Seminar 9 Review

The seminar this week was dedicated to Scenario Planning. Prof Gilbert started off by telling us how scenario planning was introduced in the corporate sector and was basically derived from the tools and method used in military planning and intelligence.

So what Scenario Planning? "Scenario planning is a model for learning about the future in which a corporate strategy is formed by drawing a small number of scenarios, stories how the future may unfold, and how this may affect an issue that confronts the corporation." It is something which is often used by organizations to make flexible long-term plans.

It is a tool specifically designed to deal with major, uncertain shifts in the firm's environment. It shines where other models might fail. It allows the organization or company to analyze the firm's external environment and how it will affect the opportunities and threats presented to the company in the future.

The model is not about predicting the future. Rather, it attempts to describe what is possible. The result of a scenario analysis is a group of distinct futures, all of which are plausible. The challenge then is how to deal with each of the possible scenarios.

The scenario planning method works by understanding the nature and impact of the most uncertain and important driving forces affecting the future. It is a group process which encourages knowledge exchange and development of mutual deeper understanding of central issues important to the future of your business. The goal is to craft a number of diverging stories by extrapolating uncertain and heavily influencing driving forces. The stories together with the work getting there has the dual purpose of increasing the knowledge of the business environment and widen both the receiver's and participant's perception of possible future events. The method is most widely used as a strategic management tool, but it is also used for enabling group discussion about a common future.

The professor showed us a presentation he had made on the telecommunication industry long time ago. To be honest, I wasn't able to comprehend most of the content of that presentation. But I did observe the generic structure on which the presentation was based on. I realized that using this model it was easier to include the unknown factors of the world market into a single design on the basis of which certain observations could be made easily about the strategy of the company for the future. After researching a bit on the topic I found out a very simple design for the scenario matrix which the professor had used in his presentation.

The matrix design is shown below:

To analyze the interaction between the variables, a matrix of scenarios is developed using the two most important variables and their possible values. Each cell in the matrix then represents a single scenario. For easy reference it is better to give each scenario a descriptive name. If there are more than two critical factors, a multidimensional matrix can be created to handle them but would be difficult to visualize beyond 2 or 3 dimensions. Alternatively, factors can be taken in pairs to generate several two-dimensional matrices. (Source: NetMBA)

We did make a scenario matrix during the seminar for a company that wanted to enter the Singapore market and provide free Wi-Fi Hotspots. It wasn't very clear to me then how exactly to choose the variables but after some extra reading I think I can do a better job next time if such a matrix is required.

The scenario planning process consists of the following steps:

1. Identify people who will contribute a wide range of perspectives

2. Comprehensive interviews/workshop about how participants see big shifts coming in society, economics, politics, technology, etc.

3. Cluster or group these views into connected patterns

4. Group draws a list of priorities (the best ideas)

5. Sketch out rough pictures of the future based on these priorities (stories, rough scenarios)

6. Further work out to detailed impact scenarios (determine in what way each scenario will affect the corporation)

7. Identify early warning signals (things that are indicative for a particular scenario to unfold)

8. Monitor, evaluate and review scenarios

Some don’ts for Scenario Planning:

1. treating scenarios as forecasts

2. constructing scenarios based on too simplistic a difference, such as optimistic and pessimistic

3. failing to make scenario global enough in scope

4. failing to focus scenarios in areas of potential impact on the business

5. treating scenarios as an informational or instructional tool rather than for participative learning / strategy formation

6. not having an adequate process for engaging executive teams in the scenario planning process

7. failing to put enough imaginative stimulus into the scenario design

8. not using an experienced facilitator

Some of the benefits of scenario planning include:

• Managers are forced to break out of their standard world view, exposing blind spots that might otherwise be overlooked in the generally accepted forecast.
• Decision-makers are better able to recognize a scenario in its early stages, should it actually be the one that unfolds.
• Managers are better able to understand the source of disagreements that often occur when they are envisioning different scenarios without realizing it.

Something else I puzzled over during the seminar was the term "Zero-Sum". The professor had used it in his presentation but I didn't remember to ask during the seminar. So I thought of finding some more about it on the internet. This is what Wikipedia had to offer on the term:

"Zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). It is so named because when the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero."
So it’s a situation where it is impossible for all the players to win.

Other Sources:

Wikipedia- Scenario Planning

Value Based Management