
managers and others often bring heightened energy and commitment to constructing
and learning from competitor scenarios.

Principles

Some fundamental principles should always guide the construction and use of
competitor scenarios (Exhibit 2). Sometimes these principles may seem counter-
intuitive. For example, why should learning about competitors not be the prime goal of
competitor scenarios? The answer is that too often, competitor scenario developers
become enamored of the possibility of crafting the most perfect scenario about
the competitor one that is surprisingly comprehensive, self-evidently internally

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 Exhibit 2 Competitor scenarios: guiding principles

Scenario purposes
1. The purpose of competitor scenarios is not to learn about competitors
2. Competitor scenarios should be used to learn about the competitive context beyond
competitors (both the competitive or industry context and the macro environment)
3. Competitor scenarios should serve as one input to identifying, challenging and
refining the organizations knowledge (including its beliefs, assumptions and
projections about future)
4. Competitor scenarios should also serve as one input to outwitting, outmaneuvering
and outperforming rivals
5. The ultimate purpose of competitor scenarios is to develop knowledge and insight
that aids decision makers (in identifying strategy alternatives, making decisions
faster, etc)
Scenario analysis
6. Scenario construction and scenario assessment require distinct frames of reference,
skills, and knowledge
7. A competitor scenario should be fully constructed before it is assessed for its
competitive, strategy, and organization implications
8. However, strategy developers should not seek the perfect scenario before moving to
assessment
9. Scenario developers need to disengage themselves from their own firm
10. Competitor scenarios should be constructed for a range of rivals (and not just large
market share rivals)

consistent, elegantly articulated, and of course strikingly imaginative in everything it

addresses and says about the competitor. Ultimately this commitment to constructing
the perfect scenario limits the usefulness of the scenario project and consumes
resources that are better employed elsewhere. Experienced managers instead use
competitor scenarios as a source of learning about the broader competitive context
and of the implications for their firms strategy and operations. Competitor scenarios
work best when they produce knowledge and insight that broadly informs and
prepares decision makers to act rapidly as competitive conditions change.

Which competitors should be the focus of competitor scenarios? The guiding principle
should be, apply scenario thinking beyond your current large market share rivals. The
reason is, competitor scenarios that address functional substitute rivals, small
emerging rivals, and even invented rivals (that is, rivals that do not exist today but
might exist at some point in the future) generate insights into the emerging and
potential marketplace that often simply cannot be obtained no matter how acutely
managers develop scenarios around the leading market share rivals.

There are two distinct types of competitor scenarios that originate in two quite different
forms of what-if questions: unconstrained what-if scenarios and constrained what-if
competitor scenarios.

Several leading companies have employed

scenarios to better understand both current
competitors potential moves as well as the
possible emergence of new rivals.

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 Unconstrained what-if scenarios
Unconstrained or open-ended questions encourage scenario developers to pose any
question that occurs to them pertaining to one or more rivals marketplace strategies.
Unconstrained what-if questions are limited only by the experience, imagination and
creativity of those involved in thinking about the possible strategies of rivals. Four
categories of what-if questions lead to competitor scenarios with different foci.

Standard questions

The standard questions that are frequently used to initiate unconstrained scenarios
are noted in Exhibit 3. These questions have high relevance to most firms. Shaping
these questions leads to determination of the relevant end-state a statement of what
the competitors marketplace strategy might be. Clearly, such statements can be
detailed considerably beyond the examples cited in Exhibit 3. However, they should
not exceed a half-page of carefully constructed narrative.

A plot can then be detailed that leads to the end-state. This stage severely tests the
knowledge and foresight of the scenario developers. Indeed, plot development all too
often points up issues and questions that require access to external expertise. In this
way, articulation of plots becomes a source of extensive knowledge for those involved.

Sometimes plot elaboration forces managers and others to come face-to-face with
issues and questions that are as challenging and insightful as they as unexpected. As
one computer peripherals firm found, for example, in shaping the plot that explained
how a rivals marketplace strategy resulted in product and technology dominance, it
suddenly discovered how critical alliances in particular components would be to any
firms future success in this product space.

Base question scenarios

A different but related way to generate unconstrained competitor scenarios stems from
asking a set of questions that are frequently raised in firms about rivals strategies.
These, unfortunately, rarely receive any kind of formal analysis (see Exhibit 4). This

Exhibit 3 Unconstrained what-if competitor scenarios: some typical

questions
J What if the competitor commits to a diversification of its product line (new products for
existing and new customers) through a combination of current and new technologies?
J What if the competitor launches a series of new products (source internally and
externally)?
J What if the competitor launches a sequence of extensions to its current product lines
(with the specific aim to attract new customers into the market)
J What if the competitor suddenly divests a number of its product lines and/or pulls out of
a number of geographic regions
J What if the competitor moves rapidly to a customization-driven strategy?
J What if the competitor fundamentally changes its core value propositionhow it
competes to win customers in the marketplace?
J What if the competitor commits to gaining significant market share (and to do so as
quickly as possible) without regard to the its long-term consequences (either for the firm
itself or for the marketplace)?

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Exhibit 4 Competitor scenarios: baseline questions

Scenario title Basic question Why create the scenario Scenario benefits

The dumb scenario
The ideal scenario
The best long-term scenario
The most helpful scenario
The most hurtful scenario
What might the competitor do
that would be least in its own
strategic interest?
What would be the ideal
strategy for the competitor?
What would be in the
competitors long-term best
interest?
Which strategy might the
competitor pursue that would
most help our firm?
What strategy might the
competitor pursue that would
most hurt our firm?
Learn what could most
negatively affect one or more
rivals
Learn what might be in the
short-term interest of the
competitor
Learn what the competitor
would have to do to win in the
long-term
Learn how and why a
competitors actions might
benefit our firm
Learn how a competitor could
make our firm most vulnerable
May be possible to aid the
competitor to commit to these
actions
May be possible to inhibit some
of these benefits accruing to the
competitor
Some of these decisions and
actions may also be appropriate
for us
May indicate new ways to view
actions of rivals; may indicate
actions we should take
May be possible to identify
preemptive actions

method often produces unique insights into competitors strategies and their
implications.

These base-question scenarios exemplify how rich insights can many times be
gleaned without fully elaborating and detailing the relevant end-states, plots and
logics. This is so in part because end-states and associated plots and logics based
upon these what-if questions lead in turn to further questions (and insights) about
rivals that in all likelihood would remain unasked (and not obtained).

A case

Consider the case of one electronics firm that asked the dumb what-if question:
What strategic move might the competitor make that would be least in its own
strategic interest? After an extensive analysis of the change in the marketplace,
including emerging technologies and the recent emergence of new competitors
promoting new product forms, the analysis team concluded that the least
advantageous future strategy for this particular market share leading competitor
would be to stick tenaciously to its current strategy that is, continue to incrementally
improve its current products and to enhance its value added for customers in small
but consistent steps. The team concluded that this strategy would be dumb
because the competitor would likely find itself losing the competitive, market and
technology war that was about to breakout in this particular market space.

A number of significant strategy implications emerged that required the electronics

firms immediate attention:
J First, it needs to quickly analyze whether it would suffer a similar fate if it too did not
radically shift from its current product portfolio.
J Second, the firm had to develop one or more projections, in scenario form, of the
potential paths the technologies might take, and their potential interactions, over
the next five years.

New competitors

Unconstrained competitor scenarios are ideal for tackling one of the most
fundamental issues that confronts the creators and advocates of any strategy:

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 Experienced managers use competitor scenarios
as a source of learning about the broader
competitive context and of the implications for
their firms strategy and operations.

How might new types of competitors come into the market? New types of competitors
include any organization that would provide a product or solution unlike the firms
current product or solution but which customers would purchase instead of its
offering.

Although issues and questions pertaining to the emergence of potential new types of
competitors often arise in the course of strategy discussions inside most firms, few
firms seem to devote any serious analytical thinking to them. Most do not consider the
potential impact of such new entrants until either they actually have products in the
market or they announce their imminent arrival. Indeed some management teams
have remained aloof from any attention to such rivals even after the relevant staff teams
such as a competitor analysis unit or a team with strategic planning responsibility had
documented the (potential) emergence and threat of these rivals.

New competitors
Two avenues have proved especially useful in identifying new types of competitors
the search for functional substitute rivals and interactions across technologies.

Functional substitute rivals

Here the dominant unconstrained what-if question is quite straightforward: How might
functional substitute products or solutions come to be and what kind of firm might
create and bring them to the market?

Developing even tentative answers to these questions, however, is not nearly quite so
straightforward. One reason why this is so quickly becomes evident when a team of
managers and others begin to develop this type of competitor scenario. It requires
considerable knowledge and expertise outside the firms historic comfort zones. Yet
even preliminary efforts to develop this scenario can generate substantial returns
in terms of new knowledge about current and emerging technologies, changing
customer needs, potential new marketplace dynamics, and new competencies in
many functional areas including R&D, manufacturing, marketing, and sales.

The basic what-if question is: What if a functional substitute emerged that had the
following specific product features? Consider the case of a medical equipment
manufacturer manager who asked: What if a pharmaceutical firm were to develop a
drug that would relieve or eliminate the medical problem for which one of our product
lines is used in surgery? The analysis team then had to call upon many external
sources of knowledge and expertise to identify which pharmaceutical firms were
conducting relevant research or already had potential products in the early stages of
development or clinical trials. Then they had to determine what the development and
product lifecycle of such products might be. They used this data to generate an end-
state that specified what the product might be, the strategy required to take it to
market, the plot that described how the firm could develop, test, and introduce the

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product, and a set of logics explaining why the firm would go through with the
research, commit the resources required for an expensive product launch, and
eventually win in the market against a number of existing products. In sum, a
pharmaceutical product might be chosen by hospitals and doctors instead of a
surgical procedure as a preferable form of treatment for the particular medical
condition for which surgeons now use one of the firms product lines.

Consideration of this competitor scenario led to new understanding into:

J How and why pharmaceutical products evolve.

J How they could compete against the firms traditional medical instruments.

J The forces shaping treatment decisions within hospitals.

J How and why the firms long established and highly successful products could be
vulnerable to products that many managers simply did not see as being part of the
industry.

Technology linkages

As evident in the discussion of functional substitutes, technology change leads to the

emergence of new products and solutions. The critical question guiding the efforts of
competitor scenario developers thus becomes: How might technology developments
interact to give rise to new customer offerings? Ultimately, this question becomes:
What if these technologies were to develop in particular ways?

When technology is defined broadly to include all spheres of R&D, technology linkages
as a source of competitor scenarios prove to be critical for firms in almost every
industry. But even in product areas not thought to be technologically advanced,
linkages across a variety of technologies, some of which may seem at first glance not
terribly related, can sometimes give rise to new competitors. Some financial services
companies now find themselves competing directly for the same customers with far
smaller providers who have used Internet and communications technologies along
with database and related technologies to deliver superior value along a number of
dimensions.

Invented competitors

A distinct class of competitor scenarios revolves around invented competitors[3], that

is, competitors that do not exist today but which could exist at some point in the
future[4]. Invented competitors possess the great merit of shifting the frame of
reference in projecting and assessing rivals strategies from current or emerging rivals
to one or more rivals that, by definition, are strikingly dissimilar to any rival managers
have had to contemplate to date. As a consequence, invented competitors enable
managers and others to challenge their underlying assumptions indeed their whole
world-view of competition in a unique way. Unconstrained what-if questions are
personified by the notion of invented competitors: only the imagination and creativity of
those involved limits the range and character of the competitors that might be invented.

