9 February 2021: The pandemic has brought with it a huge increase in the rate of change of digital adoption and businesses must not lose this momentum, writes Becky Shields, Head of Digital Transformation at Moore Kingston Smith.

As businesses begin to look beyond the COVID pandemic, the immediate priority should be to ensure that their digital strategy facilitates effective scenario planning. 

As businesses navigate through the uncertainty created by current trading conditions, the ability to plan multiple scenarios is crucial, allowing them to make timely, unbiased critical investment and allocation decisions.

The pandemic has brought with it a huge increase in the rate of change of digital adoption and we must not lose this momentum. Now is the right time to embed a digital strategy into the business.

Ability to plan across multiple scenarios is key

We are currently experiencing the most uncertain economic conditions certainly in my lifetime and probably since the Great Depression. This is exacerbated in the UK by Brexit and a whole range of other external factors. 

Now more than ever, it is important for businesses of all sizes, in all locations, to plan multiple scenarios to navigate this world of uncertainty and be alive to both the risks and opportunities.

Scenario planning of course is not a new thing. Many, if not all, businesses would have traditionally forecast and modelled a route from A to B. Some may have even undertaken a fuller scenario planning exercise relying on some assumptions as to what key external factors could influence success, but sadly, the majority, once completed, would have sat on the shelf gathering dust. A nice academic exercise perhaps, but not a useful, living model linked into the business strategy. 

Of course at the moment, with the level of uncertainty and business disruptions coming from all angles, it is not possible to follow a simple straight line from A to B. 

At Moore Kingston Smith, my team and I have been helping clients to pick out what they think will be the two biggest disruptors to their business. Most of our clients have chosen COVID and Brexit, but for some, there are other political, economic, technological, social, legal or environmental issues that are likely to impact them more, and we have helped them group issues together to come up with two key factors. It’s important to get this step right, picking the right two issues to model and the right timeframe based on the level of uncertainty and the size of the business. 

Doing an effective scenario plan across the two chosen disruptors gives the ability to see the financial impact of more than one event, and planning for the best and worst case of each gives four completely plausible scenarios. Businesses can then look at the various outcomes and plot a path out of each scenario, all of which would look very different. Crucially it gives businesses a flexible route map, based on an unbiased reading of the situation. 

Given the complexity involved in building these models, businesses must have immediate, frictionless access to all of the data they need and this should underpin the immediate post-COVID digital strategy. To be able to act quickly and change path if necessary, business owners and CFOs cannot afford to have to spend any time collating and curating data. 

A good digital strategy allows sufficient access to live data, based on lead indicators. We are seeing more and more clients rightly move away from purely focusing on lag indicators showing them how they have performed historically, and choosing key lead indicators to show them how they will perform in the future. 

A good model which plans different scenarios will have the ability to give an instant view of where the business is on their plan. Crucially it removes the bias, meaning one can make confident critical investment decisions. 

The matrix below describes the scenarios a company might find themselves in the next few years. In this example, the critical uncertainties identified are whether the UK will remain in a recession and whether the market a business operates in changes permanently as a result of COVID-19.

		Competitive Environment
		Old Norm	New Norm
Economic Environment	Boom	Jockeying for position -  We have awoken from the Covid-19 nightmare and have weathered the storm successfully. It might be tempting to go into autopilot for a while, take advantage of the easier market conditions but will your business be resilient enough to weather another storm? What differentiates you from your competitors?	Brave New World - Markets will favour businesses that embrace the new. Think about new products/services, new routes to markets.
	Recession	Choppy waters - Markets are looking for security and might favour businesses that successfully weathered the storm and are investing wisely.	Survival of the fittest - Customer/client-centricity reigns supreme. Review your client base to make room for clients who embrace the new world and your new ways of working.

Competitive advantage

Many businesses fall into the trap of only focusing on their internal data and not enough time tracking their competitors. Buying habits have become blurred in this crisis, and many businesses are facing new competition from unlikely and unforeseen angles. 

But fortune favours the brave and scenario planning should give sufficient focus to the opportunities as well as the risks and a digital strategy should allow for the collection and appraisal of as much data about the performance of the market, competitors and potential new markets as possible. This will mean that opportunities are not missed, opportunities that could present themselves as the economy recovers.

It’s not just smaller companies that can spend too long studying internal data- Tesco famously focused on studying their own customers’ buying habits and didn’t pay sufficient attention to Aldi charging up on the outside. 

The new normal

Whilst all of us are hoping for a return to ‘normality’ as soon possible, we must look for the silver linings. We must capitalise on this immediate need to improve processes, data collection and curation and financial planning.

Some companies are blazing a trail in this area, and have shown us how powerful a good scenario plan can be. Shell, for example, has used scenario planning successfully for years. They have used it to examine how natural gas could evolve as a mainstream energy source in China and to support the German government in exploring key energy decisions for the coming years. The United Nations famously drew on Shell’s approach to scenarios to devise three versions of the future of the AIDS epidemic in Africa that explored the consequences of different government actions.

Digital strategies can be game-changing if applied to the correct scenarios and make the difference between success and failure. 

With digital tactics being increasingly adopted by employees and customers alike, companies of all sizes would do well to harness this momentum and use it to their advantage to embed a new digital strategy and make this type of scenario planning their new normal.