Planning Review - September/October 1995
Getting the Most Out of Scenarios: Advice from the Experts
Editor’s Note: This conference session was an in-depth discussion of how practitioners can get the most value from scenario planning. Audrey Schriefer (now known as Anika Savage) moderated the session and has prepared this summary.Participants were Bill Ralston, SRI International; Robert Wilson, Northeast Consulting Resources; and Gerald Harris, Global Business Network.
As the pace of change continues to accelerate, it becomes increasingly difficult to anticipate future conditions for an industry, company, business unit, or function with any degree of confidence. Scenario planning avoids the need for single point forecasts by allowing users to explore several alternative futures. Developed by blending data and analysis with intuition and creativity, the scenario plots must “hang together” like a well-crafted novel, stretch the imagination without going outside the bounds of believability, and consistently address issues that are critical to decision makers. Scenario planning can be used to minimize risk by identifying strategies that play well across all or many of the scenarios. It also can be used to maximize opportunity by attempting to create a future that optimizes a firm’s position (a high risk approach). Scenarios provide a powerful methodology for strategy development, but they require a heavy commitment of time and resources. The participants on this panel pointed out some of the reasons that results can fall short of expectation, while they consistently stressed the benefits of the process. Scenario planning is a technique that allows decision makers to, in the words of Richard Pascale, “manage the present from the future.”
Scenarios and Decision Making
Robert Wilson focused his remarks on the links between scenario planning and decision making. Rob identified two types of complexity: data-based complexity, with fixed relationships, and dynamic complexity, where cause and effect are not clearly linked. Dynamic complexity requires thinking and creativity; it cannot be addressed adequately through the use of computers. Rob based his remarks around three assertions:
1. Management feels best when decisions are databased. While this may be possible in current situations, a problem arises in strategic planning because we are not able to collect facts about the future. Rob suggests that pseudo-facts, or future events, postulate possible occurrences. These pseudo-facts must be tested for likelihood, plausibility, fit, logical connections, links to future conditions and to present reality. The process of identifying these events allows us to sort facts from myths and creates a laboratory environment to explore links between events. He termed this process knowledge engineering and quoted Alfred North Whitehead as saying “knowledge keeps about as well as fish.” Scenario planning can help overcome the tendency to interpret new information in terms of old beliefs.
2. Decisions are rooted in mental models. To manage dynamic complexity, people develop abstractions of reality or mental models based on their experience. They then interpret new situations in terms these mental models. Each person’s mental model of reality is different and, as the environment changes, may become out-of-date. Senior managers have learned to trust their mental models, especially when they have produced successful results, and they understandably have a hard time giving them up. Problems can arise when members of the senior team are not able to share their mental models with each other because of lack of time, comfort, or know how. As a result, decisions are made unilaterally, based on one person’s view of reality. People in the position to take action may not understand the context in which the decisions were made and, therefore, may not trust the logic. Scenarios can help by legitimizing a dialogue, challenging conventional wisdom, initiating wide-spread discussion, creating the possibility of genuine transformation, and providing a language for dialogue. As Frank Crivello said in another session entitled “The Panel on the Future,” Scenarios allow a “visualization of the future.”
3. Decision making is improved with practice. The Dallas Cowboys, despite years of experience, start practicing months before each season’s opening game. Scenarios are a way of practicing under a wide variety of circumstances with minimal risk. Participants in scenario-planning processes invariably report that the more times they participate in a scenario exercise the more they like it, because they are able to try out different points of view. Scenarios aid in decision making by allowing decision makers to try out and test different mental models-to “play the tapes of tomorrow’s game.”
