Imagine that your company could go back in time 10 years. Now ask yourself what things your company missed out on through the last decade that you wish you hadn’t. What were those external signals that—had your firm noticed and reacted to them—would have
by Site Staff
December 28, 2005
Imagine that your company could go back in time 10 years. Now ask yourself what things your company missed out on through the last decade that you wish you hadn’t. What were those external signals that—had your firm noticed and reacted to them—would have put you in a better competitive position in the marketplace?
Unfortunately, you cannot actually go back 10 years. But your organization can begin preparing itself to look for external signals that might help make it more successful 10 years from now. This is the basic value of scenario planning.
Specifically, scenario planning is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting your company’s future. The goal is to craft a number of diverging scenarios by extrapolating uncertain and heavily influencing driving forces.
“The world is more uncertain than before, yet most organizations plan as if the future is predictable. Scenario planning is a way of doing strategic planning in an uncertain world,” said
Roch Parayre, Ph.D., a senior fellow at the Wharton School of the University of Pennsylvania, where he teaches strategy to executives, and a managing director at Decision Strategies International, a management consulting firm that helps organizations develop and implement robust strategies for uncertain environments. “With scenario planning, business leaders are encouraged to imagine not just one but a variety of future possibilities.”
What emerges from scenario-planning exercises is a range of choices that identify potential threats and opportunities—many of which might otherwise go unnoticed by business leaders focused obsessively on the organization’s present-day situation. The point is not to select one preferred future and hope for it to become true. Nor is the point to fund the most probable future and adapt to it. Rather, the point is to make strategic decisions that will be sound for all plausible futures. (See Figure 1.)
No matter what takes place in the future, a company and its leadership team are much more likely to be ready for it and influential in it if it has seriously thought about scenarios.
Scenario planning is about making choices today with an understanding of how they might turn out. “By developing capabilities that are robust across multiple future scenarios, a firm has the potential to be successful no matter what the future brings,” Parayre said.
Incredibly, however, despite the obvious benefits, chief learning officers seem to be absent from the scenario-planning activities of their organizations. An inquiry of scenario planning experts and several acting CLOs failed to identify a significant involvement by CLOs in scenario planning. If you aren’t involved in scenario planning, or if your company doesn’t leverage this methodology, you should learn how to help your organization employ this strategy.
Prevent Company Failure
How many of the top 10 U.S. industrial companies from 100 years ago can you name? Names like The Pullman Company, Central Leather, American Sugar, U.S. Steel and American Tobacco come to mind. Somehow, these companies failed to anticipate and adjust to the future, and it ultimately led to their inability to remain on top.
One possible reason for their failure could be that they paid insufficient attention to external signals that were providing warnings of changes in the future. Another reason could be that they remained trapped in yesterday’s business models as they prepared for the future. Yet another reason could be simple corporate arrogance and hubris. Regardless of the reason, things may have turned out differently for these firms had they conducted scenario-planning exercises.
When Parayre meets with companies about scenario planning, he shares the story of Encylopedia Britannica to illustrate the value of the process. Encyclopedia Britannica is the oldest English-language encyclopedia, and it has published 15 editions over the past 225 years. In the 1980s, the firm was doing incredibly with sales growing about 8 percent per year. In 1989, the firm recorded record sales of $627 million.
“Britannica had a world-class sales model and had many consecutive years of profitable growth by the late ’80s” Parayre said. “Unfortunately, Britannica didn’t anticipate the emergence of the CD-ROM, which were cheap to manufacture and store, and could add graphics, sound and video.” Bill Gates of Microsoft took his idea of putting the content of their encyclopedias onto CD-ROMs to Britannica, but they said no. The result: Microsoft acquired Funk and Wagnall’s New World Encyclopedia and launched Encarta on CD-ROM, which is now the top-selling encyclopedia brand. Meanwhile, sales at Britannica dropped 53 percent in just four years and in 1993, Britannica posted a $15 million dollar loss.
“Britannica failed to look into the future and anticipate how technology could impact their business,” Parayre said. “They also became trapped by their business model at the time, which was door-to-door sales of encyclopedias.” “It’s apparent that Britannica could have benefited greatly and avoided some costly mistakes had it conducted scenario planning.”
The lesson here is that CLOs can play a tremendously valuable role in helping to ensure the future success of their organizations. By introducing scenario-planning learning initiatives to their organizations, CLOs can help their companies anticipate key opportunities and threats. A CLO is in the perfect position to help a firm develop early-warning capabilities to sense and respond to important weak signals in the environment.
