Scenario planning - How it helps businesses make better decisions when faced with uncertainty

Scenario Planning

Make better strategic decisions when faced
with uncertainty and change

Extracts from MBA dissertation - Colin Campbell

Change and Uncertainty
●

Business uncertainty has increased dramatically
–

●

Porter (1985)

Turbulent organisational environment means that traditional strategic
planning tools such as PEST are too simplistic- Burt el al. (2006)

●

Many business environments are no longer stable

●

Survival of long established businesses being questioned

●

History shows extreme challenges
–

British Motor Cycle Industry in the 1960's

–

IBM in the 1980's

–

Nokia and Blackberry in recent years

Scenarios can help
●

Scenarios present a range of longer term views of an organisation's external
environment based on
–
–

Industry structures

–

●

Competitive forces

–

●

Environmental factors

Trends

Each scenario attempts to tell a plausible story
Equips an organisation to take strategic decisions now which positions it well for the
range of possible futures
–

Cornelius et al. (2005)

●

Alters mental models

●

Changes assumptions about how the world works

●

Overcomes heuristics and biases in management decision making

Impact of Innovation
External changes especially innovation can de-rail a strategy

•

Realized Strategy versus Intended Strategy - Mintzberg (1994)

Scenarios - A Different Approach

Forecasting versus Scenario Planning - The Management Centre
(2012)

Creating Scenarios – The Process
1. Identify major focal issue
2. Discuss the key forces in local environment
3. Discuss the main driving forces
4. Rank by importance or uncertainty
5. Determine the axes of crucial uncertainties
6. Turn forces and factors into scenario narratives
7. How does issue look under each of the scenarios
8. Identify events to track which scenario is closest as future unfolds
Schwartz(1991) & Ringland(2002)

Axes of Uncertainty
●

●

Two or three key forces used to create a visual map
representing the axes of uncertainty
Forces and factors turned into narratives which describe
how we get from here to there
–

What events need to happen

–

What people and things characterise scenarios

●

Plausible assumptions about each scenario variable

●

Internally consistent views of future industry structure

●

Give each scenario a name to encourage dialogue

Examples
ATOS

ATOS Consulting (2009)

Building Strategies from Scenarios
●

Factoring Scenarios into the competitive strategy of the
organisation
–

Feed scenarios back to those consulted

–

Discuss strategic options

–

Agree the implementation plan

–

Publicise the scenarios
Ringland (2002)

●

Robust Strategies
–

Options which work across the range of scenarios

–

Position organisation to exploit all future opportunities

–

Prepare for threats

–

Poised for opportunity

–

Probably requires extra cost to cover options

●

Focussed Strategies
–

Pick a most probable or best case scenario

–

Can the organisation bring about a scenario?

–

Things to consider

–

First mover advantage
●
Initial competitive position
●
Attitude to risk
Numeric models for formalising strategy evaluation can be used

–

eg. Wright & Cairns (2011)
Potential to highlight best performing strategy

●

●

●

Develop Early Warning Indicators
–

Keep options open until outcomes of external events and forces is more
clear

–

Conduct Horizon Scanning to spot change as it arises
Schultz (2006)
Trends and drivers can come from a wide and diverse set of sources
Spotting trends early has potential to deliver significant competitive
advantage when combined with Scenario Planning
●
●

–

Create change
Control circumstances
Conscious choices
Avoid being swept along by circumstances
●
●
●

–

●

Strategic Conversations
–

Major decision making should remain a continual process.

–

Scenarios create language and structure for shared
interpretations of the world

–

Leads to joint action

–

Often best achieved through informal activities and
debate at all levels in an organisations

–

Promotes balanced viewpoint and avoids group-think
●

Van der Heijden et al. (2002)

Benefits of Scenario Planning
●

Improved Decision Making
–

Human reasoning does not necessarily fit with optimal judgements
Lack of information, human emotional state
Mental shortcuts leading to systematic biases and bounded
rationality
– Eysenck & Keyne (2000), Kahneman & Tversky (1996)
Mental models drive people to be satisfied with limited
interpretation of situations
– Chermack (2004)
Scenarios can help overcome these pre-dispositions and change
mental models to improve decision quality
●
●

●

–

Cognitive Biases & Decision Making

Meissner & Wulf (2013)

●

Improved Organisation Learning
–

Strategy development process follows the learning loop

–

Van der Heijden (1996)
Scenario planning fits this adaptive process by allowing for
reflection and identification of new patterns
●

●

Scenario Planning delivers Organization Performance
and Change through
–

Dialogue, Conversation, Quality and Engagement

–

Learning

–

Decision Making

–

Mental Models

–

Leadership Support

Chermack (2011)

Three Month Market Study
●

Two internet surveys
–
–

●

●

Strategic Decision Making – 100 respondents
Scenario Planning – 61 respondents

Three companies with Scenario Planning experience
interviewed
Four Scenario Planning consultants interviewed

