An Organizational Guide for Maximizing Flexibility in Uncertain Times

Trends in Scenario Planning: What's hot and what's not

by Anikca Savage (formerly Audrey Schriefer )

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.

The Future of Scenario Planning

Justison told of the ancient Greeks who “walked backwards into the future with their eyes firmly fixed on the past.”  Scenario planning is one of the few planning tools that recognizes that the future is not predictable. It doesn’t try to minimize uncertainty by projecting historic trends into the future. Scenarios are a natural part of how we think; we are constantly integrating information and visualizing alternative responses to possible future conditions. This group of practitioners feels that scenarios can add real value over the long term and should be an integral part of management thinking and every strategic assessment process.  However, there is a recognition that business people tend to dislike and, therefore, avoid any issues that don’t have clear solutions and that are out of their control.   This feeling creates a resistance to the introduction of scenario techniques in many organizations.  If your management team isn’t ready to commit to scenario planning, Justison suggests “stealth scenario planning;” do it covertly to stay one step ahead of them.    And, remember to make scenarios fun.  Act them out and give them vivid names to create a mental image.

Scenario Lite – Useful Scenarios in 8 Hours or Less

  • Ask the oracle question – what is the one thing you would like to know that would make a significant impact on your business?
  • Capture these as ‘uncertainties’ in the form of questions — “How fast will digital imaging technology replace analog?” or “How fast will emerging markets adopt new technology? Eliminate those whose uncertainties that are due to “ignorance.” Select the most critical and the most uncertain.
  • Generate 2 to 5 possible outcomes for each uncertainty in the form of “little stories” with a specific measurement and time frame. Teams of experts can be assigned to a group of uncertainties to go off line for an hour to generate the outcomes.
  • Create the scenario matrix with the uncertainties in the top row (column headings) grouped by cluster or ‘super heading’. The cells under these headings are populated with the outcomes.
  • Have people ‘vote’ for the most likely outcome for each uncertainty. Those with the highest number of votes become the “base case’ scenario if they hang together in a logically consistent theme. They usually represent the middle of the road, incremental scenario.
  • Use the remaining outcomes to generate several other possible scenario themes. Test these to see if they add value.
  • Test your strategy in each of these scenario themes.