Predicting the future isn't easy, but there are ways to diminish the uncertainty through scenario planningReader ROI You can't answer questions about your company's future with a crystal ball, but with scenario planning you can devise strategies based on what you can discern about the future. Read this story to learn how scenario planning can Help you manage risk Make you aware of the factors influencing your decisions Provide you and your colleagues with a common vocabulary for discussing strategies What if companies venturing into competitive retail markets over the next decade find cheap but powerful e-business platforms so intensify competition that challengers win new leverage over incumbent businesses?
It's not an unlikely scenario and affected businesses had better be prepared for it, right?
Then again, what if the Internet turns customers from mere "takers" to designers of products and services? In this future, even cars could be made to order and the ability of both buyers and sellers to collect and analyse data may hasten the proliferation of offerings designed to meet highly specific needs and consumption patterns.
Or perhaps customers' qualms about doing business online may force some businesses to gain third-party endorsements and bargain for access to customer data. What do you do if only companies with an exceptionally strong reputation have a show of winning customers' trust?
Again, the IT implications could be profound, and the clued-up business should ideally be facing up to all these and other possible futures and preparing a response. And that means harnessing both hemispheres of the brain - the logical and the intuitive - to the cause. That's where scenario planning, and a sense of playfulness, can serve the business so well.
"Prediction is dead," says Ron Hubert, principal at Deloitte Consulting in the US. "Telecommunications has become so complex and uncertain that it is no longer possible to base strategies on a single vision of the future." Hubert might well have been talking about the whole area of e-business, not just telecommunications. So if a single vision of the future no longer has any validity, why not start playing around with a half dozen or so?
You know a big part of your life is spent gambling on IT futures of one kind or another. You know that IT leadership begins with strategy and that the superior IT leader is the one who can consistently make the right chances. With technology driving the pace of change and IT increasingly viewed as the key to staying competitive, the CIO is the logical choice to introduce scenario planning.
Prepared with sufficient care, scenarios can provide you with powerful tools to help both you and your organisation prepare for a range of alternative futures where the decisions you make now might end up being played out. Each scenario in a set models a distinct, plausible future which may or may not eventuate, but where we all may one day end up having to work, live and play.
Mankind has used stories since time immemorial to organise knowledge. Today, those stories, used as a strategic tool, can not only help organisations prepared for the future but also maximise flexibility, by encouraging or even demanding the willing suspension of disbelief. "Scenario planning derives from the observation that, given the impossibility of knowing precisely how the future will play out, a good decision or strategy to adopt is one that plays out well across several possible futures," writes Lawrence Wilkinson. "To find that robust' strategy, scenarios are created in plural, such that each scenario diverges markedly from the others."
However, the purpose of scenario planning is not to pinpoint future events but to highlight large-scale forces that push the future in different directions. "It's about making these forces visible, so that if they do happen, the planner will at least recognise them. It's about helping make better decisions today," says Wilkinson, the co-founder and managing director of Global Business Network (GBN), a think tank and strategic consultancy that has pioneered the use of scenario planning.
Outside the Square
Scenario planning can be a good way to get organisations thinking outside the square, thus increasing the relevance of their strategic planning efforts. It can help them break down the organisational dynamics that can otherwise restrain them.
Since scenario planning can usefully start with a review of past history, it can help the organisation determine those influences that have most affected organisational performance before, as a pointer to possible future influences that should inform strategy development. Better still, scenario planning can be a potent means of recognising both threats and opportunities.
When Deloitte Consulting and Deloitte & Touche wanted to explore what the Internet might mean for retailing in the utility services market, it extended the analysis presented in a previous report, The New Economics of Transactions: Evolution of Unique E-Business Internet Market Spaces. It also reviewed the experience of numerous companies and obtained the views of electronic buyers and sellers worldwide. The result was its Utilities and E-Business Report: six scenarios for dotcom retailing of energy and related services, 2000-2010, which discusses six possible scenarios highlighting the underlying conditions and the likelihood of their occurrence.
Likewise, when BHP considers investing money over 10, 20 or even 30 years, it uses scenarios to think about the inevitable uncertainties facing the business, and to try to create the future likely to make its strategy more robust. "Sound investment strategy today cannot be based on a single line forecast of a predetermined future. We have to deal more effectively with uncertainty: political uncertainty, resource uncertainty, economic uncertainty and social uncertainty," Anthony Baird, from BHP Group Strategy, Planning and Business Development wrote recently.
Open to All
Experts say any company can benefit from scenario planning as long as it dedicates the time and resources to the exercise and has its executive team on side.
Developed as a planning exercise to help the world prepare for nuclear annihilation during the Cold War, the contingency planning technique wasn't adopted by the corporate world until Royal Dutch Shell put it to excellent use during the oil crisis of 1973. Today, scenarios are used by organisations like the Defence Department, its National Support Division, the Army, Navy and the Air Force. Telstra and Lend Lease use them to inform investment decisions. Many government bodies also use scenario planning to understand the effects of external factors on their businesses, whether driven by technological, political or economic factors.
