Where is the most uncertainty for your organization? Introducing scenario planning to extend the time-frame of strategic thinking

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Earlier this week I ran a scenario planning workshop for the board and management meeting of a major Central European company, where we explored the value of scenario planning for the conglomerate.

Scenario planning for macro-strategy

Most people are familiar with scenario planning as a macro-strategy tool, used by organizations such as Shell, the CIA, the Singapore government, the World Economic Forum that want to explore global or industry landscapes decades ahead.

Many organizations in dynamic industries (which today is every industry) can get massive value from building high-level scenarios that can be used for shaping their future.
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The Global Economic Policy Uncertainty index is at an all-time high: the implications

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A group of top economists has created an Economic Policy Uncertainty Index for 17 countries, using media reporting and economic forecasts to show how much uncertainty there is economic policy.

The Global Economic Policy Uncertainty Index is currently the highest it has been since the beginning of the period analyzed starting at the end of 1996.
global-epu
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The World in 2030: Four scenarios for long-term planning and strategy

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Recently I did the opening keynote to the top executive team of a major organization at their strategy offsite. It’s not appropriate to share the full presentation, however I can share the rough scenarios I presented for the world to 2030. The scenarios were presented after having examined the driving forces and critical uncertainties for the company.

As always, a strong disclaimer comes with any generic set of scenarios like these – scenarios really must be created by the users themselves for specific decisions and in context (for the full disclaimer see my scenarios for the future of financial services).

SCENARIO FRAMEWORK FOR THE WORLD IN 2030

A traditional scenario process identifies two dimensions to uncertainty, that when combined produce a matrix of four scenarios. Once the framework is created, the full richness of trends and uncertainties uncovered in the research process are integrated into the scenarios. Here the two dimensions selected are:

RESOURCES AVAILABILITY: Resource Poverty TO Resource Affluence

Availability and real cost of key resources including energy, food, water, and environmental stability.

COHESION: Cohesion TO Fragmentation

Cohesion of society, government, nations, and institutions.

Together these dimensions yield:

FOUR SCENARIOS FOR THE WORLD IN 2030

SCENARIO: SHOCK TREATMENT

• Economic divergence: developed world stagnation
• Protectionism rises and markets localise
• Little global action on climate amid massive impact of global warming
• China and India fragment
• High-impact terrorism: bio, nuclear, radiation
• Infrastructure becomes primarily private
• Inexpensive and highly mobile labour
• Immigration tensions and rioting
• Urbanization accelerates, often in squalor

SCENARIO: NEW HORIZONS

• Economic shift to East
• Billions become middle class
• New energy sources/ planetary engineering
• Innovation yields food and health to the poorest
• Artificial intelligence applied to real-world issues
• Robotics attenuates impact of aging workforce
• Life extension for the wealthy, retirement age rises
• Remote work leads to more distributed living
• Affluence drives tourism and travel

SCENARIO: HUMANITY MATURING

• Climate becomes extreme and volatile
• Food and water shortages, famine and pandemics
• Global coordinated action on climate
• Trade liberalisation accelerates, EU extends
• Corporate activity driven by triple bottom line
• Social entrepreneurs invest $100 billion and seed a billion enterprises
• Cities become compact and resource efficient
• Rise of public/ shared transport

SCENARIO: AGENT ECONOMY

• Fluid global economy
• International outsourcing of most functions
• Mega-corporations become lean and micro-business rises
• Market solutions for environment
• Governments lose control and ability to tax
• Agents seek best price for everything/ customer loyalty is zero/ commoditisation of everything
• Distributed energy and manufacturing
• New capital markets, volatile financial markets

Scenario Planning – Strategy for the future of global financial services

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For my keynote at the Vision 2020 Financial Services conference last month in Mumbai I prepared some ‘quick and dirty’ scenarios for the global financial services industry landscape in 2020 from a technology perspective. Below is an overview of the content I used in my presentation. The complete slide deck from my keynote is also available, though it needs the explanation as below.

WARNING: These are scenarios prepared for a presentation, so they are far from rigorous or comprehensive. True scenarios should have fully developed storylines that evoke the richness of how the scenario unfolds and could actually happen. To be truly valuable, scenarios need to be created for a specific organization or strategic decisions – generic scenarios are of limited value. Always work with someone highly experienced in the field – most consultants that claim to do scenario planning are making it up. The Driving Forces and Critical Uncertainties identified below are highly summarized, and would be presented and aggregated very differently in a real scenario project. OK warning over, on with the content…

Scenario planning

Scenario planning recognizes that beyond a certain degree of uncertainty forecasting is of limited value (or can even be detrimental to good decisions). The process of creating a set of relevant, plausible, and complementary scenarios (more than the scenarios themselves) can be invaluable in creating and implementing effective, responsive strategies.

The heart of the scenario planning process is distinguishing between Driving Forces (consistent long-term trends) and Critical Uncertainties (unpredictable elements). Once these are identified, they are brought together to create a set of scenarios that reflect both what you know and what you don’t know about how the environment will change.

The image below shows a sanitized version of the process for a scenario planning project I ran for a major financial institution. This was quite a streamlined process relative to a comprehensive scenario planning project, however was designed to bring the insights directly into the existing group and divisional strategy process.

scenarioprocess.jpg

Below are the scenarios in detail:

  • Driving Forces: Global Financial Services
  • Critical Uncertainties: Global Financial Services
  • Scenario Framework for Global Financial Services
  • Four Scenarios for Global Financial Services

DRIVING FORCES: GLOBAL FINANCIAL SERVICES

1. Economic shift

Economic power is shifting to the major developing countries. The BRIC countries (Brazil, Russia, India, China) together host close to half the world’s population, and their pace of economic development means that before long there will be multiple economic superpowers. In addition, global economic growth is shifting to the virtual, and developing countries will gradually wean themselves from primary and secondary industries to be significantly based on knowledge-based services.

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