Scenario Planning in Organizations

How to Create, Use, and Assess Scenarios

Thomas J. Chermack

• Publisher: Berrett-Koehler Publishers
• Year: 2011
• ISBN:
  9781605099088
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Scenario planning helps organization leaders, executives and decision-makers envision and develop strategies for multiple possible futures instead of just one. It enables organizations to become resilient and agile, carefully calibrating their responses and adapting quickly to new circumstances in a fast-changing environment.This book is the most comprehensive treatment to date of the scenario planning process. Unlike existing books it offers a thorough discussion of the evolution and theoretical foundations of scenario planning, examining its connections to learning theory, decision-making theory, mental model theory and more. Chermack emphasizes that scenario planning is far more than a simple set of steps to follow, as so many other practice-focused books do—he addresses the subtleties and complexities of planning. And, unique among scenario planning books, he deals not just with developing different scenarios but also with applying scenarios once they have been constructed, and assessing the impact of the scenario project.Using a case study based on a real scenario project Chermack lays out a comprehensive five phase scenario planning system—project preparation, scenario exploration, scenario development, scenario implementation and project assessment. Each chapter describes specific techniques for gathering and analyzing relevant data with a particular emphasis on the use of workshops to encourage dialogue. He offers a scenario project worksheet to help readers structure and manage scenario projects as well as avoid common pitfalls, and a discussion, based in recent neurological findings, of how scenario planning helps people to overcome barriers to creative thinking. "This book is about action and performance. Compelling and thoroughly researched, it offers every business executive a playbook for including uncertainty in the organizational change process and driving competitive advantage".-- Tim Reynolds, Vice President, Talent and Organization Effectiveness, Whirlpool Corporation

PART ONE
FOUNDATIONS OF SCENARIO PLANNING

CHAPTERS

1 Introduction to Performance-Based Scenario Planning

2 Theoretical Foundations of Scenario Planning

3 The Performance-Based Scenario System

4 Scenario Case Study

IF WE LOOK BACK over the history of planning in organizations, we can see a fundamental illusion that is beginning to come to light. The illusion is that planning can function like a machine, that the steps of organizational planning need only be carried out. The basis of that illusion is an assumption that things more or less stay the same. Today, our rhetoric would indicate we have realized our erroneous assumption, but actions indicate otherwise. The world is changing faster than ever, yet many planners and decision makers behave in opposition to what they know is true about the world—they seek the answer, as if there is only one correct answer and their job is to find it.

A key premise of this book is that things are ever-changing. Planning therefore needs to take a different approach, one that assumes tomorrow’s world will be fundamentally different from today’s. Scenario planning explores a variety of outcomes, a variety of potential answers, and uses them to create awareness and readiness. The hardest part of scenario planning is recognizing our desperate clinging to a single answer and consciously shifting toward an open future of vast potential—both positive and negative. This book asks its readers to take a journey. To interact with their environment. To ask difficult questions that lead to more difficult questions. To become comfortable with ambiguity.

Part One consists of Chapters 1 through 4. These chapters provide a working knowledge of scenario planning.

Chapter 1, “Introduction to Performance-Based Scenario Planning,” establishes the nature of the business environment, describes why traditional approaches to strategy are no longer effective, and lays out the development of scenario planning as a major evolution in planning under uncertain conditions. This is an extensive chapter that provides a comprehensive background of the need for scenario planning, and the critical breakdowns of existing approaches to scenario planning. Unlike existing approaches, performance-based scenario planning provokes conversations about expectations, delivers a variety of options for putting scenarios to use, and makes assessment a required part of the project.

Chapter 2, “Theoretical Foundations of Performance-Based Scenario Planning,” presents the major disciplines that form the theoretical basis for scenario planning. This chapter examines the connections between scenario planning and learning theory, mental model theory, decision-making theory, and performance improvement theory, among others. This chapter is a comprehensive treatment of the knowledge required for effective scenario planning. While not required for immediate application, this chapter reveals many nuances about what scenario planning is and how it works.

Chapter 3, “The Performance-Based Scenario System,” situates scenario planning within the organization. Drawing on system theory concepts, this chapter generally outlines the position of scenario planning as a subsystem in organizations. This chapter also presents the performance-based scenario system, which is the focus of Part Two.

Finally, Chapter 4, the “Scenario Case Study,” presents a short description of a real organization (disguised for the purposes of confidentiality). The case illustrates the phases of the performance-based scenario system described throughout Part Two.

1
Introduction To Performance-Based Scenario Planning

This book describes a method for including the realities of uncertainty in the planning process. Uncertainty and ambiguity are basic structural features of today’s business environment. They can best be managed by including them in planning activities as standard features that must be considered in any significant decision.

