Scenario planning is a way to help organizations think through their assumptions and become better prepared to flexibly respond to possible future conditions. A scenario is a description of a possible future that identifies possible significant events that may happen in the future, major parties involved in that future, and the assumed motivations of those parties. The intuitive approach to scenario planning is based on the assumption that scenarios are not forecasts about the future, but possible alternative pictures of how organizational environments may develop. The formal style is more closely aligned with forecasting and uses computer modeling in an attempt to attach probabilities to the alternative scenarios. Although some organizations find scenario planning to be a useful tool, it is not without its detractors. However, if one is careful to avoid the various potential process and content pitfalls that can affect the quality of the scenario, this approach to strategic planning can be very useful in helping an organization transcend its blind spots and give it the tools to be flexible in responding to future events.
The need for an alternative plan has become almost axiomatic in our constantly changing society. Alternative plans may be as simple as planning on staying close to home for vacation if the price of a barrel of oil continues to rise or as complex as planning how to operate in the global market if oil prices continue to rise. The need for planning against various contingencies has even infiltrated our entertainment media as exemplified by the thought bubble above the cartoon character falling over the cliff saying: "Time for Plan B."
One approach to future planning for business is called scenario planning. In this context, a scenario is a description of a possible future that identifies some significant events, the major parties involved in that future, and the assumed motivations of those parties for their actions in that future. Scenario planning is an approach to strategic planning in which a limited number of possible scenarios are drawn to describe possible alternative futures that may affect the functioning of the organization. Scenario planning helps the organization to better understand the nature and impact of forces driving its future. This process emphasizes the open exchange of knowledge from all involved parties and a mutual understanding of issues that are central to the healthy functioning of the organization. Scenario planning has been an important tool for military planning for centuries and more recently has been used in making strategic business decisions. The use of scenario planning can help organizations make decisions based on likely futures such as whether to invest in more brick-and-mortar retail locations or to move more of their retail selling online instead.
Schools of Scenario Planning Thought
There are two general schools of thought on how best to approach scenario planning.
The intuitive approach, taken by such companies as Shell Oil, is based on the assumption that scenarios are not forecasts about the future. Rather, this approach is based on the assumption that the future is uncertain and unknowable. Scenarios developed using the intuitive approach are possible alternative pictures of how the organization's environment may develop. For example, Shell Oil's approach to scenario development is an iterative process comprising five activities. The first phase in this approach to scenario planning is preparation. During this stage of the process, the organization articulates its goals and resources. This phase includes planning the project, allocating responsibilities, securing time for the process, setting research priorities, and conducting interviews with key stakeholders. Phase 2 of the scenario development process is pioneering. During this phase, the organization gathers information across disciplines in order to challenge the conventional wisdom and address its blind spots. During this phase, themes are identified and scenarios outlined and built. Phase 3 of the process is mapmaking. During this phase, dynamics of the situations are clarified, illustrating information is gathered, and endorsements are gained. Phase 4 is navigation. During this phase, the organization navigates its way to the actual events as they unfold. During this phase, scenarios provide a common language that can be used to discuss complex issues and shape strategic conversations. The next phase of the scenario planning process is reconnaissance. During this phase, data are gathered concerning the viability of the scenario and the implications of the scenarios are tested. These steps are repeated in a continuing process over time to improve the scenarios in response to changes in the organization's environment.
An alternative approach to scenario planning is offered by the formal style used by Rand Corporation and other organizations. Although similar in many ways to the intuitive approach, the formal approach is more closely aligned with forecasting than is the intuitive approach. The formal approach also uses computer modeling in an attempt to attach probabilities to the alternative scenarios.
Shortfalls of Scenario Planning
Scenario planning is not without its detractors. This approach to strategic planning requires decision makers to be willing to set aside their assumptions and preconceptions and to look objectively at possible futures that may run counter to their existing plans and philosophies. In addition, scenario planning requires research and the insights of external experts. As a result, the development of good scenarios requires more work than some organizations are able or willing to devote to the task. Further, scenarios are only possible futures, not infallible predictions. Peter Schwartz -- one of the leading proponents of scenario planning -- once famously made a prediction that "our view of the future is positive -- but no more so than the times warrant. We live in extraordinary times. The opportunities that are opening up in the next 20 years are enormous" (Stauffer, 2002). This statement, made in 1999, was followed by the first recession in a decade, the terrorist attacks of September 11, and the Enron scandal.
Strengths of Scenario Planning
Despite the fact that some events are simply not reasonably predictable, scenario planning remains a useful tool if one understands its goals. Scenario planning is used to improve the organization's ability to be flexible in responding to rapidly changing environments, not to predict single-point changes in the organization's environment. There are several reasons why scenario planning remains relevant for organizations.• First, scenarios can help organizations ensure that they are focusing on opportunities that may be provided by a changing environment. Scenario planning is not a substitute for crisis planning. Rather, scenario planning is a long-range planning technique that allows decision makers to investigate the opportunities presented by likely futures. This allows organizations to better plan for both negative and positive future situations. • Second, scenario planning enables organizations to more prudently allocate their resources. Scenario planning allows the organization to examine a range of potential futures, so that it can be better prepared to respond to any of the envisioned plausible scenarios. • Third, scenario planning allows the organization to preserve its options. If one understands that the future is not certain, as well as how to prepare for some of this uncertainty, one can react to...
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