Let us take the case of a financial services firm that used an invented competitor
scenario to establish a radically distinct perspective on its future marketplace from
which to assess its current strategy and its key underlying assumptions. The guiding
what-if question was, What if a competitor emerged that possessed a marketplace
strategy characterized by:
J Interactions with external entities principally channels and customers that were
exclusively electronic.

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 J A full commitment to attracting new customers into the market.

J A driving aim to dominate this particular market segment.

In detailing this end-state, the team carefully built a rich narrative around the following:
J How the firm would reach customers and channels electronically.

J How many types of customers could be reached.

J The electronic methods employed to reach customers.

J How the methods would be used to develop two-way flows of information.

J How the firm could use data and information gathered from customers in almost
real time to amend the offer to individual customers.
J What the elements of the product offer or solution would be to customers (that is,
what the financial product would be that customer would actually be purchasing).

For the next step, the team had to detail what plot or story would explain how the
invented competitor reached this end-state over the next four years. Each years plot
affected what would or could take place in subsequent years. A significant element of
the plot described how the invented competitor would actually come to be, that is,
what would have to happen for it to come into existence and then grow and develop
as a company. The chronology of the plot revolved around the following items:
J A small group of individuals with extensive experience in the relevant product
domain exiting an existing financial services firm.
J Select individuals from other financial services firms then join them.

J This set of individuals then initially develops a loose alignment with a small boutique
with considerable expertise in a variety of aspects of doing e-business.
J The firm develops a technology platform to interact with customers.

J At the same time, it begins to develop the first outlines of what the offer would be
to customers.
J It then works with one large institutional customer as a test-bed for the offer as a
location to develop a serious trial of the platform technology.

Because of the radical nature of the proposed strategy and especially because of the
degree of change involved for customers for example, all facets of how they would
interact with a financial services provider it was critical to set out and assess the
logics underlying the plot. Central issues and questions were identified for each major
step in the plot and for the plot as a whole. Key questions included:

J Why would different segments of the invented competitors customers move to an

electronic mode of doing business?
J What advantages would its customers gain from buying via e-business?

J How would developments in e-technologies facilitate what the invented competitor

wanted to achieve?
J In what ways, might the invented competitor be able to leverage success with the
proposed customer solutions into other customer offerings?

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 Competitor scenarios work best when they
produce knowledge and insight that broadly
informs and prepares decision makers to act
rapidly as competitive conditions change.

Constrained what-if competitor scenarios
Constrained competitor scenarios start from a common point of departure: What
would the competitor do if a specific set of marketplace or macro environmental end-
states or conditions were to arise? These scenarios start with some specification of
what the world would look like at some point in the future and then ask, What would
the competitor do under these conditions?. Thus, these scenarios explore the
initiatives a competitor might take if it were to find itself in a particular world end-
state (such as emerging new technologies and new product regulations) or how it
might react to the strategic moves of rivals. They are therefore constrained what-if
questions.

Constrained competitor scenarios are especially appropriate when your firm wants to
identify and assess:
J What would a particular competitor do under specified marketplace conditions?

Constrained what-if competitor scenarios

J Why a competitor would adopt one strategy rather than another?

J Which marketplace changes might lead one or more competitors to adopt a

particular strategy?

The competitive context that serves as the constrained what-if can be established
in at least two distinct ways. First, industry or competitive scenarios, if already
developed for other purposes, provide one ideal context.

Second, carefully articulated what-ifs that describe a brief set of future competitive
conditions can also serve as the backdrop for constrained competitor scenarios. A
number of such constrained what-ifs are briefly described in Exhibit 4. Although at
first glance they may seem relatively simple and obvious, more often than not,
development of such short what-if lists typically requires extensive reflection on what
could happen in the next few years and which what-if questions would give rise to the
most productive competitor scenarios. It may require considerable dialogue around
what could happen, before scenario developers converge on one or two what-ifs that
raise interesting and perplexing questions about how one or more categories of rivals
might respond to the stipulated competitive conditions. For example, a projected
competitive context dominated by e-business may not lead to difficult strategy
choices for a particular competitor but the potential emergence of a substitute product
might lead to strategy choices ranging from divestment from the industry to acquiring
or aligning with a provider of the substitute product.

When existing industry or competitive scenarios constitute the first critical step in
shaping and using constrained competitor scenarios, the end-states serve as the
principle focus of the competitive conditions. Although industry or competitive

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 scenarios can be created in multiple ways, constrained industry or competitive end-
states are typically crafted around a small set of key uncertainties. Exhibit 5 illustrates
one such set of constrained competitive end-states constructed by a research and
development intensive company that was confronting two key uncertainties:

(1) A number of emerging technologies at varying stages of development that may

or may not advance further, but if they did, they could dramatically affect research
breakthroughs and thus new products; and

(2) Considerable regulatory flux that could directly effect the ability of all current rivals
to market and sell new and existing products or major product line extensions in
various channels and to different end-customer segments.

The four scenario cells shown in Exhibit 5 depict four quite different worlds. A strategy
designed to win in one world, for example, extended status quo, could well fail
miserably in the unbridled battle world.

The steps in constructing competitor scenarios are then relatively straightforward:

J Identify the strategy issues for the competitor.

J Develop the scenario plot outline.

J Detail the scenario plot.

J Articulate the logics.

J Determine the business issues to be addressed.

When a firm identifies key competitor strategy issues associated with each end state
new marketplace opportunities, threats to traditional ways of competing or to the
firms planned strategies it establishes a more refined understanding of the
competitive context within each end-state. As a result its managers can better
understand the strategy challenges that would confront the competitor in each end-
state. For example, a preview of the intensive nature of the vehement rivalry unleashed

Exhibit 5 Four competitive end-state worlds

Modest regulatory change Extensive regulatory change

Low level of Status quo Customer skirmish

technology change In this end-state, rivals continue
to slowly adapt their customer
solutions in the historic
customer segments. Rivalry is
moving toward an emphasis
upon service elements. Rivals
are still prohibited from entering
significant market segments
High level of Product fragmentation
technology change In this end-state, product
modifications unfold at a rapid
rate. Some new products
challenge the dominance of old
solutions in some customer
segments. Customers can
choose from clearly
differentiated solutions. Rivalry
has shifted to product or
solution superiority
In this end-state, rivals compete
with slowly changing products.
But they now compete fiercely
in the pursuit of new customer
segments. Rivalry is now
intense as the number of rivals
has increased in all customer
segments
Unbridled battle
In this end-state, both product
change and market change
persist. Continuous product
change keeps shifting the range
of available customer solutions.
And, rivals can aggressively
pursue most customer
segments

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 Exhibit 6 Examples of constrained what-if competitive conditions
J What if our competitive context in four years time is dominated by e-business
connections between all players in the industry, resulting in solution segmentation,
consolidation in traditional channels, and competitor fragmentation?
J What if over the next three years, technology propels the emergence of new products,
including functional substitutes that are significantly more sophisticated than current
products?
J What if rivalry intensifies but it is solely among the current dominant players in this
specific product space and all firms commit extensive new resources to the battle?
J What if the economy continues in stagnation and technology increases in importance
as the platform for both new products and new ways of competing in the marketplace?

in the unbridled battle end-state clarifies the what-if set of conditions in which the
competitor will have to identify and choose its preferred strategy:
J A blizzard of new products.

J The relentless search for new opportunities to enter into any channel.

J Offering an entirely new range of enticements to customers and channels.

In order to develop a scenario plot (and sometimes perhaps more than one) for each
end-state represented in Exhibit 5, the core competitor scenario question must now
come to the fore: What would the competitor do (that is, what strategy would it
pursue) were it confronted with the competitive context in each end-state? It is
important to note that the strategy options may vary dramatically from one end-state
to another. For example, the competitor staring into the unbridled battle world might
consider:
J Divesting entirely out of this product range (due to the intensity of the rivalry and the
absence of the necessary resources to stay the course).
J Concentrate on one product segment (perhaps as a way to avoid the head-on
clashes guaranteed with other firms if it develops a full product portfolio).
J Develop a full line of products (perhaps by developing alliances with a number of
other firms).
J Move to become more of a research and development firm and less of a
manufacturer and distributor (perhaps by leveraging its current and potentially
accessible technology skills and capabilities).

Execution

Once a scenario plot has been outlined, managers can then detail what it would take
to execute the projected strategy. In other words, choosing a strategy option does
not identify or explain how it could be executed. Indeed, understanding how the
competitor might execute a particular strategy often represents the core learning that
emanates from these constrained competitor scenarios. Scenario developers gain
insight not only into how the strategy might win in the marketplace but also into what
the competitor would have to do both in the marketplace and within the firm in order to
realize the opportunity at the heart of the strategy.

The logics in these competitor scenarios address one fundamental question: Why
would the competitor pursue this strategy? What forces within and external to the
competitor would support or drive the competitor to adopt this strategy becomes the

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 central question. The relevant external forces and how they affect a projected strategy
may be specific to individual end-states (see Exhibit 5). In the unbridled competitive
end-state, specific regulatory developments (not evident at all in the status quo world)
might lead the competitor to seriously consider reducing its presence in, or even
withdrawing entirely from the product-market sector.

As a last step, it is essential to ask: What business issues emerge from each scenario
that pose opportunities and threats that the organization must explore? Again, the
issues can vary significantly across the end-states.

The reward: insight and alternatives

Competitor scenarios provide a methodology to enable managers and others to

construct and assess a variety of potential strategies that rivals might adopt. They
require both imagination and creativity on one hand, and considerable knowledge and
understanding of what strategies might be available to rivals, and how and why they
might pursue them. In almost all cases, competitor scenarios lead to rich insight into
the firms own strategy alternatives and sometimes to alternatives that were
previously not on the firms radar screen.

Notes
1. For a more elaborate and detailed discussion of the generic analysis process involved in both
constructing and assessing competitor scenarios, see Liam Fahey, Competitor scenarios:
projecting a rivals marketplace strategy, in Liam Fahey and Robert M. Randall (1998),
Learning from the Future: Competitive Foresight Scenarios (John Wiley & Sons), pp. 223-45.
2. Readers interested in constructing industry or competitive scenarios, see Liam Fahey,
Industry scenarios, in Liam Fahey and Robert M. Randall (1998), Learning from the Future:
Competitive Foresight Scenarios (John Wiley & Sons), pp. 189-222.
3. For a discussion of the invented competitors, see Liam Fahey, Invented competitors: a new
competitor analysis methodology, Strategy and Leadership, Vol. 30 No. 6, November/
December.

