The A B Cs of Scenario Planning

 


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SCENARIO PLANNING

There are a number of approaches to scenario planning, and they differ greatly based on the people doing the planning and the type of industry the planning is done for. Some of the best examples come from Citibank and Royal Dutch Shell and although the BASIC’s of each are the same the actual scenarios will be very different. Where Shell would be concerned with the Middle East cutting off oil supplies to one political entity or another while Citibank might be more concerned with Japan or the European economy going into a recession.

The most important thing to remember is to challenge your assumptions and create a new and hopefully more realistic view of the future from which to begin the strategic planning process. In many companies the entire concept of “strategic planning” has been changed to “scenario planning. ” If you can successfully test and restructure the assumptions of the decision makers you have a much better chance of generating creative scenarios and, therefore, strong and aggressive strategic plans. The idea is not to “get it right” but to expand the thought process.

Scenario planning IS NOT the logical projection of historical data so that you can say, “In the next five years growth will average 3.5% a year, blah, blah, blah” - and from there write a strategic plan.

Scenario planning IS a creative method of examining possible futures and building the one that is desired while taking into account what COULD happen and how it would affect the plan. A major advantage of using scenarios to set up strategic planning is to gain ideas and insights that would be missed by using the traditional projection process. It is also a method of forcing the planning team to look at more than the “desired” outcome and, therefore, be prepared for or even aggressively plan for, events out of the ordinary.

What do we need to do to keep ourselves from being on the outside looking in? How is e-commerce & e-business going to impact our relationships with our customers and what can we do to position ourselves for whatever you need to accomplish in that eventuality?

If you could predict the future you would be telling fortunes instead of working in the distribution industry.

So what is this thing called Scenario Planning all about?

Scenario planning is just a tool. Like any other management tool it is only valuable if you understand it and put it to use.

Scenario planning has progressed to the point of becoming a popular management tool to support and even replace, in some cases, the strategic planning process. It is a useful, practical and uncomplicated way to think about the future. Scenario planning allows you to look at an array of alternative plausible futures (although it is recommended that these alternatives should be limited to two to six maximum).

The purpose of scenario planning is not to imminently decide which scenario is correct. Look at each plausible future scenario and examine how prepared your company is for the potential change and consequences. Ideally you should try to establish markers or milestones that may occur in each scenario that would alert you to which scenario is actually unfolding. By knowing in advance due to these pre-determined benchmarks you put yourself ahead of your competition in not only reacting to the events but actually having an outline of a plan in place to take advantage of the situation.

To be successful at scenario planning, your scenario planning team and you must be able to suspend your disbeliefs in all possible futures.

Remember, the cosmic truth of scenario planning rests on the belief that the future cannot be predicted absolutely. Therefore, who is say what is and isn’t really possible?

To help in the suspension of your disbelief, consider the following:

“Silicon intelligence is going to evolve to the point where it will get hard to tell computers from human beings. ” Gorden E. Moore, Intel Corp.

“Silicon will even give birth to new kinds of life. The advantage of this new silicon life is immortality and unimaginable brainpower. Inspired scientists will forge composite human-silicon life forms with a common conscious that transcends all living beings. ” Robert E. Newham, Scientist, Penn State University

“Super brainy machines could make the science fiction nightmare come true. ” Kevin Warwick, Cybernetics Research

The human brain has only a short time left as the smartest thing on earth. The speed and complexity of computers will continue to double every 18 months through 2012. The density of computer circuits will have jumped 1,000 fold and the raw processing power of a human brain will fit into a shoebox. With luck, that milestone may come as early as 2005. ” John C. Carson, Irvine Sensors Corp.

Now that we’ve stated our case in Cyber Power terms, perhaps any disbelief about potential evolutionary change in the distribution industry can be put to rest and we can look at the process of Scenario Planning.

Determine Your Objectives

Look at specific objectives based on your own end game five years into the future. Ask yourself questions related to your specific objectives; should I diversify and take on additional products outside the traditional line? Should I merge with XYZ? Don’t worry too much about the types of questions that come to mind. Exploring all these questions may lead you to discovering the right ones that fit your specific objectives.

Remember, looking into the future, trying to determine the impact of roll ups, big box competition and factory direct channel confusion often leads us only to uncertainty. However, in spite of the uncertainty, it is no longer acceptable to just try to run your business the way you have in the past. Evolution in the distribution industry brought on by the new century is forcing us to set a course in advance, to steer through the cloudy issues on the horizon and put a stake in the ground by investigating different scenarios.

You cannot afford to wait for certainty to appear. By then it may be too late. Consequently, scenario planning can help us make decisions in the midst of uncertainty. That makes it a valuable tool.

Identify External Factors

Factors such as market size, market trends, industry trends, consumer spending, new construction, home sales, remodeling, government regulations, undiscovered market niches and even the level of consumer debt should be considered in the process. Given the impossibility of knowing precisely how the future will evolve means that you must adopt a strategy that is flexible enough to work well over several different scenarios.

Identify the Driving Forces

Forces within your organization and within the distribution industry are critical to your scenario planning. Ask yourself which of these forces are the most critical to your future objectives. Some may affect the scenarios equally. Some may lead you to altering options within the scenario. The purpose of identifying these forces is not to pinpoint future events but to highlight forces that may push your company or the industry in different directions.

Ready, Set, Go

So, we’ve taxed our brain and determined our “end game” for our strategic planning session and it’s now time to get a team together to take a shot at this thing called Scenario Planning. How do we start?

1. Establish an initial planning team. This will likely include all those involved in the strategic planning process, key decision makers and stakeholders.

