I. Factors driving the radio business changed dramatically from 2002 to the present
II. Scenario Option Development Model offers multiple futures that may evolve based on the business drivers that are least predictable and not in the control of radio management
III. Forecasting vs. Scenario Option Development
IV. Why consider multiple futures?
In the 80’s and 90’s few people were talking about the future of radio because everyone assumed the good times would prevail forever. The primary drivers of the business, time spent listening, ad revenue, and government regulation were relatively consistent. The world started to change in 2000 when the Internet bubble broke causing a major source of ad revenue to go away. Then the economy faltered sending more shock waves through the business model but optimism prevailed. We had seen downturns before and it always came back. But by October 10, 2002 the S&P Index dropped from the 1500’s in 2000 to 768. The economy started a recovery which went through 2007 and early 2008. But then the technology picture started to change with the launch of the IPod in October of 2001. Satellite Radio was launched in 2001 also but didn’t gain significance until 2002 ans has continued to grow especially with the merger of XM and Sirius in July of 2008. Internet radio provided Pandora became a major play in about 2009 and the Smart Phone has added to the alternatives to radio as a source of information and entertainment. The perfect storm for radio really hit in late 2008 with the economic collapse. Now not only was the technology model going through significant upheaval but the revenue model fell apart as well. Just when radio neede to invest in new and better content stations’ revenues dropped by 20+%. Now everyone is asking themselves and others, what’s the future of radio. Everyone craves predictability in their lives and their businesses but none of that exists today for radio.
The traditional approach to this problem is to make a few assumptions about what will happen going forward and build a business plan based on those assumptions. Most leaders don’t like thinking negatively so they put the best face possible on a bad situation and predict some kind of optimistic outcome in the form a positive business forecast of the coming year often without being clear about what assumptions they are making other than a slight increase in revenue and cutting costs where possible. The hope is that eventually things will turn around…they always have in the past.
When thinking about the future of radio, I started using a problem solving model called Scenario Option Development in the mid 90’s. My wife introduced me to the concept because she was using it at Motorola starting in the early 90’s to predict the technological shifts they were confronting. The concept got its use in business after the Oil Shock of 1973 by Royal Dutch Shell. Many credit this system of thinking to their significant growth relative to other oil companies in the last 35 years. They still use Scenario Option Development in their planning process today. SOD starts by asking managers, “What are the most powerful and least predictable drivers of your business’ future?” You are then asked to state these drivers as polarities. For example one of the most significant drivers of the radio business is “time spent listening.” Stated as a simple polarity it becomes. “more time spent listening to radio” vs. less time spent listening to radio”. The model then asks you to take the two or three most powerful, least predictable drivers and set them up as axixs on a graph displaying their interaction with each other. You will se how we did this when you read the summary of our meeting notes from 2009 and 2010.
Forecasting vs. Scenario Option Development
Forecasting vs. Scenario Option Development Forecasting (developing budgets based on optimistic views of the future with little consideration of your assumptions) disguises uncertainties, results in single point, linear projections that are quantitative by design. It conceals risks and fosters inertia in a direction that reflects the past. SOD focuses on the uncertainties, clarifies risk, and encourages flexibility and responsiveness.
In scenario work we develop multiple possible futures for our business, depending on how the critical uncertainties play out. That’s the thing about an uncertain future. We just don’t know how it will turn out, so we have to prepare for the unknowable. By thinking through what might happen, and what we need to do IF those things to occur, we can be prepared to take action before our competitors. We also identify the early indicators that each of the scenarios is about to unfold, further helping us to be prepared to take necessary action.
Why consider multiple futures?
1. Because there are more than one possibilities for the future. Any effective structured problem solving model challenges you to start by analyzing the components of the issue before jumping to solutions first. It helps you to know you are working on the right issues and gives you greater depth of understanding. With SOD we start by asking ourselves, “What are the most powerful, least predictable drivers of the radio business?” When you put together two or three unpredictable drivers you get multiple and very diverse futures.
2. Not considering multiple futures locks you into one strategy. If the drivers of the business change you might be unprepared for the new future.
3. By considering multiple futures, you can choose one for planning purposes, knowing you have thought about other alternatives and are prepared to shift gears if an alternative scenario evolves.
4. Having used the SOD model for strategic planning, you can track unpredictable drivers over time knowing you can alter your plan based on trends in the drivers.
What follows is a write up of our proceedings from our meetings in Hilton Head in 2009 and 2010. In each case you will see a list of the persons who contributed to the discussions and thoughts about the future of radio. You will also see the agenda for our meeting to take place in March of 2011. Please review the data and contribute your thoughts on our blog. We value divergent thoughts about our discussions and
conclusions. This is an on going narrative.