Scenario Planning for Competitive Advantage

KEYWORDS: Strategic Planning, Economic Growth

How can an organisation picture different versions of the future to test how it might survive with its current strategies? This article outlines the Future Navigation Process, a tool based on Scenario Planning to help you and your clients expand your thinking around the uncertain future.

Introduction

The USA /UK coalition is struggling to determine the aftermath of the action in Iraq, the UN seems to have been discounted from the equation; terrorist attacks in African and Mediterranean countries sustain the fear that the world changed irrevocably on September 11th 2001. How can the business community in the West, with its emphasis on globalisation, work out how to move forward with any confidence in its ability to sustain competitive advantage?

Planning for the future has always been something of a black art for many companies - a cross between wishful thinking and straight-line projection from the past. Taking a realistic look into different futures through more complex 'scenario planning' suddenly looks like a really useful idea.

Scenario planning techniques are not new, developed from military applications they've been around in the commercial scene since the 60's but complex modelling requiring major financial investment in expertise to generate statistical data made this a tool for the big boys.

By February 2002 The Corporate Strategy Board was reporting that only one-third of major American companies engages in scenario planning - and even then only a third of them are doing it right - according to Peter Schwarz Chairman of Global Business Network and formerly head of scenario planning at Royal Dutch/Shell

If the case presented for scenario planning was strong in February 2002, it has become a lot stronger and it needs to be accessible to the majority of the business world. As a management consultancy working with a range of organisations struggling to grow and plan their future development in the increasingly uncertain post 9/11 climate, we revised our experience of Scenario Planning and developed a readily accessible tool for management teams to apply for themselves which we call the 'Future Navigation Process'.

In September 2002, we used the following example as an introduction to Scenario Planning with a client in the west of England: Our client needed to consider options for growth, and this was one of the four possible outcomes from projecting forward two essential external influences on their organisation that they had selected - Social Stability and Economic Development. They named their story 'It All Falls Apart' and we worked with them to consider in this picture of the future, how their enterprise could survive. In thinking through what these events could mean their management team generated countless ideas from which they explored a selection of measures in more depth. From these they determined strategies they could put in place if they spotted the signs that would warn them that their actual future was developing in this direction.

This may have been 'the worst case' scenario in this particular exercise but if this were to be the future, an organisation needs to consider how it would affect their business. What about your plans for your business today? Or your client's plans for their business? When we first wrote this future scenario, based on research done in April 2002, it seemed a lot more imaginary than it did earlier this year in March (2003), when in fact Iraq was invaded.

So, what does making up such a story of the future buy? Is it just scare mongering? Sensationalism? Why do most organisations plan around one future (and only one future), a sort of sanitised projection from the past? We we cannot predict the future, so why do we continue to bet the fortunes of our business on a single picture of the future that we only guess will materialise? Is it lack of imagination or just playing safe? What is going on?

Why is Planning Important?

Research done by Barclays' Bank last year indicates that more than half of the businesses that fail had no business plan. - not even one straight-line projection. That they did have a plan was a major factor for those that succeeded.

Many people think that there is no point to planning when we can't do anything about what happens to us or to the future as it unfolds. But, Scenario Planning helps us to see what opportunities there might be so that we can take advantage of them. It is not only about making sure we don't run risks, it is also about identifying advantages we might seize - ahead of our competition.

Our own experience shows that we prefer to avoid planning so that we won't have 'failed' to hit a target. However, when when we do plan, we have a feeling of taking control. By monitoring our progress the we can adjust our plans as needed. Plans are not cast in concrete - they are a tool to help an organisation to see where to go and to correct the course that lies ahead, and keep on target.

So, planning in itself is not really that easy and many of us would prefer to avoid it, or sanitise it and keep it fictional. And once we've done the planning, then what? We know that we can't predict the future. Yet, we continually base our plans on one future alone.

