So specifically, scenario planning helps you identify future factors
as either trends or uncertainties.
Now trends are the types of things that we think are relativity certain, that we know
that we can plan on going into the future, greater inter-connectivity
across the globe and the economy, an increase in computing power,
the increased use of social networks, and those sorts of things.
These are things that we can probably count on as we go in to the future.
But uncertainties are those things that might have a particularly large impact
on the outcome of our strategic decisions today.
And these are the things that we can't really predict, and
we're not sure about whether the future is gonna work out in this way or that way.
Those are the types of things, the things that those potential future pivot on,
those are uncertainties, right?
So, uncertainties are then employed to generate multiple scenarios of the future.
That's the way that this tool works.
And essentially, generating those multiple scenarios
works as a sort of contingency planning for multiple possible futures.
And again, the underlying logic here is that it might be more useful for
us to anticipate a number of different future scenarios and
then assess our strategy's effectiveness against all of those uncertainties,
versus just making a single point forecast of the future and
betting the farm on a particular strategy that is gonna sink or
swim based on our ability to predict that singular future.
So that's the underlying logic here, and therefore scenario planning is
simply a way to structure our analytical thinking about these uncertain futures.
It works as a wind tunnel or a stress test for
a strategy as we imagine into the future what that future might look like.
So, what does this look like?
First of all, the first step in scenario planning is that we need to
identify the key strategic issue.
So, what does that mean?
It means we've got to identify an important strategic decision
that's gonna have large potential impact down the road.
So how do we do that?
I think it involves asking a number of important questions.
I don't know exactly what the right questions are for you and
your business, but you might think about things like,
how are consumers gonna purchase our product or services in the future?
How is technology gonna impact the way we manufacture our goods?
Are changing environmental laws gonna have some impact on my business in the future?
Thinking about and asking these kinds of questions might really help you identify
what's the key decision we're grappling with today that's really gonna
impact our future success given all of this uncertainty.
So it's important to think about what the appropriate
time horizon is for thinking about these future uncertainties.
I mean, if we're only talking about next quarter or
even next year, maybe that's not far enough in advance
to really make scenario planning a highly useful activity, although it could be.
Thinking about next year might be useful if you're in a industry or market segment
where there's rapid technological change or something like that, right?
But on the other end of the spectrum,
we don't want to pick a time horizon that's so far into the future, it's
impossible to even relate to what those possible futures might look like, right?
So there's this idea that getting the time horizon right,
where things are out in the future enough
that you have some uncertainty about how things could look, that's good.
But it's also not so immediate that we aren't just doing budgeting for next year.
That's kind of the idea.
We need that time horizon to be just right, sort of like Goldilocks,
the porridge is not too hot, not too cold, it's just right.
So that's the approach that we wanna take on the time horizon as it
relates to these uncertainties.
And uncovering the key ideas here might involve seeking input both inside and
outside your organization.
I mean you ought to ask lots of questions for
parties that might think about things differently than you do.
Certainly you'll wanna go to your experts within your business organization.
You'll probably wanna go to some of your key stakeholders and
just ask some detailed questions about what they might envision for the future.
This might get you to think about things more creatively
than if you were just left on your own or with your small management team.
And the key here is that you really need to take a contextual, competitive, and
organizational view of what sorts of issues might matter into the future.
So that's the first step in scenario planning,
is simply identifying the key strategic issue.
And that involves asking some key questions,
scoping the time time horizon correctly so that you're really in
that sweet spot of uncertainty about the future, and identifying the kind of
decision you're faced with that might really matter for your future success.
Michael LenoxSenior Associate Dean and Chief Strategy Officer
Jared HarrisSamuel L. Slover Research Chair in Business Administration
