I looked into the future, and the time to act is now.

Scenario Plans (& Delphi Research)

Tag: scenario planning

Y2K Scenarios

Scenario Planning when the Official View of the Future is Uncertain

Scenario planning should be back in focus. We go a few years – 10 years now since the Great Recession – and we think that the current trajectory, or the “Official View”, should be consistent this time. But the corona virus brings that all back into focus, even though people are probably not taking it as seriously as they probably should. You have to look at the entire supply chain forward and backward. China plays a major role in many of the world’s supply chains. End consumers on the one hand; production supply chain on the sourcing side. If factories are closed, if people can’t go to work, if people don’t go out and buy the consumption and the supply chain get continually interrupted. China is initiating all kinds of stimulus. Telling banks to be forgiving on impacted factories seems like a good idea; no one wants the factories to go out of business because of such an exogenous event such as the virus. But other stimulus will be rather useless.
Probably no one knows, yet, how this epidemic will play out. There’s no reason to believe that this won’t be rather long and protracted for China. The consequences for China will ripple throughout the world. With a world that is densely (over) populated, there is no reason to believe that such outbreaks will not happen other places, and more frequently.
So, this brings us back to scenario planning. The advantage of scenario planning is that you can build Contingency or Disaster Recovery Plans based on various scenarios. Serious and protracted supply chain disruptions, no matter the cause, seem like logical scenarios.

Right now might be a good time to dust off the Contingency Plans and see if anything needs to be updated, or executed, because of the recent events.
In the 2018 Guide by Hall and Hinkelman, the scenario chapter discusses Y2K as the greatest scenario planning exercise in history. Read about the Y2K Scenario from that chapter (pp. 161-163). Remember that right now many companies are executing their contingency plans related to current events, many others are trying to develop them on the fly – kind of a fly-by-night approach to scenario planning.

<*This section below is reproduced here with permission of the authors.*>
The Great Scenario Planning Exercise, Y2K!
There were several major advantages to corporations’ planning – scenario planning really – that came out of the Year 2000 (Y2K) preparation process. Planners were forced to consider at least two views of the future: the official view where Y2K caused no interruptions, and the view of chaos where it caused massive interruptions (mainly because of sustained interrupts to the power grid). One of the interesting parts of this process is the spillover implication – legally, morally and brand-image-wise – of doing nothing in preparation and being wrong. The scenario planning processes associated with Y2K resulted in stronger business planning and improved disaster recovery plans (DRPs). It also helped with business continuity plans by building stronger relationships with critical business partners.
Many people would say that this is a bad example because Y2K was a bust. Actually, the major push to organize IT and transition from legacy systems has substantially contributed to increased productivity for several years after the turn of the century. Business productivity has been surprisingly low since about 2005. Two examples where the Y2K efforts proved to be well justified are Burger King and FPL.
Burger King Corporation, then a division of DIAGEO, worked very closely with franchisees and its most critical suppliers (beef, buns, fries and Coke) to make sure that there would be no interruption and that contingency plans would be in place for likely situation related to Y2K. By far the biggest risk, and the most attention to contingency planning, went to AmeriServe. AmeriServe was the number one supplier to the Burger King system that had bought out the number two supplier and now represented three-fourths of the global supply chain. Three weeks into the new Millennium, AmeriServe declared bankruptcy! The contingency plans related to distribution had fortunately been dramatically improved during 1999 and continuity actions were immediately executed. Although it had nothing to do with Y2K, per say, much if not the entire contingency plan could be used for any distributor outage.
An adjunct to the Y2K story relates to power. Once organizations got past addressing their critical IT systems, the biggest wild card was power outages. No assurances came from the power companies until just months before the turn of the millennium, and even then, not much was given in the way of formal assurances. Of course, that was too late for a big organization with brand and food safety issues to have avoided the major contingency planning efforts.
Most people did not realize how fragile and antiquated the entire power grid was until the huge Ohio, New England and Canadian black out August 14, 2003 (CNN). A cascading blackout disabled the Niagara-Mohawk power grid leaving the Ottawa, Cleveland, Detroit and New York City region without power. There was a shutdown of 21 power plants within a three-minute period because, with the grid down, there was no place to send the power. Because of a lack of adequate time-stamp information, for several days Canada was believed to be the initiator of the outage, not Iowa.
There have been similar blackouts in Europe. That Y2K could have resulted in massive outages may not have been so far-fetched after all. Ask someone who was stuck in an elevator for eight hours if the preparations for long-term power outages could have been better.
Hall (2009) developed a survival planning approach that would help an organization survive during times of extreme uncertainty, like the Great Recession. Of course, the process is far ahead if the organization already has a good strategic plan (StratPlan) that includes contingency and scenario planning.

