Business scenario planning

Planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. The games combine known facts about the future, such as demographics, geography, military, political, industrial information, and mineral reserves, with key driving forces identified by considering social, technical, economic, environmental, and political (steep) business applications, the emphasis on gaming the behavior of opponents was reduced (shifting more toward a game against nature). At royal dutch/shell for example, scenario planning was viewed as changing mindsets about the exogenous part of the world, prior to formulating specific io planning may involve aspects of systems thinking, specifically the recognition that many factors may combine in complex ways to create sometime surprising futures (due to non-linear feedback loops). Systems thinking used in conjunction with scenario planning leads to plausible scenario story lines because the causal relationship between factors can be demonstrated. In these cases when scenario planning is integrated with a systems thinking approach to scenario development, it is sometimes referred to as dynamic scenarios. The scenarios usually include plausible, but unexpectedly important situations and problems that exist in some small form in the present day. Scenario planning helps policy-makers to anticipate hidden weaknesses and inflexibilities in organizations and disclosed years in advance, these weaknesses can be avoided or their impacts reduced more effectively than if similar real-life problems were considered under duress of an emergency. Flexible business continuity plans with "presponse protocols" help cope with similar operational problems and deliver measurable future -sum game scenarios[edit]. The methods and organizations are almost identical, except that scenario planning is applied to a wider variety of problems than merely military and political in military intelligence, the chief challenge of scenario planning is to find out the real needs of policy-makers, when policy-makers may not themselves know what they need to know, or may not know how to describe the information that they really analysts design wargames so that policy makers have great flexibility and freedom to adapt their simulated organizations. Usually the games' simulated time runs hundreds of times faster than real life, so policy-makers experience several years of policy decisions, and their simulated effects, in less than a chief value of scenario planning is that it allows policy-makers to make and learn from mistakes without risking career-limiting failures in real life. This is an opportunity to "rehearse the future", an opportunity that does not present itself in day-to-day operations where every action and decision military scenario planning or scenario thinking is done[edit]. By doing this, it is possible to assess whether scenario planning is preferred over the other methods. Demographics) can be included in any scenario, so the scenarios should not be based on these. At this point, it is also useful to assess whether any linkages between driving forces exist, and rule out any "impossible" scenarios (ex. Consistency: do the forces describe uncertainties that can construct probable the stakeholders: are any stakeholders currently in disequilibrium compared to their preferred situation, and will this evolve the scenario? The current situation does not need to be in the middle of the diagram (inflation may already be low), and possible scenarios may keep one (or more) of the forces relatively constant, especially if using three or more driving forces. One approach can be to create all positive elements into one scenario and all negative elements (relative to the current situation) in another scenario, then refining these. If possible, develop models to help quantify consequences of the various scenarios, such as growth rate, cash flow etc. This step does of course require a significant amount of work compared to the others, and may be left out in ge towards decision scenarios. Retrace the steps above in an iterative process until you reach scenarios which address the fundamental issues facing the organization. These plans are almost always based on scenarios, and often the plans and scenarios are kept up-to-date by war games, sometimes played out with real troops. This process was first carried out (arguably the method was invented by) the prussian general staff of the mid-19th pment of scenario analysis in business organizations[edit]. Often the trend lines were generated by the accounting department, and lacked discussions of demographics, or qualitative differences in social simplistic guesses are surprisingly good most of the time, but fail to consider qualitative social changes that can affect a business or government. Scenario planning helps us understand how the various strands of a complex tapestry move if one or more threads are pulled. Schoemaker offers a strong managerial case for the use of scenario planning in business and had wide impact. Planning starts by dividing our knowledge into two broad domains: (1) things we believe we know something about and (2) elements we consider uncertain or unknowable.

