Don't Fail to Plan

We have previously discussed the difference between traditional forecasting and scenario planning. I will provide a brief recap for those visiting this blog for the first time. For regular visitors, this will be a good refresher.

Traditional Forecasting

Traditionally, forecasting involves using historical data or speculations to predict the future (Seren & Burcu, 2019). Forecasting is either qualitative or quantitative, depending on the data used (Seren & Burcu, 2019). One of the challenges with traditional forecasting is that it requires large sample sizes and assumptions to be drawn (Seren & Burcu, 2019).

Scenario Planning

An alternative to traditional forecasting is scenario planning. Unlike the conventional methods of forecasting, scenario planning focuses on the world as it could be, regardless of how it is at present (Ogilvy, 2022). However, like forecasting, scenario planning still follows a methodical and scientific approach (Ogilvy, 2022). Figure 1 presents a valuable graphic to visualize the scenario planning process (Gartner, 2022).

Figure 1.?Guide to Scenario Planning for Functional Leaders

Example of Failure to Scenario Plan

?As the holiday season approaches, retail purchasing drastically increases to support the gift-giving tradition (Peiser & Lerman, 2022). As a result, an increase in shipping is a natural byproduct (Deloitte, 2018). In the United States, the three traditional shipping companies are the United States Postal Service (USPS), Federal Express (FedEx), and United Parcel Service (UPS). However, Amazon ships the most packages in the U.S. (Hartmans, 2021). Annual increases in shipping during the holiday season are not new nor unanticipated. However, every year, there is invariably some significant issue with deliveries.

The 2013 UPS Failure

In 2013, UPS attempted to revolutionize the holiday delivery season by creating a system of guaranteed delivery dates (Banker, 2013). Using data from previous years, UPS forecasted that it needed to add 55,000 part-time workers, lease 23 extra planes, and build a second trucking fleet to deliver on its promise (Banker, 2013). However, UPS utilized forecasting and not scenario planning. They had not anticipated the increases in purchasing and shipping that would occur as a result of the ending of a period of economic downturn. When UPS realized its planning failure, it was too late to fix it.

Forces Leading to Failure

The primary force behind the failure was economic. Competition in the shipping industry is a high-stakes, high-value reality. Once a company loses a customer's loyalty, the cost to recover or replace that customer is significant. To maintain facilities and hire the staff needed to support the holiday shipping surge, the shipping companies can choose to either charge a rate that spreads profits throughout the year or increase prices during the surge season to offset costs (Banker, 2013). However, because of the competition between shippers, there is a reluctance to raise rates on a seasonal basis (Banker, 2013).

While traditional forecasting would support spreading the costs throughout the year, scenario planning would prevent shortfalls and allow shippers to anticipate the surges better. If package shippers used data from the last few years to estimate holiday shipping quantities, they might overestimate based on the fact that most people have been in quarantine for the past three years. Because they could not go to the store, visit family in person, or even travel, shipping quantities have increased. At the same time, traditional forecasting might conclude that online buying due to the pandemic will continue. However, the limitation of conventional forecasting is that the shippers will have to adjust their plans to account for current conditions annually. Planning only on an annual basis is inefficient and does not create opportunities for optimization.

Planning and Innovating for Change

The lesson to be learned from the previous discussion about traditional forecasting and scenario planning, as well as from the UPS example, is that scenario planning better supports innovation and change. Innovation is grounded in taking actions that historical data may not support (Ogilvy, 2022). When an organization utilizes traditional forecasting, decisions are typically made based on the existing data and prior performance. Much of the innovation made in history resulted from diverging from trends.

Forces Behind Scenario Planning

Unlike traditional forecasting, economics is typically not the driving force behind innovation. Instead, two prime forces behind scenario planning are resiliency and curiosity.

