Scenario Planning: Part III
Understanding the market to define potential scenarios of the future
Where we left off
In the second post in the series we defined a set of key factors, environmental forces to determine a set of critical uncertainties to address our focal issue:
How will homeowners complete simple maintenance and repair projects on their home over the next 10 years?
We landed on a prioritized set of critical uncertainties based on the impact and level of uncertainty.
- Industry Fragmentation (consolidated vs. fragmented)
- Urbanization (condos vs. homes)
- Climate Change (doomsday vs. sunny skies)
- Economy (housing crisis v2 vs. long bull run)
- Digital Starts (Everything digital vs. Word of Mouth)
- How projects get done (DIY vs. Hire a Pro)
Now that we have these, the next step is to generate a 2x2 diagram to generate 4 scenarios. In my opinion, this is the most fun part of the process, as it is highly creative with a mix of analysis.
Defining the Axes
Selecting axes should be based on the highest uncertainties defined. It is good to try out a few different pairs to see what would happen. As you are defining axes you’ll want to avoid axes where you can’t achieve a specific quadrant or the uncertainties have some level of correlation.
Here are a few examples from the uncertainties above:
Based on a review of these axes and playing around with a few options, I have initially chosen one axis to be technology adoption (ie. will everything be done with AI, bots, voice assistants, AR, etc) vs. market sentiment (ie. how much are people spending on improvement market). In practice, you’d want to do this as a team exercise to take in the data that you have and layout the scenarios that are most likely to stretch your thinking on the future and if you were able to devise a strategy to address would deliver the most benefit.
Defining Scenario Logics
This phase is where you build out 2x2 models and iterate to figure out the best pairing of the axes to define 4 scenarios.
Why 4 scenarios? Allows you to stretch thinking without having to overly complicate the view of the world. You could add a third dimension, but you would then have 8 scenarios to think through. In addition, I like to force some friction and making tradeoffs to force prioritization and critical thinking.
Let’s now answer a set of questions to figure out which version is best:
- Are one or two quadrants completely implausible — null sets?
When I first was putting the digital adoption I had a regressive view (paper trail) on the left side and realized that was too extreme and decided “web surfer” was more representative of the current state. - Can you provide a clear concept statement for each quadrant?
Yes, each one of these quadrants had a clear break down of the scenario around a high-level concept to build out scenarios. - Are the stories in each quadrant interestingly different in ways that make a difference to the focal issue?
The digital future has a large influence as it changes how people choose to start their project. Initially I was thinking that market sentiment was best, but iterated to DIY vs. DIFM, thus the change from the section above. - Can you find the “official future” quadrant or something close to it?
This is the upper left quadrant. Hire a pro is preference and there is some trepidation on using the web for booking a contractor.
Don’t get stuck in analysis paralysis. This is an iterative process where you can come back to the axes if you are unable to define good scenarios.
I generally think that picking an axes that represents one of the key factors impacting your business vs. an environmental force makes a better scenario. An example from the past was a friend opening a new wine shop looked at social trends (environmental force) vs. where they purchase (key factor).
For each quadrant it is helpful to write out a few points to describe what that means. I like to pull one statement for each axis. This helps to ensure that the quadrants are materially different and ensure alignment among the team. Here is an example from this exercise for the upper left quadrant:
Connected Home
- Live in a world where everything that uses power also transmits data to a monitoring service
- Machines are better than humans that identifying issues and make it easy to schedule a repair or improvement
Writing the future scenarios
To develop the future scenarios it can be helpful to layout three time horizons (2 years out, 5 years out, 10 years out) and insert Twitter-like headlines for each scenario. Then from there you write a short op-ed on the future.
I’ll build up on the “Connected Home” scenario to layout the future (these are abridged for illustrative purposes, generally speaking you’d want this to be equivalent to an average news article post to stretch the thinking of the team; a few paragraphs).
- 2020 — “Alexa, please tell me before something breaks”
Alexa can now connect with every electrical appliance in the home and when the appliance stops working will send a notification. This has opened up a new market for service monitoring companies to build algorithms. Like what happened with robo-advisors for financial services, homeowners can now have their home remote monitored and service / repairs to be recommended before a device breaks. - 2023 — “Never get locked out again. Finally a door that recognizes you are the owner”
Advanced user interfaces including voice, biometrics realizes the first real version of the Jetson’s home. Coupled with solar for every home, self-driving cars and product delivery via drone, the only question that now remains is when will my drone provide rides? We are entering an augmented world where we work with technology to get jobs done. - 2028 — “First self-healing home makes home ownership easy, for first time”
While the materials don’t actually repair on their own, the home has become intelligent enough to understand your preferences to schedule services, repair and improvements as needed. For improvements you set a budget you are willing to spend and the system uses data to determine what improvements will add the most value and when to do the work, including designing your dream kitchen. Based on initial pilot program homeowners seeing 50% increases in value of home.
Next Steps
In my next post I’ll go through identifying implications and establishing an early warning system to make your strategy dynamic. Through the article we’ll look at the commonalities among the scenarios and how they can inform a strategy that is ‘anti-fragile’.
