Scenario Planning

Approaches in Strategy Excellence

Scenario Planning

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Scenario Planning

Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12

Introduction Purpose Scope Objectives Definition of Terms Roles & Responsibilities Key Principles Timing Description of Process Scenario Pitfalls Key Performance Indicators References

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1. INTRODUCTION The new millennium has been marked by increasing uncertainty and rapidly accelerating change in the business environment of many organizations. Major change drivers in the macro environment including, continuing globalization, fast technological change, increased liquidity of wealth and fundamental changes in traditional values and cultural structures are well known. However, as drivers in the macro environment interact with each industrys own trends and uncertainties, the range of imaginable futures for individual firms has grown manifold in comparison to earlier decades.

In a world where uncertainty and change prevail, strategic planning without well-grounded methodologies and frameworks for assessing the future has become impossible. Above all, strategists and business planners need to learn to distinguish among the different kinds of uncertainties. They have to become confident in navigating uncertainty.

No organization has the luxury of locking into a single view of what the future may look like and placing all its bets on that outcome. The level of global economic interdependence, advances in technology, and changing business models are increasing complexity and hence uncertainty for all organizations. Those that fail to adapt to the new realities will stumble and ultimately fail; those that are able to respond quickly and confidently, and mitigate threats or seize opportunities, will thrive.

As such, business planners need new tools and methodologies to help deal with uncertainty in the strategy process. Scenario planning distinguishes itself from other more traditional approaches to strategic planning through its explicit approach toward ambiguity and uncertainty in the strategic question. There are other planning tools and analysis frameworks as well that are useful during times of uncertainty. Scenario planning allows organizations

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to plan for an uncertain future, enabling them to react with greater speed and confidence.

2. PURPOSE Scenario planning provides a means for ordering perceptions about how the future may play out and determining what strategic decisions today offer the best chance of success tomorrow. The process challenges management to revisit its assumptions about its industry and consider a wider range of possibilities about where its industry may head in the future. This exploration results in a broader, more innovative view about future growth opportunities and risks.

Importantly, the point of scenario planning is not to predict the most probable future. Rather, the objective is to develop and test strategic choices under a variety of plausible futures. Doing this exercise proactively --essentially, rehearsing for multiple futures --- strengthens an organizations ability to recognize, adapt to, and take advantage of, changes in the industry over time.

Alternative projections facilitate comparing and contrasting what could unfold under distinct conditions and assumptions. Scenarios are plausible in that there is, or should be, some degree of evidence to support the projections they contain. Scenarios serve a variety of purposes, particularly in strategy related processes: 1. Strategy development Improving assumptions behind planning is the most obvious use of scenarios. Scenarios represent pictures of possible future outcomes based on both todays facts and on assumptions of what can be extracted from the trends that can be identified in the present. They are descriptions of possible futures and are not forecasts.

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Scenarios also serve to challenge conventional thinking. Much of todays business life is hectic and most managers time is spent on routines. Consequently, it is common to extrapolate past experience and to assume the future as a continuation of the present. The central objective in narrating scenarios is to expose the dangers of assuming that the future will be a simple continuation of the present trends.

2. Strategy evaluation In addition to using scenarios as a starting point when drawing up new strategies, scenarios are useful for testing the robustness of a companys strategies under each scenario. Also, risk assessments of a companys business portfolio and individual projects can be made by testing these under different scenarios.

3. Basis for early warning system Maybe the most interesting application of scenario planning is to use the exercise as a basis for early warning systems. By concentrating on critical uncertainties and identifying and analyzing central influencing factors, it is possible to further identify leading indicators and signposts that should be monitored and that should function as the basis for an early warning system. In a similar fashion scenario analysis can be used for identification of critical information needs in general.

4. Organizational learning At the individual level As a cognitive device: A set of scenarios is a highly efficient data organization tool. Stories are efficient in giving many different bits of information a mutual context, thereby making the cognitive aspects of any situation more manageable to deal with. As a perception device: As individuals, people see certain things and overlook others based on their existing mental models and
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resulting expectations. The scenario process increases the range of what participants see and expands their mental models. As a cognitive reflection tool: The scenario process helps people think through ideas generated in the strategic conversation more effectively. At the group level As a ready-made language provider, assisting the strategic conversation across a wide range of partly conflicting views. As a conversational facilitation vehicle: Scenario planning provides an organized way of discussing relevant aspects of the business in an organizational context. As a vehicle for mental model alignment, which in turn permits coherent strategic action.

While the construction of composite strategies from strategic options cannot be based directly on scenarios, scenarios and scenario-based techniques could be used to select and evaluate new or existing strategies. The same is true for the development of visions. It is fundamental to strategic management that visions, goals and resources and competences are in line with the business environment. Scenario techniques can be useful in developing a strategic vision that creates stretch, and thus the energy necessary to keep the organization going.

