Scenario Planning Building Scenarios at Roland Berger 20130826

SCENARIO planning
Building scenarios at
Roland Berger Strategy Consultants
August 2013
2013-08_RBSE_Building Scenarios.pptx
Contents
A. Strategy development today
Why scenario planning is important now
B. The Roland Berger-HHL scenario approach
Our approach to building scenarios
Roland Berger Strategy Consultants
Page
3
12
A. Strategy development today

Why scenario planning is important now
Today our economy faces very high volatility

GLOBAL REAL GDP
GROWTH [%]
DOW JONES
[index value]1)
5.3 5.4
Highest
value
14,165
Oct 2007
5.1
EUR/USD EXCHANGE RATE

[EUR/USD]1)
+ 8,995
15,542
Highest
value
Apr 2008
3.9
1.46
3.2
1.60
1.50 1.48
2.8
1.34
1.32
1.32
10,718
-7,618
1.27
-0.7
2006 2007 2008 2009 2010 2011 2012
Lowest value
Mar 2009
Dec 2005
6,547
1.18
Jul 2013
Dec 2006
1.23 1.23
Lowest value
Jan 2006
Jul 2013
1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are on daily basis
SOURCE IMF, Bloomberg
Due to the high volatility forecasts are extremely difficult

and very often fail to predict the future
Example: Development of forecasts of
German real GDP growth 2011 [%]
3.4
3.3
2.9
3.0
2.8
2.5
2.2
1.9
1.7
Aug 10
SOURCE Consensus
> Economic forecasters use

complex models of economic
development but they often
failed, e.g. in predicting the crisis
> Economic trends are unreliable
and future developments unclear
decisions must still be made
> Our job is to interpret the key
factors driving future economic
development
Dec 11
Another consequence of the high volatility is that traditional

planning cycles are no good any more
4.8
STRATEGIC
PLANNING
7-10
TRADITIONAL
ORGANIZATIONAL
STRUCTURE
7 years
MEDIUM-TERM
PLANNING
3.2
3-5 years
OPERATIONAL
PLANNING
1
2000
2012
Time horizons of traditional corporate planning

and global GDP growth, 2000-2012 [%]
6
SOURCE IMF
And finally follows that traditional strategy tools have

become unreliable
Traditional strategy tools
volatility
can't cope with complexity
don't consider different views
fail to reflect
ANSOFF MATRIX
SOURCE ROLAND BERGER
GENERIC COMPEEXPERIENCE
TITIVE STRATEGIES CURVE
FIVE FORCES
PORTFOLIO
ANALYSIS
But the planning questions

remain the same
Which regions of the world will grow most?
How can our company benefit from that?
How sharply will commodity and energy prices rise?
Can we replace expensive commodities with less
expensive ones?
How will demand for our products change?
What competing products will jeopardize our business?
How will regulations change in my markets?
Will the changes open up new markets overseas?
The solution? Scenario planning can overcome the

shortcomings of traditional planning instruments
SCENARIO PLANNING
TODAY
Counteraction
SCENARIO
I
provides different images

of the future to reflect
volatility
SCENARIO
II
considers numerous
influence factors to cope
with complexity
SCENARIO
III
combines internal and

external views to identify
blind spots
Disruption
FUTURE
But traditional scenario planning often does not meet all

requirements imposed by modern strategic planning
REQUIREMENTS of MODERN
SCENARIO PLANNING
1
2
3
4
5
Reflecting
volatility
through development of alternative futures
Coping with
complexity
through consideration of
numerous influence factors
Identifying
blind spots
through involvement of internal

and external experts
Speed and
simplicity
based on a set of management

tools that support an easy process
Flexibility
concerning
planning
horizon
by applicability of different time

horizons
QUOTATIONS FROM USERS

regarding WEAKNESSES
Scenario projects are
extremely complex
Processes are not standardized
and highly variable
Traditional scenario projects
usually take min of 5 months and
can last as long as 1 year
Methodologies are not well
described and not fully disclosed
Fulfilled by traditional scenario planning

