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World Futures The Journal of New Paradigm Research
ISSN: 0260-4027 (Print) 1556-1844 (Online) Journal homepage: http://www.tandfonline.com/loi/gwof20
Scenario Planning: The Basics
Noboru Konno , Ikujiro Nonaka & Jay Ogilvy
To cite this article: Noboru Konno , Ikujiro Nonaka & Jay Ogilvy (2014) Scenario Planning: The Basics, World Futures, 70:1, 28-43, DOI: 10.1080/02604027.2014.875720
To link to this article: http://dx.doi.org/10.1080/02604027.2014.875720
Published online: 10 Feb 2014.
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World Futures, 70: 28–43, 2014
Copyright C© Taylor & Francis Group, LLC ISSN: 0260-4027 print / 1556-1844 online
DOI: 10.1080/02604027.2014.875720
SCENARIO PLANNING: THE BASICS
NOBORU KONNO, IKUJIRO NONAKA, AND JAY OGILVY
This article covers the basics of scenario planning: Why scenarios? What are scenarios? How do you develop scenarios? After covering the preliminaries—the constitution of the scenario team; interviews; research; the identification of a focal issue; set and setting for a scenario workshop; staffing; the trajectory of a scenario planning project—the article moves on to describe several methods for identifying a finite set of diverse scenario logics. After a set of scenarios has been developed, there are several different routes from scenarios to strategy. Early indicators can help identify which of several scenarios is in fact unfolding.
KEYWORDS: Early indicators, environment, interviews, management, research, scenario planning, strategy, the scenario team.
Good planning is important for business success. Most plans are based on forecasts of the future. But most corporate planners now agree that the future is impossible to predict. If anyone ever believed that they could predict the future, events of recent years have convinced most planners that prediction is impossible. Surprises like the Southeast Asian financial collapse of 1997, the dot.com collapse in 2000, the terrorist attack on 9/11/2001, the tsunami of 2005, the economic meltdown of 2008, and 3/11/11 (Fukushima) have helped convince us that if anything is predictable it is this: the future will surprise us.
Yet we must make plans, in spite of the unpredictability of the future. When making plans in the face of uncertainty, the method of choice for more and more organizations is scenario planning. By developing and using alternative scenarios, companies can prepare themselves for a range of possible futures.
This article lays out the basics of scenario planning. Why scenarios? What are scenarios? How to develop scenarios? And, finally, how to move from a set of scenarios to a winning strategy.
WHY SCENARIOS?
The main reason has been given: the future is not predictable, but we need to make plans nevertheless. But there are other reasons for developing a set of alternative scenarios.
Address correspondence to Jay Ogilvy, HC 64, P.O. Box 3008, Castle Valley, UT 84532, USA. E-mail: [email protected]
Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/gwof.
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The very process of thinking about a range of possible futures can provide senior executives with a useful opportunity for discussing fundamental issues that may be neglected for the sake of attending to day-to-day operations. The urgent drives out the important. A concern for making this quarter’s numbers may lead senior executives to ignore longer-term issues. The process of scenario planning forces executives to think about the longer term.
The longer term perspective required for scenario planning helps to focus at- tention on factors that may seem remote or far away right now, but could spell the difference between success and failure in the future. Think about the rising power of China and India, or the creeping onset of climate change, as examples. Each industry will have its own examples: For education, the spread of massive online open courses (MOOCs) or the gamification of education; for energy, new tech- nologies for decarbonization; for entertainment, oscillating paradigms between big screen blockbusters and fare that fits on mobile screens; and so on.
A set of well-articulated scenarios can provide a useful vocabulary in which to cast the strategic conversation among senior executives. The names of different scenarios come to serve as a kind of compressed shorthand or code in which executives can communicate with one another about the possible consequences of today’s decisions.
Alternative scenarios can serve as relatively low cost insurance policies. You are less likely to be blind-sided if you have taken the trouble to imagine what would otherwise remain as totally unanticipated.
And on the upside, scenarios can identify whitespace opportunities that remain unfilled until a first mover occupies the space that less imaginative competitors never knew existed.
