FUTURES RESEARCH

7280 Draft – Simple Scenarios

SIMPLE SCENARIOS

(later as Scenarios Made Easy in Long Range Planning)

by David Mercer

INTRODUCTION

Though the concept was first introduced, as 'La Prospective', by Berger[i]  in 1964 and the word 'scenario' itself was reportedly first used by Herman Kahn in 1967[ii], the theoretical foundations of scenario forecasting were mainly developed in the 1970s, especially by Godet (between 1974 and 1979[iii]). By the early 1980s these approaches had developed into a sophisticated forecasting technique which was primarily recommended for the integration of the output from other sophisticated (qualitative) approaches to long-range forecasting. Although it was inevitably based upon judgmental forecasts, its use typically revolved around forecasting techniques which brought together groups of experts in order to reduce the risk involved. These included Delphi and, especially in the context of scenarios, Cross-Impact Matrices, which were popular at that time.

Possibly as a result of these very sophisticated approaches, and of the difficult techniques they employed (which usually demanded the resources of a central planning staff), scenarios earned a reputation for difficulty (and cost) in use. Even so, the theoretical importance of the use of alternative scenarios, to help address the uncertainty implicit in long-range forecasts, was dramatically underlined by the widespread confusion which followed the Oil Shock of 1973. As a result many of the larger organisations started to use the technique in one form or another. Indeed, just ten years later, in 1983 Diffenbach[iv] reported that 'alternate scenarios' were the third most popular technique for long-range forecasting - used by 68% of the large organisations he surveyed.

Practical development of scenario forecasting, to guide strategy rather than for the more limited academic uses which had previously been the case, was started by Wack[v] in 1971 at the Royal Dutch Shell group of companies (hereafter, for simplicity, referred to as 'Shell') - and it, too, was given impetus by the Oil Shock two years later. Shell has, since that time, led the commercial world in the use of scenarios - and in the development of more practical techniques to support these. Indeed, as - in common with most forms of long-range forecasting - the use of scenarios has (during the depressed trading conditions of the last decade) reduced to only a handful of private-sector organisations, Shell remains almost alone amongst them in keeping the technique at the forefront of forecasting.

It should also be noted that there has only been anecdotal evidence offered in support of the value of scenarios, even as aids to forecasting; and most of this has come from one company - Shell. In addition, with so few organisations making consistent use of them - and with the timescales involved reaching into decades - it is unlikely that any definitive supporting evidenced will be forthcoming in the foreseeable future. For the same reasons, though, a lack of such proof applies to almost all long-range planning techniques. In the absence of proof, but taking account of Shell's well documented experiences of using it over several decades (coupled with our own experience over a much shorter period), we believe it is not unreasonable to assume that there must at least be significant benefit to be obtained - especially in the current climate which is so dominated by 'short-termism' - from extending the horizons of  managers'  long-range forecasting in the way that the use of scenarios uniquely does. Our belief is further supported by reports from the literally thousands of managers to whom we have taught the techniques - almost all of whom claimed to have found it beneficial in one way or another. This benefit has, of course, to be balanced by the costs involved - and until recently these have been unacceptably high. Even so, the present lack of more general usage of the technique is regrettable.

As most of the work reported to date, especially that undertaken by Shell, has mainly focused on improving the effectiveness of the techniques involved we concentrated our own efforts on making it easier to use - indeed in making it 'user-friendly' - and hence more accessible to a wider range of organisations. More important, perhaps, the developments we have pioneered make the technique available for use by almost all managers - across the organisation - who might want to use it as part of their planning processes; without the need to involved outside experts, or corporate staff specialists, apart from a one to two day initial training period. At the same time, it significantly reduces the costs involved - to a level which should be affordable by most medium to large organisations - even if it is used, as we would recommend, as just one part of the overall planning process.

Thus, despite reports that the process of scenario planning is unacceptably complex, our own experience in the Open Business School (OBS) - using the simpler approaches we have developed - indicates that it can be implemented with relative ease in most organisations. Further, major benefits can accrue from its use in this way. Clearly, its use in dealing with uncertainty - arising from alternative futures, which was the original reason it entered into management theory (as described by Wack[vi], for instance), still holds true - and usefully complements more traditional forms of planning. In our experience, however, its greatest virtue - especially in the simplified form -  is that its use naturally (and painlessly) widens managers viewpoints and helps to extend their planning horizons beyond the short term. In this way it can alert them to potential long-term threats, whilst ensuring that they do not overlook major long-term opportunities.

This paper concentrates on the process - and especially on the simplified process - of scenario planning as one element of overall long-range planning programmes.

BACKGROUND TO THE CURRENT WORK

Scenarios were chosen as the main vehicle to link the various elements of our distance-taught MBA course, the 'Challenge of the External Environment'. This, in essence, offers a management perspective on the social sciences. It is taken annually by 500-600 of our 6,000 MBA students. The technique was chosen, not just because it was valuable in its own right, but because - in most recent (and most long-term) usage - scenarios have proved to be excellent vehicles for expanding the horizons of those using them; and the prime objective of the course was to persuade the managers studying it to view their world from the widest possible range of viewpoints.

