Scenario Planning

What If?
Scenario planning is a valuable technique for leading your company in the face of an uncertain future.
© Dr. Terry J. van der Werff, CMC

In turbulent times, every CEO faces the question “How do I confidently steer our company through uncharted waters without the fear of shipwreck along the way?”
A valuable tool to help you navigate troubled waters is scenario planning. Developed at the Rand Corporation for the military after World War II, it was adapted by Herman Kahn in the 1960’s as a business tool. Its most prominent use was by Pierre Wack and Ted Newland at Royal Dutch/Shell in the 1970’s to examine the impact on oil prices of a number of potential scenarios.
Scenario planning answers “What if...?” questions that involve important issues and large external influences. Unlike strategic planning this postulates a single anticipated future, scenario planning looks at alternative versions of the future.(http://www.globalfuture.com/9502.htm)

Scenarios are short internally consistent narratives of possible futures; they are not predictions.

Goals of Scenario Planning:
Ø Enrich Management Thinking
Ø Develop clear perception of reality
Ø Develop better mode of decision making
Ø Address important issues in face of uncertainties.

Steps in Scenario Planning Process:
1. List major issues or decisions facing the organization
2. Indentify the key drivers- the external forces.
3. Short list two most important drivers and restrict yourself to formulating three or four scenarios.
4. Write a story of the future which highlights the key drives of each scenario.
5. Give each scenario a name.
6. Within each scenario determine the implications for the issue or decision specified at the outset.
7. With these implications in mind, discuss what your decision or business response should be.
8. Select indicators which suggest that a particular scenario is unfolding.

9. Be ready to revisit the scenarios.

The value of scenario planning lies not in the answers, but in the discipline of thinking creatively about unusual situations. (http://www.globalfuture.com/9502.htm)
Your objective is not to select the best or most probable scenario. Indeed, scenario planning doesn't allow you to predict the future. It simply allows you and your team to respond flexibly and promptly and to make better decisions when major events do occur, no matter what they are.
In an article in Harvard Business Review in 1985, Wack wrote:
Scenarios deal with two worlds; the world of facts and the world of perceptions. They explore for facts but they aim at perceptions inside the heads of decision-makers. Their purpose is to gather and transform information of strategic significance into fresh perceptions.

Scenario planning has been used by some of the world’s largest corporations,
Ø Royal Dutch Shell,
Ø Motorola
Ø Disney
Ø Accenture

By using Scenario Planning a company can:
Ø Achieve a higher degree of organizational learning;
Ø Raise and challenge both implicit and widely held beliefs and assumptions about the business and its strategic direction;
Ø Identify key levers that can influence the company’s future course;
Ø Turn long-range planning into a vital, shared experience;
Ø Develop a clearer view of the future;
Ø Incorporate globalization and change management into strategic analysis.

Business War Games

A business War Game allows organizations to test their beliefs and assumptions about their business environment. (http://www.marketing-intelligence.co.uk/services/CI/War-Gaming.htm).

War Games are commonly used by the military to evaluate strategies, explore scenarios and reveal unexpected weaknesses. (May 31st 2007 From The Economist print edition). This can be used in corporate planning also. As in a war, the same applies to business too; the outcome depends on what the others do, as well as one’s own action. Most of the traditional planning tools do not take opponents response to a changing environment.

Objective of Business War Games:
Ø Better understanding of the changing environment
Ø Identifying emerging opportunities
Ø Identifying threats
Ø Making decisions by considering how other organizations would react to change.
Ø Testing corporate understanding about business and competitive environment.
The objective of a War Game should be to improve corporate planning processes, and use the lessons learned from the War Game in business strategy. (http://www.marketing-intelligence.co.uk/services/CI/War-Gaming.htm)


War games involve a number of teams representing different players in the industry. For example:
Ø Competitors
Ø Key consumers
Ø Regulatory bodies

However there is no single way to arrange a War Game - and each should take into account the particular circumstances involved. Some War Games may involve several different players, while others can be much simpler and only focus on one key competitor.

Benefits of War games:
Ø A full understanding of the current situation, opportunities, threats and issues that may arise in the short-medium terms;
Ø Plans for the future can be tested during a war game.
Ø Identification of vulnerabilities and weakness.
Ø Better response to threats and emerging opportunities.


War Games and Scenario Planning:

In some ways War Games resemble Scenario Planning. (http://corporateplanningforum.com/tools/)

Common Characteristics:
Ø Engage the participants.
Ø Excite imagination
Ø Power full critical decision tool.
Ø Tool for developing strategies and tactical situations.

Differences:
Ø Business War games results are more tangible and less creative.
Ø Business War games is equally appropriate for critical tactical as well as strategic decisions. (http://corporateplanningforum.com/tools/)
Ø Longer periods are also uncommon, in War games, as the uncertainty factors mean that War Gaming gives less direction. For such longer-term cases, scenario planning often provides a safer approach.

Through Business war gaming, organizations can develop a clear view of potential implications of a disaster, disruption or competitive challenge. They can build or adjust strategies that reach across the range of possibilities and guide future business decisions. War games provide opportunities to assemble functional experts (inside and/or outside the organization) familiar with corporate and industry trends and examine a future environment from a multi-disciplined approach. Functional expertise might include operators, lawyers, corporate intelligence or other disciplines. In a disciplined and interactive way, war game players are able to apply existing plans, policies and procedures to examine the competitive market and interact with that future market or environment.