Linking Scenario Planning and Decision Making

Sir Alexander Cairncross once said, “A trend is a trend unless until it bends. People or companies who consider prevailing trends in the market to formulate their strategies often win the competition. The reason is very simple that is a trend might not survive for a very long period of time but it enables an organisation to response to changes occurring in the market relatively easily and quickly. In order to maximise the benefits of trend or scenario planning, companies need to plan strategically in order to be prepared for unexpected.

Strategic or scenario planning is without any doubt a cumbersome task especially during turbulent times. Therefore, it is imperative for companies to navigate uncertain conditions while planning, implementing and monitoring different projects to be profitable in the long run. Companies can successfully address uncertainty in a more flexible way by identifying and understanding the key factors that sculpt regional as well as global industrial environment through a process of scenario planning. This will also help them to reduce the impact of uncertainty on company’s cash flow and benefit from tremendous business opportunities.

What are Scenarios?

Scenarios are plausible, alternative, internally consistent and divergent view of the future. For instance, a company might have two different opinions of what is going to happen in the market in the near future. As a result, company executives will devise two different scenarios about how to response to change in a better way. As mentioned above, scenarios often have upper and lower plausibility boundaries with internally consistent thoughts and ideas. Take a look at the following diagram.

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 Scenario Development:

Scenario development is a step by step deductive process that starts with developing a central question followed by identifying what actually are the issues which a company need to address. Subsequently, the company will priorities some of the issues and find logics to develop scenarios. The last step of the entire process is to develop the scenarios while also considering leading market change indicators and implications and alternatives.

It is often said that scenarios are a mean to start something and bring it to an end. Scenarios are basically designed for initiating stakeholder’s debate or generate strategic options and in some cases for both. You also have to note that all strategic options will not be robust against all scenarios given the divergent nature of scenarios. Similarly, the nature and degree of underlying uncertainty drive all the strategic options.

Types of Scenarios:

In the context of above discussion, there are actually two main types of scenarios that are Transformative Scenarios and Protectionist Scenarios. In transformative scenarios, tangible competitive advantage drives access to market whereas it relies on relationship with the government in protectionist scenarios. Companies developing transformative scenarios have to ensure continuous efficiency improvements due to increasing global competition whereas protectionist scenarios allow companies to acquire and defend privileged positions in specific market. Similarly, both transformative and perfectionist scenarios differ remarkably in terms of organisational position, stakeholder relationship, workforce management and working environment.

It is also pertinent to note that scenarios also inform companies to find strategic alternatives in order to address various issues and to response to change successfully.  Following diagram explains a scenario driven strategic option framework.

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Finally, the development of strategic early warning system is one of the most important prerequisites of scenario driven strategic planning. This particular system will help organisations to constantly monitor key signals and discontinuities in their respective markets. This approach dramatically improves the strategic and operational readiness of companies and to make decisions about the optimal timing to scale up or abandon strategic options.

Scenario Planning Explorers Guide

Examples of several country-level scenarios:

India   – http://www3.weforum.org/docs/WEF_Scenario_IndiaWorld2025_Report_2010.pdf
China http://www3.weforum.org/docs/WEF_Scenario_ChinaWorld2025_Report_2010.pdf
Russiahttp://www3.weforum.org/docs/WEF_Scenario_RussiaWorld2025_Report_2010.pdf
GCC     – https://members.weforum.org/pdf/scenarios/GCC_report.pdf

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