At the start of this year, few of us expected a powerful flu-like virus to be the next catalyst for global economic disruption. Whatever scenario you based your 2020 business plan on, it probably became obsolete faster than an oncoming sneeze.
As a CEO, or CFO, your initial priorities were to protect your people, figure out how to continue serving customers and secure as much as possible the financial viability of your company. What’s next? How can you even begin to figure that out when you don’t know how long the difficult environment will last and how it will evolve (for better or worse) before we return to some semblance of normalcy?
The current economic crisis is not only sudden, it is also bringing a wide range of challenges all at once: closure of retail stores, remote or reduced workforce, supply and distribution disruptions, dramatically reduced (or sometimes increased) demand for products or services, government mandates, to name a few. Capital markets are also disrupted, making it a difficult time to arrange equity and debt financing at reasonable terms.
Scenario planning is a way to help manage through the stages of the crisis — survival, adaptation, recovery and growth. You’ve probably done a fair amount of scenario planning in your professional experience, but this time you’ll need to consider a wider range of possibilities, constantly monitor the condition of your enterprise and your markets, and re-plan often.
Be Creative; Consider a Wide Range of Options
This isn’t the time to plan in a vacuum, alone at your computer with just a spreadsheet. Brainstorm the possibilities with colleagues from around the organization — marketing, sales, HR, finance, manufacturing/supply chain. Talk to contacts outside your company to get more perspectives. Tap into news sources to be aware of how external conditions are changing. Go outside the normal bounds of your scenario thinking and be open to more, and more varied, possibilities.
Employ Structured Techniques
What are some ways to approach scenario planning? There are several techniques, sometimes referred to as situation analysis, that can provide an analysis and planning framework to use for creating foundations for your scenarios. A few examples are:
- SWOT Analysis
This is an analysis of the strengths and weaknesses of an organization (its internal environment and condition) as well as the opportunities and threats of the market (the external environment)
- Five-C Analysis
This includes comprehensive assessment of the company (its goals, position in the market, resources, products, etc.), competitors, customers, collaborators (including suppliers, distributors, partners) and climate (economic, social, technological, political)
- Porter’s Five Forces Industry Analysis
This approach assesses the bargaining power of customers, threat of substitutes for the company’s products or services, the bargaining power of suppliers, the position and power of existing competitors, and the threat of potential new competitors
Leverage Data and Analytics
Reliable and actionable information reduces uncertainty, helps to identify opportunity and risks, and increases your confidence to act. It’s important to constantly monitor conditions to understand when and how things are changing in your business environment. This is where data and analytics come in.
You are probably already gathering data from all around the company, in systems used for tracking customers and prospects, marketing programs, product and service sales, manufacturing and support, distribution and overall financial management. You may also have external market data at hand. How do you turn this mountain of data into relevant plans and actionable insights?
Today’s technologies enable you to gather and integrate data from system silos while assuring integrity. Using these technologies, we can make disparate data more uniform to improve comparability, enable standardized analytics and provide the capability to deliver insights through data visualizations (e.g. dashboards) and other reports. Modern applications for scenario planning can leverage your data to help you develop driver-based plans, create new scenario variations and compare to actual results.
By leveraging technology to provide continual data updates and produce relevant metrics, you and other decision-makers can stay up to date as business conditions evolve. This information will help you more easily identify potential new disruptions and opportunities, quickly validate your scenarios and create new ones.
Stay Nimble and Be Ready To Act Fast
Under these unusually uncertain and fluid conditions, planning needs to happen with more creativity, take into account a wider range of internal and external factors, and be informed by data. It also has to be a continual and self-corrective process, and you need to be ready to act and react quickly.
It’s important to have an if-then mindset. Sort through your range of scenarios and understand under what conditions each option is most attractive or should be avoided. As you monitor conditions and your firm’s progress, you’ll be ready to recognize opportunities and threats, and to act on viable options faster and with more confidence. Then, continue tracking and monitoring, redo your scenario planning and be ready to adapt again.
About the Author
Dave Stark is the founder and president of Analysis Team, Inc., a professional services firm focused on implementing technology solutions that improve business analytics, management reporting and planning. Dave works with the finance organizations of mid-market and emerging enterprises, as well as industry leaders such as Toyota, Gap, Starbucks, First Republic Bank and others. By strategically combining data, business processes and technology, his objective is to help clients improve profitability and sustain competitive advantage.