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Remember the Future

Using Scenarios as an Aid to Strategic IT Planning
by Antoine Gourvitch, Luc de Brabandere, and W olfgang Thiel MARCH 15, 2010

Overview
Strategic planning can be challenging under the best of circumstances, especially in the information technology space, where technology trends change so quickly. But it is particularly difficult in times of heightened uncertainty, such as the present. How can you plan with any confidence when instability reigns? A tool that can help considerably, we believe, is scenario planning. Scenario planning forces you to consider the full spectrum of possibilitiesnot just what you believe will happen but what could happenand to think through both probabilities and potential actions. It forces you to think expansively and outside your comfort zone. In so doing, it drastically improves the odds that your company will be in a stronger competitive position tomorrow. It is an exercise that every CIO would do well, we think, to engage in. Scenario Planning Defined We all possess a main strategic vision or orientation that is the basis on which we make decisions. This vision"probably X or Y will occur"can help us cope with uncertainty. But it can also prevent us from seeing the world as it truly is. Scenario planning provides a clear lens. A scenario, as defined here, is a story about how the future of the business environment could unfold. It consists of the description of an end state, a related interpretation of current reality, and an account of how the world could get from one state to the other. Scenarios are based on a range of variables, such as the economy, demographics, technology, ecosystems, and regulation. Some of these variables, such as demographics, are relatively predictable, while others, such as technology, are more difficult to forecast. But by combining them and imagining a range of outcomes based on selected developments, we can develop a fairly comprehensive picture of how the world of tomorrow might take shape. Of course, none of the individual scenarios we construct will happen precisely as imagined. But the future will almost certainly include elements of each, and looking at the scenarios collectively can provide a useful framework for thinking about what lies aheadand for taking action today. It can also help us test the robustness of current strategies and identify potential new opportunities. Scenario Planning in Practice An effective scenario-planning exercise would include the construction of a number of different scenarios, generally three to five, to ensure that the scenarios are sufficiently diverse, both structurally and qualitatively; that the most probable alternative futures are covered; that the paths that might lead to those futures are explored and discussed; and that the received wisdom about the future is truly challenged. An IT-specific example is illustrative. On July 1, 2009, at the second annual Universit du Systme dInformation conference in Paris, the CIOs of 15 companies, including AXA, Bouygues Telecom, Calyon, Carrefour, Danone, Essilor, Generali, Michelin, Orange, and Renault, gathered to discuss ways to improve business and IT practices. As part of their discussions, the CIOs participated in a session designed to explore how the IT ecosystem could evolve by 2020. The CIOs were presented with four previously developed scenarios that they reviewed together, as outlined below. The exercise yielded new insights for all participants. It also yielded a range of potential high-value-added moves to make some of them inexpensive, others needing CEO approval and potentially a rethinking of IT positioning or sourcing strategy. Scenario 1: "Big Is Beautiful" The IT services market consolidates around three giants: IBM, Oracle, and ATSys (formed by the merger of AT&T and Infosys). Now able to supply comprehensive, global solutions, the three collectively dominate the landscape IBM specializes in finance, Oracle in industrial goods, and ATSys in high techand quickly outsmart any https://www.bcgperspectives.com/content/articles/information_technology_information_technology_strategy_it_advantage_... 24/11/2012 8:52:09 PM

Page 2 competition. They propose lifetime business-process-outsourcing contracts indexed to the results of the client company. IBM and ATSys have just won their appeal against the European Commission, which had accused them of abuse of their dominant position. The former prime minister of India, now the CEO of ATSys, congratulates himself on the victory. As a result of this industry restructuring, most companies fully outsource their IT capabilities to one of the three leaders, with the bulk of the work performed in India and China. For corporations, IT has become a commodity and the chief information officer a contract manager. The CIOs evaluating this scenario said that they deemed industry consolidation inevitableand that this degree of consolidation was a realistic possibility, one they were quite concerned about. (One CIO said that to avoid becoming overly dependent on one supplier, he had purposely divided the work he outsourced among several different players.) The question was, what could be done about it?