4. Invented competitors, of course, can be used to identify potential new forms of competitors.

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Using scenarios to focus R&D
Gill Ringland
Gill Ringland, a Fellow of St Andrews
Management Institute (SAMI), focuses on
using future studies and scenarios to
improve decision making in the present
(gill.ringland@btinternet.com). She first
worked with scenarios while Group
Executive, Strategy, for ICL, now part of the
Fujitsu Group. She is the author of three
recent books Scenarios in Business,
Scenario Planning: Managing for the Future,
and Scenarios in Public Policy.
DOI 10.1108/10878570310455042
Traditional methodologies for selecting R&D projects
Most managers with responsibility for a number of research & development projects
routinely employ a number of portfolio management tools explicitly designed for
ranking R&D projects and managing R&D programs. For instance Philip A Roussels
Third Generation R&D, published by Harvard Business School Press, describes a
portfolio method for prioritizing projects. Three axes measure the relative potential
cost/benefit/competitive position of R&D projects:
J Competitive position and technological maturity.
J Size of reward and probability of success.
J Annual budget and years to completion.
Managers then plot portfolio of possible projects on these three axes, providing a
framework for discussion and decision with corporate planners and marketing.
Stanford Research Institute (SRI) uses a similar method for labeling a portfolio of R&D
projects to facilitate discussion of priorities. They normally choose the axes:
J Timescale of market impact.
J Cost of project.
The costs, timetables and budgets in an R&D project are usually well understood, if
not precisely predictable for instance the time from the lab to development, or the
rate of development of technological capability can usually be estimated. But the
market factors the competitive position, the size of reward, probability of success
and the market impact are harder to anticipate. In judging these factors, R&D
managers, corporate planners and marketers will normally base their judgment on the
trends to date.
VOL. 31 NO. 1 2003, pp. 45-55, MCB UP Limited, ISSN 1087-8572
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 But many new products emerge into a changing world, with:
J New competitors.

J Changed user wants and needs.

J Changed price structures.

J Changed regulatory environment.

These factors are determined by changing industry structures, by new global

competitors, and most particularly by changes in user perceptions, lifestyles and
desires.

To preview these possible future environments, a number of firms have successfully

used scenario planning to improve R&D decision making. Scenario developers have
helped managers explore a range of possible futures encompassing uncertainties,
such as the rate of adoption of technology. The R&D manager can then compare the
sensitivity of the R&D projects success criteria to the detailed assumptions about the
future.

As a case in point, microwave ovens were available at least 20 years before they
became popular for their efficiency at heating up pre-cooked frozen meals at high
speed. The changes in society that made them popular after two decades were the
number of working women who needed meals that could travel from freezer to
microwave to dinner table in minutes. So, if the inventors of the microwave oven had
developed alternative views of the future, one in which most women worked away
from the home and another in which most women were at home cooking gourmet
meals with gas and electric ovens, they would have realized that the sales of
microwave ovens would be dependent on lifestyle changes increasing the number of
working women.

Forecasts, scenarios and foresight

Three important terms are widely used in the process of thinking about and assessing
the future:

(1) Forecast: a conjectural estimate, based on present indications, of the course of

events or condition in the future[1].

(2) Scenarios: a set of logically consistent but distinctly different views of what the
future might be[2].

(3) Foresight: a process for developing research policies with a long-term perspective
using networks of knowledgeable agents who possess improved anticipatory
intelligence[3].

So, a forecast combines current trends and renders them into a single value or range
of values for a variable. Forecasts of timescale, cost, etc are widely used for
technology developments, because there is a well-trodden path from the lab to the

One range of possibilities was the extent to

which communities were rigid or evolving,
represented by two extremes: community open
or community closed.

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customer. Forecasts are usually based on expert opinion, often collected by the
iterative Delphi process.

Forecasts are an important component of scenarios for the future. Given the forecasts
of the available technology, scenarios can then explore the possible future societies
and how they may react to these products. So in the case of the microwave oven,
scenarios of alternative futures could have been developed, and the potential markets
for microwave ovens explored in each. Affecting the market would be growth in
wealth, business activity, and social changes (such as single person or single parent
households), increasing education of women, the nature of leisure activities, and the
move away from rural areas to cities. It is sometimes possible to identify specific
events that would give early indicators of a scenario playing out.

Scenarios provide a simple but powerful way of capturing and exploring multiple
images of the future.

The analytical process of using a combination of scenarios and forecasts to ensure

that an organization focuses its R&D on the most effective areas is what we call
Foresight. This typically combines desk-based investigations and literature
searches, forecasting, use of a wide range of inputs for building of scenarios, and
the use of business intelligence or market intelligence to monitor early indicators.

This article focuses on the scenarios part of this process, while recognizing that
without good forecasts and an ongoing decision process, the scenario stage will be of
limited value. The role of scenarios is to provide the tool for understanding the major
areas of uncertainty.

Glen Hiemstra[4] identifies key areas of uncertainty over the next 50 years as:
J The impact of:

j The digital revolution, biotechnology and nanotechnology.

j Shrinking populations in the developed world.

j The preponderance of the aged in the developed world.

J The nature of:

j Work its duration, location, content.

j The home - returning perhaps to its pre-industrial revolution role.

j Education, learning and information gathering.

J The balance between:

j National governments and NGOs in handling major problems.

j The private sector and government in handling infrastructure issues, with the
funding and timescale implications.

Scenarios used to formulate an R&D portfolio in information,

communications, and technology
The Business in the Third Millennium (BIT3M) program was a consortium to study
the effect of ICT on business. It was run by Watts Wacker of think tank FirstMatter
(www.firstmatter.com) and was active from 1996 to 1999. The delegates of the
member companies of the consortium used scenarios to define and prioritize research
projects to be initiated by the consortium. Both the company I worked for then, ICL
(now Fujitsu Services), as well as Fujitsu Business Consulting of Japan, were partners.

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 The hypothesis behind BIT3M was that the combination of Information, Commu-
nication, and Technology (ICT) would have a major impact on the way business
evolves or changes discontinuously in the next few decades. While the supply
chain and the customer interface have already been substantially changed by ICT, we
hypothesized that an even more radical shift could be happening that the balance of
power between the company and its customer was beginning to change. Since it was
possible even probable that this effect might appear differently in Asia, the USA and
Europe, the consortium sought members based in all three geographies to ensure
sensitivity to the potential cultural differences.

The BIT3M program started with the construction of scenarios to describe possible
ways that digital information could influence and change society. When we started we
described society as being composed of three entities: business, the consumer, and
government.

We soon added another entity community. Traditionally, communities are local, as in

a village community or a university community. However a major change facilitated by
information, communications and technology was the creation of communities of
interest that communicate electronically. These communities were showing signs of
forming very effective lobbying groups, and also banding together for purchasing, or
for sharing information on parenting, products, and diseases and their treatment
(Exhibit 1).

In parallel with the rise of virtual communities we noticed that the boundary between
peoples behavior as a citizen and behavior as a consumer was blurring. People
expected governments to provide services as the private sector does, and they
changed their consumption choices in line with political opinions. Boycotts of goods
were evolving into selective investment in ethical trusts. The individual operating
variously as consumer, citizen, leader, manager, and increasingly enabled by the
information, communication and technology infrastructure had increased power in
the post-ICT world.

These individuals gain added leverage by joining communities that have political or
market clout. For instance, an ad hoc buying club for Lexus cars negotiated major
discounts from a dealer. Greenpeace[5], using email effectively, organized across
country boundaries to humble Shell Oil Company over the disposal of an oilrig in the
North Sea. In many ways, there are signs that the balance of power in the new world is

Exhibit 1 Role of the individual

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 shifting towards the individual and ad hoc communities, and away from business and
governments.

In contrast, one of the projects set up by the consortium identified the decreasing
capability of national governments to control business, community or individual
activities within their geography. For instance, legalized gambling has now moved
back into many countries after the realization that revenues were leaking offshore. In
spite of the best efforts of the Chinese, Saudi and Iranian governments, individuals
there access information electronically. Governments face problems in ensuring a
stable tax base as individuals become mobile and choose their domicile. These and
similar observations led us to institute a watch for signs and signals that this trend was
strengthening or waning.

We also observed the increasing role of NGOs in the business environment. For
instance, NGOs were the main drivers in defining the International Kyoto Treaty
environmental agreement standards.

Four scenarios for 2010

By 1998, we wanted to explore the potential effects of these factors on business. So
we built some scenarios at a workshop of the consortium delegates during three days
of interactive work. The scenarios also utilized information from literature searches,
expert interviews and discussions.

Four scenarios for 2010

Two key drivers of the scenarios were:
J The nature of communities, whether geographic or virtual. The major question was
the extent to which communities were rigid or evolving, represented by two
extremes: community open or community closed. We observed that the sense
of community is strongly linked to individual and lifestyle choices.
J The capability of business to adapt to a new environment with a potentially changed
power structure. We expected that the ability of government to adapt would usually
lag that of business. We assumed that the adaptability of both the social
infrastructure education, health, law and order and technical infrastructure
were linked to business agility. The two extremes in this range of possibilities were
business traditional and business agile and adaptive.

These two drivers produce four scenarios describing the business environment in
2010 (Exhibit 2).

In Liberation Works, a sense of local community develops to provide a rich and well-
balanced social environment, while business practices remain those of the 1990s.
This is a Greenpeace world that reconciles global and ecological concerns with
business and individual interests. Government funds the majority of technology
infrastructure.

The two extremes in the other range of scenario

possibilities were business traditional and
business agile and adaptive.

VOL. 31 NO. 1 2003

| STRATEGY & LEADERSHIP
| PAGE 49
 Exhibit 2 Scenarios for 2010

In Gung Ho, there is also a sense of community, but since the business and social
infrastructures have adapted to the newly powerful individual, many of these
communities will be dependent on common interests rather than geography.
Business has found ways of meeting their customers new demands. Lags in the
adaptability of government mean that business has taken over some of the regulatory
roles of government, and has taken a lead in implementing the technology
infrastructure.

MegaCorp is a world in which large companies have established new rules. Virtual
communities of individuals, geographic communities, and governments, are less
powerful because of the rules imposed by the MegaCorp organizations. This is a
divided world, with gated communities and social unrest. This is the nearest scenario
to the future envisioned by Aldous Huxley in Brave New World. In it, the private sector
implements Infrastructure.

Finally, in Organization Rules there is a strong sense of community, but it acts to

reduce business agility, a result perhaps of the hierarchic constraints of society. The
technology infrastructure is supported by state investment and may also be operated
by the state.

Research portfolio
In developing the portfolio of research projects from the scenarios, we brainstormed
the different topics that would be relevant in each scenario. Then we looked to find
common themes and topics to explore the underlying drivers of the scenarios.

So for instance, in all four scenarios, since the basic science was already evident, we
assumed that the technological rate of advance would continue in the laboratory for
the next decade. After then, the differing assumptions about the scope of government

The scenario process, by delineating the social

issues that might prevent technology adoption,
helped participants build more robust R&D
programs and set up early warning indicators to
monitor the pace and the directions of
evolution.

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| VOL. 31 NO. 1 2003
start to make an impact on technology availability. For instance the extent of local loop
broadband or third generation wireless technology will depend on:
J Who will pay for the upfront investment in networks and will this be different in the
USA, Europe and Asia?
J Are there any new disruptive technologies and where would they emerge?

J Who will lead the adoption of new technology and how much will they be willing to
pay?

Under the heading of community and the related lifestyle issues, we saw that the there
would be major differences in each scenario. For instance, local communities would
be strong under Liberation Works, and virtual communities of special interest groups
would be important players in Gung Ho.

This meant that we needed to investigate the sources and nature of the differences,
seeking answers to questions such as:
J How does the relationship between the individual and society change in each
scenario?
J How will this alter customers expectations of business?

J What are the forces driving business in the third millennium?

Research topics, which emerged on lifestyles and communities, included:

J How do communities evolve in each of the scenarios?

J What are the role models people and organizations for each scenario?

J What is the evolution path of each scenario as seen in terms of individual/

community decisions such as election results?
J What causes each scenario to flourish or become unstable?

J How and why are the boundaries between work and leisure different in each
scenario?
J In what ways are the individual and community uses of visual and verbal media
different in each scenario, and what effect does this have?
J What are the types of community and how are they changing? For instance, would
Gung Ho support more or fewer virtual communities and NGOs than MegaCorp?

