Scenario Building Workshop - How to Build and Use Scenarios

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Media from scenario planning leadership development workshop, Washington DC, 2008. www.adamvgordon.net

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  • Scenario Building Workshop - How to Build and Use Scenarios

    1. 1. Adam Gordon 1 www.adamvgordon.net How to Build and Use Scenarios World Future Society Executive Seminar, 2008 Adam Gordon, PhD www.adamvgordon.net
    2. 2. Adam Gordon 2 www.adamvgordon.net  Something about me  Something about the course  Something about the day
    3. 3. Adam Gordon 3 www.adamvgordon.net Your aims for the course?
    4. 4. Adam Gordon 4 www.adamvgordon.net What do we know about scenarios?
    5. 5. Adam Gordon 5 www.adamvgordon.net Scenarios are narratives of alternative environments in which today’s decisions may be played out. They are not predictions. Nor are they strategies. Instead they are more like hypotheses that ask “What if?” in a disciplined way, forcing the acknowledgment of new and unforeseen opportunities or challenges for an organization. GBN
    6. 6. Adam Gordon 6 www.adamvgordon.net Scenarios are not predictions. They are plausible hypotheses about the ways in which the forces external to us might evolve to impact us. They capturing the range of future conditions, opportunities, threats, and obstacles which we cannot influence, that affects our ability to reach our goal. This guides our strategic thinking about how to reach our goal, and possibly changes how we act.
    7. 7. Adam Gordon 7 www.adamvgordon.net Why scenarios? Why the future?
    8. 8. Adam Gordon 8 www.adamvgordon.net Asked what he feared most, the British Prime Minister Harold Macmillan responded … “Events, dear boy. Events.”
    9. 9. Adam Gordon 9 www.adamvgordon.net How much strategic uncertainty do you perceive in your industry/policy environment? How much change will your organization require in order to remain competitive over the next 7 years? Low Med High Just a bit A fair amount Plenty & then some
    10. 10. Adam Gordon 10 www.adamvgordon.net Can we predict the future…?
    11. 11. Adam Gordon 11 www.adamvgordon.net “Before man reaches the moon your mail will be delivered within hours from New York to Australia by guided missiles. We stand on the threshold of rocket mail” -- Arthur Summerfield, U.S. Postmaster General, 1959
    12. 12. Adam Gordon 12 www.adamvgordon.net The home computer of 2004, as predicted in 1954
    13. 13. Adam Gordon 13 www.adamvgordon.net Predictive failure is ubiquitous… Your favorites…?
    14. 14. Adam Gordon 14 www.adamvgordon.net Why exactly do we struggle to predict the future …?
    15. 15. Adam Gordon 15 www.adamvgordon.net Implications: Beyond the short term or other highly contained situations: Change is complex, disorderly. Behavior or outcomes can’t be reliably forecast. We can’t reliably determine the future …even with supercomputers.
    16. 16. Adam Gordon 16 www.adamvgordon.net Should we ignore the future?
    17. 17. Adam Gordon 17 www.adamvgordon.net Hamel & Prahalad “Competing for the Future,” HBR, 1994
    18. 18. Adam Gordon 18 www.adamvgordon.net We should neither predict or ignore the future. We can and should understand driving forces and identify critical uncertainties, and explore how these might unfold, in order to manage uncertainty and profit from change. We can act to influence the future, and create a more or less desirable future. Key outputs: Better decisions not better predictions Taking control of our organization’s future
    19. 19. Adam Gordon 19 www.adamvgordon.net Courtney, H. et al., “Strategy Under Uncertainty”, HBR, November 1997 How do scenario fit into this? When do we use scenarios?