The art of scenario planning lies in blending the known and the unknown into a limited number of internally consistent views of the future that span a very wide range of possibilities. Organizations have applied scenario planning to a broad range of issues, from relatively simple, tactical decisions to the complex process of strategic planning and vision building. 2][3][4] the power of scenario planning for business was originally established by royal dutch/shell, which has used scenarios since the early 1970s as part of a process for generating and evaluating its strategic options. 5][6] shell has been consistently better in its oil forecasts than other major oil companies, and saw the overcapacity in the tanker business and europe’s petrochemicals earlier than its competitors. 2] but ironically, the approach may have had more impact outside shell than within, as many others firms and consultancies started to benefit as well from scenario planning. Scenario planning is as much art as science, and prone to a variety of traps (both in process and content) as enumerated by paul j. Authors attribute the introduction of scenario planning to herman kahn through his work for the us military in the 1950s at the rand corporation where he developed a technique of describing the future in stories as if written by people in the future. In 1961 he founded the hudson institute where he expanded his scenario work to social forecasting and public policy. 7][8][9][10][11] one of his most controversial uses of scenarios was to suggest that a nuclear war could be won. 12] though kahn is often cited as the father of scenario planning, at the same time kahn was developing his methods at rand, gaston berger was developing similar methods at the centre d’etudes prospectives which he founded in france. His method, which he named 'la prospective', was to develop normative scenarios of the future which were to be used as a guide in formulating public policy. During the mid-1960s various authors from the french and american institutions began to publish scenario planning concepts such as 'la prospective' by berger in 1964[13] and 'the next thirty-three years' by kahn and wiener in 1967. 14] by the 1970s scenario planning was in full swing with a number of institutions now established to provide support to business including the hudson foundation, the stanford research institute (now sri international), and the sema metra consulting group in france. Several large companies also began to embrace scenario planning including dhl express, dutch royal shell and general electric. As a result of these very sophisticated approaches, and of the difficult techniques they employed (which usually demanded the resources of a central planning staff), scenarios earned a reputation for difficulty (and cost) in use. Even so, the theoretical importance of the use of alternative scenarios, to help address the uncertainty implicit in long-range forecasts, was dramatically underlined by the widespread confusion which followed the oil shock of 1973. By 1983 diffenbach reported that 'alternate scenarios' were the third most popular technique for long-range forecasting – used by 68% of the large organizations he surveyed. Development of scenario forecasting, to guide strategy rather than for the more limited academic uses which had previously been the case, was started by pierre wack in 1971 at the royal dutch shell group of companies – and it, too, was given impetus by the oil shock two years later. Shell has, since that time, led the commercial world in the use of scenarios – and in the development of more practical techniques to support these. Indeed, as – in common with most forms of long-range forecasting – the use of scenarios has (during the depressed trading conditions of the last decade) reduced to only a handful of private-sector organisations, shell remains almost alone amongst them in keeping the technique at the forefront of forecasting. Has only been anecdotal evidence offered in support of the value of scenarios, even as aids to forecasting; and most of this has come from one company – shell. For the same reasons, though, a lack of such proof applies to almost all long-range planning techniques. In the absence of proof, but taking account of shell's well documented experiences of using it over several decades (where, in the 1990s, its then ceo ascribed its success to its use of such scenarios), can be significant benefit to be obtained from extending the horizons of managers' long-range forecasting in the way that the use of scenarios uniquely does. The dramatic financial effects of these changes led at least one organization, royal dutch shell, to implement scenario planning. The analysts of this company publicly estimated that this planning process made their company the largest in the world. Of shell's use of scenario planning have suggested that few if any significant long term business advantages accrued to shell from the use of scenario methodology[citation needed].

Whilst the intellectual robustness of shell's long term scenarios was seldom in doubt their actual practical use was seen as being minimal by many senior shell executives[citation needed]. A shell insider has commented "the scenario team were bright and their work was of a very high intellectual level. However neither the high level "group scenarios" nor the country level scenarios produced with operating companies really made much difference when key decisions were being taken". Use of scenarios was audited by arie de geus's team in the early 1980s and they found that the decision-making processes following the scenarios were the primary cause of the lack of strategic implementation [clarification needed] ), rather than the scenarios themselves. Many practitioners today spend as much time on the decision-making process as on creating the scenarios l limitations[edit]. Scenario planning has gained much adherence in industry, its subjective and heuristic nature leaves many academics uncomfortable. These concerns are legitimate and scenario planning would gain in academic standing if more research were conducted on its comparative performance and underlying theoretical premises. A collection of chapters by noted scenario planners[21] failed to contain a single reference to an academic source, though this may be because academics have not caught up or do not have the resources to either do or teach scenario planning. In general, there are few academically validated analyses of scenario planning (for a notable exception, see paul j. Above all, scenario planning is a tool for collective learning, reframing perceptions and preserving uncertainty when the latter is pervasive. Too many decision makers want to bet on one future scenario, falling prey to the seductive temptation of trying to predict the future rather than to entertain multiple futures. Another trap is to take the scenarios too literally as though they were static beacons that map out a fixed future. In actuality, their aim is to bound the future but in a flexible way that permits learning and adjustment as the future criticism of the two-by-two technique commonly used is that the resulting matrix results in four somewhat arbitrary scenario themes. If other key uncertainties had been selected, it might be argued, very different scenarios could emerge. In either case, however, the issue should not be which are the “right” scenarios but rather whether they delineate the range of possible future appropriately. Any tool that tries to simplify a complex picture will introduce distortions, whether it is a geographic map or a set of scenarios. The art of scenarios is to look for such natural states or points of bifurcation in the behavior of a complex from some inherent subjectivity in scenario design, the technique can suffer from various process and content traps. One might think of these as merely challenges of implementation, but since the process component is integral to the scenario experience, they can also be viewed as weaknesses of the methodology itself. Limited safeguards exist against political derailing, agenda control, myopia and limited imagination when conducting scenario planning exercises within real organizations. Third limitation of scenario planning in organizational settings is its weak integration into other planning and forecasting techniques. Typically, budgeting and planning systems are predicated on single views of the future, with adjustments made as necessary through variance analysis, contingency planning, rolling budgets, and periodic renegotiations. Once the scenarios are finished, the real works starts of how to craft flexible strategies and appropriate monitoring systems. The point is that scenario thinking needs to be integrated with the existing planning and budgeting system, as awkward as this fit may be. This is almost exactly the same as that which should be undertaken as the first stage of any serious long-range planning. However, the quality of this analysis is especially important in the context of scenario central part represents the specific techniques – covered here – which differentiate the scenario forecasting process from the others in long-range final group represents all the subsequent processes which go towards producing the corporate strategy and plans. Again, the requirements are slightly different but in general they follow all the rules of sound long-range part of the overall process which is radically different from most other forms of long-range planning is the central section, the actual production of the scenarios.

