1. Identify Leading Indicators for Scenario Monitoring
Author: Xia (Summer) Xu
Advisors: Shardul Phadnis
Sponsor: BASF(Germany)
MIT SCM ResearchFest
May 22, 2014

2. Agenda Background Key Question Methodology Case Result Question
May 22, 2014
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3. Background Scenarios What is Scenario Planning
Long range planning tool
Not a forecast of future unknowns, but is used to understand the Driving Forces behind: PESTEL1
- Combinations of extreme variations of the Driving Forces
Why Do Scenario Planning
Driving Forces …
Scenarios
Strategy flexibility: Companies are able to tailor their strategies to different Scenarios
- Improve decision making process: Stretch thinking
- Organizational learning: Specific contexts facilitate conversation among different stakeholders
Today’s business environment has never been more complicated. Factors such as rapid new technologies, regulations, environmental requirements and social changes expose companies to a complex surrounding. The challenge is even more so from a long-term perspective.
PESTEL:
Political, economics, social, legal, environment, technology
1-84
1PESTEL:
Political, economics, social, legal, environment, technology
May 22, 2014
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4. Scenario Monitoring Background After Scenarios, Then ? Strategy A
Strategy B
Scenario Monitoring
Explain the different scenarios
Bring in scenario monitoring – talk about how monitoring is a part of the “scenario …” process, but is sustaining the tool.
Using the most relevant data to ensure that your scenarios reflect reality and are accurate.
Strategy C
Strategy D
May 22, 2014
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5. Background Scenario Monitoring ++ Benefits
+ From thinking tool to practical one
+ Adaptable
+ Dynamic capabilities
One way to solve problem is scenario monitoring
Literatures discussed indicators but did not develop methods of identifying them
May 22, 2014
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6. Key Question
Develop a systematic approach to identify leading indicators for Scenario Monitoring
signals
May 22, 2014
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7. ü Key Question Understanding the Problem:
What do Leading Indicators look like?
Driving Force
Time Lag
Leading Indicators
Time
Tell why “leading” indicator is important
… and how it is monitored:
Scanning
Tracking ü
May 22, 2014
MIT SCM Research Fest

8. Methodology - Correlation with Time Lag
Correlation test between driving force matrix and potential indicators is used to identify leading indicators
Data: Driving Force Framework (Zheng He 2013)
World Bank Develop Indicators (1364 Indicators)
Thailand, Japan represent Asia Pacific (A/P)
Step 1.Transform from qualitative descriptions to Indicator Framework (numeric)
Example:
Political Stability Refers to the stability of power / relations between state and various non-state actors
Somewhere between slide 7 and 8, you need to mention that first challenge is make scenario = a qualitative story measurable. Ask a rhetorical question, so how would you measure that? Then tell that Zheng did this in his thesis last year – he developed a way to “measure” which scenario the world resembles. Then tell you are building on it to develop a method to identify the leading indicators.
Zheng He(2013) defines the frame work of driving force in his thesis
BASF 2011
May 22, 2014
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9. Methodology - Correlation with Time Lag
Step 2. Check Multi-trend Features of Driving Force Indicators to avoid Spurious Correlation
Driving Force
Leading Indicators
Time
Step 3. Correlation Matrix with Time Lag
Time Serial
Indicators under driving force framework
T-1
Other indicators
T-2
T-3
May 22, 2014
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10. Methodology - Filters Primary Filter：Correlation Test
Secondary Filters：Data Availability
Indicator Profile
Predict Power
Indicators
1364
30-40
10-20
Data Availability
Correlation Test
Indicator Profile
Predict Power
Validation: R2
Experts Judgments
Potential Leading Indicators
May 22, 2014
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11. Case Results Demonstration: Country-----Thailand
Driving force---- Political Stability
Driving Force Indicator-----Armed forces personnel
May 22, 2014
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12. Case Results The Excel-base Tool Data Availability Scale
Predictive Power
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13. Insights
It provides…
- A practical way of identifying leading indicators which is easy to understand and can be widely applied.
- A common vocabulary for different stakeholders to communicate.
Scenarios and Leading Indicators can be difficult to make sense of because they are often far in the future (Butterfly Effects).
Future work: qualitative verification framework for further selecting leading indicators
May 22, 2014
MIT SCM Research Fest

14. &
May 23, 2014
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