Case Study: An Application of Planning & Forecasting

Unit 3 Individual Project

Case Study: An Application of Planning & Forecasting

ThienSi (TS) Le

Colorado Technical University

CS 875-1602C-01

Professor: Dr. Imad Al Saeed

14-May-2016

The dynamic and energetic world has recently changed and intertwined rapidly with full uncertainty and chaos. It is almost impossible to predict the different future from the known present. In an aggressively competitive business environment, many organizations realize that it is very important to identify and be ready for potential changes for survival. Alternative to traditional forecasting that no longer responds properly to the gradual and sudden changes, scenario planning becomes an appropriate approach in business. In this document, a case study about Microsoft, a software giant that had relied on standard forecasting then turned around with proper scenario planning in business is described in detail. The document will discuss how scenario planning and innovation for changes, provide the forces and impact in business and include an illustration models and reference list in five sections as follows:            

A.    Traditional Forecasting and Scenario Planning 

B.     Case Study: Microsoft

C.     Discussion of Innovation

D.    Forces and Impact

E.     Summary

A. Traditional Forecasting and Scenario Planning

Forecasting is a technique trying to predict outcomes of an event or future state that has not been observed. It establishes a framework and processes for vision in many areas such as healthcare, weather, economics, business, education, etc. (Seeman, 2002). Prediction is a more general term in similarity. Both forecasting and prediction methods refer to formal statistical methods using time series, cross-sectional or longitudinal data, qualitative or quantitative approaches, or alternatively to less formal judgmental techniques. However, the former intends for estimates of values at certain specific future times while prediction refers to more general estimates with the number of times happening over a long period (Garett, 2013; Ogilvy, 2015).

            According to Wade (2014), scenario planning is a strategic planning method that some organizations use to make flexible long-term plans for the future by studying possibility and plausibility that addresses the shortcomings of the conventional forecasting techniques.

            The following are a case study, scenario planning and modeling for innovation, driving forces, and impact of change.  

B. Case Study: Microsoft

            The software company Microsoft (www.microftsoft.com) is selected for this case study from the source of the strategic planning in the book “Information Systems Management In Practice” by three authors (McNurlin, Sprague, & Bui, 2009). 

            In the 1990s, Microsoft, a giant software company applied a standard forecasting process that based on the model as shown on Figure 1 developed by Gartner EXPO’s Wentworth Research Program (1999).

Figure 1: Traditional Forecasting Process in strategy.

(Source: Adapted from Gartner EXPO’s Wentworth Research Program, 1999)

It used the following optimistic assumptions to determine what decision in the future:

     - The future can be predicted.

     - Time is available to process traditional strategy making such as corporate strategy, division strategy, and department strategy.

     - Top management knows best because they have the broadest view of the organization.

     - The organization can be seen as an army: Leaders issue the orders, and the troops follow.

            Many companies used the outside-in approach in the traditional forecasting model to predict the future as shown in Figure 2 below.

            Figure 2: Outside-In Approach is used in a traditional forecasting method.

(Source: Adapted from Gartner EXPO’s Wentworth Research Program, 1999)

At that time, Microsoft took a sense-and-respond approach to creating its Internet business strategy. It was slow to embrace some of the most significant technology shifts and business chances in the computer industry. The results were it did not have many products with low cash, fewer revenues, and small market shares.

To turn around its business in a rapid changing market, Microsoft adopted an overhauling innovation by using scenario planning and hiring successful leaders from Lotus Development Corp and Netscape Communications Corp. The scenario planning reflects pragmatic assumptions:

     - The future is less predictable because The Internet has caused discontinuous change.

     - Time is running out because companies no longer have luxurious time for new product development.

     - Top management may not know best because the change occurs rapidly and when top management is distant from the front line of business.

     - An organization is not like an army because executives learn that instituting major changes from the top often ends up in failures.

