This brief is intended to guide readers through the practical issues raised by scenario planning. We begin by placing this tool into its proper place in the broader framework of oversight, planning and operations.
Please note that we provide two-day courses on scenario planning. Contact us about these here.
Once the goals of scenario planning are understood, we move on to the mechanisms by which scenarios are to be generated. Quality control is fundamental to scenario generation, and we link the necessary processes, timeframe, resources and deliverables back to the issue of integration with the broader decision-taking processes.
Scenarios can be finely constructed and excellent in every way, but completely useless if their potential role is not understood in the organisation at large. Scenarios are designed to address important and sensitive variables. Those who develop scenarios are, therefore, posing challenges which may well be resented if they are not properly framed, and the whole exercise may be dismissed as illegitimate presumption.
These three fundamental issues - of goals, process and legitimacy - are addressed in three chapter headings which follow. We hope that you will find them helpful in solving your practical problems.
We are accustomed to divide our world up into self-contained operational and conceptual boxes. This greatly simplifies our tasks, and allows us to concentrate on the variables which time has proven to be locally key. We have our budgets and our goals, and we strive to meet these on time and to quality.
The world is not, however, permanently divided up into such neat boxes. Competition and innovation, economic tides and social forces, policy shifts and political change all alter the framework within which we work. If we lose sight of this context, then we may find ourselves surprised by events. Our 'local' model will no longer work, and our fine targets will be dust on the floor.
It is unnecessary to rehearse the pace at which events now force change upon us. If we understand the nature of these events, and if we are able to anticipate how they will interact with our local concerns, then we can respond to them in a more fluid manner than if we are bewildered, taken by surprise or simply wrong in our interpretation. At issue are two rather separate concerns:
The answers to these questions are, of course, extremely complex. Scenario planning is a tool that helps with both of these, but it cannot operate in isolation from all of the other processes that occur when organisations make choices. The two chapters which follow discuss the actual creation of scenarios, and the social context within which all of this has to happen.
Here, however, we need to focus our attention on the interaction between scenarios and the organisation as a whole. There are, as we have already hinted, two fundamental and different interactions. The first of these links with formal processes: that is, with resource budgeting, numerical planning and explicit strategic thinking. The second, by contrast, if focused on the informal, the tacit and often-unconsidered aspects of daily life in the organisation.
Formal subjects are the easiest to talk about, because they offer us a defined template against which to work. For example, most organisations worry about resource flows: will there be enough income to fulfil all the intentions of the organisation? Will there be enough skilled people to carry these plans through? Scenarios should offer such thoughts a framework within which to operate.
Equally, most organisations are concerned to manage their portfolio of activities: are cash and human resource being directed to growing, useful areas or are they being sucked up by activities which should be reduced in scale or closed? Is enough being done about innovative things - research, technology partnerships, human resource diversification - or is the focus to be placed on consolidation and getting the current activities 'right'? If the organisation is a commercial one, is the balance between payout and re-investment correct? If the organisation is a public sector one, then are the public goods that are being created of equivalent value to those which have to be foregone through resource scarcity? Are customers and stakeholders happy, or do they see the organisation as unresponsive and a poor source of value?
One can think about planning processes of this sort as consisting of three concentric cycles. They are cycles because they are usually repeated in a regular and predictable way. They are best visualised as being concentric because the product of one cycle should feed into its conceptually-nearest neighbour, and the planning system should be organised so that it in fact does so.
The outer loop consists of the big, general context-setting ideas that should inform the rest of the organisation. How are we to think about our operating environment? How does it "work", and who and what are the most important agents that can change the current situation? What are the balances that need to be struck between the many and often competing things that have to be got right: between safety and cost management, for example.
The inner loop consists of the processes which manage operational routine: the criteria set for individual staff and for units, the guidelines on practices where trade-offs are necessary, financial tracking and other kinds of performance monitoring. For these to be adaptive to circumstances, a great deal of thought needs to go into their formulation. The general concepts are established in the outer loop and made concrete and practical in the middle processes.
