Planning Review - November/December 1995
Getting the Most Out of Scenarios: Some Q&A
Editor’s Note: One of the sessions at the 1995 International Conference featured a panel of scenario experts: Audrey E. Schriefer (now known as Anika Savage) moderated the session. Participants were Bill Ralston, SRI International (SRI), Robert Wilson, Northeast Consulting Resources (NCRI), and Gerald Harris, Global Business Network (GBN). In the September/October issue of Planning Review, Ms. Schriefer summarized the opening remarks from this session. Here she presents the highlights of the question and answer portion of the discussion.
If you find yourself in this situation, you probably made a mistake at the outset by not interviewing the senior managers to get their viewpoints to incorporate into the scenarios and to gain their commitment and involvement in the process. You can interview and educate senior management at the same time so that they understand what to expect. Once into the process, you can assign senior managers to scenario teams to advocate positions they may not have originally supported. Very often they become ardent believers of the assigned scenario and begin to understand alternative perspectives. If, however, they still have a very wrong idea of what scenarios are and you don’t think you can get the education process working, you may consider not going ahead. If you proceed, you probably won’t get the answers they are looking for, and they will perceive that you have just wasted a lot of money in a theoretical exercise.
Every effort should be made to resist picking pieces from scenarios. That tends to create an illusion of forecasting reality, and we are not very good at forecasting. Create another scenario only if it adds additional insight but does not attempt to define a desired future. An alternative is to ask the team to develop thinking diagrams showing how the scenarios can all be valid; create a system of scenarios. In this way it can be understood that all the scenarios are plausible and may occur sequentially or simultaneously in different market segments or different parts of the world.
Scenario planning will take them out of their box and get them to think and look differently at their world. The process should be fun. It is especially fun for left-brain people who have never before been thrown off the “deep end.” It may be necessary and desirable to quantify the scenarios; look at the implications of each scenario in financial terms to create links back to the existing mindset and planning system. The scenarios should have very different quantifiable results. If not, look at them again.
The use of two scenarios is a tactic to make them easier to implement. Two scenarios are often sufficient to demonstrate fundamentally different worlds. However, the number of scenarios should arise out of the thinking process. Each scenario should provide additional insight in a planning and thinking context. GBN tends to use four scenarios when introducing the methodology into an organization. Even then, two may collapse together, resulting in two or three final scenarios. NCRI has used as many as eight business models, but they were paired sets of alternatives and forced the client to consider “What do you want to be when you grow up?” Because the workshop process is critically important, NCRI often structures the number of scenarios based on the number of attendees, limiting each team to five or six, so that everyone gets sufficient air time.
It is extremely important to have a base case and to play it out. The base case is the conventional wisdom, the official future. The base case establishes management thinking before beginning the scenario process. It is difficult to implement change when the current thinking is not clearly articulated. The scenarios need to challenge the base case. If they cannot, you should not be doing scenarios.
When scenarios impact decision making, success is relatively easy to measure. For example, if the strategic planning process is designed with very specific places in which scenarios are supposed to fit-such as investment decisions made in the context of the scenarios-you can monitor the effectiveness of those decisions. Changing mindsets is more complex and elusive. If the mental model of the organization or of the key decision makers changes in some fundamental way and discussion within the organization takes place at a much higher level, consider the process successful. You know you’ve made a major change if the use of language changes-if, referencing the title of a scenario, managers start talking in code to describe very complex, dynamic situations and interrelationships in a simple phrase such as, “What would happen in Green Winds?” Finally, test the results against the objectives. Get a clear understanding of the objectives in the beginning and test whether they have been met.
Today’s businesses must deal with complexity and uncertainty in the external environment. Scenarios are a powerful technique to help you deal with this turmoil in a systematic, rational process. They provide a tremendous front-end input to the strategic management process. Scenario planning is expensive because it requires a huge commitment of time. It is not a trivial task to ask people to think and to change their minds. Those who are not willing to invest the time and effort required are destined to fail. Most strategic management tools are backward looking: a situation analysis is an attempt to establish patterns of how the world has worked until now and extrapolate that pattern into the future. Many tools focus only on internal problems that people feel they can understand and control. Scenario planning forces us to look forward and outward and to become friendly with ambiguity.
Systems thinking and organizational mapping are examples of tools that have been used successfully as a complement to scenario planning. Metaphors and scenario logic are consistent with systems thinking. Organizational mapping is a tool that can be used to help organizations that may not be well positioned to implement the results of the scenario process.