From scenario planning, it turned the focus on office automation, Web browser. It aligned with Sun to promote Java, and forged an alliance with AOL. Overtime, the software giant moved into a variety of technologies with core products: BASIC, MS-DOS, MS Office, Internet Explorer, MSN Web Portal, Tablet PC, Windows Mobile OS, Visual Studio.NET, XB360, etc. Furthermore, Microsoft used scenario planning to diversify into other sectors. For example, it collaborated with NBC for Web-only magazine, Slate, Web News site; NBA for Cable news channel; digital movies production via Dreamworks; and mobile application, .NET platform for Web Services and search engines to compete against Google. At 30^th year anniversary recently, Microsoft used scenario planning’s visionary outcomes to enter other application areas such as healthcare and explore new software technologies such as F-Sharp, a multicore programming technology.

C. Discussion of Innovation

            Today, business management becomes more challenging and more critical, particularly in organization strategic planning. It is important to establish the appropriate mindset for planning. Albeit managers usually think planning means determining what decisions to make in the future, the view is untenable because the business environment is so turbulent, making the future unpredictable.

            Microsoft’s success proves that standard forecasting becomes obsolete, and scenario planning method is not a prediction technique but rather it is a method that can simulate alternative views of future against strategies, tactics, and budgets, and enables the organizations managing uncertainty and risks by seizing market opportunities. Scenario planning intends to strengthen an organization’s ability to recognize, adapt and advance changes in the industry over time (Frum, 2013).

     1. How does scenario-type planning support planning and innovation for a change? 

Scenario planning, also known as scenario thinking or scenario analysis, is in large part of the adaptation and generalization of classic methods used by military intelligence (KaufmanHall, 2016) to assist organizations better decision-making today where hypothesis indicates a range of possibilities for the future (Global Business Network, 2008).

According to Ogilvy (2015), a scenario planning process may include eight-step process to support planning and innovation for change as shown below:

            Figure 3: Scenario planning process with eight steps in a close loop.

(Source: Adapted from Ogilvy, 2015)

The scenario planning’s objective is to develop and test strategic choices under a variety of plausible futures by rehearsing for multiple futures in a centric business strategy (GBN, 2008) as shown in Figure 4.

            Figure 4: Scenario planning focuses on a centric business strategy

(Source: Adapted from Monitor Group, GBN, 2008)

     2. How to use scenario planning for future innovation efforts?

Even though both scenario planning and traditional forecasting methods address, prepare for potential changes, and project organizational business in the future, scenario planning is a better approach:

          a. Projection versus Prediction

Traditional forecasting predicts the potential changes in one future. The traditional forecasting projection today for future change may be in the range of +/-10% in 2D (2 dimensions like the mathematic plane) while scenario planning does not predict but rather projects the potential changes in multiple futures in 3D (3 dimensions such as a space funnel). 

            Figure 5: Scenario planning for multiple futures vs. Forecast planning for one future.

(Source: Adapted from Monitor Group, GBN, 2008)

            For example, it can provide official future along with multiple alternative futures as shown in Figure 6.

            Figure 6: Scenario planning uses an intelligent projection to cope with multiple future situations.

(Source: Adapted from quesucede.com)

          b. Techniques

Traditional forecasting uses the conventional Ql technique such as time series, exponential smoothing regression, etc. and Qn technique such as experiments, empirical data, curve fitting model, etc. Scenario planning uses visualization techniques, e,g., two common techniques: the 2x2 matrix with four quadrants and the Wilson matrix to seek to uncover potential future environments and understand the impact of today’s strategic decisions on the organization from the found and known facts.

          c. Outcome

            The traditional forecasting method tends to be somewhat rigid, and almost always fails to predict significant changes in market conditions, particularly in very dynamic real world environments today (Garett, 2013). On the other hand, the scenario planning methodology provides flexibility, allows exploration and pre-policy research. Exploration enables supervised learnings and creative thinking while pre-policy research enables concrete options for strategic decision-making (Amer, Daim, & Jetter,  2013). Since scenario planning manages uncertainty and risks effectively and seizes market opportunities appropriately, the organization has more chance to succeed in business than traditional forecasting.    

          d. Scenario planning method’s advantages

            The scenario planning has strength over the old style forecasting as follows:

-          The scenario planning allows flexibility and plausibility, particularly logicality

-          A set of scenarios can form an organizational framework that can make sense of conflicting or ambiguous market signals more holistically (Ogilvy, 2015).