Profit From Uncertainty
What top executive is not anxious about the future? We live in an age of rapid change and global uncertainty. But this uncertainty is not the enemy, according to Paul Schoemaker, author of “Profiting From Uncertainty.” It is where the greatest opportunities are. A different approach to strategy is required to unlock these opportunities. By leading scenario-planning efforts, CLOs can help their executives think about the future. A CLO can help executives understand that value lies in anticipating change before it happens, rather than mindlessly reacting to whatever comes at them next. The result could be a forward-looking organization that devotes resources to projecting new core competencies, new product development, new industry alliances and so on. This is consciously and deliberately exploring the outermost boundaries of what may lie ahead. (See Figure 2.)
Consider, for example, a quote from Ken Olson, president of Digital Equipment Corp. in 1977: “There is no reason for any individual to have a computer in their home.” How about a quote from Thomas J. Watson, chairman of IBM in 1943: “I think there is a world market for about five computers.” Both of these are examples of how uncertainty about the future in the marketplace could have led to tremendous profitability.
Chief learning officers also can help their organizations profit from uncertainty because each different scenario would impact leadership development and succession planning. Since these scenarios look at what’s going to happen tomorrow, CLOs can build leadership capability accordingly, thus putting the organization in a position to succeed.
Who’s Scanning for Gorillas?
When working with clients on scenario planning, Parayre shows an effective video clip that helps demonstrate that when an organization is focused, it loses its peripheral vision. In the one-minute video clip, six individuals are standing in the hall with a basketball. Parayre then instructs clients to count how many times the individuals pass the basketball to each other in 24 seconds. The individuals on the video then circle each other while simultaneously passing the basketball back and forth.
At the end of the clip, Parayre then asks clients to share how many passes they counted. The client participants share their individual counts, “12,” “14,” “15,” etc. The next question from Parayre puzzles the audience: “Now, who saw the gorilla?” Most of the client participants are perplexed and confused. So Parayre shows the video clip again this time instructing the audience to look for a gorilla. This time when they watch the same clip, they now see that about five seconds into the clip, while the individuals are passing the basketball to each other, out walks an individual dressed in a gorilla suit who steps right into the middle of all the folks passing the ball to each other, stops, pounds his chest, and then walks off, before the end of the video clip. When looking for the gorilla, there was no way to miss it. However, when they were only looking at the number of basketball passes, clients often completely missed it.
“That’s the point of the exercise, to show that while we are all so busy with our dayto- day operations, no one is taking the time to scan the outside environment for blatant early warning signs of impending change,” Parayre said. “That’s part of the value of scenario planning.”
Scenario Planning Focus Areas
For those CLOs who are successful in introducing scenario planning into their organization, the focus should be on the most significant trends likely to affect the larger world, which tend to fall in five categories:
- Society looks at changes in demographics and lifestyle choices. For example, the growing number of Hispanics in the United States would be an example of a driving force related to society.
- Technology changes are relatively selfexplanatory. Elements related to biotechnology, podcasting, explosives and wireless are examples of technological driving forces.
- Economics involves industry changes, competitive forces and changes in the workforce. For example, the impact that Google and Linux are having on Microsoft would be an example of an economic driving force.
- Environmental would include things like natural disasters, oil reserves, global warming and the rain forests. The impact Hurricane Katrina had on the New Orleans area is an example of an environmental driving force.
- Political forces involve those elements related to elections, legislation and regulation. If the U.S. government decided to regulate corporate social responsibility, this would be an example of a political driving force.
Experts advise learning professionals to avoid common traps when it comes to scenario planning. For example, U.S. companies often fail to make their scenarios global enough in nature, thus limiting their value. Another common mistake is that some companies treat scenarios like forecasts. Forecasts often involve trying to predict one future, whereas scenario planning involves preparing for multiple potential futures. Failing to be imaginative enough is another trap some organizations fall into. They focus on elements that are too simplistic, too easily foreseen. CLOs should use scenario planning to challenge inbred or conventional assumptions.
Scenario Planning as a Learning Tool
Experts agree that scenario planning is an outstanding learning tool because it provides a way for organizational leaders to learn about the future through a deeper understanding of the major driving forces affecting an organization today.
Also, scenario planning incorporates several elements that are characteristics of a learning organization. “Because scenario planning involves being inquisitive, externally focused, experimental and innovative, it helps an organization focus on learning as a competitive advantage,” Parayre explained.
For these reasons, learning executives must play a more significant role in scenario planning because they are in the best position to not only help the organization meet the demands of the current business, but also to prepare leaders for the future.