It should be stressed that, in this context, those taught - and used - were the widest-ranging scenarios possible; 'environmental scenarios' (sometimes referred to as 'industry scenarios' to distinguish them from 'global scenarios' undertaken by governments). These examine the total external environment - typically for the whole industry within which the organisation operates.

It was quickly recognised that we needed to develop suitable teaching material; to enable these students, almost all of whom had no previous contact with scenarios, to productively use the technique. This material was initially based on the more theoretical approaches - here developed by Denis Loveridge, based on his previous work[vii]. This was subsequently complemented by material from Shell[viii], introduced to the students by Graham Galer of that company's corporate planning department. Indeed, the emphasis, over the three years the course has been presented, has gradually switched to the more practical Shell approach. This simplification has to a degree paralleled the similar trends in the wider use of scenarios; thus, for instance, Godet more recently reported[ix] that "prospective increasingly takes the form of collective thought - a mobilization of minds in the face of changes in the strategic environment".

The audience being taught is biased towards managers in larger organisations, but even so it typically has little of the expertise which was normal in the large corporate planning departments of the 1970s and 1980s. As a result, it has been found necessary, not just to teach other people's material, but to develop our own simpler, and more coherent, approach to the subject; albeit that this builds upon the work of others (especially that of Shell, much of it unpublished). In creating this easier-to-use form of scenario forecasting, which is - with very little training - suitable for a much wider range of organisations, and functions within them, we have been very fortunate in having direct theoretical input from up to twenty members of the course team and practical input from the forty or so tutors who have been teaching student face to face. More important, we have built upon the experience of more than 1,000 students who have taken the course over this time - and who have, between them, written more than 4,000 full length scenarios.

In particular, permission was sought from students taking this course in 1993 (typically practising managers - who made up 67% of those responding) to use their major project as the basis for research into future trends. Their project, undertaken towards the end of the course, required them to write two complementary scenarios describing the long-term future of the 'industry sector' within which their organisation operated. Permission was received from 172 students for their work to be used as a basis for statistical analyses - though not to be reported as individual cases. A high, 30%, response rate was achieved - when the confidential nature of the material is taken into account. Of these projects, 145 were found to be suitable for further (content) analysis. These were analysed, in the context of this paper, to see how they used the techniques they had been taught. These results, combined with our own experience in using the techniques as part the School's own long-range planning, are reported in the paper. Clearly, in view of the relatively short time-scales, it was not possible to investigate the impact the resulting scenarios might have had on these organisations; and, as mentioned earlier, the paper therefore concentrates on the processes involved.

SIMPLE SCENARIOS  - OVERALL

The most important message is that scenarios CAN be simple; and, in our experience, the simpler they are - and the simpler the process used to derive them (albeit that it must still be a valid one) - the more powerful they may be; not least because those using them are able to understand how they work. Indeed, our students in general used the technique quite specifically as a simple one; eschewing the more sophisticated elements. For instance, despite having been introduced to the technique on the course, only 2% of the students (based on the scenarios included in the survey) made any use of the cross-impact matrices which were almost mandatory in the scenarios of earlier times. Even Shell, which is undoubtedly the world's leading user of scenario forecasting, now uses relatively simple techniques to create its scenarios; ones that are far removed from the academic sophistications of earlier times.

In fact even the basic concepts of the process are relatively simple. In terms of the overall approach to forecasting, they can be divided into three main groups of activities (which are, generally speaking, common to all long range forecasting processes):

Table 1 - Overall Scenario Forecasting Processes

The first of these groups quite simply comprises environmental analyses. These are almost exactly the same as any that will be undertaken as the first stage of any serious long-range planning. It should be noted, however, that the quality of this analysis is especially important in the context of scenario planning; and the next section comments briefly upon the special needs of this.

The central part represents the specific techniques which differentiate the scenario forecasting process from the others in long-range planning; and it is, not surprisingly, this which will take up most of the rest of the paper.

The final group represents all the subsequent processes which go towards producing the corporate strategies and plans. Again, the requirements are slightly different - and will be commented on briefly in a later section - but in general they follow all the rules of sound long-range planning.

ENVIRONMENTAL ANALYSIS

Scenarios can only be as good as the information they are based upon. It is for this reason that the analysis must be of as high a quality as possible. The practical advice we give our students is to simply to cultivate a deep curiosity about the external environment; and to maintain maximum exposure to the widest range of media (and to what the consultancies specialising in environmental analysis may be reporting), where changes often appear in subject areas far from day to day business. Beyond this, they are also recommended to develop an informed viewpoint which will improve their chances of recognising early signs of change, no matter from what direction they are coming. A good starting point may be one of the existing treatises on the future. Those of Herman Kahn are a pleasure to read[x] and are still not totally out of date. Our students are provided with the more recent, 1991, PSI report[xi] as the best background material we can find.

In practice, 70% of students in the survey used general reading as the main source of their analysis, combined with the information they received from the industry and specialist press - which they  read as a normal part of their work. A further 20% did not even extend their search beyond general reading! A small proportion, 7%, did undertake a wider search, covering a range of sources as scenario theory would recommend, but there was no obvious major gain from this. Less than 1% used any form of database; even though these students were required to make extensive use of remote computer services as part of the course. This supports Bawden's contention[xii]  that printed material is inherently more suitable for browsing than information systems. Indeed, it has to be noted that the type of information which is required for environmental scenarios is most probably that which the participants have already assimilated, from their general (and specialist) reading; so these findings do not undermine the validity of the process - rather they confirm the realities of it. We have found that those involved in the production of the School's own scenarios, for instance, need to bring to the process no more than their existing knowledge. Thus, once again, we have found that the process can be simplified without significantly reducing its effectiveness.