The middle loop is, in general, the home for the set of "strategic" processes which lead to decisions over resource allocation and portfolio management. It attempts to make explicit the sense that has been gained about the appropriate medium-term direction for the organisation to follow.
The outer loop is, in many ways, the most difficult and the most complex to install. It does not, for the most part, follow rigorous or numerical procedures, and it is seldom clear what an answer will look like: indeed, the nature of the questions to ask is often obscure. It feeds on what has gone before, and it is common experience that an organisation has to go around the loop several times before it sees the full benefits of the investment of effort. People need to learn to use the tools that are available, but also need to learn to interpret what they produce. They need to learn to trust the outcome, and to trust what their colleagues will do with it. Policy is potent medicine, and most organisations feel themselves starved for direction. Small signals from the top can be vastly over-amplified as they flow down the hierarchy. Managing these processes so that premature closure, run-away systems or a gathering mist of ambiguity does not cause damaging consequences is a part of the art.
Scenarios are an important tool for this outside loop. They are also a potent means by which general context-setting ideas can be transmitted between the various cycles. As the figure suggests, the inputs to a scenario process will organisational preoccupations from all levels and time scales, new ideas and new relationships, new trends and the like. They will be focused to address current concerns, often as articulated by senior staff.
Scenarios are not, of course, the only tool that works in the outer loop. Benchmarking of the firm against its peers, the pursuit of insight from dissimilar organisations, from partners and from foreign circumstances all have a role to play. The tools of business economics - experience curves, assessments of defensible competences and structural features of the industry play a role. No industry can be understood without an agency or stakeholder analysis. Technology foresight has a role to play.
Fundamentally, however, what scenarios try to do is to capture a model of what makes for excellence (often accepting that there are several distinct kinds of excellence at play.) This model is used in a number of ways.
The strength of the scenario process is that it generates a unified view with is, nonetheless, non-prescriptive. Not only does it create multiple futures, it offers multiple ways in which to react to them. This affords a disciplined framework in which the organisation can make its choices; and, if the scenario process has been properly conducted, the relevance of the issues and the options will reflect and extend or challenge recognisable realities.
A focus on the future tends to lessen tensions in debate. People who will fight for the last scrap of resource when asked about options in the present will take a more balanced position when asked to think about the longer term. Further, once an agreed position has been developed and run through the organisation several times (in several turns of the concentric wheels) the need to think systematically and so outside of the convenient little operational box becomes widespread. Its presence - called, perhaps, "overview" - can even be set as one of a number of selection criterion for staff development.
Scenarios are usually given memorable - or anyway, catchy - names. This is not just whimsy, but an important part of the process of communication.
It is a general principle of negotiation under adversarial conditions that the facilitators should try to lead the parties to ground where they fundamentally agree - that we all wish well for our children, for example - and then explore the implications of this position on the areas of disagreement. It is common experience that the parties learn a new jargon ("child-focused futures") which then acts as a mental short-hand, and which greatly eases debate. Scenarios have been used in just this way in easing a number of literal conflicts. However, in less tense situations, the potency of still having a metaphor for the complexity of life, and of having a set of names which cover the options and risks which its development seems to entail, cannot be over-stated. In exactly the same way that the negotiating parties can stop each other as they become extreme, and ask - for example - how this contributes to the child-focused future, so managers can ask themselves and each other how this or that proposal would fare under Hard Labour, or whether it exploits the full potential of Biological Boom-boom.
Extremely complex concepts, tailored to meet the needs of the organisation, have been installed in managerial heads. Not only this, however, but in parallel processes, the uncertainty and risk of the environment has been spelled out, and the options of the organisation have been codified in ways which seem intuitive to the managers who then use this information. The criteria and targets, policy and trade-offs which rule their day-to-day lives have also been brought into alignment with these ideas. None of this is set in rigid terms, however, but all of it together offers an enabling framework in which people can sense what will work and what will not, what is robust and what may prove an embarrassment, what will be seen as a waste of senior management time and what will come as a welcome revelation. They are empowered to act independently, given that they now have the map by which to navigate and the rules of engagement spelled out for them.