This book focuses on avoiding crises of perception. Scenario planning is a tool for surfacing assumptions so that changes can be made in how decision makers see the environment. It is also a tool for changing and improving the quality of people’s perceptions. Uncertainty is not a new problem, but the degree of uncertainty and the effects of unanticipated outcomes are unprecedented. Learning how to see a situation—complete with its uncertainties—is an important ability in today’s world.

This chapter presents some of the challenges posed by today’s fastchanging environment. A tool for dealing with those challenges has traditionally been strategic planning. Basic approaches to strategic planning are described; however, the rate and depth of change have increased over time to the point that those methods are no longer useful. Scenario planning emerged as an effective solution in the 1970s, and the ensuing history of scenario planning is discussed here. This chapter also describes a variety of major approaches to scenario planning, including their shortcomings. The fundamental problem with existing approaches to scenario planning is that they are not performance based. Evidence of this critical oversight is presented by reviewing the definitions and outcomes of scenario planning as they are described by major scenario planning authors. The outcomes they promote are generally vague and unclear. Finally, this chapter introduces performance-based scenario planning—which is the contribution of this book.

DILEMMAS

Some authors prefer to use the term dilemma instead of problem because the term problem can imply that there is a single solution (Cascio, 2009; Johansen, 2008). Most often, strategic decision making involves ambiguity and a realization that numerous solutions are possible. Each usually comes with its own caveats and difficult elements that must be considered. Hampden-Turner (1990) saw dilemmas as a dialectic and used the description “horns of the dilemma” to describe this way of observing specific dynamics in the environment. This way of describing complex dynamics takes a first step into looking for underlying systemic structure.

This book focuses on complex problems or dilemmas with unknown solutions. Therefore, its intent is to develop the understanding and expertise required to explore difficult, ambiguous problems and consider a variety of solutions in a wildly unpredictable and turbulent environment. Because there are no clear answers to questions of strategy and uncertainty, decision makers are compelled to do the best they can. These types of problems are the most complex, most ambiguous, and often the most deeply rooted. Experienced scenario planning practitioners have demonstrated their capacity to detect blind spots, avoid surprises, and increase the capacity to adjust when needed. Most important, modern-day dilemmas take place in an environment the likes of which we have never seen before.

THE ENVIRONMENT

Organizations operate in environmental contexts. These contexts include and are shaped by social, technological, economic, environmental, and political forces. The external environment has received much attention in literature from a variety of disciplines. Emery and Trist published a seminal work on the importance of the external environment in 1965. They suggested a four-step typology of the “causal texture” of the external environment:

Step 1—a placid, randomized environment

Step 2—a placid, clustered environment

Step 3—a disturbed, reactive environment

Step 4—a turbulent field

Few would disagree that most contemporary organizations are heavily steeped in turbulent fields. Turbulent fields are worlds in which dynamic processes create significant variance. These turbulent fields embody a serious rise in uncertainty, and the consequences of actions therein become increasingly unpredictable (Emery & Trist, 1965). These four different types of environments have existed over time, but today we are dealing with turbulent fields beyond the original conceptualization.

Reminding readers of Emery and Trist’s classification, Ramirez, Selsky, and van der Heijden (2008) use the ideas of turbulence and complexity to frame their edited book Business Planning for Turbulent Times. They make their case that turbulence and environmental complexity are undeniable features of the business environment by citing research showing significant increases in published material focused on turbulence and uncertainty. It could be argued that these descriptors are more relevant today than they were in 1965.

Another description of the external environment uses the terms volatility, uncertainty, complexity, and ambiguity for the acronym VUCA (Johansen, 2007). VUCA originated at the U.S. Army War College, which has since become known as VUCA University. Indeed, the elements of volatility, uncertainty, complexity and ambiguity are undeniably present in the operating environment of any organization—the only question is the degree to which each element may be in play.

These external environment elements have equal and opposite forces that must be understood and emphasized. For example, to overcome volatility, one must use vision; to address uncertainty, one must develop understanding; complexity yields to clarity; and ambiguity can be addressed with agility. Each of these solutions is based on an open-ended, continuous learning orientation (Johansen, 2007).

The general societal environment and organizations within it continue to evolve to new heights of complexity, turbulence, volatility, uncertainty, and ambiguity. The rate of change is not likely to slow, and most decision makers are simply trying to keep up. Timelines for strategic thinking are short. Organizations operating on a minimum of resources will find that eventually something must be given up. For many, the time to think strategically is sacrificed. Logically, this reaction is just the opposite of what is required if decision makers are to have any chance at navigating a chaotic environment that is challenging them.

