Strategic Planning Process

Thinking about the ripple effect

By Erica Olsen ⋅ September 6, 2007 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

We’ve all seen and heard the unsettling headlines pointing to a
business slow down in the news - "Home Foreclosures Skyrocket;"
"Housing Market Continues Slump;" "Disappearing Sales Tax Revenue;" and
"Credit-market Contagion From US Subprime Crisis Affects Global
Economy."

It
is human nature to ignore the bad news rather than pay attention to it.
Whether you think you are immune to this slow down or not, consider the
ramifications of disregarding such an economic change. Wouldn’t you
sleep better if you had a clear idea how to mitigate real risks in your
business operations? One way to lessen the uncertainty of the present
is to plan for the future; have the courage to imagine the worst that
could happen and how you would handle it. A scenario plan will help you
do just that.

Scenario Planning: What If . . . ?
Scenario planning is a way of simplifying a complex future by providing
you the opportunity to ask the "what if" questions and to rehearse how
you may respond should a certain event or trend happen in the future.

Scenario planning was first developed and used by
the U.S. Air Force during World War II and gained acknowledgement in
the business world when Shell Oil utilized scenario planning techniques
to predict the oil crisis of the 1970s. For organizations, scenario
planning provides an invaluable opportunity to have a strategic
discussion around key drivers and critical uncertainties in your
operating environment.

Thinking about the BIG what ifs . . .
The most significant trends likely to affect the larger world are those forces that are the "big" what ifs - the driving forces. These cases tend to push your thinking and are usually classified as the big unknowns. The forces generally come in four flavors:

• Social dynamics: This area includes specific demographic issues such as how influential youth might be in ten years, the growth of the Hispanic community, the tight labor market and the aging baby boomer generation.
• Economic issues: Macroeconomic trends and forces shape the economy as a whole, such as those headlines about the credit market, the bond market and the local housing market.
• Political issues: Outcomes of legislative sessions can impact local businesses as government cuts back on spending due to lower sales tax receipts. Legislative changes can affect tax policies, regulatory issues, employment laws and the like.
• Technological issues: The key trends identified by research firm Gartner include mobile computing, change in telephony, the tight IT job market, business process outsourcing, and regulatory compliance issues.

Identifying which of the big what ifs might impact your firm is the key to scenario
planning for these forces. Some of these may seem farfetched, while
others are quite a bit more likely. Consider, for example, how lenders
have been raising requirements for home loans following the flood of
defaults and late payments on homes purchased with subprime mortgages.
This, combined with still falling prices across most of the US, has
deterred home buyers, leading to a string of poor results and losses
for major US homebuilders. Home ownership rates directly correlate to
the economy and facilitate economic growth. Without economic growth,
sales tax revenue decreases and results in less funding for government
agencies. As a result, a lot of local governments have not increased
spending which affects everyone with a government contract and impacts
the quality of services delivered by the agencies.

In addition to these "big" what ifs, there are also a number of smaller
scenarios that may also hit close to home. We’ll discuss those more in
detail next time in this column when we continue our discussion on
scenario planning.