Entendeo  Briefing:  Preparing  for  the  Future    

Scenario  Thinking      

There   are   two   things   that   we   can   say   for   certain   about   the   future:   it   will   be  different,   and   it   will   surprise.   Despite   this   simple   fact   people,   businesses,  organiza=ons  –  even  whole  socie=es  –  are  constantly  caught  out  by  their  failure  to  an=cipate,  prepare  for   and   respond  to  far-­‐reaching  changes.  We  oBen  hear  that  “Change  is  the  only  constant”  but  we  invariably  behave  as  if  no  change  is  the  only  constant  and  the  status  quo  rules  supreme.  So,  why  is  this  and  what  can  be  done?  

Last   year   a  friend  told  me  a  revealing  story.   She  commutes  to  London  by  train  and  currently   the  service   is  dras8cally   reduced   because   the  company   is  short   of   drivers   (the  company   relied  on  drivers  working  over8me  which  very  few  are  now  prepared  to  do).  It  takes  a  year  to  train  a  driver  so  unless  the  firm  increases  over8me  rates,  which  it  is  unwilling  or  unable  to  do,  there  is  no  quick  fix:  this  is  a  long-­‐term  problem.    In   a   factsheet   published   with   a   temporary   8metable   the   company   says:   “The   situa8on   has  developed   into  significant  disrup8on  as  a  growing  number   of   individuals   increasingly   withdrew  from  working  rest  days  and  over8me.  In  hindsight  perhaps  we  should  have  assumed  a  worst-­‐case  scenario  from  the  beginning.  We  apologise  that   the  message  we  have  communicated  to  you  has  fallen   short   and   our   reac8on   to   unfolding   events   may   have   seemed   reac8ve   rather   than  proac8ve.”  The  reac8on  of   their   customers,   including  my   friend,   is  yes:   you  really   should  have  assumed  a  worst-­‐case   scenario   and   you’re   right   –   a   liKle  more   proac8vity   would   have   been   good.   It’s  temp8ng  to  think  of  this  situa8on  either  as  a  simple  mistake  (the  benign  view)  or  unbelievable  folly   (the  harsher   view).  The  sad  truth  is  that  many  firms  oLen  make  these  types  of  mistake.   In  fact,  the  root  causes  are  oLen  the  same  and,  encouragingly,  so  are  the  solu8ons.  

How  much  do  you  think  about  how  the  world  is  changing?  We  understand  and  can  see  that  the  world  is  changing  all  the  8me  but,  because  we  are  so  focused  and  because  change  is  so  ubiquitous,  we  fail  to  think  deeply  about   the  implica8ons.  To  illustrate  this  point,  consider  a  few  simple  facts.  Around  the  year  1800  global  popula8on  reached  1  billion,  by   1900   it   was   1.6   billion   and   by   2000   it   had   reached   6.1   billion   (global   popula8on   actually  doubled   between   the   administra8ons   of   Presidents   Kennedy   and   Clinton).   Current   world  popula8on  is  approximately  6.9  billion  and  set  to  plateau  at  around  9  billion  by  the  middle  of  the  century.  This  is  fascina8ng  but   it   is  the  implica8ons  of  this  change  that  maKer  most.  More  people  are   living   longer   with   consequences   for   markets,   products,   innova8on,   employment,   skills,  leadership  and  a  range  of  other  issues.  There  is  more  migra8on,  so  everything  from  the  supply  of  skills   to   cross-­‐border   trade   alters;   there   is   more   urbanisa8on,   so   the   incidence   of   business-­‐disrup8ng  plagues  such  as  SARS  increases  alongside  commercial  opportuni8es.    Too  oLen  we  see  the  change  but  fail  to  appreciate  the  implica8ons.  For  example,  we  can  say  today  that,   barring  an  unprecedented  global  catastrophe,   there  will  be  around  2.2  billion  people  over  the  age  of  65  alive  in  2050.  This  isn’t  guesswork:  all  of  those  people  are  alive  today.  The  point  is  that  predic8ng  the  future  isn’t  the  challenge:  understanding  it  is.  

