The contribution of scenario analysis to the front-end of new product development

Futures 44 (2012) 642–654

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The contribution of scenario analysis to the front-end of new product development Theo J.B.M. Postma *, Thijs L.J. Broekhuizen, Frank van den Bosch 1 Department of Innovation Management and Strategy, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV Groningen, The Netherlands

A R T I C L E I N F O

A B S T R A C T

Article history: Available online 27 February 2012

The front-end of new product development involves the identification and analysis of product or service opportunities, idea generation, and the selection of new product and service concepts. It is often referred to as non-routine, dynamic, and highly uncertain. Authors have made attempts to improve the manageability of this phase by proposing several methods and techniques. This paper explores the possible contribution of scenario analysis to increase the quality and effectiveness of the front-end of new product development process by linking a set of functions of scenario analysis as is recognized in the literature as possible solutions to various front-end problems. Two case studies are used to explore if and how the scenario analysis functions contribute to the front-end of new product development process in an empirical setting. ß 2012 Elsevier Ltd. All rights reserved.

1. Introduction In a globalized and knowledge-based economy, firms continuously need to increase efficiency and to innovate in order to achieve a competitive advantage and to survive [1]. Accelerated product life cycles and increased product obsolescence in combination with rapid introduction of new and improved product versions increasingly call for fast responses. Technical lead times are often so long that there is a serious risk that a market may be lost before a proper response has been made. Innovation and product development processes should therefore be performed as effective and efficient as possible. In the past decades, various approaches to managing innovation have been developed [2]. In general, the new product development (NPD) process may be divided into three phases: the front-end, the development, and commercialization phase. The front-end is not very well articulated and often regarded as ambiguous, opaque, uncertain, and fuzzy and therefore perceived as the part with the greatest opportunities for improvement of the overall innovation process [3]. With the aim to reduce the ‘‘fuzziness’’, several authors attempted to make this phase less opaque, such as the Stage-GateTM [3] or PACE1 [4]. These methods aim to reduce the risk that an organization invests time, money and other resources in existing ideas that may not turn out to be successful innovations in the future [5, p. 36]. This paper suggests that scenario analysis can be helpful as a creativity enhancing tool that can be used in the fuzzy frontend phase, through presenting possible and relevant future external developments and by concentrating on critical uncertainties. Schwartz [6, p. 4] defines scenarios as ‘‘tools for ordering one’s perceptions about alternative future environments in which today’s decisions might be played out’’. With the use of scenario analysis, today’s decisions can be

* Corresponding author. Tel.: +31 50 3634005. E-mail addresses: [email protected] (Theo J.B.M. Postma), [email protected] (Thijs L.J. Broekhuizen), [email protected] (F. van den Bosch). 1 This author has no affiliation. 0016-3287/$ – see front matter ß 2012 Elsevier Ltd. All rights reserved. doi:10.1016/j.futures.2012.02.001

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evaluated by confronting them with images of possible alternative future environments [7]. Scenarios reflect plausible futures, usually in conjunction with the storylines and developments that lead to those futures. The scenario process enables managers to visit and experience the future ahead of time, thereby creating memories of the future [8]. These ‘visits’ to anticipated futures create a matrix in the mind of managers and serve as subconscious guides to make sense of environmental signals and to act on them, which leads to anticipative instead of reactive change. Scenario analysis comprises various functions that may make the fuzzy front end of innovation less fuzzy and can prevent decision failures. Chermack [9] conceptualizes that scenario analysis may deal with decision-making and particularly decision failures, he argues that this may be helpful in constructing research questions in this field. We concur with this and take up this challenge by exploring the possible contribution of scenario analysis as a tool to overcome a set of immanent problems for a specific NPD stage: the front-end stage. Specifically, we link the main functions of scenario analysis to various problems to demonstrate how scenario analysis can improve the manageability of the fuzzy front-end of the NPD process. We briefly discuss two cases to verify the appropriateness and practical relevance of our research framework in an empirical setting and conclude that this is indeed the case. This paper is organized as follows. In Section 2, we discuss the characteristics of the front-end of NPD, its importance, and the problems that arise during this stage. In our research framework, we explain how the functions of scenarios may solve the problems that come about in the front-end of NPD. We then present a case study using two business cases, and discuss the most striking case study results in Section 3. Section 4 concludes. 2. Literature review 2.1. Front-end of NPD The front-end phase of NPD concerns the period from the first idea generation to its approval for development or its termination [10]. Kim and Wilemon [11] argue that the front-end phase is more difficult to manage than the development phase, because of the higher level of uncertainty. This uncertainty is mainly caused by fuzziness or ambiguity about the quality (commercialization potential) of an idea. By obtaining and sharing knowledge about the commercialization potential, this fuzziness can be decreased. The level of fuzziness usually decreases as the NPD process progresses [11, p. 271, 12]. 2.2. The importance of the front-end of NPD The ‘fuzzy front-end’ (FFE) begins when an idea or opportunity is found worthy of further ideation, exploration, and assessment and ends when a firm decides to invest in the idea, commit significant resources to its development, and launch the project [12,13]. The front-end phase consists of the following activities: product strategy formulation and communication, opportunity identification and assessment, idea generation, project planning, and early executive reviews [14]. Since these activities involve ad-hoc decisions and an unstructured process, it is often characterized as a process that is intrinsically non-routine, dynamic and uncertain [14,15]. The front-end of NPD is one of the most important stages within the NPD process. Cooper and Kleinschmidt [16] found that the greatest differences between winners and losers were found in the quality of managing the front-end phase. The front-end activities ultimately distinguish the projects that are ready for execution from the ones that are not. In this phase, the course for the entire project and the final product is set, since decisions about allocation of important resources are being made. Because of this importance, the front-end can take up to 50 percent of development time [17]. At the same time, managers have identified the front-end as being the greatest weakness in product innovation [14]. 2.3. Problems during the front-end of NPD Van de Ven [18] identified various important problems regarding the management of innovations. Two problems are salient for the fuzzy-front end stage, namely: management of ideas and management of attention. The management of attention and management of ideas may address answers to the questions of (1) how and why certain innovative ideas gain good currency (i.e. are implemented), and (2) how and why people pay attention to only certain new ideas and ignore others. 2.3.1. Management of ideas During the initial stages of the NPD process, individuals develop, carry, react to, and modify ideas. The main problem is how to support and manage the development and institutionalization of such ideas. Ideas are suggested and begin to surface by efforts of individuals. Then networks of groups of individuals and interest groups exert their influence on the ideas by developing and promoting them so that they become an issue for political debate. At this point, ideas might be taken up by powerful people, such that they gain legitimacy and gain power to change institutions. The ideas that win are implemented and may become institutionalized. Van de Ven [18] indicates that the main issues that revolve around the management of ideas are: (1) the centrality of ideas, (2) the role and views of relevant stakeholders and especially powerful people, and (3) the uncertainty about outcomes. Furthermore, he mentions two limitations that may lead to inertia and the premature abandonment of ideas: (4) a

