10/01/2015

Gmail[EQUIPECEPIK]Fwd:ScenarioPlanningandStrategicForecasting

LucasRodrigues<lrrodrigues@gmail.com>

[EQUIPECEPIK]Fwd:ScenarioPlanningandStrategicForecasting
MarcoCepik<marco.cepik@ufrgs.br>
10dejaneirode201515:31
Para:ISAPE<isape@googlegroups.com>,EquipeCepik<equipecepik@googlegroups.com>
Cc:JoseMiguelMartins<jose.martins@ufrgs.br>

ScenarioPlanningandStrategicForecasting
January7,2015|09:00GMT

Analysis
ByJayOgilvy
Strategicforesightcanbegainedthroughmorethanonelens.Beyondthemicroscopeofsimple
budgetingandthemacroscopeofgeopoliticsliestillothertoolsforprobingthefuture.
AsIsettleintotheroleofcontributortothisspace,Iwanttoexploremultiplefuturesand
multipleperspectives.SincemyapproachtolookingaheaddiffersfromwhatsomeStratfor
readersmaybefamiliarwith,Iwanttostartbyexplainingoneofmyfavoritemethodologies,
whichisdistinctfrombutinterestinglyrelatedtogeopoliticalforecasting.
Myspecialtyismultiplescenarios,orscenarioplanning,asitisbestknown.Scenariosare
alternatefuturesinwhichtoday'sdecisionsmayplayout.Theyarestorieswithbeginnings,
middlesandends.Goodscenarioshavetwistsandturnsthatshowhowtheenvironmentmight
changeovertime.
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GoodScenarios
Agoodsetofscenarioswillcontaintwotofivedifferentnarratives.Morethanfivescenarios
tendtogetconfusedwithoneanother.Threescenariosrunthedangerthatpeoplewilltrytopick
themostmoderateormostapparentlyplausibleandforgetabouttheothertwo.Fourisagood
numberneithertoomanynortoofew.
Eachscenarioshouldcontainenoughdetailtoassessthelikelihoodofsuccessorfailureof
differentstrategicoptions.Willtherebesufficientdemandforanewproduct?Aresupplychains
likelytoremainintact?Howmuchcompetitioncanweanticipate?Havenewtechnologies
renderedaproductobsolete?Willpoliticalinstabilityputthoseoilfieldsbeyondourreach?
Agoodsetofscenariosshouldalwaysbecustomizedtoaparticularcontext.Thescenariosthat
RoyalDutch/Shellusedtoanticipatethedropinoilpricesin1986werefardifferentfromthe
scenariosamajorcomputermanufacturerusedtonavigateitstransitionfromproductsto
services.ThescenariosXeroxusedtoanticipatetheconvergenceofthecopierandprinterwere
fardifferentfromthescenariosAmericanExpressusedtodealwiththereplacementoftraveler's
checksbycreditcards.Eachorganizationneedsitsownscenariostofaceitsownchallenges.
Purposeisalsoimportant.Sometimesthepointofascenarioistopryattentionawayfromthe
ordinary.Theveryprocessofthinkingaboutarangeofpossiblefuturescanbeauseful
opportunityforaddressingissuesthatmightotherwisebeneglected.Thinkabouttherising
powerofChinaandIndiaorthecreepingonsetofclimatechange.
Eachindustrywillhaveitsownexamples:foreducation,thespreadofmassiveonlineopen
coursesforenergy,newtechnologiesfordecarbonizationorextractionforentertainment,
oscillatingparadigmsbetweenbigscreenblockbustersandfarethatfitsonmobilescreens.
Alternatescenarioscanserveasrelativelylowcostinsurancepolicies.Youarelesslikelytobe
blindsidedifyou'vetakenthetroubletoimaginesomeunwelcomedsurprises.Andonthe
upside,scenarioscanidentifywhitespaceopportunitiesthatremainunfilleduntilafirstmover
occupiesthespacethatlessimaginativecompetitorsneverknewexisted.

