Future Scenario Planning

Scenario planning would be so simple if it wasn’t about the future! But it is.

The global pandemic has jolted many companies into realising that thinking beyond their annual plans and considering longer term planning and sources of strategic risk is non-negotiable. In addition to a 3-5 year strategy, scenario planning is critical to enable companies to consider ‘what ifs’ around their markets and business models. Important considerations in this process include production and distribution control, core data access, management of the supply chain, long-term future customer needs, and sources of potential industry disruption etc.

In Mainsheet’s experience good strategic plans are a road map for the future and a framework for making critical decisions, but they should not be too prescriptive or too inflexible. Good strategic planning that also combines scenario planning allows management to consider the forces and circumstances that may require them to alter their strategic direction and their decision making framework. It considers the changes the business may face, what the likelihood of those changes are, what the possible impact on the business might be, and what steps the business could take to best adapt to that situational scenario.

Furthermore, this should not be simply be a once per year planning event.  Good strategic and scenario planning also involves continual monitoring and reporting against the key external and internal drivers and assumptions that underpin the plan, and reacting to changes. This is typically best done as a specific part of the monthly management and Board reporting, tracking the implementation of the strategy via the relevant KPI’s as well as reporting on the key environmental drivers and assumptions. This will ensure the business is working within the most appropriate strategic scenario.

We often find that this reporting is not a standing agenda item in monthly Board meetings, and is unfortunately left to be discussed quarterly or even less frequently. This ongoing discussion, monitoring, reporting and assessment of the market is vital so that plans can be adjusted if required.

Based on our experience some of the key aspects of  scenario planning include:

• Providing several unique descriptions of the future business environment to stretch thinking beyond ‘business as usual’
• Considering the trends and influences that will impact future market/environmental situations
• Projecting far enough into the future to eliminate short-term thinking
• Enabling management teams and Boards to use structured thinking about the possible sources of uncertainty or disruption and what impact they may have on the business
• Developing a clear framework identifying both the key value drivers of the business and a set of risk assessment criteria to be used to evaluate strategic options and strategic actions.

Recent lessons learned from the numerous Mainsheet scenario planning projects in 2020 have been:

• To establish a common frame of thinking as the basis for envisioning the future, such as horizon, industry and geographical scope. This is should be done at the outset of the process.
• Where possible, to garner ideas from a panel of experts, internally and externally, to provide management with knowledge of different influences which will impact the future.
• To prioritise and focus on those driving forces that are more likely to impact the business. This establishes the framework for scenario development.
• Remember the principles of scenario development that include:
  • The scenarios should have the potential to be a reality
  • There should be a clear logic that links any event and the impact on the business
  • Each scenario should be different from any other
  • The description of the scenario should include both external influences and a framework of the value driver and risk criteria of the business
  • Each scenario should be assessed in terms of value for testing strategic options.

Scenario development, often done by clients in teams, is a blend of strategic thinking, critical thinking, trend analysis, and postulating the possible source of change and disruption.  These are then overlaid with a fact base around the market, competitors, supply chains, the business process and costs etc. to arrive at the risk scenario to be evaluated. It should be noted that scenarios can have negative impacts but also positive impacts which is sometimes forgotten. Fact based analysis then be done on those scenarios.

The maturity of a company’s strategic thinking approach and team cohesion will also guide who should be involved in the process. Experience tell us that it is best to have representatives from all key aspects of the business in the room to get the best thinking and knowledge. This also creates more engagement and alignment to the strategy, operating model and the plan’s implementation – to set the next phase of growth up for success. That said, a larger group can sometimes slow creativity and unconstrained thinking. Group dynamics are an important consideration to achieve a good result.

It can also be a creative exercise and team building exercise. Mainsheet believes that any scenario development, strategy development or management decision making is also an opportunity to increase the alignment and shared commitment of the management team.

Mainsheet has considerable experience of assisting clients across a broad range of industries to develop their strategy and implementation plans and apply a scenario planning approach as part of that process.

If you would like to discuss this approach or you strategic planning need then please contact Shane McEwen or another of Mainsheet’s directors.