We've been talking about scenario planning.

Step one was to identify the key strategic issue and the time horizon.

Let's move on to step two.

Step two is to identify the key trends and the uncertainties.

These are the factors going into the future

that are gonna impact the viability of your business operations.

So, first of all, what's the difference between trends and uncertainties?

Remember, trends are those things that we are pretty sure we can just count

on, right?

But you don't wanna just use your judgment,

because of course you might get these things wrong.

So, I wanna encourage you to think about how you know something is a trend.

You might base it on observed change.

In other words, you might see that certain things have gone in a certain direction,

societally or in your market segment, and there's no reason to think that that

trajectory won't continue based on what you've observed and already encountered.

We can project into the future.

You might look at other kinds of supportable evidence, right?

We might think about expert consensus.

Again, what we are doing here, when we identify trends,

is we are looking for some certainty about things that are gonna

happen in the future that are going to have an impact on your business.

But in a sense we want to rule them out of our scenario planning because the trends,

if in indeed they're somewhat certain,

are gonna apply across all the scenarios, right?

So, if the experts don't agree,

if there's mixed data in terms of the evidence that you're looking at, or

in the observed changes that you've seen, then that might suggest that these things

you're thinking of as trends might instead be uncertainties.

And that's really the focus here,

is you want to identify what the key uncertainties are.

And here you wanna focus on the big issues.

Which factors are gonna have the most impact on your business in the future?

Especially those factors that we're not sure which way they're gonna go.

And again, as with the first step, it's useful to seek a variety of perspectives,

both inside and outside your organization.

And again, you're trying to make this key distinction between trends and

uncertainties.

The uncertainties are the things that we're gonna use to build your scenarios.

So, if there things that we can easily agree on and count on in the future,

those are trends.

And let's instead try to focus on some things that we're less sure about.

And those are the things that we need to focus on here the uncertainties.

Now, it's important to then prioritize those uncertainties.

Essentially, which are the most important and which are the most uncertain?

We're looking at the things that we think will have

the most dramatic impact on our business going forward and

these are the things we're not entirely certain about now.

So that's step two.

Step three essentially means you're gonna then construct scenarios

based on these uncertainties you've identified.

And we're gonna plot them.

So we put them visually on a sort of chart or a graph that helps you visualize

the differences between the scenarios created by these key uncertainties.

So what you gotta do first is identify two of the most important uncertainties that

you've identified.

And these are the things we're gonna use to plot, right?

And we plot these on different axes.

One will be on the vertical axis and one will be on the horizontal axis, right?

And for each of these uncertainties, you're really looking for

two different outcomes that can arise from each uncertainty.

And I'll give you a tip here.

What you really shooting for is that each quadrant of essentially

this 2X2 you're putting together, should be nearly mutually exclusive.

So you're looking for uncertainties that can vary kind of dramatically and

you want to get each end of the spectrum represented.

Does that make sense?

So, let's see if we can understand how this might look visually.

Here I might have uncertainty, I'm calling it Uncertainty WX.

And on the the vertical axis, and on the horizontal axis, I've got Uncertainty YZ.

So in each case, for instance on the vertical axis,

things can either go in the direction of W, or they could go in the direction of X.

And we've plotted that on the vertical axis.

On the horizontal axis, we've plotted uncertainty that could either go in

the direction of Y or in the direction of Z.

That makes sense to see that visually and see this will then create in essence,

four distinct scenarios of the future

that vary based on the different combinations of those two uncertainties.

So here we have scenarios A, B, C and D.

So that's what I'm trying to get at conceptually.

Maybe it's helpful to use a specific example to help you visualize this.

So let's use the example of the video game console industry segment.

So we're talking about things like the Microsoft Xbox and

the Sony PlayStation, right?

So that particular market segment is what we're focused on here.

And so the first thing would be to identify what the trends are, right?

These are the things that we know we can count on,

and we'll kind of rule them out as uncertainties.

So, I don't know, this might be things like, computing power is gonna increase.

Use of social networks is gonna increase.

So, those are factors that we can probably count on regardless of how other things

might play out, right?

So we rule out those sorts of things.

Again, trends are things like population, demographics, and

things associated with that that you can sort of count on.

So then the question is,

which uncertainties should we identify in this particular industry market segment?

Obviously we're not having a live discussion.

If we were, I would want you to talk amongst yourselves and

kinda come up with what you think the key uncertainties are in the video games

consoles industry segment going forward.

As it is, I'll just pick a couple to use as examples.

I don't know if they're the most important uncertainties, but you get the idea.

So here let's pick two that I think might vary.

One might involve the revenue model for games.

So in the future the video consoles industry segment, the revenue models for

games might differ.

Is it that in the future the consumers are gonna buy the games or license the games,

or maybe they're gonna be advertising funded?

There's lots of different ways this can go, right?

So let's stick with buy versus license.

And this might be sort of analogous to in the music industry,

it's sort of downloading versus streaming, right?

So that's one uncertainty we'll work with.

For the second one let's go with the nature of the device itself.

Is the device gonna be a single-purpose device, that's used for

playing video games?

Or is it gonna be kind of a multi-use home technology device, and

more of kind of an appliance to use in the home?

So again, these are just two examples, but

if we plot those up there, we can see how we might put those on the different axes.

So on the vertical axis we have, whether it's gonna be a single purpose device or

a multipurpose device.

And on the horizontal axis we have different models of

how software revenue is going to change hands in the future.

Is it gonna be licensed or streaming?

Or is it gonna be purchased outright?

So, once we kind of lay those things out on these axes,

then we get four different scenarios, right?

And the next thing you're gonna wanna do is come up with names for these scenarios.

So we aren't just calling them scenario A, and B, and C, and D.

Now, I'm not gonna do all your work for you, here, but you get the idea.

I wanted you to just sort of get a sense of how this would play out with a specific

example.

And the idea here is that we're sort of constructing four potential possible

futures that are kind of mutually exclusive.

We may end up in the world where the kind of dominant model in the industry is for

a multi-purpose home technology device and

the software revenue model is licensing or streaming.

But we might end up in the scenario where it's a single purpose device and

people are still purchasing out right the games.

So these are the kinds of things we want to play with.

And hopefully that helps you visualize and

helps illustrate what it means to construct these different scenarios.

These have been steps two and three of scenario planning.

Scenario Planning Steps 2 and 3

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