Trends in Scenario Planning
Scenario planning is making a comeback in today’s shifting and sometimes dangerous world, suggest several sources. Such planning can help companies manage risk and prepare for multiple contingencies. But even some advocates of scenario planning – which involves developing stories about the future and devising strategic responses for each of those stories – say the practice must evolve in order to become more practical and widely used in business organizations.
“The new concern with geopolitical risks has ... led to a revival of scenario planning,” The Economist magazine reported in January 2004. “[S]cenario planning has been out of fashion for a decade because the geopolitical climate appeared to have become more benign. Now, however, it is regaining its popularity as a way of helping managers and directors to think about future uncertainties.”
When done well, scenario planning can help organizations prepare for a variety of contingencies by getting managers to carefully examine the forces affecting their businesses, question their hidden assumptions and develop an array of strategic options.
Tracking trends is critical to this process. Not only do trend lines help organizations develop notions of what might emerge in the future, but over time they help organizations determine toward which scenarios things seem to be moving. This is especially important to organizations – such as the military or energy companies – that must place “big bets” on the future. Such organizations start by carefully developing scenarios and then tracking trends to see which scenarios are becoming most likely. In this way, they’re able to make “safer bets” on the future.
But scenario planning has a number of drawbacks. It takes considerable time and money, it’s often confined to senior management, and the final product may be considered too “big picture” and so not relevant to more pressing operational concerns.
Some experts suggest that scenario planning should change in order to overcome some of these drawbacks. “I believe that scenarios are ready to evolve to the next level of development,” writes Stephen M. Millett in a 2003 edition of Strategy & Leadership magazine. “Both the intuitive and analytical scenario methods have been practiced for more than 30 years with many marginal improvements but no radical revision. The next generation of scenario tools should not only combine previous methods but also actually blend them into a more comprehensive methodology.” He believes that the more creative approaches to scenario planning can be used to establish big pictures and broad boundaries while more analytical approaches can be used to provide greater detail.
He points to the example of the Los Angeles Department of Water and Power, which used scenarios as starting points from which to “run econometric models giving us very specific demand forecasts.” This gave the organization more information on the size of investments needed to achieve different levels of power demand.
In a separate attempt to marry the big picture of scenario planning to operational realities of business unit managers, Jeffrey Strauss and Michael Radnor recently suggested blending scenario planning with roadmapping. Roadmapping is a planning process for developing technology alternatives in order to satisfy a set of product needs. Strauss and Radnor write, “A carefully designed and implemented combination of these two knowledge management tools could offer the best of both worlds – i.e., more robust and dynamic product technology architectures designed to fit a range of quite different scenarios.”
Some experts also seek to partly automate scenario planning and make it less expensive. For example, some service companies have created programs that can automatically cull news from the Internet, attach relevant information to key scenarios, and then notify appropriate scenario-watchers of these developments. In such ways, scenario planning might morph to suit the needs of a world in which change can be dismayingly fast and furious.
For more on how contingency planning has made strides, go to
http://www.bain.com/management_tools/tools_Contingency.asp?groupCode=2
For an article by Bain & Company on this trend, go to
http://www.bain.com/bainweb/publications/publications_detail.asp?id=12225&menu_url=publications%5Fresults%2Easp
For more information on technology roadmapping, go to
http://www.sandia.gov/Roadmap/home.htm#what02
An excerpt from a Fortune magazine article on the business environment 50 years from now, as seen by scenario expert Peter Schwartz, can be seen at
http://www.fortune.com/fortune/fortune500/articles/0,15114,602823,00.html?promoid=cnnmoney
For a Global Business Network overview of scenarios, go to
http://www.gbn.org/AboutScenariosDisplayServlet.srv
For the Knowledge@Wharton article “Using Scenario Planning as a Weapon Against Uncertainty,” registered users can go to
http://knowledge.wharton.upenn.edu/articles.cfm?catid=7&articleid=470
For more on how the military is using scenarios, see
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2001/10/28/MN180760.DTL
Other documents used in the preparation of this TrendWatcher include:
Courtney, Hugh. “Decision-Driven Scenarios for Assessing Four Levels of Uncertainty.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 14.
Fahney, Liam. “How Corporations Learn from Scenarios.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 5.
Hanson, Jim. “Scenario Planning Requires Leadership.” Credit Union Magazine. ProQuest. July 2003, p. 36.
Liotta, P.H. and Tomothy E. Somes. “The Art of Reperceiving Scenarios and the Future.” Naval War College Review. ProQuest. Vol. 56, Iss. 4, 2003, p. 120.
Mason, David. “Tailoring Scenario Planning to the Company Culture.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 25.
Millett, Stephen M. “The Future of Scenarios: Challenges and Opportunities.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 16.
More, Hamish. “Strategic Scenario Planning or Does Your Organization Rain Dance?” New Zealand Management, May 2003, p. 32.
Ringland, Gill. “Using Scenarios to Focus R&D.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 1, 2003, p. 16.
Strauss, Jeffrey D. and Michael Radnor. “Roadmapping for Dynamic and Uncertain Environments.” Research Technology Management, March/April 2004, pp. 51-58.
