When markets are uncertain, scenario modelling can be a powerful way to guide product development. Alexander Huun looks at the critical factors in giving a new product the best possible opportunity
Developing new products is challenging and there is no guarantee of success, yet it is essential to any successful organisation – helping companies respond to regulation, changing markets and competition; and to grow. Giving product development the best start, therefore, makes a great deal of sense.
Requiring significant effort to develop and often producing generic or abstract results, scenario modelling has been known to disappoint business leaders, but getting it right can vastly reduce the risk of misjudging a market for a new product. For scenarios to be valuable they must be specific and relevant to the product and its developers. It is essential that they are used to guide companies towards making more profitable products, and not ends in themselves.
To develop quality scenarios that have a broad frame of reference, a company should collaborate and consult rather than rely on its executive committee. Using a crossfunctional team of diverse experts will ensure the scenarios are credible in the eyes of the wider workforce later in the process.
The objective of scenario modelling is to be useful during all phases of product development – from the development process itself right through to marketing and sales. This requires a strong common understanding of the scenarios among people from many different functional areas.
When Scandinavia’s largest life insurer, Storebrand, was developing scenarios, a small group of crossfunctional experts and the management review team worked together to come up with a robust of the scope of the scenario exercise. This improved the quality and usefulness of the final scenarios. Picking a group of experts from across the business meant all efforts could be concentrated on the scenarios, and minimal time was spent coordinating proceedings.
The key challenge is to convey the details of several diverging scenarios. One powerful aid to communication is to use theatre or interactive plays to communicate the scenarios to the wider group. At Storebrand, a studiobased TV-style debate became this communication vehicle. A host, a studio audience and panellists, played by carefully rehearsed internal executives, can bring to life the scenarios for the rest of the business. Each panellist becomes the advocate of a specific scenario and debates how different issues would affect each possible future, giving a large number of people the ability to develop an intuitive feel for the scenarios and could measure up the available options against them.
Product development often involves choosing IT systems, deciding sales and delivery strategies and calculating costs, market volumes and long-term profitability.
Quantifying scenarios therefore greatly improves the usefulness of any models. Quantifying some key indicators can also make scenarios much more tangible and useful. In the case of Storebrand, one key internal debate over a future system platform was significantly advanced once customer volumes were taken into account.
The corporate profitability model also benefits as modellers stress tested it under each scenario, giving the top management new – and potentially surprising – information about possible outcomes.
Companies sometimes decide on a course of action that won’t thrive under all market scenarios. In this situation, monitoring how the market actually develops is crucial.
One way to achieve this is to use internal expertise through polling. Storebrand decided to poll 50 of its leaders monthly for their views of the market’s future direction. Leaders completed the polls online, measuring each scenario against the month’s news and research papers. The process not only helped many of the leaders to engage with current events, but crucially gave early warning of changing priorities.
Scenario modelling can be a powerful tool, particularly in uncertain markets. If organisations can get it right they can become more competitive and set themselves apart in the market. Getting it right means organisations need to use models which are specific to their business, with tangible outcomes, and they must communicate these effectively to the wider business. Getting it right also means successfully navigating regulatory changes, turning them from a threat to an opportunity.
With the help of scenario modelling, Storebrand seized the largest market share of the new Mandatory Occupational Pensions (MOP) market in 2006 and in 2008 it increased its market share in defined benefit pensions by six per cent. If organisations can get it right, scenario modelling can be a powerful tool in an uncertain market.
Alexander Huun is a corporate strategy expert at PA Consulting Group