Academic Reflection - From scenarios to strategy

Introduction

We have used scenario planning to come up with multiple scenarios that try to give us different viewpoints on what the future might look like. Now what? Scenarios are not an end in themselves1. They must be used as a tool for management to improve the quality of executive decision-making and strategic action. However, it is not often clear how scenarios can be used to implement strategy. There are a number of methods that can be used to achieve this with a certain degree of success. This document will discuss a number of these methods and also point out what not to do.

Pitfalls to avoid

When translating scenarios to strategy it is important to know that there are some methods that will not achieve the desired results.

Developing complete strategies for each scenario and then using corporate finance methods to determine the one with the greatest promise of profitability is not the way to go. The real aim of scenario planning is to develop a resilient strategy within the framework of the alternative futures provided by the scenarios and not to assume that any one future is THE future.

Assigning probabilities to scenarios and then developing a strategy for the most probable one is also not a good idea. Scenarios are not forecasts. They are a collection of futures that establish the boundaries of uncertainty and the limits to plausible futures.

Sensitivity/Risk Assessment

This approach is used to evaluate specific strategic decisions. The question that is being answered is therefore whether or not to proceed with a particular investment after the strategy’s resilience/vulnerability has been assessed.

Key environmental conditions that need to be met in order to proceed are identified and then scenarios are used to assess the state of these conditions. The scenario conditions are then compared with the desired future conditions to assess how successful a “go” decision would be in each scenario.

This method provides a step-wise journey from scenarios to decisions however it depends on the existence of a clear and specific decision focus. This approach provides a relatively straightforward application of scenarios to decision-making, using a series of descriptive and judgmental steps. However, it depends on having a very clear and specific decision focus, one which lends itself to a “go/no go” decision.

Strategy Evaluation

In this method, scenarios act as “test beds” to evaluate the viability of an existing strategy. The overall business strategy is evaluated against the scenarios to determine how effective it would be in a range of environmental conditions and to identify changes or contingencies that require attention.

The overall business strategy is broken up into smaller strategies e.g. marketing strategy and goals and objectives are identified. The relevance and likely success of these objectives are then assessed within the diverse conditions of the scenarios. This should allow the management team to identify: 1. Opportunities taken or missed 2. Threats foreseen or overlooked 3. Competitive success of failure Options can then be identified for changes in strategy. This is the method being used within Shell.

Strategy Development

This approach consists of selecting one of the scenarios as a starting point for strategy development and then using the other scenarios to test the strategy’s resilience. This approach has the danger that management might discard the other scenarios as unlikely and thus limit their search for strategy options. However, it does allow a transition from single point forecasting to scenario planning.

References

1. Wilson I. FROM SCENARIO THINKING TO STRATEGIC ACTION http://horizon.unc.edu/projects/seminars/futurizing/action.asp
2. Leemhuis J P. Using Scenarios to Develop Strategies. Long Range Planning Vol 18, No 2 1985