Scenario planning for a flexible future strategy
Previously we’ve explored how to make it easier to predict the future in business, and how vision can be a powerful tool in planning for business success. In the final post in our series about future planning for business, we take a look at the scenario planning as a strategic approach.
Can we predict the future?
The future, we are told, is, variously: orange, green, Labour; female; now; private, ours, here already, arriving quickly… All potentially true, I guess. The one thing we do know for certain is that the future is uncertain.
Part of that uncertainty is in its discontinuity. The future does not look like the past; in particular, the near future does not look as much like the immediate past as we might think. And then, frustratingly, we discover that the past does sometimes repeat itself, though never exactly, and never in quite the ways we imagine it might. But we can definitely learn from the past, when looking into the future. As Churchill said, “The longer you can look back, the farther you can look forward”.
Two persistent errors plague corporate decision making – under-prediction and over-prediction. Mostly, we underpredict (the future, we imagine, is much like the present and past). Occasionally, and usually when asked explicitly about the future, we overpredict and go all Jetsons and flying cars. If you want an interesting example look at the 1964 report from the respected US military think-tank the RAND Corporation on its exercise to predict the next 50 years. It’s certainly not all overprediction, but there are some interesting outliers in there.
One of the interesting things about overprediction is that it is often NOT the result we predict that is wrong, but the timescale in which it will be achieved. I recently re-read a 1995 paper that pointed out some 1960s overpredictions on cancer treatment and artificial intelligence (predictions which have now proved true, if later than predicted); and space travel (yup, still waiting).
What is scenario planning?
Scenario planning is a method that is designed to help us navigate that uncertain future. We don’t have to predict the future precisely and singularly (putting all our bets on one horse). We don’t have to engage either in traditional detailed planning, whose results are wrong and out of date before the plan is finished (based, as they often are, on straight-line extrapolations, and a single path into the future).
Its origins are in post-WWII US military planning. A key pioneer was Herman Kahn, originally at RAND, who popularised the use of “scenario” later at the Hudson Institute he co-founded. Its commercial pioneers in the 1970s included Shell (namely Pierre Wack) and General Electric. Some commentators (Wikipedia included) have pointed out to roots in the French method La Prospective (key pioneer Gaston Berger). Its futuribles are essentially our scenarios.
What is a scenario?
What is a scenario? It is a description of a possible future (described as a story), of its development, and of how we might reach that future. That story brings together:
- An understanding of where the organisation is today;
- An understanding of the issues facing the organisation;
- An analysis of the basic trends in politics, economics, demographics etc. about which there is a strong global consensus (“fact”-based).
- An analysis of the key uncertainties facing the organisation (important issues specific to its chosen news-sectors and markets, such as regulation) and how they might play out.
- An analysis of the driving forces of change, mainly global, some more local (such as technology trends and developments) and their possible impacts.
The story is NOT a description of a desired future, nor is it a prediction of the future – just a description of a possible future.
Benefits of scenarios planning
The purpose of a scenario is to inform the work to enhance an organisation’s readiness for the future, and to support the growth of organisational learning.
Scenarios have to be:
- relevant – they have to address the issues the organisation has determined are critical;
- coherent – the elements of the story have to combine well – it has to read as a story would;
- realistic – there has to be a degree of probability – it has to be a scenario whose possibility of happening people understand and accept; it has to be a state that will last for some time;
- clearly described – they have to be understandable.
- challenging, even disturbing – they are meant to shock people into that understanding of what the future might look like.
Scenario planning vs forecasting
The main difference between scenario planning and traditional long-range planning or forecasting is that scenario planning is plural, not singular. So, the first question is always, how many scenarios should we develop? The answer is, not many. One is obviously not enough (might as well do traditional planning?). Two is often enough (but they can be polar opposites, and become equally unlikely stereotypes). Odd numbers strangely don’t work well (the middle one looks like THE one), so four is often a good number to aim for.
