Scenario planning

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What is scenario planning and why it needed?

The world is becoming very small through globalization. Every business has to predict future and should try to implement its strategy that should fit for long run and should fit in the international competitive market. Every day business world is changing and more competitive so management of business is more complicated and more complex. Framing an effective scenario is very vital for the business. Scenario planning helps to improve the business activities and paves way to adopt the future changes.

Scenario planning is all about to survive in the future with desired goals of the company. To survive in the future every business has to form multiple strategies. So that business will sustain in long run.

Formulating Scenarios

Based on past events in business we can forecast the future of the business. Forecasts are the assumptions it may happen in future or not but scenarios are adopting the future changes with developing strategies. Forecasts are based on past happenings. Scenarios are thinking the future in the present.

Below picture gives an idea about forecasts and scenarios

(Lindgren & Bandhold, 2002)

Since TATA Motors is global now, it should also look forward to plan its future and should make the strategy that fits in the possibilities that is likely to occur in the future. Scenario planning is not about predicting the future. Rather, it attempts to describe what is possible and how to deal with the possible scenario. Strategic decision should be effective over long period of time and that must affects the company in many different ways. It should permit the specification of the particular objectives to be attained through a timed sequence of investment and implementation decisions. (Wit & Meyer, 2005)

Scenarios help focus design efforts on the user's requirements, which are distinct from technical or business requirements. It should be appropriate when Uncertainty is high relative to managers' ability to predict or adjust. It is also appropriate to avoid the expected disaster in the business by experiencing the Costly surprises that have occurred in the past.

Company background

Tata Motors is India's largest automobile business, with revenues of USD 14 billion in 2008-09. It is leader in commercial automobile in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility sector. The corporation is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer. The company manufactured its first commercial motor vehicle in 1954 in partnership with Daimler-Benz AG. Tata motors having latest technologies in automotive market have introduced the world cheapest car called TATA Nano "People's Car". The company's commercial and passenger vehicles are already being marketed in some countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal.

(Tata Motors Profile , 2010)

This report explains about the scenario and strategy planning of Tata motors which is India's leading and largest company automobile company. It starts with an overview of the company and provides a brief profile of its various businesses. This helps to explain the uncertainties which come across and are in equal proportion an in-depth analysis of Tata motors.

Scenario Planning of Tata motors

All organization needs to be well positioned to respond to uncertainty it is no exaggeration to suggest that the only certainty is the things will not be like they were.

Since TATA Motors is global now, it should also look forward to plan its future and should make the strategy that fits in the possibilities that is likely to occur in the future. Scenario planning is predicted future is a means of recognizing and challenging existing assumptions. It involves researching key strategic variables and factors that are changing or that could change. It then assembles the findings into qualitative pictures or stories that show the range of future uncertainty that may result. These pictures or scenarios can then be used to test the resilience of strategies and plans.

Scenario planning focuses on new issues that must be used that are appropriate to the changed conditions. For example, a directive centralized planning process, with experts determining the targets and allocation of resources cannot be an effective model.

Scope of the exercise

Explanation

Since TATA Motors is global now, it should also look forward to plan its future and should make the strategy that fits in the possibilities that is likely to occur in the future. Scenario planning is not about predicting the future. Rather, it attempts to describe what is possible and how to deal with the possible scenario. Strategic decision should be effective over long period of time and that must affects the company in many different ways. It should permit the specification of the particular objectives to be attained through a timed sequence of investment and implementation decisions. (Wit & Meyer, 2005)

Scenarios help spotlight plan labors on the user's requirements, which are separate from technical or business requirements. It should be appropriate when Uncertainty is high relative to managers' ability to predict or adjust. It is also appropriate to avoid the expected disaster in the business by experiencing the Costly surprises that have occurred in the past.

Identification of Stakeholders

List of Stakeholders for TATA Automobile

Local communities -

Local community plays a key role in stake holders. The local community handles the local productions and based on the communal development the stake of the company develops as it is being published by word of mouth. Broader definitions of stakeholders widen the concept to include responsibilities to local communities and, more generally, civil society.