Strategy implementation is just as important as strategy development (if not more so). Without a good implementation strategy and effective implementation, strategy development will be nothing more than an intellectual exercise. Practical implementation does not make much use of scenarios, although scenarios and visions can function as guidelines. However, in the development of the implementation strategy in terms of organizational needs, operations design and so on, scenario techniques are as useful as in the development of corporate or business strategies. Finally,
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scenarios can be useful in the evaluation of the companys progress and course of action. Are we heading in the right direction, given the most probable business context scenarios and their alternatives? is a question that should be asked more frequently in many organizations.

PLANNING SITUATIONS WHERE SCENARIOS ARE USEFUL

However, there is no universal scenario planning and analysis method. Instead, there are a large number of different techniques and methods for generating and using scenarios in planning and decision-making contexts.

From a process standpoint, scenario planning has the additional benefit of promoting high levels of organizational learning and collaboration which are not as deeply embedded in other strategic practices.

Scenario Planning REINFORCING BENEFITS OF SCENARIO PLANNING

3. SCOPE Ideally, scenario planning is used in rapidly changing environments, prior to the development of a strategic plan, or as a supplement to/validation of a companys strategic plan. Senior management insight and discussion, as well as insightful background information is required.

Scenario planning is largely focused on answering three questions: 1. What could happen? 2. What would be the impact on our strategies, plans and budgets? 3. How should we respond?

Scenario planning works alongside other strategic planning techniques to ensure that strategy takes into account the contextual environment in which it has to succeed.
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Scenario Planning THE ROLE OF SCENARIO PLANNING WITHIN BUSINESS STRATEGY

Before embarking on a scenario planning exercise, it is essential to be clear about the issue to be addressed, and then to define the appropriate scope and time horizon for the scenarios to be constructed. There are four broad types of scenarios: 1. Social. For example, what are the implications of increasing obesity? 2. Economic. For example, how will the rapid economic growth of China and India change global markets? 3. Political. For example, how will changes in U.S. health care policy affect the economics of small businesses? 4. Technological. For example, how will the increasing use of smart phones impact desktop and laptop computer use?

Answering the following questions will help determine whether a scenario planning project makes sense and how to define the objectives and scope:

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What issues or decisions are we trying to evaluate? Is there a high degree of uncertainty about the future? If yes, can scenario planning be an effective tool?

What is the time horizon for making decisions and then executing them?

A clear definition of the business/department boundaries included in the planning is also essential. The key deliverables of the process include: Defined key planning issue(s) List of agreed upon planning assumptions List of key trends and forces Articulated alternative scenarios Identified key aspects of alternative strategies Completed action planning templates (value chain actions for each scenario) Identified robust strategies that work in all scenarios and contingency plans that are unique to each scenario Identified triggers sources to monitor and trigger points

The normal perspective for most organizations is from inside to out. They start by looking at their own organization and then at customers, competitors, structures and technology within their own arena. This approach works as long as its rather narrow outlook is appropriate.

Scenario planning begins with an outside-in view in order to identify and plan for the external influences and uncertainties that will have a significant impact on the organizations choices. Scenario planning starts in the outer circle with the contextual environment that will shape choices.

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The scenarios that result connect these three environments in an engaging strategic conversation about uncertainty and alternative futures.

4. OBJECTIVES Scenario planning can greatly enhance an organizations ability to tackle a diverse set of strategic business problems, many of which have become more challenging as the business climate becomes ever more complex, dynamic and uncertain. Among the objectives of scenario planning are: a) To create a more robust and sustainable long-term strategy based on a set of assumptions about what ideas work across a range of scenarios; b) To help make clear-cut, well-defined strategic decisions under conditions of uncertainty; c) To provide a basis or testing the impact of current and proposed strategies on the performance of the organization in the future;

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d) To help organizational leaders sort through complexity by identifying patterns of change, enabling organizations to act more explicitly and holistically; e) To continuously improve and innovate in and by anticipation of the market; f) To develop organizations that can think flexibly and creatively; and g) To align key stakeholders in support of a shared vision.

5. DEFINITION OF TERMS Scenarios are descriptive narratives of plausible alternative projections of how a studied system will evolve in a specified time frame. Scenario planning is the combination of scenario analysis and strategic planning. It is planning aimed at systematically exploring alternative lines of development in the outside world and their consequences for your own business, industry or area (the system being studied). The issue or question that the scenario thinking/planning process seeks to address. Emerging or potential issues are ones that have not yet come to the fore, but have the potential to become problems that the company will need to act on. Potential future issues are often identified through scenario processes. A set of assumptions that in aggregate becomes a framework for how a person or group interacts with the world and their business environment. Mental maps are usually implicit, i.e. often unstated. The letters of the word stands for the six areas that are important to check when tracing changes in the surrounding world. Economy and market Politics

Scenarios

Scenario Planning

Focal Issue or Question

Emerging Issues

Mental Map (or Mental Model)

