Scenario planning

Scenario planning develops several structurally different yet plausible views of the external future and uses them to test strategy. It gives managers a context for decisions without pretending to predict which future will occur.

When to use it

Royal Dutch Shell has used scenarios to understand business dynamics, recognise opportunities, examine strategic options and support long-term decisions. More generally, use the method when important choices depend on uncertainties that cannot be reduced to one forecast.

Four useful objectives are:

• Confronting assumptions – expose the individual and shared beliefs shaping current decisions.

• Recognising degrees of uncertainty – distinguish what is known, predetermined, uncertain and unknowable.

• Widening perspectives – connect disciplines, include overlooked voices and challenge blind spots.

• Addressing dilemmas and conflicts – create a neutral future context in which competing priorities can be explored.

Origins

Modern scenario planning grew from military and policy research associated with Herman Kahn and from corporate experimentation led by Royal Dutch Shell. Pierre Wack and Shell’s planning community made scenarios influential in strategy by focusing not only on stories but on changing decision-makers’ mental models. The broader field later developed multiple schools and methods.

What it is

Good scenario work follows two principles:

• Transparency – assumptions and causal relationships among driving forces are explicit.

• Diversity – there is no privileged “best” future or simple high/low projection; scenarios represent meaningfully different structures (Ringland, 2002).

Scenario objectives can also vary (Van der Heijden et al., 2002): a project may solve one immediate problem or build general adaptive capacity; it may open a closed organisation to new thinking or help a drifting organisation reach a decision.

These dimensions produce four uses:

1. Making sense – a focused exploratory exercise to understand a complex situation.

1. Developing strategy – testing a business proposition and strategic options in relevant futures.

1. Anticipation – building the organisation’s capacity to observe, interpret and discuss external change.

1. Adaptive organisational learning – integrating scenarios with action, review and repeated learning, consistent with Fahey and Randall (1998).

How to use it

Methods differ (for example Schwartz, 1991; Ringland, 1998, 2002; Van der Heijden et al., 2002), but a robust process begins by defining the focal decision, horizon, system boundary and knowledge gaps. Form a diverse team and engage external perspectives where they add evidence.

Interview decision-makers and stakeholders to uncover assumptions and concerns. Scan the context for predetermined elements, driving forces and critical uncertainties. Cluster related forces, explore causal relationships and select the combinations that produce distinct scenario logics.

Develop each scenario as a coherent story with a path from present to future, not merely an end-state label. Give it a memorable, neutral name, quantify what can be quantified and identify early indicators. Test internal consistency and seek disconfirming perspectives.

Van der Heijden et al. (2002) emphasise systems thinking: map reinforcing and balancing relationships so the narrative does not become a loose list of trends. Use the scenarios to test current strategy, investments and capabilities. Identify robust moves, options, hedges and contingent actions.

Following these five steps, communicate implications in a form decision-makers can use. Assign indicators and revisit the set. Scenarios create value only when they change a choice, preparedness or learning process.

Final analysis

Building a scenario is easier than changing a managerial worldview, as Wack (1985) stressed. One workshop or one favoured scenario rarely changes action. The practice works best as an ongoing cycle of external observation, strategic conversation, decision testing and review.

Scenarios should be plausible and relevant, not equal in probability or exhaustive. Do not attach probabilities unless the method and evidence support them. Their role is to expand and discipline thought while preserving responsibility for the final decision.

Top practical tip

Following Van der Heijden et al. (2002), add systems thinking to the stories: trace how drivers interact, identify feedback and define observable indicators that would suggest one causal pattern is emerging.

Top pitfall

Do not let one “official future” emerge or stop after storytelling. Test every material strategy in every scenario, record changed decisions and establish a cadence for monitoring and revision.

Further reading

Fahey, L. and Randall, R. M., (1998), Learning From the Future: Competitive Foresight Scenarios, John Wiley & Sons.

Ringland, G. (1998) Scenario Planning: Managing for the Future. New York: John Wiley & Sons.

Ringland, G. (2002) Scenarios in Business, New York: John Wiley & Sons.

Schwartz, P. (1991) The Art of the Long View: Planning for the Future in an Uncertain World. New York: Doubleday/Currency.

Van der Heijden, K. Bradfield, R., Burt, G. and Cairns, G. (1996) Scenarios: The Art of Strategic Conversation. New York: John Wiley & Sons.

Van der Heijden, K., (2002) The Sixth Sense: Accelerating Organisational Learning with Scenarios. New York: John Wiley & Sons.

Wack, P. (1985) ‘Scenarios: shooting the rapids’. Harvard Business Review 63(6), November – December, 139–150.