Briefing:  Scenario  Thinking             1

Why  we  fail  to  understand  the  futureSo,  what  does  this  have  to  do  with  my  friend  wai8ng  for  her  train?  I  believe  her  train  company’s  predicament   is  shared  by   thousands  of  other  businesses.   They   believe  the  past  is  a  guide  to  the  future  and  they  fail  to  see  how  the  world  is  shiLing  (in  this  case,  the  a^tude  of  the  train  drivers).  This  simple  fact  has  caught  out  many  leading  businesses  including:  Lehman  Brothers,  Woolworths,  MFI,   Kodak,   General  Motors,   Daewoo  and   others.   In  most   of   these   cases  complacency   and   a  commitment  to  the  status  quo  escalated  in  a  smooth,  undisturbed  fashion.  The  danger  is  that  lack  of   awareness  and   connec8on   to   the   outside   world  will   increase   gradually,   incrementally   and  almost  impercep8bly.  This  simple  fact  provides  the  founda8on  for  most  business  difficul8es.  Firms  

that  declined  or   failed  simply   did  not   do  enough  to  understand  or   prepare  for   the  future  during  the   good   8mes.   In   retrospect,   countless  execu8ves  recognize  that   good   is  the  enemy   of  great  –  meaning   their   firms  were  doing  well  so  they   saw  no  reason  to  change.  By   the  8me  they  came  to  realize  that  the  world  around  them  had  changed   (notably   customers,   compe8tors,  regulators  and  –   in  the  case  of  my   friend’s  train  company   –   their   employees)   it   was  too   late   to  respond.

Ac=on  checklist:  scenario  planning  The  scenario-­‐thinking  process  is  not  one  of  linear  implementa8on,   its   effec8veness   lies   in  s8mula8ng   decisions,   what   is   termed   the  strategic   conversa8on.   This   is   the   con8nuous  process  of  planning,   analysing  the  environment,  genera8ng   and   tes8ng   scenarios,   developing  op8ons,  selec8ng,  refining  and  implemen8ng  –  a  process   that   is   itself   refined   with   further  environmental  analysis.  

Planning  and  structuring  the  scenario  process.  The  first  stage  is  to  iden8fy  gaps  in  organisa8onal  knowledge   that   relate   specifically   to   business  challenges  whose  impact   on   the   organisa8on   is  uncertain.  To  do  this,  create  a  team  to  plan  and  structure  the  process.  The  team  should  probably  come  from  outside  the  organisa8on  and  its  members  should  be  noted  for  their   crea8ve  thinking  and  ability  to  challenge  conven8onal  ideas.  An  external  team  is  beKer  placed  to  provide  objec8ve  support,   free  from  internal  agendas  or  tensions.  In  discussion  with  the  team,  then  decide  on  the  dura8on  of  the  project;  ten  weeks  is  considered  appropriate  for  a  big  project.  Exploring   the   scenario   context.   Team   members  should   be   interviewed,   to  highlight   the  main  views  and  to  assess  if  these  ideas  are  shared  between  different  team  members.  Ques8ons  should  focus  on  vital  issues  such  as  sources  of  customer   value,   the  current   success  formula  and  future  challenges,   iden8fying   how  each   individual  views  the  past,   present   and  future  aspects  of   each  issue.  The  interview  statements  should  be  collated  and  analysed  in  an  interview  report,  structured  around  the  recurring  concepts  and  key  themes.   This  now  sets  the  agenda  for   the  first  workshop  and  should  be  sent  to  all  par8cipants.  It  is  also  valuable  to  iden8fy   the  cri8cal  uncertain8es  and  issues,  as  perceived  by  the  par8cipants,  as  a  star8ng  point  for  the  workshop.  Developing  the  scenarios.  The  workshop  should  iden8fy   the  forces  that  will  have  an  impact  over  an  agreed  period.   Two  possible  opposite  outcomes  should  be  agreed  and  the  forces  that  could  

Briefing:  Scenario  Thinking             2

!