References

Hall, E. (2009). Strategic planning in times of extreme uncertainty. In C. A. Lentz (Ed.), The refractive thinker: Vol. 1. An anthology of higher learning (1st ed., pp. 41-58). Las Vegas, NV: The Lentz Leadership Institute. (www.RefractiveThinker.com)
Hall, E. B. & Hinkelman, R. M. (2018). Perpetual Innovation™: A guide to strategic planning, patent commercialization and enduring competitive advantage, Version 4.0. Morrisville, NC: LuLu Press. ISBN: 978-1-387-31010-4 Retrieved from: http://www.lulu.com/spotlight/SBPlan

Scenarios Now and the Genius (hidden) within Crowd

It’s been about 10 years since the Great Recession of 2007-2008. (It formally started in December of 2007.) A 2009 McKinsey study showed that CEOs wished that they had done more scenario planning that would have made them more flexible and resilient through the great recession. In a 2011 article, Hall (2011) discusses the genius of crowds and group planning – especially scenario planning.

The Hall article spent a lot of time assessing group collaboration, especially utilizing the power available via the Internet. Wikipedia is one of the greatest collaboration – and most successful – tools of all time. It is a non-profit that invokes millions of volunteers daily to add content and regulate the quality of the facts. In this day of faus news, Wikipedia is a stable island in the turbulent ocean of content. Anyone who has corrections to make to any page (called article) is encouraged to do so. However, the corrections need to fact-based and source rich. Unlike a typical wiki, where anything goes, the quality of content is very tightly controlled.  As new information and research comes out on a topic, Wikipedia articles usually reflect those changes quickly and accurately. Bogus information usually doesn’t make it in, and bias writing is usually flagged. Sources are requested when an unsubstantiated fact is presented.

Okay, that’s one of the best ways to use crowds. People with an active interest – and maybe even a high level of expertise – update the content. But what happens when the crowd is a group of laypeople. Jay Leno made an entire career from the “wisdom” of people on the street when he was out Jay Walking. The lack of general knowledge in many areas is staggering.  Info about the latest scandal or gossip by celebs, on the other hand, might be really well circulated. So how can you gather information from a crowd of people where the crowd may be generally wrong?

It turns out that researchers at MIT and Princeton have figured out how to use statistics to figure out when the crowd is right and when the informed minority is much more accurate (Prelec, Seung & McCoy, 2017).  (See a Daniel Akst overview WSJ article here.) Let’s say you are asking a lot of people a question in which the general crowd is misinformed. The answer, on average, will be wrong. There might be a select few in the crowd who really do know the answer, but their voices are downed out, statistically speaking. These researchers took a very clever approach; they ask a follow-on question about what everyone else will answer. The people who really know will often have a very accurate idea of how wrong the crowd will be. So the questions with big disparities can be identified and you can give credit to the informed few while ignoring the loud noise from the crowd.

Very cool. That’s how you can squeeze out knowledge and wisdom from a noisy crowd of less-than-informed people.

The question begs to be asked, however: Why not simply ask the respondents how certain they are? Or, maybe, ask the people of Pennsylvania what their state capital is, not the other 49 states who will generally get it wrong. Maybe even put some money on it to add a little incentive for true positives combined with costly incorrect answers such that only the crazy or the informed will “bet the farm” on answers where they are not absolutely positive?

But then, that too is another study.

Now, to return to scenario planning. Usually with scenario planning, you would have people that are already well informed. However, broad problems have different silos of expertise. Maybe a degree of comfort or confidence would be possible in the process of scenario creation. Areas where a specific participant feels more confident might get more weight than other areas where their confidence is lower. Hmm… Sounds like something that could be done very well with Delphi, provided there were well informed people to poll.

Note scenarios are different from probabilities… Often scenarios are not high probabilities… You are usually looking at possible scenarios that are viable… The “base case” scenario is what goes into the business plan so that may be the 50% scenario; but all the other scenarios are everything else. The base case is only really likely to occur if nothing major changes in the macro and the micro economic world. Changes always happen, but the question is, does the change “signal” that the bus has left the freeway, and now new scenario(s) are at play.

The average recession occurs every 7 years into a recovery. We are about 10 years into recovery from the Great Recession. Of course, many of the Trump factors could be massively disrupting. Not to name them all, but on the most positive case, a 4% to 5% economic growth in the USA, should be a scenario that every business should be considering. (A strengthening US and world economy may, or may not, be directly caused by Trump.) The nice thing about having sound scenario planning, as new “triggers” arise, they may (should) lead directly into existing scenarios.

Having no scenario planning in your business plan… now that seems like a very bad plan.

Reference

Hall, E. (2009). The Delphi primer: Doing real-world or academic research using a mixed-method approach. In C. A. Lentz (Ed.), The refractive thinker: Vol. 2. Research methodology (2nd ed., pp. 3-28). Las Vegas, NV: The Lentz Leadership Institute. (www.RefractiveThinker.com)

Hall, E. (2010). Innovation out of turbulence: Scenario and survival plans that utilizes groups and the wisdom of crowds. In C. A. Lentz (Ed.), The refractive thinker: Vol. 5. Strategy in innovation (5th ed., pp. 1-30). Las Vegas, NV: The Lentz Leadership Institute. (www.RefractiveThinker.com)

Prelec, D., Seung, H. S., & McCoy, J. (2017, January 26). A solution to the single-question crowd wisdom problem. Nature. 541(7638), 532-535. 10.1038/nature21054 Retrieved from: http://www.nature.com/nature/journal/v541/n7638/full/nature21054.html

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