WHAT ARE SCENARIOS?
Scenarios are alternative futures in which today’s decisions may play out. But what form do these alternative futures take in business practice? Is a scenario the same thing as a strategy? No. Is a series of bullet points describing a single moment in time in the future a scenario? No.
Scenarios are stories with beginnings, middles, and ends. They have a narrative form, like stories. It is a mistake to imagine that a scenario is a picture of a moment in time in some remote future, say five to ten years away. Good scenarios are stories with twists and turns that show how the business environment might change over time between today and some date in the future.
A useful set of scenarios will contain two to five different narratives. More than five scenarios tend to get confused with one another. Three scenarios run the danger that people will try to pick “the middle” or most likely scenario and forget about the others. Four is a good number—neither too many nor too few. And four scenarios can often be arranged in a two-by-two matrix built on two critical uncertainties.
In some corporate cultures, people prefer narratives running several pages—mini-histories told from a perspective ten years into the future. In other
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cultures, scenarios may be best represented in a series of PowerPoint slides show- ing sequences of events, graphs with crucial statistics, and systems dynamics diagrams.
In either case—whether as narratives or as PowerPoint slides—each scenario should contain enough detail to allow planners to assess the probability of success or failure of different strategic options taken by their company.
• Will there be sufficient demand for our new product? • Are supply chains likely to be intact? • How much competition can we anticipate? • Have new technologies rendered our product or service obsolete?
A good set of scenarios should always be customized to a particular context. They should be created to address a particular problem in a particular industry. “Off the shelf” scenarios are rarely useful to a company trying to make a strategic decision. Planners should develop their own scenarios to address their own issues.
The scenarios that Royal Dutch/Shell used to anticipate the drop in oil prices in 1986 were very different from the scenarios that Kodak used to navigate its transition from silver halide film to digital photography. The scenarios that Xerox used to anticipate the convergence of the copier and printer were very different from the scenarios that American Express used to deal with the replacement of Travelers’ Cheques by credit cards. Each company, in each industry, must develop its own scenarios to face its own challenges.
HOW TO DEVELOP SCENARIOS?
• The scenario team • Set and setting
Scenario planning is a team sport. To the extent that an intelligent approach to the future calls for a lot of knowledge, imagination, and creativity, the best scenarios are almost always created by a team of people with varying resources and expertise.
How to assemble the team? The first criterion is diversity: old and young, male and female, representatives of different functions in the client organization. Sometimes we like to include customers or suppliers. The point is to make sure that different realms of experience are brought to bear on a set of alternative and divergent scenarios. Many minds are better than one.
What further criteria do we use? It’s a good idea to have at least a few people with the kind of clout it takes to make important decisions. Having the CEO in the room is optimal, but rarely possible. Given the calendar commitment—usually two 2-day workshops—it is the rare CEO who can spare that much time. In some cultures, the presence of the CEO may inhibit open conversation. In such cultures, the CEO’s input is best tapped with an interview rather than full participation in the workshops. Without the CEO, or at least some other members of the C-suite, there’s some danger that the results of the scenario process will not be properly
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appreciated. “I asked for one future and you’ve given me four. What do I do with this?” So if neither the CEO nor her direct reports are part of the team, it’s important to take time, through interviews and meetings, to prepare leadership on what to expect—Why scenarios? What are scenarios? How do you use scenarios? This article can be used for that purpose.
In addition to (1) diversity and (2) senior leadership, what are some other criteria for selecting the scenario team? After these first two criteria, the rest are fairly obvious and by no means peculiar to scenario workshops. But they bear mention in any case.
• Avoid the pompous, the grandstanders, people who talk too much. In a room of 15–25 people, there’s just so much airtime so good listening is as important if not more important than good speaking.
• Avoid the cynical, the argumentative, and disputatious. You want people who build on others’ ideas rather than tearing them down.
• Seek out those who are good team players who know how participate in a process without needing to dominate.
