I have been applying scenario planning for well over 20 years, sometimes in its traditional format, sometimes with adaptations to fit the need or cultural context of the client.

The more specific the context framing a set of scenarios, in terms of geography, industry, organization, and defined decision, the more useful they are.

However it can also be highly instructive and insightful to draw on more generic scenarios that help frame uncertainty and possible futures, helping to build scenario thinking and richer mental models.

I have compiled four sets of recently-developed scenarios that can help us see possible worlds past the current pandemic, that hopefully can inspire us to work towards those we see as compelling, and make us conspire to avoid those we don’t like.

Deloitte

The deeply experienced scenario team at Deloitte, drawing on their lineage from Global Business Network, have created an excellent nuanced set of scenarios in a detailed report.

Source: Deloitte: The world remade by COVID-19

In addition to describing each of the scenarios, the report explores in detail the key uncertainties that will frame our path forward.

It suggests 5 fundamental uncertainties:

1. The overall severity of the pandemic and pattern of disease progression
2. The level of collaboration within and between countries
3. The health care system response to the crisis
4. The economic consequences of the crisis
5. The level of social cohesion in response to the crisis

From this broader list it distills the two critical uncertainties that will drive the overall impact of COVID-19 as the severity of the pandemic and the level of collaboration, allowing them to map the scenarios:

See the full report for deeper descriptions and insights.

Journal for Futures Studies

The academic Journal for Futures Studies contains a short article What will a post virus world look like? by Garry Honey that proposes a simple framework for a set of scenarios:

“The coronavirus throws up enormous uncertainty – political, economic, social and technical – so it seems the best way to look at future scenarios is to examine where each of these determinants might lead. The four scenarios set out below using the political-social and economic-technical axes.”

Interestingly the ‘New humanity’ scenario here echoes my ‘Humanity maturing’ scenario from a different exercise.

See the article for full scenario descriptions.

Centre for the Understanding of Sustainable Prosperity

As part of an extended and insightful essay by Simon Mair of the Centre for the Understanding of Sustainable Prosperity, he proposes a scenario matrix:

“The factors I want to take are value and centralisation. Value refers to whatever is the guiding principle of our economy. Do we use our resources to maximise exchanges and money, or do we use them to maximise life? Centralisation refers to the ways that things are organised, either by of lots of small units or by one big commanding force.”

1) State capitalism: centralised response, prioritising exchange value
2) Barbarism: decentralised response prioritising exchange value
3) State socialism: centralised response, prioritising the protection of life
4) Mutual aid: decentralised response prioritising the protection of life.

See the full essay and scenario descriptions.

Center for Strategic & International Studies

Usually bad/ medium/ good scenarios are next to useless for true foresight, and anathema to experienced scenario planners. The richness and value of scenario planning comes from exploring multiple dimensions of uncertainty. However in a situation such as a pandemic, policy makers can certainly be well informed by considering realistic pathways from worse to better.

To take one of many examples of these kinds of scenarios for the trajectory of the pandemic, the Center for Strategic & International Studies proposes three scenarios:
Scenario 1: Best Case – Rapid Recovery
Scenario 2: Mixed Case – Roller Coaster
Scenario 3: Worst Case – Decline and Catastrophe

Which leads them to come to the very reasonable conclusion: “the time to act is now”

Clem Sunter

South African scenario planner Clem Sunter, famous for his seminal work in the 1980s framing a ‘High Road’ scenario for South Africa to emerge from apartheid, has suggested four scenarios for what life will be like as we lift Covid-19 lockdown.

In early March Sunter initially proposed three scenarios:
Much ado about nothing. “This scenario can almost certainly be discarded as a way of interpreting the past and the future of the pandemic”
The Camel’s Straw. “The coronavirus does not have to kill millions of people to be the straw that breaks the camel’s back.”
Spain again. “A repeat of the Spanish flu of the last century, which killed 3 to 5% of the world’s population, will remain in play until a vaccine is found”

He has more recently added a fourth scenario:
Tightrope. “A delicate balancing act between preserving lives and livelihoods”

See the article for the full scenario descriptions.

