"Our ultimate dilemma is that all of our knowledge is about the past, and all our decisions are about the future," wrote Ian Wilson, principal of Wolf Enterprises. It is hard to sum up more succinctly why making decisions about the future is so difficult.
We only have knowledge of the past so it's not surprising that we tend to refer to what has happened historically when developing future strategies. Using research to develop insights into the different forces that interact with each other and understanding how systems work is critical when building our plans. We can't discount what we have learnt from the past because it's the only thing we've got reference to. However it is vital to keep an eye to the future. Put simply, building or pressure testing a particular strategy doesn't just need knowledge, it also needs foresight.
There are possible future events and influences that might get in the way of a successful strategy, for example changes to the marketplace, unexpected competitor strategies or even natural disasters. Until someone invents a time machine, we won't be able to accurately predict the future – but that doesn't stop people trying.
Looking to the future
A common tool used in our industry – and many others – is scenarios. Scenarios, in our vocabulary, is a forecasting term. It refers to attempts made to find the most predictable or likely future. A strategy is then built to account for that situation (it may be adjusted to help us define the upsides and downsides in financial terms). There are many downsides to this approach, but critically it doesn't use scenarios as they were intended ie to build pictures of distinct situations enabling the formation of appropriate creative, innovative and robust strategies.
If you're serious about building a strategy that is as robust as it can be, then you've got to put aside adequate time and money. In today's competitive and changing environment it's not good enough to build a strategy simply within the boundaries and bias of what the world looks like today.
It is important to develop various scenarios and take time to build, evolve and pressure test the strategy. In so doing, you learn what might be achieved.
Scenario learning
Using the term 'scenario planning' in itself doesn't help. You can't plan for a future unless you know it's going to exist.
In his book Competitive Advantage, Michael Porter writes: "Scenarios aim to stretch thinking about the future, and widen the range of alternatives considered."
This way of thinking is backed up by Liam Fahey and Robert Randall, who published a book in 1997 called Learning From The Future. The authors introduced the concept of 'scenario learning' rather than 'scenario planning' as it's not so much about predicting as it is about thinking through the consequences of potential futures. Doing this can help us develop fuel for new and innovative strategies or alternatively act as a test bed for our current strategy.
At the end of the day, historical analysis alone is not adequate to judge risk. If we're trying to understand risk and the optimal strategy to mitigate it, we can't do it purely on the basis of the past. We have to create future worlds that allow us to work out how robust a particular strategy or line of action might be.
Appropriate scenarios
How do we identify those scenarios that are going to be useful to us when looking at possible futures? Peter Schwartz, co-founder of the Global Business Network, hits the nail on the head: "You can tell you have good scenarios when they are both plausible and surprising."
A good scenario has got to be something that could happen, but it also has to have a degree of uncertainty to it: you are trying to work out things that you don't know. When you are building a scenario, consider mixing those things that you believe are pre-determined with those factors you feel are most important and most uncertain.
Danger of paralysis
The danger in trying to avoid prediction is that it can lead to inaction. If you focus all your thinking on what you believe is predetermined, but recognise this is not enough, you might freeze and do nothing because you don't know where to go. The alternative is to create maps of what the world could look like. It is important to remain focused on the objectives and either pressure-test existing strategies, or develop new ones.
In the first instance you can use scenarios to say: "I've got a strategy, is it really as robust as I think it is?" If the world looked slightly different, would it still play out? On the other hand, it could be about building or developing new strategies, and anticipating potential contingencies for your current strategy. If this is the objective, then it's much more about creativity and using scenarios to say what could be possible. It answers the question: "How could we do business differently?" In this way we are cleverly using the scenarios to generate innovative strategic possibilities rather than testing one particular route of action.
Either way, it is important to engage the firm's senior leadership team in the scenarios process. Their knowledge, insight and awareness of the areas of uncertainty are crucial in terms of constructing the final product. Everyone must buy into what these possible futures could look like, how they feel and what the rules of the world are, if people are going to engage in them, either to pressure test the strategy or to build new strategies.
Various approaches
There are many approaches to building scenarios and linking them to strategy development. Some of these are very time-consuming, some link heavily into computer technology, some are external expert driven, some workshop driven, however regardless of approach, all share the same core elements.
When utilising any scenario learning process it is important to be clear about the key decision focus. For example, in the early 1980s Shell's top management famously asked: "What if oil prices fell drastically?" By working with the notion of this happening Shell was able to fare much better than its competition when prices did fall by almost half in 1986.
Isolate the key question, whether that be: "What is the right way to fill our pipeline gap?", "What is the impact of this new competitor on the dynamics of our market?" or "What is the most appropriate organisation for the future?"
Once you understand the key decision question, focus the scenario development process around that central query, ensuring that you concentrate on the factors that may (or may not) influence the success of any consequential strategy developed. Everything else done (including selection and building and embellishing of scenarios) is in the context of that central question, ensuring strategic implications have clarity, relevance and credibility.
Ongoing process
The final stage is to apply the scenario learning to your strategy or to refine the current strategy. If you really believe in scenario learning and strategy development then it has to be an ongoing process where you keep challenging your views on what the future could hold.
By using scenario learning we may have test-bedded our strategy against possible futures, but we may also want to expose ideas to customers' views and run further feasibility analysis – both internally and externally. A lot of time might have been spent in scenarios thinking about the market environment, with not enough time devoted to competitive reactions. Once you have planned various scenarios, you may want to check them from additional angles.
Remember your views on the future will change as time moves on. Assumptions will have been made that highlight information gaps you can start to fill.
Scenarios are very useful when used appropriately – not for planning or for forecasting, but for learning about the implications of possible futures. Take yourself out of your comfort zone and feel motivated by the possibilities of different worlds. As long as they're both plausible and surprising, they will help you ensure you have a strong strategy in place whatever happens.
We will never be able to account for everything in the future – it's too uncertain – but it is far better to be broadly right than precisely wrong.
The Author:
Jon Bircher is a managing consultant at The MSI Consultancy, and is one of the creators of FUTURESTM, a new initiative to help pharma companies develop robust strategies that play out across possible futures.
