Monday, May 12, 2008

The Man of Steel Does Scenario Planning

In 1991 Peter Schwartz, the President of Global Business Network, published The Art of the Long View, a description of, and recipe for, scenario planning by one of the very gents who invented the discipline.

I bought the book about five years ago, read it, lent it to someone and it has never been returned to me. I think I know to whom. In fact, I know who you are. But more on that later.

Scenario planning is a business tool seemingly invented for liberal arts majors because it’s all about telling stories. In particular, we tell stories of the future, which are called “scenarios” to make them acceptable to MBA programs. But they’re still just stories. And they all get cool, memorable names. And none of them even have to be correct. And they’re still useful.

See what I mean? That is almost the definition of a liberal arts education.

Schwartz writes, “In a scenario process, managers invent and then consider, in depth, several varied stories of equally plausible futures. The stories are carefully researched, full of relevant detail, oriented toward real-life decisions, and designed (one hopes) to bring forward surprises and unexpected leaps of understanding.”

Scenario planning was first used by the military in WWII, but the classic case demonstrating its value was undertaken by Pierre Wack, a planner in the London offices of Royal Dutch/Shell. It was the early 1970s, and Pierre and his colleagues in the newly formed Group Planning department were looking for events that might affect the price of oil—which had long been a steady, dependable commodity. That’s when they proposed a set of scenarios, each one a plausible story of the future, but radically different in their outcomes.

I’ll spare you the details except to say, between OPEC and the Yom Kippur War, the energy crisis that followed caught the oil industry off-guard. With the exception of Shell. From one of the weaker of the “Seven Sisters,” the seven largest global oil companies, it became one of the two largest and, arguably, the most profitable.

Schwartz tells us, “The purpose of scenarios is to help yourself change your view of reality—to match it up more closely with reality as it is, and reality as it is going to be. The end result, however, is not an accurate picture of tomorrow, but better decisions about the future.”

I’ll share a recipe for doing scenario planning, and encourage you to pick up a copy of Schwartz’s book. It’s a good read, designed for liberal arts majors (and their number-crunching friends) who are always being asked to plan for the future. I’ll also point you to Bill Ralston and Ian Wilson’s The Scenario Planning Handbook which will allow you, with a little practice and a little luck, to take a group of managers through the process of scenario planning.

But first, perhaps an example will help.

Suppose you are Superman. ("Easy," you say? But of course.)

You’ve decided to spend some time doing some quiet, introspective, long-term planning—smack in Stephen Covey’s Quadrant II.

This is very unlike your day job, which tends to be urgent, very urgent, ultra important, near death, and close-to-catastrophic.

Sound familiar so far?

So, as Superman, you’re going to look out, perhaps ten years. (The longer the frame of reference in scenario planning, the more valuable it can be.) The big question for you is: Will I ever be able to retire? And as you ponder, there are two things that really trouble you.

One is kryptonite. Your personal weapon of mass destruction. The Daily Planet says that an evil scientist may have come up with a way to make it synthetically. Nobody really knows.

The other thing that troubles you is crime. It seems like crime is going down in Metropolis but up in Gotham City, where that wimpy Batman dweeb hangs. Again, nobody really knows which way the trend is heading.

So, unable to predict the future, you decide to write some scenarios. Maybe Lois Lane will take notes--that'll make the whole exercise worthwhile no matter what else happens. And, because you already know the things that are keeping you up at night, you decide to look at two sets of extremes:

First, you imagine, ten years from now, that the world still only has that one piece of kryptonite locked away safely (we’ll call that the “Low K” extreme), and, conversely, there will be a thriving black market for synthetic kryptonite and you’ll be in some deep trouble (“High K”).

Likewise, on the other issue causing you to lose sleep, ten years from now crime will be nearly eradicated (if Batman can get his act together—so “Low C”), or criminals will essentially be running the major cities (“High C”).

And, while K(ryptonite) and C(rime) are most certainly related in some ways, you’re now really in a good position to look at four different scenarios:
Low C/Low K: Easy City (and retirement)

Low C/High K: Phoning in Sick (and a good chance to turn the whole thing over to Batman)

High C/Low K: Bat Hell (cause it’ll mean partnering with that dog)

High C/High K: The Big Hurt
Or something like that. (Don’t worry—there will be no shortage of cool names when you get to this part of scenario planning.) Here's what it looks like on the white board.

Remember, you’re not trying to predict the future--just tell plausible stories about what might happen.

Got it? Can you think of any strategic initiatives that might make sense under most or all of the scenarios? How about partnering with Batman? I know, I know. He’s a gadget-geek and you can take him with one-arm tied behind your back, but he doesn’t give a hoot about kryptonite. And (Mr. Ego), that’s a huge plus. Also, it sounds like he could use some help over in Gotham City, which might influence the High C scenarios. And even in the Easy Street scenario (Low K/Low C), it would be nice to have a fishing buddy with whom you could swap stories.

Make sense? You’re still not telling the future, but you are finding strategic initiatives—like partnering--that make you stronger in almost every scenario.

And, sometimes in scenario planning, there are some eye-opening findings. For example, why not marry Lois Lane and have a baby? Maybe not the Kid of Steel, but perhaps the Kid of High Strength Polycarbonate? And maybe only slightly weak in the presence of kryptonite—which would certainly help out his old man. And maybe a third superhero on the block—if you can call Batman a superhero--might make the High C scenarios even less likely?

And, what the heck, you’ve been thinking about this for years anyway. And you're not getting any younger. (And either is she.)

See what happens? Four scenarios. Not a one likely to occur exactly. But all useful in generating strategic options and new ideas.

That’s a little bit about how scenario planning works.

Here’s your abbreviated & mind-mapped recipe, courtesy of Bill Ralston and Ian Wilson. (Click to see it better, write me if you want a copy, and enjoy.)

By they way, Schwartz appends a few additional considerations. Beware of settling on three scenarios, because the one “in the middle” is often treated as the “most likely.” This undermines the advantages of multi-scenario planning. And avoid assigning probabilities. Also, remember to use names that telegraph the scenario logic. Make them vivid and memorable.

Finally, Schwartz closes by saying, “You can tell you have good scenarios when they are both plausible and surprising; when they have the power to break old stereotypes; and when the makers assume ownership of them and put them to work. Scenario making is intensely participatory, or it fails.”

Now, about my stolen copy of The Art of the Long View: Keep it. May it do you good. I’ve bought another copy and it’s not leaving my office.

Just remember that you owe me if you ever come upon a piece of that synthetic kryptonite.