This article explains Scenario Planning in a practical way. After reading you will understand the basics of this powerful management and strategy tool, including a practical example.
People are confronted with various events on a daily basis. These events include predictable as well as unpredictable matters. Organizations have to contend with these events too. Some events may dramatically affect the short-term as well as the long-term day-to-day management of an organization. Therefore it is a good thing that organizations are somewhat prepared for future events.
What is Scenario Planning?
Scenario planning focuses on an outlook for the future. It is a method with which organizations can form an idea of possible future scenarios and how these may affect their strategic objectives. However, making predictions about the future is very difficult and this is why organizations create a variety of possible future scenarios. This is exactly what Scenario Planning focuses on. It enables organizations to develop their strategies, products and services and adapt these where necessary in an ever changing world. Scenario Planning is about making different scenarios for different future landscapes. Using these scenarios, an organization will be able to make better decisions when problems or changes occur. An organization knows what it needs to be aware of and which decisions will work to its advantage.
There are different causes underlying (unpredictable) future changes. Most of these causes are external and need to be captured in the so-called PESTLE or DESTEP factors: changing demographics, economic, social environmental factors, technology, ecology and political influences.
There are many factors that cause an organization to change its strategic plans and direction. Organizations are surrounded by a complex and dynamic market with many external environmental changes. Organizations do not control these factors, but they can take them into account. In principle, internal developments do not affect the scenarios and therefore they are not factored in.
Scenario Planning is not about making accurate forecasts. It is about exploring what could happen in the future. This gives organizations time to think about how they can be successful in different scenarios. Scenario Planning obliges organizations to consider their future in an effective and structured manner. Scenario Planning is increasingly used by small and medium-sized companies that are engaged in vision development, strategic management and important decision making.
Multiple future scenarios are used. Each scenario gives a rich description for possible future developments and their consequences for the organization. Directors need to consider the possibilities, opportunities, risks and threats in each of the scenarios. What are the factors that need to be taken into consideration? It is the only way an organization can be better prepared for unforeseen circumstances and changes in society and therefore it will not be faced with surprises further down the line. This is the added value of Scenario Planning.
Scenario Planning in 8 steps
For a structured Scenario Planning, organizations would do well to consider the 8 step plan. In the preparatory phase the focus is on themes and their corresponding time frames. The analysis phase involves the following steps:
- Step 1 – brainstorm visions of the future.
- Step 2 – investigate trends (use a trend watcher if necessary).
- Step 3 – choose driving forces.
In the second phase the scenarios are developed which produces the following three steps:
- Step 4 – make a scenario template.
- Step 5 – develop the scenarios.
- Step 6 – present the scenarios.
The last phase concerns reflection and this produces the last two steps:
- Step 7 – evaluation of the scenarios.
- Step 8 – formulation of policy recommendations based on the different scenarios.
For a commercial business that exports flower bulbs all over the world, it is important to have a look at what could happen within the next five years.
- Scenario 1: In 5 years time they will have an opportunity to expand their business empire with five offices in Asia.
- Scenario 2: The market remains unchanged and the organization continues its business and continues to mainly focus on exports to the USA.
- Scenario 3: Exports to the USA are discontinued and the organization has to find new outlets.
The above mentioned example is based on three scenarios: an optimistic, a normal and most likely scenario (this is also referred to as forecasting) and a pessimist scenario (also referred to as worst case scenario). The fact is that the flower bulb exporter is forced to reflect on all three scenarios and he has to consider all kinds of measures. Therefore, the organization needs to step up its efforts, make sure that their staff is focused and that everyone within the organization is forced to think about alternatives.
By looking at all of the scenarios, an organisation can check whether a chosen strategy can be maintained under uncertain conditions. This is why it is advisable to look for trends and underlying forces that have a substantial impact on events.
If the existing strategy is not able to withstand such an impact, it would be useful for this organization to adapt its strategy.
It’s Your Turn
What do you think? How do you use scenario planning? Do you recognize the 8 steps or are there more? What are other success factors to create good scenario planning? Share your experience and knowledge in the comments box below.
- Peterson, G. D., Cumming, G. S., & Carpenter, S. R. (2003). Scenario planning: a tool for conservation in an uncertain world. Conservation biology, 17(2), 358-366.
- Ringland, G., & Schwartz, P. P. (1998). Scenario planning: Managing for the future. John Wiley & Sons.
- Schoemaker, P. J. (1995). Scenario planning: a tool for strategic thinking. Sloan management review, 36(2), 25.
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