For many firms, financial regulators, and homeowners, the most recent housing bubble and subsequent Great Recession blindsided their confidence, cutting short an era of unprecedented growth and good fortune. But some people were prepared. Some even sounded the alarm. How was it they saw the downturn coming?
Knowing what is going to happen is quite different than preparing for an eventuality. In a new era underpinned by sustained economic uncertainty, business leaders are learning to insure themselves against unpredictable futures. Keeping an eye on movements and events—both within the industry and beyond its bounds—can lessen the surprise factor. Put simply, leaders need to be a few steps ahead of the game. By looking at a range of possible outcomes and scenarios, and by developing a strategic response for each, companies can reduce the shock of industry shifts and minimize crisis-mode decision-making.
Here are 8 ways that you can start using strategic scenario planning right now:
- Contrast more than one uncertainty. To get a richer sense of future possibilities, look at two or more key business drivers. By looking at the ways these variables might interact in the future, you can narrow down the scope of plausibility, and learn more about the way they drive your business.
- Illustrate the scenarios. Once you have a sense of possible outcomes, sketch out everything you know about that future and how it looks. Give it a catchy name so that the scenario planning team can understand the tenets of that scenario by shorthand when working to create adaptation strategies in response to it.
- Don’t discount outliers. While one or two of your scenarios will seem more likely, and one or two will seem wholly unlikely, it is important that you address the less-likely contingencies. Looking at how your firm would perform in a drastically different environment can reveal important insights into the strengths and weaknesses of your firm.
- Maintain a clear vision. Scenario planning isn’t about reinventing your firm at every spin of the wheel; it’s about fashioning a more robust and adaptable firm that can survive any number of twists and turns in the coming years. Subsequent strategic planning should return to the idealized vision of where the firm would like to be in 10 years, and work back through the contingencies to uncover ways to position the organization for such an outcome.
- Track progress against the scenarios. Once you work through your scenario planning session, you will have action plans in place that chart the firm’s response to different outcomes. Although some strategies will be “no brainers” that set the company in good stead for all eventualities, you will want to track the indicators that show which direction the future is moving in. If one scenario appears to be coming true, the plan might be adjusted to better respond to that contingency.
- Update the scenarios. As part of a long-term effort, scenarios can be updated from time to time to reflect obvious and broad changes in the industry. As uncertainties are reduced, you may see that one scenario is now more or less impossible, and wish to create an alternate scenario that better reflects the drivers of your business moving forward.
- Build an inquisitive culture. Training your staff to keep tuned to subtle events and indices is an important part of building a firm that’s able to adapt to the routine changes in the economy and industry. Familiarizing yourself with relevant indicators, involving yourself in industry dialogues, and investing in market studies are all key elements of visionary leadership. Over time, you will learn to “see” change and adapt more efficiently.
- Engage with business drivers. The success of scenario and strategic planning depends on the “dialogue” with the firm’s customers and other influential stakeholders (agency and government officials, vendors, community leaders, media, etc.). Although an awareness of these factions is necessary, participation in those realms will mean the difference between merely watching changes and actually influencing it.First popularized by Shell Oil in the 1970s, scenario planning is experiencing a revival, driven by risk-averse, action-driven CEOs. Today, there is a method to creating plausible, vivid future scenarios, drawing on the key drivers that impact businesses. By changing the frame of focus from a single outlook on the future to an array of contrasting possible futures, business leaders may notice things that were previously invisible, pick up on issues that weren’t on their radar screens, and tap previously unseen opportunities.