Linking Scenario Planning to Strategy: The Art of Developing a Strategic Vision

By Arjen van den Berg, Ph.D.
Senior Consultant, DSI

Given the urgency of operational problems and the uncertainty of future ones, it is not surprising that busy executives are skeptical about the need to articulate a strategic vision. Developing clearly articulated visions is time consuming, and most executives are frustrated by the lack of impact on their own actions or the strategic direction of the company. As a result, managers might well be tempted to jettison the articulation of a strategic vision altogether. However, it is precisely because firms operate in turbulent environments that they should have a clear sense of direction and destination. This requires something more than just an understanding of the customers and products they are going to sell. After all, as markets continuously change, a one-sided vision statement might inadvertently box the company in the wrong market. Not only will this distract them from the present, eventually it will lull managers and employees into believing that they live in a predictable world. The opposite is true. The question is then how do you develop a vision that aligns an organization around a shared sense of direction, energizing people, whilst avoiding falling prey to the tunnel-vision trap?

WHAT CONSTITUTES A STRATEGIC VISION?

The strategic vision speaks about where the company will compete in the future, how it will compete, and what capabilities it will need to succeed. It defines clear goals how to get there and provides a timeline by when these goals should be achieved. It highlights the strategic choices made, such as the key customers, products, markets, technologies, and delivery channels. Furthermore, the vision should provide insight into the strategic position the organization wishes to adapt. The final output is generally a statement, with multiple underlying values including revitalized culture, managerial aspirations, company philosophy, management roles, and structure. This statement should reach beyond the organization's current grasp, and should be concrete enough to determine the exact actions necessary to realize this vision.

What the above definition highlights is that strategic vision is not an abstruse construct based on the inspiration of the company's CEO. Although inspiration is significant, we view a strategic vision as a series of critical strategic choices that need to be made within a range of plausible futures. First and foremost, a successful strategic vision is based not only on a clear notion of the markets in which to compete, but also on specific concepts of how to establish an economically attractive and sustainable role or position in that market. In order to make sound strategic choices, it is vital to gain insight into how these markets potentially might develop over the coming years. The various scenario views about the future, the framing of the competitive market terrain, and perceptions about the organization's current assets, capabilities, and values as defined in the first three modules of our six-step process provide us with the ingredients to develop a sound strategic vision.

STEP 1: DETERMINE THE ALTERNATIVE BATTLEFIELDS WHERE TO PLAY

The first step in the vision development process is to identify in which important, but essentially different, battlefields the firm is or might compete in given the attractiveness of these battlefields in the given scenarios, and the current core competencies of the organization. This demarcation of a strategic domain is instrumental in identifying the thrust of future business developments and the scope of products and markets that will or will not be considered.

In doing so, we first identify the alternative strategic domain(s) (for each of the scenarios) in which the organization potentially can compete. To focus our search, we are primarily looking for those domains that seem to be the most attractive. A "winning" strategic domain can be defined as the product/market proposition that best creates and captures the value in each individual scenario. Once we have a better understanding of the overall competitive concepts the domain represents, we aim to further specify the individual components that make up this domain. In particular we will look at issues such as the products/services offered, the customers targeted, the technologies applied, and the delivery channels used to execute the model within the specific scenario.

The final output is a clearly defined strategic domain that tells us where to compete in each of the scenarios and markets. What we often find is that the scenario-specific domains can be grouped. For example, some propositions play in the same part of the value chain, other offerings might concentrate on value-added services, while others create and capture value by integrating multiple elements across the value chain. Making sure that offerings are mutually exclusive helps to clearly identify the alternative battlefields that are available for consideration.

STEP 2: CHOOSING YOUR FUTURE BATTLEFIELD

With a short list of alternatives clearly defined, the management team now faces the challenge to choose the strategic domains that capture the market opportunities across the scenarios. In doing so, we are aiming to determine which alternative product/market propositions best align with the overall managerial aspirations, the culture, and the current strengths of the organization. In many ways, determining where to compete is the core of strategic management. It is concerned with decisions about an organization's future and the way in which it needs to respond to the many pressures and influences identified in the strategic analysis. In turn, the consideration of future strategies must be mindful of the realities of strategy implementation, which can be a significant constraint on the actual choices available.

