Rethinking scenarios

Citation

de Brabandere, L. and Iny, A. (2011), "Rethinking scenarios", Strategy & Leadership, Vol. 39 No. 2. https://doi.org/10.1108/sl.2011.26139bab.001

Rethinking scenarios

Article Type: CEO advisory From: Strategy & Leadership, Volume 39, Issue 2

What is the probability that, five years from now, you will have to pay for a Google search? “Zero,” most people would say. Now consider a different question: Suppose that, five years from now, you do have to pay. How did it happen? The same people would offer up a range of possibilities: cash-starved governments are compelled to seek new tax sources; stratospheric energy prices, driven by a global fuel shortage, force Google, with its massive server farms, to start charging for its services; or a game-changing algorithm enables Google to charge for premium search results. In an instant, the impossible has become the plausible. In each of these possible futures, Google search is no longer free, but each has distinct strategic implications for action. If any of these futures arose, how should firms adapt?

The “what if?” school of thinking clearly has a place in the business world. For a host of reasons, however, classic scenario planning of the sort pioneered by the legendary Pierre Wack at Shell in the 1970s is not always the best approach to future studies. Some executives are reluctant to participate because they anticipate it will be time consuming and resource intensive. Others feel that their markets are changing too rapidly and too unpredictably for scenarios to be of much help. And to a degree, they’re right. Traditional scenario planning can be hard work that demands a dedicated staff and many months of quantitative study to determine the crucial long-term drivers of an industry or a technology. It is best suited to exploring a limited set of key issues that drive the fundamental economics of a business.

But Wack’s approach to scenarios is not the only one. Many of the benefits of scenario analysis – for example, enhanced strategic creativity, greater preparedness, and superior risk awareness – can be achieved more rapidly. A few firms are experimenting with techniques for enabling executives to rapidly produce scenarios that are intended to be provocative, plausible and relevant to crucial business issues. Like traditional scenarios, the true value of such high-speed scenario development comes not from any explicit predictions but from what insights the executive team gains during the process and how this learning is applied.

So a key question is, can a team of executives create strategically valuable scenarios – and capture important insights and communicate them throughout the organization – within a matter of several weeks? Most CEOs would likely say no. But let’s assume – as we did with the Google search example – that it is possible. How might it be achieved?

When we first undertook this challenge we started with two hypotheses. First, we believed that the necessary level of engagement and insight could not quickly be achieved without involving the senior management team – under the guidance of an expert facilitator – in both shaping and exploring the scenarios. Second, we believed that by tapping the knowledge of the executives and then combining it with select data on critical megatrends likely to affect the company, its competitors, and its customers, we could rapidly craft one or more scenarios that were at once believable enough to be embraced and radical enough to spur powerful ideas. Our experience has borne out these hypotheses.

The UNIFE case

In 2009, UNIFE, the association of the European rail industry, felt certain that the future would not be a linear projection of the past. The financial crisis and subsequent recession were putting unprecedented stress on customers. Trade patterns were shifting. New competitors were emerging. UNIFE’s members needed to think both more expansively and more creatively. They needed scenarios.

They convened a small working group of executives from major rail companies. This group took four weeks to prepare for a one-day scenarios workshop. They explored data on a carefully selected set of megatrends – such as urbanization, the rise of China, sustainability, terrorism, the increasing scarcity of fossil fuels, and increasing bandwidth and other technology trends – that had some bearing on the future of the rail industry. Eventually, they settled on four mundane activities that they could imagine taking place the year 2025 as the starting point for the workshop:

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  Shipping bananas from Harare to Barcelona.

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  Preparing a tender for bids to supply trains for a new rail project.

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  Arriving at New York Penn Station on a Monday morning.

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  Reading the cover of the 2025 year-end holiday double issue of the Economist.

On the day of the scenarios exercise, a broader group of senior executives brainstormed a set of hypotheses for each variable. Their hypotheses had to be plausible and supported by specific industry, macroeconomic, or social trends – yet also require a leap far beyond conventional expectations. When imagining possibilities for the 2025 rail tender, for example, UNIFE generated a range of hypotheses, including one in which a winner-take-all tender would be conducted every ten years for the whole of Europe, and another in which customers bought trains through online catalogues, without tenders or bids. (The high-level process that UNIFE went through is shown in Exhibit 1.)

Exhibit 1 UNIFE moved from today’s challenges to a vision of possible futures

 

They then grouped some of the hypotheses into coherent clusters that could serve as the basis for specific scenarios, ultimately settling on four such clusters. But the four were not yet scenarios. They needed a plausible storyline. Much as in a novel, play, or film, a compelling storyline is essential to fostering real intellectual and emotional engagement. By the end of the day, the group had outlined four distinctly different scenarios.

World@Home. Urbanization and advances in communication enable people to work from home, giving rise to increased productivity. Environmental and nutritional concerns have increased the demand for locally sourced products. People mobility is secondary to the movement of goods.

Mission Mobility. A revolution in energy science spawns new modes of low-cost green transport, leading to the increased movement of both people and goods – and putting greater pressure on the rail industry to differentiate itself in terms of speed, service quality, and price. End customers come to expect seamless intermodal shipping solutions.

Divided Nations. The world economy remains in poor shape. The European Union, World Trade Organization, and other regional trade blocs are breaking down. Protectionism is on the rise and transport is mostly local as a result of rising barriers between regions.

Dragon Corp. The world has bifurcated into two main regions. The West has become poorer, while China, now an industrial and financial powerhouse, dominates the global economy. Chinese rail enterprises lead the world with cutting-edge technology and low costs.

Clearly, none of the four scenarios is likely to unfold in its entirety, but each presented a coherent fictional reality that UNIFE members could use to evaluate existing strategies and imagine radical new ones. After the one-day workshop, communication materials were developed to support the scenarios, enabling the people who were not directly involved in the exercise to understand the rationale and implications of each one. This created a common language that contributed to strategic planning and decision making within and across UNIFE’s member companies.

Members have found these scenarios both provocative and practical as they grapple with how to plan for a changing world. A senior strategy executive at Alstom Transport, which produces and sells railway systems, stated that the scenario-planning day was “intellectually challenging and very refreshing,” and that it also “forced our group to think beyond conventional wisdom and in uncharted territory … The resulting scenarios became a valuable basis for building our long-term strategy.” Another participant, a former international manager of the French railway system, concluded that the scenarios, while extreme, were far from improbable. “We are already beginning to see that our industry is evolving and facing a mix of the scenarios,” he said. The experience has helped member companies to be more attuned to “weak signals” – that is, early, easy-to-overlook and difficult-to-assess signals of change – and thus be more prepared to adapt to shifts in their markets.

Luc de BrabanderePartner and managing director in the Paris office of The Boston Consulting Group (deBrabandere.Luc@bcg.com).

Alan Iny Principal in the firm’s New York office (iny.alan@bcg.com). They are currently collaborating on a book on strategic creativity, Thinking in New Boxes.