The CIOs saw two broad options. The first was to attempt to delay or discourage large-scale consolidation by fostering industry-specific alternatives. One CIO observed that in the banking industry, for example, optimizing unit costs was a key issue and that most back-office operations could be outsourced. The creation of a mutualized back office factory among a group of banks that would be independent of large outsourcers could provide an alternative that would keep the power of the three big players in check. The CEOs also saw a second option, which was to accept that consolidation is unavoidable but to adjust their business practices to strengthen their individual bargaining power. A way to do that, one CIO suggested, was to hire purchasing executives from the automotive industry, who are accustomed to negotiating with strong suppliers. The CIOs agreed that the discussion of this scenario had forced them to think about the basis of their companies competitive advantageand what should and should not be outsourced. Scenario 2: "App Storm" Apple and Google merge and launch an la carte platform of business applications based on Apples App Store model. Standardized infrastructures and a catalogue of applications allow a company to assemble a complete made-to-order information system. The best IT talent is spread among specialized software applications, such as pricers, invoicing modules, and production line monitoring. These individuals work both on their own and in communities. Many of them, some already retired, make a fortune working from home. Wikipedia serves as a backbone for knowledge exchange within these global communities. Developing applications is no longer a nightmare. It is easy and quick, since the platform allows applications to be developed incrementally. It is so easy, in fact, that in some cases business people are able to mash up existing applications on their own to create new applications that fit their needs. The CIOs concluded that, regardless of whether or to what degree this scenario materializes, IT would need to respond to the business forces driving it. Specifically, the CIOs determined that being able to quickly develop applications for the business is a must, as is setting up a small team of agile developers who can work closely with the business to help foster innovation. Several CIOs also thought that giving such a team the task of developing mobile applications for the iPhone

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Page 3 could be a good way to get that team prepared. One CIO noted that Generali had already developed Frances first iPhone application for the insurance workforce.

Thinking through this scenario also prompted the CIOs to conclude that offshoring strategies that leave a company without any development capabilities should probably be reconsidered. The CIOs agreed that talent management is a key issue that requires new thinking. Scenario 3: "Green Detox" Following the water war in the Middle East, the rewritten Kyoto Treaty dictates that global energy consumption should be reduced by 15 percent over the next five years. IT resources, which currently represent more than 20 percent of overall consumption, are under considerable scrutiny and are subject to an unprecedented energytaxation policy. Google searches are taxed at $5 each. In response, companies are beginning to replace their traditional data centers with virtual and mutualized production platforms. But this is not enough. The taxation policy challenges the logic behind the IT arms race that has generated so many useless functionalities. (One study has shown that less than 30 percent of lines of code are ultimately used.)

Entire systems are therefore being unplugged. New energy-efficient methods of operation are being created, a version of Java without a virtual machine is being developed1, and programming in machine language is once again standard. The U.S. Department of Defense delivers to the open-source community its Green OS operating system. SAP, which released a Logan version of its enterprise resource planning (ERP) software2, is gaining market share. In the manner of the automotive industry in 2010, the IT industry is restructuring.

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Page 4 All of the CIOs agreed that this scenario will partially materializeand that ITs energy profile was something they needed to address now and in partnership with the business side. All agreed, in particular, on the need to rationalize applications. They also agreed on the need to institute energy-related metrics, both to advance the dialogue with the business and to reinforce ITs position as a business partner. Finally, the CIOs agreed that because one of the main factors behind ITs energy consumption is the growth of data, CIOs should work with the business to reduce the amount of data stored and to identify the data-drive business value. To Contact the Authors Luc de Brabandere Senior Advisor Brussels Antoine Gourvitch Senior Partner & Managing Director Paris Wolfgang Thiel Senior Partner & Managing Director Cologne Notes
1. A virtual machine is a software program that emulates a hardware system. Multiple virtual machines can coexist on a single computer. 2. The Logan is a no-frills, low-cost car that is manufactured jointly by Renault and its subsidiary Dacia of Romania. It is particularly popular in
developing countries and in much of Europe.

Notes
1. A virtual machine is a software program that emulates a hardware system. Multiple virtual machines can coexist on a single computer. 2. The Logan is a no-frills, low-cost car that is manufactured jointly by Renault and its subsidiary Dacia of Romania. It is particularly popular in
developing countries and in much of Europe.

Copyright 2012 The Boston Consulting Group, Inc.

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