Lavén (2022) Scenario planning - Documentation (1).pptx

Fredrik Lavén 2022-12-19
Strategy and Organization / MATIX
Autumn 2022
Dr. Fredrik Lavén
fredrik.laven@handels.gu.se
Assistant professor at the Dept. of Business
Associate (Management consultant) NormannPartners
Scenario planning

Lecture outline
• A recap on strategy and uncertainty
• Scenario planning based on theory and NormannPartner’s
practice
• Scenario production
• Scenario examples
2022-12-19
Fredrik Lavén

Today’s focus
• That which is done to reach goals and ambitions
• Plan for action, guiding principles, rules for decisions and
choices
• Important decisions with large consequences
• Preparedness for action and flexibility (Weick, 2001)
• Strategic conversations (Van der Heijden, 2005)
• Being different compared to existing and possible competitors
(Van der Heijden, 2005)
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Fredrik Lavén

Revisiting the reasons for process perspectives
• Things seldom turn out the way they were planned
• Continuous adaptation and problem solving seems
more important than traditional planning
• Instead of focusing on developing the optimal strategic
plan, focus should be placed on enabling good and
functioning strategy work
• The action is what counts, not the plan
(Eriksson-Zetterquist, Kalling och Styhre, 2006)
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Fredrik Lavén

Opening up the strategy process
What business are
we in? Who are we?
What business could we
be in? Who could we be?
What business should we
be in? Who should we be?
Closing and
focusing phase
Opening and
distancing phase
(Source: Normann, 2001)

The crane – a tool for reframing business
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Fredrik Lavén
Historical search
for driving forces and
distinctive competences
Vision
Business
idea
Strategy
Action plan
Analysis of
contextual
domains,
customers
& invaders
S1
S2
S3
S4
Conceptual
past
Conceptual
future
Level of
system
logic
The
tacit
(Source: Normann, 2001)

Strategic planning
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Fredrik Lavén
Monitoring
Analysis Plan Implementation
Goal
??? ???
???

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Fredrik Lavén
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
1927
1929
1931
1933
1935
1937
1939
1941
1943
1945
1947
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Difficulties with strategic planning in times
of instability

"Most of the planning I've seen in about 250
American and foreign companies is like a ritual rain
dance performed at the end of the dry season to
which any rain that follows is attributed.
Rain dancing has no effect on the weather even
though it may have therapeutic effects on the
dancers.
Despite this, I find that as a so-called
professional planner, I am repeatedly asked to help
improve corporate dancing, not to help control the
weather."
Ackoff, R.: The Corporate Rain Dance,
The Wharton Magazine, Winter 1977

Success in the future
depends not only on the
study of the future but on
the future success of
decisions taken today
Based on NormannPartners’ scenario practice (www.normannpartners.com)

Assuming that strategy is about the
future, how can we plan when the future
is unknown and when the environment
is characterized by uncertainty?

Approaching the future
The Present
The Path
The Future
Forecasts
Current
Realities
(mental maps)
Multiple
Paths
Alternative
Future Images
Scenarios
Scenarios are stories that describe
alternative and plausible futures and how
they could develop. They can create
preconditions for increased strategic
flexibility and better decisions

“A trend is a trend until it bends. The job of a
scenario planner is to think about how and when
trends can bend”.
Rafael Ramirez, 2013
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Fredrik Lavén

Forecasting
Departs from historical and present data, extrapolating
trends
Forecasting: “a quantitative guess (or set of guesses) about the
likelihood of future events based on past and current information.
This past and current information is embodied in the form of a
model. By extrapolating such models out beyond the period over
which they were subject to estimation, the information contained
within them can be used to make forecasts about future events.”
("forecasting" The Handbook of International Financial Terms. Peter Moles and Nicholas
Terry. Oxford University Press 1997. Oxford Reference Online. Oxford University
Press. Goteborg University Library. 9 October 2009)

Forecasts – Oil drilling in the USA (1980-1990)

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Fredrik Lavén
Outcome– Oil drilling in the USA (1980-1990)

“It is better to be roughly right than precisely wrong.”
John Maynard Keyes
“What can’t be measured, can’t be managed.”
Unknown, possibly Peter Drucker
VS.

