Strat­egy

four sce­nar­ios to stress test your strat­egy

The Smart Manager - - Contents -

Gi­u­lia Trom­bini, Mike Wade, Stephan Mon­terde, Chris­ti­aan Kuun, John Gar­rity, and Ivy Buche, en­vi­sion four plau­si­ble fu­ture busi­ness sce­nar­ios, and drive home the need for busi­nesses to be ag­ile in or­der to fit in any of th­ese sce­nar­ios.

Change has been re­lent­less since the turn of the mil­len­nium, and the pace of change is only ex­pected to ac­cel­er­ate as we move into the next decade. Sev­eral fac­tors are con­tribut­ing to this ac­cel­er­a­tion— from the in­creas­ing speed of in­no­va­tion and tech­no­log­i­cal change, to the rise of new dig­i­tal play­ers, as well as shift­ing con­sumer pref­er­ences. Un­sta­ble so­cio-po­lit­i­cal and eco­nomic en­vi­ron­ments fur­ther com­pli­cate the pic­ture, as in­ter­con­nected mar­kets, sec­tar­ian vi­o­lence, mass mi­gra­tions, and other events make economies more ex­posed to crises and fi­nan­cial shocks.

This un­cer­tainty means that to­day’s busi­ness lead­ers can no longer ac­cu­rately pre­dict the fu­ture to drive strat­egy and de­ci­sion-mak­ing. At best, they can en­vi­sion mul­ti­ple fu­ture sce­nar­ios and build their or­ga­ni­za­tions to be adapt­able to chang­ing sit­u­a­tions.

Through work­shops hosted at IMD in the fall of 2015, aca­demics and industry stake­hold­ers have jointly come up with four plau­si­ble but dif­fer­ent vi­sions of the world in 2025.

sce­nario 1: the global bazaar

This is per­haps the one most sim­i­lar to the world as we know it to­day. Mar­kets are global, industry bound­aries are blur­ring, and in­ter­net is ubiq­ui­tous. This is a fu­ture of con­tin­u­ous change, where rev­enue streams are un­locked by new tech­nolo­gies, busi­ness-friendly reg­u­la­tion, and an open geopo­lit­i­cal en­vi­ron­ment. How­ever, fluid mar­kets and a hy­per­com­pet­i­tive en­vi­ron­ment mean that cor­po­rate volatil­ity is ex­tremely high, mak­ing it dif­fi­cult to sus­tain per­for­mance con­sis­tently over time.

Ex­ec­u­tives should ex­pect cus­tomers to be­come harder to en­gage and less loyal. Value is co-cre­ated through shift­ing re­la­tion­ships with mul­ti­ple chan­nel part­ners. Com­plex in­for­ma­tion flows have to be man­aged in re­al­time across com­pany bound­aries.

Com­ing to terms with op­er­at­ing in the ‘global bazaar’ may mean go­ing against es­tab­lished man­age­ment prac­tices, and is thus likely to re­quire ex­treme agility and deep cul­tural change.

sce­nario 2: cau­tious cap­i­tal­ism

In this sce­nario, the open global busi­ness land­scape is chal­lenged by a shift in the dig­i­tal be­hav­ior of con­sumers, who be­come more con­cerned about the lack of con­trol over their per­sonal data. They are shocked by weekly sto­ries of per­sonal, pro­fes­sional, and fi­nan­cial dam­ages due to data theft. This shift trig­gers new com­pet­i­tive dy­nam­ics; com­pa­nies that want to main­tain rev­enue streams need to col­lab­o­rate and cre­ate se­cure ecosys­tems. Trust be­comes a source of com­pet­i­tive ad­van­tage.

Growth in cy­ber­crime—al­ready pre­dicted to cost busi­nesses $2tn a year by 2019—trig­gers a de­bate around sur­veil­lance, hack­ing, and data col­lec­tion. As con­sumers learn how busi­nesses are track­ing them on­line and mon­e­tiz­ing their per­sonal in­for­ma­tion, they de­mand im­proved pri­vacy. They are less likely to click on on­line ad­ver­tise­ments, use un­known apps, and dis­able lo­ca­tion track­ing.