TheProcess
Thescenarioplanningprocessusuallyunfoldsaccordingtoanorderly,methodicaleightstep
process.Theprocesshastwomajorparts:first,choosingwhichscenariologicstofleshout,a
taskthatcomprisesthefirstfivesteps,andsecond,tellingtheactualstory,itsimplicationsand
earlyindicators,whichcomprisetheremainingsteps.Afullblownscenarioplanningproject
usuallytakesthreeorfourmonths,startingwithinterviewsandaninitialworkshop,thenatleast
amonthofresearchandwriting,thenasecondworkshoptodrawimplicationsfromtheramified
andrefinedscenarios,andthensometimetosummarizetheresultsofthesecondworkshop
intoapresentation.

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Step1:FocalIssue
Theprocessbeginswithidentifyingwhatapersonororganizationwillfocuson.Scenariosfor
thefutureofthegalaxywillnotbeusefultoacompanytryingtodecidewhetheritshouldbuilda
newfactoryoutsideSaoPaulo.Sometimesthefocalissueisaveryspecificquestion:Should
weinvestintechnologyX?ShouldwebuycompanyY?Sometimesthefocalissueismore
openended:Aretherepotentialsurprisesthatcoulddisruptourcurrentstrategy?Andother
timesthefocalissueisgeopolitical:WhatwillthefutureofcountryZlooklikeasamarketfor
ourseveraldifferentproductlines?

Step2:KeyFactors
Oncethefocalissuehasbeendetermined,ascenarioteamwillbrainstormalonglistoffactors
thatcouldaffectthefocalissue.Manyofthekeyfactorswillbefairlyobvious.Theyarethe
sortsofthingsthatwouldbeaddressedinatypicalbusinessplan:customerdemand,suppliers,
competitors,productiontechnologies,humanresources,etc.Oncetheteamhaslisted30or40
differentkeyfactors,though,theprocesswillreachouttolessobviouspossibilities:Whatif
thereisanewentrantonthecompetitivelandscape?Whatifthereisanewdisruptive
technology?

Step3:ExternalForces
Afteridentifyingkeyfactors,it'stimetoconsiderthemoreremoteforcesoperatinginthelarger
world,e.g.,geopolitical,economic,socialandtechnologicalforcesthatareoftenleftoutofthe
usualbusinessplan.
Strategicplansthatdisregardsuchforceswarisanobviousexampleoftenfail.Thekind
ofgeopoliticalanalysisthatStratforofferscanplayamajorrolehere.Butagoodsetof
scenarioswillalsoofferinsightintolessobviousdynamicssuchasmigrationpatterns,cultural
differences,newtechnologies,currencyfluctuations,environmentalissues,and/orepidemics.
Inadditiontopotentialrisks,it'sessentialtolookontheupside.Opportunities,breakthroughs
andnewtechnologiesaredifficulttoanticipate.Butit'simportanttoexerciseimaginationin
disciplinedwaysthatdomorethangazeattheworldthroughrosetintedglasses.Human
ingenuityshouldnotbediscounted,howeverdifficultitmaybetoanticipate.

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Aswithkeyfactors,thereisnoproofforhavingthoughtofallpossibleexternalforces.Thiswork
callsforimaginationandcreativity.Onceascenarioteamhasgeneratedalistof70to80key
factorsandexternalforces,theefforttocomeupwithstillmorewillgetharder.Allofthe
obviousfactorsandforceswillhavebeenmentioned.Itisnecessarytopushimaginative
thinkingtothelimit,butnottoofarbeyondthelimit.Someoutlandishideasarewelcomed,but
whenpeoplestarttalkingaboutgreenmenfromMars,youknowit'stimetomoveon.

Step4:CriticalUncertainties
Byfollowingamethodical,stepbystepprocess,thescenarioteamcanachieveabalance
betweenthekindofwildcreativityandfreeformimaginationcalledforduringthebrainstorming
instepstwoandthreeandgoodjudgmentbasedonknowledgeandexperience.Wheresteps
twoandthreefeaturedadivergentprocessinwhichtheteamtriestothinkofeverythingthat
couldaffectthefocalissue,stepfourcallsforaconvergentprocessofprioritization.
Thecriteriatobeusedinallocatingpriorityvotesareimportancetothefocalissueanddegreeof
uncertainty.Whenallthevotesarecountedandcloselyrelateditemsclusteredtogether,there
willbeashortlistofcriticaluncertainties.Forexample,willenergypricesriseorfall?Will
consumervaluestiptowardthemoretraditionalorthemoreselfexpressive?Willatechnology
advancerapidlyorslowly?Willthegovernmentleantowardderegulationorreregulation?