    20. 20. Adam Gordon 20 www.adamvgordon.net A B C ? 1. Low uncertainty. Clear view of the future. Dependable outcome. 2. Limited set of possible future outcomes, one of which will occur 3. Outcomes indeterminate, but bounded in a range 4. A limitless range of possible outcomes. True ambiguity. (Highest level of residual uncertainty.) 21 3 4 FOUR LEVELS OF UNCERTAINTY
    21. 21. Adam Gordon 21 www.adamvgordon.net Situation analysis tools to use: – Market research – Cost benchmarking – Porter’s 5 forces – DCF/ NPV valuation End product: – Point forecasts – DCF analysis LEVEL ONE TOOLKIT
    22. 22. Adam Gordon 22 www.adamvgordon.net A B C Situation analysis tools: – Decision / event trees – Game theory – “Scenarios” of the defined outcomes End product –- Complete description of each world –- Dynamic path to each outcome, incl. trigger events and market signals –- Relative probabilities of each outcome –- Valuation/ risk assessment of each outcome LEVEL TWO TOOLKIT
    23. 23. Adam Gordon 23 www.adamvgordon.net Situation analysis tools – Scanning & trend tracking – System dynamics – Scenario planning End products – A set of scenarios – Industry/world structure and operating conditions in each – Dynamic path to each scenario – Analysis of robust strategy in each – Strategy to enact preferred scenario, if possible LEVEL THREE: BOUNDED UNCERTAINTY
    24. 24. Adam Gordon 24 www.adamvgordon.net ? Situation analysis tools – Analogy and past-references – Visioning and visionary scenarios End products – Understanding of stakeholder positions – Usable set of possible analogous situations and precedents – Clearer understanding of possibilities and preferable outcomes LEVEL FOUR: HIGH AMBIGUITY
    25. 25. Adam Gordon 25 www.adamvgordon.net Sense that the future is predictable Sense of multiple possibilities Quantitative Qualitative Qualitative vs Quantitative methods “It’s better to be vaguely right than exactly wrong.” Henley Centre
    26. 26. Adam Gordon 26 www.adamvgordon.net Scenario Planning
    27. 27. Adam Gordon 27 www.adamvgordon.net 1940s: Herman Kahn, is a US defense analyst at the Rand Corporation. Near Rand’s Southern California offices, Kahn hangs out with screenwriters and moviemakers, Stanley Kubrick, etc. Kahn starts “telling stories” to describe ways that nuclear weapons technology might be used by hostile nations. Herman Kahn: Rand Corp. By the mid-1960s, Kahn’s was serving up dozens of alternative story forecasts (often generated with mainframe computers). Scientific American: Kahn is “thinking the unthinkable”.
    28. 28. Adam Gordon 28 www.adamvgordon.net 1970: Pierre Wack, head of planning at Shell, France, and Ted Newland, a Shell senior staff planner go to talk to Herman Kahn. They adopt and rework the method for Shell. Invert the central predict-and-plan culture: Not: determine what’s most likely – plan intensively for that. But: assume every important outcome does emerge – various scenarios – “what will our challenges and best business options be in each case?”
    29. 29. Adam Gordon 29 www.adamvgordon.net Managers spend their time thinking “what are the chances that X or Y or Z will happen?” Determine which is most likely and plan for it They should be spending their time thinking: “what if X happens, what’s our strategy? What if Y happens, what’s our strategy? … Scenarios: Turning prediction on its head
    30. 30. Adam Gordon 30 www.adamvgordon.net 1971: Everybody “sensed” that geo- political change, could change the stability of the existing “oil regime” which oil companies had dominated for 25 years. Shell Scenarios 1971-73. (Pierre Wack, Scenarios: Unchartered Waters Ahead & Shooting the Rapids, HBR, 1985) 1971: oil is is $2 1975: oil is $13 1979: oil is $37
    31. 31. Adam Gordon 31 www.adamvgordon.net SHELL
    32. 32. Adam Gordon 32 www.adamvgordon.net Scenario Practice Proliferates Usage spread far and wide:  Research institutes  Most Fortune 500 companies  Many smaller firms  Trade associations  Militaries worldwide  Governments  Consultants
    33. 33. Adam Gordon 33 www.adamvgordon.net Why a scenario “set”?
    34. 34. Adam Gordon 34 www.adamvgordon.net ANALYSIS Point prediction Scenario planning Exploring alternative resolution of uncertainties that are important for the success/failure of and organization
    35. 35. Adam Gordon 35 www.adamvgordon.net Exploring the cone of plausible uncertainty Cone Of plausible uncertainty present Criticalvariable ?