Finally, while you want to avoid the cantankerous and disputatious, you want to include some curveball throwers, some people who can look at the same old dots and connect them differently. Global Business Network made a point of including among its network members a number of people with a proven ability to “see around corners” and, as Herman Kahn (1962, 1984) often put it, “think the unthinkable.” Such people are best recruited from outside the client organization. They are less subject to groupthink. They have not “drunk the koolaid.”
Size of the Team
The span from 15–25 has already been mentioned. If the team has less than 15 members, there’s too little diversity. Not enough “counties” will be heard from. Any more than 25 and the dynamics get difficult. There’s not enough air time for everyone to participate on a regular basis, and some are likely to become disengaged, or start distracting side conversations.
The Setting
Because the scenario planning process is fairly intense, it’s important that its practitioners be undistracted while they are taking part in scenario workshops. For this reason, it’s best to meet offsite, at a location where people are not tempted to go down the hall to their offices where the needs of the moment are likely to pull them away from the scenario process. Ask people to turn off their phones. If they insist on opening their laptops or iPads to “take notes,” urge them to ignore tweets, texts, and e-mails.
The reasons for making such demands for total attention are not trivial. Given that the scenario planning process creates an opportunity for a kind of imaginative time travel into various distances of several different futures, it’s important to
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liberate people from the present. If day-to-day concerns are top of mind, it’s all that much harder to imagine futures that are very unlike the present.
Set and setting can be helpful for creating the right frame of mind. Windowless conference rooms are not the best. Windows on distant landscapes contribute to “far seeing” in time as well as space. And sufficient internal spaciousness—a room big enough to move around in—is also helpful. For a scenario team of 15–25 people, find a room of at least 1,000 square feet; a room without columns that obscure sight lines; a room that is pleasant to spend two full days in.
You will need sufficient wall space for posting sheets of flip chart paper. Avoid rooms with walls so precious you dare not attach masking tape. Fabric walls can also contribute to poor acoustics such that people cannot hear one another without shouting.
If some of these requirements sound persnickety, consider that decades of experience are littered with too many settings that proved difficult in ways that were not anticipated, and the results were less than optimal. Set and setting are important. Attend to the details.
Equipment
The usual projector and screen. Three or four flip charts on easels, and markers in different colors. A dozen pads of post-it notes, preferably 3” by 5”. A Sharpie pen for each participant. Nothing exotic. One can imagine, some day, some high-tech chamber for generating very zippy images in real time . . . but as of 2013, scenario planning workshops are still a fairly low-tech operation.
Interviews
In addition to these suggestions on the “setting” of the workshop, there’s work to do on the “set,” the approach, and the management of expectations. Prior to the first scenario workshop, it’s a good idea to conduct a series of interviews, either in person or on the telephone. In person interviews have some advantages:
• Face-to-face meetings are good for trust building. • Visiting people in their offices can be revealing: What do the pictures on the
wall or the photos on the desk say about the person you are interviewing? • Body language can be revealing.
But phone interviews can also be very effective. Put the phone on speaker and let your fingers dance on the keyboard. You will get a better set of interview notes than you would have taken while maintaining eye contact in a face-to-face setting. Unexpected discovery: Telephone interviews, without eye contact, can often achieve the intimacy of a long car ride at night. Depths can be plumbed from which revelations can surface.
What sorts of questions produce the best results? It’s best to avoid pointed quests for technical detail and ask fairly open-ended questions, for example:
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• “If I were a genie and could answer any question you posed, what would you want to know about the world five years from now?”
• “What does this organization need to remember?” • “What does this organization need to forget? What baggage might be best left
behind?” • “Please paint a good scenario for this organization.” • “Please paint a bad scenario.” • “As you think about your organization’s future, what keeps you up at night?” • “Are there any key strategic decisions that need to be made in the immediate
future?” • And, to close the interview: “What should I have asked you about that I didn’t?”
Of course it’s possible to add other questions to this list depending on a particular client’s particular situation.
Whom to Interview?
• It’s a good idea to interview at least half a dozen members of the actual scenario team. They have been chosen for good reasons (above), and are very likely to have a lot to say. In addition, while most of the interview will be devoted to downloading answers from them, it’s often a good idea to take the occasion of an interview to do a little selling of the scenario process. They may have questions. This is a good time to set expectations and disabuse team members of mistaken impressions about the process.