Learning from scenarios

If you examine each of these scenario sets, you will see common themes emerging, which given the diversity and expertise of those creating these scenarios, are likely to be the ones most prominent in understanding our potential path forward, especially collectively within nations and globally.

These kinds of scenarios, ideally created for a specific organization and the decision it faces, can certainly be invaluable for making effective strategic decisions in the face of intense uncertainty.

They can also be used as an inspiration.

At the beginning of this year, before coronavirus was on the radar for all but a few, I wrote that “the 2020s will be a pivotal decade: we all have a responsibility to believe it can be positive for humanity“.

This is just as true today, a few months later, in arguably more so.

As such, the single most valuable outcome of using scenarios is to bring us to understand and believe that better futures are possible, and identify the actions that are most likely to lead to that scenario.

They recognized that there are substantial uncertainties to their planning, including how financial services will be delivered, the types of technologies that will be used, the specific skills that will be required, the availability of those skills in the market, and the organisational structures for internal technology services.

As such they wanted to apply scenario planning to make sure they were addressing those uncertainties in their planning.

Scenario planning and stress scenarios

Traditional scenario planning is a rigourous and extensive process that examines the full spectrum of trends and uncertainties relevant to decisions, and generates a small number of scenarios that are each plausible, novel and distinct, and together cover the full breadth of relevant uncertainties.

For the project I proposed using using an extremely condensed scenario process to focus on generating scenarios that assist effective workforce planning, in particular any risks that may not yet have been surfaced. This ‘stress scenario’ approach has been used extensively in sophisticated Enterprise Risk Management processes. The core of the work was a single compact workshop for a group of mid to senior-level executives.

Identifying underlying assumptions

Before looking at stress scenarios it can be useful from a planning perspective to identify a consensus view of what is most likely to happen, what scenario planners often call “the official future”. Doing this not only uncovers executives’ implicit assumptions in their planning, but surfaces where there is alignment or differences in how key team members view what is likely to happen.

Clearly stating these assumptions gives a well-defined starting point for core planning activities, but also helps to identify possibly variations to this base case.

Stress scenarios

Depending on the degree of sophistication required, one or more stress scenarios can be generated that specifically test the organization’s ability to respond, in this case in maintaining the workforce required for what could be a very different future world.

As in traditional scenario planning, scenarios are designed to be relevant, plausible, and internally consistent, so they represent a possible future operating environment, but they are also pushing specifically away from the organization’s current ability to respond, so representing a real stress.

The stress scenarios generated can then be used to develop and refine robust strategies against an uncertain world, and as a formal check on the resilience to change of current plans.

However often the greatest value from this approach is the broadening of perspectives among participating executives. Surfacing and discussing assumptions, and pushing into plausible yet pertinent stresses enable scenario thinking and more future-aware planning.

Image: Brian Smithson

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

The Global Economic Policy Uncertainty Index is currently the highest it has been since the beginning of the period analyzed starting at the end of 1996.

Not surprisingly the US, EU and UK were at all time highs at the most recent index point on October 31, 2016, just before the US elections and with no clear direction post the Brexit vote, but Chinese economic policy is also highly uncertain.

Uncertainty should be a critical input into decision-making, yet there have been no good measures of uncertainty available. Stockmarket volatility is a proxy for economic uncertainty, but is often driven by market factors more than macro-economic outlook.

The Global Economic Policy Uncertainty Index only covers a portion of business and even economic uncertainty, but when economic policy is highly uncertain, that uncertainty flows through to the broader economic outlook.

Analysts at French bank Société Generale have pointed out that while sovereign credit spreads have usually closely tracked the index, they have decoupled to an exceptional degree over the last months, leading to SG’s (often bearish) global strategist Albert Edwards describing this as “one of the scariest charts I have seen for a very long time”.

As remarkable are the increases in US and some other stockmarkets in the face of extremely high uncertainty on not just economic policy, but also trade and geopolitics.

Global uncertainty seems unlikely to abate in the near-term, though it is feasible that the Trump administration will move to a degree of predictability over the next half-year, and we will see more clarity on not just Brexit, but the broader implications for the EU.

