Plans for the future were traditionally developed on a single set of assumptions. Restricting one’s assumptions may have been acceptable during times of relative stability, but as we enter the new century experience has shown that it may not be desirable to commit an organization to the most probable future alone. It is equally important to make allowances for unexpected or less probable future trends that may seriously jeopardize strategy. One way to focus on different future outcomes within the planning process is to develop scenarios and to design strategy so that it has enough flexibility to accommodate whatever outcome occurs. In other words, by developing multiple scenarios of the shape of things to come, a company can make a better strategic response to the future environment. Scenario building in this sense is a synopsis that depicts potential actions and events in a likely order of development, beginning with a set of conditions that describe a current situation or set of circumstances. In addition, scenarios depict a possible course of evolution in a given field. Identification of changes and evolution of programs are two stages in scenario building.

Changes in the environment can be grouped into two classes: (a) scientific and technological changes and (b) socioeconomic-political changes. Article 6 dealt with environmental scanning and the identification of these changes. Identification should take into consideration the total environment and its possibilities: What changes are taking place? What shape will change take in the future? How are other areas related to environmental change? What effect will change have on other related fields? What opportunities and threats are likely?

A scenario should be developed without any intention of predicting the future. It should be a time-ordered sequence of events that reflects logical causeand-effect relationships among events. The objective of a scenario building should be to clarify certain phenomena or to study the key points in a series of developments in order to evolve new programs. One can follow an inductive or a deductive approach in building a scenario. The deductive approach, which is predictive in nature, studies broad changes, analyzes the impact of each change on a company’s existing lines, and at the same time generates ideas about new areas of potential exploitation. Under the inductive approach, the future of each product line is simulated by exposing its current environment to various foreseen changes. Through a process of elimination, those changes that have relevance for one’s business can be studied more deeply for possible action. Both approaches have their merits and limitations.

The deductive approach is much more demanding, however, because it calls for proceeding from the unknown to the specific. Scenarios are not a set of random thoughts: They are logical conclusions based on past behaviors, future expectations, and the likely interactions of the two. As a matter of fact, a variety of analytical techniques (e.g., the delphi technique, trend impact analysis, and cross-impact analysis) may be used to formulate scenarios. The following procedure may be utilized to analyze the scenarios:

• Identify and make explicit your company’s mission, basic objective, and policies.

• Determine how far into the future you wish to plan.

• Develop a good understanding of your company’s points of leverage and vulnerability.

• Determine factors that you think will definitely occur within your planning time frame.

• Make a list of key variables that will have make-or-break consequences for your company.

• Assign reasonable values to each key variable.

• Build scenarios in which your company may operate.

• Develop a strategy for each scenario that will most likely achieve your company’s objectives.

• Check the flexibility of each strategy in each scenario by testing its effectiveness in the other scenarios.

• Select or develop an “optimum response” strategy.

OTHER TOOLS Traditionally, tool usage was in favor of cost-reduction techniques. In recent years, the tool preferences are shifting toward models for retaining customers, outsmarting competitors, motivating employees, and accelerating innovation. Here is a listing of select new tools that are commonly used by strategists. Benchmarking. This process measures a company against the standards and practices of other companies. The use of benchmarking is growing quickly among small companies, as it becomes easier to do due to the vast amount of information accessible through the web and availability of special software for benchmarking. Benchmarking falls into two main categories: (a) comparison of financial measures, (b) qualitative and systematic search to identify the best practices of a relevant industry.

Core competencies. Core competencies are the capabilities of a firm or its product that are important in the eyes of customers and at the same time difficult to replicate by competition. In other words, a core competence has three traits:

1. It makes a contribution to perceived customer benefits.

2. It is difficult for competitors to imitate.

3. It can be leveraged to a wide variety of markets. It is important to know that core competencies do change over time; thus companies must be proactive in developing new ones in response to market needs. Another trend that can be observed is that external relationship competencies are becoming more important than internal technological and process competencies.

