Technique 2.51 Scenario Planning
Introduction
· Scenario planning or future proofing has been described as a
"...process of trying to anticipate future developments, so that actions can be taken to minimize possible negative consequences and to seize opportunities..."
Wikipedia as quoted by Marion Hume, 2010a
· It is a part of risk management that involves looking at "what ifs" and can be called future-proofing or future thinking. This is a way to think beyond the status quo by being provocative and challenging conventional assumptions, our thinking, orthodoxies, taken-as-given beliefs, etc.
"...The status quo can stifle imagination and "what if" questions are merely starting points..."
Alexander Osterwalder et al, 2010
Findings from analysis of today's environment can be outdated or even obsolete tomorrow. It is impossible to be certain about the future because of the complexities, uncertainties, potential disruptions inherent in the ever-evolving environment. Thus it is important to develop a number of hypotheses around the future to serve as guidelines. Need to look at assumptions about how market forces, industry sources, key trends and macro-economic forces could unfold.
· Strategies are based on assumptions, either explicit or implicit. But unforeseen events can happen to render these assumptions incorrect; in the worst case, inappropriate strategy can result in the collapse of the organisation.
. No-one can predict the future with certainty and organisations can prepare for the unexpected and unknown by using "what-if" types of analyses.
"...The events that do the worst damage are the ones no one even conceived of..."
such as 9/11 (attacks on the World Trade Centre and the Pentagon, Washington, USA) and Japanese earthquake and tsunami in March 2011. In the latter a seawall (with no outlets) was built to handle an 8.6 (on the Richter scale) earthquake and subsequent tsunami - based on historical evidence, this had been the maximum reading. Yet yet this one was 9.1 and the tsunami pushed water over the top of the wall (see photo below). With no outlets, the water was not able to return to sea and this made the flooding damage worse.
"...in a volatile and fast-changing world, a great many events simply cannot be prepared for..."
Geoffrey Colvin, 2005a
"...There will always be external risk factors that are beyond your control. Oil prices triple. A terrorist blows himself up in a shopping mall. Hurricanes level entire cities. Currency fluctuations leave behind trails of bankruptcies. But we can take measures to mitigate and manage business risks. Then, if disaster strikes at least your attention won't be split every which way by other worries......you cannot protect yourself against the unexpected, so you need to keep your house in as good an order as you can. If disaster strikes, you don't want to find yourself doing twelve things at once and misprioritising them in public. It's vital, therefore, that you take control of your internal business risks - the ones you can influence..."
Richard Branson, 2008
. As the world is VUCA (Volatile, Uncertain, Complex & Ambiguous) an alternative view to strategic planning is
"...don't waste your time on strategy and big plans, because we ain't got a clue what's going to be happening next. All you do know is it's gonna come really fast and you'd better be ready to roll with it and make the most of it ... management's dead and strategy is dead in this kind of world ... I've tried to figure out, what have we been doing so intuitively that's been working for so many years, and institutionalize it, and improve it..."
Kevin Roberts (Global Chief, Saatchi & Saatchi) as quoted by Dominic White, 2012
Instead of strategic plans, he gives his staff 10 things to do in 100 days as it is about "fail fast, learn fast, fix fast". Linked with this is the importance of "learning and fixing"
. The world is full of paradoxes and contradictions, such as
- globalisation v. regionalisation
- abundance v. scarcity
- leadership v. management
- economic short-termism v. sustainable development
- science v. technology
- materialism v. spiritualism.
Scenario planning involves the thinking, ie "imagine if....?" It involves asking people to answer questions like 'what if'' and then think about 'so what'.
When evaluating a scenerio, need to focus on the "low hanging fruit", ie solutions that deliver huge pay-offs all this and are within relatively easy reach.
Thus the basis of scenario planning is to develop ways to handle these paradoxes and contradictions. More often than not, the process raises more questions than answers.
