The trouble with the future
Many organisations do some form of long term planning, and typically such plans are based on forecasts which extrapolate the present into the future (e.g., by talking a spreadsheet and adding a set percentage to key numbers!). Even when such plans include future ‘scenarios’ these typically reflect the best and worst cases which can be thought of at the time (i.e., the biggest and smallest percentages which can be imagined).
Such plans are based on the assumption that tomorrow will be pretty much like today. If the past few years has taught us anything, it is that such assumptions are flawed, and the future may look very different from how you imagine it today (even the near future). This is what Cicero called, “the tyranny of the present”.
However, there is another approach to planning which can help identify a set of alternative visions of the future. These tools are useful not just for planning but also for innovation, helping us break down out ‘present’ assumptions and see how different the world may look. Woody Wade’s book Scenario Planning provides a clear introduction to the overall approach.
Anticipate more than the future
“What we anticipate seldom occurs; what we least expected generally happens.” – Benjamin Disraeli
If you are asked to prepare a five or ten year plan, what should you do? Out ability to anticipate the future is very limited. Who would have imagined until recently that Nokia and perhaps RIM would both be on the way to decline in the mobile phone market? Who can be really sure that Facebook and Twitter will be the main social platforms in five or ten year’s time? None of us have a crystal ball about the future, and forecasting is not the best approach, and it is always better to think through the key dimensions of change and how these could lead to different visions of the future. This is the essence of scenario planning.
Scenario planning challenges the idea that there is a future which is most likely to emerge, and embraces the idea that there are a range of possible futures which may emerge. Such possibilities will be reflected in alternative scenarios, each plausible, opening your eyes to the different ways the future may look, leading to more thoughtful planning and smarter thinking about the future.
Right projections, wrong assumptions
Many companies have been taken by surprise, often reacting too late to big changes in the marketplace. Think not just of Nokia and RIM, but also Polaroid (fixated on film), Sun Microsystems (fixated on hardware), Swissair (ignored budget airlines), Borders (fixated on physical books) and Napster (ignored legal environment). They all never had a plan for X, and then X happened.
Scenarios are not predictions, rather they are explorations of the future and how it might develop. The problem with predictions is that they are often based on research of existing customers (read Clayton Christensen), which fail to capture new market dynamics (especially when they are in smaller markets outside the mainstream). Thus predictions miss the interesting and disruptive innovations which happen outside the mainstream and only hit the radar when it’s already too late for change.
It is always better to ask the question ‘what if?’ than ‘what?’ in planning. And ask it regularly. Exploration plus preparation is essential to anticipating the future, exploring the where, when, how, what, who and why of the market place. Here are some tips on how to do this effectively.
It’s not rocket science
The process of scenario planning is quite straightforward. The main steps are:
Framing the business challenge
- Gather information
- Identify the key drivers of change (assumptions)
- Define the future critical either/or assumptions and uncertainties
- Build a framework which incorporates the key drivers
- Create scenarios which reflect potential directions within the framework
- Develop key scenarios and relevant storylines
The scenarios you develop by following this process can then be tested, validated, researched and monitored. This should be done with a reasonable sized group of intelligent, motivated, imaginative and strategic thinkers who represent different business perspectives and have a diversity of experience and point of view.
The business challenge must be framed to answer specific questions about the future (with a defined time horizon). You then need to gather information (across all the stakeholders) to pull together as much information about the challenge as you can. Personal interviews with stakeholders are a highly effective way of doing this, ensuring that you probe their views of the future (again, with a specific timeline), asking questions such as, “If you could see 10 years into the future, what two or three things would you look for that would help you understand how the future has turned out?”
The key to scenario planning is to identify the driving forces that will shape the future. A driving force is something with the potential to bring about significant change in the future (perhaps a trend in behaviour, an economic indicator, a political uncertainty, etc). Typically scenario planning looks at four key categories in understanding driving forces (think PEST):
There are many models out there which sometimes also include business methods, natural resources, demographic, international, legal and environmental drivers of change. It is good to generate as many of these forces as possible and then prioritise (typically 100 can be generated in a planning workshop).
The next step in planning is to identify the key unknowns of the future – those which can make the biggest difference (impact) and those which are most uncertain (degree of uncertainty). By focusing on dimensions with high impact and high uncertainty you can be sure of focusing on the most critical and most extreme scenarios for the future.
Ideally, if you can identify two such dimensions with high uncertainty and high impact then you can map a quadrant with four potential future scenarios which express the extremes of these dimensions. These scenarios should be mapped out and developed as story based visions of the potential future. Creating stories around the scenarios is a great way to make them real and to really interrogate how they may play out. The scenarios are worth validating, and then identifying what key triggers may lead to such a future outcome. Key triggers can be monitored to ensure that the business keeps track of how the future develops.
By definition, black swan events cannot be predicted. But many major disruptions to the future can, and a more structured approach to understanding and planning for the future can help your business ride the waves of change, making sure that you are the winners and not the losers of future changes.
As Louis Pasteur said, “Chance favours the prepared mind.”
Scenario Planning: A Field Guide to the Future by Woody Wade (2012)