2. Pick a comfortable, hospitable location to conduct a one to two day retreat.

3. Include an individual from outside the industry, perhaps a board member.

4. Establish the rules:

* Respect

* No idea is crazy or bad

* All alternatives are documented

* Outside the box thinking is encouraged

5. Look at the past and the present as a platform for building future scenarios.

6. Do preliminary scenario planning in small breakout sessions.

7. Discuss breakout session scenarios in the large group and play out the conversations. Build on the concepts.

In a fluid and changing environment, scenarios prepare us for shocks and surprises. We have to develop a very flexible idea of strategy. It is no longer the fixed five year plan, but a vision of the road ahead that is capable of being modified at every twist and turn of events and still allow progress toward our objectives.

In the fluid environment of the distribution industry there are many possible futures. It is somewhat like the weather. It may be fine; it may rain; what if it snows? Strategy must now embrace the “what if?” questions that go outside the reach of our habitual mindset. This requires us to think with multiple futures. Each “what if” question requires a different story of the future, a scenario. Each story will be equally plausible if we can entertain its assumptions. Scenarios are distinctly structured views of the future that are self-consistent and plausible. We must document two to six of the scenarios your team has come up with. A bullet point list of potential action items should accompany each scenario. These document scenarios with the list of action items becomes the basis for a contingency action plan that helps us prepare for the dynamics that may shape the future of the distribution industry.

The Benefits of Scenario Planning

There are several important benefits from taking the scenario planning approach:

1. First, it helps us to avoid the trap of rigid strategy, which carries us too far down a given road to change easily and without great cost.

2. Second, it helps us get out of reactive decision-making in which the environment has the upper hand over our mission. The daily grind can all too easily take our eye off the future and confine us to a vicious cycle.

3. Third, strategic thinking with scenarios is a good way to initiate the capability to be a learning organization, especially if the scenario work is shared widely.

4. Fourth, it is a powerful way of developing deeper alignment (not necessarily consensus) in management teams, even those that have worked together over long periods of times.

Although it is important not to view scenarios as any kind of forecasting of the future, never-the-less organizations that practice it do get better at spotting the driving forces that can change the industry and get a few steps ahead of those who don’t see it coming. This is especially true of discontinuities. In many situations the gaining of even a few months of extra lead-time to meet eventualities represents serious competitive advantage.

Finally, it offers a significant contribution to transforming an organization into an alert objective focused distributor.

Scenario planning is based on the assumption that the end game vision and the strategic plan are flexible. Consequently, a robust flexible strategy that would perform well over different scenarios is essential. This is why it is important to identify specific action items for each scenario. These bullet pointed action items become the challenging factors to test the flexibility of the strategic plan.

Tips For Scenario Team Leaders

Scenario planning is similar to brainstorming - in fact, brainstorming can be very effectively used PRIOR to scenario planning to come up with scenario topics or to kick off the process. The concepts of brain storming - i. e. no boundaries, no pooh poohing! Nothing should stop the flow and the creativity.

A. Avoid Plots Which Follow The “Most Likely” Progression.

The idea behind scenario planning is to get beyond the standard forecasting done for typical strategic planning sessions. Therefore, it is imperative that participants “think outside the box. ” Wild scenarios can always be reined in after the original ideas are extracted from them but mundane scenarios will always be mundane, and will not contribute to growth. Thinking outside the box in its simplest term means that we should not start with today and work forward for our scenario. We need to look to the future and write the scenario as if we are already there.

B. Don’t Allow “Probabilities” To Be Assigned To Scenarios.

As soon as participants see probabilities assigned to their scenarios they will begin to think inside the box again. They will try to “win” by getting the highest score, which undoubtedly will be for the scenario closest to the “normal” progression. Defeat this by valuing all scenarios equally by not assigning values at all.

C. Be Creative With Scenario Names To Stimulate Imagination.

This entire concept is oriented to “outside of the box” thinking, therefore, every effort must be made to stimulate original and creative thought, both in the scenario creation process as well as the strategic planning process that follows it. Use of dramatic and creative names for scenarios will reinforce the creative thought process and add to the excitement.

D. Demand Ownership Of The Scenarios.

Managers at every level MUST accept ownership of the scenario process and the scenarios that are generated by it. The final direction taken by the company may be far from the plots in the scenarios, but the final result will be crafted from the imagination and the findings in the scenarios.

E. Be Creative In Communicating Scenarios.

The scenarios created are the basis for the planning process. If they are dull and communicated poorly, the enthusiasm with which they were created will be lost to the strategic planning process. Relate the strategies in a creative fashion – as a TV news broadcast, a skit, or some other creative outlet.

Scenario planning can be fun.

Scenario planning encourages creativity and it will challenge managers to get beyond old paradigms. Use it as a platform to begin your strategic planning process. You may find it much easier to determine your “end game” once you’ve completed a day of scenario planning. Try it, you might like it. Besides, you have everything to gain and nothing to lose.

Dr. Rick Johnson (rick@ceostrategist.com) is the founder of CEO Strategist LLC. an experienced based firm specializing in leadership. CEO Strategist LLC. works in an advisory capacity with company executives in board representation, executive coaching, team coaching and education and training to make the changes necessary to create or maintain competitive advantage. You can contact them by calling 352-750-0868, or visit http://www.ceostrategist.com for more information.

Rick received an MBA from Keller Graduate School in Chicago, Illinois and a Bachelor's degree in Operations Management from Capital University, Columbus Ohio. Rick recently completed his dissertation on Strategic Leadership and received his Ph. D. He’s also a published book author with four titles to his credit: “The Toolkit for Improved Business Performance in Wholesale Distribution, ” the NWFA & NAFCD “Roadmap”, Lone Wolf-Lead Wolf—The Evolution of Sales” and a fiction novel - “Shattered Innocence. ” Rick’s next book due to be published in November is titled; Lone Wolf – Lead Wolf, The Evolution of Leadership.

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