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Scenario planning becoming ever critical.

Summary: A recent white paper from IBM titled 'The paradox of banking, 2015' focused on the US; nevertheless it has a global resonance. The paper reads: "On the surface, the competitive landscape of the retail banking industry in 2015 will not look much different than it does today. Mergers and acquisitions will likely have reduced the number of banks and industry specialists and non-bank banks will play a more prominent role. But most of today's players, will still be vying to "differentiate themselves in a crowded marketplace."

Scenario planning becoming ever criticalWith business conditions volatile and rules of the game changing everyday, banks must 'look ahead' into their future

A recent white paper from IBM titled 'The paradox of banking, 2015' focused on the US; nevertheless it has a global resonance. The paper reads: "On the surface, the competitive landscape of the retail banking industry in 2015 will not look much different than it does today. Mergers and acquisitions will likely have reduced the number of banks and industry specialists and non-bank banks will play a more prominent role. But most of today's players, will still be vying to "differentiate themselves in a crowded marketplace."

The prime dynamic of the 2015 debate, is the revolution in technology which is transforming processes and markets. Transactions are moving into a new era where mobile phones and various proximity payment models are reshaping retail operations. This is not only adding another channel to the multiple modes of banking already available to consumers, but -- especially in some emerging economies like Bangladesh and Philippines -- is providing unprecedented access to millions of people into a financial world previously unavailable to them.

Information technology "is moving from a necessary evil to a means to provide efficiency" said Fadi Chehayeb, CIO, National Bank of Kuwait at a recent technology conference. IT enterprises are shifting from demand/supply infrastructure to a well defined set of services according to figures from the research firm IDC; IT will form the largest single area of investment by GCC banks in the coming years.

In this context, should a bank develop new, high-revenue products, tailor programs and cross-sell products to appropriate customers? Should it track information about the products the Bank offered or the people who bought them? Questions such as these are keeping banking executives awake at night.

The answers to these and other questions are linked to a larger issue: a re-evaluation of the Bank's strategic direction. There is need to move away from the commonly used issues-based planning to something more focused and creative. Scenario planning can offer valuable insights in situations such as these as it works with very specific outcomes of an organization's future.The 'Scenario Planning' toolkitScenario planning can work for any company, provided it has the time, resources and an executive team brave enough to explore uncertainty. An exercise in contingency thinking, it was pioneered in the corporate world by Royal Dutch Shell who fared much better than their competitors during the oil crisis of 1973. Today, organizations as diverse as Postal Service and brick-and-mortar retailers such as Levi Strauss use scenario planning to understand the effects of external factors on their businesses, such as technology (online banking), political (regulatory issues, transparency) or economic (sudden downturns such as the sub prime mortgage) .The process usually begins with intensive workshops geared to generate both blue sky thinking and research, when a core team develops "end-states," or alternative visions of the future. Examples may include how the bank can improve its customer focus and develop a relationship-based strategy. Or, develop a strong, online banking channel.

An analysis of the drivers (could be as many as 200) that different team members propose as impacting on the business problem, over the scenario period, would be the first step in the process. The events could be regulatory issues such as permitting alliances between local Banks and international banks, or technology trends such as the wider use of the Internet for conducting financial transactions.

Clustering the driving forces makes the large number of drivers more manageable and highlights any overlaps and interdependence. Testing the logic and internal consistency of the clusters by linking the driving forces to show the cause and effect relationships will make the process more robust.

Challenging the 'scenarios'In the next stage of the process, the teams identify a two dimensional ranking space bounded with high and low impact and high and low uncertainty of impact. This identifies the two areas that have the highest impact and the greatest uncertainty attached.

Before setting the two scenario dimensions into three or four possible futures the teams will need to capture the essence of the end state and discount any irrelevant descriptions. Written as catchy phrases with accompanying descriptions, such as 'Cash - from a hole in the wall near you', these events would later be used to create the scenarios that would lead to each outcome.The purpose of this part of the workshop is to alert participants to the assumptions and biases they have about various issues. These assumptions can be about the way the bank operates and executives can find themselves making critical decisions in a vacuum, without considering, for example, the ramifications of cultural trends or economic shifts.If participants were split on the likelihood of an event, they attempt to reach a consensus. If the group fails to resolve a particular deadlock, it will be left as an unknown and will need to be worked into the scenario as such. Each group would then be assigned a possible scenario and analyze how the various events that they ranked might influence it.

This scenario-based planning exercise recognizes that a future scenario of five to seven years - or even longer -- is really a journey with a whole myriad of events impacting it, leading up to that endpoint.

UAE 2015Customers today want their banks to provide superior customer service, customized products and services, and easy ways to access and manage products. They are often described as 'fickle minded' as they are quick to switch providers to ones that can offer a higher level of service, demonstrate an understanding of their complex needs, and offer the latest technology. The revolution presently taking place globally in terms of customer awareness, digital capability and information flow means that those GCC banks surviving to 2015 and beyond will need to perform differently and operate under new norms. The only thing we can be sure of in 2015 is that there will be demand for retail banking services -- who will provide them and how is less predictable.

Banks that plan for multiple futures derive significant benefits over traditional planning approaches that try to accommodate a single vision. The ability to define a "core" strategy from a scenario-prompted approach generates plans that are robust enough to withstand different business conditions. Senior Executives can then implement the agreed core strategies with a higher degree of confidence. Scenario-based strategic planning also enables the development of contingency plans. Having contingency strategies in place, ready to be employed as indicators and signposts emerge, keeps banks ahead of the competition. Scenario planning can make bank CEOs smarter about the competition and better able to plan for the future. Having recognized uncertainty as a fact of life, it also helps them understand their risks better, making them more nimble and less prone to surprise. 2008 Al Bawaba (www.albawaba.com)

2008 Al Bawaba (Albawaba.com)

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Phoenix Associates Group, LLC -Director, Michael Wilson (Member): I sell Disaster Planning Model Programs and have not sold but three in 2009 2/8/2010 11:22 AM
Seems no one has budgets for disaster planning and will I guess use the disaster itself as their model drill. Big business seems all caught up with other issues and not disaster itself. If they wait for insurance or fema, good luck with red tape. Good thing I do not just depend on sales of disaster planning kits as food money or rent. I have 21 disaster situation awareness model kits for sale. GUess its off to ebay! Don't come crying when the sky is falling! Mikeva1963@aol.com

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Publication:Albawaba.com
Date:Oct 20, 2008
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