It’s been a very tough quarter for economic forecasters, quota-carrying sales teams and CEOs. The sudden downturn even caught GE’s legendary planners by surprise. If you’re an executive at a technology company, you may already have started an FY09 planning process to re-examine staffing, product investments and revenue. These already bake in your core business assumptions, though, so you should “stress test” your assumptions using scenario planning.
We’ve worked with a range of executive teams on scenario planning: using market-driven product roadmaps to identify business risks and core assumptions, and then highlight the interrelationships among strategic choices. Once you can see how products and delivery dates relate to market realities, you’ll be able to answer the “what if” and “how come” questions that drive decisions.
Your product management teams should have product-level roadmaps, which identify key product-level assumptions as well as major deliverables and target customers/segments. If so, you have a head start on company-level scenario planning.
Our goal for scenario planning is not to predict the future, but instead to prepare for it: have well-thought-out answers for a handful of possibilities, and practice reacting strategically to outside events. Louis Pasteur reminded us that “chance favors the prepared mind.” As product executives, we should constantly be scanning for major disruptions and considering company-level responses. (Your product managers are doing this for individual products.)
So What Major Changes Should We Plan For?
You’ll want to stress-test the company’s product plan with four or five possible events that pull you in different directions. It’s important to choose “right sized” scenarios, avoiding the outlandish (“Martians land in Philadelphia”) and the trivial (“demand drops 10%”). Even if you pick wrong, much of the value is in the doing: you’ll have solutions in your pocket for a half-dozen situations and a thought process for attacking more. You’ll be prepared for a range of surprises.
What would shake FY09 enough to force re-planning? If any of the following happen, you will already have thought through your response and be ready to take action:
Goal: Stay ahead of BigCorp, which rolls out new solutions every June.
Changed assumption: BigCorp announces major staff cuts, slashing development across the board.
We would: add Sales/Product Marketing resources to capture BigCorp’s early adopters in medical systems (our strategic segment) but downsize further in automotive (which is a declining segment).
Instead of: across-the-board cuts of our own that mirror BigCorp and position us as a follower.
Goal: Serve higher education scientific research market with existing product line and staff, since market is flat-to-declining. Don’t invest.
Changed assumption: new administration triples funding for college financial aid, basic scientific research and green/solar initiatives.
We would: repackage/reprice our existing biochemistry solutions, take our “student solar experiment kits” out of mothballs, and resurrect the university lease program.
Instead of: responding only with expanded marcom programs.
Goal: Invest heavily in software for new 23GB optical network standard. Launch in 4Q09.
Changed assumption: new chipset obsoletes 23GB standard
We would: scrap current product, immediately focus architects around new standard, and reassign (retain) the rest of team.
And so on. By exercising key assumptions, you’ll already have evaluated plans for some possibilities. Even more importantly, you’ll have a basis for decision-making and a bias toward action when other (similar) surprises pop up.
In your next board meeting, you’re sure to be asked for recommendations and thoughtful trade-offs. “What projects can we safely delay? Are there new market opportunities? Should we drop an entire product line?” Scenario planning is a great way to answer complex strategic questions.
Q4 ‘08 was full of market surprises. You can’t predict the future, but you can use scenario planning to prepare for a tumultuous 2009.