Scenario Planning

SCENARIO planning
Building scenarios at
Roland Berger Strategy Consultants
August 2013
1 2013-08_RBSE_Building Scenarios.pptx
Contents Page
A. Strategy development today

Why scenario planning is important now 3
B. The Roland Berger-HHL scenario approach

Our approach to building scenarios 12
2 © Roland Berger Strategy Consultants 2013-08_RBSE_Building Scenarios.pptx

A. Strategy development today
Why scenario planning is important now
2013-08_RBSE_Building Scenarios.pptx
Today our economy faces very high volatility
GLOBAL REAL GDP DOW JONES EUR/USD EXCHANGE RATE

GROWTH [%] [index value]1) [EUR/USD]1)
Highest Highest
5.3 5.4 5.1 value + 8,995 value
14,165 1.60
Oct 2007 15,542 Apr 2008
3.9 1.50 1.48
3.2 1.46
2.8 1.34
1.32 1.32
10,718
-7,618
1.27
1.23 1.23
Lowest value 6,547 1.18 Lowest value
-0.7 Mar 2009 Jan 2006
2006 2007 2008 2009 2010 2011 2012 Dec 2005 Jul 2013 Dec 2006 Jul 2013
1) All values (except highest, lowest and latest) are end-of-month based; highest and lowest values are on daily basis
4 SOURCE IMF, Bloomberg 2013-08_RBSE_Building Scenarios.pptx

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 > Economic forecasters use
3.0 complex models of economic
2.9 development – but they often
2.8 failed, e.g. in predicting the crisis
2.5 > Economic trends are unreliable
and future developments unclear
2.2 – decisions must still be made
> Our job is to interpret the key
1.9
factors driving future economic
1.7 development
Aug 10 Dec 11
5 SOURCE Consensus 2013-08_RBSE_Building Scenarios.pptx

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

and global GDP growth, 2000-2012 [%]
6 SOURCE IMF 2013-08_RBSE_Building Scenarios.pptx

And finally follows that traditional strategy tools have
become unreliable
Traditional strategy tools …
volatility
… fail to reflect
… can't cope with complexity
… don't consider different views
ANSOFF MATRIX GENERIC COMPE- EXPERIENCE FIVE FORCES PORTFOLIO

TITIVE STRATEGIES CURVE ANALYSIS
7 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

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 …
SCENARIO … provides different images

I of the future to reflect
volatility
SCENARIO … considers numerous

TODAY influence factors to cope
II
with complexity
Counter- … combines internal and

action SCENARIO
III 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 QUOTATIONS FROM USERS
SCENARIO PLANNING … regarding WEAKNESSES …
1 Reflecting
volatility …
Coping with
… through development of alter-
native futures
Scenario projects are
extremely complex
2 complexity …
… through consideration of
numerous influence factors Processes are not standardized
and highly variable
3 Identifying
blind spots …
… through involvement of internal
and external experts
Traditional scenario projects
usually take min of 5 months and
4
Speed and … based on a set of management
simplicity … can last as long as 1 year
tools that support an easy process
Flexibility
5 … by applicability of different time Methodologies are not well

concerning horizons described and not fully disclosed
planning
horizon …
Fulfilled by traditional scenario planning

Therefore our new approach builds upon the strengths of
traditional approaches and overcomes their weaknesses
… BUILDING ON STRENGTHS … OVERCOMING LIMITATIONS
> Planning based on multiple > Standardized method that is easily

possible futures replicable for planning purposes
> Integration of outside perspectives > Tool based approach eases
> Broadening management's application
perspective > Quick execution of scenario-based
> Increased adaptability to changes
ROLAND strategic planning process
in the environment BERGER-HHL > Applicable for shorter time
horizons of less than 5 years
APPROACH
to scenario-based
strategic planning