One of the values of the index is simply allowing decision-makers to frame economic uncertainty as a factor in their strategies and decisions, and to support the use of scenario planning and other foresight tools to make effective decisions in uncertain times.

Recently I did the opening keynote to the top executive team of a major organization at their strategy offsite. It’s not appropriate to share the full presentation, however I can share the rough scenarios I presented for the world to 2030. The scenarios were presented after having examined the driving forces and critical uncertainties for the company.

As always, a strong disclaimer comes with any generic set of scenarios like these – scenarios really must be created by the users themselves for specific decisions and in context (for the full disclaimer see my scenarios for the future of financial services).

SCENARIO FRAMEWORK FOR THE WORLD IN 2030

A traditional scenario process identifies two dimensions to uncertainty, that when combined produce a matrix of four scenarios. Once the framework is created, the full richness of trends and uncertainties uncovered in the research process are integrated into the scenarios. Here the two dimensions selected are:

RESOURCES AVAILABILITY: Resource Poverty TO Resource Affluence

Availability and real cost of key resources including energy, food, water, and environmental stability.

COHESION: Cohesion TO Fragmentation

Cohesion of society, government, nations, and institutions.

Together these dimensions yield:

FOUR SCENARIOS FOR THE WORLD IN 2030

SCENARIO: SHOCK TREATMENT

• Economic divergence: developed world stagnation
• Protectionism rises and markets localise
• Little global action on climate amid massive impact of global warming
• China and India fragment
• High-impact terrorism: bio, nuclear, radiation
• Infrastructure becomes primarily private
• Inexpensive and highly mobile labour
• Immigration tensions and rioting
• Urbanization accelerates, often in squalor

SCENARIO: NEW HORIZONS

• Economic shift to East
• Billions become middle class
• New energy sources/ planetary engineering
• Innovation yields food and health to the poorest
• Artificial intelligence applied to real-world issues
• Robotics attenuates impact of aging workforce
• Life extension for the wealthy, retirement age rises
• Remote work leads to more distributed living
• Affluence drives tourism and travel

SCENARIO: HUMANITY MATURING

• Climate becomes extreme and volatile
• Food and water shortages, famine and pandemics
• Global coordinated action on climate
• Trade liberalisation accelerates, EU extends
• Corporate activity driven by triple bottom line
• Social entrepreneurs invest $100 billion and seed a billion enterprises
• Cities become compact and resource efficient
• Rise of public/ shared transport

SCENARIO: AGENT ECONOMY

• Fluid global economy
• International outsourcing of most functions
• Mega-corporations become lean and micro-business rises
• Market solutions for environment
• Governments lose control and ability to tax
• Agents seek best price for everything/ customer loyalty is zero/ commoditisation of everything
• Distributed energy and manufacturing
• New capital markets, volatile financial markets

WARNING: These are scenarios prepared for a presentation, so they are far from rigorous or comprehensive. True scenarios should have fully developed storylines that evoke the richness of how the scenario unfolds and could actually happen. To be truly valuable, scenarios need to be created for a specific organization or strategic decisions – generic scenarios are of limited value. Always work with someone highly experienced in the field – most consultants that claim to do scenario planning are making it up. The Driving Forces and Critical Uncertainties identified below are highly summarized, and would be presented and aggregated very differently in a real scenario project. OK warning over, on with the content…

Scenario planning

Scenario planning recognizes that beyond a certain degree of uncertainty forecasting is of limited value (or can even be detrimental to good decisions). The process of creating a set of relevant, plausible, and complementary scenarios (more than the scenarios themselves) can be invaluable in creating and implementing effective, responsive strategies.

The heart of the scenario planning process is distinguishing between Driving Forces (consistent long-term trends) and Critical Uncertainties (unpredictable elements). Once these are identified, they are brought together to create a set of scenarios that reflect both what you know and what you don’t know about how the environment will change.

The image below shows a sanitized version of the process for a scenario planning project I ran for a major financial institution. This was quite a streamlined process relative to a comprehensive scenario planning project, however was designed to bring the insights directly into the existing group and divisional strategy process.

