A scenario gameboard is normally a 2x2 matrix constructed out of the variables considered to be the most important to the company.
The variables may both be external i.e. outside of the control of the company (such as the international gameboard illustrated below in example 1); or they may consist of one external and one internal parameter such as the state of the market the company is in being the one axis and its relative competitiveness in that market being the second axis (see example 2).
The third gameboard we show is the one we generally use when looking at scenarios for a particular country. In this case, both parameters - stability and competitiveness - are heavily influenced by domestic policies (see example 3)
The best example we can give of the first type of matrix (where both variables are external) is the one we are currently using to illustrate the different possibilities for the future state of the world politically and economically.
The vertical axis relates to whether globalization continues to be the grand, unifying force it is or whether the world enters an era of fragmentation driven by national and religious rivalries. The horizontal axis is simply based on the global economic growth rate and whether (on the right) it can be sustained at over 5% per annum; or whether (on the left) it falls back into the zero to 3% range. The middle part of the gameboard represents a rate somewhere between 3 and 5%.
Going clockwise we have the following scenarios:
(Globalization/ High Economic Growth)
The world has been located in this scenario for most of the 1990s and so far in this century, driven by the conversion of most countries to free market economics and the spectacular rise of China and India. The party continues with inflation and interest rates remaining low, the Chinese and Indian economies continuing to defy gravity and stock markets continuing to boom. The world still has conflict zones but the impact of these is completely overridden by the unstoppable force of globalization. One day either global warming, a growing scarcity of raw materials, the latter causing a general rise in inflation rates, or a new global health epidemic could moderate the boom. A Long Boom scenario envisages the centre of gravity of the world economy moving East, meaning that Western institutions like the IMF and the World Bank will have to revise their mode of operation. The G8 will become the G10 with the addition of China and India as new members.
(Fragmentation/High Economic Growth)
The world develops into a more hostile place as regional conflicts intensify and trading spats/cases of protectionism multiply. In this scenario, the anti-globalization lobby grows stronger while an increasing number of countries reject the 'Washington Consensus', revert to old-style Socialist policies (South America) and become more nationalistic about the resources they possess (Russia). Nevertheless, just as no terrorist incident or war in the recent past has been a showstopper (not even 9/11), the global economy shrugs off all these problems because of the sheer momentum caused by the two most populous nations on earth simultaneously going through an industrial revolution. Whereas in the Long Boom companies can invest virtually anywhere in the world because the tide is rising everywhere, they have to be more circumspect in Divided World because of the emergence of more 'failed states'.
(Fragmentation/Low Economic Growth)
Like the name suggests, this scenario represents a confluence of negative events in both the political and economic arenas, which could lead to a huge change in the fortunes of the world. It is a reprise of the 'roaring' 1920s, which was followed by the depression of the 1930s and the rise of Nazi Germany. The party ends just as spectacularly - only the script and the actors are different. Potential triggers could be nuclear terrorism in a Western city, a major war between Iran and Israel/the West over its nuclear programme, a new fall-out between America and Russia as Russia reverts to authoritarianism, or a financial meltdown in China followed by widespread unrest. Recovery from this scenario proves agonizingly slow as business confidence has to be rebuilt from scratch. Stocks on Wall Street only recovered pre-1929-crash values nearly 20 years later (having shed 85% by 1934). It was a long drop!
(Globalization/Low Economic Growth)
This is a scenario of conventional global recession, probably initiated by a US economic downturn and the knock-on effect it has on the other economies. India and China are not spared as the interdependencies created by globalization and international trade turn against them. Asset prices (property and equities), the improvement of which has over recent years allowed consumers to borrow more to spend, suddenly reverse. The downward spiral is reinforced when commodity prices plummet except for gold, which does well in light of the uncertainties around paper currencies and paper assets. Eventually the bloodletting ends, green shoots start springing up in the burnt landscape and a recovery gets underway, which returns the world to the top right-hand quadrant. The length of the recession is relatively short, i.e. it is more like a 'V' than a 'U', but the depth of the 'V' is unknown. The crucial difference between Hard Times and Perfect Storm is that globalization remains intact in the former scenario, while it is seriously compromised by political and military events in the latter one. The rebound in the second case therefore takes much longer.
