The "What if?" exercise (Episode Three)

So far we’ve seen what scenario thinking is about, and when it is suitable to apply this kind of technique. Last time I promised to go over the steps to be followed when building scenarios, so let’s get to it! The figure below shows the complete cycle… in this post I’ll present the first three steps.

Step 1 Focus on the main issue

If you look at the cycle represented in the figure, the first step would be choosing the topics we want to explore by using scenarios. Remember we’ll be getting into this process when addressing major decisions, so the situation to analyze will be probably something like how the future of a company is going to be fifteen years from now, or how a certain market will evolve over the next decade or so.

Say you’re an executive running a retail company operating in markets that are already developed. Of course you can’t ignore the fact that more and more people are choosing to shop online instead of stores… so you’ll probably want to find out what would be the ideal virtual-VS-traditional-store mix in the future.

If your company belongs to the energy sector, you’ll want to know what the future will look like in terms of the exploitation of different sources. What kind of renewable energies would you invest in? Is the region your company operates in going to switch to alterative energies, or will it stick to oil and nuclear? Are biofuels really going to play a significant part in the story? I find this example especially illustrative, because investments in capital intensive industries are really like the long term investments… it’s not only about R&D: you also need special equipment for obtaining and processing the products, a lot of trained people, a strong infrastructure for distribution, and so on and so forth.

What if you were in the service industry… say you’re a logistics company. It’s pretty clear that paperless processes are becoming more and more common, which is in theory bad news for your business. But it’s also true -forget about the crisis for a minute- that global trade has been growing substantially so, bingo! You have a major opportunity if you manage to offer a good overseas service. Since I’ll be developing the logistics case later in this series, let’s leave this here for now.

One last example: what if instead of being part of a company you were a government official thinking about the future position of your country in the world market? You probably know the world population is growing, and that people in some emerging countries are starting to have better life standards. Why not satisfy part of these new needs by producing food, for example?

I got all excited and this is only the beginning, but the thing is: whoever you are and regardless of the field you operate in, you’ll want to explore the possible shapes the future could take, and start to visualize the tendencies that are developing in the present.

Step 2 Identify the uncertainties

We already accepted that things are going to change ten or twenty years from now. If you’re lucky enough, some variables will be somehow constant or at least predictable, but some others definitely wont.

Going back to the retail-exec case, it’s undeniable that people are getting used to shopping online… perhaps most of your target consumers prefer this option nowadays. But is this tendency going to be sustainable? What is your competition going to do, have both stores and a website, or just one of them? Maybe a new competitor is going to show up, with a fancy online store and no “real” operations apart from warehousing and distribution. The latter would mean no cost for maintaining stores and paying employees working in them, which could translate into costs tat are lower than yours, and therefore that this new actor could sell cheaper products that would and steal your clients, or have a better profit margin.

So the outcome of this step would be a list of the variables that are significant for the future of your business, and whose behavior is particularly hard to predict.

Step 3 Investigate the driving forces

So far we have the tendencies and the uncertainties... but what are the underlying motives that could lead your stakeholders in one direction or another?

For instance, what makes people buy books in Amazon, or get their clothes online instead of going to a shopping mall? As an example, I have a friend living in Australia that always gets t-shirts from Threadless, a website that sells pretty unique designs. He told me that he prefers this option instead of going to regular stores because everyone in Australia has quite similar clothes and it’s hard to stand out (he’s kind of a design freak… I say it in a good way, Jxe :P), and buying online is cheaper than traditional shopping, even after paying the shipping from the US.

This step is crucial in the process: you basically have to sit down and determine why your customers, your suppliers, the government, and your competition would behave like this or like that; what they do today, and what they are going to do in the future, and why. Of course, the different combinations of these tendencies will take the shape of the scenarios.

How should you do this? I’d suggest trying to get as many different relevant voices as you possibly can, and engage these actors into workshops, focus groups or any other sort of meeting you can think of.

Having fun so far? Great, because we have five more steps ahead, and some examples of real usage of this technique... leave your comments and be back soon! :)

The "What if?" exercise (Episode Two)

Back in the first episode of this series I gave a very general idea of what the scenario thinking technique implied. If we go to a more detailed explanation, this method for planning is a structured process of thinking and anticipating the future, but assuming that the future is not predictable, determinable, or even able to be influenced in a major way. Instead, the objective is to identify the underlying driving forces that make systems evolve, in order to set the path for proper decisions. The outcome of the process is a number of narrative descriptions (the famous scenarios!) depicting possible ways the future could look like for some particular topic (or product, or market, or country, and many other ors); and based on these pictures of the possible future, a set of strategies to be implemented.