Readers will realise that there is a marked difference between low quality scenarios and the true thing. This is not measured in terms which reflect creativity or inspiration, although both of thee are useful ingredients. Rather, the key quality parameters are, first, the relevance and integration of the work with an organisation's processes, preoccupations and needs; and second, the robust, complete and coherent nature of the communication tool which the scenario team bring forward. It is worth learning from the famous apology: "I am sorry to send you an eighty page note. I did not have time to write one shorter." In brevity we find insight distilled and useful; whilst in complex and length documents we often find that all of the economists in the world have been laid end to end, and still have failed to reach a conclusion.
The actual process of making scenarios has to be set in the context of the chapters which both precede and follow this one. You need to know what they are for. That is, you need to have at least generic insight into the practical roles that they will play - the processes with which they will engage, the timing and needs of these - and you also need a good sense of what will connect with the concerns of the individual people whom they are intended to influence. In addition, the issues of the final chapter need also to be brought into play. In what way are you legitimised in taking this initiative? How is your role to be presented to the organisation or target audience? The answers to these questions will be instrumental in delivering the relevant two page letter that we have just discussed.
Given your legitimacy, and given a working planning architecture, then there are three broad steps which are involved in making scenarios.
There will be an acute need for a series of workshops, to be undertaken with different interests and in different ways: from line managers on how practically to respond, from HR people in respect of improved selection criteria, from external relations staff who want to explain the new thinking to the outside world. It is also necessary to engage in protracted interaction with the people who manage the planning and resource allocation process. It is often appropriate to have an intranet site, with a 'debating chamber' and to offer something externally, for a general audience that wishes to talk constructively with the organisation.
The figure suggests an appropriate allocation of the time budget. The three phases - consultation, analysis and promulgation - are shown in green, yellow and blue. Analysis runs in parallel with most of the early process, and in fact precedes the consultation, so as to give something from which to begin debate. The switch for analysis to synthesis, the crucial boiling down of the issues to a tractable form - occurs roughly half of the way through the analytical phase, and before consultation is complete. The ideas have to be tried out on informed minds if they are not to be insular or academic. A crucial, formal but short consultation takes the analytically-complete product to senior staff for endorsement.
Staffing for scenario generation is extremely difficult. One needs people who combine social intelligence, credibility within the organisation with formal skills that are relevant - for example, with economics or a background in technology or markets. On top of this, the team need to be open minded, eager and possessed of the peculiar mindset that likes big pictures, systems and structures. This is a combination which is generally rare and extremely uncommon within large organisations. The answer, of course, is the team.
The scenario team should be picked with these characteristics in mind, but also with an eye to the currently-crucial issues. If technology is a dominant factor, for example, then it is important that such knowledge is reflected within the team. The importance has two facets: the team needs the knowledge, but the organisation's technologists need to feel represented by someone that they respect. However, one also has to make sure that each specialist has the capacity to articulate their knowledge, and that they will be useful in subsequent facets of the work, such as promulgation. People of too high a level of seniority often cannot give the time when it is needed, or may be better used elsewhere.
The solution to this is, frequently, to make the consultation period a time of rapid self-education for someone with an appropriate background but with an all-round ability that goes beyond their area of specialisation. Such people run workshops with their specialist peers during the consultation, so as to be seen to engage and so as to earn ownership. This is also a way of rapidly developing people of high potential.