Below are the scenarios in detail:

• Driving Forces: Global Financial Services
• Critical Uncertainties: Global Financial Services
• Scenario Framework for Global Financial Services
• Four Scenarios for Global Financial Services

DRIVING FORCES: GLOBAL FINANCIAL SERVICES

1. Economic shift

Economic power is shifting to the major developing countries. The BRIC countries (Brazil, Russia, India, China) together host close to half the world’s population, and their pace of economic development means that before long there will be multiple economic superpowers. In addition, global economic growth is shifting to the virtual, and developing countries will gradually wean themselves from primary and secondary industries to be significantly based on knowledge-based services.

2. Demographic shift

Demographics are the most predictable aspect of the long-term future (though we should not underestimate the potential for surprises here too). The image above shows the age profiles in 2050 for China, India, USA and Italy(See NationMaster for the original data and charts). Italy’s profile shows the challenges facing Western Europe. USA’s continued openness to immigration (and birth rate of immigrants) will support future prosperity. The very different age profiles of India and China suggest that India – with the right economic and educational policies – could see a relative rise in affluence over the next decades.

3. Greater expectations

We expect more. This is one of the most important trends across society and business, and it’s not likely to change. Becoming extreme in developed countries in terms of expectations of health, environment, transparency, service and far more, expectations will also soar in developing countries. The farmous bill of Mr Sarbanes and Mr Oxley being signed in the picture above was just a symptom of this trend.

4. Commoditization

This chart shows that UK consumer prices for many products are consistently going down. One of the biggest impacts of globalization is increased competition and lower prices across commodity products, which encompasses an increasing proportion of the economy. Good for consumers, bad for producers.

5. Connectivity

Clearly connectivity is a fundamental and irreversible driver of change. Just one aspect of that is how customers are connected to their financial institutions. The image above shows a booth in a local branch of UK bank which is using ‘teleporting‘ technologies to put centrally-located financial planners in front of their customers nationwide.

6. Integration

Increased integration of information flows and applications will transform the flow of financial information, and the architecture of financial applications. XBRL (eXtensible Business Reporting Language) is an example of a standard that allows ready integration of financial reports across applications and organizations.

7. Modularization

Integration technologies are leading to a ‘modular economy’, in which business processes are being broken down into small elements that can be combined and recombined across organizational and national boundaries.

8. New payment mechanisms

While underlying interbank payment systems are unlikely to change dramatically, they way payments are made by individuals and companies is being transformed. From online and mobile payments to biometric authorization, new payment mechanisms will gradually supplant cash for most uses. The reality of black market economies means cash will never die.

9. New capital markets

Microfinance has already created new markets for capital. As I’ve often written before, I believe that new layers to markets for capital are essential and will emerge. For both the poorest, and also small emerging businesses, new markets will emerge. The wholesale shift to a knowledge-based economy with lower capital requirements needs to be matched with investors seeking broader participation in the economy.

10. Value of relationships

The value of relationships is nothing new, but paradoxically in a technology-driven world relationships are becoming even more important. Virgin Money’s business is only relationships – with its customers and suppliers of financial services.

CRITICAL UNCERTAINTIES: GLOBAL FINANCIAL SERVICES

1. Globalization

Despite the seemingly inexorable rise of global trade since the Second World War, this could be reversed. The rise of protectionist policies in the US are always a possibility, which could lead to an escalation of trade barriers globally, or a shift to unliteral and exclusionist trade deals.

2. National stability

The number of countries on the planet is definitely an uncertainty, as illustrated by the 16 countries that previously constituted the U.S.S.R. Most importantly, we should not assume that China will remain as one stable nation in the decades ahead. Similarly the landscape of the Indian subcontinent could change, and it would be unlikely to be a peaceful process.

3. Regulation

One of the biggest uncertainties for the financial services sector is national and international regulation. In particular, it will impact consolidation or fragmentation across the financial services sector, and the entry of new competitors to the market. The bill that Mr Sarbanes and Mr Oxley are signing into power above reflects the power of legislation.

