Benefits Of Scenario Planning And Systems Thinking Business Essay

Scenario Planning

Introduction

Today, organizations are increasingly affected by the growing uncertainty from the macro-environment.. In recent years, it is very common to see some organizations suddenly get into a recession or even fall into crisis because of some changes of external factors. These companies have one thing in common, that is, they all fail to take into account the future. And now a powerful tool which used largely by businesses to solve this problem — Scenario planning. It is a tool which can help organizations think about the future , grasp the trend to look for new profit growth in an uncertain future, help decision makers reshape the mental models and find the correct direction of the future.( Bill and Ian , 2008 )

In order to make us have a better understanding of scenario planning, the following issues will be discussed: Benefits of Scenario Planning, difficulties of implementing scenario planning, PEST Analysis over the period to 2030, risks and opportunities organisations will face and the action plans.

Benefits of Scenario Planning

Scenario planning is a tool of strategic decision-making that does not focus on accurately predicting the future, but is a process that creates a number of possible futures that are credible yet uncertain (Schoemaker, 1995). There is no doubt that companies can gain benefit from scenario planning, and here are the several strengths of scenario planning.

Systems thinking

By using the scenario planning manager can have a systems thinking. Like smart chess players always think clearly and have a variety of possible “scenarios” in the next steps , the “scenario planning” can provide manager a preventive mechanism , before problems occur, manager can deduction the possible scenarios based on a series of logic and empirical facts through the business acumen and the immediate perception, seeing trends in the evolution of things ,shape and the impact of changing trends in the structure. (Mbalib,2007)

In addition,through scenario planning, managers can use systems thinking, take into account the various factors which they think will influence the decision to make a overall well-depth analysis, and to avoid narrow personal bias.

The optimal allocation of resources

Using the scenario planning , companies can predict the possible future scenarios, so that managers can be more aware of the external environment and their company’s status and future directions therefore they can match internal resources to external environment to allocate the resources more effective and rational.

Risk Reduction:

Scenario planning help us understand today better by imagining tomorrow , it is good to help organizations deal with the future uncertainties by aware of the ‘weak signals’ and let them get better prepare to handle new situations to keep business alive and flourishing.

Difficulties of implementing Scenario planning

Scenario planning as a business tool which is aim to help organizations make right decisions, reduce risk, save time and maximum profit. Though the aims of organisations who adopt the scenario planning are the same, there are many inherent difficulties for organisations of differing sizes in implementing Scenario Planning for the first time.

Usually, all the company will faced with these difficulties:

Cost

The costs of scenario planning really depends on the numerous variables such as the organization size, timeframe of the scenarios, teams and those partnering in the strategic planning process and methods of analysis and data collection involved in the planning process

Time

To make an accurate predictions of scenario is very time-consuming. Usually, scenario planning could take around 6 to 12 months for some organizations engaging in depth, multi scenario planning. Data and information from different sources have to be collected and interpreted which makes scenario building even more time-consuming.

Resources

Scenario planning need to use various resources, in addition to money, with the propose of forming a scenario management team it need the external experts to cooperate with internal staff, what’s more, it also need the company’s data resources from different departments.

Small companies

For a small business, such as self-employed and partnerships, they generally just have a short-term plan with the goal of maximum profits, and usually make decisions relatively easy just simply focus on cost, price and output decisions. As for a small business, they has few competitors and the external business environment is relatively stable and certain which has little effect on their business.

Since the first time implementing scenario planning, companies may not well aware of the real needs of the company, though they do not need a complex scenario planning, do not need to have such high sensitivity of external influences, do not need such resources, technical staff they may still spend too much time and money on it which will increase the costs of company and may not take advantage from scenario planning.

Large, multinational companies

With the turbulent external business environment and the increasing competition it is necessary for large, multinational companies to adopt Scenario Planning in order to survive and prosper.

Although large companies have abundant resources or access to the necessary resources in terms of expertise, time and money, there are still many inherent difficulties for organisations in implementing Scenario Planning for the first time.

