Scenario Planning: Preparing for uncertain Futures in an Age of exponential change
This article has been republished from New World Navigator, our Strategy and AI newsletter, a publication dedicated to helping organisations and individuals navigate disruptive change. Sign up here to receive and participate in thought-provoking discussions, expert insights, and valuable resources!
Scenario planning is a powerful tool that organisations should use to prepare for significantly different futures and to surface both opportunities and risks.
An Age of Exponential Change
No one can accuse the last two decades of being boring (read: predictable). The business, economic, geopolitical, social, and technological environment is more unpredictable and volatile than ever before.
In the last few years alone, most of us have been completely caught by surprise by the Covid-19 pandemic, the overturning of Roe vs. Wade by the US Supreme Court, the war in Ukraine, the collapse of FTX and SVB, and the return of inflation and high-interest rates after more than a decade of cheap money, and the advent of Generative AI, just to name a few.
And it is not just small businesses and individuals that are being caught off guard, but also multinational organisations, governments, and large corporations that have been taken by surprise by the sheer speed and scale of change.
Scenario Planning
For the history buffs among you, Scenario Planning was born during the turbulence of the Cold War and the threat of Mutually Assured Destruction (MAD). The stakes were extremely high, and the risks were even more unknown than ever before. In such situations, predictive models, and general human experience, which are both largely based on history (i.e., what has come before), lose a lot of their relevance.
For instance, the scriptwriters of the time travelling classic, Back to the Future, were able to envision flying cars, hoverboards, and mini fusion engines, which followed a linear development trajectory of the technology of the day. However, they were unable to foresee fundamentally game-changing exponential trajectory of other branches of technology, which now manifest as self-driving vehicles, ChatGPT, quantum computers etc.
The war games and simulations of the 1960s that were adopted by political and military leaders eventually evolved into a tool, Scenario Planning, which is today used to support decision-makers to envision and plan for substantially different futures.
Benefits of Scenario Planning
Beyond the direct upside of helping to uncover previously unforeseen risks and potential futures, the process of Scenario Planning itself brings numerous benefits to the organisation.
Expand the mind
Scenario Planning encourages leaders to step outside their comfort zones, to consider topics and connections between topics that they might previously have dismissed.
Reduce the risk of "groupthink"
Scenario Planning reduces the likelihood that the "base case" (or incremental variations thereof) which everyone tends to accept by default, will be the only potential future considered.
Improve collaboration
Scenario Planning optimally involves stakeholders from a broad range of backgrounds engaging with each other. This helps bring often siloed teams together to achieve a common goal. It also supports mutual understanding of each other’s objectives and constraints as their interactions are elevated from the strictly transactional toward more strategic considerations.
Enhance risk management
Scenario Planning provides a framework for identifying key uncertainties, which businesses should optimally build into ongoing risk management processes.
Increase strategic agility
Scenario Planning supports businesses to consider and pre-empt potential responses to shifts (including of a seismic nature) in the operating environment, allowing them to stay ahead of the competition and to capitalise on emerging opportunities.
Scenario PLanning Approach
While there are various methodologies in use, at its core, Scenario Planning typically involves the following steps.
Define the focal issue
Narrow down on the issue at stake, which could be as wide as a government planning for a country's future, through to a company's multi-year corporate strategy, or even down to a specific investment decision (e.g., building a new plant).
Consider the key factors
Develop a longlist of factors. Make sure to cover not only the usual industry-specific suspects (e.g., supply chain continuity, new competitors’ products), but also investigate less commonly discussed factors, such as the wider and more macro-level forces at play (e.g., shifts in technology or geopolitical paradigms, or changes in societal norms such as evolutions in the social contract). The latter are critical long-term considerations, but because they are less apparent, can sometimes be overlooked in the course of traditional corporate strategy development.
Identify the critical uncertainties
Prioritise the longlist of factors, typically based on magnitude of potential impact (on the focal issue) and degree of uncertainty. The latter is particularly important.
Many corporate strategies tend to focus on factors or issues that stakeholders are more familiar with or have more control over, and are therefore more comfortable with. However, as the point of scenario planning is not simply to explore "known knowns" but also "known unknowns" and "unknown unknowns" (in the words of former US Defence Secretary Donald Rumsfeld), it is critical that we spend even more time and effort on areas where the extent of uncertainty is the greatest.
(This is a favourite topic for the team and we would invite you to review an article that we have previously written about a framework that can help teams improve the quality of their decision-making under uncertainty).
Develop the scenarios
Narrow down to two to three critical uncertainties, which will then be used to develop your scenarios. The scenarios are developed by pushing each critical uncertainty to its logical conclusion. Usually no more than 2-3 critical uncertainties are selected from which to develop scenarios (most organisations default to two critical uncertainties, which allow a simple 2 x 2 matrix to be plotted with four scenarios).
Taking a traditional car manufacturer (e.g., BMW, Mercedes, Renault) as an example, two major concerns today could include access to semiconductors (or 'chips') and the development of self-driving technologies. Based on these critical uncertainties, four scenarios representing differing combinations can be generated (see diagram below).
The bottom left-hand corner scenario is closest to the status quo: it represents a world where chip access is no longer a bottleneck, while the self-driving revolution fails to take off. The top right-hand corner scenario is the trickiest scenario for traditional automakers: it describes a world in which access to chips has become exponentially difficult, while self-driving technologies have become mainstream.
A 2x2 scenario planning matrix for a car manufacturer based on the critical factors of access to semiconductors and development of self-driving technologies.