This sce­nario is good news for es­tab­lished brands with long track records that can lever­age the de­sire for safe, trust-based, long-term re­la­tion­ships. Part­ner­ing with tra­di­tional busi­nesses or well-es­tab­lished brands may be the

best way for newer dig­i­tal play­ers to ac­quire and re­tain cus­tomers.

sce­nario 3: ter­ri­to­rial dom­i­nance

Mar­kets be­come in­creas­ingly re­gion­al­ized, in­dus­tries ex­ist in dis­crete si­los, and the pub­lic is skep­ti­cal about on­line ini­tia­tives. Con­sumers de­sire a sim­pler, more lo­cal lifestyle. The in­ter­na­tional en­vi­ron­ment is more com­plex, as many coun­tries re­turn to pro­tec­tion­ism. Lo­cal industry reg­u­la­tion is tight­ened, leav­ing lit­tle room for crossin­dus­try in­no­va­tion. Eco­nomic growth is stag­nant, and com­pa­nies have to fo­cus on ef­fi­ciency gains.

Big re­gional com­pa­nies with gov­ern­ment sup­port will dom­i­nate in this busi­ness land­scape, while en­trepreneur­ship is scat­tered and mar­ginal. Suc­cess re­quires a fo­cus on tra­di­tion, lo­cal tastes, and dis­tinct sec­toral com­pe­tence. We will see very lit­tle of the industry blur­ring or glob­al­iza­tion that char­ac­ter­ize the first sce­nar­ios.

sce­nario 4: re­gional mar­ket­places

The world is di­vided into re­gional clus­ters, each fol­low­ing its own rules in trade, busi­ness pol­icy, and In­ter­net gov­er­nance. Gov­ern­ments are fos­ter­ing in­no­va­tion in their own re­gions, and pro­tect­ing lo­cal play­ers from in­ter­na­tional com­pe­ti­tion. In such a busi­ness land­scape, in­no­va­tion is lo­cal, prod­ucts are re­gion­ally tai­lored, and multi­na­tional com­pa­nies are strongly chal­lenged. Re­gions are dy­namic and pro­gres­sive, but in­creas­ingly di­ver­gent from one an­other.

Busi­ness lead­ers must grap­ple with the fact that a re­gional power’s reg­u­la­tory or pol­icy changes could chal­lenge their com­pany—for in­stance, a gov­ern­ment could de­mand that tech­nol­ogy com­pa­nies hand over their source code in re­turn for per­mis­sion to op­er­ate.

Par­tic­u­lar strate­gic con­cerns are likely to in­clude economies of scale, as a re­gion­al­ized mar­ket will make this con­sid­er­ably harder to achieve; sup­ply chain con­cerns such as re­gions man­dat­ing that for­eign firms work with lo­cal sup­pli­ers; and the high cost of en­try (or exit) when at­tempt­ing to com­pete against po­lit­i­cally-con­nected do­mes­tic play­ers.

need for agility

While all four of the de­scribed sce­nar­ios are plau­si­ble, we can­not know which, if any, even­tu­ally be­comes a re­al­ity. What is clear, how­ever, is the need for cur­rent ex­ec­u­tives to build or­ga­ni­za­tions that are suf­fi­ciently ag­ile to com­pete in which­ever sce­nario emerges. To­day, more than ever, it is es­sen­tial to un­der­stand mar­ket shifts in or­der to nav­i­gate un­cer­tainty, re­spond quickly to change, and en­sure busi­ness sus­tain­abil­ity.

This is an edited ex­tract of a re­port by the Global Cen­ter for Dig­i­tal Busi­ness Trans­for­ma­tion, an IMD and Cisco ini­tia­tive, ti­tled The Busi­ness World in 2025: Four sce­nar­ios to stress test your strat­egy, by Gi­u­lia Trom­bini, Cisco Cor­po­rate Strat­egy Of­fice; Mike Wade, IMD Busi­ness School; Stephan Mon­terde, Cisco Cor­po­rate Strat­egy Of­fice; Chris­ti­aan Kuun, Cisco Cor­po­rate Strat­egy Of­fice; John Gar­rity, Cisco Gov­ern­ment Af­fairs; and Ivy Buche, IMD Busi­ness School.

The in­ter­na­tional en­vi­ron­ment is more com­plex, as many coun­tries re­turn to pro­tec­tion­ism.

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