Simpler Scenarios

Article information:To cite this document: David Mercer, (1995),”Simpler scenarios”, Management Decision, Vol. 33 Iss: 4 pp. 32 – 40 Permanent link to this document: Downloaded on: 27-11-2012 References: This document contains references to 5 other documents Citations: This document has been cited by 18 other documents To copy this document: [email protected] This document has been downloaded 802 times since 2005. *

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Simpler scenariosDavid Mercer Scenario forecasting as a technique for long-range planning must be kept simple to be effective

Development of a practical approach to scenario forecasting to guide strategy was initiated by Wack[1] in 1971 at the Royal Dutch Shell group of companies – and it was given impetus by uncertainty resulting from the oil shock two years later. Unfortunately, in common with most forms of long-range forecasting, the use of scenarios has now declined markedly. Indeed, it has become the province of only a handful of private-sector organizations; and Shell remains almost alone among them in keeping the technique at the forefront of its long-range planning. It is possible that some part of this reduction in use arose from the shortening of planning horizons which accompanied the deepening recession in the early 1990s.

On the other hand, the evidence suggests that the technique’s fall from favour started rather earlier than this, and was at least as much the result of the complexity of the process itself, which could no longer be supported when the large corporate planning departments were disbanded, and many of their responsibilities passed to line management, earlier in the 1980s. Whatever the reason, the resulting lack of scenario forecasting skills in most organizations may now prove to be an embarrassment as the recession eases over the next few years and managements once more start to consider their long-term futures. The position may prove doubly embarrassing where there are so many discontinuities now lying in wait for the unwary.

A number of revolutionary forces are converging on the millennium. Post-modernism, post-materialism, postFordism and now post-politics, all with rather different implications for an organization, are set to peak at the beginning of the next century. Most important of all, the IT revolution – after stalling for a decade while there was a switch of hardware to decentralized processing – has now been given a dramatic new impetus by the massive investments in super-highway infrastructure which build on this decentralization. The resulting uncertainties Management Decision, Vol. 33 No. 4, 1995, pp. 32-40 © MCB University Press Limited, 0025-1747

facing organizations, as these separate waves of progress interact unpredictably with one another to create major new discontinuities in the organizational environment, are larger in number and potentially greater in impact than the equivalents after the oil price shock of the 1970s. The latter created the original demand for scenarios. It is likely that the new shock waves will, in like manner, resuscitate the demand for this form of forecasting.

On the other hand, much of the development work reported to date, including that undertaken by Shell, has focused on improving the effectiveness of the techniques involved. Mindful of the complexity which seemed to contribute to the reduction in use, and of the resultant scarcity of skills among the line managers who have become the new strategic planners, we have concentrated our own efforts on making the overall scenario planning process easier to use. Our developments, therefore, make the process more accessible to a wider range of organizations.

More important, perhaps, they now make the technique suitable for use by those line managers – across the organization – who might want to use it as part of their planning processes, without the need for extended involvement of outside experts, or corporate staff specialists The simpler processes described in this article still retain the ability to handle uncertainty. In our experience, however, their greatest virtue – especially in the wider context that the simplified forms allow – is that their use naturally and painlessly widens managers viewpoints

The author is grateful to the many Open Business School (OBS) academics and the literally hundreds of OBS students who have contributed to this work, as well as the several hundred organizations who have contributed to the related “Millenium Project”. In addition, it should be obvious, from the many comments in this article, that his overall inspiration and many of the detailed ideas were drawn from the experience of the corporate planning group at Shell. The author thanks them, and in particular Graham Galer, for their invaluable help, and hopes that as a result of this article others will be able to emulate their success in future.

and helps to extend their planning horizons beyond the short term. In thisway it can alert them to potential longterm threats, while ensuring that they do not overlook major long-term opportunities. To conclude this introduction, I should explain that the practical guidelines described are directly based on our work[2] in the field over the past three years with more than 1,000 managers and professionals, who between them have written more than 4,000 full length scenarios.

business. Beyond this, they are also recommended to develop an informed viewpoint, which will improve their chances of recognizing early signs of change, no matter from which direction they are coming. In practice, we have found that almost all participants use general reading as the main source of their analysis, combined with the more specific information they receive from their industry and specialist press they read as a normal part of their work. Indeed, it has to be noted that the type of information which is required for environmental scenarios is most probably that which the participants have already assimilated from their general and specialist reading.

We have found that those involved in the production of our own scenarios, for instance, need to bring to the process no more than their existing knowledge.

Scenarios can be simple and effectiveThe most important message to emerge from this work, fortunately, is that scenarios can be simple. In our experience, the simpler they are – and the simpler the process used to derive them – the more effective they may be; not least because those using them are able to understand how they work.

