Foresight Method – A Primer on Scenario Planning

Primer on Scenario Planning Introduction To Scenario Planning

Scenario planning is a Foresight technique that can help provide a view into the future in a world of great uncertainty.   Scenarios are carefully crafted stories about the future embodying a wide variety of ideas and integrating them in a way that is communicable and useful.  Using scenario planning techniques, teams can imagine plausible futures with the objective to explore potential surprises and unexpected developments.  It can help manage strategic risks and opportunities. 

Scenario planning has its roots in military strategy studies, but it was transformed into a business tool in the late 1960's and early 1970's, by Pierre Wack of Royal Dutch/Shell.  By applying scenario planning techniques, Shell was better prepared to deal with the oil shock that occurred in late 1973.  As a result, Shell greatly improved its competitive position in the industry during the oil crisis and the oil glut that followed.

Why Should Companies Do Scenario Planning?

Scenario planning is a technique analysts and strategists can use to deal with major, uncertain shifts in a company’s environment.  Scenario planning is particularly useful in emerging markets or when existing markets are gong through rapid changes and disruption.  It is during these times that information is limited and it is hard to predict with certainty what might happen in the future.  In these cases, traditional forecasting techniques often fail to predict significant changes going on in the external environment.  Consequently, important opportunities and serious threats may be overlooked and the very survival of the firm may be at stake.  

Other benefits of scenario planning include:

  • It forces people out of their typical view of the market and therefore can expose blind spots that might have been overlooked in the current long range strategic plans

  • As the future unfolds, we are better able to recognize a scenario in its early stages as it happens, rather than being caught off guard.

It is important to understand that the objective of scenario planning is not to fully predict the future.  Instead, it attempts to help describe what is possible.  The objective of scenario planning is to describe a group of distinct futures, all of which are plausible.  Once those potential futures are developed, the challenge then is how to deal with each of them.

The Basics Of Scenario Planning

Scenario planning usually takes place in a workshop setting.  The workshop can range from a half a day to a number of days, depending on the complexity of the market being studied.  It is best to have a diverse team assembled, including  analysts, strategists, subject matter experts, and industry leaders.  The idea is to bring together a group that has a wide range of viewpoints in order to fully explore alternative scenarios that are outside the current accepted forecasts. 

Any scenario planning workshop should encourage unstructured thinking, therefore, the process itself should not necessarily be too structured.  With that in mind, the following outlines the sequence of actions that may constitute the process of scenario planning.

  1. Form Team.  Identify people who will contribute a wide range of perspectives.
  2. Conduct pre-workshop interviews as appropriate.  Ideally, the process should include pre-workshop interviews with managers who later will formulate and implement strategies based on the scenario analysis.  Without their input the scenarios may leave out important details and not lead to action if they do not address issues important to those who will implement the strategy.
  3. Begin workshop.  Introduce Scenario Planning Exercise.  Define goals/objectives.  Specify the scope/time frame.
  4. Develop a clear understanding of the present situation.  This will serve as a common departure point for each of the scenarios.
  5. Document current trends any future events/elements that are virtually certain to occur.
  6. Understand external environment.  Identify the critical uncertainties in the political, economic, social, and technological factors.
  7. Identify the more important driving forces.  Take into account the potential variation and impact of each driver.  After listing all driving forces, rank the driving forces in order of significance.
  8. For the most important drivers, consider a few possible values for each.  Range between extremes while avoiding highly improbable values.
  9. Understand potential interaction between the driving forces.  One way to do this is to develop a matrix of scenarios using the two most important variables and their possible values.  Each cell in the matrix then represents a single scenario.  Assign names to each scenario and sketch out rough pictures/descriptions of different futures based on these scenarios.  One of these scenarios most likely will reflect the mainstream views of the future, while others will shed light on what else is possible.  At the end of this step, there is not any detail associated with these rough scenarios.  They are simply high level descriptions of a combination of important environmental variables.
  10. Develop Detailed Stories.  During this step further work is needed to develop detailed impact scenarios that explain in more detail how each scenario might affect the corporation.  Specifics can be generated by writing a story to develop each scenario starting from the present.  The story should be internally consistent for the selected scenario so that it describes that particular future as realistically as possible.   Experts in specific fields can be called upon to develop more detail around each story.  The goal of the detailed stories is to transform the analysis from a simple matrix of the obvious range of environmental factors into decision scenarios useful for strategic planning.
  11. Quantify the impact of each scenario on the firm, and formulate appropriate strategies.
  12. At this point, if the team is comfortable doing so, it can be useful to assign a probability to each scenario.
  13. Establish signposts for each scenario.  During this step, the team should identify a set of early warning signals or signposts for each scenario.  These are event that could happen that would indicate to the team that the particular scenario is beginning to unfold.
  14. Finally, the team should establish a process that regularly monitors, evaluates and reviews the scenarios.

