Take control with Scenario analysis

Take control using Scenario Analysis. If you mainly work in the Northern Hemisphere, you are now likely planning to get back to business. It will not be the same, and the temporary tricks employed during the spring will not be sufficient!

After working with several management teams, governments, and regional offices, we learned that those with capabilities and strategies developed for digitization and innovation did cope better with the situation. But it is not enough, as the changes are based on life as it is and what we have, not on reimagining the future.

Now you must find new customers, clients, partners, and members consuming and valuing your deliveries, to compensate for the setbacks we have suffered all over the world.

New behaviors can change loyalties. People are rethinking planet Earth and sustainability, driving a call to recruit customers, clients, members, partners, suppliers, and vendors exponentially, to compensate for the COVID-19 drain and the changed behavior. Zoom or Microsoft Teams is not sufficient. This is a call to rethink the whole change in values and to innovate every single step, to recover what you lost and get a new portion of what’s on the market.

The starting point for Scenario Analysis

So, where to start? Well, if we knew that we would get the Nobel prize every year. The simple answer is that when things are changing as they are now, no one knows. This is like war, and to quote Sun Tzu, “The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand.”

Instead, you should plan and act with scenarios. This post is about how to do that, taking advantage of the experience gained over hundreds of projects, data from our global and local key driver database, and the best of the breed in scenario analysis.

The first step is to identify all global and local key drivers, using the PESTLED framework, for instance. This can be done manually or by using interactive online tools. For instance, the key driver “P” (for Political) has either a positive or negative effect, or both, and a global or local effect, or both. By understanding the context, you will be able to develop scenarios for your industry, as the industry is in the context of key drivers.

This is a few examples from our AI PESTLED360 database, which all are typical examples os important emerging key drivers:

• Emerging trade barriers between the U.S., China, and the EU.
• Shortages of raw materials, especially rare-earth elements and other essential rare chemicals and metals.
• Decreased consumer loyalty.
• Increased demand on reuse and recycling.
• Bigger pool of accessible global talent to deliver professional services in research, R&D, design, engineering, etc.
• Increased digitization driving global digitized value chains.
• Data privacy becoming less rigid.
• Electrification of transportation systems.
• Less traveling and more demand for in-person meetings.
• Increasing poverty in developing countries.
• Increasing divide in the developed world.

Visualize the Scenarios

Once you understand your key drivers you can visualize how the future might look. There are several techniques for that. For instance, you can pose questions like these.

1. If you could speak to someone from the future that is well-informed about [this venture], what would you ask?
2. Imagine that things go well. Being optimistic but realistic, talk about what you would see as a desirable outcome.
3. If things were to go wrong, what would you worry about in particular?
4. For things to go well, what must be changed? (Systems, relationships, decision-making processes, culture, for example.)

You can complement this with stakeholder perspectives — shareholders, management, employees, customers, members, citizens, voters, all describing how they would like to see your organization.

Combine the Scenarios

The next step is to divide the input at hand into categories, naming them and then extending them to two extreme positions. For example, “There are no interest rates in the world and all money is free” and its opposite, “Money is expensive, so it is not possible to lend anything without 100% security.” Or another example: “Everybody works online” and “Nobody works online.”

The idea is to then sort out meaningful categories where there are extreme possibilities, and to recategorize them into certain or uncertain, high impact or low impact. All certain and high impact items go into operational strategic initiatives that can be turned into projects as they are well defined. All uncertain and high impact items go into innovating strategic initiatives, where you start strategizing potential scenarios.

Combine all categories that are uncertain and high impact into permutations of 2 (= combine all possibilities of two and two categories). In this way you will identify interesting patterns, and this is the hunting ground for describing scenarios.

Describing the Scenarios, the last step in the Scenario Planning Analysis

When describing and validating the scenarios, a flowing checklist will guide you.

1. What is the world or market like in this scenario? (You can use Porter’s five forces here.)
2. What is your company like? (Tools: BMC, VP.)
3. Summarize the direction of change. (Tools: ERRC grid, SWOT.)
4. Timeline of events.
5. Name the scenario.
6. Identify the main recommendations.
7. Write the scenario description for communication.

If you are interested in the Innovation360 Scenario Planning Handbook, our online data-driven tools (PESTLED360, Scenarios360, Collaborating360), or our consultancy services, please contact us for more information.