By the time the formal scenario planning stage has been reached, the participants may have already decided – probably in their sub-conscious rather than formally – what the main forces the ideal approach, the first stage should be to carefully decide the overall assumptions on which the scenarios will be based. When, however, they are asked to consider timescales in excess of ten years they almost all seem to accept the logic of the scenario planning process, and no longer fall back on that of extrapolation. Very simple technique which is especially useful at this – brainstorming – stage, and in general for handling scenario planning debates is derived from use in shell where this type of approach is often used. The result is a very powerful form of creative decision-making for groups, which is applicable to a wide range of situations (but is especially powerful in the context of scenario planning). It also offers a very good introduction for those who are coming to the scenario process for the first time. Since the workings are largely self-evident, participants very quickly come to understand exactly what is ant and step is, though, also one of selection – since only the most important factors will justify a place in the scenarios. Experience has proved that offering a wider range of topics merely allows them to select those few which interest them, and not necessarily those which are most important to the addition, as scenarios are a technique for presenting alternative futures, the factors to be included must be genuinely 'variable'. Factors whose outcome is predictable, but important, should be spelled out in the introduction to the scenarios (since they cannot be ignored). This point it is also worth pointing out that a great virtue of scenarios is that they can accommodate the input from any other form of forecasting. At a later stage more meaningful links may be found, or the factors may then be rejected from the scenarios. More important, the 'certain' topics are also removed from the main area of debate – in this case they must be grouped in clearly labelled area of the main the clusters – the 'mini-scenarios' – emerge, the associated notes may be stuck to each other rather than individually to the wall; which makes it easier to move the clusters around (and is a considerable help during the final, demanding stage to reducing the scenarios to two or three). If they want to rearrange the groups – or simply to go back (iterate) to an earlier stage – then they strip them off and put them in their new 3 – produce initial mini-scenarios[edit]. Main action, at this next stage, is to reduce the seven to nine mini-scenarios/groupings detected at the previous stage to two or three larger scenarios. Indeed, the demanding process of developing these basic scenario frameworks often, by itself, produces fundamental insights into what are the really important (perhaps life and death) issues affecting the organisation. Is no theoretical reason for reducing to just two or three scenarios, only a practical one. It has been found that the managers who will be asked to use the final scenarios can only cope effectively with a maximum of three versions! Shell started, more than three decades ago, by building half a dozen or more scenarios – but found that the outcome was that their managers selected just one of these to concentrate on. This is the number now recommended most frequently in most of the mentary used by shell, and as favoured by a number of the academics, two scenarios should be complementary; the reason being that this helps avoid managers 'choosing' just one, 'preferred', scenario – and lapsing once more into single-track forecasting (negating the benefits of using 'alternative' scenarios to allow for alternative, uncertain futures). This is, however, a potentially difficult concept to grasp, where managers are used to looking for opposites; a good and a bad scenario, say, or an optimistic one versus a pessimistic one – and indeed this is the approach (for small businesses) advocated by foster. In the shell approach, the two scenarios are required to be equally likely, and between them to cover all the 'event strings'/drivers. For example, shell's two scenarios at the beginning of the 1990s were titled 'sustainable world' and 'global mercantilism'[xv]. In practice, we found that this requirement, much to our surprise, posed few problems for the great majority, 85%, of those in the survey; who easily produced 'balanced' scenarios. We have found that our own relatively complex (obs) scenarios can also be made complementary to each other; without any great effort needed from the teams involved; and the resulting two scenarios are both developed further by all involved, without unnecessary focusing on one or the grouped the factors into these two scenarios, the next step is to test them, again, for viability. If this is the case then you need to return to the first step – the whole scenario planning process is above all an iterative one (returning to its beginnings a number of times until the final outcome makes the best sense). The rule, though, is that you should produce the scenarios in the form most suitable for use by the managers who are going to base their strategy on them. They will also be exposed to the scenarios, and will need to believe in these.

