Transcript Title

The Role of Scenarios in
Business Strategy Development
GARP Conference
May 2011
Richard Walsh, Director, SAMI
Consulting
Scope of presentation
• Business strategy is very broad....
• Which business?
– Here I will concentrate on financial services but there are links to
BS in:
– Governments – National, Global and local
– Other sectors – eg health, environment etc etc
• And what timescale?
– Now?
– 3-5 years time?
– 5-10 years time?
– 10 – 20+ years time?
• Its a complex world and its not all going as it “should”
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Bank Bailouts
Expenditure $US bn 2008
2009-12 Obama
stimulus plan
Louisiana
purchase
Marshall
Moon
plan
shot S&L crisis
Korean war
The New Deal
Iraq war
2008 tranche of the bank
bailout
Viet Nam
NASA, less moon
shot
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Outcomes by country – what
we thought – but for how long?
Slow return to
health; US
consumer
stage centre
Banking crisis remain chronic, as
does state intervention
Japan
UK
US
Slow grind to
expunge debt;
some
deliberate use
of monetary
inflation
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Prolonged
depression,
growing statist
environment
Euro zone
Middle
income
industrialising
India
China
Banking crisis is settled relatively
quickly
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Business
grows as
before
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World Economic Forum - 2011
Perceived impact US BN $
1000
100
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Perceived likelihood in next 10 years
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Here be dragons....
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London population forecasts – its
demographics so it’s certain???
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8
1991
forecast
7
6
5
4
Actual
Forecast now
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2
1
0
1951
1971
1991
2006
A trend is a trend until it bends
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2016
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Forecasts miss the point?
Single point forecast
Today
Range of other
uncertainties
Trends
Uncertain
timing
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Scenario planning
Number of Possible Future Worlds
Scenario planning attempts to describe what is possible.
The result of a scenario analysis is a group of distinct futures, all of which are plausible.
They are mental models.
B
C
A
D
Present
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Future
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Using scenarios
• Scenarios are artifacts – mental models
• Are used to test existing strategies – “wind-tunnelling”
• Communication depends on audience
– Actuaries, business development, government
– Engineers & scientists – comparator tables
– Managers – brief
– “Public” – visualisation & stories
• All audiences helped by early indicators
– Newspaper headlines now if this scenario is developing
• All audiences need time to internalise, eg
– “What are the implications for me/the organisation? “
– “How would I/the organisation manage in this scenario?”
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Long finance scenarios –
2030...2050
• Gresham College and Z/Yen have initiated a
Foundation to study Long Term Finance
• Issues tackled so far include the future of
mortgages, the history and future of coinage,
and a systems view of the credit crunch
• the Long Finance Forum of Futurists (L3F) has
formulated scenarios for the future of finance
• SAMI consulting have worked as part of this
enterprise and we have involved many
stakeholders
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What we can forecast for 2050
• Predicting the future is fraught: there is always a tension
between the evolution of existing trends and “a trend is a
trend until it bends”. Our scenarios assume that:
• Global population will grow to 9 billion and get older
• Major shifts of centres of economic power
• Technology (info, cogno, bio, nano) will continue to
introduce changes
• ICT will underpin much of society
• Ecological, energy and environmental limits tested or
breached.
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What are the uncertainties?
• Will our economy and society be similar to now,
– called the Washington consensus
– or
– will there be a new paradigm based on community (of
interest or geography?)
• (for financial services) Does geography matter?
– eg City states or
– Will markets be global and so largely virtual?