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short-term problem orientation and (5) a shortage of adequate ideas. The centrality of ideas refers to the socio-political process of pushing and riding ideas into good currency and the collective action that may result in emergence and modification of organizational structures [18]. The central focus on ideas provides the vehicle for otherwise isolated, disconnected, or competitive individuals and stakeholders to come together and contribute their unique frames of reference to the innovation process [18, p. 593]. As the successful conversion of ideas into innovations requires a change in policies or procedures, it is necessary – after evaluating an idea on its merits – collective action mobilizes around the idea. Here, the second issue becomes relevant: the role and views of relevant stakeholders and powerful people. The debate is on who generates the ideas and who legitimizes them. The combination of a set of managers with a unique frame of reference may contribute to the creativity of ideas. Ideas need to be picked up by powerful people (such as champions) to help them to gain legitimacy and to change institutions. It is important, however, that ideas are chosen on their merits rather than on who is supporting them. The third issue revolves around the uncertainty of outcomes. The outcome and usefulness of an idea can only be determined after a significant amount of time (the so-called feedback lag), when the innovation process is completed and implemented, which is on top of that complicated by the interdependency of problems for which an idea forms the solution. Uncertainty about results in the future requires that implicit or explicit assumptions about the future are made in the FFE phase in order to deal with this prevailing uncertainty. Therefore, managers need to be made aware of environmental uncertainties. Since it is difficult to reduce this uncertainty, it is better to accept and act upon it. Short-term problem orientation may lead to inertia and the premature abandonment of ideas because individuals take the problem for granted and move to solving other short-term problems. As individuals are motivated to demonstrate progress on the short term, they have a natural tendency to focus on solving short-term problems. The other limitation is that the inventory of ideas is seldom adequate for the situation. Inertia and premature abandonment of ideas might happen when individuals do not examine the views and values held by all relevant stakeholders. The amount and quality of ideas significantly increase when individuals put themselves in the place of relevant stakeholders and view the situation from their perspective. 2.3.2. Management of attention During the initial stages of the NPD process, innovators may encounter the problem of how to keep others involved in the development of new ideas and to invest resources, especially time resources. This problem is related to the limited capacity of human beings to handle complexity and maintain attention [19]. The limited capacity is noticeable at the individual and at the group or organizational level. The first type concerns the cognitive limitations of individual decision-makers with respect to information processing. Most individuals are bounded rational and have very short spans of attention, as illustrated by the fact that the average person can only memorize raw data in short-term memory for a few seconds. The choice for certain innovative ideas is complex, as all consequences of implementing these ideas are hard to anticipate, and they generally involve multiple issues and people. As a consequence of their limited cognitive capacity, decision-makers link data with pre-existing schemas and world views (also known as mental models) that are stored in their long-term memory. As decision complexity increases, decision-makers tend to become more conservative, rely more strongly on judgmental heuristics (like ‘availability’, ‘wishful thinking’ or ‘stereotyping’) and apply subjective criteria [20]. This, however, might lead to decision failures [21]. They also sometimes cease searching for other options when a satisfactory but not optimal result is found [22]. Furthermore, decision-makers have perceptual limitations, as they do not perceive gradual changes. They unconsciously adapt to the worsening situation, and hence, they do not try to correct their situation, since it does not cross their dissatisfaction thresholds. This means that, in the case of innovation, opportunities for innovative ideas are frequently not recognized, which may deteriorate the problems at hand. At times, it is therefore necessary to trigger decision-makers into action by confronting them with potential worse-case situations to reach their action threshold and attract their attention. The second type involves limitations of groups and organizations. Conformity pressures may exist in a group, which causes individuals to either unconsciously or consciously conform to one another. Groups tend to minimize internal conflict and focus on maximizing consensus. This so-called ‘‘Group Think’’ makes it difficult for groups to (re)consider new and potentially threatening information, which is inherent with most innovative ideas. At the organizational level, organizational structures and systems may guide and focus attention [19]. More mature and larger organizations are more likely to have a large repertoire of established structures and systems which discourage innovation [23]. In these older and larger organizations, structures and systems induce organizational participants to routine, non-innovative activities, which might undermine creativity, entrepreneurship and innovation [24]. 2.4. Scenario analysis 2.4.1. Definition Since the early 1960s, both academics and practitioners have promoted scenario analysis as a means to deal effectively with the many uncertainties that surround the future environment of business organizations. A scenario is an internally consistent view of what the future might turn out to be, not a forecast but one possible future outcome [25, p. 446]. Unexpected changes, hard to detect, ambiguous or paradoxical trends abound in the external environment, which make long-term forecasts usually worthless the very moment they are produced [26]. Scenario analysis is not aimed at obtaining

