Decision Analysis and Forecasting

Coursework:
Inuvidual Contribution (Scenario Planning)

ABSTRACT
Looking at the future of
European Food Industry by
analysing possible
scenarios and using
scenario planning as a method to best choose an alternative strategy.

Garry Vivekanandan
Student No: 10008337
Management Part III

Introduction

This case study was made to illustrate illustrates possible key trends and drivers of change in
the food industry in Europe and to give a broader view of what possible challenges the
industry might face in the near future. The issue highlighted in the case study is how well
the European food industry would perform in regards to different factors such as changes in
the state the economy, changing population demographics as well as technological
advances. It aims to question how the European food industry will react or survive under
such changing conditions, with three different possible scenarios - all which paint vastly
different picture on what the future of the food industry may look like in the following
years. These scenarios have different and complex implication for the food industry as a
whole, thus we shall look at the E.U as our client (especially with close regards to those
decision makers in the CAP [Common Agriculture Policy]).

Scenarios

The case study has outlined three possible scenarios which could take place in the future;
which are: Rock Your Body, Stayin Alive &We are the world.

In the first scenario Rock your Body the economy is doing well and there is a real emphasis
on product development targeting specific consumers segments which are based on
demographics s such as age, fitness levels and overall biological profiles.

The second scenario, Staying Alive, is more pessimistic, with European economy doing
less well in relation to the rest of the world (especially in relation to emerging market
economies) - Price seems to be the factor when consumers making choices about buying
food, which is due to the declining household budget, and an unpromising European
political environment.

The final scenario We are the world the economy is doing relatively well but media
pressures are focusing on the ecological problems, which are being caused by food
producers. Thus Sustainability plays major role; with consumers placing large importance
over the quality of their food, and prefer to buy food from trusted institutions with stricter
quality control measures.

There were many trends which were able to be identified from a PESTLE analysis; however
we shall only concentrate on a few main ones: Trends included changing demographics
such as aging/healthier populations, another was changing technological advances and
availability of these technologies (especially in relation to emerging economies) which
played a major role in terms of competition faced by European food industry. Other major
factors also identified was legislation change in terms of global trading, as well as consumer
preferences on food items such as preferring more differentiated speciality or
organic/sustainable food products.

Therefore given these scenarios the CAP (Common Agriculture Policy) makers at the E.U
could design and implement different strategies to tackle new issues and threats and o
overall increase their effectiveness of their operations.

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Objectives and Alternative strategies

Their objectives include increasing employment rates, having high utilisation rates, and
making sure there is long-term sustainable growth and profitability in the industry.

1) Focus on increasing high levels of Employment within European Food industry.

2) Focus on increasing the Utilisation of Resources within European food industry.
3) Increasing profitability of the European Food industry as a whole.

In order to achieve these objectives I believe there could be 3 possible strategies used:

Request for increased Grant on or tax credit for European businesses

As the environment the European food industry operates in is rapidly changing facing rising
costs and increased competition from emerging markets there is a dire need for industry as
a whole to remain competitive. One way in which they could achieve this is by requesting
the E.U and its respective member governments to offer increased state grants or tax credit
to European food manufactures. By doing this it would help overcome one of the main
problems faced by food producers (especially SMEs) which is to have the ability to expand
their business and operations on a larger scale; which is mainly restricted by having
insufficient funds.

Increase Investment into R&D into New Technology / Infrastructure for better Utilization
of resources.

It is vital that European food industry to compete effectively in the global market, thus it
needs to ensure that all the equipment and technology used allows for optimal utilization
for all their operations in comparison to other competitors. By increasing investment into
newer and thus more efficient technologies; it allows for higher levels of utilization and
better optimization of resources so it allows to reduce variable costs associated with
production, and thus allow a lower price of each unit of product produced, enjoy better
economies of scale and serve larger market demands enabling a higher level of
competitiveness for European food producers.

Increase funding for Apprentices and Vocational Courses to help combat Labour-market
Immobility f

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The E.U with the help of governments could advise their respective member governments
to actively create and promote vocational courses at schools and colleges especially those in
the field of food manufacturing and technology. Another way in which this strategy could be
achieved is by advising governments to work closely with businesses in help create and
promote more apprentiships especially within the food industry. By implementing these
steps it would help governments to reduce labour market immobility; especially those in
relation to occupational labour market immobility. This strategy would over the course of a
few years be able to supply the food industry with specialist skilled workforce that is fit for
employment within Europe and thus stop businesses relocating their R&D operations
abroad.

Scenario Planning

In order to find the optimal strategy given these objectives, a scenario planning
methodology will be used using the SMART heuristic. The first step is to create scenarios
which have already been presented in the case study (stage 1). The second step (stage 2) is
to formulate objectives while the third step (stage 3) is to come up with alterative strategies
(As 3 given above).

In (stage 4) we are asked to check the feasibility of these strategies; doing background
research it is safe to say that the E.U and thus its respective member states have adequate
resources such as funds, logistics and resources to carry out and implement 3 proposed
alternative strategies.