By contrast, scenario planning is a tool for raising awareness of the possibility of a range of different ways in which the future may unfold, built on some of the factors through which the outside world affects us. We look at factors of high uncertainty, project those factors forward and develop imaginative stories to describe what affects that projected future may have on an organisation. To use a metaphor, we can compare an organisation to a ship. Even a small ship (or organisation) takes time to turn or stop or even to change direction. The larger the organisation, the longer it takes to turn, so wouldn't it be useful to have some sort of marker to tell you when you need to start to turn?

What will Scenario Planning give me?

Effective use of scenario planning allows organisations to concentrate on a number of external trends and uncertainties that can have a significant affect on them, and to use these to define some possible futures. In the Shell example above they looked at 'political change' in major oil producing countries, and 'oil price' among other trends and uncertainties. The 'Future Navigation System' allows us to make readily accessible scenario planning exercises with organisations but that do want to plan better themselves for the uncertainties of the future.

While there are off-the-shelf scenarios available, our experience shows that organisations that work out the different futures based upon the latest trends and uncertainties themselves, better understand how they might be affected should these events actually take place. One CEO was heard to remark that the team had got more out of working together creating their scenarios than they had from a team building away day. In understanding how they could arrive at a particular future, they will be more aware of what can and will affect them and of which future is unfolding as time progresses. The understanding of how a particular future can unfold is key to raising the level of strategic thinking and to instigating plans to minimise the impact of these events and to take advantage of unexpected opportunities.

Traditional analysis focuses on separating out individual pieces of what is being studied and examining them separately. Systems thinking, on the other hand, focuses on how the thing being studied interacts with the other constituents of its environment, the system - a set of elements that interact to produce behaviour - of which it is a part. When we develop alternative futures we try to look at the entire system around us and how it interacts. We expand our view to take into account larger and larger numbers of interactions as we develop each different possible future. After looking at each possible future and its implications, we then look at the different options and actions we will need to take.

When you work with your client you can challenge them to consider, 'What would happen if your Headquarters or a major call centre was hit by something like the SARS virus?' 'Would you have a plan in place? Would you know what options might be open to you? Would you know what to do?' We could not have predicted the SARS virus, but we might have come up with a future that had a similar affect on resources, and therefore would at least have considered how such a situation might be handled.

During 2002 we invited a wide cross section of organisations together to work with us on identifying a range of external influences, trends and uncertainties outside their organisations - things that are happening, or could happen outside our organisations - that could affect them. We call these Key Drivers because they can affect how the future unfolds. We repeated this exercise in different countries, producing a common list of external influences that we then use to select Key Drivers for the 'Future Navigation Process'.

From this list of key drivers, participants choose two that have a high degree of uncertainty but would clearly affect them.

We then need a key issue to focus the work upon. It could be, for instance, 'How might I grow my business?' or possibly 'What business will we be in?' or 'Where will we be in business?'. In 1983 Shell, for example, looked at whether or not they should continue investment in the North Sea.

From the two key drivers, we set up a matrix with two axes. Each key driver is part of a continuum from one extreme to the other -scarcity to abundance or low to high, in the figure above, the horizontal axis was around social stability - at one end social instability and at on the other end social stability. The vertical axis was economic well being - at one end economic collapse and at the other economic expansion.

The two axes provide four areas of the matrix, each with different high and low values for the Key Drivers, on which to build the story of what it is like in these circumstances. Of course this means that future scenarios are caricatures, where conditions are exaggerated. Yet, it is precisely thinking around how we could achieve these extremes that helps to expand our ideas and raise the level of strategic thinking.

Once you have identified which key drivers to use and what your matrix looks like and which key drivers to use, you write the story of each of the four futures. In our experience it is best when the group creates the story together - it becomes a richer future and provides a shared vocabulary for the team. The scenario in Figure 1 was written for quadrant 3 of this matrix. Working backwards we identify what could possibly have happened to get to the story of this possible future. In other words, what caused the social instability and the economic decline? How did we get there from where we are in the world today?

