Scenario Planning: a Discipline for Dealing With Uncertainty
By Pulp & Paper Canada
Strategic planning or decision-making within a forecast framework is risky. A future forecast can be too rigid and doesn't take into account unforeseen events and trend breaks that may offer both thre...
By Pulp & Paper Canada
Strategic planning or decision-making within a forecast framework is risky. A future forecast can be too rigid and doesn’t take into account unforeseen events and trend breaks that may offer both threats and opportunities. Scenario Planning provides a process for dealing with uncertainty. It creates a framework for the constant tuning of strategy and provides a common language for communication and innovation.
The forest products industry is currently undergoing significant change and predicting the future business or technology environment is a guess at best. The Scenario Planning discipline can offer a more flexible decision-making tool for maximizing opportunity value in an uncertain world.
Scenario Planning has been successfully used by many companies and governments in dealing with complex strategic questions. Shell Oil has used scenarios to guide capital investment decisions; the US military used scenarios in its planning of Cold War strategy. It is important to understand that scenarios are not predictions or forecasts; rather they are descriptions of alternate plausible futures. Scenarios permit “back from the future” thinking; they can provide early recognition of a trend break, when prevailing strategy can be adjusted for exploitation of an opportunity or the avoidance of a threat.
The scenario development process begins with a focus question, which may be “Shall we build the major capital facility…?” or “Should we adjust our product mix to…?” The next step is to consider primary and secondary drivers that influence this focus question and what their alternative outcomes might be. By bundling driver outcomes into high uncertainty and high impact groupings, future scenarios and their story lines can then be developed. This linear process is followed by a feedback process for working with the developed scenarios. By setting up a strategic scanning protocol, the strategic plan associated with the focus question can be adjusted as events unfold. It is vital that all key stakeholders be actively involved in the scenario development process or its value is lost.
An example of scenario development to address the focus question: “What will be the global market dynamics for publication papers in 2015?” might consider the following major drivers: economics, advertising, retailing, consolidation, e-commerce, manufacturing technology, demographics, segment demand, environment, and fibre supply. High uncertainty and high impact outcomes from these drivers can lead to the following four scenarios. The mainstream scenario “Big Paper & Print Inc.” assumes a projection from current trends toward industry consolidation. The “E-World Bombshell” world is where the digital economy replaces many current paper products. The “Networked World” scenario is driven by global growth and wealth with a continuing growth for paper as well as all consumer goods and services. In “Spotty Prosperity” the negative forces of environment and demographics take hold, to evolve a world of protectionism and flat or negative growth. If you accept this scenario picture for the focus question being considered, we are probably on the path toward the “Big Paper” and “Networked” worlds.
Why is this important?
No company has perfect foresight in predicting strategic innovations or market mood. Dell Computers and Starbucks Coffee succeeded by breaking the rules. Most established companies fail when technological innovation or a changed value system invades their market. This is because of an inherent slowness to react and an aversion to risk. By framing future visioning or a critical decision with appropriate scenarios, an organization gains the ability to take action when opportunity arises from unforeseen events. The involvement of a wide group of stakeholders in the scenario development process will also promote a common language and understanding, allow for rehearsed decisions, and will often surface a new winning idea or insight. A first action item is to conduct a sanity check on the comfort level for your own particular strategy and the underpinning assumptions for the future business environment.
Alan R. Procter can be reached at firstname.lastname@example.org for more information, visit www.futureviews.net