In the next stage (stage 5), the task is to rank the strategies best to worst in terms of the
different objectives, using a scale of 1-9. The numbers correlate to how well they preform
under each scenario; with 1 being optimal and 9 being least, with 0 showing that has no
effect. The number rankings can be seen in (Appendix 1).

The first objective is High Employment and thus the Skilled Labour workforce strategy is
ranked 1 in both scenario Rock your Body and Staying Alive - As this would allow high
employment rates by providing the market with enough skilled workers to fulfil the job roles
in question, and thus increase overall employment rates). Investment in Grants and Tax
credits would be next best alternative as this would allow businesses in scenarios Rock
your body and We are the World to expand and thus create jobs increasing employment
thus ranked 2 and 3 equally. Lastly the strategy Investment into technology/Infrastructure
are ranked 4,5,6 respectively as they would help create jobs, but it would be minimal as
these would be specialist/research jobs revolving around highly specialised machinery and
technology thus not create much impact on the overall employment levels of the European
food industry as a whole.

In the second objective which is to have High Utilisation strategy Investment into
Grants/Tax breaks in scenario Rock your body and the strategy Investment into
Technology in Staying Alive are both ranked 1, as these strategies would help overcome

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the main limiting factors highlighted by each scenario; thus be able to allow for a high
utilisation of the resources available. Strategies Investment into technology and
infrastructure and investment into grants/tax credits are ranked 2 and 3 and vice versa for
each other Scenarios Rock your body and We are the World; however Skilled labour
workforce strategy is rated poorly 4,5,6 in Staying Alive, Rock your body and We are
the World respectively as this strategy would have less of a direct impact on the overall
utilisation of resources in comparison to other strategies, as it would help bring more skilled
workers into the industry, but not guaranteeing there would be an increase in the utilisation
of the resources already available.

The final objective is about high profitability, and therefore ranked Investment into
technology/infrastructure in the scenario Staying Alive as 1 because in this scenario the
use of improved infrastructure and technology in food manufacturing would help overcome
the main obstacles faced by the industry in terms of competing effectively and would help
European food market to increase overall profitability. This is also true for the scenario We
are the world, while same level of positive impact can be made with the investment into
grants/tax credit strategy in We are the world hence why the are ranked as 2. The strategy
Skilled labour workforce are ranked 0,6,5 in their respective scenarios as this strategy
would actually have the least impact on profitability as it aims to promote and create
specialist skilled workforce over the years via education in the setting up of vocational food
technology courses at schools, as well as apprentiship programmes with businesses in the
food industry, thus help more with labour market immobility in the European food industry
than profitability.

After each of the scenarios have been ranked in relation to each objective/scenario
combination they are turned into a score, which is based from 0-100 (100 being the highest
with 0 being the lowest). Also during this period strategies that would prove no value to
achieving objectives should be removed This can be seen in (Appendix 2).

The next stage of the process is to calculate Swing Rates, which can be viewed in
(Appendix 3). This is done so we can identify which objectives are important in relation to
the Organisation in question, as different organisations will place different levels of
priorities on different objectives. As I am taking the E.U as a client, the most important
objectives would be both High employment (Ranked 1) and High Profitability (Ranked 2)
this is because unemployment levels are key indicator on how well an economy is doing,
while low unemployment levels indicate a well of economy, and high unemployment rates
generally a sign of an ailing economy. Thus governments are generally concerned about the
level of employment in the population and one way of making sure the economy is doing
well is by ensuring there are enough jobs to sustain and maintain the economy. Profitability
was ranked as second most important objective as the E.U was created to help better the
lives and economy of the people within its member states, and ensuring that businesses is
growing and doing well is another major concern of governments, and agriculture and
related food industry is a major contributor towards national GDP, thus why it is also
important to regard this objective as significant. The last objective which is High Utilization
is ranked last, although important in regards to the E.U it is not as important as the other

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two objectives in the view of governments; although it better to have better optimisation In
regards resources such as machinery and man power and how factories/plants operate not
as critical as the other two, although it directly affects the other 2 objectives. The
importance of each objective can be seen in terms relative to one another as they are each
given a score out of 100 (High Employment = 100, Profitability= 80, Utilization = 60).

By assigning swing rates it allows us to calculate aggregated scores for the different
strategies under each of the strategy/scenario combinations (Appendix 4). This then can be
used to create a Matrix which then allows for fair comparisons of each other strategies
which can then used to select the most effective strategy (Appendix 5). Looking at the
Matrix it is clear to see that the best strategy would be Investment into Grants/Tax credit
as it has generally good scores across all three scenario, and has the highest total (223 vs
200 for Investment in Technology/Infrastructure and 143 for Skilled Labour Workforce),
making it the most robust. The investment in Technology/Infrastructure also preforms
relatively well, only slightly lower than Grants/Tax Credit strategy, (although the former has
higher scores across the board regardless of the scenario making it a superior choice by all
criteria). The least effective strategy according to this would be to the Skilled Labour
Workforce as it generally preforms poorly in comparison to the other two strategies.

