Using scenario development to connect Target Operating Model with wider external context

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In my overview of the 5 key contexts of Strategic Business Architecture, I mentioned that understanding of the company’s external environment will help building a Target Operating Model that is up-/down-scalable and thus can cope better both when things are looking good and in downturn. In this article, I am discussing likely benefit of using scenario development in designing a more scaleable and resilient operating model. 

For many strategic planners, the overview of external environment means PEST analysis. Indeed, a thorough assessment of political, economic, social and technological factors (legal and environmental factors can also be added, if relevant) is instrumental in setting corporate strategy and business objectives. A number of tools have been developed to assist in effective understanding and use of the PEST analysis, including PESTLEWeb by Henley Management College in England (I would like to mention here that I spent great two years at Henley Management College while studying for my MBA and know it both as one of the best business schools in the United Kingdom and a warm and hospitable place with great facilities and staff).

Clearly, not all of the PEST factors will be equally important for every company. Some may see political factors as most important while others may emphasis technological conditions and adapt strategies accordingly. And this could be fine if each PEST factor existed and developed in isolation.

But they do not. John Donne prose of nearly 400 years ago:

No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main.

rings true in the case of the PEST factors, too. They interact and affect each other. Economic events may have profound effect on government policies (recall global crisis of 2007 – 2011), while political changes may have a corresponding effect on economic developments (How will the results of the Brexit debate shape the UK/European/global economy?). It is therefore not surprising that as many as 80% of businesses are routinely hit by multiple ‘surprise’ negative events, even if they keep track of the PEST factors relevant to them.

Indeed, the First Law of Ecology states that ‘Everything is connected to everything else’. Well, the PEST factors are not exempt from this law and need to be examined dynamically and inter-connectedly.

Perhaps the best way to envisage the interplay of all PEST factors in harmony is scenario development. This would be the best form of an ‘early environmental warning’ radar that 90% of businesses lack. When I was a Strategic Planning Manager at Sodexo Remote Sites business unit, I introduced use of scenarios to provide a shared basis for Strategic Dialogue conversations to align perceptions on external opportunities and threats and sharpen strategic thinking.

I am positive that scenario development could help any company to improve its ability to anticipate both difficult times and upcoming opportunities, and by extension, to build in scalability and resilience into its Target Operating Model. This is done by addressing challenges presented by each scenario and looking for mutually adaptable solutions. Scenarios are also a great stakeholder alignment platform that creates cohesion and allows sharing of ideas, thus supporting change management efforts at the same time.

I would recommend to be mindful of a few things to use scenario development as a Strategic Business Architecture methodology successfully:

  • There is no need to always come up with scenarios anew. Numerous government and private organisations have been developing scenarios for their purposes and making them freely available. Shell Scenarios in particular have been very influential in exploring alternative views of the future and considering long-term trends in economics, energy supply and demand, geopolitical shifts and social change.
  • Remember that scenarios do not predict the future (if they did, I too would be in a different business now). They are not a ‘crystal ball’ either. They just help shedding light on compound opportunities and threats that might evolve in the future so that a better Target Operating Model can be designed to meet those challenges.
  • Finally, think of, and relate to scenarios as neutral, not ‘good’ or ‘bad’. After all, what is a good scenario for one company can well be a disaster for its business park neighbour. Internally, addressing scenarios as ‘good’ or ‘bad’ will attach a set of emotions to each that will preclude design of an objective Target Operating Model response.

 

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Does this article resonate with you? I would like to hear what you think – you are welcome to leave a comment or send me a message from my Contact page.

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