M&A Frenzy and the need for Scenario Planning

Posted on Monday, 28 May 2007. Filed under: Business Intelligence, Commentary, Mergers, Scenario Planning |

This past week has seen many articles about the continue growth of the M&A market (see, for example, the Financial Times for a discussion of European M&A, or other articles on the Asian market).   It is difficult to walk down the street in the City of London or Canary Wharf and not overhear people talking about M&A deals.  The higher equity prices in the market generally are attributed to the continuing number of deals being announced.  The trend is global.  It makes front page news — and in fact, some days the front page of the Financial Times has all three or four of its major stories being M&A deals (this happened on Wednesday of this week with the only exception being a picture of the charred ruins of the clipper ship Cutty Sark)

It make me, and many of those I speak with, wonder about the hype.  Yet the M&A market continues to defy anyone’s predictions of when it will end.  I thought in 2005 that it might be the peak, but 2006 certainly exceeded my expectations.  My foundation is in history (I actually have two degrees from university in history and only one in business).  History DOES repeat itself.  At some point the market will begin to decline.  But just as the trough between the 5th merger wave (late 1990’s) and the current one (started in 2003) was higher than the peak of the 4th merger wave (late 1980’s — and for anyone else who lived through that merger wave, we thought it was going to be a record level of deals for a VERY long time to come), so the downturn that will happen sometime may still be at higher levels than we think.  M&A is here to stay.  One cannot be global as a company and not do deals (although there are some notable exceptions, the few number of such exceptions does prove the rule).

And I hear that Goldman Sachs is predicting a 30 year bull market.  I do think that different perspectives and forecasts are critical in planning what to do at this point in the M&A market.

Where can military and business intelligence techniques fit into this?  In our book, we discuss the need for scenario planning — a key military intelligence tool.  One section of our book, we discuss scenario planning as follows:

The first thing to realize is that the process of scenario planning is the consequence of a culture obsessed by the future – its risks and opportunities.  At Samsung, for example, scenario planning is enshrined in what is referred to as their VIP House (Value Innovation Programme).  The house is where the Samsung product managers, researchers, engineers, and assorted others ‘live’ while solving problems and/or planning projects.  The reason that this house is considered so important is because Samsung believes that 70-80% of ‘quality, cost, and delivery time is determined in the initial stages of product development.’ Samsung’s CEO and Vice Chairman, Jong-Young Yun, is clear about one thing, ‘the race for survival in this world is not to the strongest but to the most adaptive.’  Like the tsunami tribes and animals, he views the business world as an environment of existential threat and potential disaster.  The VIP house provides his disaster avoidance radar.

Another company famed for its extensive usage of scenario planning is Shell.  Using their own jargon, Shell’s scenarios team are tasked to ‘help charter routes across three interrelated levels; the Jet Stream level of long-term trends, uncertainties, and forces; the Weather Systems that reflect specific features of key regions; and the Turbulence of market level factors.’  To get a feel for the Jet Stream level, go to www.shell.com/scenarios.  Whether a scenario planning function is structured as a Samsung hot house or a highly centralised Shell-like group, the point is to monitor simultaneously the past, present, and future.  In all instances in addition to the expected, it is essential to attempt to imagine the unimaginable.  From those imaginings, scenarios must be built such that when a ‘new’ scenario presents itself, it is recognisable.

I wonder what Samsung and Shell are thinking now about future deals…

 

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5 Responses to “M&A Frenzy and the need for Scenario Planning”

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Scenario Planning is a “fractal” tool that when used properly can be a very helpful in evaluating business units, markets, and/or the mix of companies in the corporate portfolio.

Very interesting site ! Good work ! Congratulations :),

Wow!! It’s getting better and better.,

I love this site so so so much 🙂 Cool site!!,


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