Scenario planning can produce detailed and realistic narratives about the future, and these outcomes can be used to identify opportunity spaces in which to play, help best prepare an organization for the future, and ultimately direct its strategy.
- What is Scenario Planning
- How does Scenario Planning Work to Future-Proof Strategy
- When to Use Scenario Planning
- Key Steps in the Scenario Planning Process
- How to Use ITONICS for Scenario Planning
1. What is Scenario Planning
Scenario planning is a strategic tool commonly used by key decision-makers, innovation leads, and strategists to find focused foresight—grounded in dependable analysis. This equips them to anticipate futures appropriately, evaluate innovation opportunities and inform proactive responses.
The scenario planning process considers possible, plausible, probable, and preferred future scenarios through the use of qualified data and information. Each scenario provides a narrative that enables strategists to imagine and assess the impacts various outcomes may have on their organization. As a story of how various factors may interact under certain conditions, scenarios allow strategists to better formulate predictions of relationships between influential factors.
This provides organizations with the information required to act timeously and the evidence needed to develop appropriate capabilities and assets, actively shape our world, and influence outcomes as they steer towards the future.
2. How does Scenario Planning Work to Future-Proof Strategy
Here are four ways in which scenario planning works to future-proof strategy:
- Ensure company viability: By following a systematic approach to identifying possible futures, an organization can detect potential opportunities and threats. Thorough preparation in response helps build organizational resilience and clears a path for future growth.
- Understand the future environment: An organization’s future business environment is informed by the key factors influencing its current environment. These may be trends, technologies, customer needs, etc. Extrapolating these to scenarios strengthens the ability to consider and assess future impact.
- Prepare for the future: Based on a thorough understanding of future scenarios, organizations can widen their scope and mitigate risks that are likely to arise. Inherent in the process is the need to challenge the overconfidence and tunnel vision that can limit decision-making efficacy. Instead, understanding and preparing for multiple scenarios strengthens strategic robustness.
- Shape the future: Gaining strategic advantage increasingly relies on an organization’s ability to not only prepare for the future but to also play an active role in shaping and improving it for all stakeholders. Future scenarios act as the playing field on which organizations can define their strategic options, initiatives, and actions for the future—and therefore drive the ecosystem into desired directions.
Delivering on these benefits requires a clear framework for scenario planning, a commitment to the process, and the openness to embrace different worldviews.
3. When to Use Scenario Planning
Essentially, innovation architects can use scenario planning techniques as a strategy tool to inform decisions at any level—individual, function, group, or organization. Organizations that are confronted with the following circumstances are positioned to receive the greatest benefit from the scenario planning exercise:
- There is a high level of uncertainty relative to the decision maker’s ability to predict or adjust to future events.
- The implications of unexpected events put the company at material risk and hold a high cost.
- The organization does not have a clear perception of new opportunities on the horizon.
- Business-as-Usual dominates strategic thinking, and the organization is locked down in operationalized routines.
- The industry in which an organization is operating has experienced significant change, is expected to evolve, or is susceptible to disruption.
- A common language and consensus are required to drive action without stifling collaborative and diverse perspectives.
- There are several future views from within the organization, constructed through diverse perspectives, each holding valuable merit.
- Competitors have demonstrated resilience and show signs of making use of scenario planning techniques at a strategy level.
Essentially, scenario planning techniques can be applied to any situation in which a decision-maker needs to better understand how the future might unfold under particular circumstances. In this article, we focus on developing scenarios for strategic planning.
4. Key Steps in the Scenario Planning Process
1. Situation Analysis: identify drivers and their impact
A multitude of drivers exist and have an impact across all STEEP categories—Society, Technology, Economic, Environment & Ecology, and Politics & Law. Organizations must first narrow their scope to select the drivers that are of the highest importance to their business environment.
Teams can assess and rate drivers based on level of impact, probability, and/or reach. The ability to visualize all drivers in a single view enables the quick comparison and identification of those that hold relevance for an organization’s scenario planning.
2. Projections: project and assess key drivers’ trajectories
Once an organization has explored and selected the key drivers influencing its environment, it must identify critical uncertainties and extrapolate the different plausible possibilities that could unfold for each driver.
The time horizon that should be considered is between five and ten years (compared with the two- to five-year outlook that Trends and Emerging Technologies offer). Scenario planners must project the trajectory that each driver could take—typically ranging from one extreme to the other, e.g., no impact to significant impact, decreasing dramatically to increasing dramatically, system collapse to system transformation, etc.
3. Scenarios: calculate consistent, distant combinations
To develop future scenarios, two selected drivers (e.g., a demand driver and a solution driver) must be plotted against each other, with the respective trajectories along each axis.
For instance, an organization could plot industry-relevant technological development along the X-axis and a driver such as regulation, globalization, or environmental degradation along the Y-axis. Intersections between trajectories reveal different scenarios.
When this process is replicated for various combinations of drivers, several scenario narratives arise. While all represent a possible future for which an organization may need to prepare, internal consistency points to scenarios that are most likely to happen and should be prioritized in the next steps.
4. Implications: plan your purpose and strategy
An organization's internal stakeholders can assess and rate scenarios, e.g., based on desirability, strategic alignment, and impact. As with trend and driver selection, this helps increase transparency, consensus, and ultimately informs opportunity space creation.
An opportunity space—which represents several possible solutions—exists where a selected scenario, reinforced by present-day market evidence, meets an organization’s purpose and strategy.
5. How to Use ITONICS Cloud for Scenario Planning
Identify relevant trends and emerging technologies to uncover key drivers
Explore each Trend and Emerging Technology, and evaluate each through the Rating functionalities. Evaluation helps you uncover which key drivers are at play. Simple clustering exercises can also help you arrive at fundamental themes and point to the uncertainties that should be explored in scenario analysis.
However, teams that need to account for a high number of key drivers can better arrive at an agreed view by creating a dedicated key Driver Radar, which will allow for collaborative rating.
Plot key drivers against one another on a grid to derive multiple scenarios
Once the key drivers are set against one another, engage the team’s collective input to imagine and extrapolate multiple outcomes. Untangle the external issues, drivers, and uncertainties and repackage them into broad-ranging and fundamentally different scenarios.
The recombination of the key drivers can be done in at least three different ways:
- Intuitively: once all the pieces are seen from a birds-eye view, teams can cluster topic areas to identify key themes and storylines to organize all the elements.
- Heuristically: selected using evaluation and rating criteria.
- Statistically: systematically combine the outcomes of all the key uncertainties into internally consistent combinations to find feasible results.
Select relevant scenarios for further analysis based on innovation objectives
Innovation teams should select the scenarios they feel hold the most strategic relevance by asking themselves the following two questions:
- Is this a future we hope to play an integral role in creating and shaping?
- Is this a future we hope to mitigate and avoid through thoughtful tactics?
Thereafter, further analysis of the scenarios can help unravel the potential events that may play out into the future. These eventualities can be plotted against a timeline or on the ITONICS Roadmapping tool to assist teams in understanding how they might be addressed.
Plot a clear Roadmap to drive exploration of Opportunity Spaces through R&D
Use the ITONICS Roadmapping tool to plot out the critical scenario events and work backward to develop a timeline of innovation activities required to explore the various opportunity spaces timeously, ahead of the horizon in which they are set to occur.