A BRIEF EVOLUTION OF STRATEGIC PLANNING

Military planning has long concentrated on strategy principles dating back to early Chinese philosophers such as Sun Tzu and Japanese philosophers such as Miyamoto Musashi, as well as ancient scholars like Niccolò Machiavelli. These early opinions about battle positioning have heavily influenced modern thinking about strategy (Cleary, 1988; Greene, 1998). Through several world and national wars, the notion of planning for strategic warfare positioning has evolved dramatically (Frentzell, Bryson, & Crosby, 2000). While the history of military planning is extensive and has evolved in many ways completely on its own, military strategy has borrowed and contributed concepts from and to corporate planning over the years (Frentzel et al., 2000).

Alfred Sloan advanced corporate planning practices at General Motors in the 1930s. The concept of planning as a central organizational activity was further advanced by Igor Ansoff and Alfred Chandler. These strategy thinkers spent their time in the 1950s and 1960s trying to convince managers that their companies needed strategies. During this period, frequent links and parallels were drawn with military strategy and the events of the era. Economic forecasting was the key tool in the strategist’s arsenal of weapons for blasting a path to the desired future. This approach to planning continued through the 1960s and generally involved three phases—namely, defining the desired future, creating the plan (or steps to achieve the desired future), and then implementing the plan (Micklethwait & Woolridge, 1996). These phases also denoted the initial division between strategy formation and implementation, with the formation being a process reserved for senior executives and the CEO, and implementation being the job of managers. Strategic planning became increasingly complex over the next decade with the introduction of several levels of planning. A notable contribution of this time period was the Boston Consulting Group’s Growth Share Matrix. The matrix was intended to indicate a general strategy to executives and managers based on templates of opportunities and strategies in any industry.

In response to the demands of World War II, planning became a top priority for most industries. The military also heightened its connection to the research coming out of the RAND Corporation that was headed by Herman Kahn (Kahn & Weiner, 1967; Ringland, 1998). The developments in Kahn’s “future-now thinking” quickly translated into military efforts to predict the future (Kahn & Weiner, 1967), and military planning groups added physicists and mathematicians specializing in modeling (Ringland, 1998). Although much of the planning strategies used by the military were classified, it seems clear that the thinking going on in Stanford Research Institute’s Futures Group, and that of Herman Kahn himself at the Hudson Institute, provoked what became more widely known as simulations, or events that positioned participants in hypothetical situations.

Later, Forrester’s (1961) work at the Massachusetts Institute of Technology also contributed greatly to the development of simulations, and his expertise was sought for military operations on several occasions. One of the applications of Forrester’s systems dynamics modeling was to uncover counterintuitive possibilities in the future. The essence of the Forrester systems dynamics models is to develop the underlying causal relationships that drive a specific dynamic. Through a process of identifying and modeling the size of stocks and the strength of flows, complex dynamics could be captured. These models also enabled an evidence-based argument about how specific dynamics might unfold in the future.

Military groups began using simulations to allow individuals to experience situations without the implications of their actions in those situations translating into reality (Frentzel et al., 2000). The emphasis on war games, the advent of computer modeling, and other technology produced by the military and industry in the 1950s and 1960s have led to elaborate training strategies involving virtual reality and devices such as flight simulators. Military planning has incorporated some of the early scenario planning concepts, but the core point of differentiation has been a lasting focus on prediction in military planning (Frentzel et al., 2000).

Michael Porter’s work on business strategy took a cue from some of the military planning concepts and applied them to business organizations. His work concentrated on the idea that there can be both unique solutions to strategic problems and general solutions that may be examined for relevance to any strategic situation (Porter, 1985). Porter’s work then shifted to the idea of competitive advantage and that, indeed, generic paths for achieving competitive advantage are freely available to any corporation and its planning analysts (Porter, 1985). Porter also stressed the idea that organizations should think of themselves as value chains of separate activities. Planning took a serious turn to focus on analysis until Japanese companies were performing as anomalies in Porter’s planning framework. Lengthy, formal, and involved approaches to planning came under tough scrutiny by overseas business leaders; eventually, even the Harvard Business School explored more simplified approaches to strategy.

The shift in thinking toward simplicity had an effect on most organizations. Many corporations ridded themselves of their planning departments as the concept of reengineering took center stage in the 1990s. Strategy consulting firms like McKinsey and the Boston Consulting Group shifted their expertise to reengineering to capture the rising demand. Planning practices in the 1990s and early 2000s became hybrids of everything from formalized annual retreats that attempted to re-create the days of planning, to simple strategies that could be communicated and rolled out to employees on business cards.

In light of the negative and devastat...