Scenario planning for macro-strategy

Most people are familiar with scenario planning as a macro-strategy tool, used by organizations such as Shell, the CIA, the Singapore government, the World Economic Forum that want to explore global or industry landscapes decades ahead.

Many organizations in dynamic industries (which today is every industry) can get massive value from building high-level scenarios that can be used for shaping their future.

The reality is that a full-scale scenario planning project requires the appetite from the leaders of the organization. Value from the scenario planning process requires a significant investment of management time, which is amply rewarded from insights and superior strategies, but it needs leaders that truly have a long-term perspective.

Uncovering critical uncertainties

One approach that always resonates with boards and top executives is exploring what it is they consider most uncertain.

Focusing on uncertainties that impact decision-making immediately draws out the relevance of these uncertainties, and how those uncertainties can best be factored into decisions.

Scenario planning for major investment decisions

One of the most powerful applications of scenarios is to inform specific decisions the organisation is considering, such as potential acquisitions and divestments, major investments for example in new plants or infrastructure, and in selecting new country markets to enter.

These very specific and pointed decisions confront large uncertainties, including technologicial shifts, industry disruption, changes in consumer behaviour, economic uncertainties and more. Scenario planning can be an extremely pragmatic approach to making these decisions effectively.

Extending the time-frame of executives’ thinking

This in turn can lead to the appetite for longer-term thinking and strategy among boards and senior executive teams.

Even if they start from a very present view, leading them explore the critical uncertainties in immediate major investment decisions can help to extend their time-frame and breadth of thinking in their corporate strategy.

Image: Jason Devaun

In a recent keynote I did for clients of New Scientist magazine on Science and Leadership for the Future, I discussed how executives can think effectively about strategy.

The following video is one of a series of 7 videos that captured the entire keynote.

In the video I note:

“Mental Models is a domain of cognitive psychology which was pioneered by, among others, Kenneth Craik, Henry Mintzberg, and more recently, and probably most famously, Peter Senge. The idea is that as humans, the way in which we look at and respond to the world around us is based on implicit models of how the world works.

If we were to look at people generally, including business executives, some people have some quite limited Mental Models; others have richer Mental Models. Our Mental Models shape how we filter information from the world around us and the decisions we make as a result. Yet it is possible for us to use that input of information to actually change and improve our Mental Model of how the world works.

Crudely, there are two types of people: those that have a fixed Mental Model of the world, which continues over the years; and those who are able to adapt, change, enrich, and improve their Mental Model. That is invaluable, not least given that we are living in a rapidly changing world.”

I go on to discuss the function and importance of scenario planning, and then its role in building richer mental models:

“It’s not so much Scenario Planning as a discipline that is important; it is Scenario Thinking, the ability for executives to be able to conceive that there is more than one possible, plausible world. What you will often see in executive circles are forceful executives who say, “This is what’s going to happen,” and they fight for their view. They have a fixed Mental Model, and they are not looking to change it.

The value of Scenario Thinking is to be able to develop richer ways of thinking, to envisage that there are different worlds that are possible, there are different paths the world could follow.”

I wrote about this idea in more depth in a post Why scenario thinking (more than scenario planning) is critical for executives today.

I covered quite a few more ideas in the strategy video, you can read the full transcript on RossDawson.com.

As noted in the announcement of the report:

In a recent survey conducted by Ipsos Reid on behalf of Visa Canada, 52 per cent of Canadian parents with children aged 5-16 found back-to-school preparations to be stressful for them and their families, second only to the Christmas or winter holiday season. With an eye on the future, Visa also explored how tomorrow’s technologies and innovations may address the challenges presented during the busy back-to-school period. Visa commissioned a report by internationally-renowned futurist Ross Dawson who identified a number of innovative technologies that may exist by 2024 to help ease the stress during this annual time period.

In his report, titled The Future of Back-to-School, Ross Dawson highlights these futuristic innovations through colourful vignettes, such as at-home scanners that measure children’s clothing sizes and systems that automatically allow for purchase and delivery in a timely fashion, or family-focused and streamlined ordering of nutritious groceries, making planning for school lunches a breeze – all purchased using authentication of unique voice patterns.