The Business Agility axis prompted research topics related to the way in which digital
information accelerated or held up change in organizations.
J What is the role of information, communication and technology in making
organizations more agile in Gung Ho and MegaCorp? Which scenario is more
sustainable for businesses influenced by MegaCorp but not aspiring to be a
dominant international player?
J Which scenario creates most value and which least?

J How do the culture and business processes differ in each scenario? For instance,
we could see that businesses in a Gung Ho world would need processes that were
flexible and reviewed regularly
J What are the new value chains in each scenario, if any?

The governance environment will also be different for each scenario: the research
topics are: How will governments evolve to meet the new environment? In what ways

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 will regulation encourage or discourage the new world? How will governments fund
themselves?

So, in MegaCorp, regulation would be strongly influenced by a few market leaders,

and their investment would be aligned to increasing the penetration of the virtual
world, at least in cities where connection costs are lower. Governments find it difficult
to control and predict tax revenues in this world, due to the power and international
nature of dominant international organizations.

In contrast, Organization Rules is a world in which governance is by nation states and

there is little momentum for change.

Early indicators
Early indicators are specific events that are relatively easy to watch for and which can
give an indication of which way the world is evolving. So for instance the rise of a
political party or politician can indicate that changes are likely and the direction that
they will take. One example of this is Shells decision on investment in North Sea gas
fields. The bidding was intense and prices high: Shell asked the question, Would
Russias extensive gas fields start to contribute to international supply? They identified
this key indicator: if a politician named Mikhail Gorbachev moved into national
prominence it was likely that Russia would open up. They saw his career start to
develop, and so did not take part in the bidding war for North Sea reserves. Shell later
bought gas from Russia at an advantageous price.

Early indicators
In BIT3M, we saw some early indicators being satisfied for both MegaCorp and Gung
Ho, for instance:
J The rise of defacto standards in telecoms, media and computing industries
replacing slower traditional mechanisms of agreements between national bodies
J The rise of virtual communities for hobbies, health and family information sharing,
and for trading online
J The success of some brick and mortar retailers in creating electronic trading arms
(for instance food retailers in the UK and restaurants in the USA), as well as the
survival of some dotcom start-ups.
J Regulation moving away from national governments towards NGOs, for instance in
the computer industry and for Internet and Web standards.

As a result we proposed that some industries at least would evolve along the
MegaCorp or Gung Ho. So we focused our research project portfolio into digital
information in the retailing, ICT and media industries.

Prioritizing research projects

The participants in the consortium workshop then categorized the list of 30 possible
research projects into three groups:
J Expensive those costing the entire budget for at least one year.

J Medium we could afford 3-5 of these.

J Quick/cheap less than 10% of the budget.

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Once we had a defined and costed set of research projects we categorized them into
high, medium and low impact projects, and which scenario they were relevant to
(Exhibit 3). Some projects were central to an understanding of all the scenarios; others
were of interest only under one or two. We focused on projects relevant to MegaCorp
and Gung Ho.

The projects that the participants felt had the most impact on Business in the Third
Millennium related to:
J The role of ICT in making organizations more or less agile.

J The changes in the value chain.

J Who would pay for network implementation?

J Disruptive technologies.

J The nature of virtual communities and their interaction with business.

J Mobility of individuals across national boundaries.

J What were the early indicators for MegaCorp vs. Gung Ho?

Three of the projects, those on network implementation, disruptive technologies and

early indicators were in the quick/cheap category. We scheduled the study of network
implementation and early indicators, but left the research project on disruptive
technologies until later.

We could only afford to do one of the other three projects, on value chains, the
connection between information, communication and technology and agility, or virtual
communities and business. We chose to study the interaction of virtual communities
and business, across both scenarios, since we could see other groups working on
value chains and to a lesser extent on information, communication and technology
and business agility. We found a think tank that was willing to share results with us on
the effect of mobility of individuals across national boundaries, and the effect of this on
the tax base of governments.

Lessons for practitioners

We used scenarios to define a portfolio of research projects twice in the BIT3M
Program. In both cases, the portfolio of projects that emerged was significantly
different from our initial instincts.

Exhibit 3 Prioritizing research projects

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 By going back to the underlying forces and asking questions about the discontinuities
that may emerge, the scope of the portfolio widened and many new potential research
questions were raised. Our list of research topics was dauntingly long before we
applied the prioritization process about 30 separate topics costing about seven
times our budget. By looking at the early indicators, we could narrow down the
number of scenarios to consider from four to two, and the projects from 30 to 20.

We then decided to focus on the projects that were important in both of the scenarios,
and to delay others until some of the early indicators leading to either MegaCorp or
Gung Ho had been observed.

We had expected that the internal issues for business such as value chains and ICT
and agility would have emerged as top priority topics. Instead we found that the
questions of the inter-relation of business with its customers emerged from the
process as most significant.

Conclusions
The BIT3M case study used scenarios to:
J Widen the range of discussion about the research program. Many of the
participants were from technology companies. Introducing scenarios helped them
to think about the adoption of technology, market issues and the effect of ICT on
society

Conclusions
J Engage sponsors and stakeholders in exploring the context of the proposed
research topics in the program, as a prelude to decision-making and funding. The
process, with interviews before the workshop and three days of interaction within a
disciplined process at the workshop, underpinned the efforts of the participants to
sell the research program back into their organizations.
J Link technological issues into societal issues. This required an examination of a
wider set of backgrounds than was traditional for planning R&D. The role of Watts
Wacker, a consumer futurist skilled at exploring societal issues, was crucial.
J Build a more robust research program by understanding the social issues that
might prevent technology adoption and set up early warning indicators to monitor
the pace and the directions of evolution. The participants shared the monitoring of
early indicators among their business intelligence groups. Key questions related to
investment in network infrastructure and sources of regulation.
J Prioritize research topics for investment, through use of the early warning systems,
which showed indicators for MegaCorp and Gung Ho. By focusing on MegaCorp
and Gung Ho we were able to focus on the role of business, and to define a portfolio
of research projects spanning these two scenarios.

Implications for corporate planners

Lessons corporate planners can learn from the case study are:
J Business agility is a key requirement in the present business climate. Many of the
factors originally identified by BIT3M are central to todays business climate.

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J The range of factors that need to be considered in plans is now much wider than
only a few years ago. Markets have changed from product push to consumer desire
driven, a result of changes in lifestyles and increased consumer information. These
factors are more difficult to forecast than technological issues.
J In considering the shape of society and new forces, scenarios can capture some of
the dimensions of uncertainty, allow for the creation of robust strategies and
understanding of early warning indicators of new phenomena.

However, a word of caution. Scenario development projects do not always produce

transformational insights and innovative thinking. In scenario work as in forecasting, it
is difficult for planners to shake off the blinders of their current worldview. Veteran
scenario developer Barbara Heinzen[6] enumerates many ways in which scenarios
may fail to tackle the seminal issues for an organization, and the reasons why they
flounder. Causes of failure include: planners taking too narrow a view of the topic, not
getting the attention of decision makers, or accepting a culture that cannot confront
the question of change. As an example of this last pitfall, she recalls asking the
question while building scenarios for Asia in 1996, Could we have a financial crisis?
and getting the answer, That is not possible.

Nevertheless scenarios surely fit among the toolkit of every manager responsible for
planning. They provide a process, mechanism and framework for anticipating change,
watching for early warning signs, and creating more robust plans.

Notes
1. Oxford Compact Dictionary (1991), Clarendon Press, ISBN 0-19-861258-3.
2. Porter, M. (1985), Competitive Advantage, Free Press, New York, NY, ISBN 0-68484-146-0.
3. Irvine, J. and Martin, B.R. (1984), Research Foresight, Continuum International Publishing,
ISBN 0-861-87496-X.
4. Ringland, G. (2002), Scenarios in Business, Wiley, ISBN 0-470-84382-9.

5. Davis-Floyd, R. (1997), Storying corporate futures: the Shell scenarios, International Journal
of Futures Studies, Vol. 1.
6. Ringland, G. et al (1999), Shocks and paradigm busters, Long Range Planning, October.

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Using scenarios to focus R&D
Gill Ringland
Gill Ringland, a Fellow of St Andrews
Management Institute (SAMI), focuses on
using future studies and scenarios to
improve decision making in the present
(gill.ringland@btinternet.com). She first
worked with scenarios while Group
Executive, Strategy, for ICL, now part of the
Fujitsu Group. She is the author of three
recent books Scenarios in Business,
Scenario Planning: Managing for the Future,
and Scenarios in Public Policy.
DOI 10.1108/10878570310455042
Traditional methodologies for selecting R&D projects
Most managers with responsibility for a number of research & development projects
routinely employ a number of portfolio management tools explicitly designed for
ranking R&D projects and managing R&D programs. For instance Philip A Roussels
Third Generation R&D, published by Harvard Business School Press, describes a
portfolio method for prioritizing projects. Three axes measure the relative potential
cost/benefit/competitive position of R&D projects:
J Competitive position and technological maturity.
J Size of reward and probability of success.
J Annual budget and years to completion.
Managers then plot portfolio of possible projects on these three axes, providing a
framework for discussion and decision with corporate planners and marketing.
Stanford Research Institute (SRI) uses a similar method for labeling a portfolio of R&D
projects to facilitate discussion of priorities. They normally choose the axes:
J Timescale of market impact.
J Cost of project.
The costs, timetables and budgets in an R&D project are usually well understood, if
not precisely predictable for instance the time from the lab to development, or the
rate of development of technological capability can usually be estimated. But the
market factors the competitive position, the size of reward, probability of success
and the market impact are harder to anticipate. In judging these factors, R&D
managers, corporate planners and marketers will normally base their judgment on the
trends to date.
VOL. 31 NO. 1 2003, pp. 45-55, MCB UP Limited, ISSN 1087-8572
| STRATEGY & LEADERSHIP
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 But many new products emerge into a changing world, with:
J New competitors.

J Changed user wants and needs.

J Changed price structures.

J Changed regulatory environment.

These factors are determined by changing industry structures, by new global

competitors, and most particularly by changes in user perceptions, lifestyles and
desires.

To preview these possible future environments, a number of firms have successfully

used scenario planning to improve R&D decision making. Scenario developers have
helped managers explore a range of possible futures encompassing uncertainties,
such as the rate of adoption of technology. The R&D manager can then compare the
sensitivity of the R&D projects success criteria to the detailed assumptions about the
future.

As a case in point, microwave ovens were available at least 20 years before they
became popular for their efficiency at heating up pre-cooked frozen meals at high
speed. The changes in society that made them popular after two decades were the
number of working women who needed meals that could travel from freezer to
microwave to dinner table in minutes. So, if the inventors of the microwave oven had
developed alternative views of the future, one in which most women worked away
from the home and another in which most women were at home cooking gourmet
meals with gas and electric ovens, they would have realized that the sales of
microwave ovens would be dependent on lifestyle changes increasing the number of
working women.

Forecasts, scenarios and foresight

Three important terms are widely used in the process of thinking about and assessing
the future:

(1) Forecast: a conjectural estimate, based on present indications, of the course of

events or condition in the future[1].

(2) Scenarios: a set of logically consistent but distinctly different views of what the
future might be[2].

(3) Foresight: a process for developing research policies with a long-term perspective
using networks of knowledgeable agents who possess improved anticipatory
intelligence[3].

So, a forecast combines current trends and renders them into a single value or range
of values for a variable. Forecasts of timescale, cost, etc are widely used for
technology developments, because there is a well-trodden path from the lab to the

One range of possibilities was the extent to

which communities were rigid or evolving,
represented by two extremes: community open
or community closed.