EPISTLE

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Institutions and organizations Social changes Technology Legal changes Ecology and ethics A future event is something that may or may not happen in the future. Scenarios can be created by generating and clustering future events. The explicit articulation of a set of commonly held beliefs about the future environment that a group, organization, or industry implicitly expects to unfold. Once articulated, the official future captures an organizations shared assumptions --- or mental map. Forces of change outside the organization that will shape future dynamics in predictable and unpredictable ways. Driving forces can either be predetermined elements or uncertainties. All types of studies concerned with the exploration and analysis of future states beyond normal budget horizons could be named futures studies. Traditionally, the term applies to studies with a 1030-year horizon. A normative scenario is one that describes a desired (or undesirable) future. The purpose of normative scenarios is sometimes to explore the best-case future and possible roads to that future. The purpose could also be communicative. A pitfall is a trap you could fall into. There are many pitfalls in scenario work. There are prejudices, wishful thinking and blind spots that could lead to lousy analysis. And several other traps lurk in the fields of process design, selection of participants, communication format and the others. Scenario learning is the use of scenario techniques to increase shared understandings of systems dynamics, future developments, uncertainties and so on. Scenario learning is by nature explorative.

Event

Official Future

Driving Forces

Futures Study

Normative Scenario

Pitfalls

Scenario Learning

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Forecast or Prognosis

A forecast is a description of the most probable future under present conditions. Forecasts are useful in the short term, but rapidly lose their significance in the longer term as they do not take future events into account. Assessments of economic conditions are common examples of forecasts. While forecast is used as a term for predictions, foresight is a term that describes a more open perspective on futuristic thinking. Foresights focus on the identification of possible futures, potential issues, tendencies, and uncertainties, often using scenario methods. Foresight is similar to the term prospective analysis. This term is used by Michel Godet and others to designate a multiplicity of possible futures. Like many others, Godet is critical of the possibility of making forecasts and probability-based assessments of the future. Prospective analysis generates scenarios based on a series of suppositions about the right path to choose. Trends are long-term, often irreversible, changes that frequently take place over a number of years and which often creep up imperceptibly. The effect of a strong trend on a phenomenon can often be measured and forecast. Fads are more short-term shifts, for example in interests and opinion. The difference between trends and fads is similar to that between climate and weather. A utopian scenario is a normative best-case scenario that lacks in plausibility and therefore lies beyond the space of possible, credible futures. Utopian scenarios are often conflict-free and relatively boring. That is also the reason why they are so rare in literature. Key points about each scenario based on analyzing the driving forces. Scenario plots are developed by analyzing key stakeholders. A vision is a vivid picture of a desired future, often expressed in a short and pithy way. If it is to work as a

Foresight

Prospective Analysis

Trends as opposed to Fads

Utopian Scenario

Scenario Plots

Vision

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strategic vision in an organization, it must be well anchored in the hearts of those who are to make it come true. Every scenario-planning process should be connected to a vision of what you want to achieve. Contextual Analysis Contextual analysis is a term for all sorts of analysis of the organizations external environment, the outside world. A base scenario gives a broad picture of what we can take for granted in the future. It summarizes general assumptions about the future on which a number of contrasted alternative scenarios can be built. Thus, a base scenario is a very broadly and qualitatively described forecast where built-in uncertainties are hidden. Those uncertainties can, however, be highlighted in alternative scenarios. The base scenario gives indications of the essential actions that organizations need to take in order to be able to cope with the future. Qualitative methods are based on soft data (that is, methods non-quantifiable variables) and reasoning. The purpose is often to identify and analyze systems relations, key actors, uncertainties and the like. Qualitative Scenario Methods Qualitative methods are necessary in medium to longrange planning. Semi-qualitative methods such as trend-impact and cross-impact analyses are common in scenario planning. By semi-qualitative we mean methods where for instance relations are quantified on the basis of qualitative reasoning. The purpose of quantitative methods is to get output data in numbers. Quantitative methods are based on the assumption of causality that can be captured in regression or systems models. Quantitative scenarios could often be modeled in spreadsheets or desktop simulation programs. Quantitative methods are often a necessary complement to qualitative methods in the search for more solid facts and figures, and in the exploration of the future trajectories of present trends and patterns.

Base Scenario

Quantitative Scenario Methods

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Back-Casting

A scenario technique where you start with an imagined future and then create a path to it. The path could be constructed through analytical methods or through more creative methods such as future history writing. Factors or signposts that are drawn out of scenario stories and that should be monitored on an ongoing basis to signal change. Leading indicators can be very obvious, such as the passing of a debated piece of legislation, or quite subtle, like small signs of a gradual shift in social values. Forces of change that are relatively certain within the relevant timeframe, such as population aging. It is a given that predetermined elements will play out in the future, although how they interact with and impact other variables remain uncertain. Unpredictable driving forces such as public opinion or the state of the economy, that will have a big impact in the contextual environment and/or market conditions but whose outcomes are highly uncertain or unknown in the planning timeframe. The various combinations for how critical uncertainties may unfold form the basis of a divergent set of scenarios. Insights that capture the learning from scenarios by asking what challenges and opportunities would the organization face if it were operating in each one, and what options would make most sense in response. An unexpected event, like a revolutionary discovers or a global epidemic that could require a change in strategy. Wild cards help surface new uncertainties and different contingent strategies for future action that may not emerge from the more logical structure of a scenario framework. A dystopian scenario is a real nightmare scenario. Dystopian scenarios are common in literature, Orwells 1984 is one example of dystopia in metaphorical format. Dystopian scenarios full of conflicts, such as soap operas, are often exciting and stimulating and are often used as contrasting scenarios to normative and