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Scenarios for 2050
Community based
Many hands
Long hand
Virtual connections
Geography matters
Second hand
Visible hand
Washington consensus
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Timeline - Three Horizons
Dominance
of paradigm / worldview
3rd horizon
STATUS QUO, MOMENTUM, INERTIA
Invent, Develop, Deploy
Fading
paradigms &
technologies
Research,
Demonstrate,
Disrupt
Transition
paradigms &
technologies
Pockets of
future found
In present
CURRENT
TRENDS &
DRIVERS
2nd horizon
Envision, Explore, Embody
EMERGING
ISSUES OF
CHANGE
1st horizon
Time
“present” - 2011
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2030
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“future” - 2050
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Implications
• Depends on your audience
• We looked at:
– Investors
– Guarantors – insurers and re-insurers
– Corporates and governments
– Traders
– Consumers
• For today, lets look at investors and guarantors
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Second hand
• Capitalism, nation states, democracy and western value
systems still dominant as concepts,
– though not all countries/regions are moving to embrace these
• Nearest to current paradigm but
–
–
–
–
Degradation of state capability
Technology has sustained population
Individual “singularity” & common bio-engineering
Health care better for the rich
• How to handle global commons?
– What efficiencies are lost?
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Early indicators – second hand
• US and Europe maintain military strength but
lose economic strength
• States fail to provide pensions, leaving provision
to individuals
• Large corporates play an important role in
international “Washington” consensus
• Food technology reports breakthroughs which
will feed more people without more land
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Implications for investors – second
hand
• Implications for Investors in 2050
– The investment picture by 2050 will be dominated by
the tailing off of population growth and an increase in
aggregate wealth.
– Nations will be increasingly desperate to attract funds
to pay pensions and invest in infrastructure
• Implications for Investors now – no surprises!
– State has an increasing role as regulator of pensions
and security.
– Individuals have increasing personal responsibility for
pensions and security.
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Implications for guarantors – second
hand
•
•
Implications for guarantors in 2050
– Depends on whether volatility has become manageable: bigger bets
and systemic risk tend to increase volatility and damaged internal
consensus unable to cope
– Much more focused insurance – specific risks etc – using ICT
connections & analysis
– Insurance much more global and broader based – different countries;
based on commodities; gold
– More trading areas – fragmentation
Implications for guarantors now
– Empowerment of middle classes
– Social networking growth – sporadic clamp downs will not halt this
growth
– Role of information - readily available – no value; commercially useful –
very valuable
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Visible hand
• Capitalism, democracy and western values still dominant
– Significant stand-outs and international tensions
– Global markets
– National governments in retreat
• Evolution of Washington consensus
– Rethinking of taxation & pensions
– Food revolution successful
– ICT underpins all
•
State as shelter from volatile world
– Some welfare state provision
• How to learn to handle global commons?
– Lack of diversity
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Early indicators – visible hand
• States place citizens’ benefits and education as
priority over other expenditure
• States work with affinity groups to provide
pensions
• Large corporates play an important role in an
international consensus
• Food technology reports breakthroughs which
will feed more people without more land
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Implications for investors – visible
hand
• Implications for Investors in 2050
– The investment picture by 2050 will be dominated by
the tailing off of population growth and an increase in
aggregate wealth.
– The state has a powerful role in regulation and
provision of pensions and investment products.
• Implications for Investors now – back to the future
– State has an increasing role as regulator and supplier
of pensions and security.
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Implications for guarantors – visible
hand
•
•
Implications for guarantors in 2050
– Depends on whether volatility has become manageable: bigger bets and
systemic risk tend to increase volatility and national states not able to cope
– People will look for self-protection with like minded people, insurance largely
national
– Those dependent on benefits in Europe will suffer hardship and organise –
revolution and organised crime for some; prudence and financial self help for
others
Implications for guarantors now
– Decreasing tax returns from national systems – welfare systems suffer –
opportunity for guarantors
– Rise of affinity groups as source of purchasing power
– Role of information - readily available – no value; commercially useful – very
valuable
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Long hand
• Community rather than nation states dominate
– Multiple value systems accommodated
– Democracy not seen as universal good
– Break caused by extreme weather in 2030’s
• Rethinking of the economic and social challenges
– Technology has not solved global problems, eg ecology, energy
– Technology redefines financial services
– Location less important in forming groups, eg religious, ethnic,
hobbyist, professionals, companies, employees, -----
• How to enforce global regulation
– International as sum of communities vs nations
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Early indicators – long hand
• States cannot finance state benefits
• Increase bartering and skills exchange
• Decreasing tax returns from individuals, switch
to consumption/sales taxes
• Rise of affinity groups for financial transactions:
growth in private pensions/insurance:
strengthening of some communities, including
emergence of 21st century “guilds” across
national boundaries
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Implications for investors –
long hand
• Implications for Investors in 2050
– The investment picture by 2050 will be dominated by the tailing
off of population growth and an increase in aggregate wealth.
