Strategic scenario planning in practice:

eight critical applications and associated

benets
Lance Mortlock and Oleksiy Osiyevskyy

Lance Mortlock is EY cenario planning is a practical way to manage an organization’s change rate and
Managing Partner Energy &
Resources and Adjunct
Associate Professor,
S growth strategies in new and different ways to stay competitive. When performed
strategically, it can help organizations proactively plan for, react and adapt to a
business environment of volatility, uncertainty, complexity and ambiguity in ways that
University of Calgary,
Canada (lance.mortlock@ preserve or enhance their competitive position.
ca.ey.com). Oleksiy Scenario planning is a structured way for organizations to think about potential futures,[1] a
Osiyevskyy is an Associate tool for stimulating executives to explore beyond their comfort zones and to challenge the
Professor of
industry’s conventional wisdom about the future.[2] It is a tool for strategic thinking as an
Entrepreneurship &
Innovation, University of
integrated part of the strategic planning process,[3] enabling leaders to develop several
Calgary, Canada distinctly different scenarios or stories about how the future might unfold.[4],[5],[6] In the
(oosiyevs@ucalgary.ca). classic process, teams do research to identify the two most critical forces that might impact
their firm and then draft a two-by-two model of the four scenarios of the future that could
develop, given the combinations of the forces (see an example in Exhibit 1).[7]
Academic studies have validated the positive relationship between scenario planning,
progressive learning, innovative mental models and insightful decisions that impact
performance in practice.[8] This occurs when scenarios “provoke dialogue,” foster iterative
learning and encourage thoughtful reflection. Scenarios can alter mental models by
exposing executives to alternate but plausible futures, stimulating them to revisit their
assumptions as they address their organization’s potential future positioning. Scenario
planning also helps organization recognize key sources of predictability and uncertainty,
aids in identifying factor “causality,” and helps explain why observed business environment
patterns happen and how they might be managed.[9]

A novel typology of scenario purpose

Based on an extensive academic and practitioner literature review, we posit that
corporate scenario planning involves eight different practical applications and
associated benefits. These include risk identification, assessing uncertainty,
organizational learning, options analysis, strategy validation and testing, complex
decision-making, strategic nimbleness and innovation.[10],[11] We offer a novel typology
and propose a more complete and holistic model of the scenario planning application
and its intended outcomes. Mini-case studies from various sectors illustrate the process.
The model demonstrates the relationship between different benefit-driven applications –
inputs, process and output benefits.

PAGE 22 j STRATEGY & LEADERSHIP j VOL. 51 NO. 6 2023, pp. 22-29, © Emerald Publishing Limited, ISSN 1087-8572 DOI 10.1108/SL-08-2023-0090
 Exhibit 1 22 Scenario matrix: dening the scenario landscape

Force 1
(maximum development)

Scenario 2 Scenario 4

Force 1 Combinaon of
dominates forces
Force 2 Force 2
(minimum development) (maximum development)
Scenario 1 Scenario 3

Baseline Force 2
dominates

Force 1
(minimum development)

Eight strategic scenario planning applications

1. Risk identification
With the accelerating and growing complexity and uncertainty of the business environment,
organizations are becoming less capable of identifying and mitigating the impact of risks.[12]
However, a well-established link exists between scenario planning and risk identification,
especially on large capital projects. For example, scenario planning provides a structured
way to identify capital project risks, mainly when the primary variables are not always
quantifiable.[13] Furthermore, scenario planning can be used to identify longer-term risks
that impact the organization.[14]
By considering all the potential risks that can affect the business, organizations can better
future-proof their strategies by considering options and stress-testing them.[15] Identifying
the risks early and defining mitigation strategies for each significant risk identified in each
scenario is an essential part of the strategy development process.[16]
Case: As a case example of scenario planning helping to mitigate dangerously impactful
risks, the New York Board of Trade used scenarios to inform its decision to build a second
trading floor outside the World Trade Center, which enabled it to keep operating after the
terrorist attack destroyed the Center on September 9/11.[17]

2. Assessing uncertainty
When a firm finds itself in a changing environment, scenario planning provides a way to process
all the information related to uncertainties and create strategies to deal with discontinuities.
Using scenario planning enables organizations to monitor strategy execution by assessing the
potential effect of environmental changes and uncertainty over time through focused research
on specific operating issues made apparent in the scenarios.[18] This technique helps
organizations deal with uncertainty and evolutionary environmental changes by providing insight
into how the changes will affect practice and their implications for an organization’s strategies
and guiding the design of particular approaches required to manage them.[19]
Case: The Port of Rotterdam worked with Utrecht University to apply scenarios to help create a
clearer understanding of the pivotal role the port would play in the future of biomass in the

