Why You Need Scenario Planning Today

Learn how scenario planning captures the richness and range of possibilities, pushing decision makers to consider changes they would otherwise ignore.

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By Charles Schreiner and Jeremy McCabe

A better way to plan

Suppose you’re planning to run a marathon. Planning based on previous runs would provide you a detailed training plan and information describing the known terrain elements. Of course, this traditional planning tool is very valuable and indeed indispensable in this case, just as it would be in the corporate setting.

However, it’s incomplete and ignores other variable elements, such as weather, hills, other runners, and more.

Scenario planning goes one step further: it simplifies the mountain of data into a limited number of possible states. What if it’s raining on race day? Or what if it’s five or 10 degrees hotter than expected? Each scenario tells a story of how various elements might interact with each other under certain conditions. By formalizing the interaction between disparate data points using today’s technology and analytics capabilities, you can develop quantitative models that tell a cohesive story.

You should evaluate each scenario for internal consistency and plausibility; for example, high visibility and heavy rain are an implausible combination. Although a scenario’s boundary might be fuzzy at times, a detailed and realistic narrative can direct your attention to aspects you would otherwise overlook. For example, a vivid rain scenario with low visibility may highlight the need for skin supplies, shoe type, and so on.

In summary, scenario planning attempts to capture the richness and range of possibilities, pushing decision makers to consider changes they would otherwise ignore. At the same time, it organizes those possibilities into narratives that are easier to grasp and use than volumes of data.

Above all, scenarios are there to challenge the prevailing mindset.

Where did it start?

Scenario planning started in the 1970s at Shell. Shell-style scenario planning has never really been about predicting the future. Its value lies in how scenarios are embedded in — and provide vital links between — organizational processes such as strategy-making, innovation, risk management, public affairs, and leadership development. It’s helped break the ingrained corporate planning habit of assuming that the future will look much like the present. As unthreatening, depersonalized, objective stories, scenarios enabled Shell executives to open their minds to previously inconceivable or imperceptible changes.

Business outcomes and value

Scenario planning is critical to understand impacts throughout a company and identify what levers make sense to pull due to a rapidly evolving environment. Take the recent disruptive nature of COVID.

Imagine sitting in 2019 with a crystal ball that shows the future:

• Airline traffic down 90% YoY
• Retailers closing their doors for months
• 15 million people filing for unemployment

The vast majority of organizations were caught completely off guard. However, some organizations were able to respond quickly or predict what was going to happen:

1. Nike used data from China, Japan, and South Korea to inform its course of action for when the virus hit the US and prototyped branded face masks.
2. Amazon leveraged early signals to build up product inventory and hire an additional 15% of their workforce while using forecasting to determine what percentage change would trigger sector layoffs.
3. Virgin Atlantic/EasyJet redeployed flight attendants with First Aid training to field hospitals in the UK to fight COVID-19.

All these enterprises were able to identify immediate and unprecedented needs based on market signals that were translated to strategic options and ultimately nontraditional actions.

Three reasons to consider scenario planning

1. Environmental uncertainty resulting from events that could occur in the external economic, political, social, and physical environment. When you think about the shift to electric vehicles, there are a number of uncertainties, but also significant implications. If you can determine the value that technology shift unlocks, when it will happen, and who will be competitive, you can build a $150 million business case.
2. Industry uncertainty covering the effects of competition, customer and supplier behavior, substitute products, and technological innovation at a macro or industry level. For example, we worked with a food and beverage company on understanding customer behavior and shifts in the market to determine the potential market size and opportunity given their product portfolio, ultimately making product decisions based on the potential value of each market.
3. Business and operating model uncertainty that arises within the organization, reflecting your current capabilities with regard to technology, products and services, competitive strategies, and supply chain. There are strong differences of opinion, with multiple opinions having merit, and there is not a common language or structure to outline the path forward.

Our business scenario planning assessment quickly augments your team by analyzing and assessing various impacts and outcomes of different business scenarios. Through “what if” modeling, we can provide insights and develop action plans to quickly take action.

• Structure to unknowns: Application of the business and operating model frameworks to enable you to understand the multiple impacts on your business from external (or internal) changes.
• Experience: Uses insights from previous market disruptions to set reasonable parameters within which to plan for similar scenarios in the future. We have multiple tools and frameworks to accelerate the process.
• Not one-and-done: The tools, approach, and structure we go through can be leveraged in the future by you and your teams. We’ll also work with you.

In summary

Scenario planning can help you preemptively think through a structured approach to how you would react if (or when) things go wrong. This includes asking things like:

1. How are you performing today? How long can you sustain your performance?
2. Where are your focus areas if things go awry?
3. What are you going to do if it happens again? And are you prepared?

No one can prepare for everything, but structured, preemptive scenario planning will help you and your organization focus and survive when things do go wrong. If you think scenario planning might be useful, we’re here for you.

Slalom is a global consulting firm that helps people and organizations dream bigger, move faster, and build better tomorrows for all. Learn more and reach out today.