– This scenario could result from the collapse of Visible Hand due
to inefficiencies of global giants.
– Assets allocated by the market and intermediated by technology
– Affinity groups across national boundaries, growth in private
pensions/insurance
• Implications for Investors now – new opportunities
– Affinity groups across national boundaries have increasing role
in providing pensions and security.
– Opportunities in personal wealth management, not just High Net
Worth individuals
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Implications for guarantors – long hand
•
•
Implications for guarantors in 2050
– People will look for self-protection with like minded people
– A lot of excluded people: those dependent on benefits in UK will suffer severe
hardship – unable to buy basic foodstuffs: the excluded will get together too –
revolution and organised crime for some; prudence and financial self help for
others
– Overall world is running out of water, populations increasing – and uneven
distribution – communities will try to create a ring fence around resources - food,
water, mining, agriculture
Implications for guarantors now
– States cannot finance state benefits
– Increased bartering and skills exchange (you do this for me and I will do that for
you)
– Decreasing tax returns from national systems
– Rise of affinity groups as source of purchasing power.
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Many hands
• Community is organising concept
– Cities as wealth clusters “brands”
– Sees the failure of nation states
– Democracy, capitalism and western values competing with other
organising concepts, UN etc disappear
– Break caused by extreme weather in 2030’s
• Rethinking of the social and economic challenges
– High mobility of people for economic self interest
– Borrowing person to person, mediated via technology
– Corporations with global span strong; media important
• Global commons abandoned
– Conflicts in values, fewer implicit norms
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Early indicators – many hands
• States cannot finance state benefits: decreasing
tax returns from individuals, switch to property
taxes
• ICT companies stepping back from
integration/open systems, failing of the Cloud
due to security issues
• Failing of the euro
• States reduce fiscal transfer to country regions.
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Implications for investors – many
hands
• Implications for Investors in 2050
– The investment picture by 2050 will be dominated by the tailing
off of population growth and an increase in aggregate wealth
– Equity trading focused on local companies – few global players
– Security of supply a valued asset
– International regulation weak
• Implications for Investors now – resource boom continues
– Growing importance of fundamental resources: build capabilities
around resources trading/investing
– “Ethical” investments aligned to resource management
– Invest in intelligence gathering, analysis and reputation
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Implications for guarantors – many
hands
•
•
Implications for guarantors in 2050
– Depends on whether volatility has become manageable: bigger bets and
systemic risk tend to increase volatility but city state structure dampens
– Much more focused insurance – specific risks etc – using ICT connections &
analysis
– Insurance much more global and broader based – different countries;
commodities and scarcity
– End of single currency and instability
– More trading areas – fragmentation
Implications for guarantors now
– Empowerment of middle classes
– Social networking growth – sporadic clamp downs will not halt this growth
– Role of information - readily available – no value; commercially useful – very
valuable
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Bets for 2030?
• Investors
– Bet on growing population, scarcity of
resources, growing economies?
• Guarantors
– Bigger bets, but systemic risks leading to
greater volatility?
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Bets for 2050?
• Investors
– Bet on tailing off of population growth but
increase in aggregate wealth?
• Guarantors
– Depends whether world has learnt to manage
volatility, eg through localism – who knows?
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Who knows?
• No one
• So scenarios can help strategists etc test
their bets for robustness
• Early warning signs?
• What would you do in all scenarios?
• Which are most likely in which timeframe
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