Even Shell, which is reportedly the world’s leading commercial user of scenario forecasting, now uses relatively simple techniques to create its scenarios; ones that are far removed from the academic sophistications of earlier times. In fact, even the basic concepts of the process are relatively simple. In terms of the overall approach to forecasting, they can be divided into three main groups of activities which are, generally speaking, common to all long range forecasting processes: (1) environmental analysis; (2) scenario forecasting; (3) corporate strategy.

Of these only the central part represents the specific techniques which differentiate the scenario forecasting process from the others in long-range planning; and itis this, not surprisingly, which will take up most of the rest of the article.

One organization brought 300 managers into the process In addition, there seems to be no special expertise involved in detecting these shifts. One approach recommended in the literature is to use a range of employees (in the most extreme – and reportedly most successful – version, using the whole spectrum of employees from senior managers right the way down to janitors) to input their observations – thus capturing a very wide range of viewpoints (which seems to be an especially important aspect of this part of the process).

Indeed, perhaps the best advice is to analyse the external environment as a team. If nothing else, this extends the coverage of the scanning; but it also seems to go much further to amplify the early signs of change and develop resonances as the team members interact with one another, comparing notes as the process develops.

On the basis of our work, we would generally recommend the use of teams of between six and eight participants, though the number may be expanded to ten participants where they are used to regularly working together (and this is the level recommended by Shell). On the other hand, we ourselves typically involve the whole Open Business School (OBS) management group of around 30, by splitting it into three separate teams which work in parallel; one of the organizations we advise has brought more than 300 managers into the process by running multiple teams on a similar basis.

Environmental analysisAs with all forecasting, scenarios can only be as good as the information on which they are based. For this reason the analysis must be of as high a quality as possible. Even so – mindful of the limited resources available within most organizations – it will probably not justify an excessive level of sophistication and, fortunately, our experience again indicates that such sophistication is rarely demanded. Thus, the practical advice we give to managers is quite simply to cultivate a deep curiosity about the external environment and to maintain maximum exposure to the widest range of media, where changes often appear in subject areas far from day-to-day

The subsequent analysis needs more rigour. The key here is that the process is one of education for the team – by total immersion in the facts which define the environment they are studying. When the scenario development finally gets under way it is not the material available on paper that is productive, it is what is in the team’s heads. Indeed, the first stage of scenario forecasting – the choice of the assumptions – is embedded in this supposedly earlier process of environmental analysis. It is inevitable that, as the team works together on the analysis, it will start to develop ideas as to what the assumptions might be.

The group will probably have spent a considerable time over the weeks, and perhaps months, that the environmental analysis should take arguing about what these mean. We have found, as has Shell, that the use of computer conferences is one particularly productive way of handling this type of input, and have used it to extend the debate to a network of contributors throughout the organization and beyond. On the other hand, the key elements of the process can be encapsulated in a relatively few hours.

Our own scenario production process, within the OBS planning cycle, typically lasts no more than two days, during which time the 30-person team is dedicated to this. commitment to search for those forces which will act to change the future. Perhaps the most difficult aspect is freeing the participants from the preconceptions they take into the process with them. In particular, in our experience, most participants will want to look no further than the medium term, five to ten years ahead.

The most difficult aspect is freeing the participants from preconceptions This may not seem a problem, when a decade is a very long time in many areas of commercial activity, but we have found that a time horizon of anything less than ten years frequently results in participants extrapolating from present trends, rather than considering the alternatives which might face them. 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. There is a similar problem with expanding participants’ horizons to include the whole external environment.

Only a fifth of the scenarios produced by our managers could be truly considered as being externally oriented. The largest category took in some of the external environment but mixed it with internal factors, but a surprisingly high proportion wrote what amounted to corporate scenarios which just described the future of the organization itself, largely on the basis of internal factors.

The good news is that if you can persuade them to address the ten-year horizon, perhaps an easier task, this also tends to make them look further out in terms of the external environment. In addition, the contrasting perspectives which should be held by the various members of a wellchosen team – especially one which contains at least one participant who is willing to challenge the status quo – seems most likely to ensure that the resulting scenarios incorporate the widest range of viewpoints and identify the largest number of significant discontinuities.

Scenario planningAs has already been stated, the 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. Even this, however, at its most basic level, is relatively simple – requiring just six steps: (1) decide the drivers for change; (2) bring drivers together into a viable framework; (3) produce initial (seven to nine) mini-scenarios; (4) reduce to two or three scenarios; (5) write the scenarios; (6) identify issues arising.