You can download the full report by clicking on the image of the report cover below.

There are many interesting details on the results of the survey in the announcement of the report.

In particular a large proportion of parents are interested in the possible innovations I point to in helping them live better lives, and many believe they are likely to happen.

One of the interesting aspects of the report is the ‘theses‘ that they have distilled from the interviews, which they have divided into ‘more-hopeful and ‘less-hopeful’, concluding with one very important piece advice. These are:

More-hopeful theses

1) Information sharing over the Internet will be so effortlessly interwoven into daily life that it will become invisible, flowing like electricity, often through machine intermediaries.

8) An Internet-enabled revolution in education will spread more opportunities, with less money spent on real estate and teachers.

Less-hopeful theses

9) Dangerous divides between haves and have-nots may expand, resulting in resentment and possible violence.

14) Most people are not yet noticing the profound changes today’s communications networks are already bringing about; these networks will be even more disruptive in the future.

Advice: Make good choices today

15) Foresight and accurate predictions can make a difference; ‘The best way to predict the future is to invent it.’

I agree with these theses to differing degrees.

Most of the positive ones are very likely, and most of them very positive, far beyond the words of the theses.

Point 9) is one I have focused on for well over a decade; it remains a critical issue. I absolutely believe point 14) to be true; I think very few people grasp the staggering extent of the change that is happening and is to come.

Which brings us to the last point, which I very strongly agree with (except for the part about predictions). The role and value of thinking about the future is so that we can understand the actions today that will create better futures.

The juncture we find ourselves, at which not just information technologies but also an array of other emerging technologies are transforming society, offers both massive opportunities and startling challenges.

Foresight and structured exploration of the future are fundamental to our future, in enabling us to shape it in a positive way.

Let us work together to create a wonderfully positive future for tomorrow’s connected society.

The article focuses on my thoughts on the value of predictions. I’ve written before about why predictions usually have negative value, as an important way of framing how we think about the future.

I am quoted in the article:

“A prediction can have negative value, by misleading people, by taking away all the uncertainties and the possibilities,” he says.

The article describes how when I worked in the financial markets I saw analysts doing extensive research and then generating currency, interest rate, and equity market forecasts.

“What that did was collapse all the richness of thinking and give people on number. Once they’ve got one number they can believe it, in which case it’s likely to be wrong, or they believe it’s not true, in which case it’s useless.”

As often, I note that the role of the futurist, rather than making predictions, is to help people think effective about the future to act better in the present.

“Executives, government, leaders, everyone is overwhelmed by how much technology and society is changing. [Even] I am overwhelmed. But overwhelmed is dysfunctional, so what I am trying to do is help.”

The article goes on to give my life history in brief, including the books I have written that have shaped my career, and describes how I often use scenario planning with major organizations engaging with the future.

After describing some of my perspectives on social trends and uncertainties and economic structure, the piece goes on to look at how I see organizations today.

“As we are more able to collaborate, establish reputation and work effectively with people anywhere, it does ask the question, why does the organisation exist… rather than a whole lot of individuals collaborating? says Dawson.

There is real value to having an organisation, but only if the organisation is richly networked and that there is indeed a community.”

Organisations can take advantage of their workforce by “tapping the spare creativity, ingenuity and insights of people outside their existing roles. If an organisation is not well networked, it is a set of individuals, it doesn’t really have a good reason to exist. yet if it is well networked this means that the most relevant expertise can be applied to the challenges that arise.”

Prior to founding Advanced Human Technologies most of my working career had been in financial markets with Merrill Lynch and capital markets with Thomson Financial, with my final role as Global Director – Capital Markets.

My initial client base when I established my company was largely in financial services, and I began to focus on the investment management industry, for a number of reasons.

In the later 1990s my work and research was split between the fields of knowledge management and intellectual capital on the one hand, and futures methodologies such as scenario planning on the other.

I felt that one of the most important applications of our increasing understanding of intellectual capital was in asset management. Clearly information on non-financial indicators was often more important than historical financial data in making investment decisions, and I worked with a number of institutional investors on their efforts to value intangible assets of companies in which they were investing.