    36. 36. Adam Gordon 36 www.adamvgordon.net Mapping the cone of plausible uncertainty
    37. 37. Adam Gordon 37 www.adamvgordon.net LGA The official future Going beyond the “official future”; challenging the dominant paradigm
    38. 38. Adam Gordon 38 www.adamvgordon.net This is not a scenario set:
    39. 39. Adam Gordon 39 www.adamvgordon.net 1. Value-neutral Scenario sets
    40. 40. Adam Gordon 40 www.adamvgordon.net A wind tunnel / testbed for decisions v.d. Heijden The Sixth Sense
    41. 41. Adam Gordon 41 www.adamvgordon.net How does current or intended strategy (positioning, business model, etc.) hold up in each scenario? Will it provide a defensible, distinctive value that fits with market or societal/public need? Is there still a fit between product (service) and environment? What will be necessary key capabilities & positions? What are the organizations present strengths and weaknesses in these capabilities or positions? A wind tunnel or testbed for decisions
    42. 42. Adam Gordon 42 www.adamvgordon.net OR: look at the scenario and determine what would be good strategy or a good position. Who will be successful in this world? Why? What resources, capabilities, business models, and other key success factors do they possess? Siemens
    43. 43. Adam Gordon 43 www.adamvgordon.net From scenarios to strategy 1.Generate alternative, plausible future model worlds 2.Test (1) current or (2) alternate strategies against these model worlds, Or (3) determine what would be good business or a good position in these model worlds 3. Understand and apply robust strategy responses …or “take a position.”
    44. 44. Adam Gordon 44 www.adamvgordon.net There is no “good”or “bad” scenario. Every scenario is good for someone. We can only have a “bad scenario” for our current (legacy) capabilities and investments
    45. 45. Adam Gordon 45 www.adamvgordon.net 2. Visionary Scenarios
    46. 46. Adam Gordon 46 www.adamvgordon.net Still exploring the cone of plausible uncertainty Cone Of plausible uncertainty present Criticalvariable ?
    47. 47. Adam Gordon 47 www.adamvgordon.net The vision scenario is an ideal outcome – which identifies and represents the shared hopes of a community, group, or organization. It is not an objective scenario. It is a story about how it would look if everything went right. Scenarios B, C, D in the set look at the various ways that things could go partially or totally wrong. There is one clearly preferred, desirable scenario. Visionary Scenarios
    48. 48. Adam Gordon 48 www.adamvgordon.net Shaping “a better future” Influencing the future through eliciting shared preferences, wishes, values and fears. Tells the story of a high road, compared to various low roads • Silent Spring • No to Nukes • “Rainbow nation” • Zero carbon footprint • etc
    49. 49. Adam Gordon 49 www.adamvgordon.net Destino Colombia
    50. 50. Adam Gordon 50 www.adamvgordon.net Visionary Scenario: High road Low road Shell
    51. 51. Adam Gordon 51 www.adamvgordon.net Arctic Marine Navigation (AMSA) GBN
    52. 52. Adam Gordon 52 www.adamvgordon.net
    53. 53. Adam Gordon 53 www.adamvgordon.net
    54. 54. Adam Gordon 54 www.adamvgordon.net Value-mapping the cone of plausible uncertainty Could be better Good! Disaster So-so
    55. 55. Adam Gordon 55 www.adamvgordon.net Multiple – often adversarial – stakeholders, including government officials, labor unions, business leaders, rebel and revolutionary groups, community organizations and educators. Broad involvement
    56. 56. Adam Gordon 56 www.adamvgordon.net Vision scenarios are a tool for problem- solving at the national or local level. Creating a single, shared vision that satisfies all players: the scenario that all can agree on, that is consistent with everyone’s goals. Create or increase alignment around a desired future or strategic direction. This is: “The best path forward for all” Develop it together – buy in. Consensus-building rationale
    57. 57. Adam Gordon 57 www.adamvgordon.net Strategy Implementation (& change management) Action Planning Visionary scenario process works to align the visions and goals of disparate stakeholders Vision, & goals Scenarios Vision, & goals Vision, & goals A B
    58. 58. Adam Gordon 58 www.adamvgordon.net Raise public awareness. Create high-level recommendations for public action. Help develop consensus on opportunities and threats among the wider community. Guide improvements. Well-publicized scenarios become a rallying device for public participation and problem- solving at the national or regional level. Communications & PR purpose
    59. 59. Adam Gordon 59 www.adamvgordon.net Consider the visionary scenario, asking: What it would take to get from here to the vision Identify leverage points – actions to take to influence each scenario to make it more like the ideal scenario. Get the message out! Get sign-ups and join-ups… Robustness: Common leverage points across scenarios to induce the ideal From visionary scenarios to strategy
    60. 60. Adam Gordon 60 www.adamvgordon.net Value-neutral scenarios Do scanning & trend tracking. Isolate key uncertainties Develop a scenario architecture Consider the worlds that emerge Develop a strategy that is robust across all worlds. How do we survive and profit, given what could plausibly happen? Scenario logics compared Visionary scenarios Do scanning & trend tracking Listen to all needs and preferences Find a future that we all agree on. Make this one scenario Chart divergence(s) from this ideal future, incl. the present trajectory Make strategies to bring us closer to this ideal future How do we make this scenario come true?
