Art and Science of the Long View Verign: Scenarios for Growth Beyond Survival
------
Art and Science of the Long View
Verign Industries: Scenarios for Growth Beyond Mere Survival
Prepared By: Chris La Grange - Sloan 2001
Alexie Sokolov - EMBA
Evgeny Timofeev -EMBA
Assisted By: Joe Woolf (CEO of Verign Industries)
Clare Rhodes James (very kindly)
Date: 16 June 2001
1. What Is Verign Industries
Verign Industries is a commercial organization registered in an OECD country, that provides technical services across the range of engineering, architecture and software development practices. It performs this work in a low cost base emerging country through a staff of local engineers and computer operators guided by OECD level supervisors. Its value proposition is OECD standard of work at reduced costs.
2. The Scenario Building Process
We used the procedure as set out in Chapter 3 of the Idon Scenario Thinking paper provided in the course pack. In sequence:
a) Clarify the Decision Area: The dynamics of operating in emerging countries provided the themes within which scenarios were discussed. Man of the uncertainties prevalent in OECD countries exist in emerging countries as well but are magnified by the very emerging nature of that country. Many country or region specific uncertainties exist as well.
The trend paths being followed have generally already been followed by OECD countries, and this then provides a framework to guide the scenario development process.
b) Develop Alternative Plots
There are many plots that could be selected at a macro and/or a firm level, and this paper discuss’ one in each of these two area. Within each of these two plots, factors can in turn be macro or firm level in extent. The plots are described in the relevant chapter opening paragraphs below.
c) Create Stories Of The Future & d) Elaborate The Underlying Logics
In brain storm sessions, first different sub plots were identified and listed without discussion. In subsequent discussions the sub plots were categorized using axes as set out below and then clustered within each quadrant. Finally we probed for the underlying logics and dynamics and developed a story around each cluster of sub plots. The descriptions below briefly describe the time path of each sub-plot, and then provide markers that Verign managers should consciously or sub consciously be on the look out for.
e) Identify The Turning Points
In analysing for turning points we looked for common threads running through the sub plots developed. Where several sub plots could be strung together, we looked for turning points in this commonality. These turning points are discussed at the end of this paper.
The whole process was applied to evaluate the risks and dynamics for Verign of entering an emerging country with a business process involving a mid to high level of technical input where the primary productive asset would be the national staff.
3. The Scenarios
3.1 Scenario 1 – Change in Technology
In this scenario the exact technical specifics are unimportant to the extent that it is the absolute change that is important. Technologies develop incrementally in general and while some technologies appear to come out of the blue and take over the market, they are invariably the product of Christensen’s disruptive technology theory and Geoffrey Moore’s chasm concept. These process play out over years and the exponential growth phase is exactly that, namely a 3 – 6 month phase in a cycle that stretches over years.
The key then becomes to have antennae tuned to the dynamics of technological change and to have a set of calibrated scenarios against which to gauge the change. Methods for achieving this are the subject of knowledge management application summarized in concepts like centers of excellence where individuals are tasked with and supported in forming groups who specifically troll for this information. Journals and technical fairs, workshops and exhibitions are the usual sources of information.
a) Radical Change From The PC Platform
As mentioned, no specifics will be provided but the extent of the scenarios imagined could involves shifts as radical as a world where, for example, the keyboard and monitor are substituted, or data storage and retrieval become infinite. Over time more and more of the repetitive detailing work that Verign currently provides will be done by the software. The 5 – 10 year time frame of a scenario is sufficient duration for something as dramatic as this to happen even accepting the Christensen and Moore anchors mentioned above.
Accepting that dramatic shifts will happen, the issue then becomes what will it take to generally be well positioned to take advantage of the opportunities that result, and as a minimum, not to be wrong footed by them.
The options for Verign include having groups set up, as mentioned above, who are specifically tasked with periodically renewing and/or recalibrating the scenarios and then keeping their antennae pointed in the direction suggested by the scenarios. This process would include assigning specific managers as sponsors of these groups, which will give them authority and ensure that they have the resources they require.
Verign staff must be receptive to re-skilling and multi-skilling as part of an ongoing process.
b) Complete Fragmentation Of TCP/IP
While currently the open ended TCP/IP/FTP protocols have developed with the growth in speed and functionality of the Internet and e-mail, the time could come when a limit is reached and a shift to a new set of protocols starts. As with disruptive technologies, there might be more than one new protocol jostling at the edge of Moore’s chasm. The task for Verign then becomes to have in place a mental model that can accept a step shift from the existing and then understand the opportunities that come with any new technology.
It is not uncommon for clients to look to service providers to remain up to date with technological progress and the opportunity then arises of converting clients to the new technology and thus looking them in for the time it takes for the new technology to become widespread. In the interim Verign and its clients that have switched gain the added competitive advantage that an early switch provides.
Conversely if a major client or group of clients is switching to a new communication technology, then Verign must be doing so as well, so as to ensure compatibility during and after the switch over.
New markets and niches arise out of new technologies and the key is to have calibrated scenarios in place to aid in perceiving these opportunities and that they indeed register on the mental radar screens of Verign management.
c) Complete Change In Client Procurement Method
The procurement referred to here is how clients arrange for the technical input into their operations. There are shifts to lump sum and turnkey arrangements where contractors provide all the inputs into a process. If Verign’s relationship is not with these contractors then it will not be favourably positioned to react to such a shift. There is a trend to modularization where a design is applied to all future applications. After the first application the need for Verign’s services falls away.
3.2 Scenario 2 – Political And Social Shifts In The Back Office Country And Macro Economic Shifts Elsewhere
The sub scenarios identified during the brain storm session and categorized and clustered during this part of the exercise were grouped into categories and will be discussed under those sub-headings. These are:
- Prohibitive shifts which potentially render the business model inoperable.
