Why scenario planning is a key factor for the future success of your organization
Why scenario planning is a key factor for the future success of your organization
Business leaders today must answer many questions — from how to respond to another pandemic to what impact artificial intelligence will have on their organization. Scenario planning can help you imagine the impact of various plausible futures on your business and provide a roadmap to help your organization chart its path forward.
An effective scenario planning process includes:
- Identifying critical trends
- Developing metrics and a dashboard
- Defining impact by trend
- Developing a set of scenarios
- Considering implications
- Creating mid- and long-term strategies
Following these steps in the scenario planning process can help your organization navigate through uncertainty with confidence.
Business leaders today must answer many questions — from how to respond to another pandemic to which alternatives to explore amid continued supply chain disruptions. You might be asking yourself: How will artificial intelligence affect the services you provide to your clients? How will the transition to clean energy impact your community? Will there be enough skilled workers to fill vacant roles in your organization as current aging workers retire, and where will you find them?
What futures are you planning for?
Scenario planning is a vital tool to help your organization navigate through uncertainty. Business leaders are now expected to manage more frequent, complex, and concurrent issues with less capacity and greater expectations. Scenario planning can help you consider various plausible futures and make decisions to mitigate risks, allocate resources, seize opportunities, and navigate through turbulent economic headwinds with confidence.
What is scenario planning?
Uncertain, unprecedented, and complex are all terms regularly used to describe the world we operate in. However, governments, communities, and companies must make decisions today and figure out how to get things done in the midst of significant turbulence.
How can you capitalize on new opportunities and mitigate emerging risks — knowing that decisions made now could have a significant impact for generations into the future?
Scenario planning is an often-underused tool in the organizational planning toolkit. However, it can be highly effective in charting a path forward by leveraging trends and insights to create meaningful stories of plausible futures. This helps generate deep discussions within your organization and informs the strategic planning process.
Most organizations develop some version of a strategic plan. However, these plans are frequently an exercise in extending the budget over the next couple of years rather than fully considering what world you are planning for — and checking your biases and assumptions.
Scenario planning involves looking at current trends and insights in the business landscape and asking yourself the following five questions:
- What are the most important trends you are facing?
- How might they affect your business?
- What might your business’ future look like based on the interplay of these trends — from the worst to best-case scenarios?
- What are the implications for your business and how should you think about responding?
- How will you track whether your business is on the right path?
An organization with a great strategic plan may still end up at the wrong location without engaging in a comprehensive scenario planning process. Furthermore, the lack of robust scenario planning may cause major disruptions, opportunities, or risks to be overlooked — leading to wasted efforts and resources.
What does the scenario planning process look like?
Scenario planning involves identifying two to four potential futures. This process enables you to focus your resource planning on plausible, impactful scenarios that require executive-level, enterprise-wide consideration.
This can be a challenging experience because it forces teams to move beyond the safety of familiarity — however, this is also one of the reasons why it is so powerful. A comprehensive approach toward the scenario planning process involves:
1. Identifying critical trends
The first step is to identify the most important factors and trends that may affect your organization in the future. These trends should include factors that will impact the external marketplace as well as the internal context of your organization, including:
- Shifts in the attitudes of employees towards their work
- Advances in technology
- Risks related to climate change
- Entry of non-traditional competitors in the marketplace
- Changing demographics in key markets
- Shifts in the purchasing habits of clients
It is critical to identify the factors and trends that are likely to have the most significant impact on your organization both in the near-term and long-term future. Below is an example of trends that may impact the insurance sector:
2. Developing metrics and a dashboard
A metrics dashboard provides a strong foundation to guide the next steps in the scenario planning process. It also serves as a mechanism to help your organization respond rapidly to external shifts and adjust its strategic thinking if trends are reversed or new factors emerge in the business landscape. Metrics can be qualitative or quantitative and should be tracked by your leadership team on a regular basis.
3. Defining impact by trend
It is important to remember that some trends may be favourable while others may have a negative impact on your business. It is crucial to bring your entire management team into the process to fully think through the range of risks and opportunities. It may also be beneficial to bring in a third-party advisor to provide an outside perspective.
To expand on the example above, this is an example of how climate change may impact the risk profile of insurers:
4. Developing a set of scenarios
You are now in a position to write the stories that reflect the potential internal and external contexts of your organization. These stories should capture the next six to nine months — as well as the coming two to three years. It is vital to capture both sets of timelines to mitigate near-term and longer-term risks and seize potential opportunities. These stories should be crisp and realistic, and should also reflect highly positive, highly negative, as well as more neutral outcomes to capture the full range of possibilities.
5. Considering implications
You can use these stories to consider the potential impacts on all aspects of your value chain. This will enable your organization to identify critical changes that may need to be made to ensure it remains successful in each of these scenarios. This is an example of the aspects of an insurance company’s value chain that may be impacted by climate change:
6. Creating mid- and long-term strategies
It is now possible to distill these initiatives into your organization’s strategic plan based on the rigorous thinking conducted over the previous five steps of the scenario planning process. The strategic plan should define clear timelines, responsibilities, and resource requirements for your organization.
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Take the next steps
Scenario planning is a vital tool to help your organization navigate an uncertain business landscape. Future articles in this series will share some real-world examples of how scenario planning processes led to insights that helped transform business strategies to drive success. We will also describe some leading practices to help your business receive the full benefits of scenario planning — and discuss how this process can help embed the capability to exercise foresight within your organization.
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