The$Rules$of$Scenario$Planning$Gather$your$colleagues$together$and$develop$scenarios$–$possible$visions$of$the$future.$The$aim$is$not$to$predict$what$will$happen:$it$is$to$understand$the$forces$shaping$the$future.$It$can$help$to$approach$the$task$with$energy$and$information,$building$on$ideas.$In$addition:$$• Understand$your$situation$(and$how$

you$got$here)$and$use$that$as$a$starting$point.$$

• Let$your$imagination$roam$free$and$be$positive,$constructive,$challenging$and$questioning$$

• Sweat$the$details$$$

lead  to  each  of  them  should  be  listed.  This  will  help  to  show  how  these  forces  link  together.  Next,  decide  whether  each  of  these  forces  have  a  low  or  high  impact  and  a  low  or  high  probability.  This  informa8on  should  be  displayed  on  a  2  X  2  matrix.  It  is  impossible  to  manage  effec8vely  in  the  short-­‐term  without  forming  a  medium  and  long-­‐term  view  of  the  future.  Doing  the  wrong  thing,  even  efficiently,  gets  you  nowhere.  By   having   two  polar   outcomes  and  all   the  driving  forces  clearly   presented,   the  team  can   then  develop  the  likely   ‘histories’   –   or   scenarios  –   that   led   to   each  outcome.   These  histories  of   the  future  can  then  be  expanded  through  discussion  of  the  forces  behind  the  changes.  The  aim  is  not  to  develop  accurate  predic8ons,  it  is  to  understand  what  will  shape  the  future  and  how  different  events  interact  and  influence  each  other.  All  the  8me,  discussions  are  focused  on  each  scenario’s  impact  on  the  organisa8on.  This  part  of  the  process  opens  up  the  thinking  of  the  members  in  the  team  and  it  makes  them  alert  to  signals  that  may   suggest  a  par8cular  direc8on  for   the  organisa8on.  The  outcomes  of  different  responses  are   ‘tested’   in   the   safety   of   scenario  planning,   avoiding   the  risk   of   implemen8ng   a  strategy  for  real.  Analysing   the   scenarios.   The   analysis   stage   examines   the   external   issues   and   internal   logic.  Consider:• What   are   the   priori8es   and   concerns   of   those   outside   the   organisa8on,   who   are   also  

responsible  for  the  main  decisions  in  the  scenario?  • Who  are  the  other  stakeholders?  • Who  are  the  key  players  and  do  they  change?  • Would  they  really  act  and  make  decisions  in  the  way  described?  Systems  and  process  diagrams  can  help  address  these  ques8ons,   as  can  discussions  with  other  stakeholders.   Remember,  we  are  not   trying  to  pinpoint  future  events  but  to  consider   the  forces  that  may  push  the  future  along  different  paths.  Using   the   scenarios.   Working   backwards   from   the   future   to   the   present,   the   team   should  formulate  an  ac8on  plan  that  can  influence  the  organisa8on’s  thinking.  Next,  it  should  iden8fy  the  early   signs  of   change  so  that  when   they   do  occur,   they   will  be  recognised,   and   responded   to,  quickly   and   effec8vely.   The   process   then   con8nues   by   iden8fying   gaps   in   organisa8onal  knowledge.   The  par8cipatory   and  crea8ve  process  sensi8ses  managers  to   the  outside  world.   It  helps  individuals  and  teams  to  recognise  the  uncertain8es  in  their  opera8ng  environments  so  that  they   can  ques8on  their   everyday   assump8ons,  adjust   their   mental  maps  and  think  ‘outside  the  box’.  

Avoiding  problems  with  scenarios  People  who  work  with  scenarios  find  it  to  be  exci8ng,  valuable  and  enjoyable.  It  can  also  lead  to  a  tangible  and  significant   result:   a  shiL   in   a^tude,   as  well  as  greater   certainty,   confidence   and  understanding.  However,  it  is  necessary  to  keep  in  mind  some  of  the  problems  that  may  arise  such  as:• Misunderstanding   what   it   is   that   the   scenarios   are   intended   to   achieve.   Scenarios  are  not  

predic8ons,  they  are  a  guide  to  understanding  what  possible  futures  lie  ahead  and  what  forces  may  be  at  work  –  now  and  in  the  future  –  to  make  these  futures  a  reality.  

• Failing  to  create  or  explore  scenarios  that  are  either  viable  or  sufficiently  imagina8ve.  Too  oLen  people  rely   on   in-­‐house  views,   tradi8onal  percep8ons  and  internal  problems  –   the  resul8ng  scenarios  are  then  too  narrowly  focused  or  close  to  home.  

• Failing  to  adopt  a  rigorous,   intelligent   and  informed  approach.  Scenario  planning  begins  with  deep  and  thorough  analysis  and  understanding  of  the  present.  