Employees -

There is wide spread agreement that they are a prime stakeholder. They play one of the important roles in developing a company. They have the ability to make the production go low or high according to the performance criteria, which helps in increasing the stake.

Shareholders -

Some would say that shareholders are the first stakeholder. Yes according to some people they are the first stakeholders as the company capital can major run by shareholders. They check the day to day process of the company with they invest on the company instead of company looking for investors. Creditors' rights are often protected under contract and backed by collateral so they are seldom treated as “owners” as the shareholders.

Owners of business -

Arguable, but some judge that managers are stakeholders For example, Evan and Freeman argue that managers have an extra duty that of maintain the health of the company by keeping stakeholder demands balanced which makes them stakeholders.

Customers -

Most stakeholder models include customers. Without customers the business can't grow. The business may be product or service. The value of production and customer relation is directly proportional. The demand is created by customers and the production is expected.

Suppliers -

Often considered a stakeholder. They also play a role in contributing stake as the company cannot meet the demand with the suppliers and their raw material. The supply and demand always varies ion vice versa. So the suppliers also play a role in stake.

Managers -

Managers are charged with applying the systematic and scientific controls to recorded information required in the normal operation of an organization. In attending to this charge, these professionals seek to manage organizational information so that it is timely, accurate, complete, cost-effective, accessible, and useable. By tradition, this grouping had paying attention its attention mainly on document-based information, mostly in paper, as opposed to data systems.

Governments -

Governments have always been careful recorders of information, which allows them to rule their society properly. In a independent culture, these records also protect the rights of the individual and help them to hold the government answerable for its events. These protection hold true for all level of government.

Identification of Shareholders for TATA Automobile

(Shareholding Pattern, 2009)

Soul of Automobile Industry and Major concern for Future

Fuel is the heart of the automobile business. Even after manufacturing of the motor vehicle they are quiescent or hidden. They can be only used with the use of the oil or natural gas or coal. Now these all are fossil fuels which have been formed from the living organism or trees after they get perished and transformed in fossil fuel after millions of years. These are limited and insufficient resource. In the near future these resources can be useless and automotive industry needs to look one step ahead to develop other alternative source of energy to run the industry in desired speed. Other probability which can be considered is that these fossil fuels are never going to reduce and industry can consume these sources forever. But there is more chance opposed to this based on technical evidence and we must expand our resource and knowledge to create new options for fossil fuel.

Introduction of two metaphors (Future)

We have chosen a metaphors of Ocean and Lake, where Ocean future has no boundaries for fuel, in other words fuel is forever and in Lake future fuel will not last for long.

Scenario ONE - Ocean Future: No boundaries for Fuel

Ocean future is based on unlimited fuel availability, where the automotive industry is most profitable sector. TATA motors are one of the major automotive companies in the industry. The main problem for the business will be pollution as there will be no scarcity of fuel. And how the business will survive in the future scenario? Who are their future competitors? What strategy they should adopt to take competitive advantage? And the future PEEST analysis trends of the company.

Predicted Global Impacts of Ocean future

In the Ocean future world is full of fuel. The automotive industry will never run out of fuel. In other words, company can reduce its R&D expense in alternative fuel engine research. Ocean future represent the unlimited availability of fuel, as a result fuel will be cheaper then today. In the present scenario having a car is not a big deal but what really matter is to run them. Since the fuel is unlimited there will be huge number of vehicles on the road.

It has some bad impacts too. As mentioned earlier that fuel will not considered as scarcity and consume more fuel, as a result there will be more carbon emission exhausted in the environment and pollution will be more then today.

PEEST analysis of Ocean future

PEEST analysis is related with the environmental effects on a business.

The short form stands for the Political, Environmental, Economic, Social and Technological issues that could affect the strategy of a company.

It is a useful way to summarise the external environment in which a company operate. However, it must be followed by consideration of how company should respond.

