27/4/2015 ScenarioPlanningandStrategicForecasting|Stratfor

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Scenario Planning and Strategic Forecasting

GlobalAffairs JANUARY7,2015|09:00GMT Print TextSize

ByJayOgilvy

Strategicforesightcanbegained
throughmorethanonelens.
Beyondthemicroscopeofsimple
budgetingandthemacroscopeof
geopoliticsliestillothertoolsfor
probingthefuture.

AsIsettleintotheroleof
contributortothisspace,Iwantto
exploremultiplefuturesand
multipleperspectives.Sincemy
approachtolookingaheaddiffers
fromwhatsomeStratforreaders
maybefamiliarwith,Iwanttostart
byexplainingoneofmyfavorite
methodologies,whichisdistinct
frombutinterestinglyrelatedto
geopoliticalforecasting.

Myspecialtyismultiplescenarios,orscenarioplanning,asitisbestknown.Scenariosarealternatefuturesin
whichtoday'sdecisionsmayplayout.Theyarestorieswithbeginnings,middlesandends.Goodscenarios
havetwistsandturnsthatshowhowtheenvironmentmightchangeovertime.

Good Scenarios

Agoodsetofscenarioswillcontaintwotofivedifferentnarratives.Morethanfivescenariostendtoget
confusedwithoneanother.Threescenariosrunthedangerthatpeoplewilltrytopickthemostmoderateor
mostapparentlyplausibleandforgetabouttheothertwo.Fourisagoodnumberneithertoomanynortoo
few.

Eachscenarioshouldcontainenoughdetailtoassessthelikelihoodofsuccessorfailureofdifferentstrategic
options.Willtherebesufficientdemandforanewproduct?Aresupplychainslikelytoremainintact?How
muchcompetitioncanweanticipate?Havenewtechnologiesrenderedaproductobsolete?Willpolitical
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instabilityputthoseoilfieldsbeyondourreach?

Agoodsetofscenariosshouldalwaysbecustomizedtoaparticularcontext.ThescenariosthatRoyal
Dutch/Shellusedtoanticipatethedropinoilpricesin1986werefardifferentfromthescenariosamajor
computermanufacturerusedtonavigateitstransitionfromproductstoservices.ThescenariosXeroxusedto
anticipatetheconvergenceofthecopierandprinterwerefardifferentfromthescenariosAmericanExpress
usedtodealwiththereplacementoftraveler'schecksbycreditcards.Eachorganizationneedsitsown
scenariostofaceitsownchallenges.

Purposeisalsoimportant.Sometimesthepointofascenarioistopryattentionawayfromtheordinary.The
veryprocessofthinkingaboutarangeofpossiblefuturescanbeausefulopportunityforaddressingissues
thatmightotherwisebeneglected.ThinkabouttherisingpowerofChinaandIndiaorthecreepingonsetof
climatechange.

Eachindustrywillhaveitsownexamples:foreducation,thespreadofmassiveonlineopencoursesfor
energy,newtechnologiesfordecarbonizationorextractionforentertainment,oscillatingparadigmsbetween
bigscreenblockbustersandfarethatfitsonmobilescreens.

Alternatescenarioscanserveasrelativelylowcostinsurancepolicies.Youarelesslikelytobeblindsidedif
you'vetakenthetroubletoimaginesomeunwelcomedsurprises.Andontheupside,scenarioscanidentify
whitespaceopportunitiesthatremainunfilleduntilafirstmoveroccupiesthespacethatlessimaginative
competitorsneverknewexisted.

The Process

Thescenarioplanningprocessusuallyunfoldsaccordingtoanorderly,methodicaleightstepprocess.The
processhastwomajorparts:first,choosingwhichscenariologicstofleshout,ataskthatcomprisesthefirst
fivesteps,andsecond,tellingtheactualstory,itsimplicationsandearlyindicators,whichcomprisethe
remainingsteps.Afullblownscenarioplanningprojectusuallytakesthreeorfourmonths,startingwith
interviewsandaninitialworkshop,thenatleastamonthofresearchandwriting,thenasecondworkshopto
drawimplicationsfromtheramifiedandrefinedscenarios,andthensometimetosummarizetheresultsofthe
secondworkshopintoapresentation.

