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Scenario Planning in Organizations

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Scenario planning helps organization leaders, executives and decision-makers envision and develop strategies for multiple possible futures instead of just one. It enables organizations to become resilient and agile, carefully calibrating their responses and adapting quickly to new circumstances in a fast-changing environment.

This book is the most comprehensive treatment to date of the scenario planning process. Unlike existing books it offers a thorough discussion of the evolution and theoretical foundations of scenario planning, examining its connections to learning theory, decision-making theory, mental model theory and more. Chermack emphasizes that scenario planning is far more than a simple set of steps to follow, as so many other practice-focused books do—he addresses the subtleties and complexities of planning. And, unique among scenario planning books, he deals not just with developing different scenarios but also with applying scenarios once they have been constructed, and assessing the impact of the scenario project.

Using a case study based on a real scenario project Chermack lays out a comprehensive five phase scenario planning system—project preparation, scenario exploration, scenario development, scenario implementation and project assessment. Each chapter describes specific techniques for gathering and analyzing relevant data with a particular emphasis on the use of workshops to encourage dialogue. He offers a scenario project worksheet to help readers structure and manage scenario projects as well as avoid common pitfalls, and a discussion, based in recent neurological findings, of how scenario planning helps people to overcome barriers to creative thinking.

“This book is about action and performance. Compelling and thoroughly researched, it offers every business executive a playbook for including uncertainty in the organizational change process and driving competitive advantage”.

-- Tim Reynolds, Vice President, Talent and Organization Effectiveness, Whirlpool Corporation

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12 Chapters

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1 Introduction to Performance-Based Scenario Planning

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This book describes a method for including the realities of uncertainty in the planning process. Uncertainty and ambiguity are basic structural features of today’s business environment. They can best be managed by including them in planning activities as standard features that must be considered in any significant decision.

This book focuses on avoiding crises of perception. Scenario planning is a tool for surfacing assumptions so that changes can be made in how decision makers see the environment. It is also a tool for changing and improving the quality of people’s perceptions. Uncertainty is not a new problem, but the degree of uncertainty and the effects of unanticipated outcomes are unprecedented. Learning how to see a situation—complete with its uncertainties—is an important ability in today’s world.

This chapter presents some of the challenges posed by today’s fastchanging environment. A tool for dealing with those challenges has traditionally been strategic planning. Basic approaches to strategic planning are described; however, the rate and depth of change have increased over time to the point that those methods are no longer useful. Scenario planning emerged as an effective solution in the 1970s, and the ensuing history of scenario planning is discussed here. This chapter also describes a variety of major approaches to scenario planning, including their shortcomings. The fundamental problem with existing approaches to scenario planning is that they are not performance based. Evidence of this critical oversight is presented by reviewing the definitions and outcomes of scenario planning as they are described by major scenario planning authors. The outcomes they promote are generally vague and unclear. Finally, this chapter introduces performance-based scenario planning—which is the contribution of this book.

 

2 Theoretical Foundations of Scenario Planning

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Theory is a dirty word in some managerial quarters. That is rather curious, because all of us, managers especially, can no more get along without theories than libraries can get along without catalogs—and for the same reason: theories help us make sense of incoming information.

—MINTZBERG (2005, p. 249)

Pierre Wack told a story about approaching a cliff. He talked about how the odds of falling over the cliff increase as you walk closer to the edge. He asserted that the best way to avoid falling over a cliff is to help people see the characteristics of the cliff in advance. He helped them see how tall and steep the cliff is. He taught them to calculate how many different kinds of cliffs there are, how to recognize when a cliff is coming, and which kind it is. Pierre’s story was an attempt to explain what a cliff was and how the cliff worked to prevent people from falling over it.

Most strategy and scenario planning texts provide readers with processes. Follow the steps and “do” your corporate strategy, they claim. Instead, this book provides a framework with numerous tools. The framework is designed to give the user a domain in which to exercise judgment. The tools described are aimed at helping decision makers decide their own specific course of action within the framework. Some have referred to scenario planning as more art than science. This chapter argues that scenario planning should remain artful, but it also must evolve into a theoretically and scientifically grounded art.

 

3 The Performance-Based Scenario System

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This chapter situates scenario planning in the organizational context. It explains how scenario planning fits into the organizational system as a subsystem with its own inputs, processes, outputs, and feedback loops.

To accomplish this goal, the state of the economic, business, and societal environment and its influence on organizational activity is described. Not only does the environment make the case for scenario planning, but it also sets up the reality of systems within systems and ever-changing conditions. This chapter also explains organizations as systems, describes scenario planning as a system within the organization, and introduces the phases of scenario planning that form the content for Part Two of this book.