Political Trend

What will be the political rules and changes? Due to unlimited fuel stock government will not impose any strong political rule for fuel usage in the ocean future. Government will have to focus on pollution and carbon emission reduction rather. Fuel freedom will convert in to freedom of fuel usage and as a result there will be huge amount of CO2 in to the environment. Next step would be to take step forward to improve traffic system and infrastructure development to manage the increased vehicles on the road.

Economical Trend

What will be an economical issue? Economic situation of the Ocean future will be good for the people. Today fuel is running out of stock and a major issue for the automotive industry and it affects consumers too. In the ocean future fuel is cheap, as a result cars will be cheap and lower income people can afford to buy a car. Other side Transportation will be cheaper too for those who have no car and depend on public transportation. Every coin has two sides; other side of the economic situation will be health issues. Health expenditure may raise high due to pollution.

Social Trend

What will be social expectation and needs? Since the world will never run out of fuel, cars will be comparatively cheaper than today. So dream of having a personal car will come true for everybody. People now have access to the offices, home appliances and automobiles. Digital devices have made life easier for everybody. Things that are expensive at present will be available within budgets, and automobiles will be one of those. There are few situations that will bring sudden changes in the automotive industry. The life style of the people in ocean future is very high and trendy because this future describes of well-being of economic condition of people due to low unemployment.

Environmental Trend

What will be the environmental situation in the ocean future? On the other side it is totally a different situation in environment of ocean future. As described earlier that fuel will be cheaper so it will consume more fuel and as a result, indiscriminately use of fuel will cause more air pollution which in turn lead to more global warming and green house effect. These issues will have impact on the health of people, water level in ocean, fertility of lands, crops, rain and atmosphere.

Technological Trend

What will be the Technological advantage and changes in the Ocean future? Fuel freedom will help automotive company to invent new luxury rather than spending on R&D for fuel alternative, so TATA can come up with technology, safety and comfort innovation. Since the cars will be cheaper than today, common man can afford to have a luxury car.

Strategy & Implications for Ocean Future

Strategy may be described as the model or plan that integrates an organization's major goals, policies, and action series into a cohesive whole. Ocean future strategy is based on Long-term action plan for future goals. Strategy is a political procedure and it works through culture - Nature of culture in which the business is operating, structure - Type of structure the business has, people - people within the organization and outside the organization, expectations - expected expectation from the organization.

As discussed in the PEEST analysis that pollution will be the major issue globally, TATA should invest more in R&D to invent engine that help to reduce carbon emission. Ocean means large market and if TATA wishes to reach to each and every market of the world then TATA should collaborate with other dominant players in the automotive industry such as BMW, Mercedes and Bugatti. Moreover to gain its market share and expand the business TATA should also concentrate in making the truck and other heavy loaded motors globally.

Every step toward better fuel efficiency, reduction in carbon emissions and alternatives of fuel coming at the same time from changes in consumer demand, governmental developments and technology breakthroughs will have its impact. It helps to bring together the keen observation of auto industry market trends to analyze the strategy facing these industries, and the global warming implications and security for energy.

Scenario TWO - Lake Future

Lake future is opposite of ocean future where fuel will not last for long, in other words Will World run on carts and pedals?

Predicted Global Impacts of Lake Future

TATA motors are manufacturer of fuel based automobile products and fuel is basic need. According to the lake future, fuel will not last for long. Researchers says ‘ Oil will last for 40-50 years, Natural gas will last for 60-75 years and coal will last for 155 years”. If it happens then there is a possibility that world will run on pedal carts. Fuel is the basic need for automotive industry. If there is no fuel then the business will also not exist. As a result unemployment will increase not only in the automotive industry but associated industries like parts and accessories industry and oil industry. Technology like mobiles and internet will be in the centre point for the purpose of communication. Since there are no cars on the road then there is no pollution and lake future will be pollution free. On other side there is a possibility that automobile manufacturer like TATA Motors develop an alternative for the fuel and give a sustainable advantage to automotive industry and industry will run and grow continuously.