10
Therefore our new approach builds upon the strengths of

traditional approaches and overcomes their weaknesses
11
BUILDING ON STRENGTHS
OVERCOMING LIMITATIONS
> Planning based on multiple

possible futures
> Integration of outside perspectives
> Broadening management's
perspective
> Increased adaptability to changes
in the environment
> Standardized method that is easily

replicable for planning purposes
> Tool based approach eases
application
> Quick execution of scenario-based
strategic planning process
> Applicable for shorter time
horizons of less than 5 years
ROLAND
BERGER-HHL
APPROACH
to scenario-based
strategic planning
B. The Roland Berger-HHL scenario approach

Our approach to building scenarios
We differentiate between
macro-, meso- and micro-scenarios
MACRO-LEVEL
CHARACTERISTICS
of our 3-TIERED APPROACH
Global scenarios
MESO-LEVEL
Regional and industry scenarios
MICRO-LEVEL
Company-specific scenarios
13
Macro-level scenarios build the

framework for industry and
company scenarios
Meso-level scenarios describe
different futures of a branch or a
region
Micro-level scenarios focus on
possible futures of one specific
company
We cooperate with the HHL Center for Strategy and

Scenario Planning
Selected activities
of the HHL Center for Strategy
and Scenario Planning
HHL Leipzig Graduate School of Management
> One of the worldwide leading business schools
> Regularly ranked as one of the top 3 German
business schools
14
> Constant exchange with academia,

international think tanks and business over
scenario contents and methods
> Concrete support on scenario projects of
Roland Berger
> Carrying out scenario studies together with
Roland Berger
> Conducting scenario workshops and
seminars for Roland Berger
> Supervising Roland Berger fellows and
PhD candidates
EXAMPLES
Roland Berger has advised large clients worldwide to

successfully structure, execute and adopt scenario planning
Sample scenario planning client engagements
15
CLIENT
COUNTRY
PROJECT DESCRIPTION
Multinational oil and gas

company
UK
> Developed 2020 scenarios for Industrial and Marine business, and built up
organizational capabilities
Multinational insurance
company
UK
> Built scenarios in life insurance and pension to guide long-term strategy
development across 14 countries to guide pan-European strategy
Large chain of home

improvement stores
USA
> Created scenarios describing different consumer behavior
Multinational pharmaceutical company
USA
> Described and quantified the potential impact of healthcare reform through
scenario planning
Multinational automotive manufacturer
France
> Developed 2020 scenarios and action plans to enhance aftersales strategy
for Europe and China
Multinational, producing
construction and high
performance materials
France
> Created a scenario planning tool to model business impact of different market
conditions and to inform capacity investment decisions
Multinational automotive
manufacturer
Germany
> Developed global scenarios to plan manufacturing data and different sales
strategies according to the scenarios
EXAMPLES
Book publications and scenario studies demonstrate thought

leadership
Selected scenario planning documents
Book describing the

RB/HHL scenario
planning approach
16
Scenarios for The European

Airline Industry
Emerging Market
Future Scenarios
As an overall framework for our scenario studies and

projects we developed the Trend Compendium 2030
Trend Compendium 2030: Seven Megatrends that will shape the world
Analyzed relevant trend and future
studies
Discussed and verified data

and statements in global Roland
Berger network
Detailed seven megatrends, each

with three business driving
subtrends
Outlined recommendations for
actions for every megatrend
17
Together with the HHL Center we developed a clearly

structured process for scenario projects
Task:
Identify core problems

and frame analysis
Tool: Framing Checklist
Result: Clear conception of
project goal
Definition of Scope
0.5 weeks1)
Task:
Identify assumptions and mental models
360 Stakeholder Feedback

Tool:
Result: Good understanding of internal (company) and external (industry) perception;
identification of blind spots, weak signals and influencing factors
2
Perception
Analysis
3-4 weeks1)
3
Trend and
Uncertainty
Analysis
0.5 weeks1)
6
Task:
Tool:
Monitor developments and

challenge assumptions
Scenario Cockpit
5
Deduct action plans for implementation
Tool:
Strategy Manual
Discuss and evaluate relevant trends
Tool:
Impact-Uncertainty Grid
Result: Identification and analysis of key trends and

key uncertainties
Monitoring
ongoing
Result: Track of external developments

Task:
Task:
Strategy
Definition
2 weeks1)
Scenario
Building
1 week1)
Task:
Develop scenarios based on key trends/uncertainties
Tool:
Scenario Matrix
Result: Map of possible scenarios and understanding of

which scenarios are most promising and which
are most dangerous to the client
Result: Clear blueprint for strategic

development of a company
1) Average duration of the specific project phase of a Roland Berger scenario project
18
1 DEFINITION OF SCOPE
Reference project for the automotive industry1):

