Uncertainty and Future Proofing* – how Scenario Planning
Do you think you can predict the future? And if you
do – and you don’t use a crystal ball – how do you do
it? Most of us – at least in our businesses – think
we can. And we do it by extrapolating from what we have
learned (or think we remember) from the past. So that
is what we normally base our strategy on. That is what
we base our sales predictions on. In your experience,
has it ever worked out? Some of it will, but could you
have predicted which bit?
In his book, Stumbling on Happiness, Daniel Gilbert
says that research has concluded that human beings need
to feel in control – whether this is real or an illusion
– in order to be mentally healthy. And the reason? Because
it feels good to think we are in control. It makes us
feel that we matter, that we have an impact, a say in
what happens. He says, “Our desire to be in control
is so powerful, and the feeling of being in control
so rewarding, that people often act as though they can
control the uncontrollable.” (pp. 22). Deep down inside,
we all seem to believe that we can control the uncontrollable.
We are the apes that ‘look forward’, we can imagine
a future rather than having to experience it (as other
animals do) to learn about it. Yet often when we do
our strategic planning in organisations, we settle on
an ‘agreed’ future and develop our strategy for that
particular future…. usually a continuation of where
we are now, based on our memory of how we got here.
So it is actually based on reflections from our past.
Yet we know (deep down) that it won’t turn out that
way. No one can predict the future. However, it can
be an extremely valuable exercise for organisations
to do just that, to predict the future (rather several
possible futures), and aim to make their strategic plan
future proof* - and for this we use scenarios.
Exploring the scene – environmental scanning
We use environmental scanning and scenario planning
to exercise our strategic muscles and expand our thinking
so that we are not just aware of a range of possible
futures and how we might arrive there, but also aware
of the levers we would need to pull in our organisation
if any one of them were to unfold.
A client of mine was exasperated: ‘How on earth could
we have predicted the floods of last year, the rise
in petrol prices this year and the collapse of Northern
Rock which has thrown mortgages and the housing market
into free fall?’ You likely could not have, but you
could have looked at one or several of those as a possible
future, looked at what you would need to do in that
case and be better prepared when you saw the early warning
signs that one of the futures you had thought about
was starting to unfold. ‘But what if you hadn’t predicted
any of those?’ he asked. Just expanding the thinking
around how you would react to different futures would
have helped. You’d have had more ideas about different
things you could do. It could be more proactive rather
than just reactive, which gives you the feeling that
you’re caught on the back foot.
A Brief History – Scenario Planning in context
During the two decades following WWII, Europe experienced
a period of sustained economic growth. Most countries
were recovering and restructuring their economies. Growth
rates of 5 to 6% were common during that period. OECD
countries generally accepted that trends from the past
could simply be extrapolated and markets would do the
work of allocating resources most effectively, while
in the communist blocks, planning was done centrally
by large institutions.
Large computers allowed for macro-economic input and
output analyses and there were a fascination with the
possibility of predicting the future with the aid of
complicated algorithms and modelling.
It was not until the early part of the seventies that
it became apparent that it was impossible to predict
the future using these tools. In the late sixties, the
Club of Rome (who were using some of these models) indicated
that there might be limits to growth and in 1973 the
first oil crisis hit the world. Major changes, which
were not covered by any of the models or forecasts available
at that time, were experienced and it was clear that
the old method of forecasting by extrapolating trends
from the past did not work. The old method could not
deal with the complex interactivity of large systems.
In the early seventies some companies, and in particular
Shell, started to experiment with scenarios and introduced
them as a part of their planning process. The main idea
behind scenario thinking is that the future cannot be
predicted; but one can at least think of possible different
future developments. Looking at more than one future,
explicitly taking relevant uncertainties as a starting
point can then enrich the planning process.
Scenarios were constructed as plausible and consistent
developments of political, economic, social and technological
aspects of the business environment following different
patterns. These were stories about the future with some
quantification of macro-variables for each of the different
future stories. These stories about different futures
could then be used against which to judge plans and
decisions. They were also useful for understanding risks
and rewards of various options, decisions and projects.