Briefing:  Scenario  Thinking             3

• Ignoring,  downgrading  or  simply   failing  to  act  on  the  scenarios.  Make  sure  that  scenarios  are  rigorous  and   give   them   status,   for   example,   by   off-­‐site   mee8ngs,   high-­‐level   sponsors  and  management  feedback.  Also,  use  the  scenarios  to  drive  decision-­‐making  by  s8mula8ng  debate.  They  should  be  used  to  develop  strategy,  test  business  or  project  plans  and  manage  risk.

• Failing  to  communicate  the  scenario,  with  the  result  that  it  does  not  become  embedded  within  thinking  or   decision-­‐making.  Instead,  use  imagina8ve  and  frequent  communica8ons  to  embed  scenario  thinking  into  discussion  and  decisions.  

• Misunderstanding   the   link   between   short-­‐term   and   long-­‐term   success   and   prosperity.   If  management   orients  the  business  towards  a  successful  future,   that   automa8cally   points  the  company   towards   opportuni8es   for   enhanced   profitability,   produc8vity   and   customer  sa8sfac8on   in   the   short-­‐term.   Remember,   short-­‐term   victories  won   at   the   expense   of   the  future  inevitably  end  up  as  defeats.      

Key  ques=ons  • What  are  the  crucial  ques8ons  facing   the  organisa8on,   the  ques8ons  whose  answers  imply:   I  

wish  I  had  known  this  five  years  ago?  • Do   current   strategic   approaches   typify   tradi8onal,   business-­‐as-­‐usual   thinking?   Are   you  

prepared  to  accept  that  a  strategy  is  failing  or  is  vulnerable?  • Is  the  organisa8on  in  touch  with  market  developments  and  the  needs  of  customers?  • Are  you  prepared  to  challenge  your  confidence  in  exis8ng  orthodoxy?  • Is  any  part  of  your  organisa8onal  planning  weak  and  lacking  clear  direc8on?  • Do  you  lack  confidence  in  your  ability  to  engage  in  strategic  debate?  • In   your   decision-­‐making   process   do   you,   as   a   maKer   of   rou8ne,   always  consider   mul8ple  

op8ons   before   deciding?   Is   the   quality   of   your   strategic   thinking   limited,   narrow   and  uninspired?  

• Is  your  organisa8on  afraid  of  uncertainty,  or  does  it  enjoy  thinking  about  it?  Do  people  see  it  as  a  threat  or  as  an  opportunity?  Is  it  recognised  as  a  poten8al  source  of  compe88ve  advantage?

Making  it  happen  Scenarios   are   tools   for   examining   possible   futures.   This   gives   them   a   clear   advantage   over  techniques   that   may   be   based   on   a   view   of   the   past.   In   a   rapidly   changing   and   largely  unpredictable   environment,   assessing   possible   futures   is   one   of   the   best   ways   to   promote  responsiveness  and  directed  policy.   The  following  ac8vi8es  can  be  done  with  members  of   your  team:  • Ask  team  members  for   their   ‘histories  of   the  future’:   how  things  will  look   (say   in  five  year’s  

8me)  and  how  we  reached  that  point.  Allow  one  or  two  days  for  people  to  develop  scenarios  based  on  exis8ng  informa8on  within  the  company.  Use  scenarios  to  s8mulate  debate,  develop  resilient  strategies  and  test  business  plans  against  possible  futures.

• Hold  workshops  off-­‐site  to  allow  op8mum  reflec8on  and  absorp8on  8me.  For   a  single  capital  project,   try   back-­‐of-­‐the-­‐envelope   calcula8ons   to   capture   the   essen8al   differences   in   the  viability  of  alterna8ves.  To  assess  the  likelihood  of  a  scenario  coming  true,  use  early   indicators—events  that  should  be  seen  in  the  next  year  or  so.

• Communicate  scenarios  graphically,  for  example,  by   imaginary  newspapers  wriKen  as  if  in  the  future,  day-­‐in-­‐the-­‐life  stories,  film  or  glossy  booklets.  

