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Planning with Scenarios
 

Planning with Scenarios

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This is a transcription of a Business901 blog post, Scenario Thinking the Next Big Thing. My guest on the podcast was George Wright, co-author of Scenario Thinking: Practical Approaches to the Future. ...

This is a transcription of a Business901 blog post, Scenario Thinking the Next Big Thing. My guest on the podcast was George Wright, co-author of Scenario Thinking: Practical Approaches to the Future. The book is an innovative guide to new methods in scenario thinking. The book focuses on the demonstration and illustration of practical steps in scenario development processes.

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    Planning with Scenarios Planning with Scenarios Document Transcript

    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Planning with ScenariosGuest was George WrightSponsored byRelated Podcast:Scenario Thinking the Next Big Thing
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Transcription of PodcastJoe Dager: Welcome everyone. This is Joe Dager, the host ofthe Business901 podcast. With me, today is GeorgeWright. He is a professor of management at theUniversity of Durham Business School located in theUK. George has consulted and provided managementdevelopment programs on scenario thinking withorganizations and governments. His latest work is“Scenario Thinking: Practical Approaches to theFuture,” George, I would like to welcome you and couldyou start out by updating me on what you’re doing andthen going into what scenario thinking is?George Wright: Joe, I am an academic and, also, work as aconsultant looking into thefuture. My current projectis with the United KingdomDepartment of Health,that’s a government healthservice in the UK. Whatwe’re trying to do is towork out the number ofdoctors and dentists andtheir specialisms that willbe needed in thirty years’time. Actually, sixteen tothirty years, is the trainingperiod for doctors. About16 years to train inspecialty and, therefore, ifyou think 30 years ahead,you have to think what the requirements will be. TheUK people are getting older, becoming a bit more grey
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901haired and they are also becoming internet savvy. Youcan imagine, perhaps that one of the things we canpredetermine about the future is that is the olderpopulation, the bigger proportion is the older age men,we’ll know more about what’s available in treatmentsacross the world. They’ll know more and want more.Potentially they add some risk to the health service andalso uncertainties about the degree of specializationsthat will be needed to care for the health in the UKpopulation in 30 years’ time.Joe: How does this apply in scenario thinking? Maybe, startwith what is scenario thinking?George: Well, a description maybe just making best guesses onhow things might be. There are all of these trends orthings like the proportion of people in the older age willbe larger in the UK, and that’s probably true in the US.With these futures, using people for instance will livelonger. What we don’t know is a view of the healthprofessionals in the UK where people will live longer.Will it be a longer period of old age with diseases of oldage or where people will live longer and have a shorterperiod just before they die when they get ill? That is amajor uncertainty. If people have, many years of illhealth and those years of ill health become longer aspeople live longer that’s an uncertainty. Or, whetherpeople will still live longer but have a shorter period ofill health. You have to provide a plan for health servicefor instance the range of futures that might be outthere. We need to be ready for what the future holdsand at the moment, of course, we’re not sure what’sgoing to happen as we approach 30 years. However weneed to know the of course the training for doctors thatneeds to take place now rather than later.