The nature of the environment was established in Chapter 1. To reiterate, things change too rapidly for forecasts or other predictive planning models to be useful. There are no signs that the rate of change will slow. Coupled with the rate of change is its depth. Economic hiccups are deeper and disasters more devastating than ever. Decision makers are just trying to make sense of a context that changes significantly and frequently. Many have tried other tools and been frustrated by the lack of ability to understand and account for uncertainty. Today’s business context plainly leaves people in the midst of turbulence.

 

5 Phase 1—Project Preparation: Understanding Purpose and Building Support

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This chapter presents the first phase of the scenario system—project preparation. The goal of this chapter is to describe and explain the important elements that should be defined in the project preparation phase of a scenario system and that culminate in a project proposal (Figure 5.1).

Project preparation requires careful attention to decision makers, leaders, and sponsors of the project. Listening to people express what they are frustrated with and excited about helps to develop an initial understanding of the situation. Follow-up questions to these key people can reveal additional important information, including constraints, biases, misperceptions, and glimpses of expected outcomes.

Scenario projects are initiated with a meeting (or series of meetings) to discuss the organizational issue, problem, or need for scenarios. This initial meeting (or meetings) provides valuable insight for understanding the inputs to the scenario effort. Project inputs are clarified as more information is shared among all participants through the activities of the early phases in the scenario system.

 

6 Phase 2—Scenario Exploration: Breathing In

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The scenario exploration phase of the scenario system focuses on analyzing the external and internal environments of the organization. During these analyses, the initial issue or purpose of the project from the project preparation phase must be kept in mind as information is gathered. This chapter describes a variety of methods and tools that can be used to assess the external and internal situation, context, and problem (see Figure 6.1).

Scenario exploration is divided into two general parts, external analysis and internal analysis. These two parts establish the boundaries of the project in preparation for the next phase, scenario development. Several tools for gathering information about the external environment and two workshops for the internal analysis are detailed. The workshops are intended to stimulate strategic thinking, familiarize participants with key issues, and prepare participants for constructing scenarios as described in Chapter 7.

Information gathering is the foundation of the analysis of the external environment. The scenario exploration phase involves data gathering both on a general level and about the specific issue under consideration. The goal of information gathering is to learn and to expand the project team’s familiarity with the industry and relevant economic and social factors. A secondary goal is to gather information relevant to the specific issue or decision articulated in the project proposal. “Being a scenario planner, therefore, means becoming aware of one’s filter and continually readjusting it to let in more data about the world, but without becoming overwhelmed” (Schwartz, 1991, p. 61). Everyone has biases, and they show up in scenario planning. A key skill is the ability to be aware of biases and head off confinement in thinking. Thus, another purpose of the scenario exploration is to expand the assumptions, beliefs, and possibilities evident in the industry or environment being studied, thereby expanding one’s filter.

 

7 Phase 3—Scenario Development: Digging Deeper

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The scenario development phase consists of workshops used to build scenarios. Most scenario planning books cover the materials presented in this chapter. These activities are the signature of scenario planning. The prior phase on scenario exploration included several tools for assessing the external and internal environments. This follow-up phase digs deeper into both of these environments. The key outcome of scenario development is two to four scenarios that are relevant, plausible, and challenging. During the creation of scenarios, participants challenge each other’s viewpoints and set the foundation for a shared mental model of the organization and its environment.

Before getting into the details of scenario development, it is important to review some key scenario terms and cover some philosophical approaches to scenario development.

Predetermined elements are predictable elements that do not depend on a particular chain of events (Schwartz, 1991). Predictable elements are divided into four categories: slow-changing phenomena, constrained situations, in the pipeline, and inevitable conclusions. The most obvious example of a predetermined element is demographics. Populations are predictable. Populations are also an example of elements in the pipeline. Much has been written about the baby boom generation, because the aging of that generation can be predicted with precision. Likewise, we will know how many teenagers there will be in 2010–2020 because they have already been born. The U.S. dependence on foreign oil is a constrained situation, meaning that it is likely that the dependence will continue until alternate fuel sources are developed. However, given the technological and infrastructural implications of the United States (or almost any other nation), switching to a non-petroleumbased fuel is unlikely in the near term. “In the pipeline” refers to things that have happened, but the consequences have yet to unfold. For example, Apple’s dominance of online media is unexpected to some, and how far that company will take it is not yet certain, but its presence is undeniable. The U.S. deficit is an example of an inevitable conclusion, meaning that the debt has a direct influence on other obvious decisions such as raising taxes (Schwartz, 1991). If an element seems certain, no matter what scenario comes to pass, then it is probably a predetermined element.

