Monday, August 11, 2008

Scenario planning links

Over the weekend I was listening to podcasts of Tom Barnett on the Hugh Hewitt show from last year and Barnett made an offhand reference to Royal Dutch Shell scenario planning activites. I had never heard of scenario planning, so I did some googling and found a lot of interesting things to read:

On Pierre Wack and the development of scenario planning:

Scenario planning — the use of alternative stories about the future, many with improbable and dramatic twists, to develop strategy — is one of the few management innovations to have actually been created in a corporate setting, amid the real-life battle for profits. Pierre Wack, who died in 1997, was the leader of the Royal Dutch/Shell Group of Companies’ elite London-based scenario team. With his colleagues and successors at Shell’s Group Planning department, he designed and refined this important business tool, in effect serving as the chief analyst of Shell’s version of Her Majesty’s Secret Service. Scenario planning alerted Shell’s managing directors (its committee of CEO equivalents) in advance about some of the most confounding events of their times: the 1973 energy crisis, the more severe price shock of 1979, the collapse of the oil market in 1986, the fall of the Soviet Union, the rise of Muslim radicalism, and the increasing pressure on companies to address environmental and social problems.

Shell's Scenarios: An Explorer's Guide (PDF).

There Is No Alternative

Scenario planning steps:

First, specify the major issue or decision you are facing, for instance, siting of a new plant, entering into a global alliance, developing the company's grand strategy, or revamping product distribution channels.

Second, isolate the key drivers - those external forces affecting your company and industry.  Drivers fall into two categories.  Predetermined elements are relatively stable or predictable, e.g. demographics of the population.  Critical uncertainties are unstable or unpredictable, e.g. consumer tastes, government regulations, natural disasters, or new technologies or products (especially in the hands of competitors).

Third, select the two most important drivers.  Do not complicate scenarios by selecting too many drivers.  Restrict yourself to formulating three or four scenarios with sharply contrasting futures: (1) the baseline, business as usual, world as it is, surprise-free scenario; (2) the scenario which driver A alone dominates; (3) the scenario which driver B alone dominates; and (4) perhaps one with both drivers present.

Fourth, write a short internally consistent story of the future which highlights the key driver or drivers for each scenario.

Fifth, give each scenario a pithy name, e.g. High Road, Boom or Bust, Fortress Asia, or Lift Off.  Names help participants keep the scenarios separate, provide common language for discussion, and give the scenarios some permanence within the company outside of the formal process.

Sixth, within each scenario determine the implications for the issue or decision specified at the outset.  Be precise.

Seventh, with these implications in mind, discuss what your decision or business response should be. Remember that nothing you do is ever done in a vacuum.  How might the government react under each scenario?  Your clients or customers?  Your competitors?

Eighth, select indicators which suggest that a particular scenario is unfolding.  Since there is a bias towards eventual action, choose those indicators which will precipitate action when a particular threshold is reached.  Track and discuss these indicators regularly and update your scenarios accordingly.

Finally, usually at some future date, make those decisions in a timely manner that are appropriate for the particular future that does unfold.  Future reality, of course, is unlikely to be exactly in accord with any of your scenarios, but the flexible mindset developed during scenario planning enables you to react nimbly to events that do occur.  You don't choose amongst the scenarios.  Rather, you use them all to help form hypotheses about the world and to recognize which ones are operative at any given time.

1 comment:

AdamGordon said...

Check out Future Studio's list of 50+ scenarios on different subjects. This is the largest full-text public-domain scenario resource on the Web.

Adam Gordon