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Joe: Scenario thinking is a method of handling uncertaintyor way of forecasting?George: Well, it is not a way of forecasting. It is more of a wayof creating alternative futures each in which it seemsplausible. People will live longer and be ill longer, orpeople will live longer and be ill for a short period oftime. Then try to work out a strategy for a healthservice that will work well, no matter which of theseuncertain futures actually unfold. With scenarioplanning, what we’re trying to do is create a strategythat works well against a range of futures. Onescenario that I was involved with looked at a way thatthe world trading patterns might emerge over the next10 to 15 years. Over the next 10 to 15 years, certaincountries will trade with other countries. Those willchange and this organization was interested in the way,trying to think about scenarios about the way worldtrade would take place and that the trade that would bepart of that. Once having considered the range offutures that might be out there, trying to work outwhere the hubs of these container business, that’s withcontainers on the back of ships on the back of bargesacross the world where these hubs are located such asthey are robust against an arrange of futures. That’sthe idea. You are trying to create a strategy that workswell, no matter what.Joe: When we are looking at different alternatives to thefuture, we paint the picture with scenarios.George: Yes, the scenarios are descriptions of the future oftenconstructed by management teams. They usually roughout about four scenarios of the future. They are allqualitative. Their absolutely, pictures of the way the
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901future might be. They are casually linked componentsin the scenarios. For instance, we are not planningscenario for Martians landing from outer space with rayguns and shooting us. The scenario tends to be manymore logical steps from now into the future may be 10,15, 20, 30 years. Hence, the scenarios are portal penpictures of the future that are plausible to the peoplewho constructed them. People say, “I can see thisseries of events starting to happen.” You can go out inthat way like dominos swarming in one direction or youcan go out in a different way. If they are all plausiblefutures, than they are futures we need to be concernedwith, without occurring major investments. Scenariothinking is an approach that first started out withcapture intensive industries like the airlines, the oilindustry where major investment has to be made now.It has to work well against a range of futures. That’sthe scenario approach, getting these robust decisionsthat work well no matter what.Joe: When done correctly you’re actually building a path,and you can see the path developing and headingtowards maybe a certain scenario.George: If you’ve done this scenario thinking and thought abouta different range of futures that you say with a pathleading to each of our futures. You become sensitive tothe early indicators that a particular future is starting tounfold. So for instance if you, say just spotted a newcar, say a BMW with three series might be, and youthought of about buying that car, you would besensitive to different styles of that car on the road,different levels of kits and different wheels, differenttypes of paint work etc. Let’s just say with thatscenario you want to construct scenario and thought
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901about it. You’re sensitive to the early, I called, triggerevent in the scenarios starting to happen. So if youthought about the scenario you become sort of readyearly to anticipate a future that maybe favorable orunfavorable say to your business.Joe: Is scenario thinking just for high-level strategic thinkingor can these principles be scaled down for other typesof decision making?George: It can be useful in small, medium size enterprises. Iwould say the input for all of these came from a largeorganization with big capital intensive investments thatwere to be made or not made. So, they were moresensitive I’d say to thinking about the future early onmaybe 10-20 years ago when these all started. It’s alsolike a big super tanker, once you start to have thesupertanker in motion heading in a direction, it is verydifficult to change directions. In the airline or the oilbusiness it’s similar that once you make an investment,it’s very difficult to downscale it in the future. Most ofthe input comes from large scale organizations. That’swhere the activity was, for instance, in the Shellorganization, in the early seventies. It started there ina big way. The methods and techniques are applicableto small organizations. Of course, smaller organizationsmay be more agile and more able to change what theydo. Whereas, larger organization would get stuck, theyget stuck in success formulas. They become moremechanized in what they do. It’s very, very difficult tochange a large organization and once the organization.The fortune Global 500 companies, only 50% lastlonger than 15 years. Larger organizations once theyare large, often fail because they can’t understand theway the world has changed and they haven’t.
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Joe: In your book, you talk about two different types ofways to work with scenarios. Could you provide a briefoverview of what the basic method is?George: The basic method is a step-by-step method for whatI’ve just said. If we look at what we think is uncertainabout a future and the uncertainties that would have animpact on the issue of concerned. This is often theviability of the organization and also what’s morecertain about the future say things like demographicsare fairly sure what’s going to happen is the future. Thescenario method uses a team of people to think aboutwhat’s uncertain about future or what’s morepredetermined or in the pipeline about future. Themethod takes these uncertainties and predeterminedelements and constructs these end pictures of casualunfolding futures. So, these are a step by step methodfor actually achieving the futures, these plausiblefutures and what this is being done. The next step is toevaluate current strategies of the organization orpotential future strategies and see how well, they do,to see how robust they are against these rangesplausible futures. That’s the basic method; it’s calledthe intuitive logic method, that’s the technical term forit.Joe: So the other type is the augmented method and howdoes that differ from the basic and maybe when wouldI use the one over the other.George: The augmented method which is also called backwardslogic. This is the technical term for a method ofconstructing extreme scenarios. The backwards logicmethod looks at what’s backwards from a range ofmore extreme futures. So, with that method, what we