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forecasts, but advocates the creation of alternative images of the future development of the external environment. Scenarios highlight the crucial uncertainties that impact managers’ (strategic) decisions [26–28]. Ringland [27, p. 2] therefore defines scenario planning as ‘‘that part of strategic planning which relates to the tools and technologies for managing uncertainties of the future’’. Scenarios are thus stories about how the future of the business environment could enfold, to express the uncertainty of the future [8, p. 288]. Scenarios are not about predicting the future, but rather about discussing and envisioning uncertainties related to the future in the context of strategic decision making and innovation management. Although parts of the future are truly uncertain, some parts are predictable [29]. Separating the predictable from the uncertain is helpful for understanding the critical uncertainties surrounding strategic decisions. Combining these might result in multiple, equally plausible, futures or scenarios that envision the future. 2.4.2. Functions of scenarios We use Bood and Postma [30] to identify a set of six functions of how scenarios can contribute to the front-end of the NPD process. Scenarios can have the following functions: (1) evaluation and selection of strategies, (2) integration of various kinds of future-oriented data, (3) exploration of the future and identification of future possibilities, (4) making managers aware of critical environmental uncertainties, (5) stretching of managers’ mental models, and (6) triggering and accelerating processes of organizational learning. The first three functions focus on the product of scenario analysis (extracting value from the resulting future scenarios), while the latter three functions focus on the process of performing scenario analysis (extracting value from the process) [6,34,46]. 2.4.2.1. Evaluation and selection of strategies. This function deals with ‘rehearsing the future’ [6]. Usually, strategic decisions can only be evaluated after a significant amount of time, when their consequences are known. Scenario analysis makes it possible to evaluate or wind tunnel the consequences of strategic decisions ex ante. 2.4.2.2. Integration of various future-oriented data. Scenario analysis is very suitable to combine and integrate all kinds of data. It can handle both quantitative and qualitative data [31], and both hard and soft variables [3,32]. These kinds of input can be blended into the scenario analysis method, and can therefore be used to create scenarios of the future. 2.4.2.3. Exploration of the future and identification of future possibilities. Scenarios can help to identify potential major changes and strategic problems a company will face in the future and help to generate strategic options to effectively deal with them. In this way, scenarios can be conceived as laboratories in which different models of future policy can be tested [28,30]. By using scenarios, managers are forced to articulate upfront what developments and issues they consider as important in the organization’s environment. 2.4.2.4. Making managers aware of critical environmental uncertainties. Because of the uncertainty that is connected to the possibility that there are multiple equally plausible futures, managers are stimulated to accept that there is inherent uncertainty in their worlds, which likely reduces the bias of underestimating uncertainties [8,33]. 2.4.2.5. Stretching of managers’ mental models. Mental models determine how signals or events are framed or filtered on relevance by managers [28]; they contain guidelines or scripts for actions to react on signals and events [30]. Scenario analysis may stretch managers’ mental models because it confronts managers with a set of scenarios with deviating perspectives. When being confronted with this new knowledge, managers try to integrate this into their mental models and/ or by adapting their mental models. 2.4.2.6. Triggering and accelerating processes of organizational learning. Since managers can learn individually and collectively as a team by discussing and simulating the future, mental models are not only stretched but also shared among different organizational members. Managers learn by adapting and updating their mental models [34]. Learning from scenarios includes the opportunity to quickly learn from other organizational members, share knowledge and create new organizational insights about the future. Scenarios provide a politically safe team-learning environment that stimulates creativity [8]. Managers can identify inconsistencies in their own thinking and that of their colleagues by articulating their assumptions in a scenario exercise. 2.5. Contribution of scenario analysis to the front-end of NPD 2.5.1. Management of Ideas 2.5.1.1. Centrality of ideas. Scenario analysis provides the necessary focus on ideas that are the rallying point around which collective action mobilizes. Scenario analysis entails a collective process of conversation and rational discussion making that allows several members to come up with their ideas and build upon others’ ideas in an iterative manner. Managers apply different skills, energy levels and frames of reference, or mental models to create and consider ideas as a result of their backgrounds, experiences, and activities that hold their attention. Scenario analysis explicates the thoughts and frames of reference of managers and thus stimulates a strategic conversation between these in which they can share and

