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In 1995, when Chief Executive P. Anthony Ridder took charge of the $2.8 billion Knight-Ridder newspaper empire founded by his great-grandfather, he faced a challenging environment. Newspaper readership was declining nationwide, ad revenues were falling as the market moved toward less-profitable preprint inserts, and there was intense competition for news and advertising spending from radio, television and other media. He was focused on necessary cost cutting, but wondered where the company's growth would come from? At this point, the Internet was only a small blip on the radar screen. The company was working on plans to publish its papers online through America Online and the Internet, but still derived 85 percent of its revenues from its traditional print business of 31 major daily newspapers.

About two years later, when we visited Knight-Ridder's Philadelphia Newspapers, Inc., electronic commerce had moved front and center. The most pressing strategic issues on the minds of its management team in 1997 were:

Of course, there were deep doubts. Was the Internet the future of publishing or a sinkhole? How might the emergence of the Internet and other related e-commerce technologies transform the newspaper industry's long-standing business model? How could the company move aggressively forward without taking an arrow in its back? Company managers knew they had to do something. But what? They knew they had to place potentially huge bets on an uncertain and rapidly changing future. It was clear that the wrong bets could be disastrous, yet they could not afford inaction.

During the mid to late nineties, executives in the newspaper industry were often asking, “What would the newspaper of the future look like?” Some executives from outside the industry were even suggesting that newspapers were on the way to their ultimate extinction. The question, “What would be the newspaper of the future?” cannot be answered with any degree of accuracy. Moreover, it is probably the wrong question. Instead, the question that should be answered is, “What capabilities should a newspaper company possess to produce and deliver the newspaper of the future no matter what that future ‘newspaper' looks like?” Rather than focusing on “which future” we should be focusing on “likely multiple futures” and how the company can best prepare itself for all the possible futures by building a set of robust capabilities necessary for survival and success. Scenario planning was designed to address this type of challenge in a complex, uncertain environment.

In working with Knight-Ridder and its divisions, we first examined organizational issues and then, working with senior managers, identified the key forces that were shaping the future publishing environment. The forces that were highly predictable (such as demographic shifts due to aging Baby Boomers) were key trends and those that were highly unpredictable (such as the trajectory of the Internet) were listed as key uncertainties. From a final list of about ten uncertainties, we selected two central uncertainties: one about changes in the business model and another about how customers will use information. We used these as a framework for constructing four newspaper industry scenarios for 2007, as shown in Figure 1.

By weaving in the remaining uncertainties within each cell of the matrix in Figure 1, we developed four archetypal scenarios in a detailed narrative form. A summary of each scenario follows:

Scenario A: Business as Usual … With a Twist: The world has evolved as many industry observers predicted back in 1997. New telecommunications and networking technologies, including the Internet, have continued their evolutionary progress to-date, but not quite as quickly as Silicon Valley enthusiasts had hoped. As a result, newspapers have held their ground as an effective mass medium, but they're facing increasing competition—from new as well as traditional media. Classified advertising revenue has continued its gradual decline over the last ten years, putting pressure on the newspaper industry business model. In response, some newspapers have launched specialty publications for unique market segments and niches; others have become aggressive in attracting “image” advertisers. Still others are failing because they've been unable to adapt their organization to match the market realities of today brought about by the evolutionary changes of the last ten years.
Scenario B: Unbundling of Information and Advertising: Internet and communications technologies have been slowly maturing, allowing ample opportunities for the newspapers to change their business model accordingly and experiment with new sources of revenues. As a result, over 80% of newspaper revenue streams are coming from entirely new products that barely existed a few years ago. The Internet's success as a means of building virtual communities is apparent, but some of the greatest benefits for media companies, especially newspapers, have come from applying lessons from direct-Internet marketing to the print medium. In fact, newspapers have developed sophisticated database marketing capabilities that allow them to achieve unprecedented levels of customer intimacy. For the first time, customers who are willing to pay the price can subscribe to customized newspapers delivered to their doorsteps. Other customers who prefer not to pay as much have less valuable and less digested information sent to them courtesy of eager marketers who want to reach select market segments, or even individuals, with targeted promotional messages and offerings.
Scenario C: Consumers in Control: Rapid technology progress has fundamentally changed the way consumers use and access information. Consumers demand their news in real time and through multiple forms of media. In response, media companies have changed their internal operations to be able to deliver content over different media at the request of their “subscribers.” Media companies have - for the most part - held onto the advertising-based revenue stream, but have also been successful in incorporating new business models, such as generating revenues from facilitating transactions between consumers and vendors. Fortunately for most media companies, advertisers are willing to pay more to reach targeted consumer segments. As a result, media companies have come to rely heavily on the ever-changing world of the Internet and e-commerce. The most successful media companies aren't necessarily the best journalists. Rather, they're the ones who most readily anticipate their customers' needs and adapt their product offering to fit with these changing needs on a regular basis, using the best technologies available.
Scenario D: Cybermedia: Technology has progressed rapidly, as predicted by Silicon Valley pundits; and the ways in which consumers use and access information have changed fundamentally. Most consumers either have customized newspapers printed at their homes or access their news through high-tech Internet appliances. The line between newspapers and television as well as other media channels has been blurred, as multi-media presentations of textual and visual information, including news proliferate. The business models have changed too: newspapers now derive revenue from national advertisers (who have few other locally focused mass-market distribution channels), subscriptions, transaction services, and new businesses such as providing intermediary services for high-end purchases, high-technology classifieds, and customer profiling. With the increase in electronic distribution, newspapers are struggling to sell their antiquated printing presses—generally at rock-bottom prices.