These descriptions paint a brief picture of the suite of scenarios, and allude to their different characteristics. During the strategic conversation the differences can also be expressed in a series of bullet points accompanying the gameboard. A useful add-on exercise is to identify the flags or leading indicators which inform you that you are about to cross into a new part of the gameboard. We have registered some of the flags in the narrative of our international scenarios.
This is the scenario gameboard that, in our facilitations, has proven the most popular. The horizontal 'x' axis of the gameboard signifies the state of the market in which the company is selling its goods and/or services (beyond its control), and the 'y' axis the relative competitiveness of the company (up to a point within its control). The company's chief competitors can also be plotted on the gameboard. Obviously, the meaning of 'competitiveness' and 'the market' has to be defined. Some teams like to keep it fairly general and intuitive, while others unpack the meaning using key performance indicators.
Among the factors affecting the state of the market (or, put another way, the attractiveness of the game) are the general level of demand for the product, whether it is outstripping supply, the availability of substitutes and the stability of the countries in which the revenues are being derived. Relative competitiveness, on the other hand, depends on how effectively the company is being managed in areas such as cost containment and service delivery (inside its control), but also on the performance of competitors and the movement of currency exchange rates (outside its control).
(Negative Market/Negative Competitiveness)
This is obviously the worst-case scenario where your competitiveness is declining in a poor market. Incidentally, this name first arose during a strategy session one of us was facilitating for a leading South African company. Those familiar with military slang will know that Fubar is an acronym for something a little more desperate than simply mucked up beyond all recognition! Suffice it to say that the scenario is now well established in the oral tradition of the company. No company wants to be in this scenario because it is the last stage before bankruptcy and death. Best to change the game or conduct major surgery.
(Positive Market/Negative Competitiveness)
As the name suggests this is a non-sustainable position where all the company's faults are covered by a booming market. Should the market turn and the company does nothing, it will go directly into Fubar. Time to jack up the efficiencies.
(Negative Market/Positive Competitiveness)
We've all been here - a scenario where you put your nose to the grindstone and grind out better efficiencies than your competitors in a hostile market. Not a bad place to be since an improvement in the market can put you in Gold Medal territory. It's also a quadrant where you can launch a takeover bid for a competitor because the tough market makes its shares cheap. Inevitably, some of your product range or business units may lie in this quadrant and will continue to do so. But they are an essential part of your product offering, so you have to live with the 'grind'.
(Positive Market/Positive Competitiveness)
This is where you want to be. You're winning the game. The challenge is to maintain your competitive streak despite being showered with success. However, if you become complacent and take your foot off the pedal you could slip into Fool's Paradise. The big issue is whether you're putting enough resources behind the products or businesses that belong to you and are in Gold Medal territory.
Now ask yourself where you are on the gameboard. Where were you, say, 5 years ago? Where do you want to be? And, importantly, where are your competitors? Obviously, the ideal is to remain above the line so that even when the big picture scenario shifts between Long Boom and Hard Times, you're oscillating between Gold Medal and Grindstone
Let's take this gameboard to the next level by plotting your company and your chief competitor, and showing what would happen if there were a change in the market environment.
Let's call you Company A and your competitor Company B and you are both operating in a positive market environment. Your competitor is larger than you, has been in the market longer and has been very successful in holding on to its client base and bagging all the gold medals. On the other hand you have had issues with efficiency, which, up until now, a blinkered management attitude has ignored. Examined against the backdrop of the scenario gameboard (see diagram below), you have been residing in a Fool's Paradise whereas your competitor is in Gold Medal.
However, buoyed by the positive market, your competitor is beginning to show complacency, whereas you recognise that you are trailing in the game because of your relative inefficiency and that, if the market worsens, you will be 'fubarred'. You start putting measures in place to address this. Because of factors outside of the control of both companies, the market does indeed worsen. Having worked through the strategy for change, you are prepared and move into the Grindstone scenario.