    61. 61. Adam Gordon 61 www.adamvgordon.net Creating Scenarios
    62. 62. Adam Gordon 62 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    63. 63. Adam Gordon 63 www.adamvgordon.net Project Parameters A. Time horizon? B. Who is involved? C. Informing a specific decision or a general view of coming terrain?
    64. 64. Adam Gordon 64 www.adamvgordon.net Scenarios only provoke genuine learning and strategies when they answer genuine concerns. Figuring out the key question or important uncertainties is a crucial step. The scenario must be build around the uncertainties that matter to decision makers. (What would be really useful to know?) If the group doesn't care about the question they're trying to answer, the rest of the exercise is a waste of time.
    65. 65. Adam Gordon 65 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    66. 66. Adam Gordon 66 www.adamvgordon.net Chart key patterns, relationships and forces in the organisational and transactional environment. • Market research • Industry analysis – 5 Forces model, etc. • Industry competitive dynamics • Competitor intelligence • Value chain analysis • System dynamics and feedback loops • … and any other status quo tool you like Define the static picture: Status quo of market and industry environment
    67. 67. Adam Gordon 67 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    68. 68. Adam Gordon 68 www.adamvgordon.net
    69. 69. Adam Gordon 69 www.adamvgordon.net us culture environment values macro economics technology govt. & policy business international relations Infinite futures OUTSIDE-IN THINKING Organizations are most often “event-takers” or “trend-takers” – not makers.
    70. 70. Adam Gordon 70 www.adamvgordon.net Driver(s) Trend(s) Outcome(s) Friction Blocker(s)
    71. 71. Adam Gordon 71 www.adamvgordon.net Drivers, blockers, and trends in the future of your sector or industry?
    72. 72. Adam Gordon 72 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    73. 73. Adam Gordon 73 www.adamvgordon.net Predetermined elements vs. uncertainties 1. What is the suggested effect of change driver or trend? (outcome at scenario-time limit) We are sure (if and what) We are unsure (if and what) 2. Will a change occur, and turn into an outcome in our industry that we can be reasonably sure about? Predetermined element Uncertainty
    74. 74. Adam Gordon 74 www.adamvgordon.net Predetermined elements and critical uncertainties in the future of your sector or industry?
    75. 75. Adam Gordon 75 www.adamvgordon.net 2005 Scenarios for Credit Unions: Certainties: • Customer knowledge continues to improve dramatically • Baby boomers redefine aging and retirement • Credit union consolidation continues • Expansion of fields of membership • Non-bank financial services providers increase share • Credit unions are increasingly embraced as “trusted mediator” • Internet banking increases • Telephone banking increases DSI
    76. 76. Adam Gordon 76 www.adamvgordon.net Uncertainties have polarities UK LGA
    77. 77. Adam Gordon 77 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    78. 78. Adam Gordon 78 www.adamvgordon.net Which uncertainties are most important to (have most impact on) the industry environment? Ranking uncertainties: 2 3 2 3 5 4 1 2 1 1
    79. 79. Adam Gordon 79 www.adamvgordon.net Certainties enter every scenario Uncertainties vary across the scenarios Doing uncertainty and importance at same time Low impact items seldom enter the scenarios
    80. 80. Adam Gordon 80 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    81. 81. Adam Gordon 81 www.adamvgordon.net Select scenario logic Most important uncertainties “2 by 2” “Fork in the road” A B C D A B C D Structured randomization
    82. 82. Adam Gordon 82 www.adamvgordon.net Uncertainty 1 (A) Uncertainty 1 (B) Uncertainty 2 (A) Uncertainty 2 (B) “2 by 2” Matrix Each quadrant points to a different future operating environment for the organization
    83. 83. Adam Gordon 83 www.adamvgordon.net Scenario PlanningWhat does the world look like in each quadrant?