Several issues need to be considered. For example, to what extent does the offering mitigate the risks or take advantage of opportunities across the future scenarios. Equally important an assessment needs to be made on how fundamentally different the offering is versus today's model. For example, the key resources, skills, and capabilities required should be determined. These should be compared with the current capability set of the organization. If the gap is too big (i.e., significant investments need to be made to bridge the gap) the alternative should be put aside for the time being.

To inform this choice process, we use morphological boxes that highlight the key elements of each of the alternative strategic domains and combine the elements that make up this domain into alternative strategic paths. This graphic version (see Figure 1) shows the different strategic profiles of each of the alternative domains and helps to quickly determine where the similarities and differences of each of the battlefields are. What will follow is a structured discussion that aims to determine what the most attractive battlefield(s) or combination of battlefields might be. This discussion is as much about where to compete as where not to compete in the future.

Figure 1 - Example of a Strategic Domain
[click image to enlarge]

We believe that the strength of choosing the most attractive strategic domains for the organization is built on intuition and inspiration. Ultimately, key people need to connect. The final output will be a selection of alternative strategic domains that are concerned with the boundaries that managers conceive for their organizations in terms of geography, product diversity, or, indeed, the way in which business is conducted. These domains are aligned with the overall aspirations of the management team and have survived a "reality" check with what the company realistically can do given its current business model and its underlying Key Success Factors (KSFs).

STEP 3: SURFACING THE (IMPLICIT) STRATEGIC CHOICES

The discussions in this section are concerned with establishing the basis upon which a company can build and sustain competitive advantage by providing its customers with what they want, or need, better or more effectively than competitors. Assuming that the products or services of the alternative domains are more or less equally available, customers may choose to purchase from one source rather than another because either (1) the price is lower than the competitor, or (2) the product/service is perceived by the customer to provide better added value. Although these are very broad generalizations, important implications that represent generic strategic choices for achieving competitive advantage flow from them.

Each of the above outlined strategic domains comes with its own unique way of creating and capturing value in each scenario. To gain insight into the patterns of similarities and differences across the scenarios, we apply a structured framework to surface the underlying assumptions of the value creation process of each alternative domain. In doing so, we examine five different elements: (1) value propositions, (2) value networks, (3) value disciplines, (4) value-creating capabilities, and (5) value capturing.

Each of these elements captures a specific part of how value is created within the strategic domain. Rather than detailing each of these elements, let's highlight the two key elements. The value proposition is the selling heart of the go-to market activities. Why is a potential customer going to buy from you? To answer this question we detail (in the light of the scenario) who the target market for a particular product is, what key benefits the product will deliver, and the price that will be charged. An answer to each of these questions provides insight into the pricing, product, and to some extent brand positioning. Value-creating capabilities are more concerned with the unique resources that will contribute to developing the competitive advantage. Which firm can most effectively mobilize resources to deliver value for its customers? This advantage can be gained through structural capabilities, unique core competencies, and/or unique industry foresight. Here we examine the barriers created, the capabilities applied, and the importance of strategic anticipation and adaptation when executing a certain value proposition as to create competitive advantage.

At the end of the day what we aim to answer, when detailing the value-creation process within each of the individual strategic domains, is: what separates winners from losers in each of scenarios? The final output generated is a more detailed version of the alternative strategic paths available to the organization.

Figure 2 - Example Paths
[click image to enlarge]

STEP 4: EVALUATING THE ALTERNATIVES

A strategic path is useless unless an organization is able to articulate a way to act upon it. The evaluation is the first level of bringing the path into the present where action is possible. In assessing the alternative strategic paths, there are four types of evaluation criterion which can be used: suitability, acceptability, feasibility, and posture.

1. Suitability is a broad assessment of whether the strategic path addresses the circumstances in which the organization is operating. For example, the extent to which new strategic paths would fit with the alternative scenarios (i.e., exploits opportunities and mitigates threats); or how the strategy might exploit the current core competencies of the organization. As such, suitability refers to both strategic as well as organizational fit to adapt the strategic path.
2. Acceptability is concerned with the expected performance outcomes (such as the return or risk) if the strategic path were implemented, and the extent to which these would be in line with the expectations of the key stakeholders. As such, the acceptability can be assessed in terms of return, risk, and stakeholder reactions. Numerous analytical techniques can be applied to inform this assessment.
3. Feasibility is concerned with whether the strategic path could be made to work in practice. Assessing the feasibility of a strategy requires an emphasis on more detailed (often quantitative) assessment of the practicalities of resourcing, the investments required and the funds available, and the strategic capability currently available (i.e., KSF gap).
4. Posture is concerned with identifying the realistic (risk) position the organization might adapt when choosing the strategic path(s). To some extent this is to highlight what alternative or combined alternative paths best fit the managerial aspiration. Three choices are available. There are businesses that try to shape the industry; that is, they play a leadership role in establishing how the industry operates. The second posture is to adapt. If the marketplace moves, then adapt to it, adjusting to the changing market conditions. The third type of posture is referred to as to reserve the right to play. These businesses invest sufficiently to stay in the game, but avoid large commitments.