As I developed my expertise and experience in scenario planning, I saw there was an opportunity to apply scenario approaches to financial portfolio and risk management. I worked on applying qualitative scenario methodologies across several kinds of financial institutions, including asset managers and fund trustees.

In my book Developing Knowledge-Based Client Relationships, one of the key themes was that of adding value to client decision-making. Many of the case studies in the book examined how to enhance the cognitive and process aspects of financial portfolio decision-making, and I worked in applying that with a number of organizations, including the research departments of investment banks.

Having spent most of the last decade on broader issues such as the theme of living networks and examining the future of work, organizations, media, and government, it was a bit of a homecoming for me to speak at the SimCorp event.

Because I had not been deeply exposed to the industry for some time, in my keynote I spoke about high-level themes such as how changing information flows and distribution mechanisms are creating a wide variety of new opportunities in investment management.

Especially after running a highly interactive Executive Master Class with the most senior attendees at the conference, I found myself rather surprised to find that in fact the industry has changed very little over the last decade. Virtually the same issues – including talent, pricing, fee transparency, active vs. passive management, and distribution structures – are being discussed today.

There is a reasonable case to make that the investment management industry will change less than many others in years to come. The weight of capital to invest will inevitably increase, and there will be strong demand for capable fund management.

However there are certainly disruptions in store in investment management, and the industry currently hardly shines in its structural innovation. One of the speakers at the event noted that two-thirds of investment management firms ban social media in the workplace, a staggering statistic for companies that live off information flows.

In coming back to the industry I certainly see opportunities to help firms consider the future of the investment management industry, including identifying forthcoming disruptions and emerging opportunities.

I also see that there can be great value in applying what I have learned over the last decade and more in futures studies to the investment management process. I will be developing and sharing more content and ideas around the future of investment management in coming months.

Just before I spoke the executive group had heard from a well-known economist who was giving them economic forecasts for the next 10 years.

As such, in my presentation I explained why forecasts usually have negative value. I spent a long time working in financial markets, and I have seen market and economic forecasts tremendously abused.

The most important point is that almost all forecasts will turn out to be wrong. The future is unpredictable. Giving numerical values to future economic or market data can easily shut down useful thinking about the reality of uncertainty and the range of possibilities that may transpire.

In my first book Developing Knowledge-Based Client Relationships, in the context of distinguishing between what I called “black box recommendations” and “adding value to client decision-making”, I explained how making forecasts strips out almost all the value from the thinking behind them:

One key reason why black-box recommendations generally provide less value than providing the content and process behind them is that they ‘collapse’ the richness of the thinking which went into the recommendations down to a single outcome. An excellent example of this is economic research, in whatever field it is applied.

Economists go through a detailed process of examining all of the issues and uncertainties in looking ahead, however when they collapse all of that thinking into a single set of figures representing their economic forecast and the justification for that most-likely outcome, the richness of the thinking which went into developing them disappears for the client.

While many clients simply want some numbers to unquestioningly stick into their budgets (a dangerous but common approach), economists are inherently limiting the potential value of their work to clients by leaving out the breadth of the analysis behind their views.

While many businesspeople want forecasts, and they do have their role, they usually have negative value in trapping people in a single mode of thinking. Far better to provide people with alternative views – and the thinking behind them – that enable effective responses when the supposedly ‘most likely’ outcome doesn’t happen.

This is part of the reason why I often use scenario planning for more structured consulting engagements to help clients think about and prepare for the future.

However forecasts do have a role.

My most well-known work, with well over 3 million views, is my Newspaper Extinction Timeline, shown below, in which I predicted in which year newspapers will become insignificant in each country around the world (Click on the image for the full-size framework).

While I’ve adjusted my thinking based on new data since then, so far it seems as if I won’t be too far off the mark. However that’s not what matters. It would amaze me if I turned out to be right, despite making my best efforts in those predictions.

The intent of the framework was to provoke a response. The news-on-paper industry has been very poor at facing massive change. I hoped that the specificity of my predictions would provoke some newspaper executives to ask themselves – and think through – “What if he’s right?”