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Step 1: Focal Issue

Theprocessbeginswithidentifyingwhatapersonororganizationwillfocuson.Scenariosforthefutureofthe
galaxywillnotbeusefultoacompanytryingtodecidewhetheritshouldbuildanewfactoryoutsideSao
Paulo.Sometimesthefocalissueisaveryspecificquestion:ShouldweinvestintechnologyX?Shouldwe
buycompanyY?Sometimesthefocalissueismoreopenended:Aretherepotentialsurprisesthatcould
disruptourcurrentstrategy?Andothertimesthefocalissueisgeopolitical:WhatwillthefutureofcountryZ
looklikeasamarketforourseveraldifferentproductlines?

Step 2: Key Factors

Oncethefocalissuehasbeendetermined,ascenarioteamwillbrainstormalonglistoffactorsthatcould
affectthefocalissue.Manyofthekeyfactorswillbefairlyobvious.Theyarethesortsofthingsthatwouldbe
addressedinatypicalbusinessplan:customerdemand,suppliers,competitors,productiontechnologies,
humanresources,etc.Oncetheteamhaslisted30or40differentkeyfactors,though,theprocesswillreach
outtolessobviouspossibilities:Whatifthereisanewentrantonthecompetitivelandscape?Whatifthereisa
newdisruptivetechnology?

Step 3: External Forces

Afteridentifyingkeyfactors,it'stimetoconsiderthemoreremoteforcesoperatinginthelargerworld,e.g.,
geopolitical,economic,socialandtechnologicalforcesthatareoftenleftoutoftheusualbusinessplan.

Strategicplansthatdisregardsuchforceswarisanobviousexampleoftenfail.Thekindofgeopolitical
analysisthatStratforofferscanplayamajorrolehere.Butagoodsetofscenarioswillalsoofferinsightinto
lessobviousdynamicssuchasmigrationpatterns,culturaldifferences,newtechnologies,currency

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fluctuations,environmentalissues,and/orepidemics.

Inadditiontopotentialrisks,it'sessentialtolookontheupside.Opportunities,breakthroughsandnew
technologiesaredifficulttoanticipate.Butit'simportanttoexerciseimaginationindisciplinedwaysthatdo
morethangazeattheworldthroughrosetintedglasses.Humaningenuityshouldnotbediscounted,however
difficultitmaybetoanticipate.

Aswithkeyfactors,thereisnoproofforhavingthoughtofallpossibleexternalforces.Thisworkcallsfor
imaginationandcreativity.Onceascenarioteamhasgeneratedalistof70to80keyfactorsandexternal
forces,theefforttocomeupwithstillmorewillgetharder.Alloftheobviousfactorsandforceswillhavebeen
mentioned.Itisnecessarytopushimaginativethinkingtothelimit,butnottoofarbeyondthelimit.Some
outlandishideasarewelcomed,butwhenpeoplestarttalkingaboutgreenmenfromMars,youknowit'stime
tomoveon.

Step 4: Critical Uncertainties

Byfollowingamethodical,stepbystepprocess,thescenarioteamcanachieveabalancebetweenthekind
ofwildcreativityandfreeformimaginationcalledforduringthebrainstorminginstepstwoandthreeand
goodjudgmentbasedonknowledgeandexperience.Wherestepstwoandthreefeaturedadivergent
processinwhichtheteamtriestothinkofeverythingthatcouldaffectthefocalissue,stepfourcallsfora
convergentprocessofprioritization.

Thecriteriatobeusedinallocatingpriorityvotesareimportancetothefocalissueanddegreeofuncertainty.
Whenallthevotesarecountedandcloselyrelateditemsclusteredtogether,therewillbeashortlistofcritical
uncertainties.Forexample,willenergypricesriseorfall?Willconsumervaluestiptowardthemoretraditional
orthemoreselfexpressive?Willatechnologyadvancerapidlyorslowly?Willthegovernmentleantoward
deregulationorreregulation?

Step 5: Scenario Logics

Buthowdowedecidewhichfuturesareworthdevelopingasdetailedscenarios?Thisisthechallengeofstep
five,howtonarrowdownfromthevirtuallyinfinitenumberofpossiblefuturestosettleonjusttwotofivethat
willleadtostrategicinsight.