- Restrictive shifts which limit the activities that could previously be carried out and how they can be carried out.
- Market related shifts which have an influence on Verign’s competitiveness
- Shifts favourable to Verign’s business model, although with most shifts, the possibility of an opportunity must be considered even if it is just walking away from non productive but sunk costs.
3.2.1 Prohibitive Shifts
a) Nationalization
Nationalization refers to outright takeover of Verign’s assets and operations by the state or its agents. By definition the only result is enforced exit.
While exit is all terminating, Verign should be aware of conditions that would result in nationalization in good time to secure its data and information and its client and operational databases. Since its primary assets are its staff, it should investigate ways of removing the key staff members to an alternative country to form a nucleus for a restart of operations.
Nationalizations in the last half century have involved oil and gas assets in the Middle East and large parts of the economy owned by non indigenous people, eg. Europeans and Asians in Africa and Chinese in Asia. In these cases, dissatisfaction with the non indigenous people is expressed in a constant but random stream of minor incidents such as arson and personal attacks. The difference to be aware of is when these attacks take on a coordinated nature and political or religious groupings make strong statements in support of the attacks and even in defiance of the state.
b) Complete Breakdown Of Rule Of Law
This condition arises where the state has lost all its authority and there is either anarchy or control has shifted to another group of people, not benign to Verign’s operations. The similarities and measures that Verign would want to take are similar to those for nationalization with the added obligation to the well being of Verign staff. The difference is what to be aware of.
Leading up to the complete breakdown, the state introduces ever more restrictive laws even if within the constitutional process. Over time it foregoes the constitutional process and simply issues decrees. A last step is direct military confrontation with its citizens. An increased intensity in long standing urban and/or rural guerilla action can be a late precursor.
Outside of politically induced anarchy is a shift of functional control to criminal groupings in the form of warlords or similar. These elements operate more subtly than the vanguards of citizen groupings but there methods are characterized by a methodical approach in the application of there methods of influence by direct intimidation, e.g. single killings of specific individuals, targeting of cash cow business’ by union groups acting for the criminal elements etc.
c) Complete Failure Of The Economic Order
In this scenario external or internal factors result in the nations economy ceasing to be able to support the functions of the state and by extension, neither of public and private companies. Complete debasement of the national currency resulting from massive private bank defaults and loss of control by the central monetary authority is an example and inflation which renders paper currency impractical to use and trade reverts to a barter process is another.
Scenarios of this nature happen as an implosion in that the final stages are massively reinforcing as the populace are immediately aware of the consequences and desperation sets in. Major shifts in central authority are distinguished by being a step into the unknown for the majority of citizens and hesitancy is a watchword. Again the anarchy that would likely result would prohibit normal or even marginal business activity and exit becomes the only option. The measures that Verign would want to carry out are the same as those for all exit requiring scenarios.
The signs of this scenario can be evidenced by the macro economic factors of national interest rates, currency exchange rates, foreign exchange reserve levels, inflation and the like. Less visible factors include cessation of person to person credit and step increases in family and individual debt defaults.
In the above prohibitive shifts and the following restrictive shifts the following rule could apply. The expatriate parts of Verign should be largely obscure and this would extend to non working hours. Proprietiness should be the watchword.
Conducting business in a large modern building in the city business district would provide a measure of protection in that the state will devote forces to this protection.
3.2.2 Restrictive Shifts
With restrictive shifts, it is still possible for Verign to conduct business, but at greater effort or in economic terms at reduced margins. Over time a restrictive shift may become a prohibitive shift, but here we are using the term where the restrictive condition persists over a sustained period and there is no reason to believe that the state is losing national control. Utility and communication failures are envisaged in these sub scenarios. Standby power generators are a norm in large office blocks but the broadband communication channels are not substitutable and thus present probably the largest potential restriction.
a) Onerous Business Conditions Imposed By Government
Due to a weak understanding of macro economic factors or decisions driven by short term goals or desperation, a government might implement policies that are non conducive to Verign’s business model. Elements at any level of government but usually local, might view Verign as a soft target for exploitation. By exploitation is meant requirements to pay more (local) taxes, requirements to increase the level of inbound transfer payments, to pay higher wage based taxes, to provide schooling material or administrative tools to government departments.
In a different category, the government might restrict e-mail and internet communications which underlie the very core of the Verign business model. Government might disallow encryption and by extension compression of data files which would make transmitting the typically large data files impractical at some point. The requirement to submit encryption keys to government would likely remove the security allowed by encryption which includes security from the prying eyes of foreign commercial and state organizations and the commensurate marketable nature of some data
The disruptive powers that government can bring to bear include over zealous application of municipal regulations and inspections. The tax authorities can require audits which consume all of managements time and company employees, local and foreign, can be arbitrarily harassed on their way to and from work.
The preventive or mitigating measures available all revolve around developing and maintaining good relations with key officials in the different strata’s of government and the community. While outright bribe giving is the most expedient it is not the most effective in that, even if individuals do not, the people of all nations will respond to basic human magnanimity with matching acts of civility. A starting point is good relations with the Verign staff and their engagement in all aspects of the business model. The next circle of relations would involve engagement with the community in which Verign operates, such as universities and professional associations and sports teams and events. To attract the attention of a powerful government patron would usually require an intermediary and will certainly take time and effort. The Chinese word for this is Guanxi, which can be loosely defined as the existence of reciprocity. Involvement of Verign managers in cultural and religious societies as well as involvement in times of local or national crisis can all become opportunities for meeting and developing these relationships.