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customer. Forecasts are usually based on expert opinion, often collected by the
iterative Delphi process.

Forecasts are an important component of scenarios for the future. Given the forecasts
of the available technology, scenarios can then explore the possible future societies
and how they may react to these products. So in the case of the microwave oven,
scenarios of alternative futures could have been developed, and the potential markets
for microwave ovens explored in each. Affecting the market would be growth in
wealth, business activity, and social changes (such as single person or single parent
households), increasing education of women, the nature of leisure activities, and the
move away from rural areas to cities. It is sometimes possible to identify specific
events that would give early indicators of a scenario playing out.

Scenarios provide a simple but powerful way of capturing and exploring multiple
images of the future.

The analytical process of using a combination of scenarios and forecasts to ensure

that an organization focuses its R&D on the most effective areas is what we call
Foresight. This typically combines desk-based investigations and literature
searches, forecasting, use of a wide range of inputs for building of scenarios, and
the use of business intelligence or market intelligence to monitor early indicators.

This article focuses on the scenarios part of this process, while recognizing that
without good forecasts and an ongoing decision process, the scenario stage will be of
limited value. The role of scenarios is to provide the tool for understanding the major
areas of uncertainty.

Glen Hiemstra[4] identifies key areas of uncertainty over the next 50 years as:
J The impact of:

j The digital revolution, biotechnology and nanotechnology.

j Shrinking populations in the developed world.

j The preponderance of the aged in the developed world.

J The nature of:

j Work its duration, location, content.

j The home - returning perhaps to its pre-industrial revolution role.

j Education, learning and information gathering.

J The balance between:

j National governments and NGOs in handling major problems.

j The private sector and government in handling infrastructure issues, with the
funding and timescale implications.

Scenarios used to formulate an R&D portfolio in information,

communications, and technology
The Business in the Third Millennium (BIT3M) program was a consortium to study
the effect of ICT on business. It was run by Watts Wacker of think tank FirstMatter
(www.firstmatter.com) and was active from 1996 to 1999. The delegates of the
member companies of the consortium used scenarios to define and prioritize research
projects to be initiated by the consortium. Both the company I worked for then, ICL
(now Fujitsu Services), as well as Fujitsu Business Consulting of Japan, were partners.

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 The hypothesis behind BIT3M was that the combination of Information, Commu-
nication, and Technology (ICT) would have a major impact on the way business
evolves or changes discontinuously in the next few decades. While the supply
chain and the customer interface have already been substantially changed by ICT, we
hypothesized that an even more radical shift could be happening that the balance of
power between the company and its customer was beginning to change. Since it was
possible even probable that this effect might appear differently in Asia, the USA and
Europe, the consortium sought members based in all three geographies to ensure
sensitivity to the potential cultural differences.

The BIT3M program started with the construction of scenarios to describe possible
ways that digital information could influence and change society. When we started we
described society as being composed of three entities: business, the consumer, and
government.

We soon added another entity community. Traditionally, communities are local, as in

a village community or a university community. However a major change facilitated by
information, communications and technology was the creation of communities of
interest that communicate electronically. These communities were showing signs of
forming very effective lobbying groups, and also banding together for purchasing, or
for sharing information on parenting, products, and diseases and their treatment
(Exhibit 1).

In parallel with the rise of virtual communities we noticed that the boundary between
peoples behavior as a citizen and behavior as a consumer was blurring. People
expected governments to provide services as the private sector does, and they
changed their consumption choices in line with political opinions. Boycotts of goods
were evolving into selective investment in ethical trusts. The individual operating
variously as consumer, citizen, leader, manager, and increasingly enabled by the
information, communication and technology infrastructure had increased power in
the post-ICT world.

These individuals gain added leverage by joining communities that have political or
market clout. For instance, an ad hoc buying club for Lexus cars negotiated major
discounts from a dealer. Greenpeace[5], using email effectively, organized across
country boundaries to humble Shell Oil Company over the disposal of an oilrig in the
North Sea. In many ways, there are signs that the balance of power in the new world is

Exhibit 1 Role of the individual

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| VOL. 31 NO. 1 2003
 shifting towards the individual and ad hoc communities, and away from business and
governments.

In contrast, one of the projects set up by the consortium identified the decreasing
capability of national governments to control business, community or individual
activities within their geography. For instance, legalized gambling has now moved
back into many countries after the realization that revenues were leaking offshore. In
spite of the best efforts of the Chinese, Saudi and Iranian governments, individuals
there access information electronically. Governments face problems in ensuring a
stable tax base as individuals become mobile and choose their domicile. These and
similar observations led us to institute a watch for signs and signals that this trend was
strengthening or waning.

We also observed the increasing role of NGOs in the business environment. For
instance, NGOs were the main drivers in defining the International Kyoto Treaty
environmental agreement standards.

Four scenarios for 2010

By 1998, we wanted to explore the potential effects of these factors on business. So
we built some scenarios at a workshop of the consortium delegates during three days
of interactive work. The scenarios also utilized information from literature searches,
expert interviews and discussions.

Four scenarios for 2010

Two key drivers of the scenarios were:
J The nature of communities, whether geographic or virtual. The major question was
the extent to which communities were rigid or evolving, represented by two
extremes: community open or community closed. We observed that the sense
of community is strongly linked to individual and lifestyle choices.
J The capability of business to adapt to a new environment with a potentially changed
power structure. We expected that the ability of government to adapt would usually
lag that of business. We assumed that the adaptability of both the social
infrastructure education, health, law and order and technical infrastructure
were linked to business agility. The two extremes in this range of possibilities were
business traditional and business agile and adaptive.

These two drivers produce four scenarios describing the business environment in
2010 (Exhibit 2).

In Liberation Works, a sense of local community develops to provide a rich and well-
balanced social environment, while business practices remain those of the 1990s.
This is a Greenpeace world that reconciles global and ecological concerns with
business and individual interests. Government funds the majority of technology
infrastructure.

The two extremes in the other range of scenario

possibilities were business traditional and
business agile and adaptive.

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| STRATEGY & LEADERSHIP
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 Exhibit 2 Scenarios for 2010

In Gung Ho, there is also a sense of community, but since the business and social
infrastructures have adapted to the newly powerful individual, many of these
communities will be dependent on common interests rather than geography.
Business has found ways of meeting their customers new demands. Lags in the
adaptability of government mean that business has taken over some of the regulatory
roles of government, and has taken a lead in implementing the technology
infrastructure.

MegaCorp is a world in which large companies have established new rules. Virtual
communities of individuals, geographic communities, and governments, are less
powerful because of the rules imposed by the MegaCorp organizations. This is a
divided world, with gated communities and social unrest. This is the nearest scenario
to the future envisioned by Aldous Huxley in Brave New World. In it, the private sector
implements Infrastructure.

Finally, in Organization Rules there is a strong sense of community, but it acts to

reduce business agility, a result perhaps of the hierarchic constraints of society. The
technology infrastructure is supported by state investment and may also be operated
by the state.

Research portfolio
In developing the portfolio of research projects from the scenarios, we brainstormed
the different topics that would be relevant in each scenario. Then we looked to find
common themes and topics to explore the underlying drivers of the scenarios.

So for instance, in all four scenarios, since the basic science was already evident, we
assumed that the technological rate of advance would continue in the laboratory for
the next decade. After then, the differing assumptions about the scope of government

The scenario process, by delineating the social

issues that might prevent technology adoption,
helped participants build more robust R&D
programs and set up early warning indicators to
monitor the pace and the directions of
evolution.

PAGE 50
| STRATEGY & LEADERSHIP
| VOL. 31 NO. 1 2003
start to make an impact on technology availability. For instance the extent of local loop
broadband or third generation wireless technology will depend on:
J Who will pay for the upfront investment in networks and will this be different in the
USA, Europe and Asia?
J Are there any new disruptive technologies and where would they emerge?

J Who will lead the adoption of new technology and how much will they be willing to
pay?

Under the heading of community and the related lifestyle issues, we saw that the there
would be major differences in each scenario. For instance, local communities would
be strong under Liberation Works, and virtual communities of special interest groups
would be important players in Gung Ho.

This meant that we needed to investigate the sources and nature of the differences,
seeking answers to questions such as:
J How does the relationship between the individual and society change in each
scenario?
J How will this alter customers expectations of business?

J What are the forces driving business in the third millennium?

Research topics, which emerged on lifestyles and communities, included:

J How do communities evolve in each of the scenarios?

J What are the role models people and organizations for each scenario?

J What is the evolution path of each scenario as seen in terms of individual/

community decisions such as election results?
J What causes each scenario to flourish or become unstable?

J How and why are the boundaries between work and leisure different in each
scenario?
J In what ways are the individual and community uses of visual and verbal media
different in each scenario, and what effect does this have?
J What are the types of community and how are they changing? For instance, would
Gung Ho support more or fewer virtual communities and NGOs than MegaCorp?

The Business Agility axis prompted research topics related to the way in which digital
information accelerated or held up change in organizations.
J What is the role of information, communication and technology in making
organizations more agile in Gung Ho and MegaCorp? Which scenario is more
sustainable for businesses influenced by MegaCorp but not aspiring to be a
dominant international player?
J Which scenario creates most value and which least?

J How do the culture and business processes differ in each scenario? For instance,
we could see that businesses in a Gung Ho world would need processes that were
flexible and reviewed regularly
J What are the new value chains in each scenario, if any?

The governance environment will also be different for each scenario: the research
topics are: How will governments evolve to meet the new environment? In what ways

VOL. 31 NO. 1 2003

| STRATEGY & LEADERSHIP
| PAGE 51
 will regulation encourage or discourage the new world? How will governments fund
themselves?

So, in MegaCorp, regulation would be strongly influenced by a few market leaders,

and their investment would be aligned to increasing the penetration of the virtual
world, at least in cities where connection costs are lower. Governments find it difficult
to control and predict tax revenues in this world, due to the power and international
nature of dominant international organizations.

In contrast, Organization Rules is a world in which governance is by nation states and

there is little momentum for change.

Early indicators
Early indicators are specific events that are relatively easy to watch for and which can
give an indication of which way the world is evolving. So for instance the rise of a
political party or politician can indicate that changes are likely and the direction that
they will take. One example of this is Shells decision on investment in North Sea gas
fields. The bidding was intense and prices high: Shell asked the question, Would
Russias extensive gas fields start to contribute to international supply? They identified
this key indicator: if a politician named Mikhail Gorbachev moved into national
prominence it was likely that Russia would open up. They saw his career start to
develop, and so did not take part in the bidding war for North Sea reserves. Shell later
bought gas from Russia at an advantageous price.

Early indicators
In BIT3M, we saw some early indicators being satisfied for both MegaCorp and Gung
Ho, for instance:
J The rise of defacto standards in telecoms, media and computing industries
replacing slower traditional mechanisms of agreements between national bodies
J The rise of virtual communities for hobbies, health and family information sharing,
and for trading online
J The success of some brick and mortar retailers in creating electronic trading arms
(for instance food retailers in the UK and restaurants in the USA), as well as the
survival of some dotcom start-ups.
J Regulation moving away from national governments towards NGOs, for instance in
the computer industry and for Internet and Web standards.

As a result we proposed that some industries at least would evolve along the
MegaCorp or Gung Ho. So we focused our research project portfolio into digital
information in the retailing, ICT and media industries.

