In the previous newsletter, we highlighted the importance of a process to keep your projects and initiatives aligned with your vision for value creation. And that’s great – in a static world. But you already know that you’ll probably face different conditions in six months or a year. Better get ready now – before the world changes. Change is an inevitable fact of life in business. Technology. Regulations. Mergers. The business cycle. These forces and others can change the competitive landscape, create new opportunities, even render business models obsolete. Achieving results in the face of change generally depends on how well you prepare for it. It’s a delicate balancing act. Focus and alignment are generally required to create value. But at the same time, a company should be sufficiently flexible to respond to fresh challenges and opportunities as they arise. This can mean being prepared for a variety of different scenarios, and being flexible enough to adjust strategy in real time. Based on a recent survey, most companies aren’t ready to embrace change. In the Deloitte*-Economist Intelligence Unit survey for the “Adopting the Value Habit” research paper completed earlier this year, business executives were asked whether they had plans in place to adapt quickly to changing conditions in the business environment . Only 16% of survey respondents could “completely” agree. And as the chart below shows, more than a quarter of respondents indicated that they “completely disagree”. In other words, most survey participants believe they are only partly prepared to deal with major economic and financial changes. 
Moreover, the survey indicates that companies vary widely when planning for different scenarios. Among the largest companies – those with revenues over $10 billion – almost 50% devote three-quarters of their planning time to the “conventional wisdom” scenario and only 25% to different scenarios. But some devote 90% of their time to different scenarios, while others only spend 10%. Interestingly, smaller companies seem to spend more time planning for change than do larger ones. How the Merc Does It
Few companies are as comfortable with rapidly-changing markets as the Chicago Mercantile Exchange (“CME”). And not just the financial markets, but also the fast-changing and increasingly competitive market for financial exchanges. The CME started in 1898 as a market mainly for butter and eggs. Now it trades more than $600 trillion worth of contracts on just about every major asset class, including foreign exchange, stock indexes, interest rates, and commodities. The CME’s transformation from a sleepy Chicago farm market to a global derivatives exchange can offer some important lessons on handling change.1 Ask your customers
Your customers are the real specialists on where your business is headed. So the scenarios that you plan for should incorporate customer views. “We go back to our user base and try to figure out what risk-management needs they have,” says Rick Redding, managing director of product development at the Chicago Mercantile Exchange. Based on these conversations, the CME was ahead of the curve in launching derivatives on U.S. housing prices and weather futures. “The initial idea came from the utilities industry,” Redding explains, “But weather affects a lot of businesses from amusement parks to soft drinks to retail—if it’s wet and cold, people don’t go out shopping.”2 Embrace the new, but don’t give up the old-- yet
The CME’s business has been profoundly affected by developments in electronic trading. While some financial exchanges resisted technology, others adopted a 100 percent electronic system. The CME took a hybrid approach that incorporated both traditional open-outcry and technology-driven trading scenarios. Today, more than 70 percent of CME’s business is transacted online compared to only 15 percent in 2000. In hindsight, the decision to move to electronic trading is obvious. But if electronic trading had turned out to be just a fad, CME still would have been competitive in the traditional open outcry markets.3 Be patient – and flexible
As you consider all of the different scenarios facing your business, you just might find that the one that finally materializes wasn’t immediately obvious. Being ahead of the crowd isn’t always a comfortable position. Be prepared to face plenty of skepticism. “In 1972, people said ‘Why in the world would anyone need currency futures?’” CME’s Redding explains. “In 1983 people said the same thing about stock index futures.” Both products have since become staples of the futures trading world, and the CME is the largest trader of such contracts.4 The price of being prepared is sometimes being wrong
Some products didn’t work out quite as well. Contracts for broiler chickens, designed to meet the hedging needs of the poultry industry, seemed like a good idea. But the market for chicken futures did not fully develop. So CME scrapped the contracts and simply went back to the drawing board.5 1"Adopting the Value Habit (And Unleashing More Value for Your Stakeholders," Copyright © 2006 Deloitte Development LLC, in association with the Economist Intelligence Unit.)
2 Ibid.
3 Ibid.
4 Ibid.
5 Ibid. *As used in this document, “Deloitte” refers to Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP. This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. Related Content: The Value Habit Newsletter Archive
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