Scenario Planning in Strategic Management
The only thing that’s certain is that life, and business, are uncertain.
So, why do businesses often overlook uncertainty in strategic management?
This leaves your organization open to being blindsided. We’ve seen this happen with the COVID-19 pandemic. From local restaurants and gyms to big names like Neiman Marcus and Pier 1 Imports, the economic effects of the Coronavirus have led to a wave of bankruptcies.
It didn’t have to be this way. Businesses could’ve been better prepared, even if COVID-19 wasn’t predictable.
The fact is, if you truly want to future-proof your organization, you must anticipate the whole range of futures and then create flexible strategies and dynamic capabilities to navigate those scenarios. That way, you can make the best decisions for your business and optimize your chances of not just survival, but also sustained success.
This is where scenario planning comes into play. As the way to future-proof your organization against the unexpected, scenario planning must be at the center of strategic management.
In this article, we’ll discuss all you need to know about scenario planning in strategic management. The knowledge you take away can help put the future in your team’s hands.
Why Do You Need Scenario Planning in Strategic Management?
Strategic management involves managing resources to reach goals and objectives. Doing strategic management effectively necessitates that you:
- Set objectives.
- Analyze the competition.
- Evaluate your internal structure and processes.
- Review and enhance current strategies, as well as create new ones.
- Ensure management implements those strategies across the organization.
The aim of strategic management is to gain a competitive edge, optimize growth, make the organization more cohesive, increase workplace efficiency, and ultimately reach and exceed goals and objectives.
However, if you don’t know how your internal structure and strategies will stand up to various scenarios, you put yourself at a disadvantage when it comes to strategic decision-making. When the unexpected comes, you won’t have the insights to know which decisions are best for your business.
This is why you need scenario planning in strategic management. Done right, scenario planning can direct your business through rough seas without encountering catastrophe. It’s how you prepare for unexpected externalities and even identify unforeseen opportunities your competition might miss.
From technological advancements to political uncertainties to climate change, there’s a lot to think about when it comes to the future. Organizations need tools to cope with future uncertainties and discover future opportunities.
According to MIT Sloan Management Review, “Scenario planning is a disciplined method for imagining possible futures” that “attempts to capture the richness and range” of future possibilities. This encourages decision-makers to think about changes they may have previously overlooked.
Scenario planning also provides clear data for considering all that could happen, enabling you to move the business forward in an agile manner. This not only improves your odds of overcoming uncertainty and solving problems effectively but also increases the likelihood you seize opportunities and come out ahead.
Simply put, scenario planning brings clarity to planning around an uncertain future and makes consensus among stakeholders much more likely.
Do’s and Don’ts of Scenario Planning in Strategic Management
Back in 1910, a piece published in Scientific American claimed that “to affirm that the aeroplane is going to 'revolutionize' naval warfare of the future is to be guilty of the wildest exaggeration.”
How could they have been so wrong? For one thing, organizational decision-making and long-term planning weren’t as widely practiced or nuanced back then as they are today.
But also because no one can predict the future, and that still hasn’t change.
It’s important to remember that hindsight is always 20/20. What may have seen like a foolish prediction from 110 years ago may have made perfect sense at the time. The purpose of scenario planning in strategic management is to challenge assumptions and overcome myopic thinking.
Scenario planning in strategic management should:
- Resist the tendency to make decisions based on present knowledge: Instead, research and review trends related to your organization and industry. Examine the interconnectedness of these trends and issues affecting markets and your company.
- Gain clarity on the most important trends: Evaluate trends and issues. Use a qualitative approach and then a quantitative one. Next, prioritize these trends. This way, you don’t focus too much on unlikely scenarios.
- Assume nothing about the future: Sure, past performance can be an indicator of future performance. However, leave assumptions at the door when you approach future uncertainties.
- Combat overconfidence, biases, and optimism: You don’t want to miss out on new technologies just because you believed they wouldn’t go mainstream. Drop your prenotions and assess each scenario for what it is (not your conception of it).
- Open the floor up to debate: Scenario planning and scenario analysis should lead to a culture of scenario-based thinking and dialogue (and not groupthink). Your team should come to strategic management discussions with data on a whole spectrum of futures. This will lead to greater clarity and consensus through open talks and objective analysis.
Scenario planning in strategic management should not:
- Only use readily available information: There has to be data outside of what’s immediately accessible to your company. Discovering this data may expand what you know and broaden your thinking about the future.
- Get caught up on having precise numbers: You first need perspective on trends and issues and how they may collide and interact. This will help make certain you don’t neglect or give too much weight to a certain scenario.
- Be left to junior-level analysts: Scenario planning should engage top-level executives and stakeholders. It should challenge assumptions at the highest levels and motivate decision-makers to plan better around the uncertain future.
- Downplay risks: It’s easy to assume something unexpected won’t drastically disrupt the industry in the coming years. But if it does, you'll be left in a bad spot. COVID-19 has tragically proven this.
- Be used as a one-off exercise: As mentioned, strategic management fails when you don’t have plans for the unexpected. With proper scenario planning ingrained in your company, you always are thinking ahead.
Benefits of Scenario Planning in Strategic Management
Effective scenario planning in strategic management enables your organization to analyze the resilience of your strategies. If needed, you can take steps to strengthen your organization. Additionally, based on what scenarios you encounter in the future, you’ll know what decisions will yield the best possible outcomes.
The image below details how the future could shake out in different ways. If you don’t have a plan for scenario 3 or scenario 4, you put yourself at risk. Scenario planning allows you to prepare for unexpected external developments.
Based on your analysis of these scenarios and testing of your strategies, you can develop strategic options to handle uncertainty. While developing these plans, decision-makers must acknowledge their assumptions and susceptibility to bias. This will make dialogue and consideration of new ideas much easier.
Overall, the benefits of scenario planning in strategic management are immense. To summarize, organizations can achieve the following with effective scenario analysis and planning:
- Identification of trends that could shape the future
- Challenging of assumptions, biases, and overconfidence
- Consideration of all the plausible future scenarios, even ones that seem radical
- Fostering a collaborative workplace culture where clarity and consensus are achieved through free conversation and objective analysis
Done right, scenario planning strengthens strategic management and empowers organizations to take control of an uncertain future.
Scenario Planning Done Right
Now you know the power of scenario planning in strategic management. Just remember this: Spreadsheets may work for testing one scenario at once, but they fail when it comes to simulating all the scenarios of the future. Moreover, spreadsheets are also vulnerable to human error and time-consuming.
Simply put, if you use spreadsheets for scenario planning, you’ll be left with a narrow and potentially inaccurate view of the future. That will negatively affect strategic management.
At Synario, we believe it’s time to ditch the spreadsheets. That’s why we’ve created a scenario planning tool that enables you to examine the whole array of future possibilities. With pre-mapped accounting, patented layering technology, and smart on/off switches, our modeling solution enables you to see multiple scenarios at once. You can test all sorts of plausible scenarios just by adjusting buttons — without the need to reconcile data across spreadsheets or update underlying math.
With our scenario planning tool in hand, you can test different combinations and permutations and examine every possible outcome of your decisions. With such knowledge at your fingertips, you’ll be in control of the road ahead, even if the unexpected comes your way.