Prioritizing research projects

The participants in the consortium workshop then categorized the list of 30 possible
research projects into three groups:
J Expensive those costing the entire budget for at least one year.

J Medium we could afford 3-5 of these.

J Quick/cheap less than 10% of the budget.

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| VOL. 31 NO. 1 2003
Once we had a defined and costed set of research projects we categorized them into
high, medium and low impact projects, and which scenario they were relevant to
(Exhibit 3). Some projects were central to an understanding of all the scenarios; others
were of interest only under one or two. We focused on projects relevant to MegaCorp
and Gung Ho.

The projects that the participants felt had the most impact on Business in the Third
Millennium related to:
J The role of ICT in making organizations more or less agile.

J The changes in the value chain.

J Who would pay for network implementation?

J Disruptive technologies.

J The nature of virtual communities and their interaction with business.

J Mobility of individuals across national boundaries.

J What were the early indicators for MegaCorp vs. Gung Ho?

Three of the projects, those on network implementation, disruptive technologies and

early indicators were in the quick/cheap category. We scheduled the study of network
implementation and early indicators, but left the research project on disruptive
technologies until later.

We could only afford to do one of the other three projects, on value chains, the
connection between information, communication and technology and agility, or virtual
communities and business. We chose to study the interaction of virtual communities
and business, across both scenarios, since we could see other groups working on
value chains and to a lesser extent on information, communication and technology
and business agility. We found a think tank that was willing to share results with us on
the effect of mobility of individuals across national boundaries, and the effect of this on
the tax base of governments.

Lessons for practitioners

We used scenarios to define a portfolio of research projects twice in the BIT3M
Program. In both cases, the portfolio of projects that emerged was significantly
different from our initial instincts.

Exhibit 3 Prioritizing research projects

VOL. 31 NO. 1 2003

| STRATEGY & LEADERSHIP
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 By going back to the underlying forces and asking questions about the discontinuities
that may emerge, the scope of the portfolio widened and many new potential research
questions were raised. Our list of research topics was dauntingly long before we
applied the prioritization process about 30 separate topics costing about seven
times our budget. By looking at the early indicators, we could narrow down the
number of scenarios to consider from four to two, and the projects from 30 to 20.

We then decided to focus on the projects that were important in both of the scenarios,
and to delay others until some of the early indicators leading to either MegaCorp or
Gung Ho had been observed.

We had expected that the internal issues for business such as value chains and ICT
and agility would have emerged as top priority topics. Instead we found that the
questions of the inter-relation of business with its customers emerged from the
process as most significant.

Conclusions
The BIT3M case study used scenarios to:
J Widen the range of discussion about the research program. Many of the
participants were from technology companies. Introducing scenarios helped them
to think about the adoption of technology, market issues and the effect of ICT on
society

Conclusions
J Engage sponsors and stakeholders in exploring the context of the proposed
research topics in the program, as a prelude to decision-making and funding. The
process, with interviews before the workshop and three days of interaction within a
disciplined process at the workshop, underpinned the efforts of the participants to
sell the research program back into their organizations.
J Link technological issues into societal issues. This required an examination of a
wider set of backgrounds than was traditional for planning R&D. The role of Watts
Wacker, a consumer futurist skilled at exploring societal issues, was crucial.
J Build a more robust research program by understanding the social issues that
might prevent technology adoption and set up early warning indicators to monitor
the pace and the directions of evolution. The participants shared the monitoring of
early indicators among their business intelligence groups. Key questions related to
investment in network infrastructure and sources of regulation.
J Prioritize research topics for investment, through use of the early warning systems,
which showed indicators for MegaCorp and Gung Ho. By focusing on MegaCorp
and Gung Ho we were able to focus on the role of business, and to define a portfolio
of research projects spanning these two scenarios.

Implications for corporate planners

Lessons corporate planners can learn from the case study are:
J Business agility is a key requirement in the present business climate. Many of the
factors originally identified by BIT3M are central to todays business climate.

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| STRATEGY & LEADERSHIP
| VOL. 31 NO. 1 2003
J The range of factors that need to be considered in plans is now much wider than
only a few years ago. Markets have changed from product push to consumer desire
driven, a result of changes in lifestyles and increased consumer information. These
factors are more difficult to forecast than technological issues.
J In considering the shape of society and new forces, scenarios can capture some of
the dimensions of uncertainty, allow for the creation of robust strategies and
understanding of early warning indicators of new phenomena.

However, a word of caution. Scenario development projects do not always produce

transformational insights and innovative thinking. In scenario work as in forecasting, it
is difficult for planners to shake off the blinders of their current worldview. Veteran
scenario developer Barbara Heinzen[6] enumerates many ways in which scenarios
may fail to tackle the seminal issues for an organization, and the reasons why they
flounder. Causes of failure include: planners taking too narrow a view of the topic, not
getting the attention of decision makers, or accepting a culture that cannot confront
the question of change. As an example of this last pitfall, she recalls asking the
question while building scenarios for Asia in 1996, Could we have a financial crisis?
and getting the answer, That is not possible.

Nevertheless scenarios surely fit among the toolkit of every manager responsible for
planning. They provide a process, mechanism and framework for anticipating change,
watching for early warning signs, and creating more robust plans.

Notes
1. Oxford Compact Dictionary (1991), Clarendon Press, ISBN 0-19-861258-3.
2. Porter, M. (1985), Competitive Advantage, Free Press, New York, NY, ISBN 0-68484-146-0.
3. Irvine, J. and Martin, B.R. (1984), Research Foresight, Continuum International Publishing,
ISBN 0-861-87496-X.
4. Ringland, G. (2002), Scenarios in Business, Wiley, ISBN 0-470-84382-9.

5. Davis-Floyd, R. (1997), Storying corporate futures: the Shell scenarios, International Journal
of Futures Studies, Vol. 1.
6. Ringland, G. et al (1999), Shocks and paradigm busters, Long Range Planning, October.

