Scenario planning is a widely used method as corporations and public organisations formulate their strategies. Scenario analysis is a method to better anticipate and prepare for their organisation’s future.
Gerard D. Drenth is an Associate Fellow at Saïd Business School, Oxford University and Senior Partner and Managing Director at NormannPartners, and has more than 20 years of experience in strategy.
“The red line of my career has been changed in context. The Berlin Wall came down as I was working at NATO and the financial crisis hit when I was working at Morgan Stanley. Both were huge changes in how the environment was configured and called for immense strategy adjustment,” Drenth tells.
“The best leaders accept that the future is fundamentally uncertain and find sensible ways to work with this. A good leader makes sure that people know that there’s always uncertainty in decision-making,” Drenth says.
SCENARIOS ARE ALTERNATIVE MAPS OF HOW THE FUTURE MAY UNFOLD
Scenarios are alternative maps to the map of the assumed future we already have. Scenarios are composed of integrated narratives of how the future may unfold, with always two or more in a set. They are small, memorable and coherent stories describing a small set of plausible futures. They are not strategy (what you could do); they are about what could happen.
The stories must be plausible, relevant and challenging. “The probability of a scenario happening is zero,” Drenth reminds, “Some elements of it might happen, some fragments of the stories might unfold.” Scenarios should talk to specific concerns of the company in question, so do not use someone else’s scenarios, he reminds. Your scenarios reflect your organisation. Scenarios should be challenging, but not too challenging: “If everything melts into toxic waste, people will walk away.”
FOUR MAJOR CHALLENGES ORGANIZATIONS HAVE WHEN DEALING WITH THE FUTURE
According to Drenth, organisations have four major challenges when dealing with the future—first, drowning in complexity. Drenth summarises the forces of the complex world in an acronym: TUNA, which stands for turbulence, unpredictable uncertainty, novelty and ambiguity. “We cannot put a probability or a price tag for something like Brexit,” Drenth gives as an example. Scenario planning is used to understand the context better and make sense of its complexity.
[Also, check out our article on the VUCA World Order – a quick look at how the speed of change is affecting organisations everywhere.]
The second challenge is weak strategic conversations, “when the conversations are of such a quality that the decisions do not improve,” Drenth says. It happens in organisations where leadership is not challenged. Company culture also matters: is it a culture where I can challenge the leadership and where the “official future” is presented to the stakeholders? As such, scenario planning can be used for braver conversations and challenging leadership, ultimately leading to better decision-making.
The third challenge is being unaware – not really seeing and sensing. “It’s similar to looking for the lost key only under the streetlights ignoring the shadows,” Drenth says about only looking where you can see. “Trends are leftovers from yesterday’s futures. Sometimes they inform us about what’s about to happen, but often do not. Instead, look for trends that cannot continue, that are unsustainable. Major discontinuities will happen when a trend cannot continue because it hits, for example, a social or technological wall,” Drenth says. Scenario planning is used for focused scanning and monitoring for specific emerging signals to improve seeing and sensing.
The fourth challenge is making assumptions and building strategy on toxic assumptions. “An interesting insight is that the design of every organisation assumes a certain future,” Drenth says. “All organisations have an assumed future they are currently best set up for.” Scenario planning can be used to challenge these assumptions and their strategies.
SCENARIO PLANNING IS USED FOR MAKING SENSE OF THE WORLD AND TO SUPPORT DECISION-MAKING
Drenth identifies four buckets of use for scenario planning: sense-making, engagement to support strategic decision-making, and continuous sense-making.
Sense-making is about giving meaning to the events and actions taking place in the context of an organisation. Continuous sense-making refers to allowing people in an organisation to be on the lookout all the time. It means that indicators for each scenario should be identified in order to spot the early signs.
Scenario planning can be used for engagement, which means building bridges and forming collaborations. The focus is on influencing and communicating. “During a big merger between companies, they disagreed on everything but then did a scenario exercise to start working together and exploring the future,” Drenth cites an example.
Scenario planning can also be used to support strategic decision-making. As an example, Drenth mentions Shell, where every major business decision will be held against current scenarios. “It is a wind tunnel exercise where the scenario is the wind tunnel to test the vessel in different conditions,” Drenth says. Through scenarios, you can fine-tune strategies or innovate new offerings and options.
Technology platforms such as Futures Platform can help in raising “future awareness” and challenging conventional thinking. They can also help explore the context and identify factors and uncertainties in scenario development.
IN A NUTSHELL
Scenario planning encourages a diversity of views, turning disagreement into an asset. Scenario planning also helps organisations carry out continuous sense-making in turbulent contexts. In the end, scenario planning is not about the product, but about instilling a process.