Leading Indicators

Predetermined Elements

Critical Uncertainties

Scenario Implications

Wild Card

Dystopian Scenario

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more utopian ones. Actor An actor is an individual, group, organization or even a nation that has an interest in the issue or system studied. Conflicts can occur as a result of actors conflicting interests. They are often a strong driver in social change. Potential conflicts could be used as an inspirational source in scenario development. It is also important to consider important conflict dimensions in each scenario of a scenario set.

Conflicts

6. ROLES & RESPONSIBILITIES 6.1 Scenario Planning Facilitator Spearheads the session for scenario planning participants. Draws out participants thought processing abilities to enable them to think outside the box. Manages and controls the session so that discussions evolve freely. Defines and emphasizes to participants what is to be expected from the scenario planning exercise and what the value for them might be. Refrains from taking part in the discussion but gathers information and records ideas of participants. Draws out the common themes from among the scenarios and works with participants to establish effective conclusions. Analyzes information about the purposes, desired outcomes, work context and participants to determine the best approach. Designs meetings to enable the group to succeed at its purposes using appropriate structures, processes and sequences. Establishes group climate, norms and roles with the group to help participants do their work and create a productive environment. Creates and implements structures and processes to accomplish tasks and meet the objectives of the scenario planning exercise.

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Intervenes to manage group dynamics, to enforce norms and to influence what members are doing or how they are doing it. Navigates decision processes through methods chosen and the established organizational hierarchy or decision structure. Ensures follow-up action related to production and distribution of session record, results, communication with stakeholders and implementation of decisions.

6.2 Management

Ensures active commitment and involvement in all stages of the scenario planning process.

Identifies and decides what questions they wish to evaluate in the process.

Provides valuable insights and ideas in crafting relevant scenarios and/or voting on the options offered.

Oversees the implementation of action plans accompanying the scenario planning process.

Advocates creative thinking among participants by taking a lead role in thinking outside the box.

Takes an active role in identifying and monitoring leading indicators. Ensures that information and data collected for the session are relevant, timely and accurate.

6.3 Scenario Planning Participants Outlines strengths, weaknesses, opportunities and threats that the organization is likely to face Identifies trends and pressures that will have the most impact on the organization or department. Reviews the forces to decide which are most important in relation to the question asked, which are most certain and likely to occur in

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any future plans, and which are most uncertain and difficult to predict. Narrows the forces to choose the one that is most uncertain and the one that is most important. Outlines possible strategies from the stories that have been developed that will help the organization to respond to changes should the future develop as outlined in the stories. Outlines indicators that they will use to review the scenarios to determine if the future is developing as described.

7. KEY PRINCIPLES 7.1 Scenario planning is not meant to be an accurate science; it does

not produce forecasts. Nobody can predict the future. While the future is uncertain and unknowable, scenario planning helps you visualize it. Past trends are only valid in relatively stable environments and, while they can give consideration to potential major changes they will only do so if you include them.

7.2

Scenario planning requires a wide range of potential inputs to

provide a useful basis for decisions. This may actually mean extensive desk research, horizon scanning or interviews, or a mixture of all three and the presence at the scenario planning sessions of external people. Scenarios that are built by only insiders tend to become introverted and pessimistic, with a focus on problems rather than opportunities.

7.3

Scenario planning is most useful when it is done in the context of an

understanding why it is being conducted. Is it to provide a context for decisions; or as a part of building management skills? In the first case, it is important that the supporting desk
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research in the trends is in place; in the second case, it may be more important to discover what is in the participants heads.

7.4

Scenario planning is about using the right tools to be able to think

strategically. Scenario planning is by nature a multi-disciplinary field, dealing with extremely complex issues. The mission is to develop maps of the present and the future that are relevant to management. To do that there is a need for methods and tools to: Identify emerging trends and potential issues Identify their consequences and conceivable reactions to them Generate alternative scenarios and images of the future.

Basically, scenarios are based on three components where different skills are required: Gathering information: Intuition Information analysis: Logic Modelling the future: Creativity

There are a number of tools for information gathering, analysis and futures generation. Those methods can be divided in seven groups, based on their primary characteristics: Media-based methods Interview-based methods Timeline-based methods Generative, intuitive methods Actor-oriented methods Consequence-focused methods Systems methods

7.5

Scenario planning involves thinking in dramas.

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Scenario is a term that originates in the theatre; a scenario is a brief description of the course of events in a play. Fundamentally, scenario thinking means viewing the world (or the industry) as a great drama with various more or less controllable forces and a number of players trying to influence the plot for their own goals and intentions. A complete scenario should describe developments from now until a given time (rather than being a mere snapshot the future. It must be consistent, not full of inner contradictions.