What scenarios are and what they are not
X
Predictions
Projections
Preferences

Plausible + Relevant
Unique +
Challenging
Coherent + possible

Using scenario planning to reshape strategy
”Rather than trying to predict the future, organizations need to
strengthen their abilities to cope with uncertainty. A new approach to
scenario planning can help companies reframe their long-term
strategies by developing several plausible scenarios.”
/…/
By recognizing the part of uncertainty that is unpredictable and by
actively exploring the sources of the turbulence and uncertainty, the
goal is to iteratively and interactively generate new knowledge and
insights to help organizations reperceive their circumstances.
(Ramírez, Churchhouse, Palermo & Hoffman, 2017)
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Fredrik Lavén

The purpose with scenario planning
• To create a more flexible and adaptable organization that
can be attentive to change and uncertainty, as well as to
use this creatively to its advantage
• Possibilities for more robust decision making
• Strategies, plans, projects and investments can be tested
against scenarios
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Fredrik Lavén

Further purposes of scenario planning
• To reframe the understanding of
a situation
• To repercieve strategic
opportunities
• To improve quality of strategic
conversations
• To correct judgement biases
• To enhance organizational
learning
• To influence stakeholders
• To help different parties identify
and agree upon common ground
• To create new relationships
• To reach out to new co-creators
• To surface and question
assumptions in models or
strategy
• To make sense of ambiguous
settings
• To have a common language to
join up disjointed organizational
divisions
• To research and clarify complex
issues
2022-12-19
Fredrik Lavén Source: Ramírez and Mannervik, 2016

Scenarios build on uncertainties!
Macroeconomics
Legislation
Geo-political trends
Technology
International
Finance
Energy
prices
Ecology
Demographics
Clients
Investors
Suppliers
Competitors
International
Commerce
Regulators
Lobbies
Contextual
Environment
Transactional
Environment
NGOs
Survey &
appreciate
Influence
& co-design
Manage
Social values
Exchang
e rates
Employees
ORG.
“Driving forces of
change”
Source NormannPartners: adapted from Emery and Trist (1965); Van der Heijden (2005)

Scenarios: a first definition
a small set
of MANUFACTURED
possible future contexts
OF something
FOR someone
FOR a purpose
WITH a pre-specified interface
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Fredrik Lavén

We never know what is going to happen
in the future...,
the point is to be prepared!
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Fredrik Lavén

Perspectives and understanding
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Fredrik Lavén
Source: guardian.co.uk. 2009,
http://www.guardian.co.uk/global/gallery/2009/apr/17/world-maps-mercator-goode-robinson-peters-
hammer#/?picture=346092543&index=4

Even strategy has its images - 1
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Fredrik Lavén
Source: Cummings and Wilson (2003) Images of strategy

Even strategy has its images - 2
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Business context actor analysis
Porter’s five forces analysis

Challenging and bringing understandings together
• We all have images of reality and the world
• Scenarios can help challenge mental models and bridge social
understandings about reality and ”the business as usual” image
in organizations
• A balance between ”groupthink” and fragmentation
• Scenario planning is aimed at encouraging differentiation and
integration of understandings of situations
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Fredrik Lavén

Criteria for scenario quality
• USEFULNESS - Not ‘will it happen?’ but ‘what would we do if it did happen?’
• ACCURACY - Not ‘will it happen?’ but ‘plausible alternatives to existing
assumptions’ (most valuable when assumptions were implicit)
• AVOID MINIMAL CRITICAL DENOMINATOR - Allow disagreement to be an
asset, not liability. Enhance strategic dialogue & engagement
• INSIGHT - ‘seeing anew something already known’ more than ‘seeing
something new’.
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Fredrik Lavén

