Driven by unprecedented technological, economic and social change, it is estimated that 50% of the current S&P 500 will be replaced over the next ten years. One of the main reasons for failing to adapt is the belief that future competition will come from existing players, rather than new competitors. The ability to perceive change, to understand how this may evolve, and to create organisational responses to these changes can define the difference between organisations that succeed and those that fail.
Leaders are called to consider:
Which new competitors might be entering my industry in the future?
How will the boundaries of my industry change? What actions might my current and future competitors utilise to gain a competitive advantage? What kind of innovations are my competitors working on to gain a competitive advantage? How do we capture and sustain a superior position in future markets?
The use of multiple techniques that complement each other can help to address these questions.
Trend analysis, which examines the drivers of change that leaders are aware of, can provide an overview of how industry boundaries may change. Scenario planning can enrich this by examining how the known drivers of change (trends) may interact with key uncertainties in the environment. Collectively, these techniques allow leaders to rehearse the future, empowering them to develop an early warning system for market and industry shifts.
Business wargaming can then be used to gain insight on how competitors may act in the future. In this technique, leaders experiment with different strategic moves based on possible competitor actions. This allows them to design pre-emptive actions to respond to plausible threats or exploit hidden opportunities.
Scenarios set the context for ‘what if’ questions to be explored, while business wargaming explores ‘if then’ questions. By combining them, leaders can build complex, meaningful connections between externally driven signals of change and implications for their business in a proactive manner.
The prospective competitive strategy process
The 7-step prospective competitive strategy process leverages the synergies from combining scenario planning and business wargaming:
1. Identify the factors that have and will influence the future
Think about the society that people will live and work in 20-40 years from now. Start with trends then highlight uncertainties. What kind of relationships might people develop? What would society value and why?
2. Analyse these factors to derive future development trajectories
Think about a highly desirable future. What would need to be true for this to become a reality? Similarly, think about the least desirable future and what would need to happen for this to become a reality.
3. Build scenarios to define plausible futures
Deductive approaches to scenario development can be applied at this step to delve into how key uncertainties may plausibly evolve. Rich descriptions using both qualitative and quantitative elements can be developed, providing multiple models of the future within which to simulate decisions.
4. Examine future value chains and value chain participants
Think about the organisation’s strengths and put these in context of the plausible futures created. What can we still do better than our traditional rivals? Why do our customers come to us? What is the real need that connects them to us? Who can do these things better than us outside our industry today? How might they disrupt us in future? How can we sustain what is unique to us?
5. Analyse intentions and power sources of future value chain participants
Delve deeper into motivations of possible future players and how they may react in the plausible futures that have been envisioned. If we were to continue with major planned investments, how might our rivals react? In a given scenario, what will happen to our major rivals’ source of competitive advantage? If there was a coalition of rivals in a given scenario, how would we respond?
6. Develop playbook with detailed profiles and strategies for each participant
Capture action-reaction sequences to highlight the potential cause and effect of organisation action and competitor reaction. Use these mental rehearsals to replay tactics as an observer of the circumstances, and an actor. Consistently ask, why would we react in that way? What could we do differently? What might happen then?
7. Gain deep insights on plausible moves and counter-moves
Capture ‘no-regret’ moves that perform well across scenarios. Examine how judgment changes across scenarios and use this to identify early warning signals to may help you to act in a timely manner in the real world.
The steps are more iterative than sequential, and the quality of discussion depends on the diversity and richness of perspectives considered. By mentally rehearsing dynamic moves, leaders build important new connections that allow them to challenge assumptions be better prepared to act quickly in the face of disruptive players. This builds resilience and learning agility, critical leadership skills in today’s world.
Find out more about the prospective competitive strategy process