• As mentioned earlier with reference to the CEO, it’s a good idea to reach as high in the company as possible for interviews, not only because leadership should be in a position to know what’s most important, but also because they may not have time to attend the workshop. Also, interviews with senior decision makers allow you to prepare an audience for the results of the scenario planning process.
• Sometimes it can be helpful to interview relevant experts outside the organization—academics, specialists.
• Sometimes it can be important to interview outsiders who have a different perspective from those on the inside (e.g., journalists, or community members).
• How many interviews? Experience suggests that 10–15 interviews will be sufficient. After about a dozen interviews, one starts hearing the same things over and over. Diminishing returns set in. But sometimes, for political reasons, it’s a good idea to interview as many as 30–40 people, in part so that they felt heard; in part to get their “fingerprints” on the project; in part, as with senior leadership, to prepare an audience for the results of the project.
Once the interviews have been completed, feedback from the interviews can take different forms. In studious cultures where people take the time to read, it’s useful to circulate an interview report about a week before the first workshop. Such a report should contain three parts: First, a one page executive summary; next, an analysis of the interviews that teases out 10–15 different themes, with
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representative quotes illustrating each of the themes; finally, lightly edited notes of each of the interviews.
In fast-moving, less studious cultures, feedback from the interviews can take the form of a series of 6–8 slides to be presented close to the beginning of the first workshop. Each slide will articulate one or two themes, with two or three supporting quotations.
One of the main objectives of the interview process is to determine the focal issue or focal question of the scenario planning process, on which more be- low. In addition to the interviews, research can also help to determine the focal issue.
Background Research
Research in support of scenario planning is not easy. There’s precious little hard data about the future. Go to the library and you will not find one book copyrighted ten years in the future. Demography is one of the few sources of information about which we can be truly confident. We know how many workers there will be 5–10 years from now because they have already been born. But when it comes to technological innovations, or geopolitical intrigues, the very reason we do scenarios is because these things are unpredictable.
That said, some sort of literature review can be helpful: analysts’ reports, industry overviews, press clippings about the client organization. Typically, we ask the client to supply a few hundred pages of material that they think is relevant. And then we look further afield for other perspectives.
One rule of thumb: Research conducted after the first workshop tends to be about ten times as valuable as research conducted before the first workshop. One of the outputs of the first workshop will be a far better sense about what we do not know but need to know.
Should the literature review be packaged in a briefing book? Not always. Experience shows that briefing books can be problematic. Not only is it the case that research conducted after the first workshop is likely to be of greater value than the literature review conducted before that first workshop. Further, it’s very hard to strike a balance between making the briefing book too short and too long. If too short, then the briefing book will do more to bias than to inform. If too long, half the team will not have time to finish that assignment, and may be rendered mute in the workshop lest they reveal the fact that they did not finish their homework. Occasionally, the focus of the scenario effort will be a topic so new or so precise that the relevant documents are very few. In such cases, it’s obviously helpful to inform everyone of what’s available.
Scheduling and Time Commitments
Scenario planning takes time. It’s a bad mistake to imagine that you can do it in an afternoon. The trajectory of a typical scenario planning project can be represented by the familiar silhouette of San Francisco’s Golden Gate Bridge (Figure 1).
It is important to have a time lag of four to eight weeks between the first and second workshops because that interval allows opportunities to look at reality
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Figure 1. The trajectory of a scenario planning project.
differently by going back and forth from the model worlds, the scenarios, to the real world. It takes time to conduct additional interviews, perform more valuable research than you could accomplish before the first workshop, and draft narrative scenarios.
Given such a commitment of time by 15–25 members of a scenario team, finding common dates on so many calendars is no small thing. Typically, someone’s personal assistant is going to have to devote considerable effort to gaining the relevant commitments and clearing calendars weeks if not months in advance.
That said, the time required of most members of the scenario team should not exceed five days: two 2-day workshops; reading of an interview report and/or a briefing book; reading of an interim report prior to the second workshop.