What comes out of the scenario planning process is a number of plausible scenarios that can be used to as input into strategic planning discussions.  The point is not to select one scenario as the preferred future and hope for it to become true.  Nor is the point to fund the most probable future and adapt to it.  Rather, the point is to make strategic decisions that will be sound for all plausible futures. 

It should be noted that strategists/executives may not take scenarios seriously if those scenarios deviate too much from their preconceived view of the world.  Many will prefer to rely on forecasts and their judgment, even if they realize that they may miss important changes in the firm's environment.  To broaden their thinking,  it is useful to create "phantom" scenarios that show the adverse results if the firm were to base its decisions on the mainstream view while the reality turned out to be one of the other scenarios.  For each scenario, I always like to ask the question:  What is the worse impact that we can imagine will happen if we do nothing and this scenario comes true?

Summary

 

Scenario planning works by understanding the nature and impact of the most uncertain and important driving forces affecting the company's future.  It is a group process which encourages knowledge exchange and development of mutual deeper understanding of central issues important to the future of the business. 

The goal is to craft a number of diverging stories by extrapolating uncertain and heavily influencing driving forces.  The stories together with the work getting there has the dual purpose of increasing the knowledge of the business environment and widen both the receiver's and participant's perception of possible future events. 

I'd encourage you to try out scenario planning as a way to imagine the potential futures. 

Additional Reading/Resources

Looking to 2050: Ten Challenges For The Human Race

Peter Schwartz is recognized internationally as a futurist and strategist.  He honed his skills at Royal Dutch/Shell Group in London, where he led a widely respected scenario planning effort.   He has written a number of interesting books about the future, including The Art of the Long View. 

This past May he gave the commencement address at Rensselaer Polytechnic Institute.  During the address, he outlined ten longer term challenges for the human race as we look forward to the next 40-50 years.  He encouraged the graduates to come up with innovative solutions to these challenges. 

The top challenges Schwartz outlined are:

  1. Creating long-term solutions to meet our energy demands sustainably.
  2. Launching a bio-industrial revolution with sustainable manufacturing.
  3. Understanding and enhancing the human brain to avert age-related impairments.
  4. Improving agriculture to reduce costs and increase its energy and water efficiency.
  5. Building sustainable cities through better urban planning and "smart architecture”.
  6. Stimulating job growth and economic development.
  7. Fusing the technological with the spiritual and aesthetic dimensions of human culture.
  8. Advancing technological instruments to drive scientific discovery forward.
  9. Harnessing biological tools to advance human evolution.
  10. Discovering new ways to lower the costs and environmental impact of space flight and development.  

The list above is an interesting list.  I am not sure that these are the top ten most important challenges, but each of the above ten are certainly important. 

Some comments…

  • Energy tops his list and it is hard to argue that it should not be there.  I can’t see the demand for energy going down anytime soon and we need to figure out how to transition to clean energy. 
  • Improving agriculture processes in developing nations will have have a significant impact on the economy and quality of life.
  • Building smarter and sustainable cities is a very large challenge as the number of megacities grow and grow.
  • Number 9 on his list, “Harnessing biological tools to advance human evolution” sounds both scary and beneficial at the same time.
  • Regarding number 10, with announced plans to go back to the moon and to Mars, we will need innovative ways to travel through space and live at the destinations we travel to.

It is worth pointing out that many on the list kind of fall under the push for a smarter planet.

