September 15, 2014

Lessons from Scenario Planning

Patrick Marren
Partner

Over the years, doing scenario planning engagements for dozens of clients, private sector and public, industrial, high-tech, medical, military, bureaucratic, transportation, infrastructure, emergency management, you name it, certain lessons about thinking about the future and strategy have imprinted themselves on our brains. Here is an incomplete list.

1. Past Performance Is No Guarantee of Future Results. Extrapolation from historical data has its place. It works in very well-defined spheres of human activity: sports, elections in heavily-polled areas, health care, demographics. But the sphere of strategy is not about things that can be extrapolated. The iPhone was not predictable from previous data. It had to be imagined. Strategy is about imagining things that never were, to paraphrase George Bernard Shaw. One of the main questions you can ask yourself about your business is: How will the equations behind my budgeting and forecasting spreadsheets prove to be faulty? 

2. The FSG Scenario Paradox. A scenario is a picture of a plausible future within which you can imagine how your organization might fare. But to the exact extent that it is detailed and therefore rich and useful for planning purposes, it must be wrong. If a scenario is a set of characteristics, each characteristic you add means that the odds one of them will not come true rise. But if you try to completely avoid error, your scenario set may consist of one sentence: e.g., "Oil prices at $150 or more; oil prices below $150." But that one fact is useless for planning. WHY is oil at $150+? Has inflation made $150 oil cheap, perhaps? Is there a major war? Is oil now an artisanal item, no longer a commodity? You need more characteristics for the scenario to come alive and be useful for planning. But to the very extent that you add detail, the scenario must be wrong. This is the FSG Scenario Paradox. 

3. But you need not despair, because Scenarios Are Not Forecasts. Scenarios are going to be "wrong," because PARTS of them will not come true. But the richness of a well-thought-out scenario will allow planners to draw inferences about what MAY be. If you are working within one of these scenarios, unexpected ideas about the relations between certain components of your strategic landscape will tumble out - ideas your competition probably has never considered. And this is because...

4. ...The Point of Scenarios Is Not Perfect Prediction, But Anticipation of an Arbitrarily Large Number of Potential Future Eventualities. You are not going to predict everything that will occur, any more than astronomers can predict where in the infinitude of possible points in space the next supernova or asteroid is going to come from. But if you have a decent set of scenarios, you will be able to sample, systematically, each quadrant of that infinity of future space. You will think of a whole lot of new and previously unimagined possible future eventualities - perils, strategic choke-points, competitor vulnerabilities, market opportunities, phase-changes for your world of work, as-yet nonexistent customer needs. Dive deep enough, and you will achieve a level of strategic appreciation of your own future, and the choices you need to make, that you could have acquired in no other way.

5. It's the Set, Stupid. It's not about any single scenario. None of them is going to "come true." (Yes, in 1983 we thought up a scenario for the Air Force that included a Soviet Union that collapsed from its internal contradictions, a United States that was left as the sole superpower and having trouble with this new role, a Middle East war against a truculent dictator, etc. etc. But other aspects of it did not come true, it was supposed to happen in 2020, and in general, it's not supposed to work that way.) But aspects of each may well come true. Our clients tell us over and over, "Ever since this project, I can't read the news in the same way." Little bits of each scenario pop up within news items all the time. A typical client e-mail will be headed, "We Thought of This in [SCENARIO NAME HERE]!" with a link to a news story or analysis of an issue we examined within one of our scenarios. But parts of each will "come true." And the point of the scenario SET is to systematically cover as much of the "future space" as possible. Every fundamental aspect ("dimension") of "future space" is systematically varied in order to challenge our, and our clients', biases about what is "likely." The SET should embrace the broadest practicable spread of plausible futures. The power of scenarios will depend on this systematic approach. Falling in love with one scenario is a sure way to end up in trouble. Except that...

6. Marren's Scenarios Tend to Come True Lately. Over the past decade, I have written scenarios about a continuing fairly smooth economic and political rise of Asia; a scenario about worsening legislative gridlock, political division, and economic stagnation for the United States; and rising concerns about Internet security, data breaches, and nation-state attacks on computer networks. I think the lesson here is, give Marren more positive scenarios to write. However...

7. There's No Such Thing as a "Good" or "Bad" Scenario. Actually, I take that back. There are DEFINITELY bad scenarios. The early 1940s - bad scenario. Nuclear winter - bad scenario. However, these aside, there is almost no conceivable scenario that is "good" for everyone; nor, nuclear holocaust or massive asteroid strike aside, is there a scenario that is uniformly bad for everyone. We once had a banking client that thought that regulation was bad, and getting the government off their back was a "good" scenario. Until we wrote a scenario of banking deregulation, that is. Then they realized they had developed a core competency in dealing with banking regulators that was actually an advantage for them over their rivals. Deprived of this advantage, thrust (in this scenario) into open competition "red in tooth and claw," they were exposed and vulnerable. No scenario is good or bad in and of itself; it's all about what you learn from it. 

8. Bring Someone in From the Outside to Do Scenarios. I know, utterly self-serving. But the whole point of scenarios is to break out of groupthink. If you don't bring in the greatest scenario consultants in the history of the world (that would be us :D ), at least bring in people from outside your ingroup. Otherwise, you are likely to ratify the current view of Life, the Universe and Everything.

More pearls of wisdom to come as we think of them... as Peter Kennedy says, "Do good, avoid evil, think about the future." 

Thoughts?