STEP 5: SELECTING THE FUTURE PATH

The various paths available are likely to be inter-related, so it is necessary to identify a small number of strategic options made up of appropriately related options. Selection involves comparing strategic paths both logically and politically. Strategic paths have to be suitable, acceptable, and feasible. If there is more than one strategic path that meets these tests, they will need to be compared. It is simplistic to treat strategic choice just as the logical comparison of strategic options. The process of decision is also political. It is important that those who will be crucial to implementing the strategy support the choice made. Many strategic choices are ultimately made by one individual or a small group who have the authority to make such decisions. So the actual selection process is not as much about the actual choice made, but more about raising the level of debate amongst decision makers and stakeholders. Both the logic and politics of the choice may be heavily dependent on the context. In some cases, strategic intent is driven solely by competitive advantage. In other cases, it is more about determining long-term direction. The value of future path selection is primarily realized through consensus building and ensuring the choice of strategic path (or paths) is clear and widely understood.

No matter what, the key is to balance the choice process between rational criteria (i.e., financial attractiveness) and intangible criteria (i.e., aspirations). Based on the current position the intent can be (1) to protect and build the position, (2) to develop new products in the same market, (3) to develop (new) markets for the same products, (4) related diversification (i.e., value chain integration), (5) unrelated diversification (i.e., moving beyond the confines of its current strategy), or (6) any combination of the previous.

STEP 6: DEFINING THE VISION

Defining the strategic vision (or intent) is now a straightforward process. Given our process, we argue that a strategic vision must be realistic about the market, competitive, economic, and regulatory conditions and reflect the current strengths and weaknesses of the organization and the values and aspirations of management, employees, and stakeholders. Effective strategic visions are designed with a clear understanding of the strategic challenges presented by the emerging environments and the organization's current capabilities.

The definition (or statement) itself aims to translate this analytical choice process, and therefore speaks about where the company should compete, how it should compete, and what specific capabilities it requires to get there. In other words the vision should be concrete enough to be actionable, and provide a guide for action anywhere in the organization. As such, the strategic vision should provide an overall direction where the organization is heading. All future initiatives can be linked to this vision, implemented, tested, and monitored in terms of progress.

Where most vision theories fall short is by developing just a statement that is based purely on intuition. We argue that the vision should be something more sophisticated, and more positive, than a simple war cry. As such, besides giving a clear direction, the vision should also:

• Provide concrete goals and milestones (financial and otherwise)
• Highlight (core) capabilities that need to be developed
• Provide a description of how to change the organization
• Supply robustness in the face of multiple scenarios
• Stretch to reach beyond the organization's current grasp
• Inspire passion, in order to galvanize the organization
• Offer simplicity and clarity of purpose

The final output can be a strategic vision that is either bold/radical (i.e., the ideal target that is sufficiently differentiated versus today); incremental (i.e., minimum target that aims to protect and build the current position); or compromised (i.e., a trade-off between what the company perceives to be the ideal strategy and the organizational capacity to change) versus today's position.

CONCLUSIONS

Many managers we have worked with would like to move directly to action plans and options shortly after the scenarios are developed. This is a mistake. Making decisions based on "the most likely scenario" or the "most attractive segment" without rigorously comparing and contrasting the alternative strategic paths available to the organization can lead to strategic (and financial) disasters. Strategic plans are essentially investments under uncertainty. The strategic vision is the summary of this plan. The key is to see the vision as the result of recognizing those market forces that will have a significant impact on the company's future, and so shape positioning possibilities of the company. With this understanding, the challenge is to determine how the company wants and (realistically) can compete in this defined market space. Tackling this challenge in a clear and concise way will capture the interplay between the current business, managerial aspirations, and the unfolding environment. In return, this will help to reshape and energize the strategy that will command the commitment of managers and employees.

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