In addition, there seems to be no special expertise involved in detecting these shifts. One approach recommended in the literature is to use all employees (from senior managers down to janitors) to input their observations - giving them a very wide range of viewpoints (which does seem to be important). Indeed, perhaps the best advice is to analyse the external environment as a team. If nothing else, this extends the coverage of the scanning; but it also seems to go much further to develop resonances as the team interact with each other - inevitably comparing notes as the process develops - and amplify the early signs of change. On the basis of our work with Shell, we use teams of no more than ten participants. Thus, our students initially work in groups with 6 - 8 members. On the other hand, we ourselves typically involve the whole OBS management group, of around 30, by splitting it into three separate teams which work in parallel; and one of the organisations we advise has brought more than 300 managers into the process by using teamwork on a similar basis.

The subsequent analysis needs more academic rigour. The key here is that the process is one of education for the team - by total immersion - in the facts which define the environment they are studying. When the scenario development finally gets under way it is not the material available on paper that is productive, it is what is in the team's heads. Indeed, the first stage of scenario forecasting - the choice of the assumptions - is embedded in this supposedly earlier process of environmental analysis. It is inevitable that, as the team works together on the analysis, it will start to develop ideas as to what the assumptions might be; and will probably have spent a considerable time - over the weeks, and perhaps months, that the environmental analysis should take - arguing about what these mean. We have found, as have Shell, that the use of computer conferences is a particularly productive way of handling this type of input, and use it to extend the debate to a network of contributors throughout the organisation. Because of the geographic spread of out students, across Western Europe as well as the whole of the British Isles, such computer conferences form the main medium of communication for the initial scenario work they undertake. We have found that  - despite the fact that they are inexpert computer users - they are able to handle this approach without major problems, using it to jointly develop scenarios over a period of several weeks.

On the other hand, the key elements of the process can be encapsulated in a relatively few hours. Our own scenario production process, within the OBS planning cycle (rather than that used to teach our students), typically lasts no more than two days - during which time, however, the 30 person team is dedicated to this.

SCENARIO PLANNING

As has already been said, the part of the overall process which is radically different from most other forms of long-range planning is the central section, the actual production of the scenarios. Even this is though, at its most basic level, relatively simple - requiring just six steps:

Table 2 - Steps in the Scenario Process

Step 1 - DECIDE ASSUMPTIONS/DRIVERS FOR CHANGE

The first stage is to examine the results of the environmental analysis to determine which are the most important factors that will decide the nature of the future environment within which the organisation operates. These factors are sometimes called 'variables' (because they will vary over the time being investigated, though the terminology may confuse scientists who use it in a more rigorous manner). We tend to prefer the term 'drivers' (for change), since this terminology is not laden with quasi-scientific connotations and reinforces the participant's commitment to search for those forces which will act to change the future. Whatever the nomenclature, the main requirement is that these will be assumptions; albeit, hopefully, informed ones.

This is partly a process of analysis, needed to recognise what these 'forces' might be. But, as indicated in the previous section, it is likely that some work on this element will already have taken place during the preceding environmental analysis. By the time the formal scenario planning stage has been reached, the participants may have already decided - probably in their sub-conscious rather than formally - what the main forces are.

In the ideal approach, the first stage should be to carefully decide the overall assumptions on which the scenarios will be based. Only then, as a second stage, should the various drivers be specifically defined. Participants, though, seem to have problems in separating these stages, and indeed only 40% of those in our survey made any attempt to spell out the assumptions separately (and even then often not very effectively). Despite this, another 40% (80% of participants in total) still managed to discover the drivers, without any obvious deterioration in quality; so having separate stages is not essential to the process - and we no longer emphasise this separation in our own use of the technique.

Perhaps the most difficult aspect though, is freeing the participants from the preconceptions they take into the process with them. In particular, in our experience, most participants will want to look at the medium term, five to ten years ahead (41% of those in our survey did so, and indeed, a further 35% wrote about the even shorter term), rather than the required longer-term, ten or more years ahead (which only 24% addressed). This may not seem a problem, when nine years is a very long time in many areas of commercial activity, but we found (in our preliminary investigations with more than 50 large organisations as well as in our practical experience with the students) that a time horizon of anything less than ten years often leads participants to extrapolate from present trends, rather than consider the alternatives which might face them. When, however, they are asked to consider timescales in excess of ten years they almost all seem to accept the logic of the scenario planning process, and no longer fall back on that of extrapolation.  Accordingly, we have found that forcing participants to consider a time horizon in excess of 10 years is a basic rule for most effective (environmental) scenario planning. Although this may appear to be an arbitrary requirement, especially for organisations whose planning horizons may normally be measured in months, it seems to be the only way of guaranteeing that managers adopt the correct mindset!