In simpler words, companies working this way would have a number of action plans that would help them act faster than those who don’t use this tool, no matter how the future unfolds. So far it sounds amazing, almost like magic: it’s like “Ok, our company can’t control the future, but no matter what happens we’ll be ready to be on the battlefield and perform fantastically well”. The bad news: first of all, building scenarios is not exactly simple (it’s not rocket science either, but it requires a lot of effort); and second of all, as any other tool, it’s not useful for just any case.

I found an interesting article on strategic planning in the McKinsey Quarterly written by Hugh Courtney, from where I borrowed the figure below:

What this figure represents are different levels of uncertainty a company -or any other organization or group of organizations: a particular sector or market, a government, a number of countries- can be immerse into when facing a certain situation. In fact, whoever we’re speaking about will be probably dealing with all four levels of uncertainty at the same time in different aspects of their operations.

Let’s take a company from the consumer goods sector as an example. If they have to buy copy machines for a new office, they can just study their consumption in the past years and decide based on those numbers and some estimations on whether the number of copies has been growing or reducing over the recent times. It wouldn’t make much sense to gather a group of specialists to interpret what are the underlying driving forces and making up descriptions and action plans.

We could assume that this same company is doing good in its market (that’s why they opened the new office): they have launched a product some months ago that the consumers are enthusiastic about, and their Marketing department has conducted some studies that indicate that in the near future the sales will keep on growing. In this situation, the company could be facing a crossroad: for working at a larger scale, they could purchase new equipment, work more hours, or outsource part of the production. This situation is clearly more complex than the one regarding the copy machines; still, a good decision tree seasoned with the opinions of some of the executives would probably be enough.

But now let’s say that this company is looking further than just the near future, and that they perceive some trends in the market. Like people wanting to consume healthier food, or expecting more from the products but paying the same price, or paying less for what the company offers today. These matters are way more complex, and probably less tangible or countable. What would be better, to launch a healthier line of products, or to modify the existing ones? To start operating in less developed markets, where the consumers wouldn’t expect so much from the products? And last but not least, what would the competitors do if the company decided to implement any of those strategies? (What’s worse, they could make the first move.)

I’m pretty sure you get the picture by now: scenarios are more appropriate for decisions belonging to levels 3 and 4 of the figure. Fantastic, now that we now when to and when not to use this technique, the next question is how to do it… find out next time!

The "What if?" exercise (Episode One)

This new series of posts will be based on some really interesting things I learned at one of the workshops during the WBD, “Future of Logistics 2025: Global Scenarios”… and as an original way of starting, I have an acknowledgement, a disclaimer and a confession.

Acknowledgement I’d like to specially thank Dr. Heiko A. von der Gracth, who was in charge of the workshop and kindly sent me a lot of material to share with you.
Disclaimer If you started reading this and you’re not very much into logistics don’t worry, because most of the things I’ll be writing about can be perfectly adapted to any other industry.
Confession I’m not that good for finance and economic forecasts, which is one of the main reasons why I love so much the techniques I’m about to share with you.

All that being said, let’s get started! Have you by any chance heard about uncertainty in these last months? I bet you did, and a lot. Leaving aside the reasons why the current financial crisis started and what are the best ways of fixing things, I prefer to concentrate on the most tangible aspects. Like, for example, the huge number of people losing their jobs, and the also huge number of people that are afraid of losing their source of income in the near future. For instance, we cannot tell until when companies will keep firing their employees; what are those people going to do from now on; until when they will prefer to save their money instead of consuming or traveling or investing or whatever. Let’s put it in a graphic way (since I’m terrible at drawing, I borrowed some of the images from the awesome people from The Value Web):

Some things are pretty obvious: although I depicted it in a very simplistic way, the point is that there’s the feeling that we’re in a descending spiral that needs to be broken as soon as possible. But let’s face it, it is very difficult to make decisions when you don’t have any clue about how the picture is going to look in the future. On the other hand, sitting and watching what happens next -and deciding in consequence- is not an option.

How companies cope with this sort uncertainty is a huge deal. The most sophisticated forecasts have been proved wrong or, at least, many companies have come to learn that making decisions based only in forecasts is not enough. We also have decision trees, but they can also be too structured and lead to partial approaches and therefore, to decisions that don't take some important factors into consideration.

