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Written by Professional Academy Guest Blogger Amanda Athuraliya
Among the many tools a manager can use for strategic analysis, scenario planning can capture a wide range of possibilities with specific detailing. By identifying some fundamental trends, a leader can define a series of scenarios that will help you reduce errors in your decision making. Here we are going to take a look at how we can conduct scenario planning step-by-step and benefit your company in the coming years.
Scenario planning attempts to eliminate the two most common errors made in any strategic analysis - Overprediction and Underprediction of the company's future. Most of the organizations make this error while analyzing their strategies. Even if the rate of change in our life is accelerated to a great extent, the future might not hold what we expect.
Imagine how hard it was 50 or 100 years ago even to imagine the advancement in technology we have now. But still, there are some limitations to what technology can do. Our expectations failed in some places when it came to promotion. For example, we are still unable to find a cure for cancer. The people who predicted this were scientists and entrepreneurs who were successful in their fields. But due to that success, they started over predicting the future.
Scenario planning will help us draw a line between over and under predictions. It will expand the range of opportunities your see while keeping you from drifting into some science fiction movie. Scenario planning will do this by segregation of the knowledge we have into two areas.
1. Things we know about
2. Things we are uncertain about
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We know that development in the field of technology is going on at a constant rate. And the first parameter consists of the things that we are sure will happen. Like political voting, price hike etc. The second category includes the things that we think might happen in the future but we are not sure about it.
Scenarios give us a view on what can happen in the future, but it does not provide us with the strategies to deal with them. It makes sense to have external help with the process, such as customers, dealers, suppliers, politicians, publicists, journalists etc.
Or we can take the help of external resources which others have developed. The objective of this process is to determine fundamental patterns and uncertainties. Leaders will build a strategy and the staff will later give it a documented form; filling the gap, finding new data, and so forth. The overall purpose is to build strategic thinking that encourages variety and provides us with a sharper approach about the available opportunities.
In the very first step you need to decide a time frame. While you are setting the time frame, you should consider various factors:
● The life cycle of your product
● Political conditions of your country
● Competitors analysis
● Technological advancement
Once you have an appropriate time frame decided, determine what knowledge would hold substantial value for your organization for an extended period. Let's say you are developing a decade's scenario; you will look at the past ten years for reference. You need to consider the changes that occurred in your department, organization, industry, region, country, and even the world. You should foresee similar changes in the next ten years.
You need to focus on the following factors whenever you are going for the identification of trends and driving forces.
● Who has an interest in these decisions?
● Who will be affected by them?
● Who could influence them?
Now the apparent driving forces are suppliers, customers, competitors, employees, shareholders, government and many more. Identification of the following factors about them is also essential.
● Current roles of the driving forces
● Their interests
● Their positions in the field
● Their progress over time
For example, in technical areas, you need to be in touch with journalists, people who can support your product, product suppliers, judges, lawyers, ministers and many more.
Identify the driving forces of the environment that is the key-factor you have listed. These driving forces can originate in the following areas:
● Society and its structure, including demographic, economic and political factors, and public opinions as well.
● Markets and Customer Behaviour
● Technology and Innovation
● Your Industry competitive structure
● Your organisational capacities and core competencies
Separate those forces which are highly predictable and focus on the effects which are not likely to occur.
The essential task of scenario planning is developing the actual scenario. You need to build a condition according to each factor we have evaluated in the above steps and create a situation according to the traits and trends of the market. Proper scenario development is equivalent to writing a movie scene. You need to build a plot, and then you need to develop your story around it.
While building a scenario, you need to find the strength and weakness of your plan and work accordingly. You need to define touchpoints around which your story will revolve.
By following a systematic step-by-step procedure, the scenario team can achieve a balance between wild creativity and free form imagination. And you can get a sound judgement based on knowledge and experience. A team tries to think of everything that could potentially affect the issue.
The type of segregation used for finding strategies is essential to finding focal issues and degree of uncertainty. For example,
● What will be the energy prices?
● Will they rise or fall?
● What will be the views of customers about your product?
● Will they incline towards modernization or rationalization?
● What will be the rate of advancement of technology?
● What will be the approach of government? Etc.
A month or two after you implement the scenarios, you need to evaluate your strategic plan and update the policies according to the new market trends. This evaluation and update should be done periodically. The market situations are regularly changing according to the macro-environmental factors we defined above. So, you need the assessment and update accordingly at a certain specified period.
Therefore, scenario analysis gives you a more explicit picture of the future. It will determine what is going to happen in the future based on the experiences in the past.
About the Author: Amanda Athuraliya is the communication specialist/content writer at Cinergix, the team behind the development of Creately. She is an avid reader, an experienced writer and a passionate researcher who loves to write about all kinds of topics.
If you're a more visual learner, check out this 2-minute animated video outlining Scenario Planning.
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