Ac8vi8es  that  you  can  complete  yourself  to  plan  for  the  future  include:  

Briefing:  Scenario  Thinking             4

• Regularly  reading  trade  and  business  publica8ons  focusing  on  your  industry,  finance,  business,  poli8cs   and   economics   (for   example,   the   Financial   Times,   The   Economist,   Fortune,  BusinessWeek).  

• Maintaining  and  reviewing   informa8on  on  economic,   social,   technological  and  governmental  and  regulatory  trends.  

Delivering   to   your   boss,   peers   and/or   team   members   a   presenta8on   on   the   major   changes  (technological,  socio-­‐economic,  regulatory  and  commercial)  likely   to  affect  your  business  over  the  next   three  years.  This  could  coincide  with  the  annual  planning  cycle  or   contribute  to  a  strategic  plan.   The  presenta8on   should:   quan8fy   the   poten8al  impact   of   poten8al  changes;   detail  your  ac8ons  to  meet  these  changes;  be  prepared  regularly   (twice  each  year);  keep  informed  and  up-­‐to-­‐date  by   joining  a  professional  membership  or  trade  associa8on.  These  are  especially  valuable  for  networking   and   aKending   seminars.   Also,   find  a  relevant  website  and  subscribe  to  their   email  alerts.

Scenarios:  learning  from  the  past,  preparing  for  the  futureTwo  other  ques8ons  are  worth  considering:  what  are  the  lessons  from  the  current  recession?  How  is  corporate  success  sustained?  There  is,  of  course,  a  fortune  to  be  made  (or,  at  least,  not  lost)  for  the  person   that   answers  these  ques8ons,   so  unsurprisingly   many   have  tried.   The  best   answers  appear  consistently  and  they  lie  at  the  heart  of  scenario  planning.  1.  Use  scenarios.  Scenarios  are  not  about  predic8ng  events  but  understanding  the  forces  shaping  the   future.   The   priority   is   to   explore   poten8al   situa8ons   and   op8ons.   Scenarios   enable  organiza8ons   to   rehearse   the   future   so   they   are   prepared.   They   help   firms   to   recognize  opportuni8es,  assess  op8ons  and  take  decisions.  2.  Avoid  ac?ve  iner?a.  Donald  Sull,  author  of  Revival  of  the  FiKest  believes  managers  get  trapped  by  success,  a  condi8on  he  calls  ac8ve  iner8a.  This  is  when  managers  respond  to  disrup8ve  changes  by  accelera8ng  ac8vi8es  that  succeeded  in  the  past,  oLen  simply  digging  itself  further  into  a  hole.  Ac8ve  iner8a  is  overcome  by  focusing  on  new  goals  and  priori8es.    3.  Understand  the  limits  of  your  success.  Managers  become  used  to  opera8ng  with  a  formula  that  is  familiar  and  has  achieved  success.  However,  when  the  situa8on  alters  (a  global  recession  arrives  or  train  drivers  get  res8ve)  then  strengths  become  weaknesses  and  assets  become  liabili8es.    4.  Avoid  drama?c  change.  Jim  Collins,  best-­‐selling  author  of  Good  to  Great,  argues  that  drama8c  changes  and  restructurings  may  save  the  day  but  they  do  liKle  to  develop  success.  What  maKers  is  sustained,  cumula8ve  progress  and  change.5.   Keep   it   real  and   confront   the  honest   truth.  When  considering   the  causes  of  change  we  see  people  unable   to   understand  or   adapt   to   change.   In   retrospect,   people   iden8fy   changes  that  passed  unno8ced  at  the  8me.  Typical  examples  include  new  products  and  new  subs8tutes  arriving  or  changes  in  technology  and  markets.  Above  all,  look  to  understand  the  future.  Surprisingly  few  businesses  seem  to  do  this  –  even  now  –  which  of  course  is  an  opportunity  for  those  that  do.  

Jeremy  Kourdi  is  a  writer  and  execu8ve  coach.  For  more  informa8on,  see  www.Entendeo.com.  

Briefing:  Scenario  Thinking             5

Contact

Brian Edwards, Managing Director Jeremy Kourdi, Director E: BEdwards@Entendeo.com E: JKourdi@Entendeo.com M: +44 (0)7974 194756 M: +44 (0)7905 609590 T: +44 (0)207 562 8910 T: +44 (0)207 562 8910

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Briefing:  Scenario  Thinking             6