The Pitfalls in Scenarios
Bill Ralston chose to discuss the pitfalls to be avoided and the actions to be taken to improve results. Bill sees scenario planning as a powerful tool to integrate environmental intelligence and to deal with strategic issues. It is an intense doing experience through which the participants are profoundly changed. However, Bill made the point that scenario planning can be a very frustrating experience, and that fifty percent of scenario planning efforts fail to result in more effective decision making or to have an impact on the overall strategic management of the company. He identified five reasons why scenarios become ineffective:
1. Lack of decision focus. Despite the best intentions of the scenario team, scenarios may be irrelevant to any specific decision or to the strategic planning process.
2. Lack of decision makers’ involvement and commitment. The journey is critical to the process. If senior management is not culturally ready to become involved, there is little point in proceeding. The team’s efforts may be perceived as a waste of time and money, producing few results.
3. Scenarios become the product of the exercise. If participants try to communicate the elegance of the scenarios without defining the decision context, the audience is lost and the effort fails.
4. Scenarios are not “planning friendly.” Scenarios challenge everyone’s view of the way the world works and reveal the ignorance of both the staff and the decision makers. 5. Scenarios are difficult to use. It takes a commitment of at least three to four months to develop and use scenarios. Then there is the practical problem of carrying several outlooks forward into practice.
Bill suggests using the following tactics to overcome the problems that lead to the ineffective use of scenarios:
1. Develop a receptive culture. This is the biggest issue and creates a basic choice: If you do not have the right culture, you may be wise to try something else. If there is an opportunity to develop the right culture, be sure to tailor the scenarios to your organizational needs, make them simple and relevant to management’s concerns, and involve the decision makers.
2. Target the opportunity. Some issues lend themselves to the scenario-planning approach more than others. For example, using scenarios to develop a corporate strategy may be difficult, while an investment decision would be easier. Both contingency planning and explicit challenges to your planning assumptions are good scenario-planning applications.
3. Develop a strong communications program. Write imaginative stories but not too many of them. At British Air, each of 300 groups was taken through a one day scenario exercise in which two scenarios were explored. More than two would have been cumbersome. The goal was to involve people’s imagination. Videos may be used to communicate scenarios; attention can be captured by playing out each scenario in a ten-minute video segment.
4. Create explicit links to the rest of the strategic management process. Scenario planning is not an overnight process. It involves a fairly large commitment of time and resources. It is also a process that is difficult to understand before going, through the experience. However, it is possible to use the scenarios many times in order to realize the benefits and the power of the process.
Fit the Scenario to the Task
Gerald Harris stressed that you need good scenarios to achieve effective results. The scenarios must have a clear purpose and focus. Interviews with each member of the senior management team are critical in identifying a clear strategic decision or question that will have credibility within the organization. You need to imbed the relevant trends-not issues that are off the mark. Assumptions must be laid bare and be openly challenged. The scenarios must be internally consistent. Be sure to check the logic of each plot, testing whether it hangs together and makes sense. Identify the predetermined elements and the critical uncertainties; be sure to address them totally in each of the scenarios. Gerald supports having few scenarios but feels that the actual number should evolve from the analysis. The scenarios can be linked to modeling or simulation efforts going on in the company in order to gain visibility, credibility, and acceptance, and to imbed the scenarios into the decision-making process. Scenarios can be global, based on a broad, environmental perspective, or they can be focused on a single investment decision or departmental issue. Gerald makes the point that, regardless of the focus they take, scenarios are not the answer to everything. They must fit within a corporate vision and cannot stand alone. They need to be supported by a good planning and thinking infrastructure in the company. Companies often have no idea what to do with the scenarios and, therefore, do not achieve desired results. Once you have the scenarios, ask yourself what the scenarios really mean for the company, for the employees, and for the shareholders. Develop a list of options. If a clear risk or opportunity has been identified, develop a means for attacking it. Then move into the action-planning process. Although it is critical to identify a specific decision focus, the benefits extend well beyond that one decision. Scenarios create a language with which to communicate as an organization, allowing a light to shine in on the organization. Through the identification and observation of events and patterns of behavior and by stretching the boundaries of possibility, scenario planning can imbed a thinking and learning process in the organization.