The modern company faces complex situations that require not just short-term day-to-day decisions, but also strategic decisions whose impact will be felt over the long term. Short-term decisions, based on criteria like operating efficiency and effectiveness, are generally reactive in nature, intended to correct some problem. For example, a reduction in sales, an increase in the number of service quality claims or complaints about product defects. In contrast, strategic decisions have to do with the company’s long-term vision, and must take into account the circumstances and dynamics surrounding the company, as well as their impact on it.
Scenario planning (SP) by a company or organization involves analyzing and describing how the climate will evolve based on the assumed impact of the current decisions and behavior of players or participants, and the trends, events and uncertainties in the climate itself. The company, as part of an industry, operates within a market or climate made up of other competing companies, suppliers, clients, and alternatives, as well as political, economic, social, technological, environmental and legal forces. Analyzing and understanding how all of these forces work enables the company to envision future scenarios or situations that are more or less likely and more or less desirable in a certain period. These scenarios provide the basis for the company’s strategic decisions.
Population dynamics, inflation, a shift in public policy focus, trade opening, international trade agreements, price deregulation, the characteristics and values of new generations, the emergence of new technologies or new environmental laws are just some examples of trends and events in the environment that determine key scenarios for the company. These events may directly affect strategic decisions, like the development and launch of new products, and incursion into new markets, modification or change of distribution channels and systems and development and introduction of new customer service systems.
Scenario planning: two visions
Traditional scenario planning (TSP) in the company is carried out as part of its overall strategic planning, but intuitively and informally, particularly in small and midsize businesses (SMB), which do not have people hired specifically for this job. Generally, this type of “planning” is done by the company’s CEO directly, individually, and many times unconsciously. What comes out of this are concrete objectives of the company, rather than situations, scenarios or predictions about the future environment, or an identification of their impact on the company.
Other times, in more organized or institutional companies, traditional SP is carried out in a group made up of the CEO and top executives, and the results are used as a reference for considering the impact that different events in the company’s environment will have on it and on the company’s ability to meet its strategic objectives. The results of traditional group-based SP is simply a general qualitative and intuitive guide for identifying opportunities and threats surrounding the company. In general, it is a belief or hunch about possible growth or decline in markets, competition, prices, sales, or the possible emergence of new products or technologies.
One alternative to TSP, both individual and group, is informed strategic planning (ISP), which is based on a specific method, with defined phases, and although in essence it still involves identifying and describing future unknowns, it is done openly, in a participative, reasoned way with the best information available. The objective of ISP is to support more and better-informed and aware decision-making; in other words, to raise the quality of strategic decision-making. ISP attempts to understand the dynamics of the environment and the interaction of its forces and tries to explicitly explain or understand the intuitive logic of the TSP. Table 1 shows the main differences between TSP and ISP.
Table 1. Differences between traditional and informed strategic planning
Proposed method
There are various methods for analyzing and conceptualizing scenarios (O’Brien, 2004). This article presents a method with a practical focus, consisted of two basic phases: the development of an historic case study and the SP. Table 2 shows the structure and steps that take place in these two phases.
The historic case study has the purpose of systematically extending awareness of the company’s environment, in order to identify the participants and their relative strengths, the historic trends in the environment, its behavior or performance metrics (total market sales, growth, market share, policy, consumer characteristics and trends, etc.) and the reasons why they have behaved in this way. The first part Table 2 lists five practical steps that guide the scenario planner in preparing a historic case study.
Table 2. Structure of the historic case study and scenario planning
In an analysis of cause->effect relations, the fifth step in the historic case study (Table 2, section A), the company seeks to identify or understand their nature, origin, impact, magnitude, direction, position, value, etc. It does not try to list people, groups or things, but rather to indicate their influence on events and performance metrics. We would recommend using idea-generating schemes like PEST or PESTEL (O’Brien, 2004; Gillespie, 2007) and analyzing political, economic, social, technological, environmental, and legal factors, in order to organize or classify the performance metrics and their causes. Figure 1 shows two diagrams that can help identify cause->effect relations. Figure 1.a shows an Isikawa linear fishbone causal diagram and its generalizations (Galley, 2012). Figure 1.b shows a feedback dynamics cause-effect (CE) diagram (Sterman, 2000), made up of elements that are simultaneously causes and effects, as is characteristic of social system elements.
