SCENARIO PLANNING

INTRODUCTION

Scenario planning is a process of developing a view of alternative futures in order to craft a resilient (supple and durable) strategy. The idea is that if we look creatively at what the future could look like and what the major drivers might be, then consider the implications, we can create a series of learning themes or strategies that will be appropriate whatever the uncertainties we may face.

This is a process of anticipating not predicting.

Drivers are major forces or trends that could (positively or negatively) shape or influence the future of your organisation. Drivers have a complex relationship with each other; some drivers are an outcome of others. Some are reasonably predictable; some are uncertain.

“It’s all about looking into the future to see what could happen so that you can get all your ducks lined up to meet the challenges!”– Leila Ferguson, West Berkshire Mencap

Scenarios are usually developed in a workshop, so they can be seen as another way of stimulating strategic conversation across the organisation, including with external stakeholders. The organisation needs to be ready to take a leap of faith, set off on a journey where it let go of assumptions for a while, and most importantly, be ready to listen and learn.

If the organisation is ambitious and ready to get everyone involved in strategic thinking and acting, then scenario planning is ideal for such an organisation.

“Normal strategic planning gets you to focus on what you know or on what is pretty likely to happen; scenario planning gets you to focus on what you don’t know – there are times when this can be really liberating – both for your organisation and most importantly for your service users.” – Leila Ferguson, West Berkshire Mencap

WHO SHOULD BE INVOLVED?

West Berkshire Mencap thought long and hard about who to involve.

Here’s a list, along with an indication of the rationale:

• Senior Management Team – crucial sector knowledge and for implementation
• Trustees – ditto, also for developing ownership, involvement and commitment
• Staff – in there at the sharp end; understand a range of perspectives
• Service users – a unique and vital perspective; creative ways of engaging are vital
• Carers – handpick them as they have a critical view of future needs
• Volunteers – don’t forget their full skill set, not just what they offer in this role
• Local authority (officers and elected reps) – they do this sort of strategic thinking too; let’s share and think about contracts and relationships in the future
• Donors – it gives them a chance to see what we do as well as have more confidence
• Partners – there’s a place for everyone to play to their strengths
• Competitors – you need to be really brave and share thinking to work out territory
• Suppliers – their future is tied up with ours – make it clear what the links are and why it’s important to share anticipation of future events. For us, for example, ICT suppliers have a much better grasp than we do about what technology will be doing in 10 years’ time, we need to be clear about what will become the norm
• Customers (including the local community) – what’s in it for them to be a part of future planning?

Building sound and plausible scenarios is a challenging task that needs to follow a structured process. However, before describing the scenario building itself, one should first identify the purpose that the creation of scenarios fulfils.

Academics usually distinguish between three purposes which scenarios can accomplish:

1. First, scenarios are used as a onetime activity to predict and evaluate a specific, already defined strategic plan of action.
2. Second, scenarios are used as a onetime activity to support and enhance a specific strategic planning process including related decisions.

• Third, scenarios are used from a onetime activity to an ongoing course of action within an organization’s strategic planning process supporting the way in which an organization learns (Bradfield, Wright, Burt, Cairns and van der Heijden, 2005).

What all three purposes have in common, however, is that scenarios enable managers to be better prepared for strategic decisions, especially in times of increased volatility and environmental uncertainty.

 

APPROACHES

Different tools have been developed in the past trying to fulfil the task of developing scenarios based on uncertainties as well as trends. Again, three different approaches to scenario building can be distinguished.

 

The first approach uses extrapolative data analysis and trend models giving each scenario a specific probability of occurrence and is subsequently forecasting oriented. This quantitative approach is expert-led, that is the planner controls the process, completes the narrow-focused scenario building task using proprietary tools, expert judgment and historical time series data. The outcome usually is a brief document explaining the produced quantitative data with a short storyline for three to six scenarios (Bradfield, Wright, Burt, Cairns and van Der Heijden, 2005).