 

8 Phase 4—Scenario Implementation: Putting Scenarios to Use

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Chapter 7 presented the tools and processes for constructing scenarios. This chapter describes how to use the scenarios to accomplish the objectives of the project—the scenario implementation phase (Figure 8.1). In other words, this chapter describes how to use the scenarios once they have been developed. Common general objectives are to provoke strategic insights, expand the assumptions of decision makers, and develop the capacity to see major discontinuities before it’s too late. However, the specific objectives that were defined in the project preparation phase drive the scenario implementation phase of the project. This chapter explains how to design a set of workshops for using the scenarios to assess the organization in a variety of alternative futures.

This phase involves returning to the original question or issue and using the scenarios to develop multiple ways of answering the question and addressing the issue. These strategies include using the scenarios to examine the initial question, test the current theory of the business/business idea, analyze current strategies, and develop strategic resilience and robustness. However, the toolbox for using scenarios can be quite extensive. Several methods are available for facilitating change and communicating the content of the scenario in participatory and creative ways. The discipline of organization development specializes in a variety of activities and change interventions that can be used in the presentation and consideration of scenarios. A short list of change models that may be useful in the scenario implementation phase is as follows:

 

9 Phase 5—Project Assessment: Documenting Results

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Assessing scenario projects is critical. Most texts on scenario planning do not include methods for documenting or assessing the outcomes of scenario planning. Pick up any of the popular scenario planning books, and check the index for assessment, evaluation, or results. I predict that you will not find these entries. The lack of effort invested to understand the outcomes of scenario projects is a serious shortcoming. The dearth of evidence demonstrating that scenario planning is an effective investment makes it difficult to argue for the proposed benefits. Most seasoned practitioners and users of scenario planning know through their own experience that scenarios create value in numerous ways. However, scenario planning should be more than a strategic management tool falling in and out of favor depending on the stability of the global business environment. To establish the true contribution of scenario planning, projects must be assessed to build a suite of evidence supporting scenario planning and its utility. Minimally, “if the scenario process does not bring out strategic options previously unconsidered by managers, then it has been sterile” (Wack, 1985c, p. 10).

 

10 Managing Scenario Projects

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The purpose of this chapter is to provide recommendations for helping you manage scenario projects. The skills and abilities required to make scenario projects work are diverse, and they improve over time and experience. The nature of scenario work avoids specific procedures that are repeated in each project. However, scenario projects do lend themselves to frameworks (such as the phases presented in this book). In addition, there are several strategies I have learned from making my own mistakes and from hearing about others. These insights are followed by twenty scenario pitfalls presented in the scenario planning literature (Schoemaker, 2005), including their solutions. This chapter can thus serve as a guide providing a few key leverage points for getting the most out of scenario projects.

Scenario projects have many dimensions and need to be thoughtfully managed. Important strategies for managing scenario projects include the following:

• Spending time on the problem, issue, or question

 

11 Human Perceptions in the Scenario System

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Scenario planning is a social activity. It integrates learning, social interaction, dialogue, and human perceptions. These things come together in the form of a recalibrated view of the organization and its situation if the project has been successful.

Three critical barriers to optimal innovation and human creativity are (1) perception, (2) a natural fear response, and (3) social intelligence (Berns, 2008). Decision makers are limited by a brain that requires approximately forty watts—the amount needed to power a lightbulb (Berns, 2008). To perform its many complex functions, the brain must be efficient, and therefore it draws on past experiences and any other easily accessible information sources to make sense of its situation. Decision makers are limited by fear of uncertainty and the public consequences of decisions with unfavorable results. Many people become easily paralyzed by the prospect of being wrong. Finally, optimal human innovation requires the ability to convince other people that an idea has merit, and this requires social intelligence (Berns 2008). An analysis of highly innovative, creative thinkers revealed that these people found ways to overcome such barriers. The results are published in Berns’s 2008 book Iconoclast.

 

12 Initiating Your First Scenario Project

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Many scenario projects are glorified brainstorming sessions with little connection to critical organization inputs and outputs. The most difficult yet most compelling use of scenarios will connect innovative thinking to everyday work. Participants should approach their work differently as a result of working on scenario projects. Sustaining these changes requires attention to detail, accountability, and general management skills—and, leadership is really management done well (Mintzberg, 2009).

Stressing the importance of up-front analysis and project assessment adds considerably to the robustness of a scenario project. Most currently available methods do not require these analysis and assessment components, and as a result, using the system presented in this book may seem daunting. The added activities are designed to feed directly into, and out of, the scenario construction phase. The nuts and bolts of scenario projects as presented in this book require time spent understanding the issue, approximately six days of workshops over two to three months, and assessment activities. These bookend activities will be the biggest shift for users of other scenario methods. However, these components are critical and require statements of expectations up-front and evidence of value at the project’s conclusion. To help get a handle on the flow of a scenario project, the scenario project management worksheet was presented in Chapter 10. The worksheet is intended to be used as a guide for structuring and managing a scenario project in any organization, and to make the concepts described in this book immediately useful.

 

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