Using examples evaluate the use of scenarios in the strategic planning process?

Answer 1

Strategies and strategic planning are inherently concerned with the future. Because of

this the strategic planner is often concerned to assess the future as an input to developing

corporate strategic plans. This is particularly true in the area of environmental analysis in

corporate planning. The corporate planner must attempt to assess how the environment of

the organisation might be confi gured in the future so as to develop corporate plans to take

account of these envisaged confi gurations. A technique which has been widely used and will

probably continue to grow in importance in this respect is the technique of using scenarios in

developing plans for the future.

Scenarios comprise detailed and plausible views of how the business environment of an

organisation might develop in the future, couched in such a way that the corporate planner

is able to develop a range of strategic objectives and actions to best deal with the envisaged

futures. This is perhaps easiest to understand if we use an example of a simple scenario

statement. The following might represent a scenario for a company operating in the oil

industry, for example:

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'The supply of oil will fail to meet increasing demand before the year 2020 and by this time

50% of the world's energy requirements will be met through non-oil based energy sources'.

It is important to stress that scenarios such as the one above are not the same as forecasts.

Forecasts are made on the basis of assumptions that the future can be predicted, whereas

scenarios are generated on the assumption that it can't. Scenarios are especially useful in

circumstances where it is important to take a long-term view of strategy; where there are a

limited number of key factors influencing strategic options; and where there is a high level of

uncertainty about such influences. Unlike a forecast which tries to predict precisely what the

future will be, scenarios simply represent plausible narratives of how the future might turn

out.

Scenarios are used in the following circumstances:

- Where it is important to take a long-term view of strategy;

- Where there are a limited number of key factors influencing strategic options;

- Where there is a high level of uncertainty about such influences.

So, how are scenarios built and used in the corporate planning process? We shall first

consider the steps in building scenarios.

The first step in building scenarios is to establish the purpose of creating the scenario, i.e.

what is the scenario to consider and be used for? The purpose may be wide-ranging such as,

for example, 'what will the energy market look like in the future?', or more focused to support

key decisions facing the organisation such as, for example, 'should we invest in developing

solar powered energy sources?'

The second step is to identify the strategic issues or drivers of change in the environment,

i.e. the factors in the environment which may affect the future with respect to the purpose of

our scenario and which we are uncertain about. Usually these factors are readily identifiable

so, for example, continuing our energy example, key drivers about which we are uncertain

might include oil costs; discovery of new reserves; environmental protection legislation etc.

The number of factors identified at this stage of scenario building should be kept relatively

small otherwise the number of possible scenarios can quickly become unmanageable. Those

drivers selected should be those that have the greatest impact on possible future strategies

for the organisation and about which we are most uncertain. Clearly the selection of strategic

issues or drivers of change is crucial to the development of scenarios and therefore should

ideally use the most expert and informed managers inside (or sometimes even outside) of

the organisation. Membership of the scenario building team is a crucial factor.

Having identified the key driving factors in our scenario analysis, the next step is to identify

different possible plausible futures by factor. Again continuing our example, the scenario team

can assess, say, the likely future possibilities regarding environmental protection legislation.

The fourth step is to build scenarios of plausible configurations of factors, considering

therefore the possible range of permutations and combinations of the driving factors selected

so as to build 'complete pictures' of a possible future.

The final step is to review and flesh out the range of scenarios arrived at by considering

our plausible configurations of developments of driving factors from the previous stage,

developing and fleshing out the narrative of the predicted scenarios, and assessing possible

likelihoods for the various scenarios predicted.

When this has been done the corporate planner can begin to assess the likely implications

of the scenarios developed for corporate strategic plans. This may encompass determining

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objectives to deal with future scenarios, assessing strategic options for the future, and in

particular for developing possible contingency plans.

These, then, are the main steps in developing and using scenarios in the corporate

planning process. There are a number of other considerations in the process such as, for

example, determining the membership of the scenario building team; the time-scales for

scenarios; and the number of scenarios to be developed. All of these affect the nature and

effectiveness of using scenarios.

Scenarios have proved to be a useful approach to dealing with unpredictable and volatile

environments where conventional techniques of forecasting have proved ineffective and

inappropriate. However, it is important for the planner to remember that scenarios are not

forecasts. Also scenario building takes time and can be expensive where outside experts are

used. Scenario building and interpretation also needs considerable skill and is as much a

creative as a 'scientific' process. However, when used carefully, and with an understanding of

their limitations, scenarios can be a very creative and useful approach to trying to assess the

implications of a volatile future environment.