Technique 4: Scenario Planning

Click here to view a video that explains scenario planning.

Scenario planning looks at what's going to happen tomorrow. It's focused on understanding what the future will look like. Scenario planning encourages business leaders to imagine not just one, but a variety of future possibilities. Scenario planning is an outstanding way to learn about the future through a deeper understanding of the major driving forces affecting all of us today.

In a group setting, executives engaged in scenario planning exchange knowledge and ideas, constructing a selection of "future stories" that expand their understanding of the current business environment and broaden their perception of future events.

"Driving forces," the most significant trends likely to affect the larger world, generally represent four categories:

Society - Demographics, lifestyle changes, etc.

Economics - Industry changes, competitive forces, changes in workforce, etc.

Politics - Electoral, legislative, regulatory.

Technology - Innovations, etc.

Within this overall grouping are predetermined elements (large-scale forces that are relatively stable and predictable, such as population demographics) and critical uncertainties (forces that we can't predict, such as natural disasters, shifts in consumer tastes, new products devised by the competition, and so on).

The goal in scenario planning isn't to create one specific future. Instead, by drawing attention to key drivers and exploring how they push the future in different directions, planners create an array of possible futures resulting in the ability to make crucial decisions today.

Scenario Planning: The Process

The basic approach in scenario planning is two-folded:

Know your core competencies. The starting point for any future thinking is knowing your strengths as they exist right now. Know your organization’s strategic advantage as well in the marketplace.

Identify forces and trends. Has your company taken the time to seriously pinpoint forces that affect your financial performance - now and in years to come? In some industries, the driving forces are obvious, for example, the dominant influence of political and environmental sentiments on the forest industry. In the coming years, what if the environmental lobby becomes stronger or, conversely less influential?

Think about the Internet, which facilitates communication to and from any locality in the world. Now we don't need central meeting spaces any longer. How is your business different when all your customers and suppliers, as well as your competition, is in the same room and can talk to each other at the same time?

Guidelines to Constructing Scenarios

Look for patterns - As you devise different versions of the future, look for common threads and/or underlying similarities.

Tell a story - Convert apparently random scenarios into plausible, coherent stories.

Imagine, don't predict - Don't confuse scenarios with predictions.

Test the impact - What are the consequences for your company of each different scenario?

Break free of stereotypes - Use scenario planning to challenge inbred or conventional assumptions.

Define a timeframe for each scenario. Some events may occur in 20 years, some in two. But we can't work with indefinite, open-ended scenarios.

Determining how many scenarios to develop - One, three or five. Five is the ideal number, although the disadvantage is that this is expensive, complex and time-consuming. A smaller, agile company should pick three and get going.

Include a wide variety of role players in scenario planning – Diverse in terms of gender, culture, organisational level. Suppliers, strategic partners and major customers could also be included.

By postulating different views of where your business is headed, you gain a sharper sense of the environment you're working in. It's a great way to avoid being overly conservative in your thinking. You don't want to limit your organization's potential in today's competitive marketplace.

Through scenario planning, a business can take these pro-active steps:

• Identify internal and external factors currently affecting organizational performance.
• Draw company employees into a shared vision of the future.
• Devise contingency plans to respond appropriately to external changes.
• Challenge long-held internal beliefs.
• Incorporate the effects of change into long-range planning.

As a result of scenario planning, people within the company generally feel more confident about the future. There's less fear about what lies on the horizon. Instead, employees feel more empowered and flexible as events unfold around them.

Scenario planning is also useful for:

• Helping to anticipate change;
• Predicting the elements of different scenarios: and
• Developing strategies to be able to shape possible future.