B. The Roland Berger-HHL scenario approach
Our approach to building scenarios
2013-08_RBSE_Building Scenarios.pptx
We differentiate between
macro-, meso- and micro-scenarios
CHARACTERISTICS
MACRO-LEVEL of our 3-TIERED APPROACH
Global scenarios
Macro-level scenarios build the
framework for industry and
MESO-LEVEL company scenarios
Regional and industry scenarios
Meso-level scenarios describe
different futures of a branch or a
region
MICRO-LEVEL Micro-level scenarios focus on
Company-specific scenarios 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 > Constant exchange with academia,
international think tanks and business over
> One of the worldwide leading business schools scenario contents and methods
> Regularly ranked as one of the top 3 German > Concrete support on scenario projects of
business schools 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
CLIENT COUNTRY PROJECT DESCRIPTION
Multinational oil and gas UK > Developed 2020 scenarios for Industrial and Marine business, and built up
company organizational capabilities
Multinational insurance UK > Built scenarios in life insurance and pension to guide long-term strategy
company development across 14 countries to guide pan-European strategy
Large chain of home USA > Created scenarios describing different consumer behavior
improvement stores
Multinational pharma- USA > Described and quantified the potential impact of healthcare reform through
ceutical company scenario planning
Multinational auto- France > Developed 2020 scenarios and action plans to enhance aftersales strategy
motive manufacturer for Europe and China
Multinational, producing France > Created a scenario planning tool to model business impact of different market
construction and high conditions and to inform capacity investment decisions
performance materials
Multinational automotive Germany > Developed global scenarios to plan manufacturing data and different sales
manufacturer strategies according to the scenarios

EXAMPLES
Book publications and scenario studies demonstrate thought

leadership
Selected scenario planning documents
Book describing the Scenarios for The European Emerging Market

RB/HHL scenario Airline Industry Future Scenarios
planning approach

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

Together with the HHL Center we developed a clearly
structured process for scenario projects
Task: Identify core problems Task: Identify assumptions and mental models
and frame analysis
Tool: Framing Checklist Tool: 360° Stakeholder Feedback
Result: Clear conception of Result: Good understanding of internal (company) and external (industry) perception;
project goal identification of blind spots, weak signals and influencing factors
1 Definition of Scope 2 3
0.5 weeks1) Perception Trend and
Analysis Task: Discuss and evaluate relevant trends
Uncertainty
3-4 weeks1) Analysis Tool: Impact-Uncertainty Grid
0.5 weeks1)
Result: Identification and analysis of key trends and
6 key uncertainties
Task: Monitor developments and
challenge assumptions Moni- 4
toring Task: Develop scenarios based on key trends/uncertainties
Tool: Scenario Cockpit Scenario
ongoing Building Tool: Scenario Matrix
Result: Track of external developments 1 week1)
Strategy
5 Result: Map of possible scenarios and understanding of
Definition
Task: Deduct action plans for implementation which scenarios are most promising and which
2 weeks1) are most dangerous to the client
Tool: Strategy Manual
Result: Clear blueprint for strategic
development of a company
1) Average duration of the specific project phase of a Roland Berger scenario project

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 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
B
STRATEGIC LEVEL OF ANALYSIS Focus on industry level as this allows the broadest
Shall the scenario planning process be conducted analysis and discussion spectrum for scenarios
for the macro, industry/region or company level?
TIME HORIZON Focus on 10 year horizon as this was the focus of
C What time horizon is the planning process tailored

to (1,2,5 years or longer)?
PARTICIPANTS
capacity planning
Strategic advisors of the top management as well as
D How closely is top management involved in

the process? Which members of the respective
departments participate in the workshops?
the department heads of trends, strategic planning
and capacity planning participated in the workshops
E
DEFINITION OF STAKEHOLDERS Focus internally on top management, trend, planning
Which key stakeholders shall be involved in the and macroeconomics experts and externally on
360° Stakeholder Feedback? 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

2 – PERCEPTION ANALYSIS
To gain holistic view on future development in automotive

industry a 360° Stakeholder Feedback was conducted
INTERNAL STAKEHOLDERS EXTERNAL SPECIALISTS

360°
> Top Management Stakeholder > Industry specialists
> Trend specialists > Trend specialists
Feedback
> Macroeconomics specialists > Macroeconomics specialists
> Capacity planner
EXTERNAL STAKEHOLDERS
> Key customers

> Key suppliers The 360° Stakeholder Feedback
asks about
> Shareholder
> 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