There is a similar problem with expanding participants horizons to include the whole external environment. Only 21% of the scenarios in our survey could be considered as being totally externally oriented. The largest category, 43%, took in some of the external environment but mixed it with internal factors. A surprisingly high proportion, 34%, wrote what amounted to corporate scenarios (which describe the future of the organisation itself, largely on the basis of internal factors); surprising in view of the stress, in our teaching, on the use of environmental scenarios (which consider the wider environment of the whole sector within which it operates). It is obviously difficult, therefore, to drag managers away from their day-to-day short term (and internal) perspectives; even when so much effort is applied (the course ran for nine months in total). The good news is that if you can persuade them to address the ten year horizon, perhaps an easier task, this also tends to make them look further out in terms of the external environment. Thus, 43% of those taking the long perspective produced scenarios which genuinely addressed the wider environment (compared with the 63% of those taking the short term one who produced corporate scenarios).

Brainstorming

In any case, the brainstorming which should then take place, to ensure that your list is complete, may unearth more variables - and, in particular, the combination of factors may suggest yet others.

Wall-Post-It: Stage 1

This is a very simple technique which is especially useful at this - brainstorming - stage, and in general for handling scenario planning debates; but may be used to support any form of planning process. As described here, it is derived from use in Shell where this type of approach is often used. A similar technique - using 5" by 3" index cards -  has also been described (as the 'Snowball Technique'), by Backoff and Nutt[xiii], for grouping and evaluating ideas in general.  The technique, as we have developed it though,  only requires a conference room with a bare wall and copious supplies of 3M Post-It Notes!

The six to ten people ideally taking part in such face-to-face debates should be in a conference room environment which is isolated from outside interruptions. The only special requirement is that the conference room has at least one clear wall on which Post-It notes will stick. At the start of the meeting itself, any topics which have already been identified during the environmental analysis stage are written (preferably with a  thick magic marker, so they can be read from a distance) on separate Post-It Notes. These Post-It Notes are then, at least in theory, randomly placed on the wall. In practice, even at this early stage the participants will want to cluster them in groups which seem to make sense. The only requirement (which is why Post-It Notes are ideal for this approach) is that there is no bar to taking them off again and moving them to a new cluster.

As in any form of brainstorming, the initial ideas almost invariably stimulate others. Indeed, everyone should be encouraged to add their own Post-It Notes to those on the wall . It should be noted, however that it differs from the 'rigorous' form described in 'creative thinking' texts, in that it is much slower paced and the ideas are discussed immediately. In practice, as many ideas may be removed, as not being relevant, as are added. Even so, it follows many of the same rules as normal brainstorming and typically lasts the same length of time  - say, an hour or so only.

It is important that all the participants feel they 'own' the wall - and are encouraged to move the notes around themselves. The result is a very powerful form of creative decision-making for groups, which is applicable to a wide range of situations (but is especially powerful in this context). It also offers a very good introduction for those who are coming to the scenario process for the first time. Since the workings are largely self-evident, participants very quickly come to understand exactly what is involved.

Our own, OBS, internal usage has revolved around the use of flip-charts, mainly because that has been the available medium and is that often prescribed for creative decision-making sessions, though this has meant that the charts have needed rewriting at each stage - but this did not seem to significantly reduce the effectiveness of the process.

Important and Uncertain

This step is, though, also one of selection - since only the most important factors will justify a place in the scenarios. The 80:20 Rule here means that, at the end of the process, management's attention must be focused on a limited number of most important issues. Experience has proved that offering a wider range of topics merely allows them to select those few which interest them, and not necessarily those which are most important to the organisation.

 In addition, as scenarios are a technique for presenting alternative futures, the factors to be included must be genuinely 'variable'. They should be subject to significant alternative outcomes. Factors whose outcome is predictable, but important, should be spelled out in the introduction to the scenarios (since they cannot be ignored). The Important Uncertainties Matrix, as reported by Kees van der Hijden of Shell, is a useful check at this stage:

Figure 1 - The Importance/Uncertainty Matrix

Thus, only those topics (here 5 & 6)  in the (shaded) top right quadrant (important and uncertain) should be considered as part of the scenario process. Although topics in the bottom right hand quadrant (here 2 and especially 1) should not be part of the scenario process, in view of their importance they should be described as part of an introduction to the final scenarios. On the other hand, topics in both the left hand quadrants (here 3 and 4) should be ruthlessly discarded as merely distractions to the planning process. This is an elegant approach, but may once more be unnecessary; since only 9% of the students used it (even though they had been introduced to it on the course). Despite the fact that we advise participants in our own, internal OBS, planning to adopt this approach, most of them also rapidly abandon it - the essence of effective scenario work seems to be informality.

At this point it is also worth pointing out that a great virtue of scenarios is that they can accommodate the input from any other form of forecasting. They may use figures, diagrams or words in any combination. No other form of forecasting offers this flexibility.

Step 2 - BRING DRIVERS TOGETHER INTO A VIABLE FRAMEWORK

The next step is to link these drivers together to provide a meaningful framework. This may be obvious, where some of the factors are clearly related to each other in one way or another. For instance, a technological factor may lead to market changes, but may be constrained by legislative factors. On the other hand, some of the 'links' (or at least the 'groupings') may need to be artificial at this stage. At a later stage more meaningful links may be found, or the factors may then be rejected from the scenarios. The theoretical approach adopted by the course encouraged students to first of all build 'event strings', by linking together the various drivers and developing them to see the links between them, as well as their onward progressions over time. The great majority, 73%,  of scenarios in the survey claimed to include this step, but inspection  indicated that there was actually relatively little development - they merely restated the drivers in different combinations. It might seem, therefore, that the basic requirement at this stage is to simply group the drivers into combinations that are meaningful to the participants. Once again, we now use this simpler approach for own planning processes.