 

The second approach uses both quantitative and qualitative analysis focusing on intuitively run workshops as well as complex computer-based mathematical models to develop multiple future scenarios. It is expert-led with some participation from senior managers within an organization. The outcome is an extensive set of data-driven scenarios supported by an extensive storyline as well as possible actions and their consequences (Bradfield, Wright, Burt, Cairns and van Der Heijden, 2005).

 

The third approach is qualitatively and organizationally focused. The scenarios are constructed within an organization using inductive or deductive processes monitored by an experienced scenario practitioner. The outcome is a logically, qualitatively and discursively described set of two to four scenarios all being equally probable (Bradfield, Wright, Burt, Cairns and van Der Heijden, 2005).

Examining the descriptions of the three approaches in more detail one can see that each one has a different agenda and goal that it tries to achieve.

 

The first approach follows the classic idea of strategic planning, that is, it tries to find “the one best” strategy by giving various scenarios different probabilities (Ansoff, 1965). Based on these probabilities managers feel more certain about the future, develop specific strategic actions for the most probable scenario and execute them. The focus hence lies on obtaining better for recasts by perfecting extrapolative data analysis or trend models (Wack, 1985a). This approach might work well in a stable economic environment, but is very difficult to apply under volatile or uncertain conditions. Additionally, the quantified scenarios are developed by experts who have hardly any interaction with the outside world or the decision makers responsible for acting upon the developed scenarios (Wack, 1985b).

 

The agenda and goal of the second approach is slightly different and to a certain extent tries to overcome the limitations of the forecasting-oriented approach. By not only focusing on computer-based models that try to attach a probability of occurrence to each scenario, this approach involves workshops with senior managers discussing the results and scenarios obtained from computer models. Put briefly, involving someone else’s model where only the results are discussed substitute’s thorough and concise thinking by senior managers, which is crucial when it comes to developing as well as executing strategies (Wack, 1985b).

The third approach takes its agenda one step further by using company-internal inductive or deductive processes to develop scenarios. At this stage all relevant stakeholders are engaged in the scenario-development process. This also means that the probability of the scenarios representing actual significance to a manager is higher. Nevertheless, scenarios do not only represent information about a specific state of the world. Rather, they are also about perceptions (Wack, 1985b).

The ‘Scenario Matrix’ tool described in this book follows an approach which was first introduced by van der Heijden (2005). The scenario matrix is a deductive method useful for constructing and describing scenarios in uncertain and volatile situations. Deductive scenario methods are perceived as the most analytical and exhaustive ways of building scenarios from an outside-in perspective (van der Heijden , 2005).

 

Sub-step 1: Scenario identification

At the heart of scenario identification is the scenario matrix. The scenario matrix is based upon the two key uncertainty factors that have been identified in step three, the trend and uncertainty analysis, of our six-step process to scenario-based strategic planning using the  ‘Impact/Uncertainty Grid’ tool. In order to construct the scenarios, it is necessary to project each key future uncertainty with an extremely positive and negative outlook along the x and y axes of the matrix.

Sub-step 2: Creation of an influence diagram

In the second sub-step the stories behind the scenarios need to be built. These stories describe the paths along which the world will arrive at the four alternative scenarios (van der Heijden, 2005) In order to derive these stories, we generally build a chain of causes and effects leading to these end-states. This chain of causes and effects is called the ‘influence diagram’ and describes the strategic levers behind the scenarios (van der Heijden, 2005).

Sub-step 3: Scenario description

Once the influence diagram has been completed and all interdependencies have been checked, one can start describing the four scenarios in continuous prose.

Here, the previously explained influence diagram should be used as a basis for describing the dynamic nature of each development. By systematically describing why a certain development happens and how this influences another development one creates the basis for writing the story (van der Heijden, 2005).

Also, one can apply a more creative technique by not focusing on each trend and uncertainty on the influence diagram individually, but looking at the whole picture and taking the influence diagram as an orientation.

 

Sub-step 4: Creation of a fact sheet

The last step of the ‘Scenario Matrix’ tool is to establish a brief fact sheet for each scenario.

A fact sheet should contain the relevant numbers, key indicators and a short description of each scenario. When looking at a fact sheet, the reader should quickly understand the current situation given the scope of the scenario, the relevant measures on which it is based and what the scenario actually looks like.