The Office of Strategic Crime Assessments (OSCA) within the Commonwealth Attorney General's Department has been working on scenarios addressing aspects of international and Australian illicit drug markets, illegal fishing in the Southern Ocean, the future of terrorism, law enforcement impacts of the Asian financial crisis and developments in computer crime.
In the US, Intel's IS department outlines different business scenarios to help it respond quickly to demands from both internal and external customers, as well as cope with surprises. CIO (US) reports IS executives at the company meet three to four times a year with different groups of Intel business executives and technology experts to talk about emerging technology, new business models and Intel's future. Meanwhile, vice president of information technology Doug Busch keeps a running dialogue with internal customers and talks "virtually weekly" with his staff to gather new information and adjust existing plans. Out of these discussions come ideas for how new technology might help Intel reach its corporate goals.
The company earmarks part of its IT budget for research and development, and Busch uses this money to test out these new ideas. "One of the strategies I've tried to introduce is establishing strategic intent. When we see a technology coming at us, we'll decide whether this is where we want to go and that we want to trigger it as certain criteria are met." One criterion might be whether his staff thinks the technology is stable enough to deploy; another may be how many end users want it.
Refining the Technique
The Australian Centre for Innovation & International Competitiveness (ACIIC) out of the University of Sydney's Faculty of Engineering has developed and refined the scenario processes originally developed by Royal Dutch Shell to broaden the appeal and applicability of the technique. They have also altered the form so that the exercise can be completed in not much more than two days in an organisation.
Since then ACIIC has led the two-year national foresight project of the Australian Science, Technology and Engineering Council, entitled Long Term Strategies for Science and Technology in Australia. It's also done work for clients such as the Antarctic Science Advisory Committee, the Marine Science and Technology Working Party, the Land and Water R&D Corporation, Delfin-Lend Lease, the Public Service and Merit Commission, and the APEC Technology Foresight Centre.
Nonetheless, executive director Ron Johnston says while scenario planning is being more widely used in Australia now as a standard strategy and planning tool, it has taken much longer to catch on in Australia than in other parts of the world, and degrees of resistance remain on three counts. "First, there's resistance because it's seen as relatively new and offered apparently by some practitioners as the solution to all your problems, which it never is, and as replacing everything else, which it doesn't. It's an add-on.
"Second, the switch from the right-brain creativity of the scenario development phase to the back casting of what it means for the business is one that's quite difficult and doesn't always work." The way to overcome that difficulty, Johnson says, is by developing and refining the methods that take the organisation through that process and enable them to recognise when they're switching from one mode to the other. He describes this work as the "practical art form" of scenario planning.
"The third [reason for resistance] is, I think, fear-based. This doesn't sound like proper work; or this will threaten my intellectual power base, and I don't believe I should engage in it. I will resist this as being a viable technique," Johnson says. "How do you counter those fears? My experience is to work hard at getting this set up, then get them into different spaces where they leave behind their current positions or current authority bases to enter into a different environment."
Sometimes that can mean physically relocating those people involved in the exercise, at least temporarily, Johnson says. More often, you detach them mentally - emotionally by creating the right internal environment and dedicate the time and resources to the exercise to make it worthwhile. The one thing you should never do is to say: Okay, we've got a couple of hours to spare, we'll do a quick scenario planning exercise'.
Coping with Uncertainty
"Scenario planning has been used extensively in the telecommunications industry, where Telstra has used scenario planning quite widely," says Grant Wardlaw, now managing director Wardlaw Consulting but formerly with OSCA. "It's a useful technique in any area where there is a great deal of uncertainly about the future and the need to look at the potential alternative futures that organisations might find themselves in," he explains.
To Wardlaw, scenario planning is a way to expand people's thinking about the range of possibilities that their strategies need to cover, to ensure the organisation is positioning itself to be agile enough to cope with whatever the future throws at it. "Its not about predicting the future so much as just changing the strategic landscape in terms of internal thought about positioning."
Kate Delaney, the managing director of Delaney & Associates, has been doing a lot of strategic planning consulting for the government sector, where she uses scenario planning as one of the tools in her toolbox.
"Futures is good for determining your longer-term vision, your longer-term strategic objectives, and whether the decisions you're making today are sufficiently strategic or the strategies you're adopting sufficiently robust to get to that range of visions you have," she says. However, she says without the commitment of senior management it's not worth investing a cent in futures work.
"I think one of the key things is you do need management commitment. Management also needs a sense of urgency that there's a mismatch between where they want to be in the long run and where they are now," Delaney says. "It's really contextualising your strategic decision-making: putting it in a context that is broader than what you would normally think."