Scenarios provide an enriched context and allow for
a risk/reward evaluation in a more comprehensive way
than the old project cash flow with its single future.
Scenarios – Definition, their Purpose and Role
A scenario is an interpretation of the present, archetypal
image of the future, and an internally consistent story
about the path from present to future.
The word scenario comes from the film industry where
it is used to describe a detailed plan. Scenarios as
they are used in organisations are, in fact, the opposite
of a plan. They are internally consistent descriptions
of how a future business environment might develop over
the next ten or twenty years. Since scenarios are ‘only’
stories, people can discuss almost anything, even previously
taboo subjects. Developing them is a constructive process
that turns people’s thoughts towards building a common
future rather than agonising about the past. Scenarios
are not predictions of a future; rather they are credible
Scenarios contain robust planning assumptions while
at the same time they highlight key uncertainties. In
scenarios we look systematically at linkages and dynamics
of various parts of our business environment. Scenarios
are more than just stories about the future. When a
group engages in conversations about the future and
builds scenarios, they also build a shared understanding
and language. They will clearly uncover common ground
and increase their capability to anticipate and recognise
change in the business environment. As indicated earlier,
scenarios can be used for testing and generating options
and helping people to create a shared vision. It gives
people a clear view of what they can do and how that
can affect the organisation in various possible futures.
In summary, scenarios provide a coherent framework for
integrating diverse signals and developments, they provide
creative images, which challenge existing mental maps,
and they provide a perspective on key uncertainties
and strategic issues. They are tools for learning and
they provide a common language for communication among
diverse groups with different functional and business
backgrounds. Scenarios should describe very different
futures because it is only by looking at different developments
that we will be alert to ‘trigger points’ so that we
can challenge the ‘official future’ and learn.
How does it work?
Taking it one step further we can start to think of
scenario planning as a tool for raising awareness of
the possibility of a range of different ways in which
the future may unfold, built on some of the factors
through which the outside world affects us. We scan
the environment to look at factors of high uncertainty,
project those factors forward and develop imaginative
stories to describe what affects that projected future
may have on an organisation. To use a metaphor, we can
compare an organisation to a ship. Even a small ship
(or organisation) takes time to turn or stop or even
to change direction. The larger the organisation, the
longer it takes to turn, so wouldn’t it be useful to
have some sort of marker to tell you when you need to
start to turn?
Once we have some coherent stories we examine our strategy
and see how it would work in a particular future. Questions
we ask are:
- What would we need to change?
- How would we need to manage and lead our organisations?
- What are the levers we would need to ‘pull’?
We then examine each future scenario in turn.
- Are there parts of your strategy that would work
in more than one future?
- Are there parts that wouldn’t work in any of them?
- What might you change to make the strategy more
robust (i.e. viable in several possible futures)?
A very important part of this stage is to identify the early
warning signs or indicators that you are in a particular
future scenario. Actually it is unlikely that any one future
scenario will unfold in its entirety, however if you can
identify the direction the future is taking as it unfolds,
you can identify what you need to do in order to respond
quickly. This is where the indicators help you. Scenario
planning helps you to know what to look for and to know
what it means when you find it. You have stretched your
future thinking muscles. You have given thought to what
you would do in extreme circumstances and therefore, when
extreme circumstances (ANY extreme circumstances) arise,
you are not caught unawares - you are prepared to act.
a word of caution: once you have developed your strategy,
do not fall into the trap of putting it complacently on
the shelf, or considering it set in stone. You need to continually
review and develop it, keeping it fresh and up-to-date.
For this we advocate Action Learning - which we will discuss
in our next newsletter.
In conclusion, then, we can actually
take advantage of the uncertain times we live in today by
exercising our ‘future scenario’ muscles and future proofing*
our organisation. It will also help us to feel more in control
as we will have identified a clear way forward, as well
as different options to call upon should we need them.
* Future proofing is used with thanks to SAMI
© Patricia Lustig, 2008