Vecta on Scenario Planning

Vecta Consulting

Vecta on Scenario Planning

Scenario planning techniques were originally developed in World War II and significantly refined and reinvented by Shell’s Pierre Wack and Ted Newland to “change the mental maps of managers”.

The technique encourages managers to move away from an incremental model, that progressively develops today into tomorrow, by forcing them to explore unthinkable possibilities and their possible consequences.

That encouragement to think the unthinkable is especially useful two strong trends, affecting supply and demand, coexist as now.

It is a powerful supplement to strategy formulation, especially vision-led strategy.

Many people contributed to the development and deployment of scenario planning, many with Shell's corporate planning department led by Arie de Geus.

Art Kleiner’s “The Age of Heretics” explains how Scenario Planning was developed at Shell

Pierre Wack wrote several Harvard Business review articles on his early work at Shell that led to the settign up of their internal consultancy group

Peter Schwartz’s “The Art of the Long View” explains how to conduct a Scenario Planning exercise.

Kees van der Heijden’s “Scenarios: The Art of Strategic Conversation” is the practitioners’ handbook.

Traditional forecasting methods work well in stable environments but have several limitations:

Forecasting Models typically project the present into the future and tend to ignore critical new info

“Most likely” forecasts are often only marginally more probable than any other possibility

The process of developing “most likely” forecasts often leads to compromise or deadlock

Sensitivity analyses on “most likely” forcasts rarelyt ca[pture the true rangeof possibility

“Matrix-based” planning tools oversimplify the environment and are so mechanistic so they limit creative thinking

Definitions:

A scenario is an internally consistent view of how the future might turn out
Scenario planning is the construction of several scenarios to explore the range of uncertainty and its possible consequences.

Advantages of SP:

A carefully chosen set of scenarios reflects the full range of possible and credible future structures - not all scenarios are equally likely; with five categories of uncertainty (political, social, economic, technical and competitive) each with, say, three levels we get 243 possible, but many unrealistic, scenarios

Scenario planning adds a creative edge to long-term planning integrating more of the dynamics and complexity of the future environment.

SP gives experience of possible future outcomes before they occur, and allowing rapid response plans to be developed for several possible futures.

SP integrates uncertainty into the strategic planning process, allows you to identifies sources of competitive advantage and consider your competitive positon in several possible futures, and allows you to test the relevance of your core competences against different possible futures.

SP allows you to step outside experience-based mental model and “think the unthinkable”, challenge stereotypes, traditions, or cherished ideas, explore diversity of viewpoints, turning potential conflict into learning creating a shared understanding of where you are headed.

The three phases of SP:

Information / opinion gathering

Building scenarios

Translating scenarios into strategy

The initial information gathering phase allows traditional industry and regional data to be supplemented by trends, historical parallels with other regions etc and interviews with experts, opinion leaders to bring in different perspectives and challenge assumptions.

This phase is often split into two overlapping steps in which the strategic vision of several managers is explored in a series of trigger questions while a competitive positioning exercise is conducted.

Scenario-building itself typically has seven steps

Define purpose, timeframe, scope,
Map scenario variables, scenario clusters,
Initialise scenario variables,
Develop plausible assumptions about scenario variables,
Combine assumptions into internally consistent scenarios,
Assess likelihood of each scenario (if possible),
Assess impact on key elements for strategic decision making.

Translating scenarios into strategy

The business ideas have to be exposed to the chosen scenarios - could disaster occur? could people freeze in their homes? will projects run out of cash?

Scenario Planning, even in a "light" form, is an essential tool for managers wishing to develop strategies that are robust enough to survive more than a few months in today's uncertain world. Staff at Vecta Consulting can rapidly identify many of the key uncertainties and facilitate development of a small number of understandable scenarios against which to test your business strategy. We are also happy to review any or all stages of our own scenario planning effort. We will apply our expertise creatively - helping you develop your strategy - or destructively - exposing the weaknesses in your existing play.

Our Strategy Experts Network is dedicated to exploring the key issues related to developments in business strategy. This involves projecting the evolution of market areas and approaches, identifying strategic business needs and understanding revenue models and valuations.

Our extended network ensures we have the expertise to help you solve just about any business or technology problem.

Ask us about how we can help you apply this powerful technique:Frank@vecta5.com

Vecta Consulting Limited, Mulberry House, 2 The Spinney,
Cottenham, CAMBRIDGE, CB24 8RN
Tel: +44 (0) 1954 250222, Fax: +44 (0) 1954 252333

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