Scenario production
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Fredrik Lavén

Scenario production – some key steps
• Identify scope - meaningful scenarios; always about something for
someone, with a meaningful but challenging time horizon
• Map the business idea and distinctive competences
• Looking back, scenarios of the past
• Looking forward by exploring uncertainties and drivers of change
• Prioritize and structure the uncertainties in a scenario framework
• Build scenarios: systems diagrams, story maps, timelines, and primarily
– stories about the future
• Explore strategic implications, test strategies, develop strategic options
and action alternatives
• Develop indicators for following possible scenario unfolding
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Fredrik Lavén

Explorative scenario building
Time
Present situation
of the 'Domain'
Past events & forces
shaping the present
plausible scenarios

Important events and changes that have
shaped the present
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Fredrik Lavén
Pre- - now
Society
Economy
Politics
Technology
Ecology
Legal

Certainties and uncertainties for the future, which
matter the most?
Time
Present situation
of the 'Domain'
shaping the present
Plausible
scenarios
?
?
?
?

Certainties and uncertainties
Start exploring possible futures for your focal concern. As
you move into the futures, categorize your inputs into two
groups:
• CERTAINTIES – events that your group unanimously believe will be there
or happen over the time frame for which you are to make scenarios.
- e.g.: French will be the official language in France in 2040
• UNCERTAINTIES – events that at least one person in your group believe
can have two (or more) possible outcomes in the time frame for which you
are to make scenarios.
- e.g.: The ”krona” will be the currency of Sweden in 2040
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Fredrik Lavén

PESTEL analysis is useful for exploring uncertainties
and drivers of change
•POLITICAL
•ECONOMICAL
•SOCIAL
•TECHNOLOGICAL
•ECOLOGICAL
•LEGAL
Exploring how this may affect
customers, competitors and
collaborating partners, and
what opportunities and
threats it may have

Exploring the contextual environment
Macroeconomics
Legislation
Technology
International
Finance
Energy
prices
Ecology
Demographics
Clients
Investors
Suppliers
Competitors
International
Commerce
Regulators
Lobbies
Contextual
Environment
Transactional
Environment
NGOs
Survey &
appreciate
Influence
& co-design
Manage
Social values
Exchange
rates
Employees
ORG.
“Driving forces”
Source: adapted from Emery and Trist
(1965); Van der Heijden (2005)

Certainties and uncertainties
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Fredrik Lavén
• One board with post its of
uncertainties
• One board with post its of
certainties

Prioritizing the uncertainties
Define 10 uncertainties you think thinks matter the most,
with
>> high material impact, and
>> high level of uncertainty about implications
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Fredrik Lavén

Outcome of prioritizing uncertainties
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Fredrik Lavén
Material impact
Ignorance

Uncertainties that matter the most
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Fredrik Lavén
Material impact
ignorance
Framing uncertainties
(those that
matter most)

Exploring key uncertainties
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Fredrik Lavén
Identify and explore the two most critical
uncertainties, which are treated as simple bipolar
variables
Variable #1
Outcome
state A
Outcome
state B
Variable #2
Outcome
state C
Outcome
state D

Building a scenario framework for reasoning about alternative
futures
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Fredrik Lavén
Outcome A Outcome B
Scenario
‘BC’
Scenario
‘BD’
Outcome D
Outcome C
Scenario
‘AD’
Scenario
‘AC’

Bring scenarios back to the present
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Fredrik Lavén
Time
Present situation
of the ‘environement'
shaping the present
Concrete actions
Plausible
scenarios
Backcasting

Scenarios as (extreme) weathers, which can be
deployed in wind tunneling
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Fredrik Lavén

Scenarios and “windtunneling”
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Fredrik Lavén
conditions
in the
windtunnel
=
scenarios
aircraft model
=
intended or
possible
strategies

