Scenario Modeling: Agility and dynamism for coping with global economy

By Mahadevan Natarajan
APAC is a very diverse and dynamic region both culturally and economically. The powerhouses of China and India are globally recognized as exporters of both goods and services, and other countries within the region have large populations of consumers with rapidly increasing purchasing power that represent huge potential in their domestic markets.

It’s clear there’s plenty of room for growth in APAC. But can businesses handle rapid expansion without losing a few wheels along the way? If your ambition is to become a world-class company then you need world class systems to support you on your journey.
 

Choosing your path
Companies that grow organically, starting off small and developing their business step by step, at some point will have to make the transition from manual systems of business planning to more sophisticated business process systems.
An alternative path to growth is to acquire other businesses. You get a head start but more challenges with integration, and the need to shell out cash for the buyout results in a different cost structure.

So what are the pros and cons of organic growth versus growth by acquisition? Evaluating both options means setting achievable goals and understanding how to convert that into operational goals, along with ongoing monitoring – will you need to change course at some point?
 

Scenario modeling
Let’s say a publicly-traded corporation aims to double their Earnings Per Share in the next three to five years. Typically, to chart possible courses, modeling has been done using broader perspectives such as optimistic, pessimistic, and most likely scenarios. But effective modeling must be based on specific drivers that impact each scenario and possible outcomes. Drivers in scenario modeling can include internally-controlled factors such as product roadmaps and key talent retention, external macroeconomic elements such as currency exchange rate fluctuations and regional economic growth rates, and also extend out to complex business aspects such as customer satisfaction indexing, industry analyst predictions, competitor activity, and disruptive events in a business sector. 

Only when you can construct a model around each business driver are you able to reach an informed decision on each scenario, follow up with an executable operational plan, implement appropriate management procedures and performance measurement, and proactively intervene with course correction when deviations from the plan are predicted.
 

Getting commitment from stakeholders
Successful world class organizations which systematically adopt scenario modeling for the entire enterprise are able to connect the strategy and execution with a higher level of commitment from the business unit owners. And operational plans gain more commitment when derived both bottom-up and top-down to strike the optimum achievable goal! To this end, flexibility in the hands of business owners in terms of modeling the execution within a managed premise is key to getting enterprise wide commitment to the plan.

Enterprise Performance Management (EPM) is about setting the right expectations with internal stakeholders, industry analysts and the external community regarding where your business plans will land, and then having the capability to engineer your execution closer to the pin. As a company that has managed a variety of challenging IT issues, Oracle’s Enterprise Performance Management applications, combined with the innovation and simplicity of the cloud, enable companies of any size to drive predictable performance, report with confidence, and connect the entire organization.
(The writer is a Senior Director at EPMBI Sales Consulting)