The process of doing scenario planning requires a whole blog in itself, so let’s just summarise the steps here.
- Scope the work:
- Determine its purpose and focus; its time span; its organisational scope; the key stakeholders.
- Conduct the analysis:
- Present state
- Basic trends;
- Key uncertainties;
- Driving forces;
- Draw out the themes.
- Identify potential outcomes (and triggering events)
- Develop the scenarios:
- Identify and name them (give them a catchy title!);
- Document them – write the story;
- Sense check;
- Draw out implications, and actions.
- Validate the scenarios:
- Identify any further research needs, and fulfil;
- Test for relevance and probability.
- Revise, finalise, and present the scenarios.
How long does this all take? Well, two years is not uncommon in large organisations for a first pass of scenario planning. The aim for smaller organisations should be to get this down to six months as a maximum. However, there is no point in doing it too quickly, because then the learning that is always engendered by the exercise will be curtailed.
How to do scenario planning
The scenario planning process represents an ideal opportunity to engage a whole team, especially the Conduct (2) and Develop (3) phases. Identifying and ranking trends, uncertainties and driving forces is best done by groups who are equipped with large whiteboards, and moderated by facilitators using techniques like Logovisual Thinking (LVT). This allows you to extract meaning from a large amount of input data in relatively short measure. Similarly, the consequential development of themes and outcomes can be done in groups.
You can construct initial scenario development as an LVT process. The writing of the story itself, though it uses the LVT outputs as its inputs, can only be written by individuals, and preferably by a single individual to allow a consistency of voice and tone.
The Validate (4) phase equally works well as a team exercise.
A famous scenario planning case study, the work done by British Airways in 1994-95, describes how BA split the work into scenario development and scenario workshops. The purpose of the workshops was to let participants hear the scenarios, and then discuss them. “Brainstorming and creativity techniques were used to generate new strategic ideas for each scenario” (BA’s description). BA then abstracted these ideas into new strategic statements – a classic use-case for LVT’s approach of making sense through clustering. As BA were using a two-scenario approach, they tested all new ideas against both scenarios. They used further brainstorming to work out how to make the strategies actionable, and by who – again, more work in which LVT could be a powerful technique. One of its significant advantages would be in the efficiency of its native documentation, in contrast to the typing up verbatim of the proceedings.
BA’s workshops were mainly for 7 – 10 participants, but some were for 20 or so participants. Once you’re into numbers like this, the efficiency of the workshop facilitation approach becomes critical, especially in managing the volume of meaningful documentation coming out of the workshop.
You can work as a group again in the Presentation phase, although in a controlled way (more as a way of capturing feedback, rather than more direct input).
One interesting piece of feedback from the BA study was about the inadequacy of the workshop locations. As we at Logovisual know, it’s not just the size and quality of the whiteboards and other equipment that matters, the room itself is critical if the participants are to sustain their creativity through the workshop (BA’s workshops were usually 8 hours long, which we would say is at, and probably beyond, the limit for a creative day).
Which brings us nicely to the mindset of the participants (of the organisation itself). It must be curious, open, willing to think the unthinkable, and be opposed to any form of pre-determination. There must also be a bias towards decision making and action. The goal of scenario planning is not the finely crafted story, but the decisions we will make and the actions we will take, both in anticipation of the scenario and on its actuality.
A healthy respect for failure is also useful. After all, not all the scenarios we develop will come to pass. Back to Churchill again, who defined the key ability of a politician as being able “to foretell what is going to happen tomorrow, next week, next month, and next year – and to have the ability afterwards to explain why it didn’t happen”.
Conclusion – the benefits of scenario planning
One of the benefits of scenario planning is the widely-observed result that, paradoxically, the reduced emphasis on prediction leads to a more accurate understanding of the future. Scenario planning for different versions of the future recognises that some uncertainty is unavoidable. With this comes a greater capacity to embrace whatever future unfolds.