Is scenario planning the next “hot” strategy tool? Maybe not but after nearly 30 years of use in business, it’s popularity is on the rise. An enthusiastic group of practitioners gathered at the IIR/SLF conference on “Effective Scenario Planning” held in New York City on February 23. Here are some of the new, exciting and best ideas they generated.
Range of Applications: Scenario planning is a highly flexible, scalable tool for understanding the wide range of plausible future conditions you many face in your business environment. By testing your strategies in each of these possible futures you are better prepared for whatever happens. Given the profound changes taking place in nearly every industry, many practitioners now believe scenario planning should be the front end of any strategy process. Scenario planning is never the same process twice; it can and should be adapted to the issues, the planning horizon, the culture within the organization and the constraints including time and funding. Scenario planning applies across industries and is equally suitable for operational issues (such as extending a product line, entering a new market or forming an alliance) or capital investment decisions (investments in new plant, equipment or facilities). I had the opportunity to describe the results of several healthcare projects that used scenario planning to assess investments in hospitals, clinics and equipment to best position these healthcare systems for an uncertain future.

Systems Thinking and Simulation: By integrating systems thinking with scenario planning, scenarios can be understood as part of a complex dynamic system. In the healthcare examples, key leverage points were identified and the impact of potential interventions by regulators, providers, patients or insurers could be traced throughout the system. Bob Pearce described NASA’s use of system dynamic models to describe the market more precisely. Baxter Healthcare also uses computer simulation for continuous refinement of market dynamics and to track long-term implications of strategic decisions.

Certainties vs. Unknowables: One of the key benefits of a scenario planning process is the potential to become more aware of predetermined elements or “facts” that can be held constant in any scenario. Strategists at AT&T have coined the term “freight train” for an unpleasant fact that is looming in the near distance that you would prefer to ignore. An example would be a continuing and permanent drop in product price as it becomes a commodity. When dealing with uncertainties, Garrett Brauer, a senior analyst at Eastman Kodak, cautions that we need to distinguish between those things that are truly unknowable and those things we don’t know simply because we haven’t made the effort to find out. Disciplined attention to predetermined elements as well as uncertainty can improve any decision making process.

Methodology: Scenarios can be either generative [applied to situations in which you can control or influence] or adaptive [for managing in situations you don’t control or influence]. The participants in this conference favored the driving forces or ‘weak signal’ approach to scenario planning. Using this approach, the process starts with a list of forces in the external environment that could have a substantial impact on your business in the planning period. This list is either generated in brainstorming sessions or by using a one-on-one interview technique with key decision makers. The common denominator of the driving forces approach is a set of steps that you have to go through religiously; but how you go through them can vary tremendously. The process moves from scenario development into implications, strategy generation and assessment of the strategic alternatives across the scenarios to identify robust solutions.

Outside Expertise: Many practitioners had experience using consultants to guide their process, particularly the first time through. A few had chosen to go it alone. After several facilitated projects, NASA now does smaller scenario planning projects in-house but would bring in expertise for larger projects, believing that consultants keeps the process on track, particularly when things bog down. Paul Justison of Flad & Associates suggests that you should always ask yourself the question of whether you need an outsider — you may not, but he feels they can add a lot of value.

Decision Makers: Participants stressed the need to get senior management involved. Some suggest that simulation modeling is one way to do that. Another way is to compress the time of the overall process so that the senior team can be involved throughout. As Brauer expressed it, “no one gets excited by reading someone else’s scenarios.”

Scenario Lite: A popular theme throughout the conference was how to reduce the amount of time and money invested in a scenario project without sacrificing the integrity of the process or diminishing the value of the results. Scenario planning projects span the gamut from 1/2 day to 6 months. It is possible to achieve meaningful outcomes with full involvement of senior managers for relatively short, intense periods of times. Brauer gave an example of how Kodak has used scenario planning to produce results in a single day.