Eyes Wide Open: Managing Uncertainty Through War-Gaming and Scenario Planning
There is no denying that the acceleration of market disruption has had major repercussions for organisations that can’t keep up. From Monarch Airlines to Blackberry to Toys R Us – we’re surrounded by tragedies. This isn’t new news, in fact, you probably all know this. What’s interesting is how the acceleration of disruption correlates with company performance - the 33 year average tenure of companies on the S&P 500 in 1964 narrowed to 24 years by 2016, and is forecast to shrink to a mere 12 years by 2027.
With this in mind, one must ask, what’s the elixir to a longer and healthier life? Predicting what will change, and when change will come, is becoming increasingly challenging – all the more so for organisations that rely on traditional planning methods suited to more stable times. To live longer, planning methods that enable quick understanding and preparation for the future should become a key element of the strategic calendar.
War-Gaming and Scenario Planning are perfect approaches for exactly that. However, in our experience, many companies don’t have a real understanding of what these tools are and how to use them effectively.
What’s the Difference Between War-Gaming and Scenario Planning?
War-gaming is a direct adaptation from military war games and involves creating a hypothetical competitive situation where two or more teams (competitors) engage in battle.
Scenario Planning, first popularised by Shell in the early 1970s, involves visualising future conditions, understanding the consequences, and how to best respond. Unlike war-games, which look specifically at competitors’ actions, Scenario Planning takes a wider perspective, and is designed to address the intersection of several trends relating to technology, suppliers, customers, consumers and regulators.
How Can War-Gaming or Scenario Planning Help Me?
When used in the right circumstances war-gaming and scenario planning can be transformative. Especially when paired with the right leadership mind-set and market intelligence. The need for these methods (or a combination of them) is dependent on the extent and type of uncertainty present in your operating environment. If no uncertainty is present then it is best to stick to traditional planning.
How Could it Have Helped Others?
Wargaming would have opened Blackberry’s eyes to the real threat of the iPhone
Blackberry used to be the smartphone to own. It was the first handset to properly combine phone calls with full email support, a web browser and a digital calendar. As revolutionary as the BlackBerry was, its market dominance left its leaders unprepared for the introduction of the iPhone in 2007, which as Steve Jobs put it, was going to “reinvent the smartphone”. Blackberry’s CEO Jim Balsillie saw the iPhone as “one more entrant into an already very busy space with lots of choice for consumers”.
Blackberry was left stumbling and blinded by their own success. June 2008 RIM closed at $144.56 per share and forty-nine months later it closed at $6.78 - a near 95% loss. War-gaming could have prevented this. We have seen time and time again just how powerful it is when you walk in the competitor’s shoes – especially when you’re the market leader. War-gaming could have provided Jim Balsillie the opportunity to challenge the strategy and pressure test assumptions from the competitor’s viewpoint. This would have ultimately led him to identify those fatal blind spots.
Scenario Planning would have enabled Napster to foresee a critical change looming in the legal environment
Napster may seem an odd choice since the company was essentially shut down by lawsuits aiming to stop the peer-to-peer file sharing platform from distributing copyrighted music illegally. Shawn Fanning, founder of Napster, said he never anticipated the legal action that would see himself, and the company he had started, facing multi-billion dollar fines. “"My primary interest was in building a better product and one that would work and be reliable”. After many unsuccessful attempts to manage its song lists, Napster was forced to close.
Shawn was too focused on making the product perfect. He had tunnel vision and was not thinking about the impact other stakeholders could have on his business. Better preparation for legal backlash in the form of scenario planning could have prevented this. Specifically, Napster could have explored likely reactions from record companies, record associations, music artists and policy makers well before they occurred. A contingency plan to address these reactions would have prepared him for what was to come.
Scenario-based war-gaming would have prepared Monarch for more turbulent times
Monarch was a successful, profitable airline in the 1990s and 2000s. Yet Monarch failed to adapt quickly enough to various changes in the aviation industry. The first of these changes was the low-cost revolution in the skies which led to the growth of Ryanair and easyJet. This made the short-haul market extremely competitive. Monarch only began transitioning to a low-cost airline in 2009 and by the time it was complete, it was only a tenth of the size of Ryanair. Further disruptions, in particular terrorism and the fall of the pound created extra pressure. “Terrorism in the Middle East and the issues in the eastern Med has meant Monarch has been in a very intense price war, in a very congested market in the Western Med” says Andrew Haines, CEO of Civil Aviation Authority. But these pressures affected everyone – why was Monarch the one to fall?
Monarch was not able to see that they were being attacked on all fronts. They did not have a 360-degree view of their external environment – competitive, economic, political and social. A scenario-based war-game would have allowed them to combine the expertise and perspectives from multiple functions. Opening their eyes to the dynamics in the market and improving their decision making before it was too late.
In summary, whether the uncertainty is your key competitor, a plucky disruptor, or the intersection of unpredictable market forces, a tested, and forward-thinking approach to strategic planning is essential for long-term success. It would have given Blackberry, Napster and Monarch Airlines the foresight to plan before it was too late, opening their eyes to key threats and challenging their everyday assumptions.
So, a question for you: Are your eyes wide open or half closed to future disruption?