Scenario Planning: Thinking in Conditions of Uncertainty

The Limits of Traditional Planning

Traditional strategic planning assumes that the future is mostly similar to the past or amenable to forecasting. This worked in stable industries. In the era of technological breakthroughs, geopolitical shifts, and "black swans" — it does not.

Shell developed scenario planning in the 1970s — and was the only major oil company prepared for the oil crisis of 1973.

Scenario Planning: Methodology

Step 1: Determine the key strategic question — what decision are you making? Build a plant? Enter a new market?

Step 2: Identify key factors of uncertainty — what can truly change the outcome? (A technological breakthrough by a competitor? Changes in regulation? Geopolitics?)

Step 3: Identify predetermined factors — what will definitely happen (demographic trends, basic technology trends).

Step 4: Construct 4 scenarios — along two key axes of uncertainty.

Step 5: Develop a strategy for each scenario — what do we do if this happens? And this?

Step 6: Determine the core strategy — what works in most scenarios. Identify "early warning signals" — what events say that we are in scenario X.

The Role of Weak Signals (Weak Signals)

The future always "arrives" earlier in some places or niches. Early signals of technological changes are visible in venture deals, academic publications, niche markets.

Nokia saw the signals: the first smartphones, internet growth, the Apple App Store. But organizational inertia and culture did not allow it to respond.

Practical Assignment

You are the head of a regional bank. Build scenarios for 5 years, using two axes: (1) the pace of digitalization of financial services (fast/slow) and (2) the regulatory environment (innovation-supporting/restrictive). For each of the 4 scenarios: how will your business change? What do you do in each?