… looks like this (courtesy of Dilbert):
One of the tasks that any executive (or consultant for that matter) needs to be able to do is to take crazy assumptions and to test them to see what would happen if they were true. What if some upstart competitor develops a technology which makes our product outdated? What if the government decides to heavily regulate our industry? What if someone completely out-of-left-field enters our market by buying our largest competitor?
These scenarios may seem far-fetched, and the assumptions they rely on may seem extreme, but that’s exactly why this exercise needs to be done:
- It helps establish a list of test-able hypotheses to verify which of these scenario’s are plausible (What criteria would an out-of-left-field player need to fulfill to be interested in my market? What would cause the government to start regulating my industry?) and which are not. This then informs the executives which are credible threats (both in terms of likelihood of happening and in terms of damage) to actively manage and monitor and which can be put on the back-burner.
- It forces executive teams to formulate contingency plans. No firm can afford to be caught off guard. Look at the example of Polaroid or Blockbuster – caught completely off guard by the onslaught of the digital camera revolution and Netflix/broadband video respectively. The companies are now has-beens, as they were not only unready for the destruction of their market, they were slow to react and loss the opportunities to use their strong market positions to their benefit.
- It gives management a list of trigger points to monitor for and to move quickly on. If our competitor looks like its interested in acquiring supplier X, we need to take action quickly to make that deal a lot more painful to swallow, or make our own move to counter that threat.