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stretch their mental models. Scenario analysis gives rise to new ideas and their modifications through a collective process of brainstorming and rational discussion by various participants from inside and outside the organization (functions 1, 5 and 6). 2.5.1.2. Role of powerful people. Scenario analysis enhances the possibility to discuss alternative views and ideas, which have an equal opportunity to be considered, therefore, it may contribute to the process of institutionalization. Through stressing the legitimacy of alternative views and surprising ideas of all members participating in the creative process and explicating common goals, instead of relying strongly on the specific opinions of a limited set of certain powerful and legitimate people, creativity is fostered. A discussion that focuses on the merits of several ideas several sources of knowledge, and in which alternative views have equal value, may also stretch individuals’ mental models and accelerate organizational learning (functions 2, 5 and 6). 2.5.1.3. Uncertainty about outcomes. Scenarios are specifically designed to take into account critical uncertainties with respect to main trends, events, and developments [28]; these critical uncertainties indicate possible business risks. Uncertainty results from an uncertain future business environment, in which the innovation may enfold. Environmental uncertainties are therefore an intrinsic part of management and innovation processes. Scenario analysis as such does not reduce this uncertainty, but through extensively discussing the potential futures and related uncertainties, managers and organizations accept that the future is uncertain and can better anticipate and act upon these uncertainties. Through proactively discussing uncertainty related to the various images of the future, uncertainty as such is elicited and discussed. This new knowledge can be integrated in the mental models of managers, instead of reacting, based on established and/or outdated assumptions derived from past experiences (function 4). 2.5.1.4. Short-term problem orientation. Scenarios directly deal with the issue of short-term problem orientation, because they particularly aim at the exploration of the long term future business environment (function 3); they especially focus on the long term and often take a future outlook for over 10 years [6,40]. Based on group processes, planners create several complementary scenarios with different storylines (narratives) about the long-term future [40]. A long-term orientation forces managers to think about the future, so that organizational actions and decisions can be adapted in accordance to the future business environment [5]. The long-term focus of scenarios enables a better preparation for the future than other more short-term focused tools. 2.5.1.5. Shortage of ideas. Scenarios offer a context for rational discussion and strategic conversation, in which individuals explicate and share their mental models (function 6). When various stakeholders are part of the scenario process, diverging and often conflicting views may cause the necessary friction or optimal stress [22] to come up with multiple novel ideas. Sufficient levels of cognitive distance are needed to avoid myopia [41]. During the process of sharing mental models, the underlying values that determine the actions of stakeholders become clear for the decision makers. Different ideas may come out of this process, which enlarges the inventory of ideas. 2.5.2. Management of attention 2.5.2.1. Bounded rationality of individuals. Scenario analysis may reduce the negative consequences of bounded rationality of individuals. Scenario analysis may help individuals to better manage, process, remember, understand and finally use the available knowledge. By using scenarios, alternative courses of action can be designed and evaluated (function 1). Individuals can rehearse the future and order their perceptions about alternative future environments in which decisions might be played out. Individuals can run through the simulated events as if they were already living them in order to be prepared for whatever happens [6]. Secondly, various kinds of available (complex) future-oriented data can be integrated into different and highly memorable stories about the future, especially when the scenarios have appropriate names that symbolically refer to, summarize and visualize the possible images of the future in order to better memorize it. Integrating raw data into highly memorable stories (i.e. scenarios) by collectively linking them to pre-existing and shared schemas and world views of the participants may contribute to memorizing this data. Cognitive science [6,8] explains that memorable knowledge is more likely to be acted upon than knowledge that remains unconscious and not easily retrievable from memory. By making knowledge better memorable, decision-makers will perceive it as more important and make more informed decisions [42, p. 103]. Thirdly, by exploring the future, scenarios make it possible to give meaning to future events [9]. In so doing, the value of the consequences of alternative courses of action can be assessed. Scenario analysis has process-related advantages both on the individual and the group level. For individuals, scenario analysis may (1) trigger action thresholds, (2) reveal existent mental models, (3) reduce cognitive biases; for groups it may (1) reduce groupthink and (2) reveal incompatible preferences 2.5.2.2. Trigger action thresholds. By using various kinds of knowledge and exploring the future and identifying future opportunities (functions 2 and 3), scenario analysis creates an outside-in focus, where environmental uncertainties are built into the consideration and thinking process of management (function 4). The focus on the prevalence and/or coming into existence of important events and critical developments in the future business environment through scenarios may trigger