If the form is alien to him or her the chances are that the resulting scenarios will carry little conviction when it comes to the 'sale'. Scenarios will, perhaps, be written in word form (almost as a series of alternative essays about the future); especially where they will almost inevitably be qualitative which is hardly surprising where managers, and their audience, will probably use this in their day to day communications. Final stage of the process is to examine these scenarios to determine what are the most critical outcomes; the 'branching points' relating to the 'issues' which will have the greatest impact (potentially generating 'crises') on the future of the organisation. The subsequent strategy will have to address these – since the normal approach to strategy deriving from scenarios is one which aims to minimise risk by being 'robust' (that is it will safely cope with all the alternative outcomes of these 'life and death' issues) rather than aiming for performance (profit) maximisation by gambling on one of scenarios[edit]. Is important to note that scenarios may be used in a number of ways:A) containers for the drivers/event basically, they are a logical device, an artificial framework, for presenting the individual factors/topics (or coherent groups of these) so that these are made easily available for managers' use – as useful ideas about future developments in their own right – without reference to the rest of the scenario. It should be stressed that no factors should be dropped, or even given lower priority, as a result of producing the scenarios. In this context, which scenario contains which topic (driver), or issue about the future, is irrelevant. Tests for every stage it is necessary to iterate, to check that the contents are viable and make any necessary changes to ensure that they are; here the main test is to see if the scenarios seem to be internally consistent – if they are not then the writer must loop back to earlier stages to correct the problem. Though it has been mentioned previously, it is important to stress once again that scenario building is ideally an iterative process. Positive s the main benefit deriving from scenarios, however, comes from the alternative 'flavors' of the future their different perspectives offer. It is a common experience, when the scenarios finally emerge, for the participants to be startled by the insight they offer – as to what the general shape of the future might be – at this stage it no longer is a theoretical exercise but becomes a genuine framework (or rather set of alternative frameworks) for dealing with io planning compared to other techniques[edit]. Planners also try to select especially plausible but uncomfortable combinations of social ivity analysis analyzes changes in one variable only, which is useful for simple changes, while scenario planning tries to expose policy makers to significant interactions of major scenario planning can benefit from computer simulations, scenario planning is less formalized, and can be used to make plans for qualitative patterns that show up in a wide variety of simulated the past 5 years, computer supported morphological analysis has been employed as aid in scenario development by the swedish defence research agency in stockholm. 28] this method makes it possible to create a multi-variable morphological field which can be treated as an inference model – thus integrating scenario planning techniques with contingency analysis and sensitivity ation of delphi and scenarios[edit]. Planning concerns planning based on the systematic examination of the future by picturing plausible and consistent images thereof. Generally speaking, the output of the different phases of the delphi method can be used as input for the scenario method and vice versa. In fact, the authors found that in either case the combination of the methodologies adds significant value to futures variant that is most often found in practice is the integration of the delphi method into the scenario process (see e. Authors refer to this type as delphi-scenario (writing), expert-based scenarios, or delphi panel derived scenarios. Since scenario planning is “information hungry”, delphi research can deliver valuable input for the process. There are various types of information output of delphi that can be used as input for scenario planning. Moreover, expert comments and arguments provide deeper insights into relationships of factors that can, in turn, be integrated into scenarios afterwards. Such controversial topics are particularly suited for extreme scenarios or his doctoral thesis, rikkonen (2005)[30] examined the utilization of delphi techniques in scenario planning and, concretely, in construction of scenarios. The author comes to the conclusion that the delphi technique has instrumental value in providing different alternative futures and the argumentation of scenarios. It is therefore recommended to use delphi in order to make the scenarios more profound and to create confidence in scenario planning. Further benefits lie in the simplification of the scenario writing process and the deep understanding of the interrelations between the forecast items and social ralized planning (economics). The art of the long view: planning for the future in an uncertain world new york: currency doubleday, 1991. A process for strategic management with specific application for the non-profit organization," strategic planning: threats and opportunities for planners.

Utilisation of alternative scenario approaches in defining the policy agenda for future agriculture in finland. Cairns, scenario thinking: practical approaches to the future, palgrave macmillan, article's use of external links may not follow wikipedia's policies or guidelines. Process of scenario planning—the post explains various process and steps involved in doing an effective scenario io-based strategic planning process – detailed description of a scenario planning approach and several innovative scenario studies for public io planning for an interstellar exploration program—using a scenario planning approach to assess the feasibility of a far future / large-scale hwiki scenario-based usability scenarios resources—resources on what scenarios are, shell's new and old scenario's, explorer's guide and other scenario ng the future of the textiles and leather sector: four scenarios – european foundation for the improvement of living and working scenario planning changed corporate strategy, by angela wilkinson and roland kupers (access july 8, 2015). 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Review our cookies policy for more details and to change your cookie continuing to browse this site you are agreeing to our use of this article to your reading list by clicking this io planning (sometimes called “scenario and contingency planning”) is a structured way for organisations to think about the future. A group of executives sets out to develop a small number of scenarios—stories about how the future might unfold and how this might affect an issue that confronts them. Peter schwartz's book “the art of the long view”, scenarios are described as:Stories that can help us recognise and adapt to changing aspects of our present environment. They form a method for articulating the different pathways that might exist for you tomorrow, and finding your appropriate movements down each of those possible io planning has been used by some of the world's largest corporations, including royal dutch shell, motorola, disney and accenture. Two things lay behind its rapid growth in the 1970s:Related itemsguru: pierre wackaug 29th 2008idea: skunkworksaug 25th 2008idea: crisis managementaug 18th 2008idea: succession planningaug 11th 2008scenario planning: the next big surpriseoct 11th 2001a perfect dayaug 20th 1998. The oil price hikes of 1973 and 1978 dramatically and painfully brought home how vulnerable businesses were to sudden discontinuities. Growing attachment to the idea that business can make better use of the non-rational side of human nature. At the head of royal dutch shell's