Scenario planning for a financially sustainable business.
We noted with great interest the turmoil currently happening in the UK’s green energy sector. An abrupt policy change by the new government regarding green energy subsidies – they will come down by 90% in January 2016 – has directly affected two companies, Mark Group and Climate Energy. They had each built up a substantial presence in this market. Both are now calling in the receivers, with job losses, unfulfilled orders, and disgruntled customers in the fallout. The thought it prompted is: how can you best use tried and tested strategic scenario planning tools, such as PESTLE analysis, to help you build corporate resilience and sustainability into your business?
You could argue that these two companies – and no doubt others to come – put themselves at risk. They went for growth as a result of a Government policy and subsidy that was likely to change, and didn’t do enough to mitigate that risk. In their defence, a 90% reduction in Government support, with five months’ notice, would challenge any business. However, it should prompt many organisations to think hard about what shocks might come from governments or markets. How should they use effective scenario planning to assess their level of risk?
The traditional tool used by those determining corporate strategies to deal with these issues is the PESTLE analysis. This looks at six sets of external influences which can affect a business – Political, Economic, Social, Technological, Legal and Environment. A good PESTLE analysis will not only describe these influences but seek to assess their impact and likelihood, and thereby grab the attention of the management. However, we have to say that, very often in our experience, the PESTLE analysis is one of the backwaters of the scenario planning process. The rigour that is applied to evaluating future investment options, or brand communications, is often lacking when the PESTLE analysis is considered.
This can lead to flawed decisions about how to move forward. As an example, Sony decided to source flat screen TVs from third party suppliers, and continue investing in TV tube technology – because they were the best at it. This may have emerged from a PESTLE analysis that did not fully appreciate the appeal of flat screen TV to consumers. It may also have missed the impact soaring production volumes would have on flat screen costs.
So we make a plea to all those about to embark on your next round of strategic planning. Take your PESTLE analysis seriously! Use it as a real opportunity to think the unthinkable, like a Government policy reversal or the impact of disruptive technology. Really challenge the status quo. Make it the means of inducing discomfort in your senior executives, to shake their preconceptions and reduce any tendency to groupthink. Getting to a point where your business is sustainable and resilient is one of management’s greatest challenges. Using PESTLE analysis effectively, rather than going through the motions, is a great way to help achieve that.