None of the three firms on the panel use computer models. GBN and SRI begin with a blank piece of paper and an interactive process in a workshop environment. Although it is a messy process on paper, they have consciously steered away from the idea of a black box “where you turn the crank and out comes the answer.” They see their role as helping to facilitate the thinking and planning process within an organization. NCRI has back-room processing software and a tremendous database. They believe that if technology improves to where you can have ideas written on the walls, then it would be possible to use information technology creatively in the process. Simulation models are too time consuming for the results they provide. However, it is possible to take existing computer models and change the assumptions and variables to represent the scenarios. Gerald Harris described a client that had an MIS system containing panels of information important to management decision making. The scenarios were presented by changing the panels to depict each scenario. As the new panels came up on the MIS system, they had a dramatic impact.
Virtual reality is seen as the next step beyond video technology for depicting scenarios. Norway recently used national television to present scenarios that had been developed for the country’s future. The scenarios were dramatized in successive weeks, which helped people to imagine the various worlds. Gerald Harris, however, cautions that modeling should not become an end in itself-if this happens, the value of the scenarios as a thinking tool would be lost.
Rob Wilson: A client company in the telephone industry was enthusiastic about a scenario that depicted a world of no regulation. After trying on the end state and exploring the implications, they decided that what they really wanted was a world of less regulation-not no regulation-because they were competing with some pretty heavy players. After the session, they immediately changed their lobbying policy in Washington. Bill Ralston: A paper company was considering an investment in a paper plant in the early 1980s, early for technology to affect that industry. They wanted to explore the implications of electronic communications on the demand for paper. What they learned was that there would be a resilient demand involving color for magazines, catalogues, etc. Based on this insight, they shifted their investments to support this product line where formerly they did not have a presence. Investment decisions are a good application for scenario planning. It is possible to tweak investments to make them more resilient across the scenarios. Gerald Harris: The decision focus identified by mid-level management is often not useful and not supported at the upper level. The pitched battle between these two management levels often causes the most difficulty.
According to Rob Wilson, scenarios do not have to be entirely focused either on the future or the external environment. Sometimes there is a vast misunderstanding of today’s reality. At the 1994 International Conference, one of the concurrent sessions (Building a Memory of the Future: Using Scenarios to Drive Change) focused on Digital Equipment Corporation’s use of scenarios in a very close-in application. The outcome of the process was that DEC came to realize there was not a single view of reality but a collection of business models and alternative views. Bill Ralston, on the other hand, feels there may be a risk in using scenarios with a short-term focus because the closer to the present you are, the more certain things become. Since the process strives to identify external, uncertain forces, the resultant scenarios may not be that different from each other in the near term. Scenarios deal with the external-things you have no control over. You may be able to influence the external environment, but you cannot make decisions about it. Gerald Harris agrees that scenarios should be focused on the long term, but he believes they can be both internally and externally focused; it is a question of balance. He cites a community project regarding a decaying urban core. It contained both internal and external elements and their impact on the community. The focus depends on the question you are trying to answer.
“Dialogue” is divergent; it looks for alternatives to broaden the conversation and widen the perspective. “Discussion” is convergent, a narrowing down of ideas to a consensus. This is an essential management process for making decisions. A good approach is to combine the two in sequence-consider a broad base of conflicting ideas and then narrow the focus: widen/narrow/widen. “Strategic conversation” is essentially the same as Peter Senge’s “dialogue” applied to scenario planning. Once you have the scenarios, what do you do with them? The idea of strategic conversation is to embed the thinking from the scenarios into key strategic planning and thinking processes within the organization. Identify these key processes, such as budgeting, investment review, or business plan reviews, and determine how to link the scenarios to those processes.
The workshop process is a big commitment when it involves the decision makers. It requires the same level of effort whether the company is small or large. One approach to gaining some knowledge of the process is to read about the steps involved. Two issues of Planning Review (March/April and May/June 1992) that focused on scenario planning and The Art of the Long View (Currency/ Doubleday 1991) by Peter Schwartz of GBN provide a place to start. You can read about it and try it. However, it is risky to go it alone, particularly the first time. There are so many ways for the process to go wrong; it helps to have the guidance of someone who has been through it a number of times. Training sessions are less costly than consulting fees, and it may be possible to adapt a set of scenarios from public seminars to your company. It might make sense to team with another small organization or a consortium of companies to gain your first experience with the process.
Scenario planning is an immensely powerful and variable tool, adaptable to many different situations. But developing useful scenarios is a long process. It requires good analysis that includes reading, thinking, and research. You must invest time in the research and interview senior management to make sure the decision issues are relevant to them. Many kinds of outcomes are possible. Scenario planning requires a sharp focus on objectives for each session, even if that objective is just to confirm the boss’s opinion. Consider what the output should be. Without a clear objective, the chances of failure increase dramatically. Scenario planning cannot be a stand-alone process. It must link to other strategic planning processes or it is destined to fail.