In the most theoretical approaches to the subject, probabilities are attached to the event strings. We believe, however, that in general this is difficult to achieve and adds little - except complexity - to the outcomes.

This is probably the most (conceptually) difficult step. It is where managers' 'intuition' - their ability to make sense of complex patterns of  'soft' data which more rigorous analysis would be unable to handle - plays an important role. There are, however,  a a range of techniques which can help; and again the Wall-Post-It approach is especially useful:

Wall-Post-It: Stage 2

At this stage, the participants try to arrange the  drivers, which have emerged from the first stage, into groups which seem to make sense to them. Initially there may be many small groups. The intention should, therefore, be to gradually merge these (often having to reform them from new combinations of drivers to make these bigger groups work). The aim of this stage is eventually to make 6 - 8 larger groupings;  'mini-scenarios'. This is where the Post-It Notes are almost essential - they will continue to stick no matter how many times they are moved around (and they may be moved dozens of times over the length - perhaps several hours or more - of each meeting). While this process is taking place the participants will probably want to add new topics - so more Post-It Notes are added to the wall. In the opposite direction, the unimportant ones are removed (possibly to be grouped, again as an 'audit trail' on another wall). More important, the 'certain' topics are also removed from the main area of debate - in this case they must be grouped in clearly labelled area of the main wall.

As the clusters - the 'mini-scenarios' - emerge, the associated notes may be stuck to each other rather than individually to the wall; which makes it easier to move the clusters around (and is a considerable help during the final, demanding stage to reducing the scenarios to two or three).

The great benefit of using Post-It Notes is that there is no bar to changing your mind. If you want to rearrange the groups - or simply to go back (iterate) to an earlier stage - then you strip them off and put them in their new position. One extra technical device, a Polaroid camera, is a help here. Every so often a picture should be taken of the wall, to record where you are. It is advisable to do so before you make any major changes - so that you have a record which enables you return to where you were, when the new approach turns out to be a blind-alley!

Again, in our own internal (OBS) planning we tend to use flip-charts; and again this results in more rewriting - but, once more, without causing significant problems. The whole process appears to flow very naturally, once the participants accept the simple principles behind it.

Step 3 - PRODUCE INITIAL (seven to nine) MINI-SCENARIOS

The outcome of the previous step is usually between seven and nine logical groupings of drivers. In our experience this is usually surprisingly easy to achieve. The 'natural' reason for this is may be that it represents some form of limit as to what participants can visualise. In any case, this stage - following our guidelines - requires that you produce that many larger groupings.

Having placed the factors in these groups, the next action is to work out, very approximately at this stage, what is the connection between them. What does each group of factors represent?

Step 4 - REDUCE TO TWO TO THREE SCENARIOS

The main action, at this next stage, is to reduce the seven to nine mini-scenarios/groupings detected at the previous stage to two or three larger scenarios. The challenge in practice seems to come down to finding just two or three 'containers' into which all the topics can be sensibly fitted. This usually requires a considerable amount of debate - but in the process it typically generates as much light as it does heat. Indeed, the demanding process of developing these basic scenario frameworks often, by itself, produces fundamental insights into what are the really important (perhaps life and death) issues affecting the organisation. During this extended debate - and even before it is summarised in the final reports - the participants come to understand, by their own involvement in the debate, what the most important drivers for change may be, and (perhaps even more important) what their peers think they are. Based on this intimate understanding, they are well prepared to cope with such changes - reacting almost instinctively - when they actually do happen; even without recourse to the formal reports which are eventually produced!

There is no theoretical reason for reducing to just two or three scenarios, only a practical one. It has been found that the managers who will be asked to use the final scenarios can only cope effectively with a maximum of three versions! Shell started, more than two decades ago, by building half a dozen or more scenarios - but found that the outcome was that their managers selected just one of these to concentrate on. As a result the planners reduced the number to three, which managers could handle easily but could no longer so easily justify the selection of only one! This is the number now recommended most frequently in of the literature. On the other hand, Shell now use just two, though still they say that three may be a better number for less sophisticated users. In terms of what we require of our students, we too started with three scenarios but then moved to two - since it reduced the workload without any apparent loss of quality; and there was no evidence that having to produce just two scenarios posed any extra conceptual problems for our students. In terms of our own (OBS) planning we too produce just two scenarios, and there have been very few problems with this. 