With the drama perspective, at each point in time the scenario should give a description of: The players: the principal persons who are moving the action forward (WHO?) The events: what is happening (WHAT?) The time when it is happening (WHEN?) The scene where the events are taking place (WHERE?) Props: what props are needed and in what way are the actions carried out (HOW?) Motives: why is this happening (WHY?).

7.6

Scenario planning helps organizations overcome the tendency to

oversimplify the future by planning for multiple futures. Scenario planning avoids making single, falsely confident predictions based on todays model or view of the world. Rather, they consider multiple hypotheses for how the model might evolve along more varied dimensions. Scenarios build on what is known, but also incorporate the uncertainties and yet-to-emerge issues that may have as much of an impact as the known trends. Each scenario considers a different set of outcomes for these uncertainties, allowing them to be managed proactively.

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7.7 Commitment from senior management and key decision makers is

imperative to ensuring a successful scenario planning. Scenario planning can lead to better decisions for the future by involving senior management and decision makers in learning about the forces which shape the future --- from an understanding of present behaviors and attitudes, patterns and trends. They challenge decision makers to think the unthinkable, to suspend disbelief, to let go of long-held mindsets and assumptions and let their imagination explore new horizons and consider possible futures.

7.8

Think in futures.

In order to be a good scenario thinker it is necessary to develop the capability to think in terms of futures. Some people are natural futures thinkers. They constantly think in terms of where will that lead, what is this a sign of and so on. As soon as they recognize a new phenomenon they start to speculate on far-reaching consequences. Such people are often imaginative, receptive and image-thinking personalities. They are born futures thinkers. But in fact most people can improve their futures thinking capability with the help of a few techniques and some training. Some of the methods that could develop futures thinking include: Trend extrapolation: This is useful in the present-to-future mode. Identify present trends and extrapolate them into the future. Media scanning: To scan media is a powerful way to identify trends (or generate hypotheses) and to stimulate creativity, bring in new perspectives and ideas. Guruing: Guruing involves simply asking experts for their opinions of the future. Delphi surveys: Delphi surveys are a more systematic way to collect expert opinions about the future. Experts are asked to give specific opinions on when or with what certainty a certain event will occur.

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Future history: To write future histories is a powerful way to create imaginative scenarios. The backward look also stimulates creativity, makes it easier to identify possible future events, actors moves and so on. It is less wearying than more analytical approaches. The brain likes to have fun, and writing futures histories is usually fun. Headlines and poster production: Similar to futures histories, but instead of writing letters or a history of the future, you make snapshots in the form of posters, headlines and short articles. Intuitive timelines and statistical time series: Timelines can be drawn intuitively but can also be computed through statistical methods based on historical data. The first method is usually an effective way to clarify own ideas about future courses. Event production: To think in terms of future events is a good starting point for a more thorough analysis. Future events are also necessary to turn a limited futures plot into a vivid scenario description.

7.9

Think in uncertainty.

To manage uncertainty has been considered the key managerial task. And scenario planning is a methodology designed to handle uncertainty.

There are often several reasons why a decision environment is perceived as uncertain. In its most simple form uncertainty derives from lack of information or lack of analysis and thinking. In such cases uncertainty can be reduced by simple intelligence and it is possible to make forecasts good enough to base decisions on. The following are the most commonly used methods for thinking in uncertainty: Analogies: To use historical or other analogies is often a fruitful method when we are dealing with non-linear change at high level of uncertainty, for instance within emerging markets or industries. What other industries have gone through something similar? Has this happened before? What similarities are there between the early
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2000s and the early 1930s? If this is an animal, what animal is it? And what is it becoming? Complexity plotting and uncertainty analysis: Trying to identify the complexity and speed in different segments of the business environment is often a good starting point for analysis.

7.10

The set of scenarios developed for an organization should include

links to existing organizational mental maps and assumptions. A good starting point for a scenario program is an exploration into what managers directly concerned believe is currently going on in their world. This leads to the identification of the organizations strategic agenda.

7.11

In developing scenarios, attention must be focused on relevance,

novelty and substance. Relevance relates to the inclusion of current issues and situations that can be linked to current mental models and assumptions of management. It provides a bridge to the future. Novelty comes from the inclusion of new and amazing ideas and perspectives that challenge existing mental models and strategies, but are plausible --- they could happen. Substance relates to the credibility and quality of the underpinning analysis that contributes to understanding of the present and to the logic and internal consistency of the pathway from the present to the future within each scenario.

8. TIMING Scenario planning requires interest and commitment to new ways of thinking by leaders, top management, and senior decision-makers --- and for them to explain and propagate that interest to others.

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It may take some time to create a scenario, and even more to arrive at a comprehensive set of scenarios. It can be quite time-consuming to analyze various policy options within the context of one or more scenarios, especially since this is usually a group exercise. The duration of a scenario planning exercise usually ranges from half-day frame-breaking sessions involving select top management team members to lengthy 6-12 month visioning exercises involving greater numbers of different stakeholders.

