Scenario based strategizing
“Prediction is very difficult, especially about the future.” – Niels Bohr
If only our forecasts were more accurate and reliable our strategies would be so much better. Let’s first look at the two extreme options:
- Forget about forecasting, just make your own plan and rely on your capability to adapt to whatever happens
- Aggressively invest to make your forecasts better and better, involve more resources, super computers, incorporating all eventualities
The first can work, but there is a large chance that you get it really wrong or miss a huge chance. The second is a never-ending story that needs to reinvent itself every time reality chooses to deviate from all the past knowledge and formulas.
So, we come to the third approach that combines the benefits of both and tries to minimize the disadvantages: Scenario-based forecasting. For most businesses this is the best choice.
Here we make a map of possible – no plausible futures and use this landscape as our guide for the crucial strategy choices we need to make. This allows a multidimensional approach across politics/economics/demographics/technology shifts/consumer changes/competitor moves/ etc … It does not force you to predict exact outcomes but does force you to think widely and more out of the box. But then you need to link these possible futures to your own situation and choices. Strategizing is no longer making a neat set of choices and a well-defined action plan but becomes generating multiple options to be prepared and activated at the right time. Strategy score cards move from backward looking results measurements and action tracking to forward looking – action influencing early warnings.A new world of weak signals, futurists and black swans start to get into the strategy space.
What do my own experiences suggest
Coming up with fancy names and superficial scenario descriptions is relatively easy and a real trap. You need to dig deeper and find the relevant strategic uncertainties for you and then rigorously define the plausible range of futures for those items.
For example, it is tempting to take general economic development as a scenario parameter, and yes it will somehow be relevant for almost every company. But whether your business is related to the automotive business or to the construction industry or to the tourist industry makes for totally different dependencies and will point to surely more relevant inputs. It pays to find these – so spend more time upfront defining the really relevant uncertainties that will dictate your strategic moves- once you know them the rest is actually fast and painless.
This means you need to understand your strategic freedom and dependency, so the process is iterative- and that why it’s called scenario-based strategizing – it is a verb – expressing hard work and an agile strategy and leadership team that is willing to back track.
Also be aware that scenario-based strategizing is not replacing the rigor needed in normal multi-year business planning. The discipline of tying actions to predicted results is extremely valuable for success. Not so surprising perhaps, I have seen strongest impacts when the two are combined.