Scenario Planning
A Brief History
The idea of scenarios — telling possible stories about the future — is as old as humankind. Scenarios are a tool for ordering our perceptions about alternative future environments in which today's decisions might be played out. As a methodology, it has been used by the military, but only in the last 30 years, in the face of increasing uncertainty and complexity, have corporations and other large global organizations begun to develop sophisticated scenario planning processes. Royal Dutch/Shell pioneered this application in the 1970s when its planners realized that conventional forecasting could not capture the complex unpredictability of the oil industry. Shell made the tool famous by using it to great effect, with two examples being particularly noteworthy: once to anticipate the Arab oil embargo, and then again to anticipate and prepare for the dramatic drop in oil prices during the 1980s. In both cases, the use of scenarios forced leaders to examine their deeply held assumptions, and to practice what they would do if the unthinkable happened (which it did, both times).
Developing Scenarios
So what is scenario planning, as we practice it at GBN? The process is highly interactive and imaginative. It begins by isolating the decision to be made, or the issue to be explored. Sometimes, scenario projects are very specific, and ask questions such as, "Should we spend x dollars doing y thing?" Sometimes, projects are more general, such as those that probe the changing nature of national security (and therefore where the U.S. government ought to be putting its resources). Still others use scenarios to stress test the viability of current strategies or to generate innovation portfolios.
In every case, scenario planning involves rigorously challenging the mental maps that shape our perceptions, in part by tapping unorthodox and provocative sources. We all have blindspots and biases. Moreover, our perceptions are often shaped by our past successes and failures, which may no longer be relevant in a rapidly changing world. A good scenario-planning project expands leaders' peripheral vision and forces them to examine their assumptions.
Scenario projects start by making visible those assumptions, beliefs, and biases — which are often expressed as "the Official Future" — so they can be challenged. The next steps are more analytical: identifying the driving forces (social, economic, political, and technological); the predetermined elements (i.e., what is inevitable, like many demographic factors that are already in the pipeline); and the critical uncertainties (i.e., what is unpredictable or a matter of choice, such as public opinion or customer behavior). These factors are then prioritized according to importance and uncertainty, with the most critical uncertainties framing the scenario space.
These exercises culminate in two to four carefully constructed scenarios. In practice, scenarios resemble a set of stories, written or spoken, built around carefully constructed logics. Only a few scenarios, ideally three or four, can be fully developed and remembered; each should represent a plausible alternative future, not a random set of possibilities of a best case, worst case and "most likely" continuum. As a result, scenarios defy denial by encouraging — in fact, requiring — the willing suspension of disbelief. Scenarios also reduce paralysis by organizing and structuring the key choices an executive faces. The test of a good scenario is not whether it portrays the future accurately but whether it enables an organization to learn, act, and adapt.
Using Scenarios
Once the scenarios have been fleshed out and woven into a narrative, the team identifies the implications for the focal question and the options for action first within each scenario — and then across the set, looking for robust strategies that will work, regardless which future unfolds. Then the team lists leading indicators to be monitored on an ongoing basis — the events to watch for which will indicate which future (or combination of futures) is actually unfolding. By rehearsing the future in this way, scenarios enable an organization to adapt more quickly to what is actually happening, and to anticipate better what could happen. In the face of some major new development, the organization doesn't have to spend months in denial, and then more months developing options. Scenarios are also helpful tools for generating new ideas, and testing their efficacy. New proposals can be flown through the scenarios, using them as a sort of wind tunnel to test their resilience. And scenarios can be integrated with a wide range of other tools and processes for strategy development, innovation, risk management, visioning, and executive learning..
Hence, organizations can avoid wishful thinking — blindly pursuing their own visions, without the discipline of a thoughtful strategy that might actually turn that vision into a reality. Decisions, which have been pre-tested against a range of what fate may offer, are more likely to stand the test of time. And taking an informed long view may give an organization the courage to stick to a set of priorities, rather than backing off in the face of resistance or failure.
Scenario planning is intellectually rich and challenging. But it's not a dry academic exercise. It's a conversation, involving human beings who want to learn together. Therefore, it's a complex process of group dynamics that must be managed carefully if it is to succeed. When it does, a group of people creates something together — an analysis, a vision, a language for describing the world, a plan of action — that makes them more committed and able to work together effectively.
Ultimately, scenario planning is an ongoing process of organizational learning; the scenarios are a platform for continuously re-perceiving the changing business environment and preparing for the new risks and exciting opportunities that will emerge.
Related Articles
Case Studies
The Future of Hardware Retailing: A Scenario Caselet
This hypothetical example highlights key outcomes of the scenario planning process and demonstrates how scenarios can inform strategic choices.
Reframing Risk—and Opportunity
The GBN approach to risk doesn’t begin with mitigation strategies against a pre-existing body of known risks.