The scope was defined with the Framing Checklist
ELEMENTS and KEY QUESTIONS
IMPLEMENTATION, AUTOMOTIVE PROJECT
A
B
C
D
E
GOAL OF SCENARIO PROJECT

Definition of the question to be solved:
Focus of the scenario analysis
Focus on global development of automotive industry,

as our client was a global player in automotive
STRATEGIC LEVEL OF ANALYSIS

Shall the scenario planning process be conducted
for the macro, industry/region or company level?
Focus on industry level as this allows the broadest

analysis and discussion spectrum for scenarios
TIME HORIZON
What time horizon is the planning process tailored
to (1,2,5 years or longer)?
Focus on 10 year horizon as this was the focus of

capacity planning
PARTICIPANTS
How closely is top management involved in
the process? Which members of the respective
departments participate in the workshops?
Strategic advisors of the top management as well as

the department heads of trends, strategic planning
and capacity planning participated in the workshops
DEFINITION OF STAKEHOLDERS
Which key stakeholders shall be involved in the
360 Stakeholder Feedback?
Focus internally on top management, trend, planning

and macroeconomics experts and externally on
industry, trend and macroeconomics experts
1) The approaches and results shown here are only examples. They are not identical to the approaches and results of any specific project
19
2 PERCEPTION ANALYSIS
To gain holistic view on future development in automotive

industry a 360 Stakeholder Feedback was conducted
INTERNAL STAKEHOLDERS
>
>
>
>
Top Management
Trend specialists
Macroeconomics specialists
Capacity planner
EXTERNAL SPECIALISTS
360
Stakeholder
Feedback
> Industry specialists

> Trend specialists
> Macroeconomics specialists
EXTERNAL STAKEHOLDERS
> Key customers
> Key suppliers
> Shareholder
20
The 360 Stakeholder Feedback

asks about
> Influencing factors and indicators
> Impact and uncertainty of relevant
factors
The 360 Stakeholder Feedback

comprises two consecutive questionnaires
1 Open question
concerning STEEP1) influencing factors and indicators:

> Which factors influence the future development of the world automotive
industry until 2020 most?
2 Closed questions
concerning rating of synthesized influencing factors on a scale from

1 to 10 regarding impact and uncertainty of each sector:
> How strong is the impact of the factor to the future development of the
world automotive industry?
> How certain is the occurrence of the respective factor within a time
frame until 2020?
1) STEEP: Societal, technological, economical, ecological and political/legal influence factors
21
We identified 30 influencing factors with the

360 Stakeholder Feedback
INFLUENCING FACTORS
Social
Technological
Economic
Environmental
Political/Legal
Decrease of consumer
confidence
Development of alternative
powertrains
Duration of crisis
Climate change
Decreasing political stability
Downsizing at customers
Improvements of traditional
powertrains
Low economic growth in

industrialized markets
Growing problems with the

production of biofuels
Tougher environmental
regulation, esp. CO2
Longer period of ownership
Increasing importance of car

assistance systems
Strong economic growth in

emerging markets
Increasing pollution of cities
Growing trade protectionism
Car's image as status symbol

declines
Growing middle class in

emerging markets
Continuing local content regulation in emerging markets
Increasing environmental
consciousness of consumers
Growing competition from

new carmakers
Subsidizing own car

industry in China
Rising oil price
Rise of new business

models (car sharing etc.)
Increasing concentration of
car makers
S
22
P
The results were systematically analyzed to understand blind

spots, weak signals and influencing factors
BLIND SPOT ANALYSIS (EXCERPT, ILLUSTRATIVE):
IMPACT, INTERNAL/EXTERNAL
THREEFOLD RESULT
ANALYSIS
BLIND SPOTS
Factors, which are deliberately or
unconsciously disregarded
WEAK SIGNALS
First indicators for important
developments and external changes
INFLUENCING FACTORS
Influencing factors for the scenario
development
Development of
alternative powertrains
Tougher environmental regulation
Competition from
new carmakers
Car's image as status
symbol declines
Longer period of
ownership
10,0
8,0
6,0
4,0
2,0
0,0
Rising oil price