planning department at the time was pierre wack (see article), a belgian who had been persuaded to give up the editorship of a franco-german philosophy magazine and join the appeal of scenario planning increased further in the wake of the september 11th 2001 terrorist attacks in the united states and the greater perceived uncertainty of the 21st century. According to bain & company's annual survey of management tools, fewer than 40% of companies used scenario planning in 1999. As a result of its scenario planning, the new york board of trade decided in the 1990s to build a second trading floor outside the world trade centre, a decision that kept it going after september 11th an article in harvard business review in 1985, wack wrote:Scenarios deal with two worlds; the world of facts and the world of perceptions. Their purpose is to gather and transform information of strategic significance into fresh process of scenario planning usually begins with a long discussion about how the participants think that big shifts in society, economics, politics and technology might affect a particular issue. These priorities then form the basis for sketching out rough pictures of the io planning draws on a wide range of disciplines and interests, including economics, psychology, politics and demographics. The recommended reading list of global business network, a leading adviser on scenario planning, includes alexis de tocqueville's “democracy in america” as well as peter senge's “the fifth discipline” and “the leopard”, giuseppe tomasi's sweeping tale of sicilian family tz, p. The gentle art of re-perceiving”, harvard business review, september–october management article is adapted from “the economist guide to management ideas and gurus”, by tim hindle (profile books; 322 pages; £20). The guide has the low-down on over 100 of the most influential business-management ideas and more than 50 of the world's most influential management thinkers. The economist e-store and you’ll find a range of carefully selected products for business and pleasure, economist books and diaries, and much eper saved and economist s to the wood's economist ch and economist gmat economist gre ive education ts and economist group ». Is aligned strategy gy insights gy insights gy and leadership bute to the gy meeting gic planning starter to get alignment (book). There’s a tool that you can use as a strategist that will help you predict the future and make better choices in the short run and long you say scenario planning? Planning is making assumptions on what the future is going to be and how your business environment will change overtime inlight of that precisely, scenario planning is identifying a specific set of uncertainties, different “realities” of what might happen in the future of your sounds simple, and possibly not worth the trouble or specific effort, however, building this set of assumptions is probably the best thing you can ever do to help guide your organization in the long example, farmers use scenarios to predict whether the harvest will be good or bad, depending on the weather. It helps them forecast their sales but also their future ry institutions use scenario planning in their operations to cope with any unlikely situations, anticipating the consequences of every event. In this case, scenario planning can mean the difference between life and io planning might not have such dire consequences in your organization, but if not done, you risk opening the door to increased costs, increased risks, and missed how to use scenario planning? Idea is very simple: scenario planning  aims to define your critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses to give for each one of them.

If you are aware of what could happen, you are more likely to deal with what will you can see from the above illustration, scenario development process holds 4 critical steps. After identifying the driving forces and critical uncertainties for the months or years to come, the goal is to develop 4 distinct scenarios that are most likely to happen. Scenarios, it’s not a lot compared to the multitude of possible scenarios but it should be enough to focus on the major issues at process to create your own scenarios is very simple. You will have to:Identify your driving forces:To begin with, you should discuss what are going to be the big shifts in society, economics, technology and politics in the future and see how it will affect your fy your critical uncertainties:Once you have identified your driving forces and made it a list, pick up only two (those that have the most impact on your business). For example, two of the most important uncertainties for agribusiness companies are food prices and consumer p a range of plausible scenarios:The goal is now to form a kind of matrix with your two critical uncertainties as axis (see the above example). Depending on what direction each of the uncertainties will take, you are now able to draw four possible scenarios for the s the implications:During this final step, you should discuss the various implications and impacts of each scenario and start to reconsider your strategy: set your mission and your goals while taking into account every er the example of the three detroit automakers in the early 80’s. At that time, each company’s management teams wondered what the future would look like for their pictured below, they could have drafted then 4 plausible scenarios, depending on two possible uncertainties during those years: oil prices fluctuations and consumer values evolution scenario planning, they all predicted the “long live detroit” scenario in which the whole automotive industry would thrive. Unfortunately for them, they didn’t see far enough to predict the come of new competitors from japan, which triggered off a big crisis in the automotive you may notice, scenario planning is more a subjective technique enabling dialogue within the company than a data-driven analysis and this is actually what gives it pitfalls to avoid. Keep it simple and focus on two major r common mistake is to believe that you have to choose one particular scenario and build your strategy around it. Scenario planning is not about choosing just one option for the future but rather dealing with all of the possible outcomes to develop a strategy that will stand the test of all , when developing your different scenarios, try to not look at the short term that is to say example at your existing market, products or competitors. Scenario planning is a tool, but not the only tool to help you with your strategic planning. Focus on the vision of your company and use scenario planning to build a more robust future and vision “within” these alternative long you understand how to use scenario planning and how not to fall into these traps, there is no doubt you will feel more confident about which decision to make, which strategy to choose regarding the future. Us for a consultation if you're interested in learning more about how to do scenario planning or how to get alignment on your strategic n by jeremie mariton. Rémie is a french business student working with sme strategy as strategy & marketing assistant. This site on strategy is a management consulting firm that specializes in helping organizations with their strategic planning process. We work with teams to facilitate conversations about strategic direction and business strategy so that our clients can focus their energy on what will move them forward more [fa icon="long-arrow-right"]. 