In my personal opinion I believe that this is the best strategy overall as it allows for
increased investment into technology / infrastructure that would better help align Europe
against the facing threats of emerging markets, while also letting them compete on a price
stand point, giving them the flexibility to also use this to help pioneer and engineer even
better and sophisticated speciality food products thus becoming a global leader. This would
overall lead to an investment in Europes food industry, which should help them through a
wide range of scenarios despite the variety of changes and uncertainties they may bring.

The final step includes performing sensitivity Analysis (Appendix 6). By changing the
assigned swing rates and making Profitability more important than Utilization we can
still see that Investment in Grants/Tax Credit is still the best strategy for the E.U to follow
through with, but there are changes in Scenarios where it becomes less optimal than the
original configuration. It must be noted that there can be a variety of sensitivity analysis that
could be preformed and the one shown is just one example.

APPENDIX
Appendix 1: Ranking Strategies

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Objective 1: High Employment

Scenario
Rock your Staying' We are the
Strategy Body Alive World
Investment Grants / Tax
Credits 3 2 2
Technology 4 5 6
Education 1 1 3

Objective 2: High Utilization

Scenario
Rock your Staying' We are the
Strategy Body Alive World
Investment Grants / Tax
Credits 2 1 3
Technology 3 1 2
Education 6 4 5

Objective 3: High Profitability

Scenario
Rock your Staying' We are the
Strategy Body Alive World
Investment Grants / Tax
Credits 4 2 3
Technology 3 1 2
Education 0 6 5

Appendix 2: Giving Strategies a Score out of 100

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Objective 1: High Employment

Scenario
Staying'
Strategy Rock your Body Alive We are the World
Investment Grants / Tax Credits 60 80 70
Technology 55 45 30
Education 100 100 60

Objective 2: High Utilization

Scenario
Staying'
Strategy Rock your Body Alive We are the World
Investment Grants / Tax Credits 90 100 70
Technology 60 100 80
Education 15 30 20

Objective 3: High Profitability

Scenario
Staying'
Strategy Rock your Body Alive We are the World
Investment Grants / Tax Credits 50 80 60
Technology 70 100 80
Education 0 30 40

Appendix 3: Swing Rates

Swing Rank Weight Normalized Weight

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High Employment Rate 1 100 40
High Profitability 2 80 35
High Utilization of Resources 3 60 25
Total 240 100

Appendix 4.0: Calculating Aggregate Values for each strategies under different scenario

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Strategy Grants/Tax Credit in Rock your Body`

Objective Score Weight Weight x Score

High Employment 60 40 2400
High Profitability 50 25 1250
High Utilization 90 35 3150
Total 6800

Strategy Technology/Infrastructure in Rock your Body

Objective Score Weight Weight x Score

High Employment 55 40 2200
High Profitability 60 25 1500
High Utilization 70 35 2450
Total 6150

Strategy Skilled Labour Workforce in Rock your Body

Objective Score Weight Weight x Score

High Employment 100 40 4000
High Profitability 15 25 375
High Utilization 0 35 0
Total 4375

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Strategy Grants/Tax Credit in Staying Alive

Objective Score Weight Weight x Score

High Employment 80 40 3200
High Profitability 80 25 2000
High Utilization 100 35 3500
Total 8700

Strategy Technology/Infrastructure in Staying Alive

Objective Score Weight Weight x Score

High Employment 45 40 1800
High Profitability 100 25 2500
High Utilization 100 35 3500
Total 7800

Strategy Skilled Labour Workforce in Staying Alive

Objective Score Weight Weight x Score

High Employment 100 40 4000
High Profitability 30 25 750
High Utilization 30 35 1050
Total 5800

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Strategy Grants/Tax Credit in We are the World

Objective Score Weight Weight x Score

High Employment 70 40 2800
High Profitability 60 25 1500
High Utilization 70 35 2450
Total 6750

Strategy Technology/Infrastructure in We are the World

Objective Score Weight Weight x Score

High Employment 30 40 1200
High Profitability 80 25 2000
High Utilization 80 35 2800
Total 6000

Strategy Skilled Labour Workforce in We are the World

Objective Score Weight Weight x Score

High Employment 60 40 2400
High Profitability 40 25 1000
High Utilization 20 35 700
Total 4100

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 Appendix 5: Aggregate Value Matrix

Scenario
'Rock your 'Staying' 'We are the
Objectives Body'' Alive'' World'' TOTAL
Investment into Grants/Tax Credit 68 87 68 223
Investment into Technology
/Infrastructure 62 78 60 200
Skilled Labour Workforce 44 58 41 143

Appendix 6: Sensitivity Analysis

Scenario
'Rock your 'Staying' 'We are the
Objectives Body'' Alive'' World'' TOTAL
Investment into Grants/Tax Credit 72 68 62 202
Investment into Technology
/Infrastructure 58 60 57 175
Skilled Labour Workforce 42 53 45 149

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