Can businesses really plan for the future? Introducing ‘scenario thinking’

Amid endless uncertainty, organisations need to plan for a broad variety of future scenarios. mrskyce

We are currently faced with a seemingly endless list of global and local uncertainties. What will the global financial markets do tomorrow, next week, or next month?

What is the reality of climate change, and what will its impacts be? What does the future hold for Australia’s resources sector?

These issues are of critical concern not just to governments and policy makers, but to business and society in general.

Amid such uncertainty, how should managers plan for the future?

Some planners seek to address uncertainty through probability analysis and predictive planning. However, such approaches have proved less than reliable. Others see unpredictability as reason to sit back and wait to see what happens.

Multiple scenarios

A method known as “scenario thinking” offers a particularly useful approach to managing uncertainty.

The modern scenario method is largely attributed to Shell in the 1970s and the organisation remains at the forefront of its use.

Scenario method presents a range of futures, based upon consideration of possibility and plausibility. Since the events of September 2001, there has been growing interest in the use of scenarios for strategic analysis.

Scenario thinking is particularly useful in addressing intractable or “wicked” problems – complex and ambiguous issues to which there is no single “right” answer. It is also of value in dealing with multi-disciplinary and inter-organisational problems, to which multiple value sets must be brought to bear.

There is a plethora of scenario methods, including quantitative and qualitative approaches. These are combined in one approach based upon “intuitive logics” – the notion that humans make rational assessments based upon intuition.

Whilst this approach is qualitative in its essence, it enables and supports consideration of quantitative data. These might include demographic, economic, climate or other data sets, as appropriate to the issue under consideration.

Humans are natural scenario thinkers. For example, a person who sits outside a job interview without thinking whether the panel will be formal or friendly and what questions might be asked is either very arrogant or very stupid.

None of the thoughts is likely to be “the truth”, but together they prepare the interviewee for whatever does happen once inside the room. However, organisational demands for certainty often militate against such an approach in the workplace.

Scenario methods stretch the application of intuition within a structured analytic framework. When approaching uncertainty, members of an organisation’s scenario team are asked to consider the range of “driving forces” – political, economic, social, technological, ecological and legal (PESTEL) factors – that will determine its direction over the agreed scenario period.

This will vary depending upon the issue. For some issues, such as aged-care needs, the time horizon might be a decade or more ahead. For the future of internet gaming, for example, it will be only few years, if not months. The time horizon should be one that is relevant to the planning cycle, setting medium- to long-term goals, but without resorting to science fiction.

External input

This focussed, near-future scenario approach stands alongside long-term global questions, such as “what will the world be like in 2100”. The latter is usually the domain of futurists, who scan broad trends and possibilities.

The focussed approach involves active participation by those who “own” the problem, with external guidance and input as appropriate.

One area in which external input is valuable is in overcoming institutional myopia. Members of organisations can become fixated on their own business model or product, unable to see beyond these.

Past examples of such myopia include IBM’s failure to see beyond mainframe computers and Rank Xerox’s fixation on large centralised photo-copying. Both organisations suffered as a result but later recovered in a new form.

It is not necessarily good to draw external input from the same business field. Rather, it can be challenging and creative to seek ideas from areas that are laterally related.

The future of air travel, for instance, might be informed by leading edge thinking on fast rail, teleconferencing, climate science and other domains.

Scenario development does not lead to a vast number of futures. It becomes apparent that there are cause/effect and chronological linkages that limit what is possible and plausible. These might be based upon party politics, demographic trends or legal frameworks.

There are also events that are already programmed into the future. For example, there will be United States presidential elections in November 2012 and 2016. Barring the unknowable, Barrack Obama will be the Democratic candidate in 2012, but cannot be in 2016.

Building scenarios

The basic method of scenario building involves the construction of story lines for four possible and plausible futures.

These are based upon a combination of, in simplistic terms, best/best, best/worst, worst/best and worst/worst outcomes for two key factors that will determine the future. These are the two factors that are considered to have greatest impact on the key issue and the highest level of uncertainty as to what that impact might be.

A major consideration here is the differentiation between knowing that something will have an impact, and not knowing what that impact will be.

For instance, there is now fairly general acceptance that climate is changing, but still major differences of view on its causes and its likely effects.

Scenarios do not represent stand-alone predictions of different futures, but together define the limits of possibility and plausibility within which the future is likely to unfold.

Rather than viewing scenarios as visions of the future, it is more valuable to see them as a way of better understanding the present – the multiple perspectives that different stakeholders have on the current situation.

Scenarios prepared through analysis of problem-specific driving forces and possible outcomes enable organisations to test the robustness of existing strategies and plans and to “wind tunnel” new proposals for resilience.

Beyond the basic method, there are alternative scenario approaches. These include “disaster scenarios”, in which a worst-possible future is envisaged. Thereafter, effect/cause reasoning is applied in order to link back to the present. This process informs planning for mitigation or avoidance of such a future.

In “critical scenario method”, the implications and impacts of possible futures of actions by involved parties are considered in relation to stakeholders who have no influence on activities. They may be physically remote, in some less-developed country, or may be located in the future, where they will bear the consequences of actions now.

Scenario thinking should not be seen as an infrequent tool for analysis, but as a way of being. In order to prepare for the future, organisations must consider possibilities, options and impacts in response to every decision they make.