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901do is look at extreme but still plausible changes in anorganization’s objectives. Say maybe profitability ormarket share or think about what would cause thosechanges. We’re working back from extreme changes,and we’re looking at potential causes of those changes.That’s called backward logic, working backwards from arange of futures at the extreme and working backwardsto the current point in time. The backwards logicmethod tends to produce much more extremescenarios, different scenarios and the basic in theologylogic’s methods I described earlier and often, it’s a wayof getting an organization to think of it more broadlythan it normally would. An organizations often withbackwards logic method can, actually galvanized anorganization to prepare against a range of extremenegative or extreme positive future.Joe: Should I use both or will one dictate, depending uponwhat I am looking for in this planning? Is there a wayto determine which one I should use?George: The backwards logic method is a new method. Peopleare arguing, in fact, it is a better method than the basicintuitive logic method that came from Shell. The basicmethod I talked about which is less extreme came fromShell Organization, Id say in 1970s. The backwardslogic methods with these more extreme scenarios is,argues with more threatening ways that are confrontingmanagers with the range of alternative future. It isplausible on changes on achievements or non-achievements as the organizations objectives.Depending on what the organizations wants to takehead on; a negative future and a positive future andstart to think about them and think about the impact ofthe organization, or whether the organization perhaps
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901doesnt want to be, just take that sort of threat headon. The backwards logic method is more or a secondstep method for an organization that is already, workedwith scenarios because they can be a lot morethreatening than scenarios I mentioned.Joe: When were doing this, were always developing onmultiple scenarios. We are not ever saying this is thefuture; we are putting multiple paths out there so wecan recognize what is happening as we move towardsit?George: If you look at the best guesses that people make forinstance at the end of 2007 in Business Week. They dida survey of all the economist in the USA and theirpredictions to the plight of the economy in the USA in2008. Thirty two professional forecasters, economistswere making this forecast only two predicted therecession. The best guesses about the future even fromprofessionals who we’d expect to good at this can bewrong. The scenarios then except that people tend tobe often over confident about the way the future mightunfold, especially in the longer term. So that’s reallywhat it’s about. It’s trying to overcome overconfidenceand in managers to expect that the future will resemblethe past, when in fact, sometimes it doesn’t.Joe: Why would I want to go through this whole process, ifit’s so likely that I’m going to be right or wronganyway.George: Well, I think the key is, it’s a way of enhancing orfacilitating a strategic conversation as it’s called withinthe top management team. So if you’re a topmanagement team, you would bring in some of the
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901work in scenario over a maybe a two or three dayperiod, you start thinking about what the uncertaintiesand what you see is predetermined about the future,you create a range of futures and you evaluate currentinvestments and potential investments against thefutures and you get a conversation going about thefuture. Often in the organizations, there really isn’t aconversation. This is your best guess future and peopledon’t often talk about it are being in strategy meetingin organizations where there has been a coffee break.As soon as the coffee break happens even though thewhole day is about strategic thinking maybe, peopleare in their mobile phones, checking if production linesare running. People are more concerned in the day today, than, you know the future. Scenario thinking is away of getting an organization, especially the top teamto think more about the way the future might be. Sotrying to prepare for the future and evaluate theorganizations preparedness for the future.Joe: I think about the black swan theory. That is somethingthat you can never plan for or, is it?George: Well, in the anti-fragile approach, and this is anapproach we are now also developing as a complimentreally to scenarios, anything could happen. Everythingis sort of in deterministic. Of course that’s acontradiction in some ways to a scenario thinking whichis thinking focus on cause. The anti-fragile approach isinteresting. We are just starting to think about it in mygroup for the moment. The idea is that you can positionan organization such that the downside is nil. There isnot very much down side. But, the upside is potentiallyvery large. Use the analogy of someone that has 100%funds invested. You could invest 90% in safe funds and
