Scenario Planning

A Field Guide to the Future

Woody Wade

• Editorial: Wiley
• Año: 2012
• ISBN:
  9781118237410
• Edición: 1
• Categoría: Negocios y empresa
• Categoría: Seguros

Is your business ready for the future?

Scenario planning is a fascinating, yet still underutilized, business tool that can be of immense value to a company's strategic planning process. It allows companies to visualize the impact that a portfolio of possible futures could have on their competitiveness. It helps decision-makers see opportunities and threats that could emerge beyond their normal planning horizon. Scenario Planning serves as a guide to taking a long-term look at your business, your industry, and the world, posing thoughtful questions about the possible consequences of some current (and possible future) trends. This book will help you:

• Outline (and help you prepare for) any trends that could play out in the future that could change the political, social, and economic landscapes and significantly impact your business
• Explore the impact of technological advances and the emergence of new competitors to your business
• Examine challenges that are only dimly recognizable as potential problems today

This visual book will help you answer this question: Is my organization ready for every possibility?

CHAPTER 1
ESCAPING THE TYRANNY OF THE PRESENT

Is This Any Way to Plan?

Most organizations do some kind of long-range planning. Yours probably does.

At many companies, though, in spite of all the time and personnel invested in planning, the actual strategic plan that emerges at the end of the process is based on—no, practically joined at the hip with—a set of forecasts that implicitly consider the future as an extrapolation of the present, a more or less linear continuation of the situation these companies are already in, right here, right now. Isn’t that convenient?

The planners in your company might disagree. I’m sure they see their work as being a little more sophisticated than that. “Extrapolation? No way!” they will sputter. “Stop insulting us! We do a lot more than just taking known data points from the past and extending a straight tangent line beyond the present limit!” (I’m not sure if people actually talk like that, but this is more or less how they will defend themselves.)

PRETTY MUCH THE SAME

But that is what they’re doing. Well, to be more precise, there are two kinds of extrapolations going on in most companies. The first is a mathematical operation. And here, I could sympathize with why planning experts might take umbrage at the idea that “extrapolation” is all they do, since any high school sophomore should be able to produce a decent projection in 10 minutes on an Excel spreadsheet: Just plug in the numbers from the last couple of years and you’re done. “Hey guys! I did the forecast! Hurry up and write the strategic plan so we can get back to Call of Duty!”

This is not the image highly paid strategic planners want to project.

Despite their protests, mathematical extrapolation is the mechanical basis for most forecasting. To cover all the bases, planners may also come up with what they misleadingly call scenarios—separate forecasts representing the “most likely” set of variables, the “best” case, and the “worst” case. All this is achieved by increasing or decreasing some or all of the variables, running the numbers again, and seeing what pops out. Numbers down: worst case. Numbers up: best case. It’s easy!

So, yes, this is all the product of extrapolation. But not just the mathematical kind. At the heart of this kind of planning, a second kind of extrapolation is at work here, and for lack of a better phrase, I’ll call it mental extrapolation. What I mean by this is that the plans and strategies that emerge from the usual process are based on forecasts that are ultimately predicated on the idea that everything that will shape the future is represented by the variables in the model. Short and sweet: “We’ve got it all covered!”

No, they don’t. What the planners don’t see is that, in addition to tweaking the numbers, what they’re really extrapolating is an entire mental image of how their business environment will evolve: “As far as we’re concerned,” they’re telling themselves, “tomorrow will just be a variation of today. A bit more of this, a bit less of that, depending on how the variables change. It won’t be exactly the same as today, but. . . pretty much.”

With this mind-set, next month will be pretty much like this month, next year pretty much like this year, and 10 years from now pretty much like today. For them, as long as the forecasting model includes all the “right” variables, then the future can be only a few mathematical tweaks off of today.

This is flawed thinking. So flawed that it could have fatal consequences for any organization that relies too much on such forecasts.

Because no matter how sophisticated their forecasting model may be, the planners—by basing their view of the future exclusively on how the variables develop—are making an underlying assumption that, other than these variables, nothing much will change. They’re saying that the risks and opportunities tomorrow will be similar to those they’re dealing with today; only the magnitude will change. That’s an egregious oversight.

DOOMED TO IRRELEVANCE

In a world where nothing much changes, this would probably be an acceptable way of forecasting the future. But here’s the problem: We don’t live in that world.

Exchange rates and raw material prices and market shares and hundreds of other variables may move up, down, or sideways, but no amount of manipulating these inputs will reveal to you that a new competitor may appear, a new technology may emerge, an entirely new market may be created (or an existing one wiped out), or a new type of customer may be developing. And these are the kinds of events and developments that are more likely to shape a company’s future!

So, the strategic plans meticulously drawn up based on the notion of continuous, incremental, evolutionary, and ultimately rather predictable change are, well, perhaps not totally worthless, but doomed to irrelevance the moment something big and unforeseen in the business environment does change.

In fact, one of the few things you can say with certainty about plans drawn up this way is that the “most likely scenario” will never actually materialize! How comforting it is to have this forecast in the drawer! It creates such a wonderful sense of security. . . reassuring you. . . lulling you. . . zzzzzz.

I ask you: Is this any way to plan for the future?

Two thousand years ago, Cicero spoke of “the tyranny of the present,” and there is hardly a more apt phrase to describe the mind-set that can lull even a highly intelligent executive into believing that the future will just be a variation on a theme—that theme being “today.”

With projections in hand—best case, worst case, most likely case—it’s easy for managers to delude themselves into thinking they can see the future they’ll be competing in. And once they’ve tricked themselves into seeing the road to the future as a nice, straight line, it’s not a big leap of faith to start believing they are in control of the way the future will turn out.

However, by basing their view of tomorrow on the lay of the land today, there’s a good chance that they will also base important decisions on the assumption that they know how their future business environment will look, when in fact that environment may be radically different from their expectations—and not because the variables they projected evolved differently, but because entirely different factors came into play that they hadn’t anticipated and hadn’t even thought about.

Instead of developing in a nice straight line, the road to the future twists and turns. It’s forked, bumpy, and full of potholes and unexpected dead ends. The guardrails are flimsy. And there are very few road signs to guide you. You have to navigate much of it without a map. To paraphrase the late, great Peter Drucker, predicting the future based on extrapolating from the present is like driving down this road at night while looking out the back window.

Instead, we need to figure out a way to see where the road ahead is leading. That way is called scenario planning.

Don’t Forecast the Future—Anticipate It

If one of your tasks as a manager is to help ensure that your organization remains competitive 5 or even 10 years from today, then visualizing how the future may develop between now and then is not a meaningless parlor game; it’s a vital necessity. You need to understand today how your company is likely to be challenged when, tomorrow, the competitive landscape around you changes—and change it will!

But if forecasting isn’t the best way to visualize the future lay of the land, what is? Nobody has a crystal ball. Is there really a way to see what’s ahead?

Yes and no.

No, because, well, as I said: Nobody has a crystal ball. You will never be able to see with absolute certainty today the one and only future that will materialize even next Tuesday, let alone 10 years from now.

Yes, because a methodology does exist that can help you visualize the future. Or to be more precise, it doesn’t help you see the future, but a range of alternative futures. Each one of these futures, called scenarios, could plausibly emerge, depending on how developments that are going on today continue to unfold. None of the futures is guaranteed to come to pass, of course. And in fact, they are not likely to be very accurate, at least not in detail. But accuracy is not the objective. By creating several alternative visions that you believe have a reasonable chance of emerging, you are in a better position to ...