A Guide to Scenario Planning
1. Choose the Issue
Define the problem or issue you want to consider. Isolate the scale. Is it local, national or international? Is it specific to an industry? Or does it encompass a number of broad technological shifts such as the rise of pervasive computing?
Choosing the correct time frame depends in part on the nature of the product or system's implementation cycle. The oil industry uses 15-year planning cycles because building a new refinery is an eight-year process. For technology infrastructure projects, looking out just three to five years might be more appropriate.
Dr. Paul Schoemaker, research director of the Wharton School's Emerging Technology Program and CEO of Decision Strategies International Inc., notes that most of his clients work in the four- to eight-year range. "If it's less than two years, it's probably not really strategic, it's more tactical," he said.
2. Gather Information
Collect new information that can help inform your discussion. Mine data from your organization about your markets and trends. Conduct some industry or competitive research. Sometimes consultants can be useful for pulling in new data, trends and analysis. Plan to spend a few weeks on this phase, not a year. Says Adam Kahane, managing partner of Beverly, Mass.-based Generon Consulting: "The main way people do a lousy job at creating scenarios is if they don't take the time to get some new information about what is going on in the world."
3. Convene the Right Group
Pull in people with diverse expertise and varying perspectives from different parts of your organization. Choose a range of ages, too. "The last thing you want is the same people talking to each other on the same issues in the same way," says Schoemaker. CIOs and consultants agree that participation and buy-in from top management is essential.
For the scenario portion of the exercise, consider inviting regulators, academics, experts and other outsiders. Columbia Business School strategy professor Kathryn Harrigan recommends that you include your suppliers, major customers and strategic partners. "If you are going to have a supply-chain relationship, your fate is in their hands."
4. Identify the Primary Forces
Find the economic, political, social and technological forces that may influence the market or technology you are addressing. Map out the major drivers in your business. Outline the major uncertainties that affect your business and the world you operate in. Michel Godet, a French scenario planning expert and author of the recently published Creating Futures, uses a technique he calls "hunting down clichés." Start with the conventional wisdom, then shoot holes in it, he advises.
Differentiate the forces over which you have no controlsuch as tax policy, interest rates and major political eventsfrom those over which you have some control. Are some of the forces predictable, such as the aging of the baby-boom generation? These can be considered long-term trends. Group all relevant forces, then go over your list to determine the truly important drivers. Assign ranking by the importance and degree of uncertainty. Also, look at the key actors and stakeholders, their motivations and interactions.
5. Craft Scenarios
Create a series of scenarios that cover the range of possibilities. Don't try to establish every possible case, but look for scenarios that produce very different but plausible and internally consistent views of the world. There is no right number of scenarios.
In Godet's view, the shape of the problem should determine the number of scenarios, while Deloitte's Thomas says he encourages his clients to build four or five.
Regardless of your approach, focus on analysis and thinking, not on the technique. Techniques are simply ways to assist thinking.
6. Build Out the Scenarios
Each scenario should be a different world inhabited and explored by a small working group. Some planners write their scenarios as if they were future histories, where teams describe how they got to this future from the present. Try to create internally consistent pictures of how things would work, based on how the key drivers affect your business.
7. Align With Strategy
Art Kleiner, a scenario planner and instructor at New York University's Interactive Telecommunications Program, calls this phase "strategy, rehearsal and conversation." Among the key questions he poses: "If this world comes to pass, what would we have wanted to be thinking about ahead of time?" What do these worlds "suggest about our current strategiesare we setting ourselves up for a rude awaking?" Kleiner also recommends asking, "What kind of world do I want to create?"
Are there overarching strategies or solutions that serve you well no matter how the future develops? Can you build enough flexibility into your IT infrastructure, applications or business models so you can respond appropriately no matter which scenario unfolds? Some planners use this phase to isolate the key signposts and indicators that could help determine whether one of your scenarios is coming true.
Many consulting firms take a quantitative look at the scenarios. Analysis tools range from Excel to linear programming, from decision- tree analysis to Monte Carlo simulations that use random number generators to produce probabilities for certain events. Sebastian Ceria, a decision models professor at Columbia Business School and president of decision support firm Axioma Inc., says that a variety of powerful off-the-shelf simulations tools can model problems and generate optimum solutions in the face of large uncertainties. Usually the province of CFOs and operations managers, these simulation tools can be readily customized to handle IT or scenario problems, he notes.
Other consultants, such as Deloitte Consulting's Charles Thomas, are wary of the quantitative phase. "For the most part, executives believe numbers rather than remembering that this is just a planning tool. So they begin to think the numbers are really potential forecasts," he says. "While we can do it, it saps the creative thinking."
8. Create Action Plans
Translate your strategies into budgets, action plans and investments. Sometimes this means killing pet projects. Roy Lowrance, vice president of information technology for The Boston Consulting Group, Inc., says companies can use scenarios to gain control over their fate. For some leading-edge issues, "you can help create the future, instead of simply being reactive to the future. And those are the ones where there is the absolute highest value from IT investments, because they create a whole new set of possibilities."
9. Communicate Results
Once you've gone through the whole planning exercise, figure out how you are going to communicate the resultsand to whom. Schoemaker points out that some companies disseminate the information as widely as possible, by drawing maps, writing booklets, giving presentations and pushing the results throughout the whole organization.
Others circulate the results more selectively. Andriole says he always sent the results up to top management. Even though he paid for scenario planning for each of the main business lines, he let the president of each unit decide who else in the organization should get the scenario information.
10. Monitor Events
Scenario planning is a dynamic process in a dynamic environment. The world may not fit neatly into any single one of the scenarios you constructed for it. Monitor events and look for warning signs that one or another of your scenarios are coming true. Be prepared to adjust your course.
Bain & Co.'s Darrell Rigby found that the best way to use scenario planning is to make sure it is built into the company's regular, ongoing strategic planning process. But you don't necessarily have to build a whole new set of scenarios each year. "Once you think you've gotten down to the fundamental uncertainties in this market or in this context, you don't need to redo it tomorrow, or even next week. You need to try to deepen your understanding within the uncertainty."