The environment surrounding most firms is varied, complex and challenging. It is not easy to present the collected data in a simple, easy to understand format. Scenario building is a useful way of solving this complexity. Scenarios are stories about what the future environment might hold and how a firm might respond to his future. Scenario’s help strategists in focusing attention on the emerging picture after thoroughly analyzing the pros and cons of a particular situation by integrating objective and subjective parts of various factors. Scenarios help managers to predict how things will turn out, explain what forces will shape the future and have a feel for the situations that are likely to unfold. Scenarios can be developed thus (Pearce & Robinson).
1) Prepare the background by assessing the overall social environment under investigation (such as social legislation).
2) Select critical indicators and search for future events that may affect the key trends (e.g. growing distrust business).
3) Analyze reasons for past behavior for each trend (e.g. perceived disregard for air and water quality).
4) Forecast each indicator in at least three scenarios, showing the least favorable environment, the likely environment and the most favorable environment
5) Write a scenario from the viewpoint of someone in the future and describe conditions then and how they developed.
6) Condense the scenario for each trend to a few paragraphs.
Organizational Responses to the Environment
Given the myriad issues, problems and opportunities in an organization’s environments , how should the organization adapt? Each organization must assess its own unique situation and adapt according to the wisdom of its top management . It is not easy to come out with clear cut answers because the relationships between the organizations and its many environment are multifarious and difficult to predict. Even more difficult is the task of stating exactly what an organization should do in response to a particular situation in the environment . For example the removal of quantitative restrictions on consumer items, agricultural products, import of second hand vehicles is going to impact a number of domestic organizations in the days ahead. In such a scenario the number of possible organizational responses are too numerous to be catalogued in a specific way. However, certain commonly used organizational responses could be stated thus:
Boundary spanning Response: In every organization there are certain positions called boundary roles that link the organizations with its various external constituencies . These roles are filled by public relations representatives, sales people, purchasing agents etc. These boundary spanners spend a great amount of time with external groups ad help present the organization’s interest in dealing with the environment. They also convey the information about the environment the organization ‘s management . They thus help the firm to scan the environmental forces closely and take steps proactively in order to survive and progress in a complex and dynamic environment.
Strategic Responses: Another way that an organization adapts to its environment is through a strategic response. The options here include maintaining the status quo ( even after removal of quantitative restrictions Bajaj Auto, for example may not curtail production of scooters because the management may feel that it is doing very well currently), altering strategy a bit ( cut the prices a bit and advertise aggressively highlighting quality, service and reliability aspects more prominently ) or adopting an entirely new strategy ( reduced emphasis on scooters and expand the motor cycle market in line with global trends or even venture into an alliance with an international acre manufacturer) If the markets that a company currently services is growing rapidly (as is the case with motor cycle segment), the firm might decide to invest even more heavily in products and services for that market. The firm may like to pursue new markets for old products introduce new products to old markets, or introduce new products to new markets. Alternatively if market is shrinking or does not offer reasonable possibilities for growth (say, the moped market), the company may decide to cut back, or to get out of competition altogether . Firms also indulge in domain shifts (changes in the mix of products and services offered so that the firm will interface with more favorable environmental elements), to regain the lost glory . Moving out of current products or services or locations into a more favorable domain, diversification expansion of products / service portfolio are all part of this strategy.
Source: Strategic Management