As the travel industry meanders through the dog days of summer, many strategists in travel companies far and wide are already beginning to think about the strategic planning season that lies just ahead, and ponder about the profound differences this year’s process is likely to entail compared to years past.
Faced with arguably the most uncertain and volatile economy since the Great Depression, many corporate executives and strategists now realize that the ‘game’ is on the line, and that there will be real ‘winners’ and ‘losers’ – not just in terms of market share, customer ownership or profits / losses, but rather the near-term survivability of their firms. One doesn’t have to look far to find travel companies being run by their management teams more like corporate turnarounds rather than on a ‘business as usual’ basis – British Airways, American Express, Hertz, RCCL and Travelport are just five of dozens of similar examples.
The business landscape facing the travel industry today is one that has undergone a radical and wrenching change from that of just 18 months ago. Most of the ‘winning strategies’ that worked then don’t work now. More importantly, tomorrow’s competitive environment will also most assuredly be different from that of today, and that future environment will bring with it huge upside rewards for those who are properly prepared, while also peppered with huge downside risks and certain catastrophe for those that are not.
Even in such profoundly uncertain times, strategic planning doesn’t have to be a ‘hit or miss’ proposition for travel companies. Single-point strategic forecasts based on trend analysis, or strategy formulation based on past / current linear trend-extrapolation that produces base, upside, and downside cases, among other methodologies, simply do not work when the travel industry – and the world’s economic order – is in the throes of radical (and likely permanent) restructuring. While such traditional, ‘tried and true’ strategy formulation methodologies fail in times like these, there is another strategy tool that actually helps large and small companies alike develop a clear map to help navigate uncharted waters – scenario strategy planning.
What scenario strategy planning is – and isn’t
At its essence, scenario strategy planning is about identifying and understanding the forces that are sculpting the world around you; qualitatively and quantitatively assessing the potential inter-play among these forces in a structured manner; delineating from these forces several probable and highly plausible ‘future completive worlds’; and – here’s the most important element – unlike the aforementioned single-point or ‘case’ related strategic plans, scenario planning enables the design of a fluid, ‘multi-dimensional’ strategy that effectively enables companies to better manage their core business irrespective of the future competitive landscape that may evolve.
In the force identification phase of this process, some forces are determined as certain and others classified as uncertain; it’s the interplay of the uncertain forces that drive differences in the future scenarios. Altering the combination of those forces renders different future scenarios, which while one may be more or less probable than the others, each is qualitatively different.
Each future scenario paints a picture of a distinct, but plausible, business environment 3-5 years into the future, and each is written in such a way that the scenario has ‘decision-making utility’ – i.e., the future world described provides enough detail and specification so that alternative strategic courses of action can be effectively tested.
Generally, most scenario strategy planning methodologies suggest that strategists craft 3-4 future scenarios, as fleshing-out 5 or more scenarios results in a very laborious process, with derived value decreasing as the number of scenarios goes up. Together, the 3-4 scenarios span the realm of plausible future competitive worlds.
In a nut shell, travel companies and travel affiliate marketers will derive three major benefits by incorporating scenario planning into their annual strategic planning process:
Understand how the travel industry’s competitive landscape may evolve and what impact and implications this future may hold for your business
Recognize the real possibilities and significant impact of discontinuous industry change driven by exogenous or endogenous forces and events
Crystallize steps management should take to successfully prepare for these potential future worlds
While the fundamental precepts of scenario planning are relatively standard, there are several approaches to scenario strategy planning, and each has strong and weak points. Here are three planning tips that travel suppliers and travel affiliates should consider incorporating in their scenario strategy planning process regardless of the methodology they decide to use.
Tip Number1: Look beyond the past…and today’s crises
Given the depth and scope of the economic, societal and political change now under way, it is easy for travel companies to be overwhelmed by the intensity of the current situation. Focusing on just the current reality can be devastating, as it sets-up the possibility for a company to be blindsided by other forces or dynamics that lie outside its traditional competitive landscape.