For every scenario project, there needs to be at least one “champion” inside the client organization. For that person (or persons in the case of a core team), the time commitment will be greater—up to a quarter to a half of their working hours throughout the life of the project.
Staffing
For the scenario planning experts, the outside consultants, the time commitment will vary depending on the size of the budget. Typically, the outside team will consist of two or three individuals: The lead facilitator supported by an assistant and a note-taker. In some situations, budget permitting, other facilitators can be
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36 NOBORU KONNO ET AL.
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Figure 2. The eight-step scenario planning process.
helpful, especially if there is a commitment to spending part of the workshop working in small groups.
THE FIRST WORKSHOP
Once all of the preliminaries have been put in place—the scenario team, the sched- ule, the setting, the interviews, the background research—then the first workshop usually unfolds according to an orderly, methodical 8-step process (Figure 2).
Step 1: Focal Issue
Scenarios should be customized to a particular issue or decision for a particular company in a particular industry. Scenarios for the future of the entire world will not be useful to a company trying to decide whether to build a new factory outside of Sao Paulo. Sometimes the focal issue is a very specific question: Should we invest in technology X? Should we buy company Y? Sometimes the focal issue is more open-ended: Are there potential surprises that could disrupt our current strategy? What will the future of country Z look like as a market for our several different product lines?
Through the process of interviews with senior management, scenario planners will find out what worries them. Starting with vague anxieties, the scenario team will find a clear and precise question that can focus the scenario development effort.
Part of the definition of the focal issue involves determining both the geographic scope and the duration of the scenarios. For example, the energy industry in Japan looking 10 years into the future. Probably 80% of the scenario planning projects undertaken by Global Business Network have had a 10-year time horizon. For fast moving industries like consumer electronics, a shorter time horizon may be appropriate. But anything less than five years will neither stretch imaginations
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sufficiently, nor will it allow different scenarios to diverge far enough to illus- trate the potential play of key uncertainties. Given the physics of the decay of nuclear waste, a set of scenarios developed for the Nuclear Waste Management Organization in Canada stretched 10,000 years into the future!
Step 2: Key Factors
Once the focal issue has been determined, then the scenario team will meet in a workshop setting to brainstorm a long list of factors affecting the focal issue. Many of the key factors are fairly obvious. They are the sorts of things that would be addressed in a typical business plan: customer demand, suppliers, competitors, production technologies, human resources, and so on. Once the team has listed 30 or 40 different key factors, though, the brainstorming process will reach out to less obvious possibilities: What if there is a new entrant on the competitive landscape? What if there is a new disruptive technology?
Brainstorming key factors calls for a diverse team of people with different skills and different backgrounds. Without diversity, there is a danger that the brainstorming process will remain with the obvious and miss potential surprises. There can never be a guarantee that a scenario team has thought of everything. There can be no completeness proof for having thought of all possibilities. The best guarantee is a good team of well-informed, creative, and diverse people.
Step 3: Environmental Forces
Another way to get beyond the obvious is to expand the horizon from the familiar elements of a short-term business plan to the more remote forces operating in the larger world (e.g., geo-political, economic, social, technological and environmen- tal forces that are often left out of the usual business plan). Strategic plans based on single point forecasts of a future very like the present often fail because there has been no thought about the kind of larger environmental forces that can upset a local economy. War is an obvious example. But a good set of scenarios will offer insight into less obvious dynamics like migration patterns, currency fluctuations, environmental issues, and/or epidemics like SARS or AIDS. It’s also important to look on the upside. Opportunities, breakthroughs and new technologies are difficult to anticipate. But it’s important to exercise imagination in disciplined ways that do more than gaze at the world through rose-tinted glasses. Human ingenuity should not be discounted. Whitespace opportunities should be sought and articulated.
As with key factors, there is no completeness proof for having thought of all possible environmental forces. This work calls for imagination and creativity. Once a scenario team has generated a list of 75–80 key factors and environmental forces, the effort to come up with still more will get harder. All of the obvious factors and forces will have been mentioned. Some people will start to suggest truly outlandish ideas—a technology like cold fusion giving energy for free, extra-terrestrials landing in flying saucers, an asteroid plunging to earth killing
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millions . . . and then you know your list is long enough. It is important to push imaginative thinking to the limit, but not too far beyond the limit.