Complementary Scenarios

As used by Shell, and as favoured by a number of the academics, these two scenarios should be complementary; the reason being that this helps avoid managers 'choosing' just one, 'preferred', scenario - and lapsing once more into single-track forecasting (negating the benefits of using 'alternative' scenarios to allow for alternative, uncertain futures). This is, however, a potentially difficult concept to grasp, where managers are used to looking for opposites; a good and a bad scenario, say, or an optimistic one versus a pessimistic one - and indeed this is the approach (for small businesses) advocated by Foster[xiv]. In the Shell approach, the two scenarios are required to be equally likely, and between them to cover all the 'event strings'/drivers. Ideally they should not be obvious opposites, which might once again bias their acceptance by users, so the choice of  'neutral' titles is important. For example, Shell's two scenarios at the beginning of the 1990s were titled 'Sustainable World' and 'Global Mercantilism'[xv].  In practice, we found that this requirement, much to our surprise, posed few problems for the great majority, 85%, of those in the survey; who easily produced 'balanced' scenarios. The remaining 15% mainly fell into the expected trap of 'good versus bad'. We have found that our own relatively complex (OBS) scenarios can also be made complementary to each other; without any great effort needed from the teams involved; and the resulting two scenarios are both developed further by all involved, without unnecessary focussing on one or the other.

In any case, it is not strictly necessary to have such balance. ICI, for instance, have reported[xvi] that, as one part of their overall corporate planning process, they develop a number of alternative scenarios from which they select the one which they think is the most likely. Their strategy is subsequently based only upon that one, with the others thereafter used to provide a form of emergency back-up in case the chosen one is after all wrong. The one government which we know uses scenarios on the large scale, as a central part of its planning process, also eventually chooses one scenario - which it then features as the central message of its national plan.

Testing

Having grouped the factors into these two scenarios, the next step is to test them, again, for viability. Do they make sense to the participants? This may be in terms of logical analysis, but it may also be in terms of intuitive 'gut-feel'. Once more, intuition often may offer a useful - if academically less respectable - vehicle for reacting to the complex and ill-defined issues typically involved.  If the scenarios do not intuitively 'hang together', why not? The usual problem is that one or more of the assumptions turns out to be unrealistic in terms of how the participants see their world. If this is the case then you need to return to the first step - the whole scenario planning process is above all an iterative one (returning to its beginnings a number of times until the final outcome makes the best sense).

Step 5 - WRITE THE SCENARIOS

The scenarios are then 'written up' in the most suitable form. The flexibility of this step often confuses participants, for they are used to forecasting processes which have a fixed format. The rule, though, is that you should produce the scenarios in the form most suitable for use by the managers who are going to base their strategy on them. Less obviously, the managers who are going to implement this strategy should also be taken into account. They will also be exposed to the scenarios, and will need to believe in these. This is essentially a 'marketing' decision, since it will - as we will see later - be very necessary to 'sell' the final results to the users. On the other hand, a not inconsiderable consideration may be to use the form the author  also finds most comfortable. If the form is alien to him or her the chances are that the resulting scenarios will carry little conviction when it comes to the 'sale'.

Most scenarios will, perhaps, be written in word form (almost as a series of alternative essays about the future); especially where they will almost inevitably be qualitative. Nearly half (47%) of those in our survey chose to use the normal business report format - hardly surprising where they, and their audience, would probably use this in their day to day communications. A further 12% reduced the material to something closer to an expanded series of lists. A quarter (25%) enlivened their reports by adding some fictional 'character' to the material - perhaps taking literally the idea that they are stories about the future - though it was still clearly intended to be factual. On the other hand, they may include numeric data and/or diagrams - as those of Shell do (and in the process gain by the acid test of more measurable 'predictions'); though only 1% of our students did so. Finally, 10% of the students took some delight in using a fictional form, as they were entitled to; assuming the character of a leader writer of the Financial Times in the year 2010, for instance. This last approach might sound trivial, and it probably would be so for most audiences, but it might strike exactly the right chord with some - the key is always to match the style to the audience. Our own (OBS) scenarios are communicated in report form.

A good introduction to the Shell form of reporting is contained in Adam Kahane's article[xvii], and an alternative example can be found at the end of the PSI report[xviii].

Step 6 - IDENTIFY ISSUES ARISING

The final stage of the process is to examine these scenarios to determine what are the most critical outcomes; the 'branching points' relating to the 'issues' which will have the greatest impact (potentially generating 'crises') on the future of the organisation. In our own most recent planning session, one of the most important branching points turned out to be, for instance, the degree to which the emerging new electronic media will be used to deliver mass education. The subsequent strategy will have to address these - since the normal approach to strategy deriving from scenarios is one which aims to minimise risk by being 'robust' (that is it will safely cope with all the alternative outcomes of these 'life and death' issues) rather than aiming for performance (profit) maximisation by gambling on one outcome. This is an important stage, but it  seems to be a less obvious one to managers; only 12% of those in the survey went as far as this - though they were not strictly required to do so as part of their project (except as an optional final test of robustness).

Role Playing

A final, but potentially time consuming extra test, is to act through (role play) what each of the two scenarios means to the key 'actors' involved (parts of your own organisation, competitors, government, say). It helps to produce a table with the scenarios listed across the top and the key actors down the side so that what each of these groups feels about each scenario (and what the reaction of each to the outcomes is likely to be) can be recorded. It also helps if a number of planners/managers repeat the process (and then debate their views to achieve a consensus).

This is, once more, a useful test of the consistency of the scenarios - if there are any inconsistencies then it is back to iteration! More important, though, it gives a valuable insight into, not just what the events in the future might be, but into how the key players may respond.

Governments often use this technique by itself, without scenarios, to see how the various actors may react to political/diplomatic developments. In this case it becomes an expensive process since those role-playing the key actors, often at great length, have to be experts - but combining it with scenarios is even more powerful.

