About the book

This book is the book in the field of scenario planning. The first time I read it was approximately 21 years ago. I was forced to read it again, because Risto Siilasmaa told in his “Paranoid Optimism” book that he is devoted user of scenarios. Maybe because of Siilasmaa’s book the scenario planning methods will see some kind of renaissance. Anyways I’m ready for the scenario planning tsunami.

van der Heijden wrote the book for “practitioners of strategic management” who could make thoughtful decisions and they can “take account of longer-term aims in their daily decision making”. The aim is superior overall results.

What are the key learnings?

Scenarios are memories of the future. Scenarios are also always a testbed for something. Scenarios can be both organizational and leadership tools. There are two types of scenarios:

–      External scenarios which are “intended to be representative of the ranges of possible futures”.

–      Internal scenario is “a causal line of argument, linking an action option with a goal”.

Scenario planning is an organizational learning process which aims to build common understanding and base for different projects which are aimed to make the organization fit for future. A solid strategy requires to based on the following elements:

–      Aims of the organization

–      Assessment of the organization

–      Assessment of the environment, current and future

–      Assessment of the fit between the two

–      Development of policies, decisions and actions

Scenario planning provides a structure, it identifies uncertainty, it creates dialectic conversation, it taps into knowledge, it brings external perspectives and forms basis for corporate strategic considerations. The scenario planner “is to create a more adaptive organization which recognizes change and uncertainty, and uses it to its advantage”. (S)he is also a process facilitator who provides key stories to become part of the company language. (S)he also helps to build a successful competitive strategy that is an original invention. Scenarios a needed to:

1)   Prepare the organization to generate projects and decisions “that are more robust under a variety of alternative futures”.

2)   Building better future.

3)   Enhancing corporate perception.

4)   Energizing management.

Shell has always been forerunner of scenario planning.

Even today you can find scenarios developed by their internal scenario team (https://www.shell.com/energy-and-innovation/the-energy-future/scenarios.html). Shell’s experience has highlighted that:

–      Sound strategies reduce the complexity of the management task.

–      Devote management’s time on strategic conversation.

–      Incorporate common sense and good strategy.

Three different paradigms within strategic management:

1)   The rationalist school tries to get as close as possible to the best solution or one right answer. The IBM mainframe business case is a classic example of this school.

2)   The evolutionary school believes that strategy is emergent in it’s behavior.

3)   The processual school is in between the two previous schools and it is more like a living organism. This school is quite close to Lean way of development by learning loops.

Scenario planning needs a Business Idea.

It is the mental model of forces behind the organisation’s current and future success. The Business Idea has to have profit potential and distinctive competencies. The ideal Business Idea is:

–      A new way of creating value for customer

–      A combination of competencies

–      Unique value

–      Offering creates value to both seller and buyer.

Scenario planning aims to strengthen Business Idea. Scenarios are a windtunnel for the Business Idea. Can it stand the winds of future?

Fundamental source of distinctiveness are:

1)   Networked people.

2)   Embedded processes.

3)   Investment in reputation.

4)   Legal protection.

5)   Specialized assets.

Solid Business Idea is built on competitive advantage, differentiation and cost leadership. But uncertainty in the forms of risks and unknowables will be on the path for sure. Scenario planning will definitely help managers to bear the uncertainty. And not all uncertainty is uncomfortable. Scenarios will bring understanding of the environment, put structural uncertainty on the agenda and scenarios will help the organization to become more adaptable. In a way scenario planning is a risk management tool.

Iceberg analysis is a vital tool for scenario planning, because with the Iceberg analysis you will identify events, trends & patterns and structures that will affect to your business. Typically future analysis is done by forecasting which will not take into consideration events that have no historical data available. “Scenarios let the decision makers look not just an outcomes, but also at the driving forces which could move the business one way or the other.” For example could taxi industry have been able to build a scenario where Uber will rock the boat. And if yes could the taxi industry have made some pre-emptive strikes before Uber hit the fan.  

Scenario planner has to take two elements into consideration – know you customer and plausibility. The scenarios are made to be used by the customer and (s)he should be able to execute according. Secondly (s)he should be able to see that the potential scenarios are plausible. Scenarios are “a bridge between existing understanding and new alternative future framework”. 

