Scenario Planning has almost become a prerequisite for companies to combat any or all future uncertainties— or more conveniently; a risk mitigating device to be precise which is by and large used by organisations to avoid perilous situations as a result of sloppy underpinnings. With a correct analysis of basic trends and uncertainties your business can ascend impediments and steer clear on the path to success.
Around a hundred years ago, it was off the pages for the U.S. Navy to even envisage the role of airplanes in naval warfare. In 1910, the Scientific American blazed that “to affirm that the aeroplane is going to ‘revolutionize’ naval warfare of the future is to be guilty of the wildest exaggeration.” History of mankind is replete with such examples. The global financial crisis or the Great Recession of 2007-09 counts as another reminder where the Federal Reserve and the Bush administration remained overly optimistic and persistently denied signs of an impending crisis; quintessential of how humans have an unbridled ambition to inordinately underestimate scenarios at hand. But can we succeed where trained world leaders and politicians failed?
Scenario planning can actually make a difference when it comes to myopic errors resulting from wrong assumptions people tend to make almost unknowingly. Scenario based planning encompasses all sorts of uncertainties/alternate futures in which today’s decisions might play out. Think in terms of a pilot ready to take off his plane; a detailed plan will be put in place using up-to-date data from air traffic controllers, meteorological department, aerospace safety, etc. whilst being combined with geographical mapping to curtail the possibility of human fallibility to almost null.
Similarly, scenario planning and analysis attempts to capture the richness and variety of possibilities facilitating decision makers to consider those caveats that might go unnoticed. Scenario planning matrices come in handy for organizations especially when:
- There is a high level of uncertainty regarding the organization’s future prospects.
- To keep itself apace with new trends in the market.
- The industry has undergone a significant change or is about to.
- The organization is facing stagnation in terms of generating new opportunities.
The scenario planning process is contiguous with putting a contingency plan for any organization which paves a framework for strategic thinking by providing decision makers an opportunity to boil down all possible aspects they’re confident about from the ones that cause uncertainty. The process usually involves:
- Identifying the focal issue – This usually begins with identifying the organization’s primary focal point (like product, sales, market, technology, etc.). Once the focal issue at hand is clear, the company can then engage in brainstorming uncertainties that might pose any sort of risk. For example, two of the most important uncertainties for any electronics business companies are consumer demand and competitive market prices.
It is also imperative to look at the past sources of uncertainty and volatility and how they can be engaged with in the best of interests in the coming future.
- Develop a range of possible scenarios – At this step, a company’s focus should be to form a matrix with its most crucial uncertainties at its apex. The objective should be to see the future largely in terms of a matrix of uncertainties and basic trends that may or may not affect your business. Uncertain aspects like future interest rates, shift in technologies, likelihood of civil unrest, political polls and so on must be accounted for. It is almost next to impossible to curtail all implausible scenarios but the goal here is to eliminate as many as possible.
- External forces – After identifying the matrix of uncertainties it is time to consider the external forces that operate in the larger world, i.e. economic, political, societal, technological, legal forces which are sure to affect the focal issue identified in step one. Clothing pioneers like H & M, Zara and Marks & Spencer are relatively a new addition in the South Asian fashion industry. Twenty odd years ago, they wouldn’t have probably considered to take into account the human genome variability in their product designing. But with the changing times, they have catered exclusively to varying body dynamics of people from across the globe; they’ve curated their marketing and branding more on the lines of eco-friendly products in light of current climate change. An epistemic level of analysis of external forces helps build a shared framework for strategic thinking that encourages diversity and sharper perceptions.
- Plausible scenarios – After ticking off the initial three steps from the list, build plausible scenarios for your business and check for internal inconsistencies. Segregating positives from negatives, setting up a time frame, accounting for anticipated reactions of major stakeholders are some plausible scenarios that can be combined by creativity of decision makers into a clear narrative. For example, two plausible scenarios for an automobile company could be: “Funding” and “Environmental stake,” where monetary and legal trends may get more play in “Funding” and public health may feature more prominently in the other scenario. Each scenario tells a story and at this stage by combining each scenario into a solid narrative can be a constructive strategic thinking technique.
- From scenarios to strategy – At this point, the learning scenarios might help you find out your blind spots. You may wish to better understand your company at its fringes or how the stakeholders are going to react in a particular scenario or maybe studying about new trends in the technology sector. Traditionally Microsoft and Apple focused on making PCs but today their services range from making phones to operating servers and engaging with AI. Rather than picking one scenario and solely relying on it, it is better to come up with a strategy that is versatile across a range of scenarios.
How can you determine whether your scenarios are good enough? It is very easy to get trapped into pitfalls like: getting paralyzed by the multitude of possibilities, or a myopic inquiry into a limited number of scenarios. The key is to keep it simple and not be hesitant to look far ahead.
Try and look out for how relatable your scenarios are. Can they connect well with the user requirements? Are they cost beneficial? Secondly, they should be consistent internally and quintessentially be equitable. There isn’t any rocket science involved in scenario planning. It is simply a game of common sense. But that does not mean there isn’t room for mistakes. Any old wives tale can substantially tell you that practice and experience essentially make up for a more heuristic approach to learning. Above all, it is the courage and the imagination to act on them. Any drab scenario can be turned into a coveted opportunity only if you actively look for it. As the famous Walt Disney said “The way to get started is to quit talking and begin doing.”