USE OF SCENARIOS

It is important to note that these - final - scenarios may be used in a number of ways:

a) Containers For The Drivers/Event Strings

Most basically, they are a logical device, an artificial framework, for presenting the individual factors/topics (or coherent groups of these) so that these are made easily available for managers' use - as useful ideas about future developments in their  own right - without reference to the rest of the scenario. It should be stressed that no factors should be dropped, or even given lower priority, as a result of producing the scenarios. In this context, which scenario contains which topic (driver), or issue about the future, is irrelevant. Our own, internal (OBS), scenarios typically contain, in this way, a dozen or more individual  strands; which are usually subsequently tracked, and dealt with, separately.

b) Tests For Consistency

At every stage it is necessary to iterate, to check that the contents are viable and make any necessary changes to ensure that they are; here the main test is to see if the scenarios seem to be internally consistent - if they are not then the writer must loop back to earlier stages to correct the problem. Though it has been mentioned previously, it is important to stress once again that scenario building is ideally an iterative process. It usually does not just happen in one meeting - though even one attempt is better than none - but takes place over a number of meetings as the participants gradually refine their ideas.

c) Positive Perspectives

Perhaps the main benefit deriving from scenarios, however, comes from the alternative 'flavours' of the future their different perspectives offer. It is a common experience, when the scenarios finally emerge, for the participants to be startled by the insight they offer - as to what the general shape of the future might be - at this stage it no longer is a theoretical exercise but becomes a genuine framework (or rather set of alternative frameworks) for dealing with that future. This has probably represnted the main benefit the OBS has gained from its own use of scenarios. Those in our most recent set, for example, were entitled 'Mass Electronic Education' and 'The Club'. The former encapsulates the events resulting from the expansion of education to wider audiences, as 'edutainment', on a continuing basis. The latter focuses on a more elitist approach, where the education is also a vehicle for social contact between students.

'NON-STANDARD' SCENARIOS

It has to be recognised that the word 'scenario' has entered into general usage as a very general term which can be applied to many different approaches. Thus, it has entered the popular culture to mean 'situation', even though the Oxford Dictionary of the Business World[xix] remonstrates against such usage (but itself only advances the definition, to 'postulated sequence of future events', in its second definition). Indeed, Diffenbach[xx] found that almost as many of the large organisations he surveyed (55%) used 'single scenarios' as used 'alternate scenarios' (68%). Even within the general area of complementary or alternate scenarios, on which this paper focuses, there are a number of variants; some of which can add to the usefulness of the process in certain situations:

Multiple Scenario Sets

It is paradoxical, where one main aim of using alternate scenarios is to widen the viewpoints of the participants, that most of the descriptions of the theory behind them seem to imply that - when everything has run its course - there will be just one possible set of (2 or 3) scenarios, which should eventually emerge as the true forecast.

If, however, you run a number of teams in parallel, studying the same areas of the environment and the same time-frame from the same perspective, you become aware very quickly there is usually no one such obvious 'correct' set. There can be significant differences between the various sets - especially if the profiles of the various teams are different - so much so that sometimes they appear not to be talking about the same future. This can, in the first instance, be worrying; since, despite the message of variety of alternatives which is inherent in scenario theory, managers still expect the final forecast to be correct!

Even so, our own experience - running three such teams in parallel - indicates that, if there are strong forces at work in the external environment, there may be a surprising degree of unanimity on the major features of scenarios. In our most recent work, all three of our teams described one of the two scenarios in much the same terms, and two teams did so for the second.

Running teams in parallel in this way is very unusual, even as only the first stage of the overall process, since it can demand large amounts of resource. Apart from our own usage, we have experience of only one 'user' which has done this in practice; a government which used scenarios as part of its three year planning exercise. They found that it was an excellent way, at least for them, of providing widespread expert input to the final scenarios (they used it, in this way, to bring together the ideas of more than 300 members of the administration). At the same time, however, it provided an indication of the spread of possible scenarios, by posing the question "Why are they so different?". As an added benefit, of course, it helped get round the problem of incorporating the widest possible environmental analysis.

Hierarchies of Scenarios

This government went further, in that it used the earlier levels of scenario to provide specific scenarios for the various departments; and these were then quite naturally located in a hierarchy which linked them directly to the overall national scenario.

It is possible to reverse this process, and to take the overall scenario as the first step and then break this down to different scenarios, at a lower level, which are more directly related to departmental needs, but still clearly link to the overall position. Shell, for example, have individual country scenarios which link to their world-wide ones.

Strategic Scenarios

Indeed, Shell's use of scenarios is now so sophisticated that they may even write their consequent strategies in a similar form. Thus, having developed their two environmental scenarios, they undertake much the same corporate planning process as other large multinationals. The difference is that, having decided on the strategies, these may then be written - for use by managers throughout the corporation - in the form of 'strategic scenarios'; frameworks which contain the alternative strategies, for dealing with possible events, in the same way as the original scenarios contained the alternative events themselves. When a manager needs to consult them, as a context for a decision, he or she has a range of strategies already available, to match to the situation as it has actually developed; taking alternate scenarios to the logical conclusion of alternate solutions - but that requires a very confident (and competent) management! Shell have even gone as far as adopting an 'optimistic' global scenario, and promoting it, in order to send a 'positive' message to the whole organisation. They do, though, emphasise that this needs handling with care!