VOL. 31 NO. 1 2003

| STRATEGY & LEADERSHIP
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The strategic leader
Understanding the triad of great leadership
context, conviction and credibility
Brian Leavy
Brian Leavy is AIB Professor of Strategic
Management and former dean at Dublin City
University Business School
(brian.leavy@dcu.ie). His research is focused
on strategic leadership, competitive analysis
and supply chain strategy. The author of
more than 40 articles on these topics, he
has also published two books Strategy and
Leadership, 1994 (co-authored with David
Wilson) and Key Processes in Strategy, 1996
(and reprinted in 2001).
Leadership effectiveness at this highest level can be
better understood in terms of three main elements, the
context for leadership, the conviction of the leader and
the flow of credibility over time and tenure.
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| VOL. 31 NO. 1 2003, pp. 56-60, MCB UP Limited, ISSN 1087-8572
What is the essence of great decade of research has led me to the
leadership? Every time a leadership view that leadership effectiveness at
this highest level can be better
guru proposes a new theory that tries
to define it in terms of particular understood in terms of three main
personality traits or styles of behaviour, elements the context for leadership,
we can easily think of successful the conviction of the leader and the
executives who do not fit their model. flow of credibility over time and tenure.
For example, few experienced
managers would disagree that Jack Context defining the opportunity
Welch, former CEO of General Electric,
Leadership impact at the institutional
is one of the outstanding business
level is always shaped by context.
leaders of his generation. Yet Welch is
Great leaders make history, but not
hardly a prime example of either of two
always in circumstances of their own
leadership traits that researchers have
choosing (to paraphrase Karl Marx).
identified as essential in two recent
Former US president Richard Nixon
best-selling books. Not to take anything
proposed that the formula for placing
away from his accomplishments, Welch
any leader among the great had three
does not personify either emotional
elements, a great man, a great
intelligence (Daniel Goleman) or
country and a great issue. Without the
level 5 leadership (Jim Collins).
second two, he believed, potential
Though concepts like emotional
greatness will remain unrecognised and
intelligence and level 5 leadership may
unfulfilled. Churchill once said of a
be useful, they fall well short of
talented predecessor that he was
providing insight into the essence of
unfortunate to have lived at a time of
outstanding leadership, particularly at
great men and small events. In the
the institutional level.
movies, an Oscar-winning performance
Theories based on traits or styles work begins with securing the right role, a
well at middle management level, but truth that applies to real life as well.
tend to provide less insight into
In the business world, leadership roles
institutional leadership, where whole
are shaped by corporate history and
organisational populations have to be
the context of the time. If General
inspired but leaders have little
Electric had chosen Stan Gault to be
opportunity for personal interaction. A
CEO in 1981, and Jack Welch had
gone to Rubbermaid, how would they
both be viewed today? In many ways,
Gaults performance over the years
was just as impressive as Welchs, but
Rubbermaid is like off-Broadway
DOI 10.1108/10878570310455051
theatre compared with the scale of
drama at GE.
Business leaders typically play out one
of three main roles, builders, revitalisers
or inheritors. The first two offer the
greatest opportunity to make a
personal mark, whether through
building great enterprises like Bill Gates
(Microsoft) or Ted Turner (Turner
Broadcasting), or revitalising formerly
great companies, as Roberto Goizueta
did at Coca-Cola or Michael Eisner did
at Disney. In contrast, the contributions
of skilful inheritors, like David Glass at
Wal-Mart, tend to be seen as less
dramatic, making it more difficult for
them to stand out or to be seen as
charismatic.
Conviction providing the drive
Having the opportunity to make an
impact, however, is not the same as
making one, and the individual leader
must still have the talent to meet the
challenge and the conviction to rise
to it.
At the CEO level, imagination and drive
are more likely to distinguish
outstanding performance than
professional expertise. Yet many of the
categorizations of the energy and
enterprise of great CEOs are too
generic, and fail to uncover the deeper
wellsprings of inspirational leadership,
which are always context specific. Take
the idea of executive vision, for
example. Without context, it is little
more than image or fantasy. This is one
reason many corporate mission
statements turn out to be ineffective
and lack gut-grabbing meaning, as
Built to Last authors Jim Collins and
Jerry Porras have often argued.
Leadership that truly transforms is deeply
rooted in values, convictions and
principles of a more transcendent nature.
For psychologist Howard Gardner, the
essence of inspirational leadership lies
in the ability to create and act out
compelling stories, particularly stories of
collective identity, which appeal to both
Another problem develops when the senior executives
who report to the CEO start to behave like acolytes, an
ominous sign that credibility has shifted to
credulousness.
reason and emotion. Great enterprises,
like Wal-Mart, are built on potent
founding stories, embodied in larger-
than-life characters like Sam Walton.
Talented inheritors, like David Glass,
keep the spirit alive and maintain its
momentum. In their turn, great
revitalizers reinterpret shared legacy
and make it relevant to new and
formidable challenges. For example, in
the aftermath of the 11 September
terrorist attack, the world watched
mayor Rudolph Giuliani brilliantly
rediscover the spirit and resilience of
The New Yorker and articulate it in a
new and compelling way that helped
rally the city at a time of great
uncertainty and distress. Likewise, over
more than a decade, we have seen
how Jack Welch has re-interpreted the
spirit of General Electric and rekindled
the American dream within the
countrys leading business institution.
What Welch accomplished reaffirms to
the business world that entrepreneurial
flair need not be lost with scale, in spite
of much depressing evidence to the
contrary.
Credibility generating the currency
The third element in this perspective is
credibility. All great leaders recognise
credibility as the dynamic currency of
leadership, yet it rarely figures in
traditional theories. Any theory of
institutional leadership has to concern
itself with how credibility is created and
destroyed over time. In the first place,
an examination of credibility helps us to
recognise our natural tendency to
romanticise our leaders and exaggerate
the credit that we give to them for the
things that happen, both good and
bad. However, arguments over whether
leadership is more style than substance
miss a key truth. As a case in point,
veteran Washington correspondent
VOL. 31 NO. 1 2003
Helen Thomas continues to rate
president Kennedy ahead of his
successors because he rallied
Americans to aspire to noble goals at a
time of national self-doubt. What the
Camelot presidency illustrates is how
symbol and substance can work
together to be transforming.
The flow of credibility also depends on
performance in the arena, and leaders
are continually trading in this currency
throughout their tenures at the top. The
focus on styles and attributes tends to
make us too preoccupied with how
leadership capacity differs from person
to person. However, it is just as
important to understand how it varies
in any given individual over time. Too
much credibility can be as harmful as
too little. As credibility grows, the line
between confidence and hubris often
becomes very thin, as Jack Welch
learned several times in his GE CEO
job, and again in his retirement years
too. Another problem develops when
the senior executives who report to the
CEO start to behave like acolytes, an
ominous sign that credibility has shifted
to credulousness. For instance, former
president of Honda, Kiyoshi
Kawashima, stepped down early when
he found that his senior people had
taken to agreeing with him much too
often. Its a pity more leaders do not
follow his example.
At the other end of the spectrum,
credibility can be lost in trying to move
too quickly in advance of key
constituencies. Jacques Nassers failed
bid to re-invent Ford Motors as a
consumer services company is a
dramatic example. At the time of his
appointment as CEO, Nasser was
widely seen as the best in the
business, yet, somehow during the
course of his tenure he managed to
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create a lack of trust among virtually
every constituency, as one of his
board members put it. Other leaders
lose their effectiveness over time
because their spirits get tired or their
stories get old.
Thomas Jefferson once described the
US presidency as a splendid misery,
and no incumbent aged more quickly
over his years in office than Lincoln,
one of the greatest American
presidents. Clearly exemplary
leadership takes its toll.
Even where great leaders manage to
remain strong in body and spirit over
lengthy tenures, few are able to
reinvent themselves and their stories
when the original version no longer
excites and emboldens those they
would lead. Margaret Thatcher still felt
like she could go on and on at the
time that her political career ended in
tears and she failed to recognise that
her story had run its course. As
another example, Ken Olsen of Digital
was lionised in the business press for
more than 20 years, but arguably he
undermined a great legacy by holding
on to the top job too long. Jack Welch
recognised this danger at General
Electric when he told a forum of Asian
business leaders that he was not
retiring because Im old and tired but
because an organization has had 20
years of me and has to renew itself.
The perspective on leadership
presented here has three major
implications that should be considered.
Selecting leaders: matching talent and
role
Oscar Wilde once remarked
sardonically: All the worlds a stage,
but the play is badly cast. Good
casting is key to leadership
effectiveness at institutional level, but
business history is littered with
examples of poor selections that have
destroyed value and damaged
reputations. Casting is an art in itself,
whether in business or the performing
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| VOL. 31 NO. 1 2003
arts, and there are few reliable guides
to getting it right.
Success in supporting roles is no
guarantee of effectiveness at
institutional level, because top
leadership is different in kind as well as
degree from that at all other levels of
management. Few expected Wal-Mart
to succeed so well under David Glass,
because Sam Walton was seen to be
an impossible act to follow. Even fewer
would have foreseen the tenures of
Jacques Nasser at Ford, Doug Ivester
at Coca-Cola or Eckhardt Pfeiffer at
Compaq all ending so abruptly. These
three talented executives had major
achievements to their credit prior to
taking the top job. For example, Nasser
first successfully ran Ford Europe.
Ivestors departure from Coca-Cola
was also hard to understand because it
was widely believed that no understudy
had ever been as well groomed for
succession. Pfeiffers firing was equally
unexpected. At the time of the Digital
acquisition in early 1998, Ben Rosen,
chairman of Compaq, described
Pfeiffer as unquestionably one of the
industrys most talented executives
with a tremendous strategic sense, an
ability to execute and an ability to
lead. A year later, Rosen fired him,
and said he regretted not having done
it sooner.
prescription
The lesson to be learned is that
institutional leadership seems to require
the right blend of passion and
pragmatism, and most of the
miscasting that we see in the business
world tends to come from getting this
balance wrong. The right blend can
change over time. For example, we
have seen strong passion to achieve
unique technological solutions create
great enterprises like Polaroid and
Apple, and later the same passion
almost brought these enterprises to
their knees. The histories of enduring
enterprises tend to be marked by
cycles of gradual and radical change.
During the evolutionary phase, an
existing business model is clarified,
refined and finessed. This phase often
requires steady adaptation. During the
evolutionary phase, passionate
leadership can be dysfunctional, as
happened at Apple in the mid-1980s.
On the other hand, conviction
leadership is needed where great
enterprises have become over-adapted
to old realities and radical change is
required. For instance, in 1985, John
Ackers was the obvious choice of most
IBM watchers for CEO. At the time, Big
Blue looked as if it were on course to
dominate every segment of the
computer industry and become the
worlds biggest company within a
decade. Given this prospect, Ackers
had been chosen as a steady hand on
the tiller to keep this strategy on
course. He was neither cast for, nor
could he find the inspiration to fulfil, the
transformational leadership role that
IBM urgently required in the early
1990s.
In contrast, part of the genius of
General Electric to date has been the
effective selection of passionate and
pragmatic leaders to match its
revolutionary and evolutionary cycles
over its long history, according to the
renowned management consultant
Richard Pascale.
Educating leaders: perspective not
While good casting is essential, there is
no role that fully prepares someone for
leadership at the top, and new
incumbents must learn quickly once in
office. Most CEOs pick up their most
valuable professional skills and
knowledge on the way to the top. So
how do they upgrade their leadership
skills? Jeff Immelt, the new CEO at
General Electric, is an avid reader of
history and biography, but rarely reads
business books, and he is not unusual.
During his heyday at Citigroup, John
Reed read deeply into the history of
scientific ideas, studying how ideas
evolve and how great scientists
develop a sense of where the breaks
are coming, and he was an unusually
innovative banker for his time.
What leaders like these seek most is
perspective, not prescription. Yet
academic and consultants continue to
bombard them with advice on
attributes, styles and behaviours and
wonder why so many take no notice. If
effectiveness depends on the ability to
create and embody a compelling story
that will reach into the hearts and
minds of every stakeholder, then CEOs
need to learn how to uncover the
deeper values that they share with their
followers. Then they need to articulate
these values in fresh and compelling
ways that link their companys future
opportunities with its history. If too
many CEOs show little capacity for
visionary leadership, it is not because
they lack advice on lateral or creative
thinking. More likely it is because their
interests are too narrow, their deeper
values remain untapped and they are
failing to stretch themselves beyond the
completeness of a limited man, to
use the phrase of John Stuart Mill.
In these dynamic and uncertain times,
it seems timely to look again at the role
that the humanities might play in the
education of leaders, particularly at the
institutional level, where a humanist
perspective is most needed. Wherever
did we get the notion that in
management there is a reasonable
separation of the intellect and the
spirit? asks CEO James Autry of
Meredith Corporation. Yet, much of our
traditional approach to the training of
leaders seems to reflect this view. The
distinguishing mark of the liberal arts is
their emphasis on integration and
wholeness, and we might all now
benefit from recognising anew what
many business leaders and academics
of the post-war era believed over half a
An immersion in the humanities can help an executive
become not only a wiser, broader person, but also a
wider, broader businessperson.
century ago, that an immersion in the
humanities can help an executive
become not only a wiser, broader
person, but also a wider, broader
businessperson. Few advanced
executive development programs go
near to developing this capacity today,
and many do not even try.
During the early 1950s, the world was
embarked on a long struggle between
opposing ideals, opposing ways of
life, as Donald David, then dean of
Harvard Business School, described it
at the time. Today, we are facing this
struggle afresh, at a time when
business has become the leading
institution in geo-political development,
and the need for the humanist
perspective at CEO level is now more
pressing than ever. In leadership
studies generally, we still do not know
fully know where great transcending
ambition comes from, but if history is
any guide, then the kind of ambition
that built the cathedral at Chartres,
painted the Sistine Chapel or
circumnavigated the globe for the first
time with a starving and mutinous
crew, does not come from personal
ego or the search for material success
alone. An earlier generation of business
leaders believed that management, like
the arts and education, should serve a
higher purpose than just the needs of
business. It now seems timely to
recover this value if our institutional
leaders hope to be able to inspire their
employees and help make working
lives more meaningful in this post-
modern world.
Changing leaders: protecting legacies and
reputations
Finally, inspired casting at the
institutional level is likely to remain very
challenging well into the future. Many
leadership tenures end prematurely due
VOL. 31 NO. 1 2003
to poor selection from the start, others
because incumbents fail to grow in
office. However, in todays dynamic
and uncertain world, good selection
also comes unstuck because the
requirements of the role shift radically
over time. CEOs are being removed
more rapidly than ever before when
firms hit difficult times, and the process
is rarely handled well. Shareholders are
often outraged when they see massive
payoffs to failed executives, like the
deal Disney offered CEO Michael Ovitz.
For their part, departing CEOs, like
Jacques Nasser or Doug Ivester, feel
used and betrayed after years of
dedicated service, and many leave with
their confidence shattered and their
reputations in tatters. Stories of careers
being revived at this level are rare, and
this represents a shameful loss of talent
to the corporate world.
We have to find a better way, and the
main responsibility lies with the board.
Today, miscast CEOs tend to bear too
much of the blame. No wonder many
demand golden parachutes at the
outset, though few expect to use them.
If Ivester was basically wrong for Coca-
Cola, was this not a failure on the part
of Guizueta and the board? Boards
must held more accountable for
casting errors, and the argument for
separating the roles of chairman and
CEO seem more pressing than ever.
Strong boards with independent chairs
are also needed to take both timely
and appropriate action when leaders
who become miscast or lose their
credibility over time have to be
removed in the wider interest. This was
why Compaq was able to act faster
than most.
Some CEOs are one-strategy
specialists ruthless cost cutters like
Al chainsaw Dunlop, were brought in
to strengthen the balance sheet and
cash flow in times of difficulty but
proved to be incapable of growing the
business once the storm was
weathered. Moreover, those who are
| STRATEGY & LEADERSHIP
| PAGE 59
most effective at embodying their
original strategy may become so
typecast in the eyes of their followers
that they only generate confusion when
they try to re-invent themselves. There
are also times when companies need
to change their leaders for reasons
more symbolic than substantive. In
times of crisis, the drama associated
with leadership change itself can help
prepare an institution for
transformation, generating a self-
fulfilling dynamic. Several decades ago,
the choice of Don Petersen to lead a
Ford Motor Company that had grown
stodgy, symbolized the need to change
and helped to bring about the
comeback of the 1980s by
successfully implanting a compelling
new story of participative management
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| VOL. 31 NO. 1 2003
that was very foreign to the companys
tradition.
Boards need to find a better approach
to the management of casting
problems and to deal in a more
equitable manner with CEOs who must
make way in the companys overall
interest. The first consideration is
timing. Boards shouldnt move too
quickly and remove a talented
executive at the first crisis he or she
encounters. If Coca-Cola CE Goizueta
had been axed after the New Coke
fiasco, or John Reed had been forced
out during Citgroups trauma of the
early 1990s, those firms would have
lost two of their most outstanding
CEOs. In other cases, however, boards
delayed too long because they judged
performance solely on the numbers
and fail to monitor internal morale. For
example, as the shares at Abbott
Laboratories soared, Bob Schoellhorn
became widely seen on the outside as
somewhat of a hero, while rapidly
losing the respect of his own
executives for the arrogance and
excess that eventually led to his
downfall. Boards also tend to delay too
long when a founding entrepreneur has
to go.
Rare are the CEOs who are right for all
contexts, and rarer still the casting
directors who never get it wrong.
Greater acceptance of these realities,
and greater care in distinguishing loss
of credibility from lack of competence,
will help boards take more timely
actions and explain them to their wider
publics.
Quick takes
Quick takes presents the key points and action steps in each of the feature articles
Page 4
Scenario planning after 9/11:
managing the impact of a
catastrophic event
Peter Kennedy, Charles Perrottet and
Charles Thomas
Page 14
Decision-driven scenarios for
assessing four levels of uncertainty
Hugh Courtney
Catherine Gorrell is president of Formac,
Inc., a Dallas-based strategy consulting
organization (formac@mindspring.com), and
a contributing editor of Strategy & Leadership
VOL. 31 NO. 1 2003, pp. 61-64, MCB UP Limited, ISSN 1087-8572
Post 9/11 is one of the most unsettling
and confusing business environments
since the Depression. Executives are
grappling with the short- medium- and
long-term decisions that must be made
in the face of unknowable shocks and
crises.
How to respond? Consider decision-
driven scenario planning, which is
extremely effective in working through
uncertainties, exposing faulty
assumptions, and probing conventional
wisdom. Scenarios focused on the near
term greatly enhance operational
efficiency by confronting ambiguity
head-on and forging critical alignment
around big issues.
Alternative scenario-based tools:
traditional scenario planning can be
retooled to address the current,
specific need for continuity assurance
and near-term operations planning.
Three areas of needs are described in
this article with case studies to show
how each matches a modified
scenario planning process. The
processes are:
J Business continuity planning the
focus is on tactical responses to an
event; the use of a tightly focused
set of scenarios using a very simple
two-by-two scenario space matrix
works well. The case study is of a
financial services firm that used two-
scenario set to build its plan but stress
tested its recovery strategies with
relevant wild-card events.
To get the most out of the scenario
planning efforts, select the process
designed for the outcome anticipated.
Practitioners should choose between
two basic techniques: vision-driven and
decision-driven scenario processes,
both essential components of any
companys strategy toolkit. Companies
that sponsor vision-driven exercises
J Near-term (1-3-year) operations
planning the focus is on the range of
plausible outcomes that follow the
event. The case study works
through critical operational issues in
four narrowly focused business
environments to ensure maximum
preparedness for challenges to
employee mobility, project
management and new business
development.
J Strategic planning the focus is on
development of new business model
and strategies that are robust no
matter how the future unfolds; four or
more dimensions are used.
J A third case describes the
development of a new strategy by the
US Coast Guard prior to 9/11. The
process has been credited with
helping this service quickly adjust to
the post 9/11 environment.
In the first two cases, scenario planning
brought in a larger pool of executives
into the decision-making process than
would typically be the norm. As a
result, plans and actions were more
carefully developed and the outcome
engendered greater confidence, clarity
and energy for subsequent
implementation. The greatest benefit,
though, may be the rigor and creativity
to defining ways to meet a different set
of outcomes. Scenario planning is an
excellent tool at this time. This is
perhaps the best safeguard against our
previous failure of imagination.
every 1-3 years will be best positioned
to recognize and capture the new
opportunities and manage the risks
inherent in todays rapidly changing
business environment. These exercises
help set valuable strategic and
organizational priorities, and provide the
necessary context for all decision-
driven scenario efforts.
| STRATEGY & LEADERSHIP
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 This article focuses on the less well-
known decision-driven scenarios and
explains how to match the right process
with the level of uncertainty the scenario
addresses. Companies should select
concrete, decision-driven scenarios to
make the right capital investments,
marketing campaign and other strategic
decisions when uncertainty implies that
there is no obvious answer. Vision-
and decision-driven exercises are highly
complementary.
For those focused on near-term
strategic decisions, the use of decision-
driven scenarios should be tailored to
the correct level of uncertainty being
faced. Points are presented in the
article to assess when and how to
apply each type of process.
The four levels of uncertainty are:
J Level 1: The future is predictable
enough to identify a dominant strategy
choice, such as McDonalds US
restaurant location decisions.
J Level 3: The range of futures is
unbounded. Customer demand for
new products and new technology
adoption rates are common sources
of Level 3 uncertainties. General rules
to follow are presented. Qualitative
business judgement factors play a
more prominent role here than in
Levels 1 and 2.
J Level 4: True ambiguity equates to
future outcomes that are both
unknown and unknowable. Analysis
cannot identify the range of
possibilities, let alone scenarios within
the range. An example is formulating
an airlines strategy on 12 September,
2001. At this level, it is best to work
backwards from potential strategic
options to define what you would
have to believe about a future
scenario to support this option. A
systematic checklist of key
considerations would drive decision-
making.

