Introducing Analysys Mason

Expertise and Experience in Scenario Planning

Amrish Kacker

Q3 2007
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Summary

 Reliance on market predictions is risky. The pace and complexity of telecoms development make long-
term forecasts very uncertain
 Analysys Mason offers scenario planning as a means of tackling the diversity of future possibilities, in
order to:
◗ gain a fundamental understanding of the forces that are shaping the future
◗ assess the risks and rewards of different business options
◗ develop flexibility in responses to unforeseen change
 We combine in-depth knowledge of the telecoms sector with process consulting skills, working with clients
to reach practical business decisions
 The following slides present:
◗ the benefits of our approach
◗ the principles of scenario planning
◗ the scenario-planning process
◗ checklist for success
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Benefits of scenario planning

 Scenario planning helps you to develop the agility required to gain business advantage from changes in
the telecoms environment. The benefits include:
◗ early warning of business risks and opportunities
◗ objective decision support which balances the risks and returns of business options
◗ innovative business ideas
◗ challenge to any assumptions of business-as-usual
◗ common language for strategic debate which helps to capture divergent views across the business
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Our approach

 We go beyond descriptive scenarios to explore the details of business options

 We help our clients by:
◗ designing an efficient planning process that is tailored to meet each client’s needs
◗ facilitating workshops to engage, stimulate and challenge the client team
◗ analysing the risks and rewards of options in order to support decisions
◗ managing the process to deliver results on time
 The aim should be to embed scenario planning in the everyday business management process
 We therefore like to work closely with our clients in a single integrated team, to encourage skills transfer
and total transparency
 We encourage the client team to take ownership of the process and the results
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The principles of scenario planning

“Too many forces work against the possibility of getting the right forecast
… accept uncertainty, try to understand it, and make it part of our
reasoning.” Pierre Wack (Harvard Business Review 1985)
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The maze of future possibilities

 Telecoms is subject to rapid and unpredictable change,

driven by a wide range of issues such as:
◗ fixed–mobile convergence
◗ merger activity
◗ growth in emerging markets
◗ broadcast–telecoms integration
◗ fast growth in data traffic
◗ new value chains for the Internet
◗ development of regulation
◗ impact of satellite
◗ new technologies
◗ development in competition
 These drivers interact not only with each other but with
any number of macro-economic, technological,
regulatory, political and social issues. The interactions
generate yet more complexity. The telecoms business
environment could evolve along a myriad of different
paths
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The dangers of relying on one forecast

 Deeper research tends to reveal more complexity. The

temptation is to stop gathering detail and select one path
forward that seems the most likely
 There is a danger, however, that this forecast will
become a straitjacket for strategic thinking. Significant
business risks could be ignored
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Understanding uncertainty

 Scenario planning combines possibilities to form a

manageable set of scenarios
 It broadens, rather than narrows, the vision of the
business planning team
 It endeavours to:
◗ capture all the uncertainties faced by the business
◗ highlight the issues that may have a significant
impact on the business
◗ study the relationships between these critical
issues
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Drawing on forecasts

 Scenario planning addresses issues beyond the time  The two techniques work together for business planning
horizon of predictable events. The scenarios make sense
of changes across the whole business environment and
provide a basis for strategic debate
 On the other hand, forecasting and mathematical Scope
modelling are necessary for developing a detailed
understanding of specific issues over shorter timescales.
They can be used to:
◗ underpin the scenarios with detailed information on
specific issues
Scenario
◗ explore the value of specific options planning
◗ test the performance of the business plan in each
scenario
◗ understand which parameters have a critical effect
on the business

Forecasting

Timescale
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What is a scenario?

“An outline of future development which shows the operation of causes.” Chambers English Dictionary

 Describes a possible future business environment, but is not a prediction

 Explores the extremes which challenge the existing business model
 Engaging, interesting, challenging and credible
 Logically consistent with the known facts
 A set of scenarios is mutually exclusive and collectively exhaustive
 A set of scenarios describes a range of possible futures
 Ideally, develop no more than four scenarios, or it becomes difficult to manage them
 Scenarios can be presented in many different forms, such as in a script or a timeline, or within a
discussion
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Underpinning scenarios with analysis

 The descriptive scenarios need to be supported by

numerical analysis, which should:
◗ test the credibility of each scenario Drivers of change
Scenario

Impact
◗ explore the magnitude of changes in the scripts
____
environment ____
____ Risk versus reward
____
_____ ____
◗ evaluate the impact of those changes _____ ____
Uncertainty

Risk
New business Critical
Systems proposal parameters
dynamics model ____ _______
____ _______
____ _______
____ $ value
_____ ____ _______
_____ ____ _______
Cashflow by scenario
Main Business plan

$ cashflow
assumptions
______
______
______
______
______ Time
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Using scenarios for business planning