In terms of time horizon, if we look just a few years ahead, there will probably be very little difference. If, on the other hand, we look 20 years ahead much may have changed. The uncertainty is huge, however, perhaps too huge to find answers that can give any guidance for the organization. The time horizon for scenarios must be short enough to create scenarios that are probable, but long enough for us to imagine that important changes with an impact on the future business can take place.

9. DESCRIPTION OF PROCESS The scenario planning process is a structured process that results in key stories the organization can use to describe possible futures. To be effective, the scenarios that are developed must resonate with people. The stories have to speak to the readers to help them develop responses to the scenarios that can move the organization forward.

While there is no universal process for conducting a scenario planning activity, the following outlines the key steps involved in the approach:

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Scenario Planning SCENARIO PLANNING PROCESS

9.1 Identify the key decision or focal issue to be addressed and create a group. Managers decide what questions they wish to evaluate in the scenario planning process. Without a clear focus, the scenario planning process leads to vague results that will not help the organization cope with change. Focus of the decision should be a strategic concern for the organization. It is also important to form an appropriate group for steering the scenario planning process and for doing much of the drafting work. Questions to consider in forming the group include: What is a good size of the group? Should an outside consultant lead the project or are there people mastering the process available inside the organization?

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Should outside experts be invited to join? How is it possible to get different views represented in the group? How should the group be set up to ensure an innovative and productive atmosphere?

9.2 Identify the key forces in the environment. As in strategic planning, participants outline strengths, weaknesses, opportunities and threats that the organization is likely to face. The analysis covers both internal and external factors that may have an impact on the organization. At this stage a combination of workshops, interviews and desk research should be used.

9.3 Identify the driving forces. Based on the environmental scan completed in the previous step, participants identify those trends and pressures that will have the most impact on the organization or department. Driving forces usually come from one of five categories: social, economic, political, technological and environmental.

9.4 Rank the forces by importance and certainty. Participants review the forces to decide which are most important in relation to the question asked, which are most certain and likely to occur in any future plans, and which are most uncertain and difficult to predict. The process of ranking the forces enables participants to identify those forces that are likely to have an impact on the organization in a variety of futures and those that are more unlikely to occur or to influence how the organization develops.
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High-impact events that are nevertheless highly uncertain represent the cornerstones of scenarios. Analyze how the different uncertainties and trends are interrelated. A useful tool at this stage is to create a correlation matrix for at least the key uncertainties identified and the trends with the highest perceived impact.

9.5 Choose the main themes or scenario logics for developing the scenarios. Participants narrow the forces to choose the one that is most uncertain and the one that is most important. Both forces form the matrix that will determine the different themes for the scenarios. Each force should be described on a continuum of options to frame the scenario plots. The process of identifying the two significant forces can help participants avoid thinking in terms of worst case, best case and average scenarios. Instead, they develop four unique stories to describe possible futures. Ensure that the skeleton scenarios are internally consistent and eliminate any that would not make sense. Further, eliminate scenarios that are uninteresting or irrelevant from the viewpoint of the focal issue.

9.6 Write and develop the scenarios. Stories, developed to outline possible futures, are the core ideas that managers should consider in making decisions about future directions. The plots need to capture the imagination of decision makers without overwhelming them with results.

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Populate the scenarios with data on potential market size, reactions of key players, financial impact and so on.

9.7 Review the implications of the scenarios. The analysis of implications should reveal weaknesses in decisions or plans and opportunities and threats in the future business environment. From the stories that have been developed, participants outline possible strategies that will help the organization to respond to changes should the future develop as outlined in the stories. Participants look for strategies that are applicable to more than one scenario as well as strategies that help if the future yields big surprises that are unlikely to be anticipated in traditional planning efforts.

9.8 Identify ways to monitor change by selecting leading indicators and signposts. Identify signposts or leading indicators to alert the organization to the unfolding of a particular scenario. Choose high-impact uncertainties and use results from the impact analysis in deciding for indicators. The indicators help managers know which strategies might work in response to the changes the organization may experience.

9.9 Discuss strategic options. The strategist should develop strategies that match the organizations visions as well as changes in the outside world. This phase often works on identifying keys to success, success areas that should be concentrated on, and also on identifying areas that the organization should move away from.

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A matrix tool that maps a complete set of options against the scenarios can be used to systematize the process.

9.10 Agree on implementation plan. When the overall strategy has been determined a concrete and clear plan needs to be put together. It is easy to have ideas but often difficult to implement them. The key questions are: When? Who? How?

9.11 Publicize the scenarios. Dissemination of scenarios is crucial for ensuring implementation and adherence to the ensuing strategies. Questions to be considered at this stage include at least: What is the target audience? What channels can be used to reach the target audience? What is the most efficient method to get the attention of the target audience? Additional important things to consider in the scenario planning process: At least two scenarios are needed to reflect uncertainty. Having more than four has proven organizationally impractical. Each of the scenarios must be plausible. That means that they must grow logically (in a cause/effect way) from the past and the present. They must be internally consistent. That means that events within a scenario must be related through cause/effect lines of argument.

