Authors: Dr Jacek Guzek - Associate Director, Mike Vincent - Director & Yasin Masha - Senior Manager
Most people would agree that it is more difficult to make sense of the future in today’s rapidly changing and unpredictable world, compared to the more linear and largely binary world of the past. The number of drivers and uncertainties that could influence the future are seemingly countless, but they always combine into a very specific, often surprising, always complex, reality, to which each and every organisation and business must respond. Organisations should always be well attuned to their competitive environments but particularly during turbulent times. Failure to sense impending threats and opportunities on the competitive horizon may be devastating. Conversely, if the directional shifts are detected early enough, this may provide a competitive edge and early mover advantage that allows your company to win in the market.
At Deloitte, we have developed Dynamic Strategy, which helps organisations and businesses to identify the drivers and uncertainties of a turbulent future, anticipating the impact of plausible and divergent scenarios on an organisation’s strategy and navigating that future by adapting the strategy to an ever changing environment.
Overview of the Deloitte Dynamic Strategy approach
Through using our Dynamic Strategy approach across different markets and industries, there is one striking insight we have discovered: the set of drivers that form the general background to the scenarios we draw are surprisingly stable. They change slowly over time, and vary insignificantly across industries, geographies and sectors - we have grouped them in ten global megatrends (empowerment, polarisation, hyper-connectivity, disengagement, ageing, dematerialisation, scarcity, blurring boundaries, erosion of governance and displacement)1. However, the ways in which these drivers coincide and interact with each other is never the same and is extremely specific to the focus of the scenario being developed. Companies may significantly improve their competitive positioning by systematically scanning their competitive environments. They need to look for shifts and discontinuities, explore the threats and opportunities they face and formulate guiding strategic questions before conducting targeted analyses to address them.
While specific tools used for scanning the competitive environment are less important to the structured, systematic and regular process, we found that artificial intelligence-based insights-generating tools provide real advantage. Scanning all Internet news, research papers, blogs, discussion groups, user content, patent data, merger and acquisition activities, etc. can deliver real insight. But to make sense of this data will require an automated cluster algorithm to build associative topic networks or knowledge clouds. This approach allows for a rapid analysis of vast information sources, practically inaccessible through alternative means, and removes typical bias associated with traditional desktop research. This approach will result in an objective analysis and comprehensive understanding of the industry or sector and their respective ecosystems and can be used to identify new potential opportunities and risks.
An illustrative example of an associative topics network for the most discussed applications for medium to large size batteries (extract from a Deloitte study)
Making sense of various drivers and uncertainties of the future and their interlinkages can be a daunting task. Using a scenario planning approach2 can provide us with a structured way of thinking by making strategic choices despite the uncertainty. Scenarios are rich, data-driven stories about the future that can help organisations make better decisions today. They are not predictions about the future, but rather hypotheses that describe a range of possibilities for the future, imaginative narratives that stretch thinking, but are always plausible and logical.
Scenario planning challenges executives and managers to revisit their assumptions about their industry and consider a wider range of possibilities about where the industry may be heading in the future. Consequently, creating scenarios requires executives and managers to question their broadest assumptions about the way the world works so that they can anticipate decisions that might otherwise be missed or denied. This exploration results in a broader, more innovative view about future growth opportunities and risks.
To develop a scenario framework, drivers and uncertainties of the future should first be grouped into broader themes. Then, the two most impactful and independent themes should be placed on the intersecting axes, across which the scenario narratives should then be articulated (typically four different plausible yet divergent scenarios are created). The process should be highly collaborative and interactive and result in a common understanding of the alternative futures the organisation may be facing. The process should also deliver alignment on the key uncertainties in which the organisation is operating.
A strategy wind-tunnelling exercise completes this step of the process. An organisation’s strategy is successively immersed in all scenarios with the objective of understanding the implication of each scenario and validating strategic choices. The outcomes are robust strategic choices that should hold true regardless of the scenario. This is an important approach to future proofing organisations during turbulent times.
Scenarios give organisations the ability to make mid-course adjustments to correct their strategies in a more agile manner. However, they must have an idea how the future is unfolding, and which scenario is most likely to unfold. How to monitor this dynamic reality? Leading indicators are early warning signs of potentially significant change that can be monitored in order to determine if a particular scenario is beginning to unfold. Leading indicators can be very obvious, like the passing of a debated piece of legislation, or quite subtle, like small signs of a gradual shift in social values. This monitoring allows an organisation to course correct their strategies according to which scenario is likely to play out.
Defining and monitoring these “red flags” (events, processes, shifts, discontinuities, etc.) requires a focus on leading indicators of the key uncertainties determining a company’s competitive future. These red flags are aligned to previously articulated scenarios, and knowing their current status informs the interpretation of which scenario or combination of scenarios, is currently at play. The monitoring of red flags can be supported by a range of AI-based tools, and is a sure way to avoid risks and take early advantage of developing opportunities.
Embracing the process of the Dynamic Strategy will not guarantee that you will always detect and correctly interpret the signals that markets are sending. But having a process in place will make you more vigilant and sensitive to what’s important for maintaining and improving your competitive advantage. Threats and opportunities are often difficult to separate, more so in particularly turbulent times. But having a proper process in place is a good place to start and will help in turning your organisation into an agile, alert and more competitive player.