Forecasting and scenario
planning try to foresee the future with the understanding of past events.
Statistical forecasting uses systematic analysis of data to understand causal
relationship between influential factors. Systematic analysis of past data
using statistical forecasting models provide a repetitive and a reproducible
analytical pattern. Scenario planning on the other hand, helps to innovate and
tries to predict the future that is different from the past. In scenario
planning, instead of relying on past data, one’s intuition is used to provide a
story about the plausible future. As per Shell Global’s scenario guide (2013), scenarios
“may describe a context and how it may change, but they do not describe the
implications of the scenarios for potential users nor dictate how they must
respond”. Scenario planning organizations to prepare to face uncertainties in
the future (Aldabbagh,
& Allawzi, 2019).
Scenario planning is a collaborative,
conversation-based process that uses ideas from people within an organization
to come up with plausible future state. It allows people with varying amount of
expertise and knowledge to come together as one team to generate ideas. Scenario
planning requires a congenial environment where free flow of ideas is allowed.
Any idea, unless deemed logically implausible, should be allowed, and discussed.
The presence of people with diverse knowledge in the discussion allows different
perspectives to be presented for each scenario. Unlike forecasting, for
scenario planning, consensus is not required (Shell Global, 2008). Stories from scenario
planning should be measure using quantitative or qualitative methods. Measuring
each story systematically would allow organizations to face uncertainties
better than just documenting future scenarios. Having measured outcomes for
each scenario would also enable organizations to take new initiatives to address
future challenges.
Though scenario planning helps with
innovation and has many advantages over forecasting, it has some weaknesses
also. As per Aldabbagh,
and Allawzi (2019), “a qualitative approach has to put a strong emphasis
on the selection of suitable participants/experts, and in practice, this could
not be an easy task to fulfill. Thus, a deep understanding and knowledge of the
field under investigation is necessary”. Thus, the success of scenario planning
is directly dependent on the knowledge and the wisdom of the participants.
Scenario planning takes time to generate ideas and collect data. Participants
in scenario planning could be biased and completely ignore inconvenient and uncomfortable
future plausible scenarios. Scenario planning could potentially provide wrong
level confidence in facing future challenges. Management could fall into the
trap of over confidence by wrongly assuming that all future risks have been
properly hedged.
Scenario
planning at Royal Dutch/Shell company
Royal Dutch/Shell company has been using scenario planning for more than 45 years to innovate and get ready for future changes in the marketing place. Scenario planning has helped Shell to successfully navigate thru the oil crisis in the 70’s. As per Wilkinson and Kupers (2013), “Shell scenarios are intended to set the stage for a future world in which readers imagine themselves as actors and are invited to pay attention to deeply held assumptions about how that world works”. It encourages the participants to not just look at the data but to make wise judgements about future plausible scenarios. In scenario planning, it is possible to generate numerous scenarios that are not relevant. At Shell, the scenarios were required to be relevant and challenging. Shell emphasized on “Deep listening” through structured interviews to allow uncomfortable scenarios to be carefully analyzed (Wilkinson & Kupers, 2013). To discuss tough scenarios, story telling was encouraged. It allowed employees to avoid arguments and successfully discuss complex and tough scenarios. Scenario planning created a culture in which ideas could be freely discussed. When questions are asked, it forced the managers to provide thoughtful answers. Future scenarios were carefully analyzed, and numbers were attached to the scenarios. It allowed these scenarios to included as part of future strategic planning. When the oil crisis of 1973 occurred, Shell has already analyzed a comparable scenario ahead of time and they were ready to face the crisis.
Summary
Scenario planning is a powerful tool
that could be used for future innovation efforts. When the right set of
participants are chosen carefully and free flow of information is encouraged,
scenario planning could reveal plausible future scenarios and spur innovation.
It is not just required to come up with plausible future scenarios, but they
should be carefully analyzed and also should be added to the organization’s broader
future strategy.
References
Aldabbagh,
I., & Allawzi, S. (2019). Rethinking scenario planning potential role in
strategy making and innovation: a conceptual framework based on examining
trends towards scenarios and firm's strategy. Academy of Strategic
Management Journal, 18(5), 1-14. Retrieved from https://proxy.cecybrary.com/login?url=https://www-proquest-com.proxy.cecybrary.com/scholarly-journals/rethinking-scenario-planning-potential-role/docview/2386340930/se-2?accountid=144789
Schwarze,
M. L., & Taylor, L. J. (2017). Managing uncertainty — harnessing the power
of scenario planning. The New England Journal of Medicine, 377(3),
206-208. doi:http://dx.doi.org.proxy.cecybrary.com/10.1056/NEJMp1704149
Shell
Global. (2008). Scenarios: An Explorer's Guide. Retrieved from https://www.shell.com/energy-and-innovation/the-energy-future/scenarios/new-lenses-on-the-future/earlier-scenarios/_jcr_content/par/expandablelist/expandablesection_842430368.stream/1519772592201/f5b043e97972e369db4382a38434d4dc2b1e8bc4/shell-scenarios-explorersguide.pdf
Wilkinson A. & Kupers R., (2013) Living in the Future. Harvard
Business Review. Retrieved from https://hbr.org/2013/05/living-in-the-futures
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