“Turbulence is nothing more than a change that planning could not handle,” Henry Mintzberg once wrote. This statement has remained unchallenged since then, yet the current crisis clearly shows the weaknesses of conventional internal management systems when it comes to dealing with market uncertainty.
The fact is that planning certainty is set to remain at low levels for a long time. Many companies have no system for the early detection of changes in trends in individual industries and markets, and conventional single-point planning is completely overwhelmed in the current situation. It is true that no company can develop a strategy that takes every possible uncertainty into account. Nevertheless, surprisingly often, scenarios capable of illustrating the full range of possible developments and outcomes, and that prepare for drops in earning as well as for changes in the competitive environment, are not anticipated.
Certainly, the generally more global predictions of credit developments, financing developments, and market developments, as well as single-point planning, are of no real help for corporate management. What is lacking is a continuous scenario-based planning approach that is capable of modeling the prevailing trends in the volatile environment. Two aspects need to be taken into account:
- The financial stability of the company
This should be based on those KPIs that are critical to profitability and liquidity. The question is not how the company will develop, but what are the parameters defining a critical state in terms of financial stability.
- The market forecasts determined for each sales market
This early warning system must rely on significant (industry-specific and macroeconomic) market indicators to identify changes in the market at an early stage.
Only this kind of “scenario matrix” helps managers to be well prepared for uncertain times, and to analyze their actions accurately. Using this as a basis allows better organization of crisis measures, capital allocation priorities, and strategic decisions.