Step 1: decide the drivers for changeThe first stage is to examine the results of the environmental analysis to determine which are the most important factors that will decide the nature of the future environment within which the organization operates. These factors are sometimes called “variables” (because they will vary over the time being investigated). We tend to prefer the term “drivers” (for change), since this terminology is not laden with quasi-scientific connotations and reinforces the participant’s

Brainstorming The subsequent brainstorming to discover the less obvious factors, which is an integral part of practical scenario planning, may be conducted according to any of a wide range of protocols. Our own experiencehas ranged

from the traditional use of flip-charts to the more adventurous – but equally successful – use of computer conferences. On the other hand, the simple technique we have come to recommend for general usage is based on the now almost universal availability of Post-it notes. It is a very simple technique which is especially useful at this brainstorming stage, but we now also use it more generally for handling all scenario planning debates, and it may be used to support any form of planning process.

In line with our objectives of simplicity and ease-of-use, however, it requires only a conference room with a bare wall and copious supplies of 3M Post-it notes! Working as a team, certainly during the brainstorming process, is an almost essential aspect of successful scenario forecasting. It is very difficult for individual forecasters to develop the wide range of viewpoints and ideas which result in the identification of even significant discontinuities in the future.

normal brainstorming and typically lasts the same length of time – say, an hour or so only. It is important that all the participants feel they “own” the wall and are encouraged to move the notes around themselves. 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 this context. 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 involved.

Although workable scenarios can be produced by teams new to the process, it initially helps if at least one member – often an outside expert – has had previous experience and, in particular, has had some experience of the insights which may emerge from the process. In general, it also helps if at least one member, perhaps again an outsider, is willing, and indeed motivated, to challenge the basic assumptions held by the organization. The most important insights typically emerge from such challenges.

Attention must concentrate on a limited number of issues Ideally, the people taking part in such face-to-face debates should meet in a conference room environment, isolated from outside interruptions. At the start of the meeting itself any topics which have already been identified during the environmental analysis stage are written, preferably with a thick magic marker so they can be read from a distance, on separate Post-it notes. These Post-it notes are then, at least in theory, randomly placed on the wall. In practice, we have found that even at this early stage the participants will want to cluster them in groups which seem to make sense.

The only requirement – which is why Post-it notes are ideal for this approach – is that there is no bar to taking them off again and moving them to a new cluster. As in any form of brainstorming, the initial ideas almost invariably stimulate others, and hence justify the use of a team approach. Indeed, everyone should be encouraged to add their own Post-it notes to those on the wall. It should be noted, however, that it differs from the “rigorous” form described in “creative thinking” texts, in that it is much slower paced and the ideas are discussed immediately. Ideas may be removed, as not being relevant, as well as being added.

Even so, it follows many of the same rules as Important and uncertain This step, however, is also one of selection, since only the most important factors will justify a place in the scenarios.

The 80:20 rule here means that, at the end of the process, management’s attention must be concentrated on a limited number of the most important issues. In addition, as scenarios are a technique for presenting alternative futures, the factors to be developed must be genuinely variable.

They should be subject to significant alternative outcomes. Factors whose outcome is predictable, but important, must be spelled out in the introduction to the scenarios, since they too cannot be ignored. At 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. They may use figures, diagrams or words in any combination.

Step 2: bring drivers together into a viable frameworkThe next step is to link these drivers together to provide a meaningful framework. This is probably the most (conceptually) difficult step. It is where managers’ intuition – their ability to make sense of complex patternsof soft data which more rigorous analysis would be unable to handle – plays an important role.

At this stage, therefore, the participants try to arrange the drivers which have emerged from the first stage into groups which seem to make sense to them. Initially there may be many such small groups. The intention, therefore, should be to merge these gradually, often having to recreate them from new combinations of drivers to make these bigger groups work. The aim of this stage is eventually to make six to eight larger groupings: “miniscenarios”. This is where the Post-it notes are almost essential – they will continue to stick no matter how many times they are moved around (and they may be moved dozens of times over the length – perhaps several hours or more – of each meeting).

While this process is taking place the participants will probably want to add new topics – so more Post-it notes are added to the wall. In the opposite direction, the unimportant ones are removed, possibly to be grouped, again as an “audit trail”, on another wall. In particular, though, the topics which are deemed to be certain are also removed from the main area of debate – in this case they must be grouped in clearly labelled area of the main wall, for later inclusion in the final reports.

As the clusters – the mini-scenarios – emerge, the associated Post-it notes may be stuck to one another rather than individually to the wall, which makes it easier to move whole clusters around. This is especially helpful during the final, demanding stage of reducing the scenarios to just two or three in number.

The great benefit of using Post-it notes is that there is no bar to changing your mind. If you want to rearrange the groups – or simply to go back (iterate) to an earlier stage – then you strip them off and put them in their new position. One extra technical device, a Polaroid camera, is a help here. Every so often a series of indexed pictures should be taken of the wall to record where you are. It is advisable to do so before you make any major changes so that you have a record which enables you to return to where you were when the new approach turns out to be a blind alley!

practice seems to come down to finding two or three “containers” into which all the topics can be sensibly fitted. This usually requires a considerable amount of debate but in the process it typically produces fundamental insights into what are the really important, perhaps life and death, issues affecting the organization. During this extended debate – and even before it is summarized in the final reports – the participants come to understand, by their own involvement in the debate, what the most important drivers for change may be, and (perhaps even more important) what their peers think they are.

