I was meeting with a group of CEOs and Presidents last week and the subject of strategic planning came up. A number of group members expressed that planning for the future had become a lot more difficult. Planning time frames were getting shorter — most agreed that anything beyond three years was ‘throwing darts’. One member, the former CFO of a large utility, remembered planning horizons as long as 30 years; he admitted that these days, two years was about the limit for any kind of accuracy.
Our conversation got me thinking about Scenario Planning and how it might be becoming more valuable in these turbulent times. I’ve done scenario planning with a number of senior leadership teams and they’ve gotten great value from the process.
What Is Scenario Planning?
Scenario planning was first developed by the U.S. Air Force during the Second World War and gained further distinction in the business world when Shell Oil, employing scenario planning techniques, accurately foretold the oil crisis of the 1970s. It isn’t the same thing as strategic planning. Strategic planning deals with the realities of an organization’s current situation. Scenario planning looks at what’s going to happen tomorrow — it is focused on understanding what the future will look like so that leaders can build their organizations accordingly.
In scenario planning, leaders are encouraged to imagine not just one, but a variety of future possibilities. A key step is an examination of the driving forces most likely to affect the larger world, using a PEST analysis: Politics, Economics, Society, and Technology. The goal is not to create one specific story about the future, but to create an array of possible ‘futures’ — resulting in the ability to make crucial decisions today.
By rehearsing different versions of the future, business leaders are better prepared to handle new situations as they arise because they’ve already examined options for actions that offer effective strategies. Scenario planning isn’t designed to paint a precise picture of the future; instead, the objective is enhanced strategic thinking in the here and now.