Scenario Planning

What is it?

Scenario planning involves imagining different future business environments for your industry. Each scenario generates must be internally consistent, credible and different to the others.
It was made popular by Shell, where it is supposed to have contributed to Shell’s rapid response to the 1970’s oil crises.
The “Most Likely” scenario can be used as the base business environment that your strategy is designed for. The different scenarios can be used as a sense-check on the strategy – will it cause disaster if the world turns out differently? – and also to identify what leading indicators/ trigger events to monitor to identify when you are veering into a different world to the “Most Likely” one.

When is it useful?

An Example?

The automotive industry is facing three big uncertainties in its future:

  1. Autonomous vehicles
  2. Ride sharing
  3. Electric cars

All three of these have the potential to be disruptive innovations, destroying incumbents and letting new entrants into the industry. Let us simplify by just looking at the first two uncertainties.

The extremes on these uncertainties are

  1. Full autonomy; Hybrid with both autonomous and manual driving
  2. Cars are Owned; Cars are shared/rented/ordered

Reality will be somewhere in between, not the binary choice expressed here. However, this complexity will just confuse the analysis, it is better for us to consider clear cut binary extremes in order to maximise the insights. We can always tone it back from this black and white picture to a more nuanced picture later.

By cross-referencing these two uncertainties, we can develop 4 alternative scenarios:

Strategic Scenarios
Each of these scenarios has very different implications for:
  • How value is created
  • The success chance and challenges for incumbents
  • Which capabilities are critical for winners
  • New business models

I’ll leave it to you to work through them!

How do you do the analysis?

 

 

 

 

 

 

 

 

 

 

 

I want to know more

Scenario based planning was popularised when it helped Shell thrive during the 1970s oil crisis, with the scenario planning team led by Arie De Geus