Resiliency

Innovation is a primary way to protect an organization from unpredictable changes and events. Zoom is an example of a company that innovated based on resilience. Before COVID-19, Zoom imagined a world where global video communications would be the primary means of business interactions. In 2011, when it was founded, Eric Yuan could have no idea the impact that his creation would have ten years later. However, at the time of the founding, Eric envisioned multiple scenarios, like the need to coordinate meetings across time zones and locations. Traditional forecasting would not have supported creating Zoom, as most businesses still used phones and email as primary conferencing and collaboration tools. However, when a scenario arose that required coordination of a remote workforce, Zoom was there to create resiliency.

Curiosity

Another primary force behind innovation is curiosity. When we consider successful innovations, the common theme is that they result from the innovator’s curiosity. What would happen if we made a device that integrated an MP3 player, a phone, and an internet browser? If we can build a rocket powerful enough, can we get to Mars? If we replace a car engine with an electrical battery, can we make a more efficient car? All of these questions of curiosity resulted in innovations that revolutionized the industry in which they were developed.?

Future Scenario Planning

As I consider the innovations that might result from my doctoral research into cyber risk decision-making, I am compelled to consider several scenarios. Will creating a model for leveraging automation in cyber risk decision-making replace the need for specific organizational roles? Can artificial intelligence and machine learning learn from their mistakes and adapt in a manner that makes them worthwhile? Can automating an otherwise human-driven process impact corporate or customer morale negatively? After completing my dissertation research, these questions must be considered as part of a scenario planning exercise. When analyzing human-computer interaction, it will also be vital to account for the impact that artificial intelligence and automation have on society. The analogy or example at the forefront of my mind is the impact automated decision-making in loans and credit-based decisions have had on society, particularly the underrepresented and marginalized.?

References

Banker, S. (2013, December 30).?UPS holiday season fiasco: A failure of strategic planning. Forbes. Retrieved December 11, 2022, from?https://www.forbes.com/sites/stevebanker/2013/12/30/ups-holiday-season-fiasco-a-failure-of-strategic-planning/?sh=193ce3d0fcfe

Deloitte. (2018).?Deloitte 2018 holiday survey. Retrieved December 12, 2022, from?https://www2.deloitte.com/content/dam/insights/us/articles/4737_2018-holiday-survey/2018DeloitteHolidayReportResults.pdf

Gartner. (2022, July 8).?What functional leaders should know about scenario planning. Gartner. Retrieved December 11, 2022, from?https://www.gartner.com/smarterwithgartner/what-functional-leaders-should-know-about-scenario-planning

Hartmans, A. (2021, November 29).?Amazon says it will ship more packages than UPS and FedEx by 2022 at the latest. Business Insider. Retrieved December 11, 2022, from?https://www.businessinsider.com/amazon-surpassing-ups-fedex-by-2022-dave-clark-2021-11

Konrad, A. (2019, May 7).?Zoom, zoom, zoom! the exclusive inside story of the new billionaire behind Tech's hottest IPO. Forbes. Retrieved December 11, 2022, from?https://www.forbes.com/sites/alexkonrad/2019/04/19/zoom-zoom-zoom-the-exclusive-inside-story-of-the-new-billionaire-behind-techs-hottest-ipo/?sh=3152c2654af1

Ogilvy, J. (2022, October 12).?Scenario planning and strategic forecasting. Forbes. Retrieved November 25, 2022, from?https://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/?sh=6a0f501c411a

Peiser, J., & Lerman, R. (2022, November 29). Holiday shopping sets records on paper, but inflation takes its toll. The Washington Post. Retrieved December 11, 2022, from?https://www.washingtonpost.com/business/2022/11/29/shoppers-broke-records-this-holiday-weekend-inflation-took-its-toll/

Seren, O.T., Burcu, F. (2019). Forecasting the Innovation Potential Under Uncertainty. In: Reis, J., Pinelas, S., Mel?o, N. (eds) Industrial Engineering and Operations Management I. IJCIEOM 2018. Springer Proceedings in Mathematics & Statistics, vol 280. Springer, Cham.?https://doi.org/10.1007/978-3-030-14969-7_10