Using Scenario Planning to Prepare for an Uncertain Future
VANCOUVER BUSINESS JOURNAL
March, 2001

Management Concepts
JONNIE MARTIN


In recent years, large corporations in particular have begun to use and perfect the skill of “scenario planning” as part of their annual strategic planning process.  In scenario planning, the participants sketch out alternate fables of how the world might evolve in the future.  The companies then look at each fable (they use the word scenario, similar to the word “scene” in the context of a theatrical play) and think about how their own company would be affected.

This technique was first used by the military in World Ward II, to sketch out possible actions by the Axis Powers.  With each scenario, they would ask, “As the Allied Forces, how would we respond?  Are we prepared?  How will we be affected?  What should we do now to be ready for every eventuality?”

In the 1970’s, this powerful planning tool gained wide recognition because of its effective use by Royal Dutch/Shell in planning for possible changes in the global oil economy.  Shell gathered together a brain trust of brilliant strategists who thought through the future scenarios of the global economy in general and oil prices in particular.  As a result, Shell was prepared for the OPEC pricing wars in the 1980’s.  That company not only weathered the storm, but became stronger, while other oil companies floundered.

Scenario planning is not just a tool for international corporations, but a useful process for every business.  No matter how large or how small, every company is affected by the constancy of change in our world.  Will there be inflation or steady growth of the economy or a sudden depression?  Will there be world wars or extended peace time or instability among the newer nations?  What about crime and poverty and the continuing threat from illegal drugs?  What changes in technology will fundamentally change our lives this time?  We’ve just now begun to accept this new concept of a global economy —but what is new, over the horizon?  How is our world changing and how will it affect us?

A few years ago, in an advanced planners conference of the national organization now known as the Financial Planning Association, “scenario planning” was used as a way to more clearly define the future of this profession.  The planners asked themselves, what would happen to our businesses, our profession, in various economic scenarios?  They proposed a variety of scenarios, involving the technological affects of the internet, increasing governmental controls, instability in the capital markets, and so on.  With each scenario, they asked themselves:  are we prepared to respond if this scene plays out in the future?

Smith & Hawken used scenario planning to decide whether to start their mail order business, bringing high-quality garden tools to the United States.  Their scenarios allowed them to explore the present and future economy  of our country, and various marketing issues.  As the U.S. continued to move away from an agrarian and industrial nation to an information economy, would there be a personal return to the earth, to gardening, as a hobby?  Smith & Hawken explored various scenarios around the cultural changes in the U.S., and closely studied the implications of each.

You can use scenarios within your strategic planning process.  
  • Begin by taking time to think broadly and deeply about the world you are in, and all the ways that it might change in the future.
  • Imagine scenes of how the world might evolve from here.  Label the major “scenarios” as you develop them.  
  • Study the implications of each of these scenes, as it affects your particular business.
  • Analyze your readiness to respond to each of these scenarios, should any of them eventually occur.
  • Decide upon the courses of action you will take (if any) to prepare yourself for the most likely scenarios.

It is not easy to predict the future — but the better we become at doing so, the more prepared we are to flex and bob and weave with the changes.  The fewer mistakes we make today, because we have given consideration to the future.  

Not many years ago, banks were deeply into the image of  “bricks and mortar.”  Customers came into the bank and banking relationships were long term and personal. Now a very large percentage of financial transactions are done through ATM machines and the internet.  How well were banks prepared for this change?  Did they stop soon enough in their costly construction of edifices?  Did they see the unfolding of this technological world?  Did they accurately predict the speed at which the change would occur?  I suspect those banks who predicted the changes and prepared for the changes fared better than those who did not.

If you want to know more about this tool of scenario planning, several of the people involved in the Shell brain trust have written books in recent years and these give you some insight into the process.

“Synchronicity:  The Inner Path of Leadership” by Joseph Jaworski is an interesting read.  In addition to a broad description of scenario planning, Jaworski (the son of Watergate prosecutor Leon Jaworski) also deals with “synchronicity” (trusting to instinct and life purpose) and with “dialogue” (the power of evolving solutions through focused and patient discussions.)

If you want guidance and specific tips on how to use the powerful tool of scenario planning, then I suggest you read “The Art of the Long View:  Planning for the Future in an Uncertain World,” by Peter Schwartz.   It will help prepare you for the next world-changing event… and the next… and the next.