The scenario team leader has a particularly onerous task. He or she knows in broad terms what is needed, and when it has to be delivered. However, both the nature of the deliverable and its content has to be teased out of the process as it goes forward. Creative staff are not always the most tractable team members. It is, therefore, doubly important to make roles and boundaries concrete, to install proper project planning tools and to make the process of generating the deliverable the job of people who are technically good at the task. The content of books, in particular, need to be negotiated like international treaties; and whoever fulfils the editorial role usually wields a bloody scalpel if the output of an entire enthusiastic team is to be made accessible. The team leader must apply stern judgement and soothing oils to this turmoil.
There is a stylistic issue that is of great importance. This is the choice of time frame. An ideal framework should step forward about one-and-a-half project lifetimes. That is, if your industry works to a five year cycle, then you should look seven years or so ahead. However, in areas such as defence, where people and equipment are set on something of a fixed course for decades, analysis of the forces that are likely to be at work over the next 30-50 years is something to approach with great caution. Time frame needs to compromise with the length of time that it will take key trends to eventuate and the meaningful choices which can be taken about these today. Equally, the patience of the line managers may be strained by very long term perspectives. (This said, regulatory bodies often force perspectives on industries which are not prepared to take them on their own, and pressure groups often have much the effect upon the agencies of state. Indeed, it has been the interaction of NGOs and civil servants within the EU, rather than through political initiatives that were conducted by means of the European parliament, which has put much policy into play.)
This section is, however, concerned with the second of the three stages: with the actual generation of scenarios. How is this done? There are five main steps, although life is seldom so simple as to deliver this in a recognisable form. These will be expanded in the sections below.
First, seek breadth, and then focus.
Second, identify the systems boxes.
Third, calibrate the key variables.
Fourth, identify the key dimensions and populate the space.
Fifth, create a narrative thread.
Interviews, past experience with scenarios and strategy, analysis and intuition will identify potential key issues. Each of these can be 'decomposed' into its composite parts. If the concern is, let us say, the stability of the teaching establishment, then the factors which contribute to the outcome can be shown as an influence diagram.
The aim is to understand how the system as a whole operates. Some teams are happy to hold virtual influence diagrams in their heads, whilst others like to cover walls. The point is, however, to look for missing variables, factors which turn up repeatedly, possible policy 'levers' that could be manipulated, balances which may soon be upset. It is also important to look for obvious discrepancies between this analysis and the concerns of the stakeholders.
Portmanteaus words always reward attention. These are 'buzz words' or phrases which are used generically, and often loosely or carelessly, in order to bundle together all sorts of concepts, such as 'globalisation', 'environment', 'shareholder value' or 'human rights'. This is not to devalue these concepts, but it is usually the case that analysis and deconstruction allows the debate to be refined to point where practical solutions become evident. If the interviewees express concern about 'environmental issues', for example, then deconstruction and sharpening can show that what they are in fact concerned specifically with, let us say, how the industry is to debate with the regulator about the progressive management of a specific category of effluent.
The outcome of the broadening process is twofold. First, the team are much better educated about the connections between the issues than they were before they started. Second, it is possible to review what has been achieved and to compare this with the stakeholder views. Areas of white paper on the map - and areas of conventional wisdom and over-concentration - may become apparent.
The network of influence that has been identified can be clumped together in various ways. Plainly, however, some of the variables are "internal" to the concerns of the organisation and some are not. These can be clumped together.
The figure suggests that an analysis of educational futures is driven by technological, social and economic variables, each of which also impinge on the others.
It becomes a matter of judgement as to how these boxes are to be handled. However, the assignment of variable to these has greatly reduced the complexity of the problem. It is much easier to describe what is going on in the central "education" box now that these variables have been taken out of it.
It is now helpful to make use of evidence and data to estimate the impact of various parts of the system on each other. How much would it cost to replace some aspects of what teachers do with IT equipment? How far would IT prices have to fall if this were to be feasible? How would changing IT prices impact on social variables, and would these perhaps change our appetites so that we actually want more human contact for our children, and not less?