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managers’ action thresholds; since individuals do not automatically adapt to a changing environment, they need catalysts to react to a changing environment. Direct confrontations with potential problem sources are needed to trigger the action threshold [18]. The confrontation with future developments and problems may trigger the action threshold. By selecting leading indicators and signposts that can be used to monitor early developments that lead to a specific scenario [6], action thresholds may be lowered. Using these indicators and signposts improves individuals’ ability to recognize and react to developments occurring in a slowly changing environment. 2.5.2.3. Reveal existent mental models that include decision premises or policies. During the scenario process, individuals can reveal, analyze, share, and reconstruct their mental models, and thus open their minds to consider new possibilities [9, p. 305]. This is, in fact, how individuals learn from experience [34]. Also, individuals can learn collectively (e.g. in teams) by sharing knowledge and creating insights with regard to the future [30], for instance, decision rules and organizational routines can be changed and expanded by altering mental models. Scenario analysis is an excellent group technique that enables to explicate, share and adapt individual and collective mental models. It facilitates a strategic conversation within the organization that tackles the detrimental effects of heuristics, biases and inconsistencies [28] (functions 5 and 6). 2.5.2.4. Reduce cognitive biases. By stimulating creativity and out-of-the-box-thinking, scenario analysis provides a structure for dealing with complexity and uncertainty [8] and therefore it reduces the risk of cognitive biases, like stereotyping and anchoring and adjustment, which might reduce decision failures [21]. Participants in a scenario analysis process learn to challenge their own and their colleague’s view of the world. Through exchanging knowledge and ideas from a variety of sources, managers diminish stereotyping and increase their understanding of the complex nature of the innovation context (functions 2 and 5). Scenario analysis stimulates managers to think in a disciplined and systematic way and to specifically address uncertainty through examining deep patterns and structures, based on cause and effect (function 3). Unlike sensitivity analysis, scenarios allow the consideration of related simultaneous changes of multiple variables when considering major systems shocks or structural changes. 2.5.3. Bounded rationality of groups 2.5.3.1. Reduce group think. A scenario-based strategic conversation bridges the conflicting needs of simultaneous diversity and convergence [31]. An effective strategic conversation entails discussing different world views and assumptions that support these views [29]. By doing this, world views and assumptions are the subject of conversations that eventually move ideas towards integration or confrontation. This stimulates an open discussion to outside insights and differing views, by that means enabling requisite variety and effectively using the cognitive distances of the managers to prevent group think [42], while stretching managers’ mental models (functions 4, 5 and 6). Moreover, scenario work-outs may remove organizational members from their daily functions and routines into collective team sessions outside their normal task environment (like job rotation and of-the-job training) and permitting them to join a rational discussion in which different views of the future environment are possible and valued, thereby reducing group think. 2.5.3.2. Reveal incompatible preferences. Strategic conversations move views closer, until an accommodation is reached [9, p. 264]. In their strategic discussions, managers both assimilate and accommodate their mental models [31]. Assimilation refers to the application of mental models to the environment, while accommodation refers to the adaptation of mental models to the environment. Through balancing assimilation and accommodation in strategic conversations, managers may reach a consensus with respect to their possibly opposing ideas, goals, interests and preferences, thereby reducing the chances of incorporating incompatible preferences (functions 5 and 6). From our literature search, we conclude that scenario analysis allows for exploration and communication of qualitative aspects of the user experience of the product idea at the earliest stages of design [39]. Scenario analysis offers a rapid and inexpensive way of visualizing early design ideas and examining them in the context of, for instance, the emergence of new customer segments or increasing prices of raw materials. Scenario analysis is a powerful technique to identify external risks [35], is useful for exploring interactions between current choices and the future environments in which those choices will have consequences [36], and is helpful to obtain new product ideas [37]. Managers may ask how a decision or strategy might work out in each scenario. When a decision or strategy only seems to be successful in one of several scenarios, Schwartz qualifies it as a high-risk gamble [6]. In this situation, one must question ‘how this decision or strategy can be adapted to make it more robust’. As such, scenarios can help to select the most promising ideas [38]. New product ideas can be tested under the conditions of possible future environments (scenarios). The new product idea that is expected to be successful under most of the scenarios can be considered as more robust and this new product idea is therefore favored above less robust ideas. Fig. 1 and Table 1 tentatively show – based on the six functions of scenario analysis – how scenario analysis principally may contribute to resolve the specific problems that arise regarding the respective innovation management problems. Based on the literature review and the above discussion, we link the problems to the specific functions that scenarios fulfill.

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contribute Functions of Scenario Analysis

to solve

1. Evaluate and select strategies 2. Integrate various future-oriented

Problems of Front-End of NPD

1. Management of ideas • Centrality of ideas

data

• Role of powerful people

3. Explore the future and identify

• Uncertainty about outcomes

future possibilities

• Short-term problem

4. Make managers aware of

orientation • Shortage of ideas

environmental uncertainties 5. Stretch managers’ mental models 6. Trigger and accelerate processes of

2. Management of attention • Bounded rationality of individuals

organizational learning

• Bounded rationality of groups Fig. 1. Research framework.

Table 1 Linking scenario functions to innovation problems. Innovation problems Management of ideas Centrality of ideas Role of powerful people Uncertainty about outcomes Short-term problem orientation Shortage of ideas Management of attention Bounded rationality of individuals Trigger action thresholds Reveal existent mental models Reduce cognitive biases Bounded rationality of groups Reduce groupthink Reveal incompatible preferences

Function(s) of scenario analysis 1, 5, 6 2, 5, 6 4 3 6

2, 3, 4 5, 6 2, 3, 5 4, 5, 6 5, 6

3. Case study and results 3.1. Introduction A case study analysis was executed at two consultancy firms that are specialized in applying scenario analysis for innovation purposes at their client’s organizations. Case study research of a contemporary phenomenon suits the exploratory purpose of this study, cf. Yin [43]. The case study is used in order to verify if and how scenario analysis resolves some of the discussed problems to the fuzzy front-end of NPD in an empirical setting. The first consultancy agency, BeBright, provided extensive access to a client organization, i.e. VolkerWessels, which operates within the construction sector. The second consultancy agency, Pantopicon, offers scenario analysis to various clients in the public sector; for Pantopicon, it was not possible to find an appropriate exemplary client organization and therefore we resort to investigate their overall experiences with clients. 3.2. Case study research and results We used interviews, documents, and indirect observation as information sources and for triangulation of the data [43]. In total 5 semi-structured interviews were held for both cases with key persons involved in the innovation and scenario exercises. The first case involved four interviews; the second case involved one comprehensive interview. On average, the interviews took 90 min. The interviews were recorded and transcribed, subjects were clustered, and the results and