Companies Interviewed
●

UK Government's advisory body on natural environment

●

Leading International Law Company

●

Train Rolling Stock Leasing Company

Survey 1
Strategic Business Decision Making
●

●

●

●

Businesses typically look 2 to 5 years ahead when making
decisions around strategy (74% of respondents)
3 years is the most common time period (37%)
Brainstorming & SWOT are the favoured techniques for
decision making
Most important factors for effective long term decision making
were
–

Detailed understanding of current competitive forces

–

Strong direction from company leaders

–

Involve as many relevant stakeholders as possible

Survey 2
Scenario Planning
●

Scenario Planning timeframes
–

64% of respondents have used scenario planning to look
more than 15 years ahead

–

80% more than 5 years ahead

●

31% see an immediate impact from scenario planning

●

51% see an impact within 1 year

●

Most important key factors for a successful scenario planning
exercise were
–

Participants heavily involved
Detailed understanding of current business environment

–

Stakeholder involvement

–

Survey 2
Scenario Planning
●

Respondents believe Scenario Planning is most effective
at altering how people think

●

Most desirable outcome of a Scenario Planning exercise
–

Promotes regular discussion

–

Provides basis for review of current plans

Conclusions from Interviews
●

Scenario Planning is most effective at
–
–

●

●

Altering how people think
Adding to organisational knowledge

Wide stakeholder involvement is a key factor for better long term
decision making
Senior management involvement in Scenario Planning is key to
the success of the exercise

Principal Question Asked By Study
●

●

How can scenario planning help businesses make better decisions
when faced with uncertainty?
Conclusions
–

Involving a wide range of stakeholders broadens minds and
ensures wide range of opinions represented

–

Helps change how people think by diminishing many of the biases
involved in day to day decision making

–

Enhances learning by stimulating strategic conversations
throughout the organisation

–

Creates a framework and common language where organisations
can evaluate strategic options and maintain vigilence for signs of
change within decision making horizon

Contact
●

For more details on this study you can contact me at
–

colin@ mobilebeacon.com

Bibliography
Atos Consulting (2009) Telecom Companies in 2015: Trends and scenarios, Available at
http://www.be.atosconsulting.com/NR/rdonlyres/796D11B6-1214-43EE-88F8-120088703612/0/AtosConsulting_Whitepaper_Telecom_Companies_in_2015_uk.pdf [accessed at
1st June 2013]
Burt, G., Wright, G., Bradfield, R., Cairns, G., Van Der Heijden, K. (2006) The Role of Scenario Planning in Exploring the Environment in View of the Limitations of PEST and Its
Derivatives, International Studies of Management & Organization, vol. 36, no. 3, pp. 50-76

Chermack, T. J. (2004), Improving decision-making with scenario planning, Futures, 36
Chermack, T. J. (2011) Scenario Planning in Organizations, Berrett-Koehler
Cisco (2010) The Evolving Internet:A look ahead to 2025, Available at http://newsroom.cisco.com/dlls/2010/ekits/Evolving_Internet_GBN_Cisco_2010_Aug_rev2.pdf [accessed at
1st June 2013]
Cornelius, P., Van de Putte, A., Romani, M., (2005), Three Decades of Scenario Planning in Shell, California Management Review, Vol 48, No. 1
Eysenck, M.W. & Keane, M.T. (2000), Cognitive psychology: A students handbook, Psychology Press Ltd.
Kahneman D. & Tversky A. (1996) On the Reality of Cognitive Illusions, Psychological Review, Vol 103, No 3, pp583-591

Meissner, P. & Wulf, T. (2013) Cognitive benefits of scenario planning: Its impact on biases and decision quality, Technological Forecasting & Social Change, vol
80, pp. 801-814
Mintzberg, H. (1994) The rise and fall of strategic planning, Prentice Hall
Porter, M. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York
Ringland, G. (2002), Scenarios in Business, John Wiley & Sons.
Schwartz, P. (1991), The art of the long view, Currency Doubleday, New York
Schultz, W.L. (2006) The cultural contradictions of managing change: using horizon scanning in an evidence-based policy context, Foresight, vol 8, no. 4, pp 3-12
The Management Centre (2012) Scenario Planning, Available at http://www.managementcentre.co.uk/downloads/ScenarioPlanning.pdf [ accessed at 17th August 2012]

van der Heijden, K. (1996), The art of strategic conversation, John Wiley & Sons
van der Heijden, K. & Bradfield, R. & Burt, G. & Cairns, G. & Wright G. (2002), The sixth sense, John Wiley & Sons
Wright, G., Heijden K., Burt, G., Bradfield, R., Cairns, G., (2008), Scenario planning interventions in organizations: An analysis of the causes of success and failure, Futures, 40

Scenario planning - How it helps businesses make better decisions when faced with uncertainty

More Related Content

What's hot

Viewers also liked

Similar to Scenario planning - How it helps businesses make better decisions when faced with uncertainty

Recently uploaded

Scenario planning - How it helps businesses make better decisions when faced with uncertainty