J Level 2: Alternative futures are
possible and the best strategy to
follow depends upon which outcome
occurs. The strategist must choose
between strategic options with
different risk-return profiles across the
different scenarios.
Armed with the right technique and
right support practices, scenario efforts
are more likely to generate valuable
foresight that leads to clearer strategic
visions and better strategic decisions.

Page 23 A methodology practiced by the authors J It turns the scenario development

Scenarios and strategies: making the
scenario about the business
David H. Mason and James Herman
makes scenario planning more relevant
to senior business managers. Future
Mapping incorporates the future of the
clients business itself into the scenarios
being developed about the external
business environment. For each external
state, there is a future state for the
business. The organization is the central
focus of the scenarios scenarios about
the business strategy alternatives (e.g.
low cost, differentiate, focus on markets
served). This approach to scenario
planning offers three key benefits:
J It keeps the business and its choices
apart of the discussion throughout the
exercise
J It is much easier to get senior
management excited and engaged
process into a strategy development
process that balances external and
internal issues.
Overview of the steps:
J Step 1 is to propose multiple
outcomes for the industry, market,
technology and/or society within
which the organization operates.
J Step 2 is to develop an event path
linking today to the endstate. This is
the scenario.
J Step 3 is to describe, for each
endstate, an outcome for the
organization itself. Events are not
longer entirely external, but include
actions that the organization might
take. (This co-evolution is more

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| VOL. 31 NO. 1 2003
 realistic than consideration of the
external environment independent of
the business.) The companys own
actions are complemented by a list of
external events that must go right
for the strategy to succeed. The
scenarios can also be complemented
with a timeline of changes in critical
business metrics. This approach puts
forth a rich notion of strategy that
combines a clear definition of the
aspiration of the business what it
wants to become or attain with a
timeline of specific internal and
external action and interventions that
are needed in order to succeed.
Several variations of this approach, with
a different mixture of internal and
external focus and steps, allows this
scenario planning process to be
tailored to the unique needs of any
business. For example, using this
methodology, scenario planning can be
used as the first step for a change
management effort. Or it can be used
as the forum for a healthy debate
among the management team
concerning critical topics, such as the
scope of the business, the importance
of environmental changes like the
Internet, and the governance principles
upon which they will run the company.

Page 32 Combining scenario learning and
Competitor scenarios competitor assessment provides a
Liam Fahey methodology to enable managers to
efficiently and effectively assess their
rivals (both new and old) in a variety of
settings. Not only does this process
expand the thinking of managers (who
are usually only focused on current
conditions) but also offers them rich
insight into their companys own
strategy alternatives (including ones not
yet on its radar).
This article demonstrates how the
competitor scenario process works in
practice and, with many examples,
offers learned principles and ways to
avoid various pitfalls.
Briefly, a competitor scenario starts
with a logical narrative that considers
what a competitor might do over some
specified time period, how its managers
would do it, and why they would
choose to do so. The scenarios can
focus on a variety of topics such as:
J Which product-customer segments
the competitor chooses to compete
(scope)
J How it competes (competitive
position).
J What it seeks to achieve (goals).
J How a competitor develops and
manages a network of alliances or an
integrated supply chain.
There are two distinct types of
competitor scenarios that originate in
two quite different forms of what-if
questions: unconstrained and
constrained what-if competitor
scenarios.
J Unconstrained (or open-ended)
questions encourage scenario
developers to pose any question
pertaining to one or more rivals
marketplace strategies.
Unconstrained questions are limited
only by the experience, imagination
and creativity of those involved. The
questions can be mapped into four
categories that lead to competitor
scenarios with different foci.
J Constrained competitor scenarios
start from a common point of
departure: what would the competitor
do if a specific set of marketplace or
macroenvironmental end-states or
conditions were to arise? This type of
scenario work is best if your firm wants
to assess:
j What would a rival do under
specific market conditions?
j Why would a rival adopt one
strategy versus another?
j Which marketplace changes might
lead a rival to adopt a particular
strategy?
The five steps in constructing
competitor scenarios are relatively

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 straightforward; they are discussed with
examples. The last step being the
essential question: what business
issues emerge from each scenario that
pose opportunities and threats that the
Page 45 Scenarios provide a process,
Using scenarios to focus R&D mechanism and framework for
Gill Ringland anticipating change, watching for early
warning signs, and creating more
robust plans. This case examines how
this applies to the research and
development decision-making
processes (ranking R&D projects and
managing the R&D programs). The
logic is simple:
J Business agility is a key requirement in
the present business climate.
J The range of factors that need to be
considered in planning R&D projects
are much wider now than only a few
years ago, increasing the difficulty to
successfully forecast.
J Scenarios can capture the dimensions
of uncertainty, thus allowing R&D
managers to create robust strategies
because they can anticipate change
and watch for early warning indicators
of new phenomena. This is possible
because mangers can view the
sensitivity of their R&D projects
success criteria in terms of the
detailed assumptions about the future.
Three components forecasting,
scenarios, and foresight are all
important in the ongoing R&D decision
process. Forecasts combine current
trends and render them into a single
value or range of values for a variable
(timescale of market impact, cost of
project, competitive position). Scenarios
capture and explore the multiple
images of the possible future societies
and how they may react to the R&D
products. Foresight is the analytical
process of using a combination of
scenarios and forecasts to ensure that
the company focuses its R&D on the
most effective areas.
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| STRATEGY & LEADERSHIP
| VOL. 31 NO. 1 2003
organization must explore? The issues
will vary significantly across the end-
states. This is the power and richness
of the competitor scenario process.
This case recounts the use of the
scenario process to discover ways that
digital information is influencing and
changing society. Emerging R&D
technology could be assessed in
scenarios that looked at how the
combination of Information,
Communication, and Technology (ICT)
was influencing the way business
evolves or changes discontinuously.
When using scenarios to define a
portfolio of research projects,
experience has shown that the portfolio
that emerges is often significantly
different than the one defined by initial
instincts. This is just the first of several
benefits for using scenarios for
understanding the major areas of
uncertainty for R&D projects. Other
benefits are:
(1) Widen the range of discussion
about the research program to
encompass not just technology but
also market issues and the effect on
society.
(2) Engage sponsors and stakeholders
in exploring the context of the
proposed research topics in the
program as a prelude to decision
making and selling the research
program for company funding.
(3) Link technological issues to societal
issues
(4) Build a more robust research
program by understanding the social
issues that might prevent technology
adoption and set up early warning
indicators to monitor the pace and
directions of evolution.
(5) Prioritization of research topics for
investment though the use of the
early warning systems.