Scenario planning starts with an attempt to uncover those driving forces in the environment that are relevant to the organisation, and a recognition of the critical uncertainties surrounding those. "Those critical uncertainties are the things that will be the drivers for the scenarios that you create," Wardlaw says.
Developing scenarios often involves research, consultation, analysis and commentary from a wide range of business, technology and even cultural specialists. When the Australian Business Foundation (ABF) wanted to develop scenarios for the future of business in Australia to 2015, using the specialist expertise on futures and scenarios of GBN Australia, it spent months developing the scenarios. Its basis was a distillation of material gathered through media monitoring, literature searches, research, opinion sampling and interviews with experts and focus groups.
In undertaking the project, ABF considered many trends, forces for change and critical uncertainties: the "drivers for change" which are operating now as well as those which are foreseeable over the next 15 years.
Delivering the Goods
Experience shows it is not unusual for organisations to generate a lot of energy and enthusiasm for the technique during the scenario development stage. However, they then find translating that into effective planning and action is a longer and harder slog. This is sometimes seen as not delivering. To avoid that, experts say, it is vital that resources continue to be donated to the effort after the creative, fun side of the work is complete.
While Wardlaw recommends companies seek outside expertise to get them started, he also says the scenario planning itself can and probably should be done internally. Otherwise, you tend to end up with a range of fascinating and useful scenarios that people are interested in as stories, but which nobody bothers to update and which are never matched against current strategies.
How do you turn scenarios into strategy?
"First, the organisation has to have some rules of thumb about what sort of strategies you're going to have at a generic level: whether you're hedging, or trying to change the environment, or responding to other people's actions," Wardlaw says. "Then you have to run all of the possibilities against each of the scenarios, so that you're actually looking at the range of strategies that you can have for your organisation that may be most effective against all of them. Look at how you ought to respond as an organisation, given your goals, in each of those worlds."
There are many ways to work out the different values you will ascribe to each of the strategies and to decide which has the highest value in terms of payoff or organisational positioning or advantage, he says. That work should determine to which scenarios you will give priority. "Finally, make sure you're actually tracking some sort of indicators as to how the worlds are evolving, so that you're always matching your strategies to changes in your environment," he says.
Meanwhile, Synthesys Strategic Consulting CEO Hardin Tibbs points out that the scenarios are only valuable if you interact with them. Tibbs is a specialist in emerging issues analysis, new technology assessment and future-oriented research.
"[Scenarios] are simulated future environments, and the value arises from considering what you would do in or about those conditions if they arose," Tibbs says. "The value is not in the scenarios per se but in what you learn from the questions and issues they raise. This is why scenario exercises can disappoint if the scenario development becomes an end in itself." vDrivers for Change Leading Washington-based economist and trade specialist Dr Allan Mendelowitz addressed the Australian Business Foundation recently on how information and networking technologies (like e-commerce) are transforming the global economy and, particularly, the way business is done.
Dr Mendelowitz, vice president of the public policy think tank the Economic Strategy Institute, raised the following themes:
The Internet changes everything.
As the most prominent and visible of networking technologies, the Internet makes possible new products and services and new ways of organising markets, connecting with customers, managing relations with suppliers, structuring corporations and designing business processes. The size and penetration of the Internet is growing, and while it has been a largely US phenomenon, no country can escape its impact. Information and networking technologies contribute to lower inflation by lowering the cost structure of the entire economy and enhancing the efficiency with which goods and services are produced.
Markets are becoming borderless and timeless.
Access to information at low cost is available to anyone, any time, anywhere. The value chain of businesses can be managed from anywhere in the world. Service workers no longer need to be nearby to provide their professional services.
Markets are changing as networking technologies enable consumers to find the lowest priced products anywhere. Companies can only sustain higher prices if their products can be differentiated in ways that consumers perceive as adding value: for example, computer companies selling a year's free Internet access with their hardware. Online matchmaking and sales services are bringing buyers and sellers together more efficiently than trade shows, publications or other traditional distribution or broking systems. This includes everything from stockbroking to house auctions. Today's products are being replaced, changed and complemented by the availability of networking technologies. For example, music, software and videos are available on the Internet without production, inventory and distribution costs; or build-to-order manufacturers where customers use the Internet to order a computer built exactly to their specifications.
Corporate structures and business processes are changing.
Networking technologies have the scope to improve virtually all business processes and have revolutionised the efficiency of vertically integrated organisations. The ability to efficiently manage a supply chain outside the confines of a single company is giving rise to new organisational forms, with companies focusing on core competencies and outsourcing the rest.
A copy of a paper by Dr Allan Mendelowitz is available from the Australian Business Foundation. Dr Mendelowitz can be contacted at the Economic Strategy Institute in Washington DC on e-mail: allanm@econstrat.org. - S BushellScenarios for Security The Commonwealth Department of Family and Community Services has been using scenario planning since May 1998, when it was still the Department of Social Security. Its Information Strategies Branch has also done some scenario development (with the help of a consultant who is excellent at doing cut-down scenarios) to inform its own medium-term business strategy.
