April 5


What is scenario planning and how do you use it?

From speed skaters to spacecraft, engineers use wind tunnels to test their design for optimal aerodynamics and performance**.

It helps engineers reduce drag and increase lift in aircraft (for example), whilst ensuring the plane is stable and controllable and the ride comfortable. A more aerodynamic plane is more fuel-efficient as it requires less power to travel through the air.

Scenarios are the business world equivalent of the wind tunnel.

We use them to help us develop, refine, and improve our long-term strategy. They’re the test conditions for creating a future-proofed ‘aerodynamic’ business.

First, let me disabuse you of a few common misconceptions.

What scenarios aren’t

Scenarios aren’t predictions about the future.

Scenarios aren’t about a range of futures, ie: they’re not about asking what happens if steel prices go up or down 10%

Scenarios aren’t the preserve of big companies with big budgets (I’ll explain later how you can do it by yourself or with a small team).

Scenarios aren't flights of fancy about the future. There should be nothing in a scenario that can’t be supported, justified, and logically explained.

So, if they’re not those things, then what are they?

What scenarios are

I like to think of scenarios as memories from the future. They’re written by someone in the future looking backwards at what’s happened and why it has happened.

The official definition from the creators of scenario planning (and with whom I trained in the mid 90's) is:

Scenarios are relevant, novel, distinct and plausible stories about how the future might turn out.

Let’s unpack that statement, because it goes to the nub of what scenarios are…

... Relevancy is the most obvious one. It simply means the scenarios are about the industry within with you operate. In other words, if you’re a water treatment company there isn’t much point having a scenario that talks about Scotland’s bottle deposit and recovery scheme.

... Novelty. It’s got to be a new way of thinking about the future. There should be surprises, things that you say “I didn’t know that was possible”. This is about opening up your thinking to new possibilities.

... Distinct. Each story is clearly different from the others. Their maybe overlaps because they’ll all share the same pre-determined driving forces (more of which later). But they end up in different places.

... Plausible. This is the biggie. The most important one. You may not agree with a scenario when you read it. You may think that’ll never happen However, that’s not important The only important question is “given what I know about the driving forces and is it plausible they could lead to this point?”.

And the final word is “MIGHT”. We’re not saying the world will end up this way. We’re simply saying that given what we know today it might end up here.

How do you create scenarios?

Scenarios are about researching and understanding the driving forces affecting your industry. You should be looking for opposing points of view. Search out the people who are the dreamers, the visionaries, the remarkable people who have been thinking about this for a long team

Some of those driving forces will be pre-determined. These are things that are certain to happen.

Some of the pre-determinedds we can forecast the outcomes reasonably well. For example, we know the population will age, and an actuary can give you a pretty accurate forecast of the population mix in 2042. 

For other pre-determined driving forces, their impact and timings might be uncertain, even though we know they’re going to happen. For example, the government signed up to COP26 article 6, which is all about market mechanisms to support emission reductions. How it will get implemented, when it will get implemented, and what it will achieve … well, who knows?

And then there are the structural uncertainties. These might or might not happen. You can guess, but you don’t know for sure. For example, will we suffer a recession because of the Russian invasion of Ukraine? Or Not?

Structural uncertainties are the driving forces that can turn the future on their head, and they're often binary. It either will or won't happen. 

Once you’ve done that research, the next step is to create those stories. The memories from the future. You weave the driving forces together by creating cause and effect diagrams, and then linking in the uncertainties. 

From there, you analyse the stories. If this happened... What would it mean for our business model? What would it mean for our planned developments? What opportunities could it create for us? 

Do scenarios help create better strategy?

Yup. They do.

They’ve been around for 50+ years now, and they’re still widely used. Their ability to make you think differently and to consider the world from different angles leads to better outcomes.

Scenario planning helped South Africa transition successfully from apartheid to democracy. By evaluating the possible futures that might play out, a diverse group of South African leaders were able to agree the best way forward, and to take the “Flight of the flamingos”.  

A project I led in the 90’s was worth about £700m in shareholder value (in today’s terms), because the company sold a business unit that the scenario analysis said had no future. The buyer closed it down 5 years later with a loss of over 1,000 jobs.  

That's very well Richard, but we're not a government or a big company, how does this apply to us?

It's true that scenario planning is easier to implement if you have a team you can involve, but you can do this yourself if you’re rigorous enough about it. 

You have to research the trends affecting your business. You have to go and meet and learn from remarkable people, or “Meet a lot of people at the crossroads” as one of my clients describes it.

You’ve got to keep an open mind about what might happen. About things being plausible, however unlikely you might think them to be.

When you do that you see more. You learn more. You’re better prepared for how the future might turn out than your competitors.

So, let’s wrap up.

Scenario planning summarised in four points

  1. Scenarios are relevant, distinct, novel and plausible stories about how the future might turn out.
  2. You use them to develop, refine, and improve your long-term strategy. They’re the test conditions for creating a future-proofed ‘aerodynamic’ business.
  3. But, here’s the rub, scenarios aren’t about being right about the future. Scenarios are about making sure you’re not wrong and that you don’t make bad decisions.
  4. You can create them by yourself, but it’s difficult because you’re having a conversation with yourself, and all your lovely biases come out to play. The more people you can involve from your business, the better.

What next? 

If you want help doing a scenario project in your business, give me a shout.

I can take you through the process and help you and your team have the best strategic conversation ever. It can involve just you, or four people or forty people!

If you want more articles like these straight to your inbox, scroll to the bottom of the page, and leave your details. I'll send you an email to confirm it's you, and then articles like these will pop into your inbox twice a week.

** Sadly (for me) I didn't write this line. It’s from an excellent blog by Boom on wind tunnel testing, which you can read here if you’d like: What is wind tunnel testing | Boom 


Growth strategy

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