Think about this point from the following perspective: If management at the world’s airlines were looking closely at what was going on in the credit markets between 2003 – 2007, perhaps many would have noticed that the plethora of M&A, privatization and other financial transactions were being fueled by the enormous leverage investment banks, private equity firms, hedge funds and others were piling-up on their balance sheets. They would also presumably have realized that maintaining leverage of that scale was fundamentally not sustainable long-term in any industry, not just the financial sector.
For airlines dependent on premium traffic, a fall-off from those heady times in the financial markets would translate into a meaningful drop in the number of premium travelers the airline would carry, and that in turn, would have a rather detrimental (if not very devastating) effect on yields. This is what happened beginning in mid-2008 – but in spades – and as a result, today many of the world’s largest airlines are reeling, and in some cases, a step or two away from insolvency.
Tip Number 2: Refrain from parochial thinking
Parochial thinking (i.e., believing that because of one’s sheer size, market clout or abilities, an enterprise can singularly drive and determine its or its industry’s future) is where many companies go wrong in their strategy formulation and ultimately fail in the marketplace – Pan Am, US Steel, the US automobile manufacturing industry (and indeed many of the ‘too big to fail’ companies) are good examples of the calamitous results engendered as a result of parochial thinking.
So, when developing end-state scenarios, strategists in travel companies should assure that each future competitive world that is constructed has been done so independent of the firm’s actions or control; this forces organization to not only recognize the possibilities of exogenous discontinuous change occurring, but more importantly, it also helps to guard them from sharing the same fate that befell the formerly iconic brands mentioned in the previous paragraph.
Even if your travel company has Google-like market share or power, failing to heed this scenario strategy planning axiom can quickly lead to market share losses or competitive erosion as other, less hubristic companies and players out-flank you.
Tip Number 3: Intensify monitoring and refinement
The effectiveness of any strategy depends on the organization’s ability to implement it and make adjustments nimbly and methodically when needed. This is even truer for scenario strategy, as by definition, scenario strategies are not static plans; they require continuous refinement and recalibration based on what’s happening in the market and the world at large.
In addition to formulating a core multi-dimensional strategy, scenario planning also calls for developing ‘hedge strategies, i.e., strategies that are developed to enable the company to rapidly adjust its strategy should an alternative future scenario occur. Some of the hedge stratagems address less probable, but nonetheless plausible, scenarios which are triggered by a sudden and disruptive industry event. Hedge strategies are typically ‘put on the shelf’, to be used only if one of the less probable scenarios evolves.
Knowing when to turn to hedge strategies requires that the travel company or travel affiliate marketer closely monitor and measure the competitive playing field. Only by diligently and relentlessly monitoring the performance of suppliers, customers, and competitors, as well as understanding the subtle shifts in the company’s other key market indicators, can any company succeed in making ongoing, real-time adjustments in their strategy, compete effectively in the marketplace and avoid being subsumed or eviscerated by disruptive change.
As we’ve all witnessed during the last year, even the most entrenched incumbents in an industry can plunge into a financial abyss literally over night because of a sudden but drastic discontinuity in the competitive playing field – hello Bear Stearns, Lehman Brothers and AIG. It’s fair to say that, given their size, resources and clout, none of these firms foresaw a world where they were not in some appreciable control of their destiny, and none had hedge strategies in place should an event of enormous discontinuous change befall them. Drawing parallels from the devastation wrought on these and other firms in the financial markets as a result of discontinuous change is reason enough why hedge strategies should be a critical element of any travel affiliate’s or travel supplier’s strategic plan.
In closing, while the travel and tourism industry’s long-term prospects remain promising, all of the various players in the industry’s value chain will be challenged in the short-term. Scenario-based strategy development helps company executives better understand what the future may hold for their business and anticipate many of the required changes to their value-added focus. Incorporating these three strategic planning tips outlined above will help assure that your company’s ‘multi-dimensional strategy’ is robust enough to successfully navigate a profitable path to the future when the recovery finally arrives.