Scenarios can also be seen as multiple markets
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Fredrik Lavén
Macroeconomics
Legislation
Technology
International
Finance
Energy
prices
Ecology
Demographics
Clients
Investors
Suppliers
Competitors
International
Commerce
Regulators
Lobbies
Contextual
Environment
Transactional
Environment
NGOs
Social values
Exchange
rates
Employees
Actor
Now……………………………………Futures

Normann on Time-framing and Scenario use
• “The idea behind moving into the conceptual future is to create a
different future by influencing action now /…/ back-cast[ing] to the
present (asking what if questions)” (2001: 196)
• “Time does not pass. It arrives, arrives, arrives…” (Novelist and
poet Christina Claesson, 1994)
• The upper right corner in the crane is most likely to hold the
potential for discoveries of reframing our business to reflect the
opportunity and imperative of reconfiguration (2001: 200).
• This can be done by making contextual scenarios by identifying key
driving forces, certainties and uncertainties that affect the
company’s activities. This, together with the “upframing” can then be
turned into idealized designs.
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Fredrik Lavén

Ideal output
1. What are the key changes in the transactional
environment?
– Who are the stakeholders and what do they do?
– Who does well in it?
– Who sets the tone for it?
2. How well does ‘your strategy’ or ‘what you do’ work
in this scenario?
3. What could you do to do better in this scenario?
– Which alliances make sense here?
– What do you need to stop doing to do well?
– What needs doing (new / reinforced) to do well?
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Fredrik Lavén

Source: Ramírez & Mannervik (2016) - Collaborative Strategy to Shift the Transactional /Contextual Environment
Macroeconomics
Legislation
Technology
International
Finance
Energy
prices
Ecology
Demographics
Clients
Investors
Suppliers
Competitors
International
Commerce
Regulators
Lobbies
Contextual
Environment
(factors beyond
learner
influence)
Transactional
Environment
(actors with
whom the learner
interacts)
NGOs
Social values
Exchange
rates
Employees
Actor
Security
survey &
appreciate
influence
& co-
design
control
The actor in its two environments
Collaborative strategy shifts the borders

The Crane, as a Re-framing and
Re-perception Loop
Source: Ramírez & Mannervik (2016)
Higher System Logic
(“Upframing”)
Lower System Logic
(“Downframing”)
Here &
Now
Conceptual Past
(Grounding)
Conceptual Future
(Exploring)
Contextual Factors
A Set of Contrasting
Scenarios

Examples of scenario planning
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Fredrik Lavén

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Fredrik Lavén
https://www.shell.com/energy-and-innovation/the-energy-
future/scenarios/what-are-scenarios.html

https://www.shell.com/energy-and-
innovation/the-energy-future/scenarios/shell-
scenarios-in-film.html
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Fredrik Lavén

www.powerscenarios.wartsila.com.
2022-12-19 Fredrik Lavén

https://vimeo.com/92028675
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Fredrik Lavén

In conclusion - from strategic plans to scenario
planning
• From the best strategy to the most effective strategy processes
• Scenario planning can help lifting one’s perspective and thus
preparation for alternative futures (i.e. the environment we may
find ourselves in)
• Focus is on seeing the strategy processes as formal and
informal strategic conversations
• Scenario planning allows for intervention in these strategic
conversations, outside of every day influence. This may create
space for widening people’s attention and influencing where
their creativity is directed towards
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Fredrik Lavén

References
Van der Heijden, Kees (2005) Scenarios: The art of strategic conversations,
2nd ed., Chichester: Wiley
NormannPartners presentation material, 2014.
Ramírez, R and Mannervik, U. (2016) Strategy for a Networked World:
London: Imperial College Press.
Ramírez, R., Churchhouse, S., Hoffman, J., & Palermo, A. (2017). Using
scenario planning to reshape strategy, MIT Sloan Management Review, 58(4),
31-37.
2022-12-19
Fredrik Lavén

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