Step5:ScenarioLogics
Buthowdowedecidewhichfuturesareworthdevelopingasdetailedscenarios?Thisisthe
challengeofstepfive,howtonarrowdownfromthevirtuallyinfinitenumberofpossiblefutures
tosettleonjusttwotofivethatwillleadtostrategicinsight.
Afterallthepriorityvotesoncriticaluncertaintieshavebeencounted,thegroupfixesonjusttwo
criticaluncertaintiestoserveastheaxesofa2by2matrix.Fourscenariologicsarethen
generatedfromthelabelsontheendsofthetwoaxes.

Thissetofscenarios,developedforoneoftheDetroitThreeautomakerswaybackin1984,
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contained"theofficialfuture"inthelowerleftquadrant:lowpricedfuelwithneotraditional
consumervalues.ThiswasthekindoffutureDetroithadbeenplanningonformanydecades.
Buthigherfuelpricesandchangingconsumervaluesrequiredthemtothinkofnewkindsof
vehiclesthatwouldbeappropriatefordifferentenvironments.Asaresult,theclientstarted
thinkingharderaboutsmallercars,aswellastheminivansandSUVsthatwouldappealto
consumerswithnontraditionalvalues.
Ilikethiscasestudyjustbecauseitofferssuchagoodexampleofan"officialfuture."
Geopoliticalforecastscanhelptoformulatetheofficialfuture.Scenarioplanningcanthen
supplementthebasecaseforecastwithotherscenariosthatwillfurtherilluminatethebase
case.Theirlogicshavebeenchosenbasedonthescenarioteam'scollectivejudgmentregarding
whatismostimportanttothefocalissue.Itpaystoquestionthemostimportantassumptions.
Whatifwe'rewrong?Scenarioplanningguardsagainstthedangersofplacingallofthe
organization'seggsintothebasketofjustoneforecast,howeverwellfoundedthatforecastmay
be.

Step6:Scenarios
Thesecondmajortaskofscenarioplanningactuallytellingthestoryofeachchosenscenario
callsforverydifferenttalentsandskills.Agoodscenarioisverymuchastory,butmost
storiesarewrittenbyasingleauthor,notbyacommittee.Howcanascenarioteamcombinethe
creativityofmanyindividualsintojustoneclearnarrativeline?
Asamatteroftradecraft,agoodmethodforelicitingspecificplotelementsistoencourage
workshopparticipantstowritenewspaperheadlinesonpostitnotes.Aharvestofsuchpostit
noteswillsupplyplentyofcontentforthescenarionarrative.
Thisprocesscanbestartedinaworkshopsetting,butoncethemembersofthescenarioteam
havegenerateddozensofplotelementsandnewspaperheadlines,itcantakeseveralweeks,
evenmonths,forasmallcoreteamtodraftnarrativescenariosfromtheoutlinesgeneratedin
theworkshop.

Step7:ImplicationsandOptions
Usuallyamonthtotwoafterthefirstworkshop,asecondworkshopwillbeheldtofigureoutthe
implicationsofeachscenarioandthestrategicoptionsappropriatetothoseimplications.Take
onescenarioanduseitastheplayingfieldonwhichourplaysmustbeplanned.Playouteach
scenariotoitsconclusion.Thenstandbackandlookatthelistsofstrategicoptionsappropriate
toeachscenario.Pulloutthosethatshowuponallormostlists.Thesearethe"nobrainers,"
thestrategicoptionsthatlookgoodinanyandallscenarios.Startworkonthemimmediately.
Theoptionsthatlookgoodineveryscenarioareoftenassociatedwithwhatarecalledpre
determinedelementsaspectsofthefuturethatcanbereliablypredicted.Andhereisthe
realmwhereStratfor'sgeopoliticalanalysisalignsmostcloselywithscenarioplanning.Whatever
canbepredictedshouldbepredicted.Fortheunpredictableremainder,thecriticaluncertainties,
scenarioswillcapturethealternativesincoherentbundles.
Demographyisoneofthemostreliablesourcesofpredeterminedelements.Andnotehow
significantlydemographicsplayinStratfor'sforecastsfor,say,Russia,wherethepopulationis
declining,orJapan,theworld'sfrontrunnerinagingpopulation.

