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.
2. Developing strategy – testing a business proposition and strategic options in relevant futures.
3. Anticipation – building the organisation’s capacity to observe, interpret and discuss external change.
4. Adaptive organisational learning – integrating scenarios with action, review and repeated learning, consistent with Fahey and Randall (1998).