“Survey: Be Prepared.” The Economist. ProQuest. January 24, 2004, p. 16.
“The new concern with geopolitical risks has ... led to a revival of scenario planning,” The Economist magazine reported in January 2004. “[S]cenario planning has been out of fashion for a decade because the geopolitical climate appeared to have become more benign. Now, however, it is regaining its popularity as a way of helping managers and directors to think about future uncertainties.”
When done well, scenario planning can help organizations prepare for a variety of contingencies by getting managers to carefully examine the forces affecting their businesses, question their hidden assumptions and develop an array of strategic options.
Tracking trends is critical to this process. Not only do trend lines help organizations develop notions of what might emerge in the future, but over time they help organizations determine toward which scenarios things seem to be moving. This is especially important to organizations – such as the military or energy companies – that must place “big bets” on the future. Such organizations start by carefully developing scenarios and then tracking trends to see which scenarios are becoming most likely. In this way, they’re able to make “safer bets” on the future.
But scenario planning has a number of drawbacks. It takes considerable time and money, it’s often confined to senior management, and the final product may be considered too “big picture” and so not relevant to more pressing operational concerns.
Some experts suggest that scenario planning should change in order to overcome some of these drawbacks. “I believe that scenarios are ready to evolve to the next level of development,” writes Stephen M. Millett in a 2003 edition of Strategy & Leadership magazine. “Both the intuitive and analytical scenario methods have been practiced for more than 30 years with many marginal improvements but no radical revision. The next generation of scenario tools should not only combine previous methods but also actually blend them into a more comprehensive methodology.” He believes that the more creative approaches to scenario planning can be used to establish big pictures and broad boundaries while more analytical approaches can be used to provide greater detail.
He points to the example of the Los Angeles Department of Water and Power, which used scenarios as starting points from which to “run econometric models giving us very specific demand forecasts.” This gave the organization more information on the size of investments needed to achieve different levels of power demand.
In a separate attempt to marry the big picture of scenario planning to operational realities of business unit managers, Jeffrey Strauss and Michael Radnor recently suggested blending scenario planning with roadmapping. Roadmapping is a planning process for developing technology alternatives in order to satisfy a set of product needs. Strauss and Radnor write, “A carefully designed and implemented combination of these two knowledge management tools could offer the best of both worlds – i.e., more robust and dynamic product technology architectures designed to fit a range of quite different scenarios.”
Some experts also seek to partly automate scenario planning and make it less expensive. For example, some service companies have created programs that can automatically cull news from the Internet, attach relevant information to key scenarios, and then notify appropriate scenario-watchers of these developments. In such ways, scenario planning might morph to suit the needs of a world in which change can be dismayingly fast and furious.
For more on how contingency planning has made strides, go to
http://www.bain.com/management_tools/tools_Contingency.asp?groupCode=2
For an article by Bain & Company on this trend, go to
http://www.bain.com/bainweb/publications/publications_detail.asp?id=12225&menu_url=publications%5Fresults%2Easp
For more information on technology roadmapping, go to
http://www.sandia.gov/Roadmap/home.htm#what02
An excerpt from a Fortune magazine article on the business environment 50 years from now, as seen by scenario expert Peter Schwartz, can be seen at
http://www.fortune.com/fortune/fortune500/articles/0,15114,602823,00.html?promoid=cnnmoney
For a Global Business Network overview of scenarios, go to
http://www.gbn.org/AboutScenariosDisplayServlet.srv
For the Knowledge@Wharton article “Using Scenario Planning as a Weapon Against Uncertainty,” registered users can go to
http://knowledge.wharton.upenn.edu/articles.cfm?catid=7&articleid=470
For more on how the military is using scenarios, see
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2001/10/28/MN180760.DTL
Other documents used in the preparation of this TrendWatcher include:
Courtney, Hugh. “Decision-Driven Scenarios for Assessing Four Levels of Uncertainty.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 14.
Fahney, Liam. “How Corporations Learn from Scenarios.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 5.
Hanson, Jim. “Scenario Planning Requires Leadership.” Credit Union Magazine. ProQuest. July 2003, p. 36.
Liotta, P.H. and Tomothy E. Somes. “The Art of Reperceiving Scenarios and the Future.” Naval War College Review. ProQuest. Vol. 56, Iss. 4, 2003, p. 120.
Mason, David. “Tailoring Scenario Planning to the Company Culture.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 25.
Millett, Stephen M. “The Future of Scenarios: Challenges and Opportunities.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 2, 2003, p. 16.
More, Hamish. “Strategic Scenario Planning or Does Your Organization Rain Dance?” New Zealand Management, May 2003, p. 32.
Ringland, Gill. “Using Scenarios to Focus R&D.” Strategy & Leadership. ProQuest. Vol. 31, Iss. 1, 2003, p. 16.
Strauss, Jeffrey D. and Michael Radnor. “Roadmapping for Dynamic and Uncertain Environments.” Research Technology Management, March/April 2004, pp. 51-58.
“Survey: Be Prepared.” The Economist. ProQuest. January 24, 2004, p. 16.