Afterallthepriorityvotesoncriticaluncertaintieshavebeencounted,thegroupfixesonjusttwocritical
uncertaintiestoserveastheaxesofa2by2matrix.Fourscenariologicsarethengeneratedfromthelabels
ontheendsofthetwoaxes.

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Thissetofscenarios,developedforoneoftheDetroitThreeautomakerswaybackin1984,contained"the
officialfuture"inthelowerleftquadrant:lowpricedfuelwithneotraditionalconsumervalues.Thiswasthe
kindoffutureDetroithadbeenplanningonformanydecades.Buthigherfuelpricesandchangingconsumer
valuesrequiredthemtothinkofnewkindsofvehiclesthatwouldbeappropriatefordifferentenvironments.As
aresult,theclientstartedthinkingharderaboutsmallercars,aswellastheminivansandSUVsthatwould
appealtoconsumerswithnontraditionalvalues.

Ilikethiscasestudyjustbecauseitofferssuchagoodexampleofan"officialfuture."Geopoliticalforecasts
canhelptoformulatetheofficialfuture.Scenarioplanningcanthensupplementthebasecaseforecastwith
otherscenariosthatwillfurtherilluminatethebasecase.Theirlogicshavebeenchosenbasedonthe
scenarioteam'scollectivejudgmentregardingwhatismostimportanttothefocalissue.Itpaystoquestionthe
mostimportantassumptions.Whatifwe'rewrong?Scenarioplanningguardsagainstthedangersofplacing
alloftheorganization'seggsintothebasketofjustoneforecast,howeverwellfoundedthatforecastmaybe.

Step 6: Scenarios

Thesecondmajortaskofscenarioplanningactuallytellingthestoryofeachchosenscenariocallsfor
verydifferenttalentsandskills.Agoodscenarioisverymuchastory,butmoststoriesarewrittenbyasingle
author,notbyacommittee.Howcanascenarioteamcombinethecreativityofmanyindividualsintojustone
clearnarrativeline?

Asamatteroftradecraft,agoodmethodforelicitingspecificplotelementsistoencourageworkshop
participantstowritenewspaperheadlinesonpostitnotes.Aharvestofsuchpostitnoteswillsupplyplentyof
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contentforthescenarionarrative.

Thisprocesscanbestartedinaworkshopsetting,butoncethemembersofthescenarioteamhave
generateddozensofplotelementsandnewspaperheadlines,itcantakeseveralweeks,evenmonths,fora
smallcoreteamtodraftnarrativescenariosfromtheoutlinesgeneratedintheworkshop.

Step 7: Implications and Options

Usuallyamonthtotwoafterthefirstworkshop,asecondworkshopwillbeheldtofigureouttheimplicationsof
eachscenarioandthestrategicoptionsappropriatetothoseimplications.Takeonescenarioanduseitasthe
playingfieldonwhichourplaysmustbeplanned.Playouteachscenariotoitsconclusion.Thenstandback
andlookatthelistsofstrategicoptionsappropriatetoeachscenario.Pulloutthosethatshowuponallor
mostlists.Thesearethe"nobrainers,"thestrategicoptionsthatlookgoodinanyandallscenarios.Start
workonthemimmediately.

Theoptionsthatlookgoodineveryscenarioareoftenassociatedwithwhatarecalledpredetermined
elementsaspectsofthefuturethatcanbereliablypredicted.AndhereistherealmwhereStratfor's
geopoliticalanalysisalignsmostcloselywithscenarioplanning.Whatevercanbepredictedshouldbe
predicted.Fortheunpredictableremainder,thecriticaluncertainties,scenarioswillcapturethealternativesin
coherentbundles.

Demographyisoneofthemostreliablesourcesofpredeterminedelements.Andnotehowsignificantly
demographicsplayinStratfor'sforecastsfor,say,Russia,wherethepopulationisdeclining,orJapan,the
world'sfrontrunnerinagingpopulation.

