As an example, teams might be asked to write newspaper headlines that would appear 10-20 years from now(if there are still newspapers!), and then work backwards to explain what had to have happened to get there, e.g. “XYZ Company finds oil on a newly discovered planet!” or “The Euro has been officially replaced by Bitcoin!”
When to use Scenario Planning
Scenario Planning is useful in VUCA situations — Volatile, Uncertain, Chaotic and Ambiguous Situations. Scenario Planning is most useful when:
- When there is high uncertainty
- When there is a need for divergent thinking
- When an industry is in in the midst of significant change
- When major differences in views of the future exist
This process starts with a critical objective or a question needing to be addressed. For example, what will your company look like in 10 years? What key decisions need to be made in the present that will have an impact on its future success – or even its very existence?! Make, buy, or partner? Merge or be acquired? Expand your global footprint?
Note: It is very important to have buy-in from top management. Without such support, the process may not succeed. One must have an open mind and be willing to forego some beliefs or traditional behaviors.
How to conduct Scenario Planning
A considerable amount of resources are required to properly conduct scenario planning. Diverse corporate or divisional teams need to be created. They need to have several training sessions and meetings consuming a few days. More likely than not, it will be necessary to hire a qualified third party company capable of facilitating the entire program. As a rule of thumb, a proposal should be sent for bid to at least three potential providers of such services.
The Scenario Planning process includes the following activities:
- Identifying the forces of change and uncertainties.
- Choosing the two most important uncertainties.
- Identifying the end points as the extreme points.
- Plotting the extreme points of the uncertainties.
- Creating scenarios
- Identifying which is the most likely
- Assigning probabilities.
- Working out the impact of each scenario on the organization.
- Plotting the courses of action and steps to take.
During the process, high level drivers or forces, will be identified. They may then be examined and ranked in terms of their respective influence as well as level of uncertainty or risk. A few prime examples include:
- Society & Social Issues
- Economic conditions
- The Environment
- Politics and laws
In addition, some trends will be considered more certain to occur or continue, e.g. birth rate, life expectancy, divorce rate, growth of large cities, wealth concentration. Teams should ultimately develop 3 to 4 scenarios by discussing how the various drivers, forces and other factors could possibly interact to create a particular future outcome.
Each scenario or story will be assigned a memorable and meaningful title…they can even be funny or portrayed as an image or picture. Appropriate decision makers can then utilize these stories as an aid to formulating both short and long term actions.
Is Scenario Planning for you?
Are you or your top management thinking beyond the next fiscal quarter or year? Are they discussing “What if…?” types of questions that extend at least 5-10 years ahead? And are they willing to commit to a process that might cause some discomfort and alter their thinking? If the answer is “yes” to all, then the use of this strategic tool should at least be considered.
With Scenario Planning, you can better identify the uncertainties and the most important scenarios. You can then advocate for whether incremental or immediate action is needed. Decisions can be made on the optimal scenario, on whether to, for example, acquire or partner with external companies, what changes to make, and when to make changes.
What to expect from Scenario Planning
Scenario Planning is intended to help a company to make strategic decisions. Ideally, it is an ongoing process that is revisited and updated periodically. As part of the process, key indicators or early warning signals will have been identified. These will be monitored, and their emergence will announce that a particular future may be about to occur. At this point, previously agreed upon actions may be implemented.
And so, having planned for a number of different outcomes, your company will be better prepared to anticipate and react to factors and drivers in its market and navigate through them.