Customer satisfaction measurement. Customer satisfaction measurement follows the perspectives of the marketing concept, i.e., first, firms need to be able to identify and understand customer needs; second, they need to be able to satisfy those needs. The customer satisfaction measurement is critical in evaluating how well the needs have been satisfied. A well-designed customer satisfaction measurement system has a direct and indirect impact in meeting many common business requirements: (a) design and development of a market-driven business plan; (b) design, analysis, and use of essential performance indicators; (c) product design and development; (d) assessment of the effectiveness of servicing; (e) continuous improvement; and (f) benchmarking. There are 15 steps in the creation of an effective customer satisfaction measurement system. They include

1. Define the scope and purpose of the survey.

2. Determine the data collection method.

3. Determine how the data should be segmented by market, titles, etc.

4. Determine the appropriate sample sizes.

5. Determine the drivers of satisfaction.

6. Design the instrument to assess the relative importance of the drivers of customer satisfaction.

7. Develop a method to verify the buying criteria.

8. Develop open-ended questions.

9. Structure the competitive analysis section.

10. Develop the scale.

1. Test the instrument.

2. Pre-notify customers.

3. Administer the survey.

4. Develop the report.

5. Use the results and do it again.

Pay for performance. This system of compensation is tied to performance, as the name indicates. Although it may sound like a very straightforward system, the main challenge for compensation managers here is to tie the right rewards to the right outcomes. Issues that need to be taken under consideration in designing pay-for-performance plans are

1. Specific outcomes that should be measured

2. Competency-based pay programs for senior management compensation

3. Accounting and tax issues for stock and executive compensation programs

4. Retirement planning

Reengineering. Reengineering is a strategy of radically redesigning business processes to increase productivity. Specifically, reengineering often deals with reassigning job tasks and downsizing. Some authors suggest that empowerment should be an important aspect of reengineering, while others argue that empowerment does not really increase performance because people have difficulty with defining their own jobs.

Strategic alliances. Many businesses today realize that they “can’t go it alone.” Thus, they form business partnerships with their customers, suppliers, or even competitors. Such alliances are not only present in the domestic market but also in the international arena (joint ventures). The main issue here is: Are alliances a successful method of conducting business? Many of them fail this brings up a challenge of identifying the success and failure factors in such ventures.

Total Quality Management. Total Quality Management (TMQ) is a management technique that focuses on continuous improvement of business operations and practices to eliminate errors (thus improve quality and cut costs) and improve quality of customer satisfaction. Several success factors have been identified for TQM, among others:

1. Process focus (improving how things should be done to make them better)

2. Systematic and continuous improvement

3. Company-wide emphasis

4. Customer focus (e.g., quality defined from the customer perspective)

5. Employee involvement and development

6. Cross-functional management

7. Supplier relationships

8. Recognition of TQM as a critical competitive strategy

This article presented a variety of tools and techniques that are helpful in different aspects of strategy formulation and implementation. These tools and techniques include experience curves, the PIMS model, a model for measuring the value of marketing strategies, game theory, the delphi technique, trend-impact analysis, cross-impact analysis, and scenario building. Most of these techniques require data inputs both from within the organization and from outside. Each tool or technique was examined for its application and usefulness. In some cases, procedural details for using a technique were illustrated with examples from the field.

Experience Curve Construction The experience curve concept can be used as an aid in developing marketing strategy. The procedure for constructing curves discussed below describes how the relationship between costs and accumulated experience can be empirically developed. The first step in the process of constructing the experience curve is to compute experience and accumulated cost information. Experience for a particular year is the accumulation of all volume up to and including that year. It is computed by adding the year’s volume to the experience of previous years. Accumulated cost (constant dollars) is the total of all constant costs incurred for the product up to and including that year. It is computed by adding the year’s constant dollar cost to the accumulated costs of previous years. A year’s constant dollar cost is the real dollar cost for that year, corrected by inflation. It is computed by dividing cost (actual dollars) by the appropriate deflator. The second step is to plot the initial and annual experience/accumulated cost (constant dollars) data on log-log graph paper. It is important that the experience axis of this graph be calibrated so that its point of intersection with the accumulated cost axis is at one unit of experience. The accumulated cost axis may be calibrated in any convenient manner.