VOL. 51 NO. 6 2023 j STRATEGY & LEADERSHIP j PAGE 23

 “Scenario planning is a tool for strategic thinking as an
integrated part of the strategic planning process, enabling
leaders to develop several distinctly different scenarios or
stories about how the future might unfold.”

region.[20] The work helped enhance the organization’s ability to foresee multiple futures and
manage the uncertainty regarding supply, costs, prices, import facilities and policy uncertainty.

3. Organizational learning
A learning organization explores continuous learning and uses adaptive systems to put into
practice what it learns.[21] Research shows that scenario planning helps create and
improve organizational learning.
Scenario learning involves testing new approaches, capability building, listening to
customers and other stakeholders and gaining knowledge by experiencing the demands of
potential futures. Prior studies have outlined a model of organizational learning as an
ongoing process of thinking and action to drive anticipation and results.[22] When periods of
significant flux increase complexity and uncertainty, effective organizational learning may be
a better guide to decision-making than relying on a grand strategy. Through the learning
process, scenarios enrich the portfolio of strategic initiatives, leading to action, new
experiences, and a better understanding of the business environment.
Case: The Royal Society of Chemistry used scenarios to engage its stakeholder community
in learning about the future of science. Scenarios were shared to develop better community
relations, and the leadership set a new goal of improving dialogue, understanding and
learning to improve stakeholder relations.[23]

4. Option analysis
Most strategies to achieve competitive advantage are built on specific beliefs about the
future.[24] However, according to strategist Michael Raynor, the requirements of
breakthrough success – investment in scale, for example – demand committing to an
implementation strategy in ways that make it impossible to react and adapt should the
future not turn out as expected. The result is the strategy paradox: strategies with the
greatest possibility of success also have the greatest possibility of failure. Resolving this
paradox requires a new way of thinking about strategy and uncertainty. High-performing
organizations can aim to achieve growth and longevity by learning how to thrive under
uncertain and multi-scenario futures[25]. This approach seeks to benefit from the upside of
strategic uncertainty by pursuing significant strategic optionality.
Scenario planning supports enhanced strategies by ensuring that several strategic options
and different paths an organization can follow will become inputs to the strategic plan.[26]
By considering and testing multiple options, organizations build the capability to identify
and manage changes in the external environment and quickly commit resources to a new
course of action in response. Remember that several barriers to options analysis, including
an organizational aversion to accepting the value of negative feedback, can cause
managers to ignore early signs of strategic mistakes.[27]
Research explicitly defines three strategic approaches to managing options: diversification
strengths, investment in underused resources, and reduced commitment to resources for
specialized uses.[28] By considering a comprehensive range of options, leaders will likely
think more broadly and expand their choices.[29]

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5. Strategy validation and testing
Scenarios can help stress-test the viability of current strategies. Strategies are gamed out in
each scenario to validate the selected strategy’s resilience under different circumstances.
Executives can assess the more robust and future-proofed strategies based on different
eventualities.[30] Perhaps the most famous scenario case study, one that achieved an excellent
outcome for the organization, was developed by Royal Dutch/Shell, which used scenarios to
stress-test their strategy in 1986 by anticipating both a drop in oil prices and the increased
power of OPEC nations.[31]
Scenarios also help inform the specific strategic features of the company; they identify
competitive assets and core capabilities and can be used to evaluate the actions, including
proposed investments.[32] Case: Rolls-Royce experienced an almost 50 percent drop in
stock price in 2015. Subsequently, they had success using scenarios to stress-test and
validate particular investments.[33] Furthermore, scenario planning can help identify future
strategic market segments in which the firm might be competing, helping to delineate the
actual future battlefields more clearly.[34]

6. Complex decision making

Prior studies validate the conceptual link between scenario planning and better
managerial decision-making and explain how scenario planning might aid in avoiding
decision errors in complex organizational situations.[35] Moreover, scenario planning
decreases management’s “bounded rationality,” thus helping them reconsider internal
and external factors, increase information sharing and develop alternative mental
models.
There is also some evidence that scenario planning might help executives in high-
velocity environments make faster decisions by identifying more strategic options.[36]
The research found that comparing more alternatives helped decision-makers build
awareness and confidence. Decision-makers pursuing multiple options became less
psychologically trapped and could act more effectively as they assessed negative
information.
Case: Nothing is more complex in our world now than taking action to mitigate the
existential threat of climate change.[37] The U.S. National Park Service used scenario
planning as a climate change adaptation tool to help inform decision-making about
resource and landscape management for the Devil’s Tower National Monument.[38]