Your competitor is unprepared for the deterioration in the market conditions and overnight sees its dominance of the market disappear. Why? Because you've seized its market share. You are now in a perfect position to make a takeover bid for your competitor (something you could never have done on the other side of the gameboard because everything is expensive when market conditions are good).
One other use to which this gameboard can be put is as follows: take all the business units that make up your company and create a scattergram that shows the respective position of each business unit in terms of the strength of its market and the level of its competitiveness. You soon get a very vivid picture of the winners and the losers in your portfolio. You can also use the scattergram approach for your product range. Remember that while the state of a specific market may well be beyond your control, the selection of the markets you decide to be in is very much within your control. Put another way, if one of your games becomes unplayable, move to another game.
For a country, the two pivotal uncertainties are its competitiveness on the global playing field as well as, from an internal perspective, the state of its society i.e. whether it is characterised by harmony or conflict. You will note that the top left-hand quadrant of the gameboard has been marked with an 'X'. It signifies that we rule out this scenario altogether on the grounds that it is not sustainable.
To be in the Premier League scenario, a country should enjoy a high level of social harmony and act as a cohesive team. The economy is 'inclusive' with a low unemployment rate and acceptable income differences between the classes. At the same time, the country is competitive because it possesses the attributes of a 'winning nation', which include quality education; a strong working ethic; a high savings rate and an adequate infrastructure to cope with economic expansion. It positions itself as an export-oriented global player by exploiting its strengths to differentiate itself from other nations. It develops a dual-logic economy where world-class global businesses combine with a thriving small business sector to create synergies between the two. Tax rates are competitive, the environment for foreign direct investment is attractive and, above all, government is efficient (particularly regarding health services).
Countries fall into the 'Relegation Zone' when they decline in competitiveness for whatever reason. This is a dangerous area to be because relegation means that the country will no longer enjoy the privileges of being a member of the top league - and it's very hard to get back into it. The Long Boom scenario has conferred Premier League status on quite a few developing countries - particularly resource-rich ones - that have taken advantage of the positive economic climate.
This scenario is for countries that are poor but peaceful. They remain 2nd Division players either because they have no ambition to move up to the Premier League or they are quite bereft of mineral resources or Nature is harsh in terms of climate or soil. But they get by and, human spirit being what it is, people lead relatively contented lives. The 2nd Division also contains ex-Premier-League nations that once were rich but whose income per head has declined for any number of reasons including bad leadership. They don't wield much influence in global affairs and seldom obtain anything prestigious like a seat on the UN Security Council. They may even possess some of the attributes of a 'winning nation' but somehow they simply cannot get their entire act together.
This scenario is characterised by high levels of unemployment, gross inequality of income and appalling human rights abuse including routine torture. 'Government' is either a malevolent dictator living in a palace among the ruins of the country around him, where conflict is kept in check through intimidation; or it is a shifting alliance of warlords, each with a private army or militia. Here, conflict can range from a low-intensity to high intensity civil war depending on whether the informal coalitions are holding together or falling apart. Those with the means and skills in a Failed State are the first to emigrate, taking their capital with them. Thereafter, ordinary citizens become refugees, fleeing for their lives when the situation becomes really desperate.
The national gameboard shouldn't be examined without reference to the international gameboard. For example, should there be a global move from a Long Boom towards a Hard Times or Perfect Storm scenario, it is quite possible for a country that it is in the 'Relegation Zone' of the Premier League to slip into the 2nd Division scenario, with the chance of then sliding into a Failed State if conditions appreciably worsen. The converse is also true: should the world remain in a Long Boom, the consequential flourishing of international trade could help some countries that are in the 2nd Division to be promoted into the Premier League (obviously because they have succeeded in developing a comparative advantage in specific areas which are in demand).
As a business owner, CEO or senior executive, it is important to consult all the gameboards when assessing future possibilities for your business. The international situation as well as the individual prospects of the countries in which you are doing business can significantly impact on your bottom line.