by Rasmus Thaisen, Strategy Lighthouse & Stephan Thomsen, Oracle Denmark
“What if…. a streaming service is about to outperform our physical video rental stores?”
“What if… Apple produces a phone with touchscreen and steals our market dominance?”
These are just a couple of questions you wanted to have asked yourself 10 years ago, if you were the CFO of Blockbuster or Nokia. Sadly for Blockbuster, it didn’t survive. Nokia, on the other hand, learned some valuable lessons and adapted accordingly.
In a CXO talk with Nokia, chairman Risto Siilasmaa explained that they didn’t see the touch-device trend coming:
” …We thought that touch devices were interesting only to a small fraction of the consumers, the consumer market, and that numeric keypads, QWERTY keypads would still be necessary, a Blackberry type device would be necessary, and so forth. But, that was all wrong. The touch devices took the whole market.”
In the talk, you can also hear how Nokia learned from its mistakes and how the company transformed its way of looking at innovation for opportunities—but also for threats. Risto explained in the podcast:
“We found that when we started talking openly in a scenario-based way about what might happen in the future, starting with the worst outcome, that actually reduced the fear because if we only have one plan, and we know that the one plan that we had previously has never worked out, then the future looks pretty daunting and scary. But, once you lay out the different versions of the future, you can start building action plans to prevent the bad futures and to make the good futures more likely.”
To prevent disruption, you have to calculate different areas of risk. The future is scary, like Risto said, but one thing that is even scarier is that most companies rely on spreadsheets when trying to predict the future. When fighting emerging technologies that can disrupt, you have to disrupt yourself first and digitize these vital finance tools that can help you predict the future state of the company.
Back in 2012, Nokia was handling scenario-based planning in a more old school way; it had no real answer to the market takeover by iPhone and Android devices. Conventional forecasting models typically build one (or a few) versions of the future based on a consensus of opinions and aspirations regarding the business future. This is a dangerous way to sail the ship. A captain needs to asses the optimal route for his ship on the go, and act quickly if any there are icebergs on the horizon.
Once they recovered from the iPhone shock, Nokia wanted to prevent the same thing from happening again. The company moved to scenario-based strategic planning to help it maintain continuous agility, enabling it to avoid dangers at sea.
With a scenario-based model, Nokia can revisit its strategy at any given time and make the necessary changes based on recent developments. Maintaining a number of possible scenarios forces business leaders to think through what could happen if the business environment changed significantly. This minimizes the response time needed to make course corrections.
At many companies, strategic models are still kept in spreadsheets, meaning the company faces complex data collection, limited scenario capabilities, fragile and cumbersome consolidation, and resource-heavy processes.
This can lead to huge potential threats for the business; but disruption can also create huge opportunities, depending on leadership’s willingness to challenge the status quo. An IBM study concluded that CFOs who effectively integrate financial and operational data, embed analytics into every process, and use advanced analytical techniques to predict future trends, perform 70 percent better than their peers on profit and revenue.
Oracle and Strategy Lighthouse are initiating a mission to help companies reap the benefits of digital strategic modeling. Look for upcoming sessions in 2019 that will inspire you to digitize your strategy process.