Origins of Scenario Planning
During the 1960ies the scenario planning tool was developed within the Royal Dutch Shell. The aim was to think about the future and long-term effects. Actually, two years before the first oil-price shock in 1973 this scenario was created by Ted Newland and Henk Alkema that would deal with the upcoming challenges and required actions. Angela Wilkinson and Roland Kupers state in their 2013 Harvard Business Review article “Living in the Futures”: “But Shell-style scenario planning has never really been about predicting the future. Its value lies in how scenarios are embedded in […] organizational processes such as strategy making, innovation, risk management, public affairs, and leadership development. It has helped break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present.”1
Furthermore, the authors emphasise the positive insight when using scenario planning based on research2 that stated “that formal “strategic foresight” efforts add value through (1) an enhanced capacity to perceive change, (2) an enhanced capacity to interpret and respond to change, (3) influence on other actors, and (4) an enhanced capacity for organizational learning.”3 The HBR authors specify the following principles why the method is so effective4:
Make It Plausible, Not Probable
Strike a Balance Between Relevant and Challenging
Tell Stories That Are Memorable Yet Disposable
Add Numbers to Narrative
Scenarios Open Doors
Manage Disagreement as an Asset
Fit into a Broader Strategic Management System
Insights and rules of thumb by Charles Roxburgh (McKinsey)5:
Always develop at least four scenarios
Don’t use a single variable
“Crunch” the quadrants
There should always be a base or central case
Scenarios must have catchy names
Learn from being totally wrong
Listen to contrary voices
Even modest environmental changes can have enormous impact
Scenario techniques to innovate the Business Model6:
Based on the book Business Model Generation edited by Alexander Osterwalder and Yves Pigneur two basic scenarios could be differentiated and applied. It is either recommendable to focus on customer needs or on future context (e.g. social trends, legal/political developments, etc.). The prior one seeks to find the intersections between different customer groups, so key resources or channels could be used with a synergy effect.
The latter defines two relevant criteria (at minimum), which are threatening or changing the current industry or company. The criteria are assigned in the matrix to whether they will become true in the future or will fail to be accepted. Multiplying the two criteria result in at least four different scenarios. In the next step it is very important to develop a story around each scenario. At best focusing on customers’ needs and how they could be solved. Furthermore, the story makes the future scenario more tangible and comprehensible to the people involved in the business model innovation. Last but not least one business model per scenario is developed.
Defining scenarios and developing business models7
The main objective is to prepare a company for the future. While elaborating and discussing different drivers, threats or trends it helps the company and the employees to better understand the bigger picture and prevents them from complacency.
Sources
1 Taken from: https://hbr.org/2013/05/living-in-the-futures 10.05.2018
2 René Rohrbeck (Aarhus University) and Jan Oliver Schwarz (Germany’s EBS Business School) cited in: https://hbr.org/2013/05/living-in-the-futures
3 Taken from: https://hbr.org/2013/05/living-in-the-futures 10.05.2018
4 Taken from: https://hbr.org/2013/05/living-in-the-futures 10.05.2018
5 Taken from: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-use-and-abuse-of-scenarios 10.05.2018, written by Charles Roxburgh of McKinsey Consulting
6 Osterwalder, Alexander; Pigneur, Yves. (2013). Business Model Generation. Hoboken, NJ: Wiley.
7 Osterwalder, Alexander; Pigneur, Yves. (2013). Business Model Generation. Hoboken, NJ: Wiley.
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