Scenario -Based Strategic Planning

Traditional forecasting techniques don't capture significant changes in the firm's external environment. Important opportunities and serious threats may be overlooked.

Scenario planning is designed to deal with major, uncertain shifts in a firm's environment. And EVERY firm is dealing with major uncertainty today, even if management THINKS it is in a stable, slow-changing world.

Xerox, in the 1980s, failed to see its “paper” world dissolving, despite warnings from its own scientists. Xerox sold the “Star” Graphic User Interface (GUI) for next to nothing. The Star interface was the basis on which Apple Computing was built. Twenty years later, Xerox was a shadow of its former self. And Apple? You probably know its story.

Scenario planning has its roots in military strategy studies. Scenario planning was transformed into a business tool in the late 1960's and early 1970's. Scenario planning is not about predicting the future, which is rife with assumed – and cumulative – error. Rather, scenario planning does just what it says – sketches alternative universes. The result of a scenario strategic planning effort is a collection of distinct, plausible futures. The challenge then is how to deal with each one.

Scenario planning often takes place in a workshop setting of high level executives, technical experts, and industry leaders. The idea is to bring together a wide range of perspectives in order to consider scenarios other than the widely accepted forecasts.

Often the planning begin with “best case/worst case.” But it should not- indeed, cannot – end there. Both “best” and “worst” are based in only one scenario – the extrapolated present. Neither, for example, would have predicted for Xerox the alternative future of personal computers. Would strategic scenario planning have uncovered this future? Maybe, maybe not – but most assuredly would have taken into account the reduction of the dominance of the paper storage of information.

The scenario development process should include interviews with managers who later will formulate and implement strategies based on the scenario analysis. Without their input the scenarios may leave out important details and not lead to action if they do not address issues important to those who will implement the strategy. But needed too are others, inside or outside the line group, who will call into question the global efficacy of “core competencies,” marketplace assumptions, and existing/emergent technologies.