PEEST analysis of Ocean future

PEEST analysis is related with the environmental effects on a business.

The short form stands for the Political, Environmental, Economic, Social and Technological issues that could affect the strategy of a company.

It is a useful way to summarise the external environment in which a company operate. However, it must be followed by consideration of how company should respond.

Political Trend

Lake future is represented by depletion of fuel. So in such condition political factors have much more impact on the automotive industry. Since there would be no fuel in this scenario Government need to change or eliminate laws and legislation related to fossil fuel and develop new laws and legislation in concern with the Department and Bodies of Government which play important role in the development of the automotive industry. In this future, Government's responsibility towards technical advancement and development is equivalent to that of automobile companies. Government subsidies and financial help would impart motivation to auto companies to build new platform where they can fight with the challenge of depletion of fuel and sustain the industry.

Economical Trend

Being considerable contributor to the economy, automotive industry will continue to do so. In lake future economy would be affected by companies engaged in the invention and development of the new technologies. These companies will have command over economy because without these companies auto industry will be nothing and without automotive industry transportation would be so tough that people will travel once in awhile.

Environmental Trend

Lake future is represented by fuel free earth and it is also represented by new inventions and technologies. So air pollution passed on by automotive industry would be reduced to almost nil. Pollution related health problems, greenhouse effect and global warming will be reduced. Automotive industry will not need to search for the low emission engines and can instead can invest to find an alternative source which can be easily available and cheap to afford.

Social Trend

In lake future there are two possibilities - one is without fuel and the other is with TATA. Without fuel auto industry would collapse and people would suffer without any transportation vehicles. People would be depended on telephone or internet for communication with each other. This may affect the relationship of people with each other and shrinkage of relationship.

Other possibility is that TATA become exclusive producer of Motor vehicles with alternative energy source and succeeds to sustain the transportation system. Then TATA would be only way of transportation and other name of life.

Technological Trend

Lake future itself is Techno-Future, in which new ideas and technology will change the whole scenario of automobile industry. Birth of new alternative energy source will give new definition to industry and may bring sustainable advantage to industry so that for many years these sources remain the soul of the industry and run the industry. Technological advancement will be continued to eliminate the drawback of existing situation and to find solution for that.

Future Source of Energy

In the lake future fuel is in limited stock and automotive consumers may not change their approach towards purchasing fuel even with the rising fuel prices. As prices of fuel will increase in the lake future due to limited stock, there is a mounting need to switch on alternate sources of energy.

Few of the future sources of energy are listed below.

  • Hydrogen Fuel Cell
  • Bio-Fuel
  • Solar Energy
  • Electric Cars
  • Bio-Mass
  • Wind Power

Strategy & Implications for Lake future trend

Strategy may be described as the model or plan that integrates an organization's major goals, policies, and action series into a cohesive whole. Ocean future strategy is based on Long-term action plan for future goals. Strategy is a political procedure and it works through culture - Nature of culture in which the business is operating, structure - Type of structure the business has, people - people within the organization and outside the organization, expectations - expected expectation from the organization.

Financial markets will be unstable, rising fuel prices, and increasing taxes on fuel usage will be some of the problems faced by the automotive industry in the lake future.

  • Huge investment in R & D for better technologies.
  • Reduce the cost by producing under the one roof and using long lasting material like Nano material.
  • Automotive manufacturers must mass-produce the automobiles so that they are affordable to the consumer which is comparatively cost effective.

Conclusion

For a business it is very important think about the future with different scenarios and develops flexible strategies. Now days it is very necessary for any firm or an industry as a whole to analyses all the political, economic, ecological, social and technological factors before deciding what strategies they are going to adopt and then make necessary changes, keeping in mind the cost of changes. The change could either be in internal structure or the external environment or it could be the combination of both. As in the case of TATA Motors they have given recommended strategies after going through all the factors, and how to react at the appropriate timing according to the business atmosphere.

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