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business90110% in funds that could do really well. If things gobadly you’re only losing the 10%. The idea is that youposition the organization such that the downside is niland the upside is unbounded no matter what the futuremight hold.Let me give you an academic example for instancethen. Just imagine an academic, who is a youngacademic, whose, been working in the university. Thatacademic has a chance for a year to go worksomewhere else, a much better university. Where thereare very prestigious professors and very strong searchgoing on. Potentially, there are sort of networks thatcould be very useful for that junior professor. In termsof the positioning then, the downside is a year ofinconvenience, a year away maybe from thehometown. But the upside is potentially veryenormous, in terms of working with these more seniortypes. These people are more imminent on theacademics field. So, by making that decision, thedownside is clear. It is a year of inconvenience but theupside is tremendously high.Without trying to predict what may happen in thefuture years, this sabbatical of a year away from thebase university, you can see that the position is a goodone. That’s the essence of the anti-fragile approach.You can put yourself in positions that if things go bad,then it goes that bad. But if things go well, they couldgo really well.Joe: I can bring my executive team in and we can have thisbig strategic thinking session. We can bring a facilitatorin and take us through all this. It seems to me it wouldbe very difficult to bring customers into this fold to
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901think about 5, 10, 20 years in the future with me tohelp me out. Is it really plausible to include them in thistype of thinking?George: Yes. The key about of getting a team together to thinkabout the future, it doesn’t have to be from a singleorganization. It can be from you know multipleorganizations or as it’s called multiagency. We evolve arange of different people with very differentperspectives on the way the future might be.Customers can be perhaps useful but maybe not whenwe are thinking 40 years. Let me just give you anexample. Say if you’re in the lawn mower business,you’ve got machines that cut grass and that’s the thingwe do, that’s your industry. We can make them moreefficient and develop new models of grass cuttingmachinery. We can imagine talking with customersabout that business and they would have various viewsabout what they like; machines that are easy tomaintain, machines that could withstand the rainyweather that don’t rust and don’t degrade, etcetera.That will give you one perspective. But for scenariothinking, you tend to think about what will happen?What will the current customers, what will they bedoing? What would they desire, what would theyprobably use be in 30 years’ time? Maybe that allpeople living in condominium or flats. People puttingmore deckings outside their homes. Maybe technologyhas changing such as grass doesn’t grow. It just staysgreen and stays short for instance. Let’s say the moreyou think about you know the technological drivers ofthe future, the social drivers, the more you canunderstand whether it’s good at this point. It’s still inthe lawn mower or the grass cutting business.
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Customers provide one perspective, but there are manyother perspectives when you’re thinking more longterm about the future.Joe: You have some great resources on the web and wherecan people find the book and those resources?George: The best management book I think is the book“Scenario Thinking” by myself, George Wright, and myco-author in Australia, George Cairns and that’spublished by publisher called Palgrave. It’s available onAmazon etcetera and also in Kindle and this book cameout in 2011. There is another book called The “SixthSense” which is published by Wiley and I’m a co-authoron it, and another co-author is Kees van der Heijden, aDutchman that used to be the head of internal planningand/or consultancy at Shell organization. So, these areI think, two, quite good books that are written formanagers on what scenarios thinking is and also howto do it.Joe: What’s the difference between the two books?George: The Sixth Sense book is from 2002, that’s much moreof the Shell method. 2011 book that’s the ScenarioThinking is 2011, and it’s got this backwards logicapproach to it. It’s got a more up-to-date, and theaugmenting methods of building scenarios.Joe: I do want to mention that it’s not this theory 20,000foot level book. It’s a practical step by step guide. Ithought you did an excellent job.George: Well, thank you. That was the intention tocommunicate the academic and consultancy typeknowledge in a form that’s accessible and more people
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901could do this.Joe: What is the alternative to scenario thinking? Are thereother methods out there that can be used?George: Well, a major method, I think in making decisions inthe face of uncertainties are decision analyses wherepeople make judgments and probabilities of futureevents and look at the pay offs and the roll back basedon expected value for instance. So in US, especiallydecision analysis is quite a big thing. Decision Analysissets goals, numerical probabilities and net presentvalue etcetera. It is acceptable to some, but seniormanagers, especially in Europe they are morequalitative, and scenario thinking is a different way. It’smore than trying to maximize decisions or managedecisions. You’re trying to alternatively create a robustdecision. That works well across a range of differentplausible futures.Joe: What is the best way for someone to contact you?George: The easiest way is just to email me. The email addressis in the back cover of the book, “Scenario Thinking.”I’m available on george.n.wright@outlook.comJoe: I would like to thank you very much George. I wouldlike to thank you, and this podcast will be available onthe Business901 blog site and also the Business901ITunes store. So, thanks again.George: Thank you Joe.
    • Business901 Podcast TranscriptionImplementing Lean Marketing SystemsScenario Thinking the Next Big ThingCopyright Business901Joseph T. DagerBusiness901Phone: 260-918-0438Skype: Biz901Fax: 260-818-2022Email: jtdager@business901.comWebsite: http://www.business901.comTwitter: @business901Joe Dager is president of Business901, a firm specializing inbringing the continuous improvement process to the sales andmarketing arena. He takes his process thinking of over thirtyyears in marketing within a wide variety of industries and appliesit through Lean Marketing and Lean Service Design.Visit the Lean Marketing Lab: Being part of this community willallow you to interact with like-minded individuals andorganizations, purchase related tools, use some free ones andreceive feedback from your peers.