Imagine

Managing the Future Decide (Scenario Planning)

Transform
From controlling the risks to
navigating into uncertainty
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Types of futures
• Possible - “might” happen (future knowledge)

• Plausible – “could” happen (based on current knowledge)

• Probable - “likely to” happen (based on current trends)

• Preferable - “want to” happen (value judgments)

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 Why does Strategic Planning not work anymore?
In a fast moving world driven by technology changes

Definition of Strategic Planning (Wiki)

• Strategic planning is a process of defining its strategy, or direction, and making
decisions on allocating its resources to pursue this strategy.
• It is executed by strategic planners who involve many parties and research sources
of the organization and its relationship to the environment in which it competes.
• It involves setting goals, determining actions to achieve the goals, and mobilizing
resources to execute the actions.
• A strategy describes how the ends (goals) will be achieved by the means (resources).
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 Why does Strategic Planning not work anymore?
In a fast moving world driven by technology changes

Shortcomings of strategic planning

• It’s like laying the foundations of your house on a ground that might
move or shift in the future.
• Every single decision in your company is a choice under a degree of
uncertainty.
• Decisions are based on past data analysis but gives you absolutely no
indication about the future.
• Strategic planning is too static and not enough fast and dynamic.
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 Why scenario planning?
• Expands strategic thinking
• More possible futures imagined and analyzed
• Uncovers inevitable and near-inevitable scenarios

• Promotes motivation and creative thinking

• Challenges conventional wisdom and forces different
parts of an company to work on it

• Can be used as a communication tool

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What is scenario planning?
• It is a method of preparing for the future regardless of what happens.
• It is not a vehicle for predicting the future.
• It helps make sense of an uncertain future and make better decisions.
• It’s also a tool for collective learning in your company

Scenario planning defines critical uncertainties and develops plausible

scenarios in order to discuss the impacts and the responses to give for
each of them

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 Types of futures

“Wildcard”
Possible
Scenario

Plausible
Probable

Preferable

Today

Time

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 Ranges of usefulness

U
Level of
Uncertainty Uncertain
Example: Oil price

F S H

Predictable
Example: aging of
Forecasting Scenario planning “Hoping” population

t
Distance into “the future”

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Scenario development process
5 critical steps

1 2 3 4 5

Establish a clear Identify key drivers Develop the scenario Determine 5. Summarize
decision focus of change (Use the outline. implications of each overall strategies.
Lilly example ) scenario.
(1) Key Basic trends
PESTEL)
(2) Key uncertainties /
Opportunities

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Scenario Planning Process
Step 1. Establish a clear decision focus

Identify the major issue or decision you’re facing.

• See examples on the next slide.
• Give it a time frame

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Examples questions for Step 1

• Should we introduce a completely new product or service?

• Should we retain our current “value proposition”?
• Should we integrate our various businesses so they contribute more value to our
company?
• Does our R&D need redirecting?
• Should we buy a certain competitor?
• Should we build a new plant?
• Should we start a new product or a new distribution channel ?
• Should we enter (or exit) a geographical market?
• What competences do we need in the future?
• How is our competitive advantage affected by developing events?
• …

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Scenario development process
Step 2. Identify key drivers of change (Use the Lilly example + PESTEL)

• Identify the key drivers of change that affect your company and industry. The
drivers fall into two categories:
(1) Key Basic Trends: These are relatively stable or predictable, like demographic shifts.
(2) Key uncertainties / Opportunities: These are unstable or unpredictable elements, such as consumer
tastes, government regulations, natural disasters, new technologies or products. These uncertainties can
provide you also with opportunities.

• Select the 4 most important drivers

• Formulate 4 scenarios with sharply contrasting futures.

These drivers are the different directions in which a critical uncertainty may play out. Each scenario provides a different answer to the
decision. Each answer presents a myriad of implications that fundamentally change the business environment.