Step 4: Critical Uncertainties
By following a methodical, step-by-step process, the scenario team can achieve a balance between the kind of wild creativity and free-form imagination called for during the brainstorming in Steps 2 and 3, and good judgment based on knowledge and experience. Where Steps 2 and 3 featured a divergent process in which the team tries to think of anything and everything that could affect the focal issue, Step 4 calls for a convergent process of prioritization.
Each member of the team is given a fixed number of votes, usually 25, to allocate across the entire list of key factors and environmental forces. The criteria to be used in allocating those votes are: Importance to the focal issue, and second, degree of uncertainty. When all the votes are counted, and closely related items clustered together, there will be a short list of critical uncertainties. For example, will energy prices rise or fall? Will consumer values tip toward the more traditional or the more self-expressive? Will a given technology advance rapidly or slowly? Will the government lean toward deregulation or reregulation?
Step 5: Scenario Logics
Once you have given up the dream of predicting a single future, then it very quickly becomes clear that the number of possible futures is virtually infinite. How to decide just which futures are worth developing as detailed scenarios? This is the challenge of Step 5: How to narrow down from the virtually infinite number of possible futures to settle on just 2–5 that will lead to strategic insight and winning plans?
There are several different approaches to solving this problem:
The Incremental Approach. Through interviews with top management, try to identify the company’s “official future.” What is the consensus forecast or major- ity view about the company’s future? This “official future” will usually contain a combination of environmental factors—market conditions, competitive environ- ment, and so on—and the company’s current strategy. The Incremental Approach to selecting scenario logics then asks: How could we be wrong? How might the strategy run awry? What could surprise us in our environment? One scenario will describe the “official future;” and then several other scenarios will branch off from that consensus forecast in ways that highlight several critical uncertainties.
The Inductive Approach. With four or five critical uncertainties in hand at the conclusion of Step 4, mix and match various combinations of various uncertainties. Imagine a world in which energy prices are high, but a new technology allows greater energy efficiency. Imagine a world in which the economy falters, but consumers want new and innovative products, and so on. In the inductive approach, some scenarios might begin from a single event: What if there is a major earthquake near Tokyo? What if North Korea implodes and the two Koreas combine like the
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High-Priced Fuel
Low-Priced Fuel
Neo- Traditional Consumer
Values
Inner- Directed Values
Engineer’s Challenge • Efficiency • Protectionism
Green Highways • Smaller
cars
Long Live Detroit • Muscle cars • Brand
l l
Foreign Competition • Sportier cars • Light trucks & vans
Figure 3. Scenario matrix for one of Detroit’s “Big Three.”
two halves of Germany? What if a growing number of mobile phones start to cannibalize the market for wireline phones?
The inductive approach is so named because it begins from such events, or such combinations of critical variables, and works up from those beginnings to generate futures that might follow from those beginnings. What if Obamacare decreases medical costs?
Both the Incremental and the Inductive approaches call for fairly strong and skilled facilitation because it is not at all obvious just why the scenario team will end up with the scenarios it does. Sometimes it is a matter of one voice prevailing over others, either by force of eloquence, or by the power of status. The facilitator must have the skill to make sure that all voices are heard and the diversity of the group honored.
The Deductive Approach. This last approach guarantees a more democratic process. After all the votes on critical uncertainties have been tabulated, the group fixes on just two critical uncertainties to serve as the axes of a 2 × 2 matrix. Four scenario logics are then deduced from the labels on the ends of the two axes (Figure 3).
This set of scenarios, developed for one of the Big Three Detroit automak- ers in 1984, contained “the official future” in the lower left quadrant: Low priced fuel with Neo-traditional consumer values. This was the kind of fu- ture Detroit had been planning on for many decades. But higher fuel prices, and changing consumer values, required them to think of new kinds of vehi- cles that would be appropriate to different environments. As a result of these scenarios, the client started thinking harder about smaller cars, as well as the minivans and SUVs that would appeal to consumers with non-traditional values.
