Reading 6: Scenarioa planning as a strategy technique
Traditionally, companies assume that there is one particular future and build their strategy towards that future. Which was not the case.
What is scenario planning?
Scenario planning is known as Future Now Thinking, aiming through a detailed analysis plus imagination, to be able to write a report in the present, as if it was being written at some date in the future. Scenario planning helps building the business strategy towards multiple possible futures. (Alternatives)
There are two styles: Intuitive and formal styles.
Intuitive style: Peter Schwartz defined scenarios as alternative, plausible stories of how the future may develop. He emphasized that the outcome is not an accurate picture of future events but a deeper understanding of forces that might push the future along different paths.Scenarios are not predictions and forecasts of future. The idea behind it is to build credible pictures of a point in the future that may be used to test the robustness of longer term strategies. The end result is not an accurate forecast of tomorrow, but better decisions about the future.
Building alternative scenarios- different pictures of the future- and challenging strategies for robustness in these different possibilities will provide a superior context for managers to create long-term strategies and build shorter-term contingency plans.
The formal style: this approach of scenario planning uses computers, models and processes grounded in analytical rigour.
Scenario thinking and scenario planning: research revealed many reasons why organizations embraced the scenario planning, stretching from exploration to decision support. At the exploration end, the key objective for organizations to be involved in a scenario process is the potential to learn. The process, itself, of information gathering, data collecting, formulation of alternatives, etc, is a learning process and becomes as important as the scenario outcomes and the implications for future strategies.
The opposite view argues that building scenarios is not the primary purpose; rather it is the outcomes of strategy making that is important. That is, the use of scenarios to support strategic decisions. When this is the reason of organizations to be engaged in scenario exercise, it is common to find probabilities attached to the various scenario outcomes. Ex, 106
Purists form the Scenario learning school,argue strongly against adding probabilities to scenarios. The philosophy they adhere to is to allow the mind to open and think the unthinkable.
Proponents of this use argue that strategies should be tested for their robustness in all the alternative futures that scenario thinking generates. It is not about choosing which one is more probable.
Level of scenario analysis
Scenarios have been developed for countries, regions, issues (future of women, future of crime), and for institutions. Among those examples developed for organizations, there can many levels of analysis from global, external, environmental to focused, internal issues. The length of the time period correlates with the scale and scope of the exercise.
Global, Complex, long-term scenarios
The World Business Council’s scenarios have 50 years time horizon and were developed to explore the sustainability at this juncture in human history and to raise fundamental questions of how humanity defines itself and how each one of us comes to terms with the challenges of the 21st century.(interviews : frog. GEOpolity, Jazz)
Focused, Narrow scenarios
Porter’s classic text book, Competitive Advantage (1985) provides a theoretical example of how to use scenario techniques to develop a competitive strategy. Whilst he advocated the broad thinking of the external environment, he focused on his industry model structure within which to construct different competitive scenarios. He tested each of the five forces specific to the US chain saw industry. He found out that four of the forces harboured degrees of uncertainty.
Suppliers : the force harboured few uncertainties.
Buyer power : level of fixed costs, favorite advertising channel, price sensitivity, etc..
Entry barriers : safety legislation, economies of scale, access to distribution channels.
Substitutes : electronic saws against petrol drive saws
Rivalry : what will existing competitors do? Will incumbents exit?
Many scenarios were constructed. We have to know the level at which scenarios were constructed, the degree of uncertainty, whether they are global, focused or narrow.
Scenarios are adaptable and flexible in use
Scenarios at different levels of analysis are complementary. A first exploratory broad exercise can be supplemented with decision support scenarios with specific focus on a certain issues or industry. Porter extols the virtue of this approach:
1-In some industries, the best scenarios are conducted from inside the industry and looking outwards for other sources of uncertainties.
2-In other industries, it is better to start with macro-scenarios and then narrow the focus to the inside.(PEST analysis)
Why scenario techniques are not used widely:
The very flexibility and applicability of scenario techniques appear to mitigate their use.
1-There are many methodologies to adopt and this is confusing to users.
2-In addition to that, there is a view held that scenarios are expensive and employ a large amount of resources in the organization.
Whilst, it is very clear that it is important to consider potential investment and commit to the resources required before being engaged in scenarios, the costs needed might be reasonable and not always high. Scenarios are flexible and can be cut to fit the size of a certain issue being addressed.
Confidence and uncertainty
The underpinning philosophy of scenario thinking that the future is uncertain and cannot be predicted is difficult to be accepted by managers. It is common for plans to go unrealized or need to be changed because of external events changing.
The confidence in future persists with the belief that with more tools and methods, it even becomes better.Because it is difficult for managers to accept that uncertainty and risk cannot be planned for the future, they display a preference of scenarios attached with probabilities.
The evolutionary theory provides a fundamental explanation that accepting uncertainty, recognizing it as inevitable and living with it, is against the grain of human nature.
Therefore, the instinct nature of human beings to be overconfident makes the exploration style difficult to be adopted.
Organizational culture and diversity
Building a team to participate in a scenario exercise is more crucial to the results than is the case of using other planning tools. It is important for the members who are gathering and interpreting the information to be not limited to a narrow view or a single way of thinking. Organizations that maintain and respect diversity of views, makes it easier for them to use scenario techniques and achieve best results. However, the culture of organizations has a powerful influence. When innovative, creative and imaginative members were put under pressure, they all changed to match the culture style. The resultant scenarios lack insight and innovation.