Communicate the scenarios
Flesh out each scenario and give it life with a memorable name and a compelling narrative. In many ways, this is the most important part of the process because the entire scenario planning process would have been for nought if you are not able to get your stakeholders to credibly embrace and visualise the scenarios in all of their glorious uncertainties. This is often the most "fun" part of scenario planning - it simultaneously allows participants to embrace their creativity while making the scenarios seem more relatable by putting a tangible "name and face" to each of them.
Building on the automaker example above, the bottom-left hand scenario could for example be named "Chips Ahoy!" (#IYKYK) and a potential narrative could describe a world where chip R&D and manufacturing has become a lot more democratised and is no longer bottlenecked in key companies and countries, while regulators and consumers, fearing the onslaught of "thinking machines", have completely halted all new AI development including that of self-driving automobiles.
The top right-hand scenario could be called "Brave New Wars", and its narrative could focus on a world where Sino-American geopolitical tensions flare up, resulting in war breaking out over Taiwan (the world's largest and most advanced source of advanced chips), while the likes of the Big Tech giants, Tesla and other electric automakers have made a quantum leap in (safe) self-driving technologies, to the delight of consumers (which results in another step change in demand for semiconductors and further straining already taxed supply chains).
Plan for scenarios
Take a step back once the scenarios have been defined to assess the potential strategic options and / or mitigating actions that could be considered for each. Some of the strategic options and / or mitigating actions will be relevant regardless of the scenario, and in such cases these should be immediately prioritised. For instance, regardless of whether automakers find themselves in the world of "Chips Ahoy!" or "Brave New Wars", shifting towards more sustainable supply chains and manufacturing processes will likely be beneficial.
On the other hand, strategic options or countermeasures that are more scenario-specific, should also be considered and if deemed worthy, planned for. However, they are more likely to only be put into play when early indicators of a scenario taking place are detected. For example, our automaker may decide that one of their strategic options is to invest into the semiconductor value chain to ensure security of chip supply in the event of supply shortages, and they will trigger their plan when geopolitical tensions as measured by a global index increases to a certain predefined level.
Scenario PLanning in Action
Scenario Planning can be hugely valuable for any organisation, and can be undertaken by any organisation. However, there are a few key watch outs that a budding Scenario Planner should be aware of.
Sow discord
Scenario planning is most effectively conducted in a workshop (or series of workshops). Rather than being a desktop analytical exercise, Scenario Planning yields the most value when it brings together a broad range of individuals with differing perspectives from across the business (and potentially also from outside the business) to have focused and unrestricted discussions about uncertain (but nonetheless plausible) futures.
These discussions should, dare I say, also make the participants feel squeamish and uncomfortable, because it should delve into areas that are outside of their usual day-to-day experience and ability to control.
Look on the bright side
Scenario Planning can sometimes prompt teams to focus solely on negative futures. Yet risks are by their very nature two-sided, and encompass upsides alongside the downsides. Make sure therefore to also consider environmental shifts that have the potential to create opportunities that the organisation can leverage. Seen in this light, a crisis, while seemingly disruptive, is likely to also open new avenues for growth - what we would consider "crisis as opportunity".
The Covid-19 pandemic in the UK was a case in point - while much of the country hunkered down, logistics and food delivery companies went into overdrive, and an entirely new industry sprang up to support the mass testing that was required (my former employer, Qured, being one of those companies that moved quickly to develop an end-to-end national testing service from scratch).
Tell the story
After you've gone through the hard work of developing and shaping your scenarios, make sure you put them to work by communicating them within the organisation. Use the scenarios to provide context to your strategy, while leveraging the narratives to paint a more compelling story of your vision and strategic choices, and to bring the organisation along the journey that you have just taken.
Put it into practice
Scenarios are no good to anyone if they simply gather dust on the shelf. Once the scenarios have been analysed and your plans developed, make sure that the appropriate steps are taken to put them into practice.
For instance, following Scenario Planning on Brexit that we had done for a pharmaceutical client, senior stakeholders moved quickly to put in place project teams to address key uncertainties such as continuity of medicines supply and the potential for regulatory divergence from the EU.
On the opposite end of the spectrum, many of the capability gaps highlighted in the UK's 2016 pandemic readiness simulation, Exercise Cygnus, were mostly left unaddressed and these deficiencies certainly contributed to the country's high levels of Covid-19 mortality and long Covid.
Skillfully guide
Just as importantly, Scenario Planning works best when there is a skilled facilitator. Since the quality of Scenario Planning outputs are entirely dependent on the depth and breath of the discussions that take place, the role of the facilitator is to tease out as many varying perspectives from across the group, while skillfully managing and guiding the group towards the end goal of aligning on a set of scenarios. Some organisations, notably Royal Dutch Shell, have their own internal Scenario Planning teams, while most businesses tend to work with external experts.
Conclusion
With the convergence of many exponential trajectories including technological advancements, impending environmental crunch points, overturned social contracts, and tidal shifts in great power politics, the pace of changes is expected to only hasten. The need for farsighted and multi-dimensional approaches such as scenario planning is more of an urgent priority than ever before.
Here at Evolutio Consulting, we collaborate closely with our clients to develop their strategies which often include Scenario Planning exercises to inform the strategic process. We find that Scenario Planning is not only incredibly insightful but is also an activity that both teams, our clients and our consultants, immensely enjoy. We invite you to reach out to us at info@evolutionconsultingco.com to learn more!
About the author: Justin Tan is the Founder and Managing Director of Evolutio Consulting. He supports founders and senior leaders to navigate through disruptive change and towards sustainable and robust growth. His mission in founding Evolutio Consulting is to empower organisations to thrive by making more impactful strategic decisions, fortifying their ability to adapt, and nurturing team effectiveness through professional development and training.