Managers can only cope effectively with three scenariosThere 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 two decades ago, by building half a dozen or more scenarios but found that the outcome was that their managers selected just one of these on which to concentrate. As a result their planners progressively reduced the number to two, which – based on similar experiences – is the number we now also recommend.

Step 3: produce initial (between seven and nine) mini-scenarios The outcome of the previous step is usually between seven and nine logical groupings of drivers. In our experience this is usually remarkably easy to achieve.

Complementary scenarios As used by Shell and ourselves, these two scenarios should be complementary, the reason being that this again 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.

In the Shell approach, the two scenarios are required to be equally likely, and between them to cover all the drivers. Ideally they should not be obvious opposites, which might once again bias their acceptance by users, so the choice of neutral titles is important. For example, Shell’s two scenarios at the beginning of the 1990s were titled “sustainable world” and “global mercantilism”[3].

Step 4: reduce to two or three scenariosThe main action at the next stage is to reduce the seven mini-scenarios/groupings detected at the previous stage to just two or three larger scenarios. The challenge in

In practice, we have found that this requirement, to our surprise, poses few problems for the great majority of participants. Less than a sixth of those in our surveys fell into the expected trap of “good versus bad”. Testing Having grouped the factors into these two scenarios, the next step is to test them, again, for viability. Do they make sense to the participants? If the scenarios do not intuitively hang together, why not? The usual problem is that one or more of the assumptions turns out to be unrealistic in terms of how the participants see their world. 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.

listed across the top and the key factors down the side so that what each of these groups feels about each scenario, and what the reaction of each to the outcomes is likely to be, can be recorded. It also helps if a number of managers repeat the process and enter into a debate about their views, so that consensus opinion may be achieved. This is, once more, a useful test of the consistency of the scenarios – if there are any inconsistencies then it is back to iteration! More important, although, it gives a valuable insight into not just what the events in the future might be, but how the key players may respond.

Governments often use this technique by itself, without scenarios, to see how the various actors may react to political developments. In this case it can become an expensive process since those role playing the key actors, often at great length, have to be experts. Combining it with scenarios, a much simpler approach, can be even more powerful.

Step 5: write the scenariosThe scenarios are then written up in the most suitable form. The flexibility of this step often confuses participants, for they are used to forecasting processes which have a fixed format. 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. This is essentially a marketing decision, since – as we will see later – it will be very necessary to “sell” the final results to the users.

On the other hand, where your persuasive powers must be at their peak, a major consideration may be the form which you, the author, find most comfortable to use. Most 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. Nearly half of those in our surveys chose to use the normal business report format – hardly surprising as they, and their audience, would probably use this in their day-to-day communications.

Use of scenariosIt is important to note that these final scenarios may be used in a number of ways: Containers for the drivers/event strings Most basically, they are a logical device, an artificial framework, for presenting the individual drivers (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 important 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. Our own, internal (OBS), scenarios typically contain, in this way, a dozen or more individual strands, which are subsequently tracked, and dealt with, separately.

Tests for consistency At every stage it is necessary to iterate, to check that the contents are viable and make any necessary changes to ensure that they are; the main test is to see if the scenarios seem to be internally consistent – if they are not then the writer must again 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. It usually does not just happen in one meeting – though even one attempt is better than none – but should take place over a number of meetings as the participants gradually refine their ideas.

Step 6: identify issues arisingThe 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 organization. Role playing An optional, though potentially time-consuming, extra test may be to act through (role play) what each of the two scenarios means to the key actors involved (parts of your own organization, competitors, government, for example). It helps to produce a table with the scenarios

Positive perspectives Perhaps the main benefit deriving from scenarios, however, comes from the alternative “flavours” of the future the 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 is no longer a theoretical exercise but becomes a genuine framework (or rather set of alternative frameworks) for dealing with that future.

This has probably represented the main benefit the OBS has gained from its own use of scenarios. Those in our most recent set, for example, were entitled “mass electronic education” and “the club”. The former encapsulates the events resulting from the expansion, as “edutainment”, of ongoing education to wider audiences through the medium of the emerging superhighway, while the latter focuses on a more élitist approach, where individual education is also a vehicle for social contact between students.

theory, managers still expect the final forecast to be correct! Such worries should be discounted. The greater the number of genuine, significant discontinuities which can be detected – by whatever means – the more robust the subsequent strategies can be made.

Strong external forces may produce unanimity of the scenarios’ factors Even so