business idea: SCENARIO PLANNING
Scenario planning enables organizations to rehearse the future,
to walk the battlefield before battle commences so that they are
better prepared. Scenarios are not about predicting future events.
Their value lies in helping businesses understand the forces that are
shaping the future. They challenge our assumptions.
In the 1960s, Pierre Wack, Royal Dutch/Shell’s head of group
planning, asked executives to imagine tomorrow. This promoted
sophisticated and responsive strategic thinking about the current
situation, by enabling them to detect and understand changes.
Pierre Wack wanted to know whether there were other factors in the
supply of oil, besides technical availability, that might be uncertain
in the future. He listed stakeholders and questioned the position
of governments in oil-producing countries: would they continue
increasing production year on year? By exploring the possible
changes to government policy, it became apparent that these
governments were unlikely to remain amenable to Shell’s activities.
Many oil-producing countries did not need an increase in income.
They had the upper hand, and the overwhelming logic for the oilproducing countries was to reduce supply, increase prices, and
conserve their reserves.
When the 1973 Arab–Israeli War limited the supply of oil, prices
rose fivefold. Fortunately for Shell, Wack’s scenario work meant
Shell was better prepared than its competitors to adapt to the new
situation—saving billions of dollars, it climbed from seventh to second place in the industry’s profitability league table. It knew
which governments to lobby, how to approach them, where to
diversify, and what action to take with each OPEC member.
Scenario planning enables leaders to manage uncertainty and
risk. Above all, scenarios help firms to understand the dynamics
of the business environment, recognize new opportunities, assess
strategic options, and take long-term decisions.
• Scenarios are not predictions: they are used to understand
the forces shaping the future. What matters is not knowing
exactly what the future will look like, but understanding the
general direction in which it is moving—and why.
• Plan and structure the scenario process: for example, by agreeing
who will be involved.
• Discuss possible futures (usually by working back from a possible
view of the future).
• Develop the scenarios in greater detail.
• Analyze the scenarios: why they might occur, what you would do
if they did.
• Use the scenarios to shape decisions and priorities.
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