How far ahead should organizations predict

“The time horizon for scenarios must be short enough to create scenarios that are probable, but long enough for us to imagine that important changes with an impact on the future business can take place.” (Lindgren, M. and Bandhold, H. (2003))How long should organizations take into consider ,it is a vital issue. With the accelerated pace of world change, the further predict, the more complex. More aspect need to consider, and the predictions are less accurate. However, if the prediction of the time too close it will not achieve any effect.

How many scenarios

For a company it is not necessary to say that the more scenario planning the better future of the company and of course, it make no sense of the company development if company has too little scenario planning. All the scenario planning need to prepare action plans and corresponding measures, have too much scenario planning not only take times and waste money but also may increase the operational costs of the company, however, if with few scenario planning it cannot help company predict the future to avoiding the risks

PEST Analysis over the period to 2030

Today, due to increasing concern for sustainable development, global economic competition and technological advances ,change is happening faster than before which increased the business uncertainty . For this reason, scenario planning has been unprecedented attention. In order to make the correct prediction of what might happen in the business environment over the period to 2030 , it is important to have an understanding of what are the key drivers of external change .The best way to do this is to monitor and analyze trends and scan the current environment. There is a particularly useful tool -PEST (Political, Economic, Social, Technological) analysis can help organization to identify the different forces. http://www.jiscinfonet.ac.uk/tools/scenario-planning/trend-analysis

Political:

BRICK adding new member–South Africa.

BRICK expanded five-member bloc known as the BRICS, which groups Brazil, Russia, India, China, and, for the first time, South Africa. (Mainichi,2011)

The expansion of the BRICS have a great impact in the western business environment over the period to 2030. Since BRIC countries are facing a great historical opportunity for development, their development will bring a significant impact on the global economy and global structure .According to the global economic report of Goldman Sachs: (Dreaming with BRICs: The Path to 2050), BRICs will guide the world economy in 2050 coquettish. And “BRIC” has been trying to expand its influence which make the western countries have to be careful to look at the next step plans of these emerging economies . In addition, more and more international investors are divide their asset allocation according to the “BRIC”. And O’Neill, chief economist at Goldman Sachs, said the “BRIC” will catch-up G6 in the next 20 years.

Economic

Globalization

It can be said that the developed countries led economic globalization as they master the world’s most advanced productivity and technology. However, according to the annual World Economic Report which published by The World Bank reported that by 2030, the global economy will grow from 35 trillion U.S. dollars in 2005 to expand to 72 trillion dollars, the share of total global output of developing countries will from the current 1 / 5 to nearly 1 / 3 and the share of the global purchasing power will occupy more than 1 / 2. Report also highlighted a general underlying trend: in the next 25 years, developing countries will be a major force in global economic growth. (Sujingxiang,2006)

Over the period to 2030, with the spread of new technologies such as the Internet, developing countries will go from the periphery to the center of the world economy, and gradually grow into an important engine for global growth, however , the developed countries, the influence on globalization is weakening , some organization and workers of developed countries were impact by the developing countries, particularly in emerging economies competition. Manufacturing and other traditional industries were in trouble which increased unemployment and the downward pressure on wages.(Haoran, 2009)

Social

Change in consumer behavior pattern

As technology developed, people gradually changed their consumption habits, “staying at home, online shopping” has become a way of life that are interested by Internet users.

The eMarketer estimates that over 68% of UK web users ages 14 and older will buy online at least once per month in 2011-a total of more than 27 million people.

It estimated that between 2009 and 2014 he size of the UK online shoppers will continues to grow, penetration rate of online shopping users in 2014 will reach 71.1%. And the UK online shoppers will continue to increase in the future.

http://www.emarketer.com/Report.aspx?code=emarketer_2000779

Since more and more people prefer online shopping and the number of people seems keep increasing, it can be said the online shopping represent the future direction of business. Face with this huge online consumer groups, organizations should seize the opportunity to develop the online shopping channels. However, The online shopping will change the business environment over the period to 2030. It will change the competitive basis and competitive approach among the organizations. E-commerce is information-based, the level of the access to information determine the market competitiveness of organizations .

Technological

Web 4.0 is transforming the Internet landscape

according to Spivak’s predictions, by the year of 2031 the next generation of internet–“Web 4.0” will appear which further convergence of the online and physical world

http://www.zmogo.com/web/web-40trip-down-the-rabbit-hole-or-brave-new-world/

Technology innovation will also influence the business environment during the period of now to 2030, With “Web 4.0” which increase speeds and bandwidth, coupled with high-speed wireless access will enable information exchange on an unprecedented level.