Even if they completely reject my forecasts, hopefully it forces them to think about and explain to themselves or others why I am wrong. This can help clarify their own thinking.

So when used in provocation, predictions can be useful. But in most cases, since specific forecasts will almost certainly be wrong, they have negative value in leading people away from thinking usefully about the future and responding well to the massive uncertainties we face.

This certainly doesn’t mean that scenario planning is always the best approach to help organizations explore the future. However I see it as the single broadest and most powerful tool to facilitate rigorous, structured decision-making about the long-term future in high levels of uncertainty.

As I have written, the greater the uncertainty, the greater the value of scenario planning, and in almost every industry today uncertainty is increasing. The many industries to which we have applied scenario planning include financial services, media, infrastructure, and many others.

In fact, engendering scenario thinking among executives is far more important than scenario planning, however scenario planning is often the best route to that outcome.

Scenario planning is a rich and varied domain, and should be implemented uniquely depending on the context and the objectives. One of the challenges is that many people talk about ‘scenario planning’, often meaning very different things, and not infrequently degrading the term by applying it to unsophisticated approaches to dealing with uncertain futures.

To help a large consumer-goods organization we worked with last year on a scenario planning project to understand the issues, I pulled together an overview of what scenario planning is and a typical process. We have summarized that in the following two page document.

Click on the image for full-size pdf


Click on the image for full-size pdf

Below are summaries of the key points in the overview page:

What is scenario planning?
Generating insights by creating a small set of scenarios for an organization’s future environment that are:

• Relevant to critical business decisions
• Distinct
• Individually realistic and believable
• Together cover the breadth of relevant uncertainties

Why scenario planning?

• The pace of technological and social change is increasing
• Industry structures are rapidly shifting
• Strategy must take uncertainty into account
• Responsiveness to change is vital for success
• The future is increasingly uncertain

Possible objectives for scenario planning

• Foster useful strategic conversations among key executives and managers
• Enhance responsiveness to emerging challenges and opportunities
• Generate and assess innovative strategies and options
• Align strategic planning activities across the organization
• Build deep understanding of business environment drivers
• Communicate strategic perspectives across the organization and beyond
• Create the future

Success factors for scenario planning

• Getting the right question and scope
• Broad and meaningful involvement throughout the process
• Balance between plausibility and stretching thinking
• Bringing in external perspectives
• Creating compelling stories
• Focus on effective communication of the scenarios

What is your experience of scenario planning? What would you add or change to this brief overview of scenario planning?

It is actually a lot easier to look years into the future than just a single year, as while we can readily discern broad trends, the major events in a year are usually unforeseeable, though they may express the longer-term directions. However as the pace of change accelerates, it is becoming a little easier to see the themes, if not the specifics, of the year ahead. My Map of the Decade shows the 14 ExaTrends that are shaping this 10-year period. Today I launch my 12 Themes for 2012, in conjunction with Future Exploration Network.

Below is the text for the 12 themes, though they are better viewed in the slides above, as the images used are an intrinsic part of the themes. Alternatively download the pdf of 12 Themes for 2012 (10.6MB)

1. TEN SPEED ECONOMY
Forget the two-speed economy. As the pace of change in the business environment accelerates, the divergence in performance between companies is increasing. While media focuses on the relative performance of countries, states, and industries, the bigger trend is the rising gap between those businesses that are being left behind by change, and those that are nimble enough to seize the massive opportunities created by those shifts. The consistent increase in turnover in Fortune 500 leadership will accelerate. Expect dramatic business failures, while others thrive.

2. CROWD WORK
In a connected world labor is a global game, and talent can be anywhere. Small businesses are now able to draw on low-cost skilled workers to extend their capabilities and grow faster. Large companies, from Procter & Gamble and IBM down, are recognizing that even they need to go beyond their employees to innovate fast enough. Creative industries and now media companies are drawing on crowds to generate ideas and content. Service marketplaces such as oDesk and Freelancer.com have already brokered over $1 billion of work. For developed countries there is the potential of some roles shifting overseas but also upskilling and increased productivity, while some developing countries are being transformed by their participation in the emerging global talent economy.