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Step 6: Scenarios
The 8-step process of scenario development has two major parts: first, the choice of just which scenario logics to flesh out in detail—Steps 1–5; second, just how to tell the tale of each scenario and its implications—Steps 6–8. These two tasks are very different. The first is a matter of narrowing down from the virtually infinite list of possible futures that could be developed . . . to a small number, 2–5, that will be developed in detail.
The second major task, actually telling the story of each chosen scenario, calls for very different talents and skills. A good scenario is very much a story, but most stories are written by single authors, not by committees. How can a scenario team combine the creativity of many individuals into clear narrative lines?
As a matter of tradecraft, we find that a good method for eliciting very spe- cific plot elements is to encourage workshop participants to write newspaper headlines on post-it notes. A harvest of such post-it notes will supply plenty of content for the scenario narrative. Even if a deductive approach was taken to selecting a set of four scenario logics, the process becomes very inductive, building up from a few plot elements to a full-blown story. You go back to the long list of key factors and environmental forces—steps two and three—and you look for plot elements—a union negotiation, a technological breakthrough, a political change—and you weave those plot elements, through the medium of newspaper headlines, into a narrative running the length of the scenario period.
This process can be started in a workshop setting, but once the members of the scenario team have generated dozens of plot elements and newspaper headlines, it can take several weeks, even months, for a small core team to draft narrative scenarios from the outlines generated in the workshop. A full-blown scenario planning project usually takes 3–4 months, starting with interviews and an initial workshop, then at least a month of research and writing of scenarios, then a second workshop to draw implications from the ramified and refined scenarios, and then some time to summarize the results of the second workshop into a presentation for top management.
Step 7: Implications and Options
Usually a month to two months after the first workshop, a second two-day work- shop will be devoted to the process of figuring out the implications of each of the scenarios, and the strategic options appropriate to those implications. Here the skills necessary are precisely those described at length in the traditional literature on strategic planning. You take each scenario and consider it as if it were the kind of single point forecast on which traditional strategic plans used to be based.
Take a forecast of the future and use it as the playing field on which our plays must be planned. This is the task that confronts us in Step 7, except that we do it three, four, or five times over depending on the number of scenarios. For each scenario, imagine that you have received a report on the future from a high-priced consultant. You have good reason to believe that you know what the future will
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bring. You have what is supposedly a reliable forecast, and you are going to build a strategic plan against it.
Follow this process not just once, but two, three, four, or five times over, once for each scenario. Then stand back and look at the lists of strategic options appropriate to each scenario. Pull out those that show up on all or most lists. These are the “no brainers,” the strategic options that look like good ideas in any and all scenarios. Start work on them immediately.
No brainers that look good in every scenario are often associated with what we like to call pre-determined elements—those aspects of the future that can be reliably predicted. Demography is a reliable source of pre-determined elements. In working on scenarios for the California Teachers Association, we identified an ethnic mismatch between the student body—around 75% minority—and the faculty, approximately 80% white. Over the ten-year period of the scenarios, there might be a slight shift toward more minorities on the faculty, but there was no way that a mismatch could be eliminated given tenure and other institutional rigidities.
After considering pre-determined elements and the no brainers associated with them, return to the list of strategic options associated with the several scenarios. Narrow down that list using a prioritization process to just 2–3 at most. You do not want to have 17 highest priorities. If the list is that long, you have no real priorities. If you are not saying NO to some options, then you are not really being strategic. You are not aiming your company in a clear direction that can serve as a criterion for allocating resources.
MOVING FROM SCENARIOS TO STRATEGY
Scenarios by themselves do not determine strategy. A strategy needs to be de- veloped in light of a set of scenarios. Sometimes scenarios are developed after a strategy has been determined. In that case the scenarios serve as a kind of wind tunnel for stress-testing a strategy. Think of the strategy as a model airplane. Under which conditions will it “fly”? Under which conditions will it “crash”? Using scenarios to “wind tunnel” a strategy can function like an insurance policy: You have a mechanism for surviving certain unfortunate contingencies. What if certain “accidents” happen? Do you have a contingency plan? Alternative scenar- ios can help you figure out just what contingency plans you need to have at the ready.