Scenario analysis should follow these principles:

–      Start with the platform of the existing “consensus view”.

–      Recognise the uncertainty and complexity.

–      Stretch by the introduction of new knowledge from inside and outside the organization.

–      Provide structure to seemingly unrelated environmental insights.

–      Time limits will kill creativity.

First step

In the first step in building scenarios the planners typically use:

–      Customer insight,

–      Group brainstorming,

–      SWOT,

–      Individual interviews and

–      Feedback.

Second step

Second step is to essential to find the driving forces – external and internal. “September” formula is used to categorize the environment:

–      Societal development

–      Economic development

–      Political development

–      Technological development.

Scenario planner needs also analysis of the competing forces (Porter):

–      Generic competing forces in the industry

–      Relative power of suppliers

–      Relative power of buyers

–      Relative power of potential new entrants

–      Potential influence of substitute products.

After these steps one has to build a scenario agenda which has a list of four to five broad themes. These themes are typically something that the client is concerned about. The themes should be very independent. The scenario horizon can be years or in the major capital investment it can also be up to 20 years.

While building the scenarios the management team will have time to evaluate that what does drive success in the future. Typically the drivers of the business success are:

–      The customer value created.

–      The competitive advantage.

–      The Distinctive Competencies.

–      A positive feedback loop. 

Re-build Business Idea

After the scenarios the management team needs to re-build the Business Idea. The process behind it is the following:

1.     Deciding on the company’s Competitive Advantage

2.    Addressing the Devil’s Advocate question (what are the unique factors of Competitive Advantage)

3.    Developing a cause and effect picture/diagram

4.    Completion of the diagram

5.    Identifying the Distinctive Competencies

6.    Cleaning up the diagram

7.    Review of the Business Idea (3E test, SWOT)

8.    Drawing out the essentials

9.    Strategic implications

After the Business Idea is reviewed with the help of scenarios the management team can start analyzing it’s position in the playing field (competitive positioning):

1.    Identifying potential customers

2.    Testing the business definitions

3.    Identifying the competitors

4.    Competitive cost driver analysis

5.    Competitor response profiles

6.    Summarising the most important competitors.

 A Scenario Team and the project

The team working with the scenarios should be multi-disciplinary and embracing diversity team. They should promote disbelief, think the unthinkable, let intuition and premonitions flow freely. The target for the team should be novelty and relevance to the client. For the client most important part is to deliver on time. Developing scenarios should be seen as a project. The work is typically done in workshops. Typically off-site workshops taking two to three days. They should also have a dedicated workroom or space. The team uses data to find common and historical variables. These datapoints will turn into driving forces and conceptualization of variables along with the Iceberg analysis (events, trends, patterns and structures). 

After the scenario team has gathered the data – the team will start formulizing scenarios which has a consistent story line. The story lines can be built based on

1)   Inductive (used with divergent client group),

2)   Deductive (used when client group thinks cohesively) and

3)   incremental (used in step by step approach) scenario structuring methods.

The scenarios are tested by:

–      Quantification (causal models) or

–      Actor testing (most important actors in business environment).

Scenarios are not one size fits all. Those can be:

–      Surprise-free scenarios.

–      Challenge scenarios.

–      Phantom scenarios.

Scope of the scenario projects can be:

–      Strategy projects.

–      Project development.

–      Short-term/tactical decision making.

–      Crisis management.

–      Exploration (consensus building) scenarios.

–      Morale building projects.

How should we change according to the book?

“The strength of every Business Idea will deteriorate over time with the depreciation of their Distinctive Competencies.” To address this fact the scenarios should be used to:

–      Identify and evaluate options

–      Build scenario/option matrix

–      Test the end-results with the most important stakeholders and actors

–      Integrate the findings into the overall strategy.

Plan for action:

1.    Define current position

2.    Define desired future state

3.    Define steps to make transition

4.    Execute

Scenarios should be guiding the strategic conversation.

What should I personally do?

Find the Radiolinja’s scenario planning results.

Summary

The book in six words – ”Business Idea is not valid forever”