How Scenario Planning Can Be Used To Reshape Strategy

By newspaperport on July 21, 2017 • ( Leave a comment )

Explore what’s plausible rather than determining what’s probable when planning for an uncertain future, says Rafael Ramirez.

In turbulent and uncertain times, organisations should not try to predict the future but focus instead on strengthening their abilities to cope with uncertainty, says Rafael Ramirez, Professor of Practice at Oxford Saïd and Director of the Oxford Scenarios Programme. This involves moving the emphasis from trying to determine the most probable outcome to exploring a number of plausible scenarios.

Outlining the Oxford scenarios planning approach in a paper in the MIT Sloan Management Review (Using scenario planning to reshape strategy, by Rafael Ramirez, Steve Churchhouse, Alejandra Palermo, and Jonas Hoffmann), Ramirez differentiates it from approaches that take a probabilistic stance (making predictions in percentage terms or as best-case/worst-case scenarios) or a normative one (envisioning what a future should look like). ‘By recognising the part of uncertainty that is unpredictable and by actively exploring the sources of the turbulence and uncertainty, the goal is to iteratively and interactively generate new knowledge and insights to help organisations re-perceive their circumstances,’ he says.

Another core feature in the Oxford approach is making a distinction between an organisation’s immediate business environment (where business transactions take place) and the broader environment, or context, in which it operates. The immediate business environment takes into account a company’s suppliers, customers, competitors, partners, and other stakeholders, while the broader context is about all the factors that are beyond the organization’s direct influence. ‘Scenario planning is about exploring how the second layer might transform the first layer,’ explains Ramirez.

For example, he describes a scenarios planning process for power systems company Rolls Royce in which senior managers worked with the board to create scenarios for Rolls-Royce for 2040. The scenarios had to be plausible and relevant to Rolls-Royce’s circumstances, and also had to challenge some of the assumptions underlying the company’s current strategies. The process generated four ‘strategic questions’:

What would digitisation look like in the future? For example, in what ways would digital technology radically reshape society and the way business is conducted?

What factors would affect relations between employees and companies in 2040? For example, how might changing employee expectations about long-term employment affect how organisations are structured?

What conditions will determine the future of emerging markets? For example, to what extent would political factors and factors such as controls on immigration weaken the trend toward globalisation?

How might technology pathways develop? For example, how will future technologies change the power systems market?

These questions were endorsed as a new basis for the 2016 strategic planning process. This meant that any investment proposal had to take into account how it would be affected by each of the three scenarios and what, if anything, should be done to mitigate or exploit the scenarios; investments that didn’t meet this qualification were rejected.

An important factor in the success of the project was that it drew on the knowledge and perspective of a broad cross-section of parties, both inside and outside the senior management team. It was also an iterative process. ‘The initial set of scenarios that organisations develop may not be sufficient,’ warns Ramirez. ‘And additional insights need to be gathered in a second iteration. Rolls-Royce began with a total of 12 scenarios before multiple iterations led it to focus on three.’

‘As we have worked with organisations, we have noticed that considerable value can be extracted from reconsidering and re-perceiving the immediate business environment that each of the different scenarios implies,’ Ramirez concludes. ‘In reconsidering how the roles of one actor change from one scenario to another, managers can gain new perspectives and see how new actors begin to emerge. The scenario planning approach we have described helps organisations assess the kinds of threats and opportunities that might occur in turbulent, unpredictable, and ambiguous settings. By freeing the mind from the current framing, strategists can use the process to envision and begin to implement a new set of options.’

The next iteration of the Oxford Scenarios Programme is running 2-6 Oct 2017.

Profiles

Rafael Ramirez View profile

Rafael Ramirez is Director of the Oxford Scenarios Programme and the University of Oxford’s first Professor of Practice at the Saїd Business School and Green Templeton College, Oxford University. He is one of the world’s leading experts on scenario planning.

Source: Saïd Oxford Business School