CORPORATE STRATEGY

Scenarios are, of course, only a means to an end. They identify the long-term forces, and consequent events, which the organisation's conventional long-range planning - such as that described by Taylor[xxi] -  must address. This next step, therefore, starts by matching the organisation's limited internal resources to the essentially unlimited external challenges which may face it. The special contribution of scenario planning, in this context, is - as has been described previously - to allow, and indeed encourage, the development of a robust set of strategies. These will not necessarily result in an optimal outcome for a specific situation, but should offer the possibility of achieving the best overall outcome. In particular, they should best protect, as far as possible,  against all the potential threats facing the organisation, and then exploit the possible opportunities.

The use of scenarios, therefore, helps ensure that as many as possible of the long-term threats and opportunities facing the organisation are identified and addressed. Shell[xxii],[xxiii],[xxiv] has demonstrated a number of times how such an awareness - of the alternatives facing it - has enabled it, not just to handle changed market conditions, but to capitalise on them. At the beginning of the 1970s, when it first adopted its scenario planning approach, it was probably the weakest of the major oil multinationals. Two decades later it has become the strongest of them. These facts are not necessarily connected, but Shell's senior management is convinced that - at the very least - its dedication to scenario planning has made a significant contribution to this dramatic improvement in performance.

Unfortunately, the reality is rather different in most other organisations. Possibly as a result of their unwarranted reputation for being impossibly sophisticated, very few organisations make any use of scenarios as part of the overall corporate strategy process.

Hopefully, this paper will have shown that scenarios can be both easy to use, and very productive. They do, however, still demand some considerable investment of time, often of scarce senior management time, so if they are to be justified they must earn their keep. In essence this means that they must be genuinely useful, and used, as the (external) basis for corporate strategy. It is recognised, by all those we have met - who are actively involved in the scenario planning process, that this is by far the most difficult part of the whole process. It is no accident that the large corporate planning department at Shell say that they spend at least half their time promoting their scenarios. They typically achieve this by running workshops for the local companies, and for other members of management, as the process develops and making elaborate presentations to them at the end of it.  It took them many years to attain the degree of understanding and trust which their 'users' now have in the system. It is probably no accident that the central planning team see themselves only as facilitators, and insist that all planning is actually done by line managers.

Indeed, the whole process of scenario forecasting must be imbued, from the very start, with the objective of positively influencing the strategy of the organisation. This means that, on the one hand, the scenarios must be carefully balanced between stretching the imagination of the management and being believable. On the other, it requires a significant investment in the education of the senior management. The marketing of the scenarios needs to be every bit as sophisticated as the writing of them. The introduction of the process should be seen as a long-term project. It can take a number of years before senior managers really trust scenarios sufficiently to put their faith in the strategies which are developed from them.

The cultural problems facing those who wish their organisations to take scenarios seriously should not, therefore, be underestimated. As the final part of the course, our own students subsequently went on to produce a corporate strategy; based on the scenarios they had developed for their industry - or at least that was the brief. Based on the anecdotal reports of their tutors, backed by the 13 cases tracked (of whom 63% followed this route), we found that in practice, despite all the teaching and very explicit instructions we had given, most of the students lapsed into producing 'traditional' strategies. These were of the sort which are the staple diet of our other strategy course, and which almost entirely addressed short-term internal factors, ignoring the external long term trends with which this course dealt! Only 8% delivered strategies which made a good job of addressing the outcomes of their scenarios!

Failure, in this way, to have an immediate impact on published strategy should not, however, discourage those considering use of the technique. Our own experience, and that of Shell, was that the first scenarios produced are relatively neglected in the subsequent planning. It may take literally years for the process to deliver all its benefits. As mentioned at the beginning of this paper, there is only anecdotal evidence that, even then, scenarios contribute significantly to the success of organisations which use them.

Even so, our observation is that the participants do obtain major benefits from the process - even in the short term. On the other hand, the main benefit is much less direct than that usually claimed, and indeed is often not even obvious to the participants themselves. It is the enduring change in viewpoint of all those participating; extending their perspectives to include the wider environment and the longer term. This has been our own experience, not least in terms of the 'surprising' elements which have emerged during the process; to be accepted as key determinants of strategy. Ours students have also reported that this aspect represents the main benefit they obtain from the whole course, not just from the scenario planning part of it. In view of the 'short-termism' exhibited by so many managers, this shift in attitude must - by itself - be invaluable. Certainly, the OBS students strongly support our own opinion that the investment they make - which is much higher (being nine months of their scarce time) than that of other scenario users - is well worthwhile; in terms of what they learn. Above all, therefore, scenario planning should be seen as a process of learning.

Our evidence is that, using the simplified approach, the limited investment involved in this can make the use of scenarios a very productive process.

ACKNOWLEDGEMENTS

We are grateful to the many OBS academics, and the even greater number of OBS students, who have contributed to this work. In addition, it should be obvious, from the many comments in this article, that our overall inspiration, and many of the detailed ideas, were drawn from the experience of the corporate planning group at Shell. We thank them, and in particular Graham Galer, for their invaluable help, and hope that, as a result of this article, others will be emulate their success in future.

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