3 free articles in the wilkinsonroland the may 2013 1965, a time when quantitative, computer-driven planning was very much in vogue, royal dutch shell started experimenting with a different way of looking into the future: scenario planning. Shell’s practice has now survived for almost half a century and has had a huge influence on how businesses, governments, and other organizations think about and plan for the future. The authors interviewed almost every living veteran of the shell scenario planning operation, along with top shell executives through the years. They identify several principles that both define the process at shell and help explain how it has survived and thrived for so instance, shell scenarios are stories, not predictions, and are designed to help break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present. Otherwise, there’s always the danger that quantitative models will hide assumptions and constrain thinking rather than refine e scenarios follow a rhythm distinct from the annual strategy cycle, they allow an organization to see realities that would otherwise be 1965 royal dutch shell put into service what it called the unified planning machinery (upm), a computer-driven system meant to bring more discipline to the company’s cash flow planning. Jimmy davidson, the head of economics and planning for shell’s exploration and production division, tapped the company veteran ted newland to start an activity called long-term studies at the london headquarters. His appointment marked the start of a remarkable and still ongoing experiment in using scenario planning to engage with an uncertain the leadership of newland and davidson, who became shell’s first overall head of planning in 1967, the “futures” operation began to take shape. The very first oil-price scenarios prepared by this duo were sent to senior executives by mid-1971. Around this time davidson brought in pierre wack, who had been the head of planning for shell française, to try to secure the attention and interest of shell’s most senior executives. Wack, a former magazine editor with a bent for eastern philosophy and mysticism, focused on telling plausible stories about how the wider business context of shell might develop.

Together with newland he came to define the practice of scenario planning at shell; each man headed the team at some point during an eventful decade of oil crises and economic turmoil that they and their colleagues had to some extent envisioned ahead of time. Wack described the development of some of the early scenarios in his article “scenarios: uncharted waters ahead,” hbr september–october 1985. Its value lies in how scenarios are embedded in—and provide vital links between—organizational processes such as strategy making, innovation, risk management, public affairs, and leadership development. It has helped break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present. As unthreatening stories, scenarios enable shell executives to open their minds to previously inconceivable or imperceptible io planning has now been in use at shell for more than 45 years, spanning times of great triumph and prominence—especially in the 1970s—but also long stretches during which company leaders struggled to see its value. For an operation that doesn’t contribute directly to the bottom line, and that emphasizes the uncertainty of the future rather than making bold predictions, this is s of the first formal round of shell scenarios was completed in november 1971. Since then shell’s scenario planners have produced 34 rounds of global and long-term energy scenarios and updates and many more-focused ones. This was a very active year for scenarios: the above are just two of the six that were issued in january, and two more, focused on the likelihood of an energy shortage, came nine months later. This favors asia, because its people and businesses view individual and societal welfare as inextricably linked. A recent survey of 77 large companies by rené rohrbeck, of aarhus university, and jan oliver schwarz, of germany’s ebs business school, found that formal “strategic foresight” efforts add value through (1) an enhanced capacity to perceive change, (2) an enhanced capacity to interpret and respond to change, (3) influence on other actors, and (4) an enhanced capacity for organizational learning. Two bain researchers reported in 2007 that the firm’s regular survey of management tools showed “an abrupt and sustained surge” in the use of scenario planning after 9/11 (“a growing focus on preparedness,” hbr july–august 2007), and although there have been ups and downs since, bain’s most recent survey showed that 65% of companies expected to use scenario planning in for originating scenario planning often goes to the american game theorist and futurist herman kahn. Newland and wack, aware of both, steered clear of probabilistic forecasts and normative statements and instead insisted that scenarios should first and foremost be plausible. Government report from a decade ago estimated that 85% of the scenario studies surveyed by the report’s authors were based on or derived from the royal dutch shell process, suggesting that shell’s experience contains lessons relevant for anyone—investors, corporations, governments, nongovernmental organizations, and others—trying to engage with the are a former shell scenario planner and a former shell executive who recently completed a history of scenario planning at the company after interviewing almost every surviving veteran of the operation, along with current and former top company executives. With help from betty sue flowers, who edited several shell scenarios in the 1990s, we discovered that although the practice has evolved over the decades, we can identify the principles that both define the process at shell and help explain how it has survived and thrived for so it plausible, not , of course, you can never identify all the forces at play. Jimmy davidson, head of group planning 1967– the beginning, those engaged with shell’s scenario practice maintained that scenarios are not predictions but can provide a deeper foundation of knowledge and self-awareness in approaching the future. They also felt that the “official” view of the future—the business-as-usual outlook—both reflects an optimism bias and is based on the human tendency to see familiar patterns and be blind to the the late 1960s shell’s business-as-usual approach was embodied by upm and its quantitative, model-based methodology, which some worried was likely to suppress discussion rather than to encourage a healthy exchange of differing perspectives. Deductive methods for generating scenarios—for example, a 2×2 matrix with axes for public/private and more-expensive/less-expensive—were never core to the shell practice, although they are often identified with it because peter schwartz, who ran the scenario team in the early 1980s, subsequently promoted their use at the strategy consulting group global business network. In general, the company has also avoided expressing a preference for one scenario over another. During the early years of experimentation, wack encouraged his team to consider any scenario as long as it could not be rendered implausible through logical reasoning. Shell scenarios are intended to set the stage for a future world in which readers imagine themselves as actors and are invited to pay attention to deeply held assumptions about how that world works. What happens at a scenario’s horizon date is not as important as the storyline’s clarity of logic and how it helps open the mind to new ble stories encourage judgment, not just attention to data and other information. By acknowledging that subjective judgment and intuition are an integral part of the leadership process, scenarios create a safe space in which to acknowledge uncertainty. Intuition is the essence of entrepreneurial value creation, and it can be stifled by a paralysis of bility can be strengthened by how relevant and memorable the scenario is, as well as by a logical story line. In the mid-1980s lo van wachem, the chairman of shell’s committee of managing directors, instructed the scenario team to begin considering the impact of sustainability concerns on the energy business. Shell’s 1998 sustainability report was one of the first acknowledgments by a major energy corporation of the challenge of climate a balance between relevant and successful scenarios are focused in the sense that they are derived from a fundamental consideration of their client’s dilemmas and needs. Ged davis, head of the scenario team 1999–’s scenario practice started out by exposing and questioning the official version of the future.

