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Making better strategic bets with analytics-enabled scenario modelling

Confronting uncertainty intelligently

In turbulent times even stronger strategic positioning is needed. Analytics, with its prescriptive abilities to drive more accurate, actionable and scalable business interventions, is a key capability. The first article of the Confronting Uncertainty Intelligently series explores how to strike with well thought out, analytics driven strategic bets at the (unexpected) moments that matter.

By Leonora Lawson, Victor Hoek and Nils Wolthuis

In volatile times, organizations should use the power of analytics to recalibrate their position across a set of four integrated strategic choices. It starts with building the foundation to adaptively navigate the future. In this article, we will discuss the first choice – ‘What future should we plan for?’. We explore how to confront uncertainty intelligently, by applying scenario modelling to strike with well thought out, analytics driven strategic bets at the (unexpected) moments that matter.

Blog series: Confronting Uncertainty Intelligently

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In this blog, we will discuss the first choice – ‘What future should we plan for?’ which is key for companies to depict future scenarios and determine the right actions to thrive.

Beat to the punch: propel robust and adaptive decision-making with scenario modelling

More than ever, companies are searching for prophecy to not only survive, but also to come out as a winner in the (post-)COVID-19 world. Unfortunately, precisely predicting the future is impossible; the crisis triggers a wide range of possible futures, which is illustrated by the ECB’s 2020 eurozone GDP impact scenarios ranging from -5 to -12%. Drawing parallels with the uncertainty in a classic boxing match; it is impossible to predict its blow-by-blow chronology, and thus, to create a precise winning game plan. Winning boxers leverage agility and absorption internalized by numerous simulations of potential game situations and strategies.

Similarly, in a ‘disruption interval’ world, companies need to anticipate possible futures to withstand the punches of demand and supply disruptions as well as dynamically exploit fast-forwarded trends (e.g. flexible working and an increasing shift to digital) in the market. Defining, anticipating and acting on plausible futures, should become part of every company’s DNA to drive robust and adaptive strategic decision-making. Scenario thinking helps companies to prepare for futures, some of which might be more or less likely, but each still plausible and impactful. Scenarios are rich stories about tomorrow created to strike with well thought out, rather than impulsive, strategic bets at the (unexpected) moments that matter. Achieving robustness and agility is a great step forward; moving faster and more effectively than your competition will take you even further.

Break through the limits of traditional scenario modelling with analytics-enabled insights

Manually analyzing all possible futures is hard and time-consuming, if not impossible. Analytics significantly improves our ability to define and plan for scenarios. We can use artificial intelligence to sense the world holistically with vast amounts of internal and external data to identify and monitor the drivers shaping markets. As an example, let’s consider the consumer goods industry, companies can leverage AI sensing to accurately answer in which regions government interventions are being eased or what the sentiment of consumers is towards online shopping. By understanding the interrelated market drivers, richer, more data-driven scenarios can be created. Additionally, with action-impact simulations - a sparring partner that iteratively imitates scenarios - the impact of possible interventions can be tested; assuring companies can execute the most-effective moves when the scenario unfolds. For instance, retailers can simulate and test bottlenecks of current fulfillment models in light of supply chain breakdowns and measured consumption levels.

Gain a competitive edge: execute the right actions at the right time

Knowing how to react, does not mean knowing how to win. It is key to execute the right actions at the right time: faster and more effective than your competition. Analytics enabled scenario execution enables companies to track the likelihood of a scenario materializing in a dashboard and trigger interventions, when crossing a threshold, accordingly. The tracking model rings a bell, enabling timely action, before the punch. In tandem, it allows accurate monitoring of the effectiveness of deployed strategic interventions in a continuous feedback loop. For instance, in our consumer-goods example, a model-generated leading signal of regional rebound in consumption enables the company to focus and monitor sales efforts; ensuring the capability to scale effectively on a granular level.

To navigate through volatility and uncertainty, companies need to consistently analyze and react to opportunities, while maintaining absorption capacity to withstand demand and supply disruptions. Recent developments have shown us that the future is not always possible to predict, but scenario modelling provides companies the foundations to adaptively navigate in evolving conditions, enabling companies to maintain stability and growth while mitigating risks. Analytics, with its distinct abilities to help companies make more accurate, actionable and scalable strategic decisions, enhances our ability to anticipate possible futures and execute the right strategic move at the right time. This is the new normal that should be part of every company’s DNA; beat to the punch!

In our next blog, we will discuss how companies with a strategy driven analytics approach can use focus strengthening to design powerful strategic actions to most effectively allocate scarce resources and gain a competitive advantage in their future playing fields.

Sources:
1) ECB (May, 2020), Alternative scenarios for the impact of the COVID-19 pandemic on economic activity in the euro area, ECB Economic Bulletin, Issue 3/2020 https://www.ecb.europa.eu/pub/economic bulletin/focus/2020/html/ecb.ebbox202003_01~767f86ae95.en.html

More information?

For more information about 'Making better strategic bets with analytics-enabled
scenario modelling' and/or the ‘Confronting Uncertainty Intelligently’ blog series,
please do not hesitate to contact Stefan, Perry or Nils via the contact details
below.

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