Scenario Planning

What is Scenario Planning ?

Scenario Planning in Strategic Management :

A 'scenario' is a likely shape of the firm's industry in the future. Planning by itself is a process of learning. Scenario Planning is a technique which enables the managers to check how the strategies that they have designed are likely to fare in the future. It also allows them to design contingency plans and also to gauge the robustness of the designed strategy.

According to Schoemaker, "Scenario planning is a disciplined method for imagining possible futures”. It is "an internally consistent view of what the future might turn out to be". With the help of scenario planning, the strategic leaders can identify the flaws and loopholes in the organisational system as well as in the formulated strategies. This helps the strategists to formulate alternative strategies for dealing with the weaknesses of the organisation.

Scenario planning helps the management team to foresee the problems and weaknesses with respect to the 3Ps - Policies, Plans and Programs. Organisational PPPs are inherently rigid as they are based on a process of extrapolation and are of self validating nature.

Process of Scenario Planning

Followings are the Scenario planning process :

1) Decide the Time Duration and Scope : 
The first step of scenario planning is to decide time duration of the analysis. After this, strategic managers decide the scope in which the scenario planning has to be carried out. The time duration of scenario planning depends upon many factors such as the time taken to complete the product life cycle, new technology about to arrive in market, new product to be launched in market, etc. On the other hand, the scope of scenario planning encompasses products, services, markets, geographic location, etc., which the organisation deals in. After deciding the time duration and scope, the strategists decide the information which is needed for the betterment of the organisation.

2) Identify the Interest, Power and Influence of Stakeholders : 
The next step after deciding the tine-frame and scope is to identify the significant stakeholders. These stakeholders influence the organisation as well as get influenced by the activities of the organisation. Hence, the strategies need to understand the level of their influence and power. For this, the strategic managers need to identify different interests of stakeholders so as to estimate the impact they are Likely to have on the organisation.

3) Identify the Environmental Factors : 
Once the key issues of time frame and scope of planning are defined, the organisation needs to look at all factors like political, economic, social, technological and industry which are likely to impact the organisation. The effect of these factors may be positive, negative or unknown.

4) Recognize the Major Uncertainties : 
As soon as the factors influencing current organisational functions are identified, the next thing to do is to recognize the major uncertainties that might occur and influence the business operations. The organisation is vulnerable to the effect of many uncertain events. The environmental factors responsible for those uncertainties should be recognised along the driving forces of that particular industry. The organisation needs to develop a hypothesis for each of these uncertainties so that their effect can be mitigated in the future.

5) Develop Preliminary Scenario : 
After collecting all the essentials, the strategists become capable of developing the preliminary scenario for the organisation. Here, the strategic managers consult with the responsible dignitaries as well as the stakeholders of the organisation about the positive and negative influences of business trends on the organisation. Once they gather their views, they combine and compare all the positive views on one side leaving the negative ones on the other. This step highlights the points at which the organisations need to focus to minimize the negative impact.

6) Monitor the Trends and Choose the Ultimate Scenario : 
At this stage the organisation needs to check if the trends that have been identified are consistent with the time frame that has been decided. Those trends that are not in syncronisation with the time frame should be removed. The outcomes also should also not be inconsistent with one another. It also needs to be seen if the concerns of the stakeholders have been addressed. In this phase, several, scenarios should be developed and the prime task should be to identify the most significant and ultimate scenario among alternative scenarios.

7) Construct Learning Scenarios : 
In this phase, the strategists develop the learning themes so that they can draw-out the relevant patterns and recognise the possible desired outcomes. These learning scenarios can be labelled as per their characteristics. This helps individuals in the organisation to understand these trends and to remember them. These learning scenarios also help in identifying future research needs of the organisation.

8) Conduct Further Research :
In this stage, the organisation undertakes further research to get greater clarity on the trends and uncertainties. Organisations typically have knowledge about their immediate competitive environment but are not so well versed with emerging trends in the industry. It is important to study and understand these trends as they could impact the company at any subsequent stage. The researchers analyse the anticipated changes that may occur such as change in technology, change in consumer behavior, change in government laws, etc.

9) Re-Scrutinise the Organisational Processes :
After extensive research work, the strategists need to re-scrutinize the uniformity of the organisational processes and anticipate whether validating the trends and patters will actually lead to the desired outcome or not. Here an organisation may want to develop quantitative models for formalizing the various concepts used in the scenarios.

10) Evolve towards Decision Scenarios : 
The ultimate test of scenario building is if it can help the organisation in its decision-making and in the generation of new ideas. This helps the organisation to check the effectiveness of the strategy formulated. At this step, it also makes sense to check the previous steps (1-8) and to see if the scenarios developed actually help the organisation to counter the issues it faces or not.

Advantages of Scenario Planning

  1. It improves the quality and makes robust policies, plans and programmes for the organisation.
  2. It develops a sense of participation in employees and utilises the retrieved information to formulate certain scenarios.
  3. Scenario planning provides both rigidity, and creativity in the organisational activities. This results in generating new ideas and insights on important developments in the firm's external environment.
  4. It compels the decision-makers in the organisation to come out of their comfort zones. It forces them to evaluate their business paradigms and to identify trends in the macro environment. It thus widens the strategic vision of the organisation.

Disadvantages of Scenario Planning

  1. Scenario planning is theoretical in nature without any scientific implication. This makes it a vague process.
  2. The practical implementation of scenario planning is hardly verified by the academic researchers.
  3. Strategic leaders generally anticipate a single future scenario as they are not able to anticipate several future scenarios simultaneously. This leads to reduction in the flexibility that can be attained by having by having multiple scenarios. Anticipating a single scenario 'may also reduce the chances of learning.
  4. While anticipating a single future scenario is disadvantageous, assuming several future scenarios is also not beneficial. Although it simplifies the complexity of future scenarios, it also creates misunderstandings in the planning process.
  5. The success of the exercise depends on the process in that has been execute, e.g., how are the teams made, what are the roles of the team members, etc.
  6. Generally, it is not properly combined with the planning and budgetary systems in the organisation.
  7. It consumes a lot of time and effort.
  8. Scenario planning has high expenditure in terms of costs and resources.