So what if we could combine the “safety” feeling that numbers -undeniably- provide, along with the methodic, logical approach to problems we can follow when we develop decision trees, and add some “softer” factors, like social tendencies, expert opinions or human perceptions? That is an informal way of describing the scenario thinking, a technique that according to well renowned journals is absolutely in these days. Want to learn some more? Come back soon for the next posts!

Something old, something new, something borrowed... something green!

Today I started a seminar on Social Responsibility at my university... funny fact: the woman that is presenting the seminar opened the class with the video I shared with you in my Limits to Growth post, which was one of the very first ones here at The Integrated Challenge.

Anyway, we discussed some basic concepts like which areas are normally taken into consideration for CSR practices, and of course the environmental impact of companies was one of the mentioned. But companies are not the only actors in society: we as individuals and consumers also influence the changes in the environment depending on our habits. So she told us about a website that calculates our impact on the envirnonment based on the way we live, and that divides the famous footprint into four categories:

• Carbon emissions, which is related to the means of transport we use, how energy efficient the appliances at our houses are, and our energy-saving habits.
• Food, which basically has to do with how local the food we buy is (besides having a positive social impact, consuming goods that are grown or produced near your community eliminates transport), with the amount of packaging involved... and believe it or not, with how often we eat meat. The exact number depends on the source, but between 20% and 25% of greenhouse gas emissions is associated with the cows that become steaks!
• Goods and services, covering usage and recycling habits of the stuff we're surrounded by.
• Housing, for aspects like thermal insulation, building and furniture materials, eco-friendlyness of cleaning products, and water saving devices.

According to your answers, the quiz estimates the amount of land and ocean area required to sustain your consumption patterns and absorb your wastes on an annual basis. After giving the results, the site provides some tips for reducing the impact for all four categories. I checked it out and decided to "borrow" the URL and share it with you; if you have some time you can take the quiz as well and tell the rest of us about your results or thoughts regarding the questions asked, the info presented or any related issue. You can find it by going to

http://www.myfootprint.org/

I hope you learn and have fun!

Inverted commas

To all of the new people joining the blog: welcome! And to the ones that have been around before: welcome again, and thanks for coming back! I finally got to attend the 12th World Bunsiness Dialogue and let me tell you that it was amazing, way better than I could have ever imagined! I met wonderful people there, had the chance to exchange ideas and experiences and had tons and tons of fun! (Are there too many exclamation marks in this first paragraph? Can you tell how excited I still am?)

Anyway, I thought about keeping the blog alive for a while after the conference, specially for sharing some things we discussed there, and for linking these topics with some new articles I'm reading... and then I thought that a nice way of starting this new phase could be by presenting some quotes I remember from the Dialogue, and that impressed me for different reasons... let's get started!

"When the storm comes some build walls, the others build windmills."

Professor Dr. Herrman Simon shared this thought with us during his presentation on Quick Solutions for Beating the Crisis and everyone just loved it! I think I'll write at least one post about his keynote because I agreed to some of the things he said, was not so sure about others... but most of all he made me think, which for me is the whole point :)

"The Stone Age did not end due to a lack of stones, and the Oil Age will not end due to lack of oil."

I'm almost sure this was said by Christian Rast, the moderator for the Resources panel, although he's not the author. I found it very very interesting, even if I think that the shortage of oil will definietely accelerate the shift towards other technologies. Of course we can argue if there is an oil shortage in the first place, I've heard all sorts of opinions about this.

"Bill Gates wanted to go into the software for automotive companies segment... then he found out the required failure percentage for the industry!"

I don't remember the exact words, but Franz Fehrenbach -Chairman of the Board of Management at Bosch- made me laugh outloud with that story!

"Nothing is more powerful than an idea whose time has come."

This quote from Victor Hugo is my personal favorite from the wonderful week in Cologne, and it was written on one of the walls at the DHL Innovation Center.

Now it's up to you: do you remember any particular quote that you'd like to share? Don't be shy and post a comment!

Vox Populi (Final Episode)

Earlier in this series I told you about some benefits related to implementing Open Innovation, now let’s go to the challenges this represents. First important thing to consider: not all kinds of innovation can be obtained from outside of the company’s walls. According to Judy Estrin -veteran Silicon Valley executive and author of Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy-, some of the innovation required for designing a company’s next generation of products cannot be learnt from what customers claim, simply because they may not know what they will need in five years.