The next step is to identify trigger points that would help us to see that the world was heading towards that future. For instance, if we were going towards social instability what 'signposts' might we see? It could be something like the breakdown of the family unit, or rising divorce and falling marriage rates. Or, it could be a rising crime rate, in marches and public demonstrations, instances of disregard for figures in authority or all of these events. Those are things that we could measure and which would help us to determine which way we were going. What 'signposts' do you think you would have seen that might have predicted September 11th? Ill feeling towards the US growing in some developing countries? Growing Moslem antipathy towards the west? The attack on US embassies in Africa?

Or the problems around the Third Generation of Cellular telephones? Expense greater than the market would bear? Funding and licensing disputes between the lead developers? Delays in the actual equipment being available?

When you link these signposts or trigger points to your scenario and monitor for them, they serve as clues to allow you to recognise what is developing and to move more quickly than your competitors to take an opportunity or to avoid a risk.

Having stretched our imaginations into the future, we come back to today. What are the organisational strategies we have in place now? What happens when we examine these across each of the futures we have developed? How do they fit? Where do they appear robust? Where might we be at risk? What would we have to do to minimise the risk? Where might we find unexpected opportunities here? The more participants an organisation involves in this exercise, the more people there are who will have a shared vocabulary and understanding to help construct strategies and be alert to spot the trigger points for the organisation to succeed in most of the possible futures that it has explored.

Despite having spent the time and effort developing different futures, they don't look after themselves. Having fun developing these ideas is not an end in itself. Beware filing them away and forgetting how they developed or what to look out for. Or worse still, deciding which one is your 'preferred' future and betting heavily on it happening. We have certainly seen some large, well-known organisations guilty of this. Monitor to see if what is happening around you is indicative of movement towards one of the futures and you can determine what is the appropriate proactive action to take, while your competitors 'wait and see'. You will need to be aware how the Key drivers - the external influences you selected for the scenarios - are changing with time.

The importance of this advance awareness is not only in protecting the organisation against future risks. It enables you to grab opportunities and take advantage of them while they are still unrecognised as significant by the competition. By getting the discussion going among the organisation's leaders around possible futures it expands their perspectives. Sharing different options available for action can change the risk of an unknown future to a significant competitive advantage. An organisation can figure out where the opportunities are hiding in possible futures that they have already thought about.

Whenever we hear in the media about some event that is causing disruption to organisations, we wonder which ones had read the signs and seen it coming and put some counter measures in place - while the rest were caught off guard. Any organisation that seeks to stay ahead of the race can invest in scenario planning as a tool to enhance the forward thinking of the top team and improve their awareness of risks and opportunities, benefiting by seeing them in time to take - and make - competitive advantage.

Can you think of a better scenario for your organisation - adapting with agility to stay ahead of the race in the fast moving world of tomorrow and steering by the enhanced forward thinking of your top team using scenario planning?

Roger S. Giles is an experienced businessman, with many successful start-ups to his credit. His achievements from shop floor to boardroom include a wide variety of projects, marketing and training being his specialist areas. He is a former chairman of an Advocacy Trust, and has written articles for a renowned international industry journal. Being well travelled, he has lectured throughout the United States, and has significant interest in South America with his son, who has a home in Argentina.

Patricia Lustig works at board level specialising in scenario planning and organisational development and solving business problems. She has unparalleled experience with understanding of European and Asian cultures where she advises national and international organisations, both in the profit and the not-for-profit sector. She is a Member of the IOD and a Founder Member of UKCLC.

Jill Lang is an experienced HR advisor, developing strategic plans, policies and procedures to achieve business targets. Her positive approach in tailoring practical solutions for individual and corporate aims is highly sought after in helping management teams to achieve competitive advantage using scenario planning to manage through change. She is a Fellow of the CIPD and an Associate of the IMC.