Downsizing at
customers
Economic growth in
industrialized countries
Economic growth in emerging
markets
By comparing the perception of company insiders and outsiders

we identified management's blind spots
External
23
Internal
Blind spot
3 TREND AND UNCERTAINTY ANALYSIS
The most important trends and uncertainties in the industry

were identified with the Impact-Uncertainty Grid
High
Ec
TRENDS
Growing environmental
consciousness of S
consumers
Growing economic
growth in emerging
markets
S
S
En
Improvements of
traditional power
trains
T
Ec
S
Potential
Impact
Ec
CRITICAL
UNCERTAINTIES
Decrease in
Duration of crisis Ec
CRITICAL UNCERTAINTIES define the axes of
the scenarios we identified 6 critical uncertainties
Ec
consumer
P
S
confidence
Rising oil Decreasing
political
price
En
stability
Climate change Ec
Alternative T
Growing middle
powertrains
P
class in emerging
Competition from
Ec new carmakers
markets
> Duration of crisis

> Decreasing political stability
> Competition from new
carmakers
En
S
Ec
Local content
regulations
En
> Decrease of consumer confidence

> Rising oil price
> Development of alternative
powertrains
Ec
SECONDARY ELEMENTS
Low
Low
High
Uncertainty
TRENDS (relatively secure developments) define the cornerstones of and remain the same in the different scenarios.
Based on our questionnaires we identified 15 trends along 5 categories (for example)
Economic
> Growing economic growth in
emerging markets
> Growing middle class in emerging
markets
>
24
Social
Technological
Environmental
> Climate change
>
Social
> Increasing environmental consciousness of consumers
>
Political
> Continuing local content
regulation in emerging markets
>
Technological
> Improvements of traditional power trains
>
En Environmental
Ec Economic
Political
4 SCENARIO BUILDING
The Influence Diagram was used to structure the critical

uncertainties and condensed them in two key dimensions
Growing economic growth
in emerging markets
Time
Growing middle class

in emerging markets
Duration of
crisis
Increasing environmental
consciousness
Decreasing
political stability
Decrease of consumer
confidence
Economic
development
25
Climate
change
Rising oil price
Competition of new
carmakers
Development of
alternative powertrains
Innovation
dynamics
4 SCENARIO BUILDING
By varying key uncertainties and influence factors we were

able to formulate comprehensive scenario storylines
KEY DIMENSIONS
> Economic development
> Innovation dynamics
CHARACTERISTICS
-
FOUR SCENARIOS DEVELOPED

for global automotive industry until 2020
+
High innovation dynamic
INFLUENCING FACTORS
>
>
>
>
>
>
Duration of crisis
Decreasing political stability
Decrease of consumer confidence
Rising oil price
Competition of new car makers
Growing economic growth in
emerging markets
> Growing middle class in emerging
markets
> Climate change
> Increasing environmental
consciousness of consumers
26
Forced
Technological
Evolution
Golden
Decade
High
economic
growth
Economic
stagnation
Industry
Decline
Dangerous
Saturation
Low innovation dynamic
4 SCENARIO BUILDING
The quantitative assessments were used to estimate new

registrations via an automotive specific simulation tool
We took the values/strengths of the key factors and on
this basis set parameters (e.g. GDP growth,
unemployment rate, inflation rate, interest rate) on
a country-by-country basis for each of the scenarios
We then used the parameters in a simulation tool
specially developed for the automotive industry.
The tool used the values to calculate the number of
new vehicle registrations in key markets for each
scenario, as a basis for volume planning
Scenario I
Scenario II
Scenario III
GDP growth I,
unemployment I,
inflation rate I, period
of owner-ship I,
(country-specific)
GDP growth II,

unemployment II,
inflation rate II, period
of owner-ship II,
(country-specific)
GDP growth III,

unemployment III,
inflation rate III, period
of ownership III,
(country-specific)
SIMULATION TOOL
Key points
It is important to understand exactly how the
simulation tool works so that any extraordinary
effects can be included
27
New
registrations
I
New
registrations
II
New
registrations
III
5 STRATEGY DEFINITION
On the basis of the different scenarios

we developed action plans for the management
The different scenarios showed very different
patterns of how new vehicle registrations
would develop in the future
On the basis of these differences and other
features of the scenarios, we developed
recommendations ("action plans") for top
management in a joint RB/client workshop
We then presented the scenarios and
action plans to the Head of Sales
Key points
Scenarios and action plans must be consistent
Creative solutions that work are the
answer to challenging scenarios
28
Scenario I
Scenario II
Scenario III
Action plan I
Action plan II
Action plan III
>
>
>
6 MONITORING
Finally we implemented a set of indicators to monitor

