What is scenario planning?

Not predicting the future, but exploring it

We all know that the future is going to be different.  But how is it going to be different?  That’s the critical question – and it is the question that scenario planning tries to answer.

But before explaining what scenario planning is, here is what it isn’t.  Scenario planning is not predicting, projecting, or forecasting the future.  Instead, it is about exploring the future, i.e. trying to visualize what could realistically come about in the future, without saying definitively, "This is what will happen."

Many people, when putting together a strategy for the future of their organization, fall into an easy trap of assuming that as time goes on, the key parameters of their business environment will change only by small increments, and in an essentially predictable way: The economy will grow by 3%. The price of a key raw material will go up by 5%.  An important currency exchange rate will fall by 10%.  And so on.  Using these assumptions, and extrapolating from today's numbers, they can quickly arrive at a picture of what they believe the future will look like.  These numbers will help them calculate a "best case", "worst case" and "most likely case" scenario for the future.

And guess what?  Such projections indicate that the future will look pretty much like the present, only with a little more of this, and a little less of that.  Then, having tweaked the numbers indicating how the future will differ from today - and note well: the differences are based almost solely on arithmetic - they concoct their strategies.

Thinking like this is not only naive; it's potentially dangerous!  Why?  Because in reality, the future unfolds quite differently – and this is where scenario planning comes in.  As time goes on, many things change - not just the measurable things like prices and growth rates, but fundamental shifts that can alter a business landscape beyond recognition.  These changes might be the result of almost imperceptible trends that are only gradually affecting the business environment on a day-to-day basis, but in the fullness of time could bring about huge shifts – for example, demographic changes, or evolving societal attitudes, values, and consumer tastes.

Other developments with the potential to change the way the future turns out may be one-off events that bring about big change relatively quickly – such as a new law or regulation, a change in the availability of an important raw material, the election of a political party with ideas that could favor (or not favor) your industry, the introduction of a new technology, or the unanticipated entry of a powerful new competitor into your market.

Countless “driving forces” such as these will bring about real, significant changes in your future business landscape – and in your future competitiveness. 

Here’s the rub: It is seismic changes like these that can disrupt your business and change the contours of your playing field – yet none of them is accounted for if all you do is make a simple mathematical projection of "the future" based on this year’s numbers – no matter how many times you tweak the arithmetic variables.  Political, economic, societal, and technological “driving forces” have the potential to permanently alter the entire landscape you do business in.

Scenario planning to the rescue

Scenario planning is a structured approach to visualizing how such alternative future landscapes might emerge.  It is a creative process, comprising several steps.  You begin by identifying the forces that have the greatest potential impact on your future success – and which are also the most uncertain.  Chances are, you will come up with dozens of such driving forces, so the next step is to assess which ones are really the most critical, i.e. the ones that could have a make-or-break impact on your future, yet are impossible to predict which way they may develop.  Next, you look at how a small number of these "critical uncertainties" might combine to bring about dramatically different landscapes – “scenarios” – in which you could realistically find yourself operating a few years hence.

Once you have defined the general look and feel of these future scenarios, you can then ask:

  • What opportunities would each scenario potentially hold out to you?
  • In terms of your competitiveness, what capabilities would you need to have to be successful in these scenarios?  (And have you got them?)
  • What risks or challenges would you be likely to face in each scenario?
  • What strategic initiatives would make sense in each scenario?  For example, what is an innovation that might be particularly successful?  
  • What actions could you already start preparing today that would help you set the stage for success, should these scenarios materialize?

Bottom line: What scenario planning does is help you spot future risks and opportunities, assess your readiness for dealing with them, and draw up a flexible long-range action plan that takes these possible changes into account.

This is what I do in my scenario generation workshops.  The results are eye-opening insights into what may be in store for you - and what you ought to be doing about it now.

 

Science fiction? Or a realistic view of the world?

So the idea behind scenario planning is to think beyond the normal planning horizon and imagine, in as much detail as possible, what the future will look like depending on how different critical uncertainties resolve themselves over time.

The science fiction writer Isaac Asimov was not a scenario planner, but back in 1981 he wrote, “No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be. This, in turn, means that our statesmen, our businessmen, our everyman must take on a science fictional way of thinking.”

"Science fictional"?  Well, I understand what he means.  Asimov is saying we can’t envisage the future without applying a degree of imagination.  That is what scenario planning does.  Within a structured framework, it asks you to be creative and visualize worlds that don’t yet exist - but could.

Perhaps Professor Gary Hamel said it even better: “The problem with the future is that it is different. If you are unable to think differently, the future will always arrive as a surprise.”

 

© 2015 Wade & Co. SA