Step 8: Early Indicators

Earlyindicatorsarethefirstsignsofthebigchangesthatdifferentiateonescenariofromanother.Sometimes
earlyindicatorsarefoundinthebehaviorofthemostinnovativeconsumers,sometimesinthesmallstories
deepwithinanewspaper.Sometimesearlyindicatorstaketheformofnewjournalsorpublicationsindicating
therisingpopularityofsomenewtechnology.Othertimesafewwordsinthespeechofanimportantpolitician
willsignalsomenewlegislation.

Earlyindicatorsareparticularlyimportantinmovingfromasetofscenariostoasinglestrategywhenyou
cannotidentifyasingle"strategyforallseasons."Ifyoucannotfindsucharobuststrategy,butyouhave
rehearsedwhatyouwoulddoineachofthescenarios,thenyoukeepaverycloseeartothegroundforearly
indicatorsthatsuggestmovementinthedirectionofonescenariooranother.Whenyouhaveaccrued
enoughindicatorstogiveyouconfidencethatyouknowwhichscenarioisunfolding,thenyoustartto
implementthestrategymostappropriatetothatscenario.

Moving from Scenarios to Strategy

Scenariosbythemselvesdonotdeterminestrategyanymorethanaforecastdoes.Astrategyneedstobe
developedinlightofasetofscenarios.Thinkofscenariosasdifferenthandsofcardsyoumightbedealt
thinkofstrategiesasthewayyouwouldplaythosecards.

Sometimesscenariosaredevelopedafterastrategyhasbeendetermined.Inthatcasethescenariosserve

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asakindofwindtunnelforstresstestingastrategy.Thinkofthestrategyasamodelairplane.Underwhich
conditionswillitfly?Underwhichconditionswillitcrash?

Usingscenariostotestastrategycanfunctionlikeaninsurancepolicy:Youhaveamechanismforsurviving
certainunfortunatecontingencies.Whatifcertainaccidentshappen?Doyouhaveacontingencyplan?

Givenasetofscenarios,thereareseveralroutesyoucantravelfromscenariostostrategy.Ratherthan
pickingonescenarioandbettingthecompany,itisfarbettertofindastrategythatisrobustacrosstherange
ofscenarios."Nobrainers"createsuchastrategy,butnotallscenarioshavenobrainers.Sometimesthe
relevantscenariosaresufficientlydiversethatnosinglestrategywillprevailacrossallofthem.Inthatcaseit's
agoodideatohaveastrategyappropriatetoeach,thenattendverycloselytoearlyindicatorsthatwouldtip
youtothelikelihoodofonescenarioovertheothers.

Not Rocket Science

Scenarioplanningisnotrocketscience.Thereisagooddealofcommonsenseinvolvedinthepracticeof
scenarioplanning.Buttherearemanywaystogowrong,manymistakesthatcanbemade.Aswithmany
practices,experienceisagoodteacher.Skilledfacilitationbyanexperiencedpractitionerisamust.

Fortunately,thenumberofskilledpractitionersisincreasingeveryday.Asearlyastheturnofthecentury,in
2000,theCorporateStrategyBoardpolleditsmemberstofindoutwhattoolstheyusedmostforlookinginto
thefuture.Responsesfrom183corporationsshowedscenarioplanningtobethemostpopularofeight
differenttoolsincludingSWOTanalysis,Delphipolling,MichaelPorter'sfiveforcesofcompetitiveposition,and
othersuchwellknownplanningmethods.

Asscenarioplanninggainsinpopularity,itsmostexperiencedpractitionerskeepexploringnewdepthsinits

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theoryanditspractice.CombiningStratfor'sgeopoliticalanalysiswithscenarioplanningmaybethenext
frontier.

Sendusyourthoughtsonthisreport.

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ARTICLE AUTHOR

Jay Ogilvy
JayOgilvyjoinedStratfor'seditorialboardinJanuary2015.In1979,heleftapostasaprofessorofphilosophy
atYaletojoinSRI,theformerStanfordResearchInstitute,asdirectorofresearch.Dr.Ogilvycofoundedthe
GlobalBusinessNetworkofscenarioplannersin1987.HeistheformerdeanandchiefacademicofficerofSan
FranciscosPresidioGraduateSchool.Dr.Ogilvyhaspublishedninebooks,includingManyDimensionalMan,Creating
BetterFuturesandLivingWithoutaGoal.

View Full Biography

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