Based on the historic case study, it is possible to carry out SP with the three steps shown in the second part of Table 2. A base-case or reference scenario is established using the most likely decisions of the participants and the most likely trends in the environment; the possible scenarios under which they might occur an within these, the most likely, and, finally, a detailed description of the most likely and/or interesting scenarios, including performance metrics, their causes and the explicit logic of this causal relationship. It is a good idea to assign them a name in order to identify them, work on them and clearly refer to them in the company. In figure 1.c, we find diagram II: Impact-Uncertainty (Wright and Cairns, 2011), used to classify scenarios by their uncertainty and their impact, prepared based on comparative analysis. The scenarios are located in four quadrants and form groups according to their degree of impact and uncertainty.
Figure 1: Causal diagrams and scenario classification
Conclusions
Scenario planning is one of the phases of strategic planning. Its purpose is to analyze and describe the way which the company’s environment will evolve. In an SP exercise, it is important to explicitly identify the assumed impact of current decisions and behavior by participants in the environment to understand their actions, and SP also serves as a basis for strategic decision-making, particularly in marketing, as a link between the client and the company’s environment. In determining its vision, objectives and strategy, a company must consider the scenarios identified and described in the SP exercise.?
Scenario Planning and to Successfully Use it in Marketing
By: Rogerio Domenge
ITAM
The modern company faces complex situations that require not just short-term day-to-day decisions, but also strategic decisions whose impact will be felt over the long term. Short-term decisions, based on criteria like operating efficiency and effectiveness, are generally reactive in nature, intended to correct some problem. For example, a reduction in sales, an increase in the number of service quality claims or complaints about product defects. In contrast, strategic decisions have to do with the company’s long-term vision, and must take into account the circumstances and dynamics surrounding the company, as well as their impact on it.
Scenario planning (SP) by a company or organization involves analyzing and describing how the climate will evolve based on the assumed impact of the current decisions and behavior of players or participants, and the trends, events and uncertainties in the climate itself. The company, as part of an industry, operates within a market or climate made up of other competing companies, suppliers, clients, and alternatives, as well as political, economic, social, technological, environmental and legal forces. Analyzing and understanding how all of these forces work enables the company to envision future scenarios or situations that are more or less likely and more or less desirable in a certain period. These scenarios provide the basis for the company’s strategic decisions.
Population dynamics, inflation, a shift in public policy focus, trade opening, international trade agreements, price deregulation, the characteristics and values of new generations, the emergence of new technologies or new environmental laws are just some examples of trends and events in the environment that determine key scenarios for the company. These events may directly affect strategic decisions, like the development and launch of new products, and incursion into new markets, modification or change of distribution channels and systems and development and introduction of new customer service systems.
Scenario planning: two visions
Traditional scenario planning (TSP) in the company is carried out as part of its overall strategic planning, but intuitively and informally, particularly in small and midsize businesses (SMB), which do not have people hired specifically for this job. Generally, this type of “planning” is done by the company’s CEO directly, individually, and many times unconsciously. What comes out of this are concrete objectives of the company, rather than situations, scenarios or predictions about the future environment, or an identification of their impact on the company.
Other times, in more organized or institutional companies, traditional SP is carried out in a group made up of the CEO and top executives, and the results are used as a reference for considering the impact that different events in the company’s environment will have on it and on the company’s ability to meet its strategic objectives. The results of traditional group-based SP is simply a general qualitative and intuitive guide for identifying opportunities and threats surrounding the company. In general, it is a belief or hunch about possible growth or decline in markets, competition, prices, sales, or the possible emergence of new products or technologies.
