Scenario Planning: Do It Now

Automotive electrification is not just an idea anymore, it’s a growing reality. Global powers and the biggest automakers are already making great strides toward a future that is predominately electric.

Automotive electrification is not just an idea anymore, it’s a growing reality. Global powers and the biggest automakers are already making great strides toward a future that is predominately electric (and autonomous, and data-driven); it now falls to suppliers, investors, private equity funds and all other automotive-related businesses to make the necessary strategic moves in order to win in this new era — and it all starts with a fairly simple business concept: scenario planning.

Scenario planning is, quite frankly, the least one can do to ensure the success of their company. Coming up with a forecast for where the company should be in not only one year (operational planning) or in three to five years (business planning), but in eight to ten years (strategic planning) is not only smart, it’s also responsible.

However, considering how few substantial changes have been made to the traditional internal combustion engine (ICE) since its creation, most suppliers have had little reason to establish and maintain longer-term scenario plans. The industry simply hasn’t been disrupted enough to warrant it--until today.

Few industries have witnessed the same size and global impact that the automotive supplier industries are experiencing today. Because of this, I believe that suppliers need to go above and beyond standard practice for scenario planning, considering not only their own goals for success, but also the way that the outside industry’s rapid and somewhat chaotic changes are going to affect those goals.

I’ve talked before about the three business models automotive suppliers must consider as they look toward the future. In an industry increasingly dominated by technology, suppliers must shift their long-term focus from the traditional combustion engine to all the components of intelligent, autonomous and data-driven electric cars — even if they don’t plan on shifting gears to new products. Between staying the course with the ICE (a strategy of some traditional businesses), turning to the manufacture of vehicle electronics or moving into the brave new world of automotive software, suppliers absolutely must incorporate longer-term scenario planning into their business practices if they want to win.

Traditional, or, as I like to call them, “OldCo.,” businesses need scenario planning to help them envision the way they can successfully wind down in an industry that will, within the next 10 to 12 years, no longer require the amount of capital and types of product they sell in the quantities they currently produce. Working through a robust strategic planning process, these suppliers must think through options like consolidation, mergers and acquisitions, and winding down assets — what route will ensure that they maximize shareholder value, and how do they get there?

Similarly, companies that are looking to make the jump into manufacturing automotive electronics or developing software need to employ scenario planning for a successful transition, factoring in things like research and development, testing, hiring, market research, and more. They must be prepared to develop plans to fill critical gaps necessary to gain a competitive edge. And to top it all off, this kind of scenario planning must all take place in the operational-to-business stages, because the industry is moving too quickly for any plan that might take longer than five years to activate. On the other hand, long-term strategic scenario planning for these transitional companies (or “NewCo.,” as I call them) should paint a picture of a much different business than the one they’re currently in, prior to a successful industry shift.

Of course, it’s impossible for any of these suppliers to precisely foresee what the future holds for them, and in some cases no amount of scenario planning can account for time already lost. I expect that, considering how many companies have already seized the opportunity to win in this new electrification landscape, it’s going to be an uphill battle for many suppliers to achieve their goals — regardless of what they hope to do.

That’s exactly why I’m advocating for both OldCo. and NewCo. suppliers to engage in longer-term scenario planning as soon as possible, with a robust strategic planning process. Suppliers who take advantage sooner than later will have far more options and will have a leg up on the competition in their efforts to maximize value in these times of significant technology disruption.