3. PRIVACY VANISHES
Our privacy has been gradually eroding for years, as social networks mine and use our personal information, and marketers piece together the profusion of data they have gathered on who we are and how we buy. Now our anonymity is compromised further through extraordinary advances in facial recognition technology.  Now that our faces can be recognized from billions, pervasive video monitoring throughout our cities means we can be tracked every moment we are outside our front door. Facebook uses extremely accurate facial recognition technologies while Apple and Google own advanced platforms they are not yet using. Governments and some corporations are accumulating databases of our faces. The implications for our privacy are profound. While so far few have objected to the gradual erosion of our privacy, this is about to move to the center of the agenda.

4. INSTITUTIONS IN QUESTION
Institutions that have lasted decades or centuries are being put into question, with soaring people power in some cases bringing their demise. The Arab unrest is only just beginning, with more countries yet to change power, new regimes rarely lasting long, and the uprisings’ success inspiring those in other countries. Financial structures and institutions, central to our economic system, are shifting from esteemed establishment to despised deadbeats. From the early seeds of Occupy Wall Street far broader movements question institutions and structures, fragmenting social opinion, and flowing through to significant change.

5. CONSUMER HEAVEN
As consumers, we have never had it so good. Whatever we want to buy, we can select from any number of local and global suppliers. Mobile apps allow us to scan anything we see in a store and instantly find out where we can buy it for less. Deal sites proliferate to offer discounts based on time, location, and community. While the woes of some sectors of retail such as traditional department stores will continue to mount, new opportunities are emerging. ‘Social shopping’ usually refers to the rapidly rising domain of interacting with friends while you are buying online. However some retailers such as Diesel Jeans and H&M are using innovative approaches to social shopping that help people connect with their friends as they buy in stores. The best shopping centers and suburban shopping districts will thrive on experience, community, and uniqueness.

6. CYBERWAR
As technology and information flows create more value we become increasingly dependent on them. For those with nefarious intent, the first point of attack is now often on technology. Governments are developing their capabilities to attack infrastructure and the commercial interests of their foes, as we have seen with the Stux virus that attacked Iraqi nuclear facilities. Terrorists are working hard to build similar capabilities. The rise of ‘hacktivists’ such as Anonymous and LulzSec will result in an increasing number of large organizations attracting their attention and sometimes highly destructive attacks. From now, digital worlds are where battles will be fought, won, and lost.

7. EVERYTHING SOCIAL
It is just over five years since Facebook was opened to the general public on September 26, 2006, finally making social networking an activity that transcended all demographic divides. There are now well over 1 billion people active on social networks around the world. From here almost everything will be social, including organizational work processes, government policy and service delivery, shopping, school and adult education, job search, music, and almost every aspect of media. This explosion will create a social divide, with at one end of the spectrum the oversharers who live completely connected lives, while at the other extreme many will choose opt out of the social world, in many cases cutting themselves off from career and personal opportunities.

8. THE NEW LUXURY
Our expectations of excellence in all that surrounds us are always increasing. However in the midst of financial mayhem, luxury takes a different shape, less ostentatious but in its subtlety even more refined. As growth economies such as China consume an ever-increasing proportion of the world’s luxury goods, differing sensibilities of luxury emerge. As brands seek to tap ‘masstige’ markets they often lose their own prestige. The most powerful brands become those that are not openly visible and are only discernable by the cognoscenti. The rapid swelling of the global ranks of the wealthy flows through almost completely to the markets for status and luxury, driving intense refinement and discernment, yet also too often a complete lack of taste.

9. REPUTATIONS EXPOSED
Reputations are more visible – and more vulnerable – than ever before. Beyond Wikileaks and its imitators the powerful amplification provided by social media means more shocking secrets than ever will be brought to light, with media organizations, corporations, and governments caught naked in Twitter streams and mainstream headlines. While reputations can and will be trashed in moments, the rise of increasingly accurate reputation measures  will also make visible the best companies and most talented individuals. The rapid growth of the reputation economy will result in many seeking desperately to push up the public measures of their influence and reputation. In a maturing industry gaming the numbers will become harder and the scores will gradually become more useful.