 Scenarios are used to challenge existing business

models and stimulate new ideas. They form the basis of a Scenario
strategic debate which is radically different to the 1
traditional business planning cycle Option C
 Scenario planning creates a flexible plan for the business
which is composed of a variety of options. The business Option A
moves forward by shifting its weight between these
options. This enables the business to adapt its plans to Scenario
the evolving environment. The aim is to maintain a Present 2
Option E
balance between risks and rewards
Option B

Option D

Scenario
3
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The process of scenario planning

 This diagram shows our basic process for scenario planning. We work within this framework to tailor
solutions to suit our clients’ needs

Set Identify Build Create Refine

Maintain learning
objectives key issues scenarios options options
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Set objectives

 Setting the objectives is the essential starting point for scenario planning, in order to define boundaries
and establish focus
 A client-side strategy manager should be appointed at this earliest stage of the process. This manager will
provide the point of communication between Analysys Mason and the stakeholders
 The objectives for the scenario planning project must be clearly stated and agreed with the key
stakeholders. They should include the following:
◗ time horizon for the scenarios
◗ geographical scope of the scenarios
◗ business units or product areas to be addressed by the project
◗ unavoidable constraints on future plans
◗ definition and deadline for deliverables
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Identify key issues

 The main threats and opportunities facing the company need to be explored in preparation for the
scenario-building activities
 This is best achieved through interviews with the key stakeholders, either individually or in small groups.
These interviews provide an opportunity to:
◗ secure the stakeholders’ acceptance of the scenario-planning process
◗ gain the stakeholders’ trust
◗ listen to their views and concerns
◗ locate important sources of information for later analysis
◗ choose participants for workshops
 The interviews follow a simple process:
◗ prepare an interview script containing a provocative survey of markets, technologies, competitors,
etc, expressed in terms of dilemmas and choices
◗ use this script to gently guide interviews with the stakeholders
◗ collate the information and analyse the results to identify the key issues
◗ feed the analysis back to the stakeholders for review and agreement
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Build scenarios [1]

 Brainstorm the drivers of change, in workshops held with

stakeholders. These drivers may include: Inevitable
◗ business factors Significant
◗ technology factors Impact
◗ socio-economic factors
 Agree upon the impact and likelihood of each driver
 Establish what is inevitable and, therefore, must occur in
all scenarios
Insignificant

Uncertainty
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Build scenarios [2]

 Identify the critical uncertainties, and group them to

understand how they may act together to split the future
into different scenarios
 Check:
◗ the inter-relationships between the drivers with
simple causal networks
◗ that the scenarios are mutually exclusive and
collectively exhaustive
Inevitable Uncertain
◗ that each scenario constitutes a challenging view change change
of the future
 Develop engaging descriptions of the scenarios
supported by research and analysis
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Create options

 The next step is to use the scenarios to brainstorm

business solutions
Establish core
 Additional workshops are held to examine each scenario
plan for all
in turn and generate many possible business solutions scenarios
 From these we derive one simple plan for each scenario.
The set of plans for each scenario are then compared:
Brainstorm Outline simple
◗ the common elements form the core business plan solutions for plans for each
◗ those differentiated by scenario become options each scenario scenario
for the future

Compile series
of options
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Refine options

 The core plan is now established. This next stage refines

the options and finalises the overall business plans
 There is a choice of attitude to take towards the options: Check core
plan in all
◗ focused drive for one future? scenarios
◗ cautious experimentation?
Establish Synthesise
◗ low-risk contingency planning? parameters for and test
each scenario complete plan
 The approach chosen will depend upon the balance
between risk and reward that the stakeholders wish to Check options
maintain in relevant
scenarios
 The various business options are tested in the different
scenarios to evaluate their performance. Tests can
involve script-writing, war-gaming or mathematical Refine
modelling decision
points
 The options are synthesised in one plan and the decision
points defined, in order to achieve the business
objectives
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Maintain learning

 Scenario planning should not be a one-off exercise: the  In the short term, an effective early-warning system can
greatest benefit is gained by continually developing and be created by establishing processes such as:
applying the scenarios ◗ short-listing critical parameters
 Long-term, scenario planning will capture ongoing ◗ summarising significant scenario events
business learning as it evolves
◗ defining how to track critical parameters and
significant scenario events
◗ agreeing management process for tracking
◗ maintaining a strict schedule of reviews
◗ allocating clear responsibilities for tracking
◗ establishing processes for rapidly assessing
Adjust consequences of events
plans ◗ keeping the stakeholders up-to-date with regular
Track bulletins
critical ◗ adjusting business plans to keep pace with change
factors
in the business environment

Review
scenarios
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What is the checklist for success?

 Set a clear objective for the scenario-planning project in close consultation with the stakeholders in the
business
 Build a creative and diverse team integrating client personnel with Analysys Mason team members
 Appoint a champion for scenario planning within the business, to lead the project with support from the
Analysys Mason team
 Gain the commitment of key stakeholders, including board-level sponsorship
 Agree and follow a sound process, based on our experience but tailored to the client needs