What Are IDEAs Made Of: Scenario planning

Mike Rea

IDEA Pharma

Cards on the table: no two ‘scenario planning’ projects are the same, or should be the same. They have different goals, different inputs and different methodologies. Of course, we have seen companies that should know better adopt processes that are little more than child’s games (goaded by rude name calling, perhaps, by the agencies responsible…), and companies who have an uncertain future simply wait for the future to happen before they decide they need to think about it…

Scenario planning, if done properly, requires a degree of complexity both in the briefing (what is this for, and what does ‘great’ look like when it’s done?) and in the selection of process (and partner…). Consider this a list of ingredients, a ready reckoner for things to think through before embarking on wrong-headed wargaming.

Roll that word 'scenario' around your mouth a little, like a fine wine. Think about what it really means: a potential sequence of events, not just an event. Events and their consequences. This may sound remarkably pedantic, but now that 'scenario planning' is what the industry has chosen to call 'wargaming' in public, it should be made clear whether the goal is the prediction of certain events, evaluation of the probability of them happening, or the planning against a series of consequences from a single event (or both: understanding the probability of, and planning for, all potential events and consequences).

(In this article, it is presumed that companies don't use the term 'wargaming' any longer. This decision has some validity: whereas other industries can be seen to discuss 'competitors' and 'offence' and 'defence' against competition, it is clear that a new wind is blowing through pharma, where these kinds of term don't look so good when taken out of context. Of course, in any discussion of 'strategy', it is impossible to avoid any reference to its military origins, so please do read this in that light. Indeed, it is to be hoped that removing the military allusion of 'wargaming' presents an opportunity for the smarter companies to think harder about their goals, rather than reaching straight for their Battleships rulebook…)

"Scenario planning, if done properly, requires a degree of complexity..."

We’re often asked to advise on risk management strategy. Although our view is that this has to be done creatively, and on a case by case basis, there are some fundamentals…

Knowledge: Threat? Opportunity?

First of all is characterisation. Making ‘better’ decisions (you gain points for remembering that this is what strategy is all about…) means being clear not only about what is 'known', but also what is unknown. There is a wonderful book (On Being Certain, by Robert Burton) that examines how we know what we know: what we're certain of, what we believe (because of, or despite, evidence…), what we suspect, etc… Clearly, developing strategy against unknowns is hard. But that doesn't mean that the first piece of information through the door becomes the one to respond to.

For example, on the battlefield (for a good General…), hearing “Our enemy is advancing from the East…” is only the starting point for further consideration…

That information/ intelligence needs (at least):

• Corroboration/ triangulation - More than one source saying the same thing is important (it might be plain wrong…)

• Elaboration - What exactly is meant by ‘the enemy’? How many, who, advancing at what pace, etc..?

• Context - Why might they be doing that - what could be their motivation? Is it obvious that it is an attack, or are they in turn retreating from some other threat further to the East?

• Awareness: Do we have information from every direction? - Not having information from the South, West or North doesn’t mean there is nothing happening there…

• Humility: What do we know we don’t know? - What else could there be to know? Motivations? Short-term vs. long-term goals of the enemy? What are their strengths?

• Decision transparency - Once a decision is made, how does buy-in happen? Is it mandated, or does it help that everyone understands the reasons for the decision, and the assumptions that were made

Being armed with answers to those questions (or with a way to go about finding out), the General may well choose to respond to the advance from the East, but may also be more circumspect. Even then, armed with knowledge, the response is not foreordained. To bring it home to pharma, think 'China' instead of 'The East'…

Risk management strategies

Once risk has been characterised, many industries use a simple ACAT model that helps direct decisions about each of the risks in a given scenario. Once scenario impact and probability have been determined for a given scenario, it is then necessary to identify a plan to manage identified risks:

• Avoid (risk elimination, Not performing an activity that carries risk, also undertaking an activity that eliminates the risk)

• Control (risk mitigation, Employing actions to reduce severity of loss or likelihood of loss from occurring)

• Accept (risk retention, Accepting the loss when it occurs)

