Scenario Planning: Leveraging the Crystal Ball of Strategic Thinking
Of the various tools that leaders can use for strategic planning, scenario planning is a detail-rich approach that considers an abundance of possible outcomes. Scenarios are viable and measurable predicted visions of the future that assist leaders in stretching their minds for better, more informed decisions. By developing a “scenario mindset” over time, leaders will be prepared to deal with the various uncertainties that come with leading organizations and teams.
What Is It?
Scenario planning involves identifying basic trends and uncertainties, whereby leaders forecast a series of scenarios that will help compensate for deficiencies or biases in decision making. These deficiencies are often biases in the way information is processed, including predispositions toward feeling overconfident and engaging in tunnel vision.
How Do I Make One?
Below are six steps needed to effectively create a scenario intended to assist with strategic thinking. All of these steps should be revisited for each scenario that is developed.
- Define the Parameters.The first step in creating a scenario is to identify the timeframe and scope of analysis bearing on the organizational strategy of interest.
- Identify the Driving Forces. Ask and answer the following questions when beginning to develop any scenario: Which stakeholders will have an interest in these issues? Which stakeholders could directly impact these issues? Which social, economic, and industry trends have potential to affect these issues?
- Identify Key Uncertainties. Pinpoint events and other economic, political, industry, and social factors that have uncertain outcomes. Then, for each uncertainty, use available information to determine a few simple, possible outcomes.
- Make Scenarios Consistent and Practical. When constructing initial ideas for scenarios, ensure that they seamlessly integrate with the identified trends, as well as address the combination of various outcomes and the reactions of major stakeholders.
- Identify Strategically-Relevant Themes.Once the developed scenarios are consistent, the goal should be to identify cross-cutting themes across the scenarios that are directly relevant to the organization’s strategic plan. Different themes may appear more strongly in some scenarios than others. The implications of these themes should be discussed and integrated when formulating the mission and goals of the organization.
- Reshape or Share. If you are confident that your scenarios will help others appreciate the risks in various strategies and spur creative thought, share them with leaders throughout the organization to facilitate a unified strategic vision. However, if the scenarios need a little more molding, go back through each scenario and refocus them to more concretely address the real issues facing your organization.
How Do I Use One?
Common Pitfalls to Avoid:
- Do not attempt to forecast infinite combinations of uncertainties. This will be overwhelming and ultimately undermine the activity. Instead, focus your efforts on impact and probability and narrow in on a limited number of critical and simple uncertainties.
- Try to not focus exclusively on one scenario and base the organization’s strategic plan off of that scenario. Instead, address all possible outcomes to shape a well-rounded strategy that will align with most or all scenarios.
- Avoid being too short-term focused when developing scenarios, especially in terms of the existing market, competitors, products, etc. Instead, leaders are encouraged to look far into the future when anticipating upcoming trends and outcomes.
- Identify how leaders in the organization can change or update the organizational strategy to work with different scenarios. This acts as a safeguard to see if the strategy is robust enough to withstand multiple scenarios unfolding in multiple ways.
- Continue to monitor the external environment to tune in on which scenario(s) will be most likely to occur. Reflect this likelihood in the organization’s strategy.
- Scenario planning is one tool of many that organizational leaders should use to facilitate effective strategic planning.
References & Suggestions for Further Reading
- Hodgson, A. (2003). Strategic Thinking with Scenarios. Retrieved from: http://www.decisionintegrity.co.uk/DIL%20Strategic%20Thinking%20With%20Scenarios.pdf
- Schoemaker, P. & van der Heijden, C. (1992). Integrating Scenarios Into Strategic Planning at Royal Dutch/Shell”. Planning Review, 20, Retrieved from: https://www.emeraldinsight.com/doi/pdfplus/10.1108/eb054360.
- Schoemaker, P. (1995). Scenario Planning: A Tool for Strategic Thinking. MIT Sloan Management Review. Retrieved from: https://sloanreview.mit.edu/article/scenario-planning-a-tool-for-strategic-thinking/.