Gym Membership Management 5.22.18
May 22, 2018

Scenario Planning 5.1.18

Recent headlines portray an increasing amount of market volatility, trade tensions and political uncertainty. As investors and entrepreneurs, our responsibility is to make decisions today that will positively impact our organizations in the future. First, we have to understand the trends and where they can lead. For example, a recent Wall Street Journal article (https://www.wsj.com/articles/what-if-global-growth-falters-now-1523004025) says global growth should hold up well in the midst of increasing trade tensions and talk of a trade war between the United States and China. U.S. payrolls during March came in below forecast. Stock market volatility in recent weeks has seen repeated moves over 1% and large intraday swings. These insights prompt key questions, such as:
  • Is the economy operating at peak performance with more gas in its tank?
  • Are we at full employment with wage inflation on the horizon?
  • Is the stock market becoming a bear which will affect consumer spending?
Answers to these questions drive our short-term behaviors. Questions related to emerging technologies, such as block chain, cryptocurrencies and machine learning, (https://www.wsj.com/articles/why-blockchain-will-survive-even-if-bitcoin-doesnt-1520769600?shareToken=stb4beff4fe9d4474da56993487b098064&reflink=article_email_share) drive our longer-term thinking and decision-making because they impact such fundamental business drivers as logistics.
MIT Sloan Review (used with permission) describes seven technologies every entrepreneur and investor should factor into their planning, from 3D printing to nanotechnology. What’s the best way to respond to these opportunities and uncertainties? Scenario Planning Is Key At Driehaus Private Equity we place great value on scenario planning. “In Peter Schwartz's book “The Art of the Long View,” scenarios are described as: Stories that can help us recognize and adapt to changing aspects of our present environment. They form a method for articulating the different pathways that might exist for you tomorrow, and finding your appropriate movements down each of those possible paths. Scenario planning (sometimes called “scenario and contingency planning”) is a structured way for organizations to think about the future. A group of executives sets out to develop a small number of scenarios—stories about how the future might unfold and how this might affect an issue that confronts them.”
The X-Matrix is one tool we use to incorporate scenario planning into our strategy for portfolio companies. The X-Matrix: Driehaus introduces the X-matrix to portfolio companies as a strategy development, deployment, and execution tool that promotes an aligned strategic vision at all levels of the business.  This is accomplished by cascading the top level strategic vision down to actionable tasks that can be accomplished by all employee levels in the company.  Once fully deployed, the x-matrix is the communication vehicle between the portfolio company and Driehaus. Our assumption is that scenarios evolve over time and require an active, ongoing process to understand and formulate responses. The X-matrix is a one-page strategic plan completed in five simple steps:
  • What do we want the business to look like in 3-5 years?
  • How far along on the 3-5 year plan do we want to accomplish in year 1?
  • How will we measure progress to our one year targets?
  • Who owns the measures of the one year targets?

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