But let’s suppose that Open Collaboration(*) is suitable for a certain company, then what issues should be thought-out? A very important decision is what people to approach. Complex R&D problems like the ones DuPont may face, or delicate researches like the ones conducted in the pharmaceutical industry, demand for expert collaboration. When it comes to picking customers, a good idea can be to invite users that are active on blogs or online forums that rate the product, whether they are happy with it or not happy at all. The software provider company TechSmith chose this path, asking users what features they love and/or hate about their products, and what aspects can be improved.

Another significant point is to understand that customers participating in this kind of initiatives are not employees, and therefore managers cannot assume they will be always eager to devote their time to evaluating products. However, companies can offer a number of incentives that help attracting and retaining this outside resources; these incentives might go from a “material level” -by giving them free samples to try, or cash prizes for the winners of design contests-, to a more “emotional level” -related to the possibility of being part of a community, or even an almost-insider at a company customers love-. In cases in which there are intellectual property issues involved there are signed agreements, so the behavior of the experts is more predictable. Nevertheless, giving royalties to the developers seems to be a reasonable policy.

Finally, the participatory platforms must be designed in such a way that the companies can get the answers they want. By this I don’t mean that all feedback should be positive, but that questions should be asked in such a way that the comments are relevant for the goal to be achieved. The people who participate may really like the company or the product, but the way they express it may be very different from the language used by the employees. Involving members of the company in order to moderate the discussions or to clarify any questions can be a smart move.

Although it’s still too early to draw conclusions about whether or not these new practices will grow over time, some numbers make them seem promising. Some studies suggest that 25% of Western Europe’s Internet users now post comments and reviews about consumer products; user-generated media sites are growing in numbers of visitors and participants by 100% a year, while the increases for traditional sites is between 20% and 30%(**).

(*) Here I’m using Open Collaboration and Open Innovation as synonyms because I’ve found both expressions. If the people a company is addressing in these initiatives are only customers, another possible expression is Crowdsourcing.

(**) These numbers can be a little tricky: if you’re familiar with the curve that represents the life cycle of any product, service or technology, then you know that once the Introduction stage is over, Growth comes… these user-generated sites are probably going through this phase, and the real question that should be asked is how long it will take for them to reach Maturity (where traditional sites seem to be now). And if you’re not familiar with this lifecycle model you can go to the link below to learn more!

http://www.12manage.com/methods_product_life_cycle.html

Vox Populi (Episode Two)

In the first episode of this new thread I introduced you to Open Innovation, a practice that is rather new and consists of involving outsiders into the act of designing new products, or improving existing goods. Now, why would companies listen to what a bunch of people that is not part of the workforce have to say?

The most immediate reason is, perhaps, the fact that a company’s pool of talents can be expanded without enlarging the size of the workforce. In the last few years, consumers have been connecting through blogs and online forums, sharing their points of view on products’ features, rating them, telling about their experiences when using the products, and even recommending solutions they implemented when they found problems. So why not take advantage of all that energy and orient it towards the creation of new products or the improvement of a brand portfolio? It can be faster and cheaper than conducting focus groups or traditional polls; plus, blogs and similar applications can be used for creating expectation for upcoming launches.

This same phenomenon -groups of customers speaking their minds online- can be translated into another benefit: demand forecast. LEGO invited customers to create new models and then financially rewarded the people whose ideas proved to be marketable. Fluevog and Threadless are websites where members can submit shoes and T-shirt designs respectively, and the ones that get the largest number of votes are manufactured. Some consumer goods brands have designed marketing campaigns where customers could choose among possible flavors or scents for new products, and only the most popular ones made it to the market.

Customers are not the only crowd a company can turn to: in fact, professional and scientific online communities can be more suitable for certain businesses. The pharmaceutical industry is strictly regulated, and the researches that are carried out for the development of new drugs usually take several years. According to a McKinsey study on open innovation, scientists from five universities have accepted a sharing agreement that will let the Myelin Repair Foundation (MRF) retain the rights to license discoveries to pharmaceutical companies. This novel medical-research model is based on co-creation among a closed group of researchers who aim to develop a drug that will treat multiple sclerosis; and MRF hopes to complete its work within five years… 75% faster than the time required by current research models. DuPont, the global chemicals and health care company, is also taking advantage of online networks of researchers and technical experts, awarding cash prizes to people who can provide solutions for R&D problems.

So far, Open Innovation seems to be a fantastic thing: it can reduce the time that is needed to develop new solutions, reduce the uncertainty of demand and bring some new ideas to the table. Of course, it’s not as easy as it sounds to implement an Open Innovation program, but you can find some real-life cases on how and when to apply this practice… in the next post :)