Scenarios and Strategy

Scenarios as vehicle for strategic thinking and strategy development

Strategic thinking. Strategic thinkers. We are living in a society with more ambiguity, complexity, uncertainty and paradoxes than ever before.

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Traditional forecasting techniques often fail to predict significant changes in a company’s external environment, especially when the change is rapid and turbulent or when information is limited.

Consequently, important opportunities and serious threats may be overlooked and the very survival of the company may be at stake. Scenario planning is a tool specifically designed to deal with major, uncertain shifts in a company's environment.

Scenario planning has its roots in military strategy studies. Herman Kahn was an early founder of scenario-based planning in his work related to the possible scenarios associated with thermonuclear war ("thinking the unthinkable"). Scenario planning was transformed into a business tool in the late 1960's and early 1970's, most notably by Pierre Wack who developed the scenario planning system used by Royal Dutch/Shell. As a result of these efforts, Shell was prepared to deal with the oil shock that occurred in late 1973 and greatly improved its competitive position in the industry during the oil crisis and the oil glut that followed.

Scenario planning is not about predicting the future. Rather, it attempts to describe what is possible. The result of a scenario analysis is a group of distinct futures, all of which are plausible. The challenge then is how to deal with each of the possible scenarios.

Scenario planning often takes place in a workshop setting of high-level executives, technical experts, and industry leaders. The idea is to bring together a wide range of perspectives in order to consider scenarios other than the widely accepted forecasts. The scenario development process should include interviews with managers who later will formulate and implement strategies based on the scenario analysis - without their input the scenarios may leave out important details and not lead to action if they do not address issues important to those who will implement the strategy.

Some of the benefits of scenario planning include:

  • Managers are forced to break out of their standard world-view, exposing blind spots that might otherwise be overlooked in the generally accepted forecast.
  • Decision-makers are better able to recognise a scenario in its early stages, should it actually be the one that unfolds.
  • Managers are better able to understand the source of disagreements that often occur when they are envisioning different scenarios without realising it.

Working with Scenarios

Using scenarios is a revolutionary alternative to traditional strategic planning because it recognises the unpredictable nature of the future and makes uncertainty a part of the plan.

Very often we hear our clients say:

Future developments within our industry are very uncertain and depend strongly on a multitude of technological, social and political interference.

Scenario planning simplifies the the struggle to make sense of an abundance of possible data into a limited number of anticipated future conditions. It then ventures on to facilitate the development of strategic answers without neglecting the big picture.  The main characteristics of situations where a development of strategic scenarios make sense are:​

  • When the industry is experiencing fundamental changes (social and technological changes resulting in political/regulatory adjustments)

  • When strong and differing opinions exist at the same time - within the industry and within the company - when it comes to beliefs of future developments

  • When there is and identified need to establish a common language and planning framework in order to increase the efficiency when discussing at various organisational levels

  • When there is a sense of being stuck in "one prevailing scenario", and it has become increasingly difficult to generate new business opportunities

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The Process

Building scenarios are not enough. Equally important is what is done with the scenarios once they are developed.  A scenario process thus consists of two parts:

1.  Scenario building – covers conduct of data gathering, analysing, synthesising, and eventually construction of scenarios.

2.  Scenario deployment – centres on using scenarios to change the way decision are made, shifting the thinking of managers, re-framing decision making processes, and examining numerous strategic and organisational issues in the context of each scenario.

Once the major inputs to the scenario process are considered, the scenario building activity begins. When scenarios have been developed, they are used to explore organisational strategies, capacity, key decisions, and other important items. This is often referred to as wind tunnelling.

We also quite often discuss dominant Logic as an important ingredient in the process; the logic that has enabled past successes and at the same time may be a major obstacle for future development and change.

Dominant Logic is

  • Our behaviour, focus and the way people act

  • A set of ideas about the company and the world

  • A reflection of our success

  • Something that is invisible, internal

  • An organisation’s genetic code

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The Phases

A scenario process could typically be described in five phases:

  1. Project preparation - Building
  2. Scenario exploration - Building
  3. Scenario development - Building
  4. Scenario implementation - Deployment
  5. Project assessment - Deployment

These five phases capture the main idea required to conduct a scenario project and have been used extensively in practice. Once the major inputs to the scenario process are considered, the scenario building activity begins. When scenarios have been prepared, they are used to explore strategic choices, capacities, key decisions, certainties and uncertainties and major influencing factors.  Through this exploration er develop (potential) different futures. The Scenario Implementation and Project Assessment phases are aimed at how scenarios can be used to provoke changes in organizations and help decisions makers make sense of strategic insight.

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What's in it for me?

How you may benefit from running a scenario process in your company

 

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The Outcome

The major outcome of the scenario process will be:

  • ​Increased dialogue and changed thinking
  • Informed narratives or stories about plausible futures
  • Improved decision making about the future
  • Enhanced human and organisational learning and imagination

​This outcome is a crucial ingredient and foundation of the ensuing change and/or transformation process for the company - defining the strategy and reshaping the future.

Learning scenarios are «Memories of the future» and they will help

  • Increase the understanding and insight about the external environment of your company
  • Your company to anticipate possible major shifts - and the possible effects
  • Generating options and open up for new thinking
  • Managers to cope with available information and alternatives in making decisions
  • Information transfer between and among people in your company

At a later stage the project may develop more specific scenarios to support decision-making regarding certain defined strategies.

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