We identified 30 influencing factors with the

360° Stakeholder Feedback
INFLUENCING FACTORS
Social Technological Economic Environmental Political/Legal
Decrease of consumer Development of alternative Duration of crisis Climate change Decreasing political stability
confidence powertrains
Downsizing at customers Improvements of traditional Low economic growth in Growing problems with the Tougher environmental
powertrains industrialized markets production of biofuels regulation, esp. CO2
Longer period of ownership Increasing importance of car Strong economic growth in Increasing pollution of cities Growing trade protectionism
assistance systems emerging markets
Car's image as status symbol … Growing middle class in … Continuing local content regu-
declines emerging markets lation in emerging markets
Increasing environmental Growing competition from Subsidizing own car
consciousness of consumers new carmakers industry in China
… Rising oil price …
Rise of new business

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

spots, weak signals and influencing factors
THREEFOLD RESULT BLIND SPOT ANALYSIS (EXCERPT, ILLUSTRATIVE):
ANALYSIS IMPACT, INTERNAL/EXTERNAL
BLIND SPOTS Development of

Factors, which are deliberately or alternative powertrains
unconsciously disregarded Tougher environ- 10,0
mental regulation 8,0 Rising oil price
WEAK SIGNALS 6,0
4,0
First indicators for important Competition from 2,0 Downsizing at
developments and external changes new carmakers 0,0 customers
INFLUENCING FACTORS Car's image as status Economic growth in

Influencing factors for the scenario symbol declines industrialized countries
development
Longer period of Economic growth in emerging
ownership markets
By comparing the perception of company insiders and outsiders

we identified management's blind spots
External 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
Growing economic
growth in emerging CRITICAL
Duration of crisis Ec
TRENDS markets
CRITICAL UNCERTAINTIES define the axes of
Growing environmental
S
S UNCERTAINTIES
Decrease in
consciousness of S T P
consumers S P consumer
confidence
S Ec
Rising oil Decreasing
the scenarios – we identified 6 critical uncertainties
Improvements of En price political
Ec En
traditional power
trains Climate change Ec Alternative T
stability
> Duration of crisis > Decrease of consumer confidence
T Growing middle powertrains
S
P class in emerging Competition from > Decreasing political stability > Rising oil price
Potential markets Ec new carmakers
Impact
Ec > Competition from new > Development of alternative
En
S Local content carmakers powertrains
Ec En regulations
S P
T T
Ec
SECONDARY ELEMENTS
Low
Low Uncertainty High
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 Environmental Social
> Growing economic growth in > Climate change > Increasing environmental consciousness of consumers
emerging markets > … > …
> Growing middle class in emerging
Political Technological
markets
> Continuing local content > Improvements of traditional power trains
> …
regulation in emerging markets > …
> …
S Social T Technological En Environmental Ec Economic P 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
Duration of Climate
crisis change
Growing middle class Increasing environmental
in emerging markets consciousness
Decreasing
Rising oil price
Time
political stability
Decrease of consumer Competition of new

confidence carmakers
Development of
alternative powertrains
Economic Innovation
development dynamics
By varying key uncertainties and influence factors we were

able to formulate comprehensive scenario storylines
KEY DIMENSIONS CHARACTERISTICS FOUR SCENARIOS DEVELOPED

for global automotive industry until 2020
> Economic development
> Innovation dynamics
- +
High innovation dynamic
INFLUENCING FACTORS
Forced
> Duration of crisis Golden
Technological
Decade
> Decreasing political stability Evolution
> Decrease of consumer confidence High
Economic
economic
> Rising oil price stagnation
growth
> Competition of new car makers
Industry Dangerous
> Growing economic growth in Decline Saturation
emerging markets
> Growing middle class in emerging
markets
> Climate change Low innovation dynamic
> Increasing environmental
consciousness of consumers

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, Scenario I Scenario II Scenario III
unemployment rate, inflation rate, interest rate) on
a country-by-country basis for each of the scenarios GDP growth I, GDP growth II, GDP growth III,
unemployment I, unemployment II, unemployment III,
We then used the parameters in a simulation tool inflation rate I, period inflation rate II, period inflation rate III, period
specially developed for the automotive industry. of owner-ship I, … of owner-ship II, … of ownership III, …
The tool used the values to calculate the number of (country-specific) (country-specific) (country-specific)
new vehicle registrations in key markets for each
scenario, as a basis for volume planning
SIMULATION TOOL
Key points New

registrations
New
registrations
New
registrations
It is important to understand exactly how the I II III
simulation tool works so that any extraordinary
effects can be included