7. Nimbleness/strategic flexibility
Scenario planning can help foster more agile and nimble organizations capable of reacting
and responding as drivers in the market change[39]. Firms need flexible strategic planning

“Corporate scenario planning involves eight different

practical applications and associated benefits – risk
identification, assessing uncertainty, organizational
learning, options analysis, strategy validation and
testing, complex decision-making, strategic nimbleness
and innovation.”

VOL. 51 NO. 6 2023 j STRATEGY & LEADERSHIP j PAGE 25

 “We offer a novel typology and propose a more complete and
holistic model of the scenario planning application and its
intended outcomes.”

in order to adapt and survive. In a recent study, the researchers substantiated the
direct contribution of scenario planning to strategic flexibility, looking at 108 European
manufacturing firms[40].
Case: The International Atomic Energy Agency (IAEA) offers perhaps a unique example of
using scenarios to support strategic flexibility. One of the significant scenario initiative
benefits executives cited was the decision to pivot to a process of continuously updating
the strategic plan, which has increased organizational agility and nimbleness to respond to
the uncertain future of nuclear energy.[41] The nuclear industry is both a critical component
of the energy mix and one filled with controversy and risk, and the IAEA was able to use
scenarios to be prepared for an emerging future constantly.

8. Innovation
Scenario planning has the potential to enhance an organization’s ability to innovate. But far
less conclusive empirical evidence exists of its impact. Some studies have explored how
scenario planning helps businesses make novel product and service improvements when
dynamic conditions require firms to realign their business to maximize value creation.[42]
Scenario planning enables an organization to recognize needed new capabilities and
focuses management on potential opportunity identification.[43]
For example, researchers have explored how scenario planning directly enables strategic
foresight within technology-driven organizations that must predict future technology trends
so they can react and adapt more rapidly.[44] Scenario planning enhances the capability to
bring creativity into the strategic planning process.
Case: The British Medical Journal, a healthcare knowledge provider in the U.K, has
confirmed that scenario planning helped validate and stimulate innovation in its business.
[45] The journal’s management found that the tool combines creativity with an evidence-
based approach.
However, in other cases, though scenario planning might not lead directly to innovation, it does
support the search for new possibilities and creative exploration. Doing so helps identify
possibilities for innovations, but not the commercialization and implementation of innovation.[46]

The value of a holistic approach

The eight applications and associated benefits described here are summarized in Exhibit 2,
which groups the applications into inputs, processes and outputs. The model also depicts
these organizational activities, starting with inputs and ending with outputs. Bringing
together the individual components’ applications and associated benefits in this novel
holistic way will be especially useful to PR actioners.
In a world of increasing access to information and the proliferation of data, the ability to
interpret the information via process steps like learning, options analysis and stress testing
strategy using scenario planning is critical to firm success.
Input applications such as risk identification and assessing uncertainty do not always involve
changing the organization’s strategy or operating model, but gathering data and interpreting it
in scenarios informs leaders’ thinking and provides new information to support needed
change.

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 Exhibit 2 Scenario planning application benet model

Process applications of scenario planning provide insights into the organization’s inner
workings and support “strategizing.” This middle section of the model involves processing
and transforming information gathered at the input stage into new knowledge. For example,
organizational learning from the inputs might drive new behavior and enable leaders to
reassess options, reconsider risks and uncertainties and stress-test strategies.
Output applications represent the final part of the model and typically result in action. The
organization uses the insights from the input and process stage to make decisions about,
for example, investment, merger and acquisition, change in the management system or a
reorganization, to name a few. The applications could also identify potential innovations and
build flexibility in the organizational system to adapt and respond, ultimately resulting in
improved organizational performance.
In summary, the novel typology proposed illustrates the practical applications of scenario
planning in one complete model. Furthermore, by fully understanding the associated
applications and benefits of scenario planning, organizations can achieve enhanced value
and beneficial outcomes from the tool.

Notes
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Corresponding author
Oleksiy Osiyevskyy can be contacted at: oosiyevs@ucalgary.ca

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