Industry structure is not statics. Every firm has to deal with ambiguity.

Firms in various industries face uncertainty about how the structure will change in future.

Sources of uncertainty are numerous :

1. Fluctuating raw material prices

2. Swings in financial markets

3. International competition etc.

Every firm has to deal with uncertainty/risks

Strategy formulation is based on mainly 2 factors:

1. The past will repeat itself

2. Managers own forecast about the future of the industry.

A few firms construct contingency plans as part of the strategic planning process, in an
attempt to test strategies against major sources of uncertainty.

When facing considerable ambiguity, firms tend to select strategies that preserve flexibility, despite
the costs incurred.

SCenarios as a planning tool:

A scenario is an internally consistent view of what the future might turn out to be.

A few firms have begun to use scenarios to understand the strategic implications of
uncertainty, and systematically explore the possible consequences due to strategies.

Scenarios are a powerful device for make well-informed choices about how to take the
competitive uncertainties it faces into account.

Industry scenarios allow a firm to translate uncertainty into its strategic implications for a
particular industry and include competitor behaviour, a key source of uncertainty in the
choice of strategies.

COnstructing industry scenarios:

An industry scenario is a internal view of the industrys future structure.

It is mainly based on assumptions about uncertainties which may influence the structure and
competitive advantage of any industry.

A set of scenarios are used to design a strategy.

The construction of industry scenarios are influenced by factors such as competitors,

technological changes, external factors like government policies etc.

The five forces :

 1. Threat of new entrants

2. Bargaining power of buyers

3. Bargaining power of suppliers

4. Threat of substitutes

Constitute the foundation for constructing industry scenarios. Uncertainties affecting

any of the 5 forces will be considered when preparing the scenarios .

IDentifying ambiguity:

To identify uncertainties each element of industry structure must be examined and placed
into 3 categories:

1. Constant : those elements of structure which don't change .

2. Predetermined: elements which will change but is easy to identify them

3. Uncertain: elements of future structure which depend on uncertainties.

All industry trends and changes have to listed.

Only those uncertainties which affect structure of the industry are important for scenario
building.

Uncertainties with low possibility but high impact on structure shouldn't be overlooked.

Each trend is analyzed to see if it has an impact on the industry.

It is difficult to anticipate changes that take place outside an industry.

For some industries scenarios are made by starting inside the industry and then looking
outwards for more sources.

In others, it's appropriate to look outside the industry(macro scenarios) and then narrow
focus.

Macro scenarios give insight into many changes .

Major discontinuities should be treated as the most important ones.