10. NEW INTERFACES
The value we gain from the extraordinary progress of technology has been severely limited by the antediluvian interfaces we still use, such as the QWERTY keyboard and mouse. Today’s touch screens will be complemented by gesture and expression recognition. Apple’s Siri represents a landmark in coalescing voice communication and intelligent search, which will herald not just more and better intelligent agents, but also widespread expectations of computers that are finally ready to obey our every command. Video and augmented reality glasses will come of age, providing sleek and comfortable ways to bring data overlays and big screen experiences to us on the street and in buses, trains, and baths.

11. POLARIZATION
In a world in which so much brings us together, we are tearing ourselves apart. There appears to be no middle ground in US politics, with a vituperative election due to culminate in an undoubtedly bitter resolution. Europe is mirroring the shift with increasingly extreme politics thriving in challenging financial times. The defining theme of climate change is division on what it is and what we should do. Across countries and within nations, the gap risks increasing between haves and have nots. A great dividing force is the immense power of connectivity and the separation between those who have access and know how to use it, and those who do not. There is even polarization between the forces that divide us and those that unite us. Our future depends on greater integration.

12. TRANSFORMATION NOT APOCALYPSE
Some believe that the end of the Mayan calendar on December 21, 2012 heralds the end of the world. Others have long pointed to 2012 as the year of the ‘Singularity’, when exponential technological growth finally creates a world beyond human comprehension. The world will not end, but it may well be transformed. While we will likely still recognize most aspects of our world a year from now, the accelerating pace of social as well as technological change may mark 2012 as a turning point in human history. Yesteryear’s expectations of a mind-boggling 21st century are finally being borne true, just in a different way than foreseen.

Kristin pointed me to some of what her company Bridge8 is doing in creating animated videos about the future. I believe the primary intended audience is secondary school students, but they are excellent videos, well-paced, well-thought-out, educational, all in all very nicely done.

Here is their video on the implications of Utility Fog, starting with a segment on how to think about the future, introducing the idea of utility fog, and running through some of the possible implications. It’s a great study in futures thinking, and well worth watching.

The one thing I think could have been done better in the video is the explanation of utility fog, an idea generated by molecular nanotechnology pioneer Dr John Storrs Hall.

To flesh that out a bit, here are the first few paragraphs of an article by Storrs Hall, titled Utility Fog: The Stuff That Dreams Are Made Of

Nanotechnology is based on the concept of tiny, self-replicating robots. The Utility Fog is a very simple extension of the idea: Suppose, instead of building the object you want atom by atom, the tiny robots linked their arms together to form a solid mass in the shape of the object you wanted? Then, when you got tired of that avant-garde coffeetable, the robots could simply shift around a little and you’d have an elegant Queen Anne piece instead.

The color and reflectivity of an object are results of its properties as an antenna in the micron wavelength region. Each robot could have an “antenna arm” that it could manipulate to vary those properties, and thus the surface of a Utility Fog object could look just about however you wanted it to. A “thin film” of robots could act as a video screen, varying their optical properties in real time.

Rather than paint the walls, coat them with Utility Fog and they can be a different color every day, or act as a floor-to-ceiling TV. Indeed, make the entire wall of the Fog and you can change the floor plan of your house to suit the occasion. Make the floor of it and never gets dirty, looks like hardwood but feels like foam rubber, and extrudes furniture in any form you desire. Indeed, your whole domestic environment can be constructed from Utility Fog; it can form any object you want (except food) and whenever you don’t want an object any more, the robots that formed it spread out and form part of the floor again.

You may as well make your car of Utility Fog, too; then you can have a “new” one every day. But better than that, the *interior* of the car is filled with robots as well as its shell. You’ll need to wear holographic “eyephones” to see, but the Fog will hold them up in front of your eyes and they’ll feel and look as if they weren’t there. Although heavier than air, the Fog is programmed to simulate its physical properties, so you can’t feel it: when you move your arm, it flows out of the way. Except when there’s a crash! Then it forms an instant form-fitting “seatbelt” protecting every inch of your body. You can take a 100-mph impact without messing your hair.

Definitely a fantastic concept worthy of some concerted thinking. So read the article and then watch the movie.