-          The scenario planning’s outcome has a high rate of success.

The disadvantages of the scenario planning are:

-          The range of future uncertainties may cause high stress to employees who have working habits concerned with controllable factors.

-          Method requires both art skill and scientific tool, but it is more art than science.

D. Forces and Impact

     1. What forces are involved, and what impacts do they make?

In general, the forces that support the trend of changing from standard forecasting to scenario planning include many factors in the turbulent market. The typical factors are competition, technology, economics, locality, globalization, society, and culture.

          - The competent force drives the companies to improve their products for their survival.

          - The technological force enables organizations to control the market, acquire more customers, and gain market shares.

          - The economic force assists enterprises to expand the business, increase more revenue.

          - The local and global forces make corporates envelop both local and worldwide areas.  

          - The societal force helps employees to become more productive and skillful.

          - The cultural force guides people more educated and satisfactory.   

     2. Scenario planning accounts for the social impact of change.

            A socio-technical and socio-biological view of scenario plan is to see the scenario planning as living entities that evolve, with self-interest, capable of mutation. They are not commanded; they can only be nurtured or tended. Given the means, these entities can improve themselves and their world. This new paradigm obviously requires a new form of leadership in knowledge management that cultivates a context of knowledge of the art as the impact social change that leads to innovation. Many futurists view the scenario planning as a sense-and-respond approach for the “next big thing” to society-wide quality improvement (McNurlin et al., 2009).     

E. Summary

            This Unit 3 individual project document described the novel scenario planning in contrast to traditional old-style forecasting. The case study of Microsoft used standard forecasting method with optimistic assumptions and the old-style model in Figures 1, 2 to predict the business in the future with a result of the disastrous failure. The giant software company had to adopt the new scenario planning with pragmatic assumptions to overhaul the flexible long-term plans for the future by studying possibility and plausibility such as Internet products and Web services. The innovation for change that was discussed in-depth included scenario planning support with the eight-step model and its role within business strategy in Figures 3, 4, 5, and 6. Scenario planning’s technique; outcome, advantages, and disadvantages were contrasted with the standard forecasting. In the end, the forces that impact the innovation changes included competition, technology, economics, locality, globalization, society, and culture along with the impact social change were discussed in deep knowledge.     

E. References

Amer, M., Daim, T.U., & Jetter, A. (2013). A review of scenario planning. Futures, 46, 23-40.

Frum, R. (2013, August 6). Word association of newspapers scenario planning. Retrieved from the Personal Expert System Web site: http://personalexpertsystem.blogspot.com/2013/08/world-association-of-newspapers.html

Garett, M. (2013). Traditional forecasting leads to traditional results...failure. Retrieved May 1, 2016, from http://www.forbes.com/sites/matthewgarrett/2013/08/22/traditional-forecasting-leads-to-traditional-results-failure/#64836177c401

Global Business Network (GBN, 2008). Introduction to scenario planning. Retrieved May 2, 2016, from

            https://www.mwcog.org/uploads/committee-documents/aV5eWFtX20080731094534.pdf

KaufmanHall (2016). Scenario planning. Retrieved May 2, 2016, from

            http://www.axiomepm.com/solutions/core/budgeting/scenario-planning?gclid=CjwKEAjw9Zu5BRCS_OuVibujhQ0SJAD7t4KrtylNeDnd_IB5syWMOeRBDl2QziIjc99IxeUyEQWyqRoCUt3w_wcB

McNurlin, B. C., Sprague, R. H., & Bui, T. X. (2009). Information systems management in practice. Prentice-Hall International.

Ogilvy, J. (2015). Scenario planning and strategic forecasting. Retrieved May 2, 2016, from http://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/#661a1e006b7b

Seeman, S. (2002). Traditional forecast techniques. Retrieved May 2, 2016, from

            http://speedy.meteor.wisc.edu/~swetzel/winter/methods.html

Wade, W. (2014). "Scenario Planning" - thinking differently about future. Retrieved May 1, 2016, from http://e.globis.jp/article/000363.html