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Scenario planning is rapidly on the rise as one of the most important strategic tools. This awakening have slowly been going on for a while but the global uncertainties caused by the financial crisis and global economic recession have been speeding up the process.

Since the 1960:s the value of scenario planning have been that of a tool for the long term strategic thinking process. A value that most managers have been able to ignore since operations have had a very strong focus in the vast majority of organizations. Because of this I usually argue for scenario planning along the lines that

  1. many of the important decisions organizations actually have to take have more far reaching ramifications and consequently is taking place in a more uncertain future than usually is understood - scenario planning can help in mapping and understanding this longer term perspective
  2. peoples perceptions of a situation are almost always flawed due to a range of biases that comes from how we as humans are hardwired - scenario planning is here used to assist organizations to see through and beyond their own unconscious blinds

Since October of 2008 a lot of people have suddenly become painfully aware that we live in a time of fundamental uncertainty. In such a situation planning is not just a process of organizing long lists of actions that leads towards a goal. When uncertainty blurs the horizon and an uncertain environment calls for real action, people abruptly come to understand that they have forgotten the process of assessing and interpreting what is happening in the environment in order to evaluate their own capabilities of adapting and identify realistic and relevant goals.

Hugh Courtney, who is quoted below, is known for a simple but powerful model of explaining different levels of uncertainty we perceive that we can see for the future:

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The change we have seen since October of 2008 is that many more of us now perceive our situation to be on uncertainty levels 3 and 4 rather than on levels 1 and 2 which was the common view before.

One of the few structured ways to understand the situation of an organization in the longer and more uncertain perspective is to use scenario planning. And today when uncertainty even permeates the shorter perspective scenario planning is basically the only strategic management tool that is left.

This awakening can be followed by the increasing in referrals to scenario planning in management magazines articles. Here are some examples from the last couple of months.

  • Hugh Courtney, author of 20/20 foresight is interviewed in McKinsey Quarterly and advices strategy officers to start with scenario planning because it is more important than ever that we think forward even if we don't get any exact answers, because any clues to what might unfold is valuable in these levels of uncertainty - A fresh look at strategy under uncertainty: An interview
  • In the same issue of McKinsey Quarterly there is another article basically following the same line of thought - Leading through uncertainty

Even in other places scenario planning is suggested as a tool for managing uncertainty:

If you want to read more about scenario planning visit my page: scenario planning resources

Since I use this example in my scenario planning education almost every day I thought it might be appropriate to remind you of this scenario published by Peter Schwartz and Jay Ogilvy in their article Plotting Your Scenarios in the book Learning from the Future (eds Fahey and Randall).

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It is said to have been developed in the 80:s in order to understand the uncertainties of the future of the american automotive market.

Searching Google I found out that this particular scenario cross is also referred in at least two other books:

Since what these scenarios described was two major uncertainties in the automotive market the conclusion was that efficiency and size/design of cars really are important i e lower fuel consumtion and more van/hybrid cars.

This process started, but came to an abrupt halt when the birth of the SUVs tricked the american automotive industry into that fuel and size weren't real issues. What was basically missed was that the relatively good economic era of the 1990s boosted a life style purchasing pattern that for some time supported large, safety focused cars signalling a active and individualistic life style. That basically made the automotive industry going back to sleep forgetting what they actually seemed to ahve realized during the short wake up periond in the 80:s

Just to some years later wake up to the bells of the real energy crisis boosted by a financial crisis and a global scale recession.

I don't know, but the word culling comes to mind...

200810152232.jpgIn July this year HBS published a working paper by the name: Communication (and Coordination?) in a Modern, Complex Organization where the authors analyzed e-mails from 30.000 employees in a large company over a 3-month period. It is really interesting that this has been done, even if I wonder why it wasn't done before (or am I wrong?).Their conclusions are really interesting, especially in present times of the social networks, where horizontal communication is growing rapidly.

Communication patterns were extremely hierarchical: Executives, middle managers, and rank-and-file employees communicated extensively within their own levels, but there were far fewer cross-pay-grade interactions in the firm.

Junior executives, women, and members of the salesforce were the key actors in bridging the silos.

[From the executive summary: The Silo Lives! Analyzing Coordination and Communication in Multiunit Companies — HBS Working Knowledge]

To those people who believe in the strong transformative power of technology this may sound surprising or even depressing. Because it basically means that in spite if all this wonderful technology that creates transparency and breaks down borders people are still communicating within silos.

To me this just underlines one of the important lessons from the research area of diffusion of innovations: it is our social connections that are the vehicles for the spread of innovations, and first in the next step technology changes social patterns. Social patterns doesn't change over night, because they are based on human behavior which follows much longer cycles.

Another way to put it is that the people as both employees and as company culture members embodies values and mental structures that in practice regulates e g who is invited to which project or who to contact to get a problem solved. In 1990 Paul A. David published an article called The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox where he tried to explain why the productivity gain of computers didn't showed up in the balance sheet. His point is that productivity doesn't rise until the whole system is redesigned in a new way, a process that may take decades because of the built in inertia in a working systems consisting of both people, machines and information structures in complex interrelation with each other.

What I think lacks in this research is how these social communication patterns changes with age, education and the individuals earlier experience of e g social software. I don't doubt that physical, geographical or organizational barriers creates this effect, but I am curious what is happening what is happing to people which are heavy users of communication and have a wide reach before they enter a large organization. Are they changing their behavior? And how much??

It would also be very interesting to compare companies of different age and maturity to understand how and how fast these silo patterns are emerging.

My comment as a futurist about this is (as usual): think s-curves! A lot of communication patterns on this planet haven't changed a bit yet, but they are about to. We are just inflating our expectations about this horizontal and social communications.

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Coming back from vacation a sieving through the mail box I found an article where scenario planning was mentioned in an interview with Nassim Nicholas Taleb, author of the very interesting book "The Black Swan: The Impact of the Highly Improbable"(Amazon UK). / "The Black Swan: The Impact of the Highly Improbable" (Amazon US). Even if I don't totally agree with what claims in his book I totally agree that he is pointing at some terribly important issues which concerns everybody who deals with foresight and long range decision making. When it comes to scenario planning he is doing some implicit points in his book but in an interview in Condé Nast Portfolio he speaks up.

The thing you have to be aware of most obviously is scenario planning, because typically if you talk about scenarios, you'll overestimate the probability of these scenarios. If you examine them at the expense of those you don't examine, sometimes it has left a lot of people worse off, so scenario planning can be bad. I'll just take my track record. Those who did scenario planning have not fared better than those who did not do scenario planning. A lot of people have done some kind of "make-sense" type measures, and that has made them more vulnerable because they give the illusion of having done your job. This is the problem with risk management.

In my position of scenario planning consultant I can only agree. This is exactly why I try to end my courses and seminars by trying to underline the point that scenario planning is not a method in the traditional sense, but more of an art - a way of thinking that will broaden your thought patterns and open up your perceptions in order to be able to see things you otherwise wouldn't recognize.

This is exactly why attributing probabilities to the different scenarios is irrelevant - or even dangerous. I think that scenario planning should occur at an earlier stage of reflection when you are still aiming at understanding what is happening around you. First after the scenario process have sunken in you can revisit it and identify some important insights of the process.

If you treat scenario planning as a direct method for decision making the risk is obvious that either the result will be irrelevant and nobody listens or worse, that you succeed in creating a false sense of security. If you on the other hand put some effort to understand the result of a scenario process from a more reflective standpoint it can be an invaluable tool to widen the discussion and the collaborative reflection process within the organization.