• Transfer (risk deflection, Offloading risk (e.g. insurance))

Essentially, these ACAT responses distil to some top-line kinds of strategy (readily available on Wikipedia, so no competitive advantages from this list…). Don't call yourself a strategist until you've considered each of these before acting:

• Deterrence strategies - Deterrence is a battle won in the minds of the enemy. You convince the competitor that it would be prudent to keep out of your markets

• Pre-emptive strike - Attack before you are attacked

• Sequential strategies - A strategy that consists of a series of sub-strategies that must all be successfully carried out in the right order

• Position defence - The erection of fortifications

• Mobile defence - Constantly changing positions

• Cumulative strategies - A collection of seemingly random operations that, when complete, obtain your objective

• Counter-offensive - When you are under attack, launch a counter-offensive at the attacker’s weak point

• Strategic withdrawal - Retreat and regroup so you can live to fight another day

• Flank defence - Strengthen your flank

"Don't call yourself a strategist until you've considered each of these before acting..."

Competitive strategies

However, many of the scenario planning briefs we get are about proper management of competitive threat. Here, despite a necessary case-by-case requirement, there chunk up to roughly 9 types of competitive strategy:

• Head on

• Ride the wave

• Flanking

• Leapfrog

• Encirclement

• Alliance

• Niche

• Guerrilla

• Diplomacy

Head-On Strategy

Huh? This is the most self-evident one in this list…

Tends to be: Big companies, big budgets

Example: Nike vs. Adidas

Riding the Wave

Huh? A form of Judo (or Jiujitsu, more accurately…), involves utilising a competitors’ strength to your advantage

Tends to be: usefully employed by second entrant

Examples: Ikea versus Habitat, Costa versus Starbucks, Lipitor versus every other statin

Flanking Strategy

Huh? Flanking marketing strategies mean operating in areas of little importance to the competitor, or attacking a weakly defended flank (such as a neglected segment, competitor’s pricing, or by offering greater innovation)

Example: Canon vs. Xerox

Leapfrog Strategy

Huh? Involves a significant development which does more than outflank the competitor, it outmodes or outpaces them, Avoid confrontation by bypassing competitive forces

Examples: Historically, cars vs. horse and buggy, more recently the first PCs vs. IBM, or Viagra versus the injectable ED drugs

Encirclement Strategy

Huh? Surrounding a single competitor with a number of brands

Examples: Persil vs. Fairy, Ariel, Bold and Daz

(A variation is to use a range to saturate the market to discourage competitors, e.g., Sony Walkman, or Avandia's fixed-dose combinations)

Alliance Strategy

Huh? The use of alliances and partnerships to build strength and stabilize situations.

Examples: GSK and Pfizer's ViiV association in HIV

Niche Strategy

Huh? Choosing and winning in a clearly differentiated, minority segment, with a premium price

Examples: Morgan Cars, Breaking out, Snapple, Walkers, Glivec

"...exploring only one type of approach almost guarantees that you're competing with one hand tied behind your back, and both legs tied together."

Guerrilla Strategy

Huh? Attack, retreat, hide, then do it again, and again, until the competitor moves on to other markets. Involves surprise, flexibility, favourable ground

Examples: Often small companies but also fighter brands, Red Bull

Diplomacy Strategy

Huh? Working with rather than fighting competitors

Examples: Licensing technology, Distribution, Shared competencies, Technical development, Co-branding

Notice that each of these is a broad description. It is important to know that there are 9, because exploring only one type of approach almost guarantees that you're competing with one hand tied behind your back, and both legs tied together.

Planning

The only common thread through all of this exploration of the unknown is the reinforcement of planning. For as long as time travels in one direction only, planning is critical

About the author:

Mike Rea is a Principal with IDEA Pharma, who enjoys taking a look outside the industry to learn how it can think differently. For direct enquiries he can be contacted on mike.rea@ideapharma.com and for more information on IDEA Pharma please see http://www.ideapharma.com/what/default.htm.

Does pharma do enough scenario planning?