If you want to read a transcript of Peter Schwartz’s commencement address, check out http://news.rpi.edu/update.do?artcenterkey=2585

Can you think of any other challenges Schwartz’s list?  The only one that comes to my mind right now is the never ending desire to live in a world free from war and conflict, but I don’t suppose for one minute that that will be solved in the next 40-50 years.

A Primer on Futurists

As organizations increasingly try to grapple with the seemingly endless scorching rate of technological innovation and change, more are engaging the services of self-described futurists for advice on how to adapt.

What Is A Futurist?

Basically, futurists are those who look to and provide analysis and insights on potential futures.  They help others anticipate and prepare for potential changes and disruptions in order to make better decisions today.   Think of futurists as in the same league as historians.  Futurists explore the future, just as historians study the past.   Historians are  concerned with origins, roots, stories/points of view of where we have been in the past and how we got to where we are today.   Futurists are interested in emerging trends, technologies, goals, purposes.  In short, futurists are interested in where we might be going in the future and how we can get there.   It’s interesting to note that in many cases good futurists have a little bit of a historian inside of them (e.g. studying the past can help predict potential futures.)

 

What Do Futurists Do?

Futurists research and explore the full range of potential / plausible futures.  A futures consultant or facilitator helps clients expand their typically narrower focus on the future to a broader range of possibilities.  They forecast the future, not just to know the future as an abstract description, but rather to prepare for it as a concrete reality.
The objective is not just to know what will happen, but to be ready whatever does happen.  The objective is not necessarily to be exactly right (which is impossible), but rather not to be wrong–that is, not to be surprised.  Surprise means inadequate preparation, late response, higher risk of failure, even chaos or panic.  Thus, preparing for the full range of plausible futures is the objective of futures studies.

Futurists take an inter-disciplinary approach and employ a wide range of methods, from trend analysis to scenario planning, to simulations, to strategic planning and visioning.  Since the future does not exist, we must study ideas about the future. Futurists use data from the past and present, and our concepts and methods to understand how the present will evolve into possible alternative futures. We also borrow liberally from other fields, such as creativity, complexity science, organization development, systems analysis, and philosophy.

What Type Of BackGround Do Futurists Have?

Futurists come from a wide range of backgrounds. What they have in common is big picture thinking, strong pattern recognition, and innate curiosity.
Futurists come from a wide range of backgrounds and walks of life, be it liberal arts, psychology, engineering, the sciences. A growing number are coming from the dozen or so futures degree programs worldwide.
Other characteristics typical of futurists include openness to new experiences, comfort with ambiguity, thinking systematically, seeing options and alternatives, questioning and challenging assumptions, a global outlook, a long-term time horizon, optimistic, and having a sense of purpose.

How Can I Train To Become A Futurist?

The formal study of the future goes by a number of names, including “Strategic Foresight”, “Futures Studies”, and “Prospective Studies”. 

Formal futurist higher education options are somewhat limited.  There are about a dozen degree programs worldwide.   Within the United States there are two main academic programs created that focus on training futurists 1) the University of Houston (M.S.) and  2) University of Hawaii (M.A. and Ph.D.).  Both programs have been around for over 30 years.

Futurists without the formal education learn on the job through professional development.  Many professionals become futurists by acquainting themselves with futures concepts, tools and methods, familiarizing themselves with the literature, and participating in futures conferences and organizations.

What Professional Networks Are There?

Here are some places to go to find more information….

  • World Future Society  20-25,000 members who subscribe to The Futurist magazine and attend annual meetings; mostly centered in the U.S.  www.wfs.org
  • World Futures Studies Federation   Several hundred members spread across the globe with a rotating secretariat, includes many academics  www.wfsf.org
  • Millennium Project  Volunteer group around the globe that produces the annual State of the Future report and other futures studies, as well as the Futures Research Methodology.  www.millennium-project.org 
  • Association of Professional Futurists  200+ professional futurists and students in futures degree programs.  http://www.profuturists.org/
  • The World Future Council.  http://www.worldfuturecouncil.org. The World Future Council brings the interests of future generations to the centre of policy making.  The Council addresses challenges to our common future and provides decision-makers with effective policy solutions.

Being a futurist sure sounds like fun….and there might just be a future for futurists.  🙂