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conclusions of each interview were fed back to the respective respondents to check the reliability of the results. Two forms of documentation were used: evaluation reports and internal documents from the consultancy firms. Observation was additionally possible, because main parts of the first case study project were recorded. As such, we were able to draw conclusions based on the convergence of multiple sources of evidence [43, p. 93]. 3.2.1. BeBright’s approach 3.2.1.1. Background. BeBright is a Dutch management consultancy company that focuses on strengthening its client’s organizational innovative power through providing and supporting the process of scenario analysis. BeBright’s use of scenario analysis resembles Schwartz’s [6] step-by-step approach. Their scenario approach is applied at the innovation project of VolkerWessels. VolkerWessels functions as a cooperative network of independent companies that designs, develops, manages, and realizes construction projects. VolkerWessels noticed that the market was changing, because it was confronted with integrated projects, in which multiple disciplines are needed. VolkerWessels identified these integrated projects as new opportunities, because their network of companies provided access to a broad range of capacities/capabilities. The project’s objective was to increase the innovation power of VolkerWessels and, in particular, to market newly integrated products and services. Two or three business cases needed to be formulated that apply the collective capacities of the companies within the internal network of VolkerWessels. In total, 100 organizational members from 24 companies participated in the project. 3.2.1.2. The process. VolkerWessels’ use of BeBright’s scenario approach in the front-end of new product development is clearly visible in this innovation project. The innovation project at VolkerWessels can be divided into four main phases: exploration of trends (trend analysis), development of scenarios, brainstorm of innovative ideas/options, and development of business cases (function 3). The participants were taken from their usual work places to more inspiring places in order to stimulate creativity and exchange of knowledge (functions 5 and 6). For gaining insights into the future customer needs, the technological, political, socio-cultural, ecological and economic trends were mapped (functions 2 and 3). These different trend clusters were examined in more detail by employees with different disciplines of VolkerWessels. The trend clusters were subsequently presented with extensive discussions about the trends. During this meeting, relationships between the trends were uncovered and the trends were analyzed in-depth and further explored. Based on this, four scenarios were developed and main uncertainties were analyzed (function 4). These scenarios allowed VolkerWessels to broaden its vision and develop previously unthinkable options for the future (functions 3 and 5). The next step involved creative brainstorm sessions, in which the scenarios were used by two brainstorm groups resulting in more than 300 ideas for innovative products and services. From these ideas, the two brainstorm groups selected 18 ideas that were used in the next selection stage. From these 18 ideas, the eight most promising ideas were chosen to be developed into business cases. These ideas were selected by a jury, consisting of directors of subsidiaries and members of the Board of VolkerWessels (functions 2 and 5). These business cases were elaborated and then presented, after which the three most promising business cases were selected for implementation (function 1). We can conclude that all functions can be recognized in this scenario supported innovation process. 3.2.1.3. Results. The above-mentioned process resulted in trends, scenarios and business cases. A trend book has been composed in which 40 trends are described. Furthermore, this trend book also incorporates the relationships between the trends. The various scenarios have been recorded on a DVD to create a deep understanding of their coming about and their impact (functions 2 and 6). Moreover, besides development of business cases, attention is also paid to ideas that are not immediately leading to profit, but which can serve as inspiration for future thinking (function 3). 3.2.2. Pantopicon 3.2.2.1. Background. Pantopicon provides advice to public organizations to develop new policies and strategies. Pantopicon’s scenario approach entails a step-by-step format, similar to or inspired by Schwartz [6]. 3.2.2.2. The process. The first step of the scenario analysis involves determining its scope; i.e. the goal, specific target group, research question and data collection. The second step explores the current developments and their consequences for the future. This includes exploring how quickly these changes occurred and their relationships with other expected changes. The third step involves the exploration of possible future changes. Future developments and future events concerning the problem are explored, including the time horizon of these future developments and events (functions 1, 2 and 3). The fourth step concerns the analysis of future changes, in which the degree of uncertainty and impact of the changes on the innovation problem are determined (function 4). During the fifth step, the scenarios, or stories about the future, are designed by selecting and combining developments and events into surprising, plausible and relevant storylines and scenarios (function 5). The scenarios are subsequently communicated by making use of a communication form that is tailored to the target group. The final part concerns the execution of the desired strategy based on the scenarios (function 6). We can conclude that all functions can be recognized in this scenario supported innovation process.

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3.2.2.3. Results. Pantopicon used a scenario as a story that consists of a description of the present situation, an image of the future, and a plausible and logical development path that explains how the future is connected to the present (functions 2 and 3). Furthermore, participants generally perceived scenario analysis as a learning tool (function 6). Participants that are part of the scenario analysis learned how and to what extent the policy environment is subject to change, which changes there will be, which consequences these changes might have, how they can be anticipated, and how to act upon this (functions 1, 4 and 5). 3.3. Cross-case analysis This section presents a cross-case analysis of both cases. In this analysis, the possible contribution of scenario analysis to the front end of NPD will be discussed and compared for the two cases. From the interviews results as discussed in the previous section we infer that all functions of scenario analysis as provided by a consultancy clearly support the innovation process of their client organization, which, to our opinion, makes the front end of NPD more transparent and therefore less fuzzy. Table 2 provides an overview of specific statements of interviewees that demonstrate how in our cases each problem is addressed by specific functions of scenario analysis for the companies of interest, based on the preliminary results of the literature search and our opinions as shown in Table 1. For most functions that are mentioned per problem, we find support through the interview statements. Note that in Table 2 not all cells are filled with statements, the reason being that sometimes we were not able to find clear-cut supportive statements by the interviewees that could exemplify the role of a scenario function to address a certain problem (aspect) in the innovation process. The results show that in both cases scenario analysis can wholly or partly deal with the problems as often encountered in the front-end of NPD. The interviewees did, however, not specifically address all functions that unequivocally provide support that scenario analysis functions can minimize the potential for individual cognitive biases and group think. Table 2 Cross-case analysis. VolkerWessels (V) and Pantopicon (P) Innovation Management of ideas Centrality of ideas