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They must be relevant to the issues of concern to the organization. They must provide useful, comprehensive and challenging idea generators and test conditions against which management can consider future business plans, strategies and direction. The scenarios must produce a new and original perspective on the issues. They must have an element of surprise. Organizations normally make two basic mistakes in the scenario process: They rely on input from too narrow a group of people or they curtail the process too early.

10. SCENARIO PITFALLS 10.1 Preparation 10.1.1 Unclear purpose A process may start with an unclear purpose. It might, for example, begin as a narrowly based process involving chiefly experts focusing on strategy; then all of a sudden it becomes apparent that the essential need is for a broad involvement of the organizations personnel in order to increase awareness of the need for renewal. It should have been a scenario learning rather than a scenario planning project. 10.1.2 Woolly questions The focal question for the scenario planning may be too woolly. This often leads to an all-embracing tracking of trends that often leaves more specific and important trends aside. Later on, when it becomes obvious that some important trends have been ignored, much of the analyzing work based on the trends has to be redone, and this holds up the process.
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10.1.3 Inappropriate time frame Most often the proposed timeframe is too short. The trends and scenarios are to be used for planning purposes for only the next few years. A timeframe shorter than five years hinders observation of central trends; important changes cannot be predicted on such a short scale. At the other end of the spectrum, too long a timeframe often leads to unfounded speculation. 10.1.4 A team with a narrow perspective A team whose participants all come from inside the organization often tends to take an insideout perspective. Too much attention will be given to their own organization and the field they are working in. Long-term changes in the field often develop as consequences of driving forces in the environment outside it, and these will not be identified. The composition of a participatory scenario group should be heterogeneous as well as balanced.

10.2

Tracking 10.2.1 Identifying trends not based on observed change Trends that are not based on observed changes tend to be either nightmares or daydreams. They most often occur as a result of a process-based work when very little focus has been laid on completion and description of the trends. 10.2.2 Too narrow a perspective Looking at trends on a high enough systemic level is not sufficient guarantee for a broad perspective.

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It is often good to use a checklist that makes it easier to observe changes in systems that are otherwise easily overlooked. 10.2.3 Too many trends Too many trends often come up. Some people have difficulty in turning their attention away from trends that have been identified but that are not particularly important because they have low predictability and a low level of impact on the focal question. Some trends can be driving forces or consequences to other trends, and can therefore be consolidated under a single heading. 10.2.4 Not supporting the trends with evidence In many industries there are some eternal truths that are constantly cultivated. People tend to say that this is the way it is. Many times it is not that way. No one has bothered to check the real truth. It is surprising how often there is no evidence of trends that people claim they are sure of. So look for evidence!

10.3

Analyzing 10.3.1 Inability to identify the most relevant uncertainties Uncertainties on too low a systemic level do not have a big enough impact on the system to create scenarios that are different from each other in more than one or two aspects. An uncertain trend that has a great impact on many other trends will lead to more different consequences for the system being studied.

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It is of similar importance to find the uncertainties that are most important for the focal question. 10.3.2 Scenarios based on uncertainties that are not really uncertain It can be tempting to use a scenario axis that is not really uncertain but gives very interesting scenarios in combination with another axis. This easily happens when there is not enough time for scenario building or when the issue is very difficult. Sometimes a productive scenario cross is found immediately, but most often it takes at least a day or two to find the right combination of uncertainties. 10.3.3 Scenarios that are detailed but not comprehensive Creative writers can easily produce a long description that fascinates the reader. These may only mirror a very narrow perspective however. A comparison table based on trends or identified important factors used as a check list for the narrative description will enhance the comprehensiveness of the scenarios. 10.3.4 Scenarios that are too general The scenarios may be described on too general a level that is not relevant for the question. It is easy to become fascinated with descriptions of the world at a high systemic level. What is relevant for the organization is most often found in comprehensible patterns discerned in its field, and analysis of their consequences for the actual development of the organization. Tailoring these patterns to fit the purpose makes them useful.
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10.4

Imaging 10.4.1 Pie in the sky The vision may seem so remote that it is conceived of as a free-floating fantasy that the organization can never realize. Sometimes the vision bears little relation to the probable future environment. This is one of the reasons why a scenario process constitutes a good start for a vision project. 10.4.2 Lack of participation in the vision process Visions built solely by a few members of the top management tend to stay on the bookshelves. If people from the organization have been a part of the vision process, it can be made concrete much more easily. The vision will also far better reflect peoples thoughts. 10.4.3 Not communicating the vision enough Many people seem to think that a vision will inspire and guide once it is printed in a fancy folder. Undercommunication is the most frequent reason why visionary leadership fails. Communicate over and over again and relate strategies and actions to the vision whenever they are discussed. 10.4.4 Not living the vision Strategies, goals and actions often seem to be set without any relation to the vision, and nothing is done to remove obstacles to a new vision. Obviously the top management has to be very consistent in living the vision. Then it will rub off on the rest of the organization.

