Understanding a company’s major variables and how to respond to various desired outcomes can assist leaders in responding to future challenges and succeed in volatile times.
Given everything that has happened in the last two years to reshape work – such as remote work, e-commerce and automation – the case for comprehensive scenario planning has never been stronger. Scenario planning, or the process of devising strategies for variability in critical business elements, enables businesses to survive in the face of uncertainty.
According to the Swiss-based International Institute for Management Development (IMD): “Scenario planning is a tool designed to help organisations plan for uncertain futures. It has been used extensively by organisations whose performance is vulnerable to major economic, social, political, and environmental shifts…COVID-19 has placed all sectors within this context of uncertainty, requiring them to think and plan in new ways.”
It’s not about predicting the future; rather, it is about identifying a set of possible future states. Organisations benefit from scenario planning by imagining how they might compete in each scenario.
Why scenario planning?
Scenario planning allows organisations to evaluate the effectiveness of strategies, tactics, and plans across a range of possible future work environments in the post-pandemic economy, making it a highly valuable process in today’s increasingly uncertain world.
It’s advisable to choose a time range that makes the most sense in your sector. To be nimble as an SMB, it’s prudent to create one, two, or three-year scenario plans. By doing so, the business will be in a better position to react to what happens by being prepared for any event.
Although the procedure is straightforward, many companies neglect to do it properly. First, organisations need to identify their top two or three priorities. These could be talent planning, learning and innovation, or employee experience, for example. Being clear about this upfront will enable alignment among members of the executive team. It’s also important to have scenarios that are relevant across functions, so that multiple perspectives can be incorporated.
Once priorities have been agreed on, there are four key steps in the scenario planning process:
1: Identify driving forces
What are the driving forces that could have an effect on your organisation? The PESTLE analysis is a useful approach, allowing leaders to extract as much information as possible from the world around them about the factors that could have an impact on their business. PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental factors, enabling the company to develop a macro picture of the industry environment.
2: Identify uncertainties
Once you have identified the driving factors that could impact your organisation, consider uncertainties that could have the greatest impact. These might include ongoing lockdowns or power outages, for example, or factors that are more specific to your sector. For each of these critical uncertainties, consider the extreme end of the spectrum. Think about the factors that will have the largest impact on your organisation, as well as those that are the most likely to occur in the timeframe you’ve agreed upon.
3. Develop possible scenarios
Developing plausible scenarios based on the critical uncertainties identified will allow your team to describe the scenarios in detail, and to imagine what life is like at the office, at home, in your business environment and your industry, from best to worst case. The reality is most likely to be somewhere in between the two.
4: Discuss implications
After discussing the implications of each scenario, even those that may seem least likely, it is important to determine where the business is currently, and which direction you think your reality will move towards over the agreed upon timeframe. Once that process is complete, the team can discuss what the organisation can do to prepare for that reality.
By providing valuable insights as to how the future may unfold, scenario planning can equip organisations to react to any future work outcome with speed, agility and confidence.