Scenario planning developed as a business planning tool as a result of oil crisis of the 1970’s. Oil companies lost billions in revenues. As a result of these losses, one company, Royal Dutch Shell, changed the way they viewed their world and markets. They implemented scenario planning as part of their business planning process. It was used to augment their current strategic planning process.
In most businesses, strategic planning was used to develop several alternative strategies, with one selected as the preferred strategy for the company. Usually, this strategy was a straight-line extrapolation of current trends projected into the defined future. In most strategic planning processes, trends tended to have a strong financial bias. What were usually given lesser weight in the review of strategies, were factors such as demographics, alternative products or services and other qualitative differences.
These trend extrapolations usually were quite good, most of the time. In a lot of cases, businesses failed to consider the other substantive qualitative factors that can affect the business, and as a result missed the most appropriate strategy for their evolving future.
Scenario planning is an adjunct technique for Creating Strategic Advantage. It is one step in the review of business strategy. From our perspective, scenario planning is used to expand the alternate strategies developed and enhances the view of the business going forward.
Set your objectives:
a. Decide on the key question to be answered.
b. Set your time and scope.
c. Identify your major stakeholders.
Identify your key issues (from the strategic planning process):
a. Determine your basic trends and driving forces in the market.
b. Determine your key uncertainties.
Develop your scenarios:
a. Check for the possibility to group any linked trends or forces.
b. Identify the extreme options.
c. Define your scenarios.
d. Write out your scenarios.
Create your scenario options:
a. Assess your scenarios.
b. Identify research needs.
c. Develop quantitative methods.
Refine your scenarios:
a. Assess your scenarios, through an iterative process
b. Converge towards a decision scenario.
Given that this is a high-level view of the process, each business should consider how this technique might be used to create their Strategic Advantage.