The next step is to fit a straight line to the points on the graph, which may be accomplished by using the least-squares method. It is useful at this point to stop and analyze the accumulated cost diagram. In general, the closer the data points are to the accumulated cost curve, the stronger the evidence that the experience effect is present. Deviations of the data points from the curve, however, do not necessarily disprove the presence of the experience effect. If the deviations can be attributed to heavy investment in plant, equipment, etc. (as is common in very capital-intensive industries), the experience effect still holds, but only in the long run because, in the long run, the fluctuations are averaged out. If, on the other hand, significant deviations from the line cannot be explained as necessary periodic changes in the rate of investment, then the presence of the experience effect, or at least its consistency, is open to question.

If this can be ascribed to heavy investment (in plant, equipment, etc.), the experience effect is still viable here. The next step in the process of constructing the experience curve is to calculate the intensity of the product’s experience effect. Intensity is the percentage in unit cost reduction achieved each time the product’s experience is doubled. As such, it determines the slope of the experience curve. To compute the intensity from the accumulated cost curve, arbitrarily select an experience level on the experience axis. Draw a line vertically up from E1 until it intersects the accumulated cost curve. From that point on the curve, draw a horizontal line left until it intersects the accumulated cost axis. Read the corresponding accumulated cost (A1) from the scale. Follow the same procedure for experience level E2, where E2 equals E1 × 2, to obtain A2. Divide A2 by A1, divide the result by 2, and subtract the second result from the number1. The final answer is the product’s intensity. With the information given, the intensity equals 16.7 percent: When the intensity has been computed, the slope of the experience curve is determined. To construct the experience curve, it is necessary to find a point (C1) on the unit cost axis. This can be achieved in the following manner: Find the intensity multiplier corresponding to the product’s intensity from the table specially prepared for the purpose. The result is C1. The intensity was calculated above as 16.7 percent. The experience curve can now be plotted on log-log graph paper. Position C1 on the unit cost axis. Multiply C1 by the quantity (1 – intensity) to obtain C2:

$191 × (1 – 0.167) = $159 Locate C2 on the unit cost axis. Find the point of intersection (y) of a line drawn vertically up from 2 on the experience axis and a line drawn horizontally right from C2 on the unit cost axis. Draw a straight line through the points C1 and y. The result is the product’s experience curve. The application of the experience curve concept to marketing strategy requires the forecasting of costs. This can be achieved by using the curve. Determine the current cumulative experience of the product. Add to this value the planned cumulative volume from the present to the future time point. The result is the planned experience level at that point. Locate the planned experience level on the experience axis of the graph. Move vertically up from that point until the line extension of the experience curve is reached. Move horizontally left from the line to the unit cost axis. Read the estimated unit cost value from the scale. The unit cost obtained is expressed in constant dollars, but it can be converted to an actual dollar cost by multiplying it by the projected inflator for the future year. Cost forecasts can also be used to determine the minimum rate of volume growth necessary to offset an assumed rate of inflation. For example, with an assumed inflation rate of

3.8 percent, a producer having an intensity of 20 percent must realize a volume growth of approximately 13 percent per year just to maintain unit cost in real dollars. Should growth be slower or should full costreduction potential not be realized, the producer’s unit cost would rise. Competitor cost is one of the most fundamental yet elusive information needs of the producer attempting to develop marketing strategy. The experience curve concept provides a sound basis for estimating the cost positions of competitors as well. With certain assumptions, competitors’ curves can be estimated.