We at OnStrategy, like many businesses across the country, had our eye on the August 2nd deadline to raise the national debt ceiling. While the general population might see these events as another political cat-fight, we watched closely and listened to our strategic planning clients voice their concerns.
It just further emphasized the importance of the work we do helping our clients plan for other unpleasant realities such as slower decisions with contracts, increased capital expenditures, and other big commitments that take focus away from daily operations.
Scenario planning is a way of simplifying these complex futures by providing the opportunity to ask the what-if questions. We recommend the following steps to build out scenarios that are keeping you awake at night:
- Establish a clear-cut decision focus.Instead of starting with a view of all the possible trends impacting your organization, identify the major issue or decision you’re facing, such as siting of a new plant, entering into a global alliance, entering a new market, or revamping product distribution channels. By tying scenarios to needed decisions, you effectively link them to specific planning needs from the beginning and prevent the exercise from straying off into overly broad generalizations about the future of society or the global economy.
- Identify key drivers of change.Identify the primary driving forces that affect your company and industry. Drivers fall into two categories: predetermined elements or critical uncertainties.Predetermined elements are relatively stable or predictable, like demographic shifts. Critical uncertainties are unstable or unpredictable, such as consumer tastes, government regulations, natural disasters, or new technologies or products. A critical uncertainty is an uncertainty that’s key to the decision you focused on from Step 1. Sometimes phrasing these uncertainties as questions can help you clarify them.
- Select the two most important drivers.Don’t complicate scenarios by selecting too many drivers. Restrict yourself to formulating three or four scenarios with sharply contrasting futures: (1) the baseline, business-as-usual, world-as-it-is scenario; (2) the scenario which one driver alone dominates; (3) the scenario which the second driver alone dominates; and (4) one with both drivers present.These drivers are the different directions in which a critical uncertainty may play out. Each scenario provides a different answer to the decision. Each answer presents a myriad of implications that fundamentally change the business environment.
- Develop the scenario outline.Give each scenario a creative name. Establish a timeline and brainstorm the future state by writing a short internally consistent story of the future.
- Determine implications of each scenario.
Within each scenario, determine the implications for the issue or decision specified at the outset. If one of the scenarios seems unlikely, eliminate it at this time. Discuss with your organization what your decision or business response should be. By doing so, you can rehearse responses to those possible futures and spot them as they begin. Discussing your decision also raises people’s awareness of what’s going on in the world and their understanding of how they interpret what they see to be proactive to signals.
- Summarize overall strategies.Luckily, you don’t have to choose amongst the scenarios or rank or rate the probability of them occurring. Rather, use them all to help form consensus about the world and to recognize which ones are in play at any given time. Move from exercise to execution by identifying and taking action on strategies that work across multiple scenarios.
Ultimately, no matter how good your plans and research are, all your knowledge is about the past, and all your decisions are about the future. Scenario planning faces up to this dilemma, confronting you with the need to acknowledge that you don’t, and can’t, know the future.
What are some key unexpected drivers that could throw your business off course?