4. Privacy

The future of privacy is fundamental to society and business. Across industries, the underlying issue is the balance between creating more customized and valuable services for customers, and the infringement of people’s sense of privacy. In particular, constraints on the abililty to share information between organizations will strongly impact the landscape.

5. Volatility

A deep uncertainty is the degree to which technological, structural and other changes could create greate market volatility and shocks to the financial system. Issues range across automated trading systems, derivative complexity, reliance on value-at-risk models, structure of new credit products and many more, all of which could lead to less predictable financial market structure and stability.

6. Industry structure

While the broad trend over the last two decades has been to consolidation in the financial services sector, this could change. If banks continue to be poor at cross-selling, investors could demand more focus and to choose for themselves which financial services sectors they participate in. Smaller innovators are likely to continue to rise – it is uncertain whether they will remain independent or aggregated into large businesses.

7. New entrants

British supermarkets are major financial services players today, eBay’s Paypal is a major payment platform, and Google has repeatedly applied for a banking license. There have already been new entrants into financial services from many industries. Certainly the major online players could become significant financial services participant, changing the current landscape.

8. Currencies

Consolidation of currencies is the accepted trend, but it may not continue. The stability of the Euro, for example, is far from inevitable. There is the potential for Internet-based currencies to emerge, which function outside of national jurisdiction or control.

9. IT Security

The rapidly evolving technological architecture for software and applications might – or might not – make banks more vulnerable to hacking and fraud. While overall IT security seems to be heading the right direction, vulnerabilities could emerge. The wildcard is the development of quantum computers, which would make all current bank encryption breakable.

10. Climate change

Possibly the most important uncertainty that faces us is the impact of climate change. There is a massive degree of unpredictability to how severe the impact will be, however the worse case scenarios would include wiping out a large proportion of the value of global real estate. The potential impact on the financial system is hard to imagine.

SCENARIO FRAMEWORK FOR GLOBAL FINANCIAL SERVICES

The classic scenario process identifies two dimensions to uncertainty, that when combined produce a matrix of four scenarios. Once the framework is created, the full richness of trends and uncertainties uncovered in the research process are integrated into the scenarios. Here the two dimensions selected are:

Aggregation: Fragmentation to Consolidation

From countries to companies to business processes, trends could push to greater or lesser aggregation.

Technology uptake: Traditional to Transformative

While strong technology uptake is inevitable, the degree to which this happens and is driven by consumer demand remains a vital uncertainty.

FOUR SCENARIOS FOR GLOBAL FINANCIAL SERVICES

NEW FRONTIER

• Strong global growth and availability of capital
• Deregulation and international cooperation
• India flourishes
• Google, eBay, and telecoms firms become major financial players
• Margin pressure across industry
• Rise of mobile payments and e-cash
• Shift away from branches
• Intensely customized service to all tiers of clients

BARRIERS RISING

• Rise of protectionism
• China splinters
• Euro breaks up
• Wealth disparities rise
• Investors demand focus
• Banks specialize/ global monolines
• Proliferation of intermediaries
• High margins for successful players
• Terrorism impacts financial markets and insurance

AGENT ECONOMY

• Fluid global economy
• Highly modular outsourcing across borders
• Governments lose control/ consumers gain control
• Consumers and business shift wholesale to online
• Agents seek best price for everything/ customer loyalty nil
• Constant product innovation
• Markets are volatile
• Customer service and call centers are automated

MEGA SERVICES

• Rise of BRIC results in multiple superpowers
• Trade liberalization wins
• Global financial services consolidation
• Integration across financial services sectors
• Profitability high but cyclical
• High customer expectations
• Banks diversify into other personal services, partly through alliances
• Niche service providers emerge to support the market leaders

STRATEGIES FOR GLOBAL FINANCIAL SERVICES

There are a wide variety of tools and approaches that can be used to apply scenarios to strategy development and implementation. These tools include testing current strategies across scenarios, risk management profiling, generating new strategic options, creating contingent strategies for unexpected conditions, and building organizational responsiveness to change.