Step8:EarlyIndicators
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Earlyindicatorsarethefirstsignsofthebigchangesthatdifferentiateonescenariofrom
another.Sometimesearlyindicatorsarefoundinthebehaviorofthemostinnovative
consumers,sometimesinthesmallstoriesdeepwithinanewspaper.Sometimesearly
indicatorstaketheformofnewjournalsorpublicationsindicatingtherisingpopularityofsome
newtechnology.Othertimesafewwordsinthespeechofanimportantpoliticianwillsignal
somenewlegislation.
Earlyindicatorsareparticularlyimportantinmovingfromasetofscenariostoasinglestrategy
whenyoucannotidentifyasingle"strategyforallseasons."Ifyoucannotfindsucharobust
strategy,butyouhaverehearsedwhatyouwoulddoineachofthescenarios,thenyoukeepa
verycloseeartothegroundforearlyindicatorsthatsuggestmovementinthedirectionofone
scenariooranother.Whenyouhaveaccruedenoughindicatorstogiveyouconfidencethatyou
knowwhichscenarioisunfolding,thenyoustarttoimplementthestrategymostappropriateto
thatscenario.

MovingfromScenariostoStrategy
Scenariosbythemselvesdonotdeterminestrategyanymorethanaforecastdoes.Astrategy
needstobedevelopedinlightofasetofscenarios.Thinkofscenariosasdifferenthandsof
cardsyoumightbedealtthinkofstrategiesasthewayyouwouldplaythosecards.
Sometimesscenariosaredevelopedafterastrategyhasbeendetermined.Inthatcasethe
scenariosserveasakindofwindtunnelforstresstestingastrategy.Thinkofthestrategyasa
modelairplane.Underwhichconditionswillitfly?Underwhichconditionswillitcrash?
Usingscenariostotestastrategycanfunctionlikeaninsurancepolicy:Youhaveamechanism
forsurvivingcertainunfortunatecontingencies.Whatifcertainaccidentshappen?Doyouhavea
contingencyplan?
Givenasetofscenarios,thereareseveralroutesyoucantravelfromscenariostostrategy.
Ratherthanpickingonescenarioandbettingthecompany,itisfarbettertofindastrategythat
isrobustacrosstherangeofscenarios."Nobrainers"createsuchastrategy,butnotall
scenarioshavenobrainers.Sometimestherelevantscenariosaresufficientlydiversethatno
singlestrategywillprevailacrossallofthem.Inthatcaseit'sagoodideatohaveastrategy
appropriatetoeach,thenattendverycloselytoearlyindicatorsthatwouldtipyoutothe
likelihoodofonescenarioovertheothers.

NotRocketScience
Scenarioplanningisnotrocketscience.Thereisagooddealofcommonsenseinvolvedinthe
practiceofscenarioplanning.Buttherearemanywaystogowrong,manymistakesthatcanbe
made.Aswithmanypractices,experienceisagoodteacher.Skilledfacilitationbyan
experiencedpractitionerisamust.
Fortunately,thenumberofskilledpractitionersisincreasingeveryday.Asearlyastheturnof
thecentury,in2000,theCorporateStrategyBoardpolleditsmemberstofindoutwhattoolsthey
usedmostforlookingintothefuture.Responsesfrom183corporationsshowedscenario
planningtobethemostpopularofeightdifferenttoolsincludingSWOTanalysis,Delphipolling,
MichaelPorter'sfiveforcesofcompetitiveposition,andothersuchwellknownplanning
methods.

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Asscenarioplanninggainsinpopularity,itsmostexperiencedpractitionerskeepexploringnew
depthsinitstheoryanditspractice.CombiningStratfor'sgeopoliticalanalysiswithscenario
planningmaybethenextfrontier.

Stratforprovidesglobalawarenessandguidancetoindividuals,governmentsandbusinesses
aroundtheworld.Weuseaunique,intelbasedapproachtoanalyzeworldaffairs.
Copyright2015StratforGlobalIntelligence,Allrightsreserved.
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