Many business units, and corporate functions beyond strategy and finance, went on to develop seize and retain the attention of all these constituencies, though, shell’s scenarios had to be more than disruptive and challenging; they had to be relevant to executives, from the cmd on down. Scenarios prepared in 1971 and 1972 sketched the possibility that the power in oil markets would shift from consumers to oil-producing nations—and that the interests of those producers would dictate cuts in production, not the eternal increases foreseen in the business-as-usual version of the future. After subsequent scenarios in 1973 deemed business-as-usual implausible, and a mideast oil embargo and global energy crisis followed mere months later, there was no questioning the relevance of this the 1980s, though, shell’s top management largely ignored the plausible and challenging scenarios of global economic growth and power shifts. The reasons that have been offered for this range from a failure of the scenario team to listen to the concerns of executives to an overemphasis on big-picture developments as opposed to the energy industry and shell in particular. Kees van der heijden, who took over as scenario chief in 1988, decided that extensive interviews with shell leaders were needed to ensure that the scenarios addressed relevant issues. Deep listening” through structured interviews soon became standard practice; interview questions probed the core concerns of decision makers and their hopes for the future and uncovered uncertainties about the company, its business, and its environment. This approach continued and has been effective: despite the challenging and uncomfortable nature of many scenarios, only rarely have shell leaders dismissed them as irrelevant or too dangerous to share (although rewrites have sometimes been requested). This was the context in which wack “opened the company to the outside world,” as van der heijden puts then the global energy business has transformed shell from a strategic player that produced 10% of the world’s oil and gas before the 1970s crises to just one of many large energy companies (it produces less than 2% today). As a result, recent shell scenarios have been more concerned with energy than with social and economic issues and have been more broadly institutionalized so as to have an impact on corporate decision making. As the current ceo, peter voser, says, “we have maintained intellectual agility and operational flexibility by shifting beyond global to more ‘sliced and diced’ scenarios. Ted newland, manager of long-term studies 1965–1971; scenario team leader 1980–ations, like human beings, act on the basis of an agreed-upon reality—which is, in essence, a story. The problem is that the stories we most commonly tell about the future simply extrapolate from the s the greatest power of scenarios, as distinct from forecasts, is that they consciously break this habit. Charismatic presenters; evocative graphics; memorable phrases, images, and archetypes; illustrative graphs of future outlooks; and the preparation of the audience through interviews, workshops, and other forms of participation all contribute to the storytelling power of shell’s the early years, the shell team developed sets of six or seven scenarios. By the mid-1970s three scenarios were common, but that tempted managers to choose a “middle way” as a best guess. In addition to these, some more-focused scenarios—on a project, a country, a crisis, a market entry, or an investment decision, for example—were often developed throughout the ios have a limited shelf life. Generating new scenarios on an ongoing basis counters the tendency to hold on to familiar ones. Thus the scenarios act as temporary scaffolding—rather than a fixed structure—to support the strategic numbers to ers are numbers people, and if you can’t quantify what you are talking about, they tend to dismiss you as interesting (at best) mystics. Deanne julius, shell’s chief economist 1993– noted, shell’s scenario practice developed partly out of dissatisfaction with mechanistic, model-based projections. Collyns, who served on the scenario team from 1972 to 1986, frequently used numbers and computer models. Shell’s scenarios have never been developed from mechanistic modeling, but they have always been associated with quantification to enhance internal consistency, reveal deep story logic and systemic insight, and illustrate outcomes using the language of numbers that characterizes most corporate the early years of the scenario practice, collyns and harry beckers—who later became shell’s head of research—supported quantification despite wack’s limited appetite for it. Peter schwartz later experimented with computer models linked to scenarios as a means of encouraging serious learning through “play. In the 2001 scenario round, two econometric models were used after the global scenarios had been developed to quantify the implications for gdp growth of various patterns of oil and gas price coupling, decoupling, and preparation of the 2007 long-term energy scenarios, the team built a comprehensive world energy model that simulated the development of the energy market over decades. In the few years following publication of the 2007 scenarios, at least three major energy-market events failed to fit the world energy model: the 2008 financial crisis; the u. However, the model had been used to trace the energy impact of a deep recession—giving credibility to the recession-and-recovery scenarios that were created and presented to shell’s executive committee within days of the lehman brothers collapse in fication is essential to scenarios. If, for example, shell begins to rely on its state-of-the-art global energy model to provide what-if analysis, the signature advantage of scenarios in reframing thinking will be weakened. The persuasive power of scenarios in the world of business rests on an effective combination of narrative and facilitated a set of scenarios for the chinese government.