Consider an example of this. A nation with a fast-growing school population is worried that it will not be able to train enough teachers. The following figure re-enforces this doubt:
Anticipated population, and school-aged population is shown in the figure below. The pupil-teacher ratio will fall, and there will be more pupils. Catastrophe! Note, however, the introduction of compulsory schooling in 1988.
A further graph shows the outcome of calculations made on the basis of these figures. The growth in teacher the demand for teachers is, at first sight, impressive: from 45,000 in 2000 to a median forecast of 94,000 in 2020. However, the recent past saw a growth from 17,500 in 1980 to th ecurrent figure, driven by the extended minimum school leaving age. This is 12% annual growth, rather than the 2.8% foreseen to 2020. Impressive numbers and general alarm can be shown to be tractable. This is not, therefore, an issue on which to build scenarios.
Data should be used sparingly, and only when the assumptions can be made clear. Extremely complex 'black box' models are actively unhelpful, as few people believe them and as the underlying model is obscured. As a general rule, one should have a data series that goes back at least twice as far in time as one is looking forward.
One use for simple models is to show the range of outcome that is implicit in external uncertainty. In Step II, we identified the systems boxes. We may feel that it is best to leave world economics as an external variable, but we have to accept that it will have an affect on our chosen scenario topics. We may, therefore, choose to deem a range of economic growth, and try to estimate the impact of this on things that are directly germane. Acquiring these ranges is not very difficult: history, experts and common sense offer us goof guides. What is less easy is to factor in the parallel effects of many such variables acting in concert. This is what simple spread sheets let us do, and the resulting spread in the variable on which we have decided that we want to concentrate show us something of the range that we need to encompass. Simple X-Y scatterplots also show us which variables matter most to our chosen outcomes. These are the ones which we emphasise in our scenarios.
One must not let quantification take over the process. Equally, if there are factors which are intractable - social attitudes and their impact, perhaps - then we should not feel thwarted. This said, completely unconstrained scenarios, in which not recourse whatever is made to evidence, leads us to unwarranted assertions and plain science fiction. If one believes that there will be a huge shortage of teachers, then one will generate messages which are actively unhelpful when a review of the facts shows that there will not.
The concept of key dimensionality is one which many find difficult, but it is central to arriving at a useful set of scenarios. If we look at a group of people, we could line them up in the order of their height or age, or we could cluster them by hair colour, gender or educational attainment. Each time we do this, we create a 'map', with a particular kind of order built into it. Very useful maps are those which combine two kinds of order: that is, people go from rich to poor in the North-South axis, and from short to tall in the East-West direction. This trivial example 'dissects' the population into short, rich people; and so forth.
If one chooses appropriate dimensions - ways of sorting things - then the dissection creates a powerful narrative. Most systems seem to vary chiefly in response to two, or at most three dimensions. Ruthless pruning forces one to pick the two most useful or influential of these. If the dimensions which have been chosen are those which underpin the scenarios, then the space on the resulting matrix can be seen as a map. What it maps is relationship of the scenarios with each other, with the current situation and with the trends that shape the future. As we shall see in a moment, it is possible to show movements into the future on this map.
One can also indicate combinations of circumstances which are impossible. The figure shows two areas as shaded out - as being impossible. The entire lower left is omitted: low growth is unlikely to be associated with positive views of the state. The upper part of the growth axis is also shaded out: the economy has never grown that fast and would over-heat if policy was chosen to try to make it do so.
A version of this matrix can also be used in the strategy process. Here, the key dimensions are those of choice: for example, should the firm borrow to grow or aim to stay the same size? Should the state department take a lead in formulating policy and therefore outsource the operational aspects of work, or should it take a hand-on approach to its current duties and let others set its direction? Linking these choice matrixes with the scenario dimensionality is a straightforward business. One can locate the organisation and its peers on this matrix, and show the limit to their range of options.
The final step in making the scenarios (but not, of course, in validating and publishing them) is to create a narrative thread that takes us from the present situation to the situation which the scenarios describe.