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 Tools for Scenario planning: PESTEL

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PESTEL… Detailed
• Political • Economic
• Global, regional, and national political • Business cycles
development (administration, political parties) • GNP trends
• Taxation policy • Interest rates & Exchange rates
• Foreign trade regulations • Money supply
• Labour market politics • Inflation
• Government stability • Unemployment
• Socio-cultural • Wage level
• Population demographics • Private consumption and disposable income
• Income distribution • Public finances
• Social mobility • Energy availability and cost
• Lifestyle changes • Technological
• Attitudes to work and leisure • Government spending on research
• Attitudes to consumerism • Government and industry focus of technological
• Levels of education effort
• Changes in values/attitudes • New discoveries/development
• Education conditions • Speed of technology transfer
• Work environment conditions • Rates of obsolescence
• Health conditions • New patents and products
• Environmental • Legal
• Ecology • Development in price and competitive legislation
• Pollution conditions • Labour market legislation
• ”Green” energy • Product safety and approvals
• Energy conservation
• Waste handling

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 Scenario development process
Step 3. Develop the scenario outline

Scenario Planning : Possible Variables

Pascal Wuillaume:
Probability Scenario Planning Impact Significance Result* Choose out of the 12 results,
the two results with the most
A PESTEL Key Basic Trends B AxB= points. This makes 4
scenario's (Applicable or Not
1 2 3 4 5 Political 1 2 3 4 5
Applicable).within
1 2 3 4 5 Economical 1 2 3 4 5
1 2 3 4 5 Socio-Cultural 1 2 3 4 5
1 2 3 4 5 Technological 1 2 3 4 5
1 2 3 4 5 Environmental 1 2 3 4 5
1 2 3 4 5 Legal 1 2 3 4 5
A PESTEL Key Uncertainties / Opportunities B
1 2 3 4 5 Political 1 2 3 4 5
1 2 3 4 5 Economical 1 2 3 4 5
1 2 3 4 5 Socio-Cultural 1 2 3 4 5
1 2 3 4 5 Technological 1 2 3 4 5
1 2 3 4 5 Environmental 1 2 3 4 5
1 2 3 4 5 Legal 1 2 3 4 5

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Scenario development process
Step 4. Determine implications of each scenario

Within each scenario:

• Determine the implications for the issue or decision specified at the outset.
• If one of the scenarios seems unlikely, eliminate it at this time.
• Discuss with your group what your decision or business response should be.

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Scenario development process
5. Summarize overall strategies
• Examine the consequences for your company if these scenarios become reality, and
• Consider both immediate and longer-term consequences for your company for each of the scenarios.
• What are the main opportunities and threats each scenario poses for your company? (use a SWOT)
• Develop a robust strategy that is strong and viable regardless of which scenario actually does occur.

• Consider the following:

• Given these possible futures, what is your overall assessment of the company’s strategy?
• Where is your strategy vulnerable?
• What major modifications do you recommend to the strategy?
• Will you be flexible to change this strategy in response?
• How will you know which scenario is actually becoming reality?
• What are the control points?
• Which key indicators must occur for that scene to become reality?
• When should your vision change in response to environmental shifts?

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Scenario development process
5. Summarize overall strategies

• This will help you to form a consensus about what will happen in
Vietnam and in the world and to recognize which ones could be
used at any given time.
• Try to have strategies that work across multiple scenarios

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 Class group exercise
• Review readings and course slides
• Choose a company within your group for the scenario planning exercise
• Should be a company of one of the group members.
• It could also be a department within a larger company.

1. Define the major challenge of your Company within a time dimension

Example: New product/service, new market, new business model that is critical to future of unit/company
• Choose a point in the future, short enough to create probable scenarios but long enough within which
important changes will occur
2. Define your key drivers of change & key uncertainties What elements are important? Strategy,
competitors, technology? use the PESTEL methodology
• Rank the critical drivers & critical uncertainties (use the Eli Lilly example)
3. Give a probability and an Impact significance on the Key drivers of Change (Key basic trends) and on the
Key uncertainties (see Eli Lilly example) + Excel sheet from P Wuillaume

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Easy mistakes…

• To be stuck by a multitude of possibilities.

• To believe that you have to choose one particular scenario and build
your strategy around it.
• Scenario planning is not about choosing just one option for the future
but rather dealing with all of the possible outcomes to develop a
strategy that will stand the test of all scenarios
• This is why you should use 4 scenario’s

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 Monitoring of scenario’s
Monitor for early warning signals
Cycle 15 1
Cycle 10

Cycle 3

Cycle 1
Cycle 2
3

2
2017
Year
1,2,3

4
Monitoring helps to project the long term Strategic Decision 2027
objective of one scenario and also the shorter Point &
Option Execution
term variations/disruptions that can happen

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 Imagine
Managing the Future Decide (Scenario Planning)
Transform