The military developed scenario planning. When you think about it, it’s easy to understand why. Then management embraced it. But where do managers start with scenario planning and how do they introduce it into the organisation?
We all plan ahead to some degree. We think about what we will be doing tomorrow, consider options for dinner at the weekend, choose between holiday this winter or next summer and consider answers to the interview questions looming later this afternoon.
Organisations do the same thing. But they have created whole raft of techniques to explain this ‘forward thinking’, with models, structure and formulistic approaches used to predict what will happen in the future and how it will impact their enterprise. However, these models generally fail to take account of the fact that we live in an unpredictable world, and we should explicitly allow for this degree of ‘unpredictability’.
We are conditioned to thinking about the future. It is intrinsically linked to our well-being. Some observers even suggest that our development as species is based on our ability to think ahead and plan for events that have not yet happened.
When we start to think ahead and plan for uncertain events, we realise how interlinked everything is. We begin to realise that detailed planning for the future is fraught with risks and errors.
So, where to start? How do managers and, through them organisations, plan for and handle uncertainty?
“… chance favours only the prepared mind.”
– Louis Pasteur
The majority of us create fixed plan and aim to stick to it; ignore situations that are uncertain and suggest the plan is incorrect; or grin and bear it when adverse events transpire.
But what happens when the stakes are significant, when your survival may be at stake – can you afford to rely on positive outcome and gamble with the organisation’s future? Can you afford to ignore the signals that indicate the planning is wrong? Is management’s personal need to be proved correct more important than the organisation’s well-being?
The further into the future we try to look, the less clearly we can envisage how things will transpire. This is major issue for strategic planning, when organisations aim to make decisions that may affect their very existence. Should we spin-off that business unit? Should we restructure? Should we buy that company? Should we build new manufacturing plant? Should we create new business? Should we invest in the next generation internet? Should we launch this new product or service?
These questions are known as “long fuse, big bang” issues. They take long time to play out, and when they do, the outcome will be major upheaval or “big bang”. The resultant bang may put an organisation out of business, may result in takeover. The ideal and preferred outcome is huge positive outcome.
Senior executives make decisions that affect tens, hundreds or even thousands of people – how can they ensure that their decisions are the best possible given the current level of knowledge?
Most organisations plan for the future. Many create sophisticated plans, detailing what they want to do in the future, and forecasting where they believe the organisation or industry is headed. These are the strategic plans, business or organisational strategies.
Most of the time, these plans are adequate. They provide degree of coherence and direction for organisational activities. However, traditional planning usually takes linear approach, assuming that tomorrow will be much like today.
This approach works well in stable and unchanging environment, but fails when it is most important, when discontinuous events throw existing behaviours and models into disarray.
Traditional planning models become less reliable the further out the planning horizon. For “long fuse, big bang” problems, traditional planning is little better than using educated guessing, and frequently worse given the insular views of close-knit groups within organisations.
Management cannot afford to wait and see how things play out. They must make decisions now, light the “long fuse” and hope that the “big bang” that eventuates is the right one.
The pace of change has quickened dramatically in the past 20 years. And with it has grown the need to develop new type of planning.
“A good deal of corporate planning… is like ritual rain dance. It has no effect on the weather that follows, but those who engage in it think it does… Moreover, much of the advice related to corporate planning is directed at improving the dancing, not the weather.”
The Rise & Fall of Strategic Planning, Professor Henry Mintzberg, McGill University
In the late 1960s, group of strategic planners at Shell Oil’s London headquarters started working on the problem of how to handle uncertainty in their long-range planning. The group influenced decisions that had huge financial implications for the company, such as whether to build new oilrig or start exploration in new areas – all expensive undertakings.
Led by Shell’s head of planning Pierre Wack, the group devised scenario planning, by adopting military technique developed by Rand Corporation for the United States Defence Department.
Everyone uses scenario planning to some degree, usually without being aware of it. Psychologists believe our future planning capability is uniquely human, and has played an instrumental part in the development of our brains, our intelligence and has, therefore, influenced our shaping of society.
So what is scenario?
A scenario is model of possible outcome used to inform current decision making and based on behaviour or outcomes seen within the scenario. Scenarios are like maps of the future, with each map having rules that maintain consistency and integrity.
We create mental scenarios every day, such as: If it’s raining tomorrow I’ll take the train to work, but if it’s dry I’ll walk; Next year I think that we’ll take winter break, but if I have to move job, we’ll take an extended summer break in Europe.
Psychologists believe that this mental future planning prepares us to cope with uncertainty. If we rehearse possible outcomes often enough, we can shift from conscious response to an almost automatic response, delivering obvious survival benefits.
Humans are apparently the only species that appear to think both forward and backwards in time, and have the ability to conceptualise different outcomes.
Anthropologists believe prehistoric humans used scenario planning to calculate the angle and trajectory of thrown objects – allowing humans to develop weapons that could be deployed from distance. Mental ‘trajectory planning’ with its associated complex mental-processing probably helped humans develop their current sophisticated brain structure and mental capabilities.
From business perspective, scenario planning is still concerned with envisaging potential futures, and developing strategies to ensure that the organisation can cope with these. It is about managing risk and uncertainty. It pays close attention to internal and external factors, trends and other global phenomena, the environment and things happening outside the organisation, which may normally not be considered as relevant, but which have influence on the future.
Traditional strategic plans provide organisations with ‘map’ to guide their progress. But, if the map is incorrect, they could be heading in the wrong direction. Start from the wrong point, all assumptions and actions from that point forward are based on flawed thinking.
Psychology and history tell us that if we believe something is true, it takes lot of effort, persuasion, thinking and deliberation to change our beliefs.
Scenario planning helps challenge existing maps and replace them with new ones by: challenging what we think might be true; encouraging re-perceiving approach; working to explore what could happen and how that would impact your curren