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 Scenario I Scenario II Scenario III
Scenarios and action plans must be consistent Action plan I Action plan II Action plan III
> … > … > …
Creative solutions that work are the
answer to challenging scenarios

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

The strengths of our scenario approach:
State-of-the-art scenario building for our clients
DIRECTLY APPLICABLE TO BUSINESS
1 Our scenarios answer our clients' core strategic
and operational questions
1 Definition 2
2 INTERACTIVELY BUILT 3
of Scope Perception
In the scenario team, clients and consultants work Analysis
Trend and
together and internal and external experts are Uncertainty
Analysis
consulted as required
6
3 HIGH SPEED
The scenarios are created within a few weeks, using
modern information and communication methods
Moni-
toring
4
Scenario
Building
5 Strategy
SIMPLE COMMUNICATION
4 The scenarios are clearly formulated and thus easy
to communicate internally and externally
Definition
5 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
Our world faces more and more volatility –

1 that's especially true for the economy
2 To stay competitive in this environment

companies need to develop scenarios
The Roland Berger-HHL scenario process

3 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
PROF. DR. BURKHARD DR. CHRISTIAN KRYS

SCHWENKER Product owner
CHAIRMAN RBSE SENIOR EXPERT

burkhard.schwenker@rolandberger.com christian.krys@rolandberger.com
+49 40 37631 4100 +49 160 744 2917


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A. Strategy development today

B. The Roland Berger-HHL scenario approach

2 © Roland Berger Strategy Consultants 2013-08_RBSE_Building Scenarios.pptx

GLOBAL REAL GDP DOW JONES EUR/USD EXCHANGE RATE

4 SOURCE IMF, Bloomberg 2013-08_RBSE_Building Scenarios.pptx

5 SOURCE Consensus 2013-08_RBSE_Building Scenarios.pptx

Time horizons of traditional corporate planning

6 SOURCE IMF 2013-08_RBSE_Building Scenarios.pptx

… can't cope with complexity

… don't consider different views

ANSOFF MATRIX GENERIC COMPE- EXPERIENCE FIVE FORCES PORTFOLIO

7 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

Which regions of the world will grow most?

How sharply will commodity and energy prices rise?

How will demand for our products change?

How will regulations change in my markets?

8 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

SCENARIO … provides different images

SCENARIO … considers numerous

Counter- … combines internal and

9 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

5 … by applicability of different time Methodologies are not well

10 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

… BUILDING ON STRENGTHS … OVERCOMING LIMITATIONS

> Planning based on multiple > Standardized method that is easily

11 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

13 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

14 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

Roland Berger has advised large clients worldwide to

15 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

Book publications and scenario studies demonstrate thought

Book describing the Scenarios for The European Emerging Market

16 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

Analyzed relevant trend and future

Discussed and verified data

Detailed seven megatrends, each

17 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

18 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

Reference project for the automotive industry1):

A GOAL OF SCENARIO PROJECT

C What time horizon is the planning process tailored

Strategic advisors of the top management as well as

D How closely is top management involved in

19 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

To gain holistic view on future development in automotive

INTERNAL STAKEHOLDERS EXTERNAL SPECIALISTS

> Key customers

The 360° Stakeholder Feedback

1) STEEP: Societal, technological, economical, ecological and political/legal influence factors

21 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

We identified 30 influencing factors with the

… Rising oil price …

Rise of new business

The results were systematically analyzed to understand blind

BLIND SPOTS Development of

INFLUENCING FACTORS Car's image as status Economic growth in

By comparing the perception of company insiders and outsiders

23 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

The most important trends and uncertainties in the industry

S Social T Technological En Environmental Ec Economic P Political

24 SOURCE ROLAND BERGER 2013-08_RBSE_Building Scenarios.pptx

The Influence Diagram was used to structure the critical

Growing economic growth