Function of scenario analysis

Statements from interviewees

1, 5

V: You can generate a lot of great ideas on your own, but when multiple people join a group to think of ideas that fit within a certain scenario, simply more ideas can be generated. I mean, 1 + 1 is 3. V: The scenarios have especially played a role during the brainstorm sessions for creative ideas. These sessions took place during two days in groups of twenty persons. The scenarios were collectively used to find out what the possibilities were in that scenario, together with the problems and solutions. P: Practically all future exploration and vision designing projects that we execute in the public sector don’t take place in a back room with two or three people. There are always larger groups of people involved who think about the future. Two clear benefits result from having meetings with a variety of stakeholders. The first benefit is that it is possible to connect knowledge from a variety of sources and to think integrally: that is, beyond the organization itself. People realize that multiple knowledge sources are necessary to explore the future and that cooperation is relevant. Another clear benefit is that in the public sector people are looking for support from third parties. The more organizations are involved, the more support a strategy receives, and the greater the chances of future success. V: Especially during the trend analysis and the generation of ideas from the scenarios there was a lot of freedom to discuss each other’s insights and ideas. V: The participants had to assess each other’s ideas. During the assessment, but also during the trend analysis, people entered into discussions with each other whether or not something was a good idea or trend, and whether or not something needed to be adjusted. V: As a total group, we said: well, that is promising, that is promising. . . we made a selection ourselves. That is valuable, because you can share it with each other. P: On the one hand, it may be that people design the scenarios themselves. Of course, this is a process from which you can learn a lot. On the other hand, when the scenarios are ready to use, you can use them to engage people into a dialogue about the ideas they have. Besides, they can also be inspired to come up with new policy agenda items, like: we have never thought about this issue, but apparently it is important, when we take the scenarios into account. So this is about identifying new issues that need attention in the long term. V: no statement available (NSA) P: NSA V: You can have a discussion in which all involved persons can add some extra information or think of something you have never thought of yourself. We, as a group, delimited the number of ideas to twenty. We have been able to cluster our ideas on viability. This is comfortable, because we sat there as equal members. P: NSA

6

Role of powerful people

2 5/6

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Table 2 (Continued ) VolkerWessels (V) and Pantopicon (P) Function of scenario analysis

Statements from interviewees

Uncertainty about outcomes

4

Short-term problem orientation

3

Shortage of ideas

6

V: Within a scenario that represented a less dominant government, our business case would be less successful than in a scenario with a very dominant government. Finally, we built that uncertainty in our business plan. V: People accepted the uncertainty, because they accepted the equivalence of the scenarios, so you could not prefer one scenario over another. It was accepted by all relevant stakeholders that development in each direction was possible. When we had the discussion about the four scenarios, everyone said: ‘Yes, those are possibilities’. The mere acceptance of uncertainty led to a more manageable way of dealing with this uncertainty. P: When it is about civil servants reaching a good substantiation of policy, and when it is about politicians and councilors, those people often have a lot of ideas. Those ideas are further subjected to scrutiny, which puts people in uncertainty. And this can be useful sometimes. With other words: someone says (s)he knows exactly where to go from here. Then we (Pantopicon) say: ‘‘use these scenarios and look how your ideas look in these scenarios.’’ This creates doubt, which is a healthy thing. V: Those [scenarios] helped to create an image in which also options that were generated for the long term had strong supporting arguments. And that people had chosen a business case about hydrogen fuel station, while this idea should have made no revenue in the short term. But still, that idea is chosen. I am sure that this did not survive the selection without the scenarios. V: [Scenario analysis]. . .helps you to think about the long term and you have to agree and say: ‘‘we are not here with each other to discuss problems in the short term, but it must be about the long term. . . That is why 2030 has been chosen, since that is so far away.’’ P: Scenarios force you to think about the long term and this opens the eyes of relevant stakeholders. . . Politicians are in charge for four years and they need to show their voters that they live up to their promises. . . If people come up with great ideas for the long term, a politician will think that he or she only reaps the rewards when he or she is not in charge anymore. The crux of scenario analysis is that you can show that it is shifting from the short term to the long term and back. For example: the development of strategies that contain both short and long term actions, but that are aligned with each other. V: It was very important to bring people together to inspire them. This had multiple purposes. First of all, people could stimulate each other to think out of the box. . . Secondly, people were able to gain insights in other businesses and they were able to think out of the box in those businesses. I can act as an outsider to those businesses, so I might provide ideas that they could not come up with themselves. P: NSA

Innovation

Management of attention Bounded rationality of individuals Trigger action thresholds

Reveal existent mental models

2/3/4

5/6

V: By watching the movies about the scenarios, you [as a participant] were placed in a totally different environment. Through the experience of the scenario movies, you were brought into another world than the world you live in at the moment. . . From that other world, you started to generate ideas. So the scenarios helped a lot in making us aware of the changes in the environment, and their potential consequences. V: The scenarios have a possible effect to take you out of your comfort zone. When you work at a company, you keep acting within a certain context. In this sense, it helps to run a project like Fit For the Future and say: ‘‘well, look around, look at the world. The world looks different than you think when you drive to your company and back home again each day.’’ P: [Scenarios] sketch the changing environment. They show different changing environments and they also explain why these environments change in certain directions. But this demands certain requirements of the quality of your scenarios. Sometimes I see scenarios that provide a description of a future image of, for example, 2030, without a path that explains how this future image comes into existence. This might lead to people saying: this is never going to happen, what a nonsense. This credibility is at a minimal and how can this happen? Because you do not explain how this image can arise from today. . . When people accept the scenarios, you stimulate them to think about: how can we prepare ourselves to these scenarios? V: . . . at generating trends, only little information has been generated in the field of alternative technologies. At a certain moment, I introduced the subject nanotechnology. When nanotechnology was put under attention, everyone thought that this trend was not relevant for their sector. After having a small discussion about it, someone finally said: ‘‘All right, I will look at it, but don’t expect too much.’’ The next session, this person returned, totally excited about nanotechnology: ‘‘The possibilities are huge’’. The group reacted: ‘‘How remarkable, but apparently it is important. Why didn’t we know about that technology?’’. . . This is an example of something that I initiated, but other people did the same thing. P: NSA