The scenario matrix is reproduced, now showing the current situation as a red dot. Three pathways radiate out to the scenarios. The path that leads to All's Well, for example, dips into the area of low growth. The state is reforming itself, and is seen to be taking a painful medicine. Popular confidence is restored. A flaccid state, however, causes opinions to drift in the negative direction. External economic conditions restore growth, but not confidence (Me! Me!) and society is driven rapidly towards individualism and cynicism about the collective good. The path to Hard Times is similar, except that the external economic impetus does not arrive.
Plainly, this is a trivial matrix, with none of the richness associated with a real case. The paths are trite, and reflect nothing about a real society. Nevertheless, the point has to be made that future states do not "just happen", and a good scenario needs a credible evolutionary path that gets it to its end point.
Much of this assessment will never get beyond the scenario team. Pathways, for example, are often too complex to present to the stakeholders. This said, credible scenarios are robust and internally consistent. One does not want to have one's balloon punctured by a sharp question months into the promulgation process; and the key to achieving this is solid, cross-referenced analysis. Critique, obtained from specialist voices and from 'users' of the scenarios, will hep greatly in avoiding these issues.
We have already discussed the many options which are open in respect of presenting the material. The time (and cash) budget should be heavily weighted to take account of the effort which is involved in getting the product ready. User panels are very helpful in warning where the material becomes inaccessible, or where jargon has taken over from plain language. The scenario team usually begins to talk in shorthand, and most people who do this forget that not everyone can understand the result.
The scenario team will end the production process as a major asset. They, alone in the world, are completely at home in the concepts that have been brought together. They can, therefore, steer workshops and presentations with confidence. The habit of taking the "strategic" aspects of the scenario process away from the team after they have published is a very wasteful one.
We have seen something of the role which scenarios are to play in an organisation. W have also seen how to make them, and get them into a state where they can be used. We now need, briefly, to consider the issues of legitimacy.
Organisations which have been doing scenario planning - or anyway using scenarios as an aide to strategic thought - will usually already have attributed some legitimacy to the practitioners. Those who are making a fresh start will, however, find that they need to work for this.
The single worst position for a scenario team to start is on wide-reaching issues, generally deemed to be none of their business, from a position where they have to convince senior management of their worth. This is an impossible remit, and it is far better to conquer a small hillock before braving the Himalayas. That is, use the technique in an area where it is both useful and of relatively small impact elsewhere: in a small, self-contained service function, for example. The aim is to take intractable and complex issues and make them plain, offering management options for the future that they can address with confidence.
Where organisations wish to install elements of scenario planning in an existing structure, then chief executive imprimatur is essential. The messages from scenario planning are sweeping, and barely a department will be untouched by what is said. Challenge can therefore be expected. Once again, it is best to build up momentum with at least one scenario round that is intended for external consumption rather than for internal direction-setting.
Where there is no effective planning structure - where, for example, only strict accounting is practiced and there is no portfolio overview, then it may be best to get these in place before embarking on scenarios. Excellent views forward, coupled to a lack of machinery by which to do anything about this, is not a recipe by which to be taken seriously in the medium term.
Scenario planning is extremely helpful in isolated domains, such as research management and where units are asked to undertake step-out innovation. Here, it is possible to assemble enough practical machinery - essentially, the enthusiasm of relevant managers - for the operational thrust to be in place. This, too, is a fine place to start.
The text has not followed MBA practice, peppering the narrative with war stories. Nevertheless, scenario planning is an excellent way to handle the complex, ill-structured issues with which complex organisations have to grapple, and it has scored many successes.
If is, however, all too easy to generate 'meringue' scenarios, which are all sweetness and fluff, but brittle and with no real substance. There is danger in producing elaborate scenarios that nobody is inclined or set up to use, and it is easy to lose legitimacy and be rejected by the organisation that you are trying to help. As with any tool for complex organisations, there are quite a number of factors to be 'got right' before scenarios can be used with confidence.
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