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10.5 Deciding 10.5.1 Standard answers to non-standard environments People often fail to realize that it takes both time and a systematic process to find strategies that are not already in common use. Few people realize that the result of a scenario planning process can provide lot of ideas for new strategies and solutions. 10.5.2 It feels safe to cling on to old strategies It is very easy to cling on to old strategies that have served well in the past. It seems that organizations will not accept they must find new paths until it has been proven time after time that their old strategies do not work in the face of change. 10.5.3 Not translating long-term strategies into short-term developments A strategy will not produce results until real changes have been made in areas such as work processes. It takes a lot of energy to change a well-established work pattern into a new one. This emphasizes the need to involve middle-management in strategy development and follow-up. 10.5.4 Implementing work patterns that meet future changes too soon A particular strategy or solution may be very good at meeting a future change. But the future is not here yet. Market analyses do not give good answers about how tomorrows consumer will react, but they can give a very good answer about how todays consumers will respond to a new product.

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10.6 Acting 10.6.1 Business intelligence only focuses on competitors actions The business intelligence function may be too narrowly focused and only consider changes made by competitors and customers. A wider scanning and a deeper analysis can give earlier warnings on changes that can affect the company. 10.6.2 Low endurance The people involved in scanning the environment often do it as a part-time job. The risk is obvious that they will give priority to other tasks that are more highly valued in the organization. It is obvious that scanning must be accorded a greater value. 10.6.3 The information is only used by a few There are many organizations that have databases filled with information. The problem is that very few people know that it exists, and even fewer have the knowledge needed to use it. 10.6.4 The future is forgotten During a scenario process, a strong focus is put on the future and the challenges that it provides. When the process is over people go back to the everyday questions that tend to be placed on top of the in-tray. The danger is that the future issues will not get to the top of the pile until too late.

11. KEY PERFORMANCE INDICATORS While scenario planning has no specifically defined metrics, a scenario planning effort can be considered successful if the process is used to help the organization develop a consensus-based blueprint for their future. Taking into
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account current resources, the organization should now develop detailed plans in response to the original business issue. Once developed, the scenarios serve the further role of vigorously testing these options. The organization can test its proposed options against the environmental conditions set out within each scenario, considering their viability, effectiveness and other issues.

It is worth considering that the scenario process is not one of linear implementation --- completed once and then laid aside. As a strategic planning tool, the effectiveness of scenarios lies in processes of continuous environmental analysis, scenario generation, option development, scenario testing, selection, refinement and implementation. The implementation process is accompanied by further environmental analysis in order to update the impacts of organizational actions.

12. REFERENCES a) Enhancing Strategy Evaluation in Scenario Planning: A Role for Decision Analysis, Goodwin, P. & Wright, G., Journal of Management Studies Volume 38 No. 1, 2001. b) Scenario Planning as a Strategy Technique, Verity J., European Business Journal Volume 15 No. 4, 2003. c) Scenario Planning Reconsidered, Harvard Management Update, Harvard Business School Publishing, 2006. d) Scenario Planning, McKiernan, P., International Encyclopaedia of Organization Studies, Thousand Oaks, California: USA, 2008. e) Multiple Scenario Development: Its Conceptual and Behavioral Foundation, Schoemaker, P., Strategic Management Journal Volume 14 No. 3, 2993. f) Scenario Planning: A Tool for Strategic Thinking, Schoemaker, P., Sloan Management Review Volume 36 No.2, 1995.

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g) Plotting your Scenarios: An Introduction to the Art and Process of Scenario Planning, Schwartz, P. & Ogilvy, J., Global Business Network, 2004. h) Foresight Futures Scenarios --- Developing and Applying a Participative Strategic Planning Tool, Berkhout, F. & Hertin, J., Greener Management Journal, 2002. i) Scenario Planning, Ringland, G., John Wiley & Sons Ltd., New York: USA, 2006. j) The Sixth Sense: Accelerating Organizational Learning with Scenarios, van der Heijden, K, Bradfield, R., Cairns, G. & Wright, G., John Wiley & Sons, Ltd. New York: USA, 2002. k) People and Connections Global Scenarios to 2020, Shells Global Scenarios www.shell.com l) Alternative Futures: Scenarios for Business in Australia to the Year 2015, Australian Business Foundation, A report from Global Business Nerwork, September 1999. m) Learning from the Future: Competitive Foresight Scenarios, Fahey, L. & Randall, R.M., John Wiley & Sons Ltd. New York: USA, 1998. n) Scenarios: The Gentle Art of Reperceiving, Wack, P., Harvard Business School Working Paper, 1984. o) How Scenarios Trigger Strategic Thinking, Millet, S.M., Journal of Long Range Planning, 1988. p) Scenario Planning: The Link Between Future and Strategy, Lindgren, M. & Bandhold, H., Palgrave Macmillan USA, 2003. q) Creating Futures: Scenario Planning as a Strategic Management Tool, 2nd edition, Godet, M., Economica Bookings London: UK, 2006. r) The Current State of Scenario Development Foresight Volume 9 No. 1, Bishop, P., Hines, A. & Collins, T., March 2007.

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