Given a set of scenarios, there are several routes you can travel from scenarios to strategy. One of the simplest—and usually the stupidest—is to pick one scenario and bet the company. Once you pick one scenario, then it is no longer a scenario. You have turned it into a single-point forecast, and all of the advantages of scenario planning have been flushed down the drain.
Rather than picking one scenario and betting the company, it is far better to find a strategy that is robust across the range of scenarios—a strategy for all seasons. “No brainers” create such a scenario, but sometimes there are not any no brainers to be found. Sometimes the relevant scenarios are sufficiently diverse that no single strategy will prevail across all of them. In that case it’s a good idea
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42 NOBORU KONNO ET AL.
to have a strategy appropriate to each, then attend very closely to early indicators that would tip you to the likelihood of one scenario over the others.
Step 8: Early Indicators
Early indicators are the first signs of the big changes that differentiate one scenario from another. Sometimes early indicators are to be found in the behavior of the most innovative consumers, sometimes in the small stories deep within a newspaper. Sometimes early indicators take the form of new journals or publications indicating the rising popularity of some new technology. Other times a few words in the speech of an important politician will signal some new legislation. Sometimes early indicators of new technologies are to be found in obscure technical journals. Other times an ad on TV, or a billboard, or a series of Tweets will suggest a new consumer taste.
Early indicators are to be found anywhere and everywhere, from technical journals to popular trade publications, from weather reports to fashion trends. Once you have developed a set of scenarios, you will not be able to read the newspaper in quite the same way ever again. If you have developed your scenarios deductively, the 2 × 2 scenario matrix will become a set of crosshairs through which you find yourself “reading” almost everything. Little stories that might not have attracted your attention will suddenly jump off the page saying to you, “This story is an early indicator of movement toward the northwest quadrant!”
A Variety of Tools are Deployed to Encourage Strategic Thinking
40%
20%
0% BCG
Growth— Share Matrix
Scenario Planning
SWOT Analysis
Five Forces Analysis
Simulation of War
Gaming
Value Chain
Analysis
Brainstorming or Visioning
Exercises
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Overall, many of the “ classic” tools are firmly ensconced in strategy toolkits for activities such as business portfolio management and long- range planning
Source: 2000 Corporate Strategy Board member survey; Corporate Strategy Board analysis
Figure 4. Corporate Strategy Board member survey on favorite tools for thinking about the future.
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SCENARIO PLANNING 43
Early indicators are particularly important in moving from a set of scenarios to a single strategy when you cannot find a single “strategy for all seasons” that combines “no brainers” good in all scenarios with an over-arching strategy that is robust across the range of scenarios. If you cannot find such a robust strategy, but you have rehearsed what you would do in each of the scenarios, then you keep a very close watch for early indicators that suggest movement in the direction of one scenario or another. When you have accrued enough indicators to give you confidence that you know which scenario is unfolding, then you start to implement the strategy most appropriate to that scenario.
CONCLUSION
As the previous sections show, scenario planning is not rocket science. There is a good deal of common sense involved in the practice of scenario planning. But there are many ways to go wrong, many mistakes that can be made. As with many practices, experience is a good teacher. Skilled facilitation by an experienced practitioner is a must. Fortunately the number of skilled practitioners is increasing every day. As early as the turn of the century, in 2000, the Corporate Strategy Board polled their membership to find out what tools they used most for looking into the future. Responses from 183 corporations showed scenario planning to be the most popular of eight different tools including SWOT analysis, Delphi polling, Michael Porter’s Five Forces, and other such well-known planning methods (Figure 4).
As scenario planning gains in popularity, its most experienced practitioners keep exploring new depths in both its theory and its practice.
REFERENCES
Kahn H. 1962. Thinking about the Unthinkable. New York, NY: Horizon Press. ———. 1984. Thinking about the Unthinkable in the 1980s. New York, NY: Simon &
Schuster.
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