    84. 84. Adam Gordon 84 www.adamvgordon.net Identify the fork. Make a scenario that explores each path. Shell “People & Connections: Scenarios to 2020” Today Fork-in-the-road: one critical uncertainty
    85. 85. Adam Gordon 85 www.adamvgordon.net A special case of Fork-in- the-Road: “The official future” vs. a diverging path
    86. 86. Adam Gordon 86 www.adamvgordon.net DIVERGENCE FROM THE OFFICIAL FUTURE 1. Start by articulating the official future — the future that your organization is planning for. 2. What must be true for this future to be realised? What assumptions are necessary? 3. Reverse these assumptions. 4. Develop stories of the future that diverge from the official future in plausible ways.
    87. 87. Adam Gordon 87 www.adamvgordon.net The official future vs. divergence from it, in the future of your sector or industry?
    88. 88. Adam Gordon 88 www.adamvgordon.net Structured randomization
    89. 89. Adam Gordon 89 www.adamvgordon.net Do Wildcard Scenarios Separately • Pandemic • Flood • Fire • Terror attack • Ethnic cleansing • Civil war • National war • Eco Disaster • Banking collapse • Economic Crisis
    90. 90. Adam Gordon 90 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    91. 91. Adam Gordon 91 www.adamvgordon.net Stories about world of future stakeholders / customers: 1. Create human interest. Provide context for potential events 2. Balance imagination and plausibility 3. Show cause and effect Put people – stakeholders or customers – in the story. Scenarios are alternative stories of how what is valuable to people or how they access that value may change (threats and opportunities). Write up scenario stories – scenario media
    92. 92. Adam Gordon 92 www.adamvgordon.net Accenture: Future of Europe 2008
    93. 93. Adam Gordon 93 www.adamvgordon.net Squint Opera
    94. 94. Adam Gordon 94 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    95. 95. Adam Gordon 95 www.adamvgordon.net Test the model worlds Reality check to ensure that stories aren't just science fiction. A. LOGICAL ANALYSIS Is there a plausible chain of events, actions, and counter-reactions that could lead to this future? What other actions would have to take place to make it plausible? B. ACTOR (STAKEHOLDER) ANALYSIS Walk through the scenarios from every point of view. Who would support the scenario emerging. Who would block the scenario or try to change it?
    96. 96. Adam Gordon 96 www.adamvgordon.net 5. rank uncertainties 6. Select scenario logic 7. Flesh out scenario worlds 8. Write scenario stories 9. Test A. Define D. Use C. Build B. Explore 10. Develop strategy implications 12. Renew 11. CommunicateSteps in making scenarios 2. Define industry/sector status quo 1. Define project parameters 3. Identify trends & driving forces 4. Determine uncertainties & their polarities
    97. 97. Adam Gordon 97 www.adamvgordon.net Do we assign probabilities to the scenarios? Why? Why not? Scenarios are not predictions. You have not “got it right” if the world comes to pass as stipulated in one of your scenarios. You have got it right if the set as a whole captures the outcomes that emerge Avoid returning to the predictive mindset. Probability?
    98. 98. Adam Gordon 98 www.adamvgordon.net Strategy is not just defensive. If the organization is strong in capabilities, resources, or positions, for the scenario set: How do we grow / exploit this in the future? What are the new applications of existing capabilities? In each scenario, what is the leverage action that best leverages our current capabilities, positions, distinctiveness for that scenario? Leveraging existing capabilities
    99. 99. Adam Gordon 99 www.adamvgordon.net Using any or all of the techniques mentioned, build a set of scenarios to help your organization manage its 5-15 year horizon. Be ready to present your work to the group. Making scenarios: your turn
    100. 100. Adam Gordon 100 www.adamvgordon.net Adam Gordon, PhD www.adamvgordon.net mail@adamvgordon.net

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