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652 Table 2 (Continued ) VolkerWessels (V) and Pantopicon (P) Innovation Reduce cognitive biases

Function of scenario analysis

Statements from interviewees

2/3

V: NSA P:NSA V: NSA P: NSA V: NSA P: NSA

5/6

Bounded rationality of groups Reduce group think

Reveal incompatible preferences

4/5/6

5/6

V: I think that the experiences people gained during the trend analysis had an impact as such, that they became aware about how their assumptions worked. Therefore, they became more critical to each other’s views, and also to their own views. There were more questions asked during the trend analysis. I noticed that these were particularly statements at the beginning, while these were more often questions at the end, the way that people approached each other. So I think that a shift [in thinking] has taken place. P: NSA V: [Scenarios] helped to create an image in which also options that were generated for the long term had strong supporting arguments. People had chosen a business case about hydrogen fuel station, while this idea would lead to no revenue in the short term. But still, that idea is chosen. I am sure that this would not survive the selection without the scenarios. P: [Scenario analysis] uncovers people’s perspectives, which can be conflicting with each other. It is not necessarily that: apply scenario analysis and there will be consensus. However, it helps to underpin people’s argumentation lines. For example, someone can say: I want policy A, because I see that those and those developments are approaching us and I think that we should do something about that with our policy. Another one can say: no, I do not think that is relevant, because I think about. . .

4. Conclusion and discussion 4.1. Contribution to existing literature This research makes several contributions to extant literature in the research field. The literature points to a strong contribution of scenario analysis within the ‘opportunity identification’ phase and the ‘idea generation and enrichment’ phase. Therefore, the fuzziness of the front-end of NPD might be substantially reduced by using scenario-analysis. However, these contributions have not been addressed yet in much detail. By identifying an extensive set of front-end NPD problems for which scenario analysis might be helpful, this research allows for an in-depth exploration of this contribution. We find that the functions of (1) evaluating and selecting options, (2) integrating various future-oriented data, (3) exploring the future, (4) making managers aware of critical environmental uncertainties, (5) stretching managers’ mental models and (6) supporting managers’ learning processes are helpful in dealing with the front-end problems of NPD. From the case study results we conclude that the scenario technique contributes to reduce the fuzziness of the front-end of NPD by fulfilling its roles, especially through communication and management support of innovation capacities. Also note that the design of the process of scenario analysis is an important enabler of this supportive role. When considering the scenario-approaches of both consultancies, Schwartz’s approach is clearly prevailing in both cases [6]. Also, the choice of participants and the legitimacy of the process are relevant issues here [44,45]. Although scenario analysis has the potential to overcome and tackle all discussed problems, the degree to which scenario analysis truly contributes is organization specific. A badly managed scenario process (e.g. setting out to solve the wrong problem, not keeping track, mistakes in selected contributors, selecting wrong scenario logics, not sufficient time for stages, preparation, and fleshing out scenarios, etc.) will not prevent the inherent problems occurring in the front-end phase of NPD [6,21,47].

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4.2. Managerial implications Successful firms rely on probes in the future [46]. Based on our study, we conclude that scenario analysis as a supportive tool seems to be helpful here. This study provides some relevant implications of managers that want to use scenario analysis for NPD. The explicit linking of the functions of scenario analysis to the possible NPD problems, allows for a more effective usage of scenario analysis. The strengths of scenario analysis can be better exploited once it is known what the inherent problems are in the front-end phase, and how to tackle these problems using the functions of scenario analysis. Scenario analysis is, however, not a panacea for all possible NPD problems. From the interviews it also became clear that the execution of scenario analysis (E.g., which participants, how to deal with all possible cognitive biases, how are the scenarios represented, how are ideas generated, how are they selected?) largely influences its effectiveness. A badly managed scenario analysis will not take away the innovation problems that occur in the front-end of NPD. Scenario development therefore needs considerable preparation [6,46]. There are many pitfalls for decision making [21] that should be overcome. Communication facilitators and open processes with a variety of stakeholders help their clients to innovate. The studied cases show that innovation supported by scenario analysis can be successful, when the managers involved take sufficient time to prepare and develop convincing scenarios, and that the process can be as relevant as the resulting scenarios themselves. 4.3. Research limitations and further research This study has some limitations that need to be addressed. First, the findings of the empirical part of this research rely on only two case studies in two different contexts (private and public setting); which are based on projects performed by consultancy firms that are specialized in conducting scenario analysis. These conditions limit the generalizability of our study’s findings to other contexts. More empirical research is therefore needed to test the effectiveness of scenario analysis to reduce the inherent problems in the fuzzy front-end phase of NPD in different settings. Furthermore, the interviews revealed that it is hard for the interviewees to identify and measure actual reductions in cognitive biases through the use of scenario analysis, as compared to other idea-creation methods and tools. Future research needs to develop methods to assess these hard-to-measure effects in a valid and reliable manner. Another limitation is that we did not objectively measure the effects of scenario analysis in resolving the inherent problems. We used a straightforward and established list of scenario functions to deal with the identified problems. The degree in which scenario analysis contributes, is now made based on inferences from the literature and based on plausibility, documents, and self-reported measures of important individuals. More objective measures or an experimental design would possibly determine the ultimate opportunity costs and effectiveness of scenario analysis compared to other methods in order to reduce the fuzziness of NPD. All in all, our results provide motivation to continue to explore the methodological interesting area of scenario-analysis to support innovation management. Acknowledgements We thank Bert Bruns and Nicole Rijkens for their useful comments; without their invaluable help, this research would not have been possible. References [1] [2] [3] [4]

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