One alternative to TSP, both individual and group, is informed strategic planning (ISP), which is based on a specific method, with defined phases, and although in essence it still involves identifying and describing future unknowns, it is done openly, in a participative, reasoned way with the best information available. The objective of ISP is to support more and better-informed and aware decision-making; in other words, to raise the quality of strategic decision-making. ISP attempts to understand the dynamics of the environment and the interaction of its forces and tries to explicitly explain or understand the intuitive logic of the TSP. Table 1 shows the main differences between TSP and ISP.
Table 1. Differences between traditional and informed strategic planning
Proposed method
There are various methods for analyzing and conceptualizing scenarios (O’Brien, 2004). This article presents a method with a practical focus, consisted of two basic phases: the development of an historic case study and the SP. Table 2 shows the structure and steps that take place in these two phases.
The historic case study has the purpose of systematically extending awareness of the company’s environment, in order to identify the participants and their relative strengths, the historic trends in the environment, its behavior or performance metrics (total market sales, growth, market share, policy, consumer characteristics and trends, etc.) and the reasons why they have behaved in this way. The first part Table 2 lists five practical steps that guide the scenario planner in preparing a historic case study.
Table 2. Structure of the historic case study and scenario planning
In an analysis of cause->effect relations, the fifth step in the historic case study (Table 2, section A), the company seeks to identify or understand their nature, origin, impact, magnitude, direction, position, value, etc. It does not try to list people, groups or things, but rather to indicate their influence on events and performance metrics. We would recommend using idea-generating schemes like PEST or PESTEL (O’Brien, 2004; Gillespie, 2007) and analyzing political, economic, social, technological, environmental, and legal factors, in order to organize or classify the performance metrics and their causes. Figure 1 shows two diagrams that can help identify cause->effect relations. Figure 1.a shows an Isikawa linear fishbone causal diagram and its generalizations (Galley, 2012). Figure 1.b shows a feedback dynamics cause-effect (CE) diagram (Sterman, 2000), made up of elements that are simultaneously causes and effects, as is characteristic of social system elements.
Based on the historic case study, it is possible to carry out SP with the three steps shown in the second part of Table 2. A base-case or reference scenario is established using the most likely decisions of the participants and the most likely trends in the environment; the possible scenarios under which they might occur an within these, the most likely, and, finally, a detailed description of the most likely and/or interesting scenarios, including performance metrics, their causes and the explicit logic of this causal relationship. It is a good idea to assign them a name in order to identify them, work on them and clearly refer to them in the company. In figure 1.c, we find diagram II: Impact-Uncertainty (Wright and Cairns, 2011), used to classify scenarios by their uncertainty and their impact, prepared based on comparative analysis. The scenarios are located in four quadrants and form groups according to their degree of impact and uncertainty.
Figure 1: Causal diagrams and scenario classification
Conclusions
Scenario planning is one of the phases of strategic planning. Its purpose is to analyze and describe the way which the company’s environment will evolve. In an SP exercise, it is important to explicitly identify the assumed impact of current decisions and behavior by participants in the environment to understand their actions, and SP also serves as a basis for strategic decision-making, particularly in marketing, as a link between the client and the company’s environment. In determining its vision, objectives and strategy, a company must consider the scenarios identified and described in the SP exercise.?
References
Galley, M. 2012. Improving on the Fishbone Effective Cause-and-Effect Analysis: Cause Mapping. Disponible en: http://www.fishbonerootcauseanalysis.com/.
Gillespie, A. 2007. Foundations of Economics. Capítulo adicional en Estrategia de Negocios. USA: Oxford University Press. Disponible en http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm
O’Brien, F.A. 2004. Scenario planning -lessons from practice from teaching and learning. European Journal of Operational Research, 152, 709-722.
Sterman, J.D. 2000. Business Dynamics: Systems Thinking and Modeling for a Complex World. Irwin, McGraw-Hill.
Wright, G. y Cairns, G. 2011. Scenario Thinking: Practical approaches to the future. Londres: Palgrave.