Risks

Competition:

The expansion of the BRICS and the increasing globalization will lead to more competitors from developing countries such as China and India. Similarly, with the increasing number of Internet users and network development, e-commerce appears which changes the business environment, reducing the trade entry barriers, blurred industry boundaries and expanding the scope for competition.

Information management

The improvement of network technology will allows us to enter an information age, as the network is free and open which will make the global information more transparent, everyone can master the competitor’s product information and marketing dynamics.

Opportunities

E-commerce

E-commerce can significantly reduce inventory costs. Compared with the traditional commerce, E-commerce with high speed and fewer links, what’s more, it does not have pressure on inventory, a well-run electronic store can even be zero inventory, no bear any pressure on the stock which will save a considerable costs.

Internet

Over the past 20 years the revolution of Internet has changed business model, and similarly, in the next 20 years, the network’s development will bring new opportunities to the organization. With increasing speeds and bandwidth, coupled with high-speed wireless access will enable information exchange on an unprecedented level organizations can use business information effectively to fully serve their customers and attract more customers. What’s more, they can also open up international markets and change production environment in order to gain more profits.

Action plans

Since We have listed the key factors of the changes of macro environment in the next 20 years and also found out the opportunities and risks which company may experience in the future .In order to survive and make the company prosperous, companies should make some corresponding countermeasures.

Improve management systems

With the next generation of internet–“Web 4.0” appears and the increasing online shoppers , organizations should improve their management systems in order to catch the pace of business.

Organization can adopt the commodity cloud computing and during the production process , using the computer-aided design and manufacturing (CAD / CAM) based on the management information systems (MIS) to establish the computer integrated manufacturing system (CIMS).Using these new manage methods to combine the production technology and information technology together and to upgrade the traditional mode of management system.

(Shizhenxi,2010)

Focus on global strategy

It can be said that with the economic globalization, the increasing integration of world economy is becoming an unstoppable trend, the world is entering an “era of borderless competition”. Only focus on the domestic market is not enough, organization should develop foreign markets.

Organization should develop and allocate resources in global in order to survive and prosper in the future.Organization can gradually develop and allocate the capital, labor, technology, resource from domestic to global. Distribute the capital according to different regions to reduce financial risks, establish appropriate technology development centre in different regions to gain the local advantage in order to enhance their technology competitiveness .

Conclusion

Lindgren, M. and Bandhold, H. (2003) Scenario Planning; The Link Between Future and Strategy. Basingstoke, Palgrave MacMillan. (pg53)

Scenario Planning Handbook Bill Ralston)、伊汉·å¨å°”逊(Ian Wilson2008 http://product.china-pub.com/826843&ref=browse

2007, http://wiki.mbalib.com/wiki/%E6%83%85%E6%99%AF%E8%A7%84%E5%88%92

http://www.jiscinfonet.ac.uk/tools/scenario-planning/trend-analysis

(Mainichi,2011) http://mdn.mainichi.jp/mdnnews/business/news/20110414p2g00m0bu044000c.html

(Sujingxiang,2006)

http://news.xinhuanet.com/world/2006-12/22/content_5518332.htm

(Haoran, 2009)

http://www.zh09.com/lunwen/jjx/gjjj/200912/373158.html (对经济全球åŒ-的再思考)

14 Web 4.0,Trip Down the Rabbit Hole or Brave New World?, zmogo.com:

http://www.zmogo.com/web/web-40trip-down-the-rabbit-hole-or-brave-new-world.

Accessed 7th June 2009.

(Shizhenxi,2010)

http://www.fenghuang163.com/blog/article/327.html

http://www.chinact.org.cn/Html/200672714031-1.html

http://www.facebook.com/note.php?note_id=192147837462567

http://blog.sina.com.cn/s/blog_65e8dd750100ny4h.html(博客)

Schoemaker, P.J.H. and van der Heijden K. (1992) “Integrating Scenarios into Strategic Planning at Royal Dutch/Shell,” Planning Review. Vol. 20 (3): pp.41-46.