The overriding aspect of emerging industries is great uncertain-ty, coupled with the certainty that change will occur. Strategy cannot be formulated without an explicit or implicit forecast of how the structure of the industry will evolve. Unfortunately, however, the number of variables that enter into such a forecast is usually stagger-ing. As a result, an approach for reducing the complexity of the fore-casting process is highly desirable.
The device of scenarios is a particularly useful tool in emerging industries. Scenarios are discrete, internally consistent views of how the world will look in the future, which can be selected to bound the probable range of outcomes that might feasibly occur. Scenarios can be used for forecasting in emerging industries as shown in Figure 10-2. The starting point for forecasting is estimating the future evo-lution of product and technology, in such terms as cost, product va-riety, and performance. The analyst should select a small number of internally consistent product/technology scenarios that encompasses the range of possible outcomes. For each of these scenarios, the ana-lyst then creates a scenario of which markets will open up and what their size and characteristics will be. Here the first feedback loop oc-curs, since the nature of the markets that open up early can shape the way in which the products and technology evolve. The analyst must attempt to build this interaction in an iterative way into the scenarios.
FIGURE 10-2. Forecasting in an Emerging Industry
The next step is to develop the implications for competiton for each product/technology/market scenario and then forecast the probable success of different competitors. This process may well in-volve forecasting the entry of new firms, and accomplishing it will involve further feedbacks, because the nature and resources of com-petitors can influence the direction an industry takes in its develop-ment.
Having developed the scenarios as outlined, the firm is in a po-sition to examine its position, assessing which scenario it will bet on or how it will behave strategically if each scenario actually occurs. The firm may choose to try to cause the most advantageous scenario to occur if it has resources; or it may be forced by limited resources or great uncertainty to maintain flexibility. In any case, the firm will benefit by identifying explicitly the key events which will signal whether one scenario or another is actually occurring, in order to create an agenda for its strategic planning and technological moni-toring.
Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.