. Starting in 1960s are some examples of most experts not predicting or misreading events around important people
- Deng Xiaoping (hiding from the Red Guard & later leading the re-emergent of China)
- Ayatollah Khomeini (living in exile in Iraq/France before leading the Islamic revolution in Iran)
- Margaret Thatcher (a junior education minister & later the first female PM of UK)
- Karol Jozef Wojtyla (Archbishop of Cracow (Poland) & later becomes the first non-Italian Pope (John Paul II) since Adrian VI (1522))
- Lech Walesa (an unemployed electrician & "Solidarity" leader who becomes the first president of post-Communist Poland)
- Nelson Mandela (serving a 27 year jail term in Robbin Island & later became first President of post-apartheid South Africa)
- Mikhail Gorbachev (a minor player in Communist Soviet Union who rose to the leadership of the Communist Party & dismantled the Soviet Empire)
- John Howard (a suburban solicitor & failed state politician who went on to become the 2nd longest serving PM of Australia)
- Jackie Kennedy (when President John Kennedy (1961-63) was campaigning for the US presidency in early 1960s, most of his political advisers recommended that his wife (Jackie) not play a dominant role in his campaign. It was thought that she was too sophisticated and did not have the 'common touch', and this could discourage the 'average' voters from supporting Kennedy. However, she became very popular with the public and was a huge asset in her husband's successful political career (SBS, 2021b))
. Furthermore, an organisation needs to understand, and to handle, risks that it could face. For example, the top 25 global risks (for more details see mega trends) identified at the World Economic Forum on Global Risks (2006) were, ie
"...- economic, such as oil prices/energy supply; asset prices and indebtedness; US current account deficit and US dollar; coming fiscal crisis (failure and market crashes); China (integration, protectionism and dislocation); critical infrastructure (power outages, data blackouts and attacks)
- environment, such as tropical cyclones (East Asia and North Atlantic); earthquakes (Japan and California): climate change; environmental degradation and loss of ecosystem services
- societal, such as regulation (changes); corporate governance (failures); intellectual property rights (piracy, etc); organised crime (counterfeiting)
- pandemics, such as slow and chronic diseases in industrialized countries (obesity, cardiovascular, cancer, etc); developing world diseases (HIV/AIDS and TB); liability regimes (insurance capacity)
- technological, such as converging technologies (privacy issues); nanotechnology; electromagnetic fields; pervasive computing (RFID)
- geopolitical, such as international terrorism; European dislocation; current and future hotspots (general Middle East instability, Iran, Iraq, Saudi Arabia and Korea)
- Most likely short-term risks with highest severity: New HIV/TB infections of 5 million people
- Most likely long-term risks with highest severity: incidence of HIV/TB flattens in sub-Saharan Africa, but rapidly expands elsewhere; incidence of HIV/TB infections flattens, death remains high
- Risks just outside the top 25 are
- Space weather (solar radiation)
- Loss of biodiversity..."
as quoted by Tim Mendham, 2006
. Scenario planning is an effective way of investigating how alternative futures might occur and handling the associated risks/uncertainty. Furthermore, it can help managers see important possible events that would otherwise remain unconsidered and brings flexibility into long-term planning.
. Scenario planning is part of long-term planning techniques, ie 10 plus years. As the timeframe gets longer, the reliability of projections and assumptions diminishes. For example, very few people predicted the speed of globalisation, the 9/11 terrorist attack, the fall of the Soviet Union, etc
. Scenarios are studies of the future. They are aimed at helping people overcome their mental blocks and to consider unthinkable futures, which would take them by surprise if they were not prepared. ie think the unthinkable. For example, the need to challenge the unconscious prejudice and assumptions that are obvious in our organisations, the way we manage our organisations and our world views/prejudices, etc that guide our decisions that shape our future. This can include understanding the dynamics of where we are now and its historical context before determining where we are going, ie what might be different tomorrow that would surprise us. Need to be continually scanning the environment from popular media to academic journals, to identify early warning signs of change - such as new technology that is disruptive. For example, look at the dislocation impacted upon Kodak by digital photography and the seismic shift in the software industry since the advance of Google, etc. Furthermore, there are the "slow moving" challenges such as climate change, or "strange bed fellows" such as telephone with a camera, the microchip and the radio transmitter.
. Thus to be able to make worthwhile predictions we need to understand the past, presence and future. This is very hard to do because
- history does not repeat itself;
- a small variation in our current situation can lead to extremely convergent results, eg butterfly affect (a butterfly moving its wings in India could cause a hurricane in New York)
- too many unknowns and uncertainties to be accurate about the future, ie multiplicative difficulties
. Remember: scenario planning is not a science - it is an art.
. Need to remember that the uncritical substitution of plausibility for probability has impacts on judgments when scenarios are used as tools for forecasting. Probability judgments are higher for the more detailed scenario, ie adding more detail to scenarios makes them more persuasive but not necessarily true
. It involves thinking about what you need to do before you even look at strategy. This encourages you
- to challenge own assumptions and understand where they might not be applicable,
- be confronted with new information and its ramifications,
- to better understand the myths and metaphors that are the basis of your organisational culture.