what scenario pathway the company is currently on
We developed a Scenario Cockpit together
with the client
Indicators (e.g. GDP growth, industry-specific
indicators such as length of ownership) help
management understand what scenario
pathway the company is currently on
If certain thresholds are passed, another
scenario comes into play and with it other
action plans
SCENARIO COCKPIT
Key points
Indicator 1
Indicator 2
Indicator 3
The Scenario Cockpit should have no more

than three clear indicators. This makes it
easy for top management to use
29
The strengths of our scenario approach:

State-of-the-art scenario building for our clients
1
2
DIRECTLY APPLICABLE TO BUSINESS

Our scenarios answer our clients' core strategic
and operational questions
INTERACTIVELY BUILT
In the scenario team, clients and consultants work
together and internal and external experts are
consulted as required
1 Definition
of Scope
Perception
Analysis
Trend and
Uncertainty
Analysis
3
4
5
30
HIGH SPEED
The scenarios are created within a few weeks, using
modern information and communication methods
SIMPLE COMMUNICATION
Monitoring
4
Scenario
Building
Strategy
Definition
The scenarios are clearly formulated and thus easy

to communicate internally and externally
DIRECTLY IMPLEMENTABLE
Detailed recommendations enable immediate
adjustment of business according to the scenarios
To sum up: Today we need scenarios and we need to develop

them quickly and systematically
1
2
To stay competitive in this environment

companies need to develop scenarios
3
31
Our world faces more and more volatility

that's especially true for the economy
The Roland Berger-HHL scenario process

enables companies to quickly build scenarios
with an innovative, tool-based approach
Do not hesitate to contact us in case you have

questions or comments
32
PROF. DR. BURKHARD

SCHWENKER
DR. CHRISTIAN KRYS

Product owner
CHAIRMAN
RBSE SENIOR EXPERT
burkhard.schwenker@rolandberger.com
christian.krys@rolandberger.com
+49 40 37631 4100
+49 160 744 2917
33

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SCENARIO planning

Roland Berger Strategy Consultants

A. Strategy development today

Today our economy faces very high volatility

EUR/USD EXCHANGE RATE

SOURCE IMF, Bloomberg

Due to the high volatility forecasts are extremely difficult

> Economic forecasters use

Another consequence of the high volatility is that traditional

Time horizons of traditional corporate planning

And finally follows that traditional strategy tools have

SOURCE ROLAND BERGER

But the planning questions

SOURCE ROLAND BERGER

The solution? Scenario planning can overcome the

provides different images

combines internal and

SOURCE ROLAND BERGER

But traditional scenario planning often does not meet all

through development of alternative futures

through involvement of internal

based on a set of management

by applicability of different time

QUOTATIONS FROM USERS

Fulfilled by traditional scenario planning

SOURCE ROLAND BERGER

Therefore our new approach builds upon the strengths of

> Planning based on multiple

> Standardized method that is easily

SOURCE ROLAND BERGER

B. The Roland Berger-HHL scenario approach

SOURCE ROLAND BERGER

Macro-level scenarios build the

We cooperate with the HHL Center for Strategy and

SOURCE ROLAND BERGER

> Constant exchange with academia,

Roland Berger has advised large clients worldwide to

Multinational oil and gas

Large chain of home

> Created scenarios describing different consumer behavior

Multinational pharmaceutical company

Multinational automotive manufacturer

SOURCE ROLAND BERGER

Book publications and scenario studies demonstrate thought

Book describing the

SOURCE ROLAND BERGER

Scenarios for The European

As an overall framework for our scenario studies and

Discussed and verified data

Detailed seven megatrends, each

SOURCE ROLAND BERGER

Together with the HHL Center we developed a clearly

Identify core problems

Identify assumptions and mental models

360 Stakeholder Feedback

Monitor developments and

Discuss and evaluate relevant trends

Result: Identification and analysis of key trends and

Result: Track of external developments

Develop scenarios based on key trends/uncertainties

Result: Map of possible scenarios and understanding of

Result: Clear blueprint for strategic

SOURCE ROLAND BERGER

Reference project for the automotive industry1):