The Future of IT: A Scenario Analysis
By f.a.buytendijk on Dec 10, 2007
Not even the best performance management initiative can predict the future. However, it can help you getting ready for it. One of the techniques that help becoming future-oriented is scenario analysis. According to wikipedia, scenario analysis is a process of analyzing possible future events by considering alternative possible outcomes, called scenarios.
Scenario analysis is becoming more important as part of performance management. Organizations do not operate stand-alone; many decisions made elsewhere in the value chain or in the market impact our performance. Today, in most organizations we cannot budget and plan based on just our resources. Our external stakeholders ask not for our budget, but for our projections, our forecasts, and our guidance to the market. If you miss external trends that impact your business, and you do not make your guidance, this has serious repercussions. Your stakeholders lose confidence in the capabilities of the management, the share price may be affected, and ultimately the agencies lower your ratings, leading to an increase of the cost of capital. How's that for a business case for enterprise performance management and scenario analysis?
There are many techniques for scenario analysis. Some use narratives, stories that describe "the day in the life of manager John" in 2009, going through different experiences based on what he decided in 2007. Narratives can also be a bit bigger, such as the future of the telco industry 2020, when (if?) literally every device is connected, or the world at large in 2100 if we don't address global warming. Other techniques use complex quantitative techniques, based on stochastic or Bayesian modeling, assigning probabilities on certain outcomes and outcomes of outcomes.
Whatever "school of thought" you belong to, scenario analysis is about thinking the unthinkable, questioning the most foundational beliefs in your business, and see what happens. It is not even important if one of those scenarios becomes reality. The real benefit of scenario analysis is flexing the mind and being ready for any change, understanding that the future begins now and we should come into action, or seeing today's word simply in a broader scope. Predicting the future can be done best by shaping it yourself!
In this series of blogs I will describe three ways of "predicting the future":
- Trend - Counter trend. Every action leads to a reaction. Every thesis leads to an antithesis. There is never simply a single trend that extrapolates endlessly. There is always a complexity of trends in different, sometimes opposite directions, that lead to a balance, an equilibrium. Every time the balance is disturbed, different trends compete for a different balance and the equilibrium is restored. What happens is we look at today and describe the opposite situation? I will post on how a counter-reaction to user-friendly software could lead to "power to the nerds."
- Extrapolation. Although there is never a single trend extrapolating eternally, trends do sometimes extrapolate for a while. What happens if we take today's situation, understand how we got there, and logically think through the next steps? I will reason how Service Oriented Architectures could make business consultants out of IT vendors and business integrators out of system integrators.
- Comparison. Global trends are not restricted to a single industry. Privatization in the energy-business will most likely lead to the same effects as it has in privatizing the post office, or the railways. Or privatizing the police or the army, or the treasury department, all would be unthinkable today. What happens if we apply the dynamics of another industry on our own? How can Search benefit from understanding a human shopping experience?
Sounds a bit too conceptual? Read the following blogs over the coming weeks. I have chosen a nice contentious subject, "The Future of IT." See if you agree, disagree, if it makes you smile of even upsets you. If so, scenario analysis has worked.