Over a one-year period we developed the scenarios with them, and it gives you insights into the way they are thinking that you just can’t get otherwise and, of course, you wouldn’t get as a businessperson across the table discussing things with them. Doug mckay, scenario team member 1996– time, agreement appears to have been unanimous that scenarios are valuable in external engagement. Shell has used global scenarios to add color to corporate speeches, to open doors to privileged conversations with resource holders and governments, and to build a network of ngo contacts. Since 1992 it has released smaller, public versions of its global scenarios—after enough time has passed for the company to gain competitive advantage from internal digestion and use. But more important has been the way scenarios have created value through new business development, joint venturing, and new market entry. Building scenarios with key stakeholders in prospective joint projects has enabled an invaluable exchange of perspectives and insights. Shell has developed focused scenarios for state oil companies in, for example, brunei, kuwait, nigeria, and s of the scenario team have also occasionally shared their expertise. For example, since the 1980s, when a remarkable body of unpublished scenario work on greater china was started by one of their number, team members have been involved in a variety of scenario initiatives focused on energy, sustainable development, and other concerns relevant to the chinese government. In 1991 one team member assisted in creating scenarios that helped focus the attention of both the african national congress and the de klerk government on the importance of economic development during south africa’s messy political transition. Another led a 1998 effort to develop global scenarios covering 2000–2050 for the world business council for sustainable development, which highlighted alternative models for thinking about progress. In 2005 yet another helped build scenarios for unaids that exposed difficult choices between prevention and treatment and care. Shell’s scenario experts often contributed to other efforts after leaving the company—starting with wack, who participated in scenario rounds in south africa in the disagreement as an hindsight, the greatest value of scenarios is that they created a culture where you could ask anyone a question, and the answer would need to be contextual. Answering “because i’m the boss” or “because the business case is positive” was out-of-bounds. When the oil crisis of october 1973 hit, shell’s committee of managing directors had already considered a comparable scenario. As one scenario team member put it, “and then, of course, high oil prices came, and everybody said, ‘you’re very clever, you’ve got that right. Shell’s earlier, decentralized structure, scenarios provided a common learning culture, helped create a shared view of the world, and refreshed the strategic agenda, enabling new concepts, such as resilience (1970s), sustainable development (1989), and systemic risk (2002), to penetrate the organization. As shell became more centralized, scenarios provided a way to manage disagreement about group strategy or priorities and helped disturb the business-as-usual view that tends to result from wishful thinking or the linear extrapolation of current the cmd, scenarios also became a mediation tool. Given that the committee did not vote things into effect but recommended them for formal approval by the boards of the parent companies, scenarios were a unifying force. This is a ritual that happens at a given time of the year, when the strategic planning process is rolled out. Wack was convinced that creativity could be institutionalized in corporate strategic planning, avoiding the rain dance. And he believed that scenarios, because they follow a rhythm distinct from the annual strategy cycle, allow an organization to see realities that might otherwise be identified three essential starting points for corporate strategy: global scenarios, competitive positioning, and strategic vision. The challenge in effective scenario work is to go beyond the usual strategic focus on current trends and competitive positioning (profitability, for example) to find the right scale of observation. Scenarios can help that vision evolve and become a source of ios: the art of strategic conversation, by kees van der heijden (john wiley & sons, 2005). How shell’s domains link innovation and strategy,” by rafael ramírez, leo roodhart, and willem manders (long range planning, august 2011). The answer is “yes” in the case of more-focused scenarios and “only indirectly” in the case of global scenarios. In contrast to decision theory, which assumes that all outcomes can be known, scenarios encourage attention to the future’s openness and irreducible uncertainty.

The outcome is at best a hypothesis rather than a range or a precise data does seem clear is that a sustained scenario practice can make leaders comfortable with the ambiguity of an open future. At shell and elsewhere, scenarios have helped leaders prepare for futures that might happen, rather than the future they would like to create. Version of this article appeared in the may 2013 issue of harvard business wilkinson is the program director of the futures directorate at oxford university’s smith school of enterprise and the environment. She spent nearly a decade on shell’s corporate scenario wilkinson is the program director of the futures directorate at oxford university’s smith school of enterprise and the environment.