Scenario planning is not about predicting the future. It is about exploring the future. If you are aware of what could happen, you are better able to prepare for what will happen.
The purpose of thinking about the future is not to predict it, but to prepare for it. The future is complex; it involves outcomes that are not intended and are unexpected, as well as those we plan for. However, many of the trends that will determine the future are already evident.
Handling uncertainty in a systematic and realistic manner can provide a real competitive advantage to companies that want to be imaginative; it paves the way for a strategic conversation about the future without reams of paper work and computer runs being required in advance; it serves up strategic insights without being mired down into much detail and it is comprehensive without being pretentious.
By understanding the trends that will drive the future it is possible not only to be better prepared for developments, but to influence the system in order to achieve a better outcome.
Scenario planning is an educational process that helps organisations analyse trends and become more sensitive to signs of change so that they can consider how to respond to events before they happen. It is not about making plans, but is the process whereby management teams change their mental models of the business environment and the world.
Scenario planning exercises involve identifying individual trends and exploring the implications of projecting them forward – probably as high, medium and low forecasts. As different trends are chosen and different combinations of forecast levels are combined, a whole spectrum of possibilities can be identified.
Consideration should also be given to game changing events such as were the end of the Berlin Wall, OPEC oil price rises, the financial crisis following the collapse of Lehman Brothers. There can also be random events (wild cards) like bombs, terrorist attacks and volcanic dust clouds. Ask the great “What if?” question to identify the risk.
The scenario planning process involves identifying three to five possible scenarios involving different combinations of trends and then embellishing them into stories with contexts and characters. This communicates in a more human and emotional manner than a typical business goal and facilitates a deeper level of conversation.
By presenting other ways of seeing the world in this manner, decision scenarios give managers different perceptions of reality, leading to strategic insight beyond their normal experience.
Brefi Group has adopted a simple but powerful scenario planning method developed by Clem Sunter and Chantell Ilbury in South Africa and further developed it to integrate standard business planning tools of PEST, SWOT and SMART.
You start in the bottom right-hand quadrant by studying ‘the rules of the game’; this identifies the forces of change that you know about but cannot control. In doing so you also reveal those things that you can control. In the next quadrant clockwise you examine how those uncontrollable factors might change; this is likely to involve identifying trends, as well as considering the possibility of game changing random events. You can do this by using the PEST model (see below) to identify forces within the external environment.
You should then create three to five different scenarios, which are then translated into easily interpreted stories; easy to understand and easy to communicate. The mind responds naturally to stories, which are much more effective than spreadsheets and strategies and form a better basis for consultation and communication of options.
In the top left quadrant you then develop alternative strategies for responding to these possible scenarios; you’re not necessarily looking for the most ‘successful’ or ‘profitable’ but, more valuable, the most resilient. You then test these using SWOT analysis and set some specific goals using SMART. During the process you should also identify milestones and signposts; these are points at which you should be able to determine actual trends as they develop and then review your strategy.
Carrying out regular scenario planning exercises does not necessarily mean that you will be prepared for an eventuality, but it does mean that you are more likely to be aware of the possibility and, thus, able to act more quickly if a situation develops.
Richard Winfield is Principal consultant at Brefi Group and the creator of The Directors’ Academy (www.thedirectorsacademy.com), [email protected]
Richard helps new directors and boards become more effective by clarifying goals, improving communication and applying good corporate governance.