After we finished developing the scenarios, we worked with Knight-Ridder management to identify the key success factors (i.e., the core capabilities needed to win) for each of the four scenarios. Next we identified the robust KSFs – those KSFs that are common across the different scenarios. During our analysis, it became clear that no matter which future actually unfolds, a winning company would need to develop a strong brand, become more market driven, build the capacity to manage and form alliances, use consumer data and information effectively, and develop compelling content that can be flexibly distributed and re-purposed as needed.
We also worked with the management team to create alignment around the importance of the identified KSFs. Aligning the viewpoints of senior leaders and managers was the first step in systematically building the organizational capacity of Knight-Ridder in the targeted areas, while gradually evolving the current business of the company. By constructing and investing in various real options supporting the development of these KSFs, Knight-Ridder has embedded the organizational resiliency needed to adapt to different futures without sacrificing its core business of newspaper publishing. As we further validated the KSFs and the strategies and business models supporting them, we realized that any media company capable of executing against these KSFs has the potential to succeed in a world with newspapers or even one without.

In 1997, most industry executives, investors and observers heavily favored Scenario D (Cybermedia) as the one most likely to occur. At that time of dot-com euphoria, some industry observers were ready to throw in the towel and declare the newspapers dead. Today, we are seven years into the ten-year scenario time horizon and the newspapers are still alive and doing well. Since 1999 Knight-Ridder stock has appreciated in value some 56% excluding dividends (compared to negative returns for S&P 500 and DJIA during the same time period).

Given our vantage point in time, we have seen some of the fog shrouding the future of print and electronic media in 1997 disperse. So far, the world appears to be more like Scenario A: Business as Usual …With a Twist than Scenario D. Does this mean that we should completely discount Scenario D? Could Scenario D or some version of it happen in the next three to five years? Perhaps. At this time, we have no way of knowing but that should not prevent us from monitoring the external environment for weak signals that could portend the emergence of such future or one with similar features. And, while we are monitoring the external environment, we should be bolstering our organization with those robust capabilities we need to win no matter which future scenario actually unfolds.

Some weak signals often emanate from an adjacent space. For example, today, technology firms such as Philips, Sony and others are working on products based on electronic paper (e-paper), an innovation pioneered by Xerox in the early 1980s. E-paper is lightweight and capable of retaining an image for long periods of time without having to be refreshed. If e-paper production could be reliably scaled and if consumers find it easy to carry and use (perhaps even being able to roll up the e-paper like a traditional newspaper), it would have tremendous implications for the production and distribution of newspapers.

A newspaper is a product that goes from R&D to obsolescence in less than 24 hours. With e-paper and the advent of new wireless connectivity standards such as WiMAX (supported by Intel, Nokia, and others), the time required for setting up and running the printing presses and distributing the paper through a daily miracle of logistics will be eliminated. Could this change produce positive results for newspapers? For those who are prepared, the answer would be yes. In this future, the emergent business model of the newspaper industry might be more similar to those of a wireless service provider of today: the e-paper is made available to subscribers on a nominal or no cost basis with the signing of a long term subscription agreement. In such an environment, having a strong recognized brand, being market driven, achieving excellence in managing alliances, using data effectively, and developing compelling content that can be flexibly distributed and re-purposed as needed would be among the key capabilities needed for success … all of which were KSFs we had identified earlier.
As this case demonstrates, scenario planning provides a disciplined approach for examining the confluence of forces shaping the future environment, allowing the organization's leaders to engage in a constructive dialog about the strategies for “future proofing” the firm. In developing scenarios, managers are often tempted to pick the future that they expect to emerge. They often view scenario planning as an exercise in brainstorming or exploring the world before deciding where to settle down. This is frequently a mistake, particularly in an uncertain environment, as this example illustrates. If Knight-Ridder's leaders had placed all their bets on the expected Cybermedia scenario, as some companies in other industries did, it could have led to disastrous results. Instead of using scenarios to predict or pick a single future, scenario planning is most useful as a basis for analyzing the capabilities, options and strategies that are needed today to succeed tomorrow – no matter what the future brings.

¹ This article is excerpted in part from: Paul J.H. Schoemaker and V. Michael Mavaddat, “Scenario Planning for Disruptive Technologies,” in Wharton on Managing Emerging Technologies, New York: John Wiley & Sons, 2000, pp. 206-241.