"Senior management decided that they would use scenario planning as a way of developing a policy framework for the portfolio", says director policy strategies David Hazelhurst. "The idea behind that was that it would be outward- and forward-focused, rather than inward-focused, so we embarked on a very intensive scenario development process. I guess how we'd characterise that is that we were kind of at the Rolls-Royce end of scenario development, where we engaged a couple of consultants and we had a process that was, if you like, a pure rendition of scenario planning."
Hazelhurst says the deliberately resource-intensive process took six months, was highly consultative thanks to a range of focus groups and the setting up of research communities, and proved a potent way to engage the entire organisation in thinking about policy. The outcome was a set of scenarios focused around changes in employment growth and dependency of government transfers, and centred on stronger families, stronger communities, and social and economic participation. Those led to a range of policies that were then incorporated into the strategic plan.
Next, to ensure that effort and the large investment in the exercise wasn't wasted the departmental secretary turned the scenario planning from a project into an ongoing function and put Hazelhurst in charge.
Since then, Hazelhurst's team has implemented a range of strategies to connect the scenario planning function with the core businesses of the organisation. These include producing "very slick" six-monthly Policy Outlook reports that are easy for policy leaders to absorb, and working in partnership with other groups on specific issues or projects of interest.
Hazelhurst says the scenarios have proved a powerful tool. "It's been effective in two ways. One is that it directly supports other strategic thinking processes within the department. People use it to inform business planning, to the extent that when they want a broad overview to match up with their sense of what's happening relating to their business unit, this gives them one quite easily.
"But it has also tended to create a shared view within the organisation about the things that are important that are going on in the environment. That's harder to measure, of course; we really rely on the feedback we get from senior management, which has been very positive, to judge whether that's been effective."
However, Hazelhurst stresses that scenario planning should only ever be considered as one weapon in the armoury. "[Scenarios] are very useful for organising your thinking about the future, but they're not a substitute for other forms of strategic thinking or planning or whatever."
He says it can be a mistake to assume there can be only one way to do scenario planning. "Don't treat it as high art. I guess having the mystique about it is a bit of a mistake," he says. "We've certainly come across both consultants and people who work in the area who treat it almost as a science. I think the biggest problem with that is that it alienates senior management, which is highly counterproductive." - S BushellSeven Steps Toward Successful Scenario Planning Interested in a scenario planning session for your company? Here's a framework you can follow. BEFORE THE WORKSHOP 1. Build end-states and events (six to eight weeks) A core team of three to five managers interviews internal and external experts to develop four to five alternative visions of the future and 100 to 200 events that might lead to that future.
2. Rank outcomes (one week) Before the workshop, each participant ranks outcomes based on how attainable and desirable they believe they are.
DURING THE WORKSHOPS
3. Assess the likelihood of events (three to four hours) Participants are divided into teams equal to the number of outcomes, and each team ranks all events based on their probability.
4. Build and advocate scenarios (eight to 10 hours) Each team builds a scenario around an outcome, linking it to the current state of the industry or the world. The team members then present their scenario to try to convince the other teams of the plausibility of their argument and to share the insights they gained while building it.
5. Revise rankings (30 minutes)
After listening to each team's defence of its scenario, participants rank outcomes based on the same criteria used in component two.
6. Compare old and new thinking (one hour) Participants engage in a discussion led by the core team about the changes in their perceptions.
7. Develop event-driven strategy (four to five hours) The group selects a desirable outcome and develops a game plan to achieve it.
SOURCE: NORTHEAST CONSULTING RESOURCES INCThe Pros and Cons of Scenario Planning You can't get an answer if you don't know the question The fundamental difference between scenarios and other forms of strategic planning is that scenario planning accounts for a range of visions, while traditional forms of strategic thinking, such as forecasting, only consider one version of the future. Whereas forecasting makes predictions based on a company's past performance or by previous trends, scenario planning acknowledges that the future is unpredictable and takes a company's uncertainty about the future into account.
There are, of course, drawbacks to scenario planning. "This is not something that can be done quick and dirty and cranked out by a junior staffer. It takes serious research, significant resources, time and engagement [from the management team]," says Peter Schwartz, co-founder and chairman of Global Business Network, a US company specialising in scenario planning. To do it well, he says, companies must first understand the question or decision they're dealing with.
If getting buy-in from the executive team for an exercise like this is going to be like shooting rubber bands at the stars, try to put some strong scenarios together. Show them that it's not clear where the company is headed. Tell them that you need to ensure that the business units are in agreement with this direction. Assure them that this scenario planning process is detailed and focused. - Meridith Levinson
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