As the vaccine rollout marches on and borders and businesses begin re-opening, every entrepreneur, small to mid-size business and global behemoth in the world right now is confronted with the same fact: we have no idea what the post-pandemic future is going to look like.
The landscape of “VUCA” - volatility, uncertainty, complexity and ambiguity - created by Covid-19 is not going to fade away as quickly as any of us would hope. And if there’s one thing we can all count on, it’s that change is constant.
But before rushing off to a fortune teller, leaders should consider scenario planning - a strategy tool that’s been used by the world’s leading corporations for decades. Designed to help manage and mitigate external uncertainties and identify and optimise internal complexities, scenario planning was originally developed in the military and subsequently adopted and reinvented by Shell, Anglo American and other pioneering firms in the late 1960s and early 1970s.
Unfortunately, scenario planning can often seem theoretical and intimidating to businesses that aren’t multinational juggernauts. But it’s actually very accessible and practical, and it can be easily adapted from the macro-level to the project basis to fit any scope of priority or goal.
Here are the six simple steps disaster-proofing a business boils down to:
1. IDENTIFY STAKEHOLDERS & DEFINE THE SCOPE Determine who needs to be involved and agree upon the scope and timeframe of the scenario planning process. What is the strategic problem you want to address? Establish a sharp, clear question about your business’ future and set the time horizon and level of planning, which will be dependent on factors like the rate of change within your sector, local and/or international politics (such as elections), product life cycles, and the behaviour of competitors, to name a few.
2. EXPLORE THE ENVIRONMENT Learn more about the market environment to reveal the elements underneath the visible surface of change. What forces could be drivers of future volatility that would impact on the focal question you’re trying to answer? In this stage, you can use well-known strategy tools and frameworks like Porter’s five forces and PESTEL analysis to systematically uncover and discuss all potential sources of transformation within and outside of your business.
3. ANALYSE TRENDS, RISKS, AND UNCERTAINTIES
Analyze the list of external forces from step 2 and cast a critical eye. The goal now is to streamline and arrive at a small number of key uncertainties.
4. BUILD SCENARIOS AND SIGNPOSTS
Bring some scenarios to life. Using the key uncertainties you’ve identified, put your storyteller hat on and hash out some possible futures. These narratives should be detailed, plausible, and surprising. A reliable way to create divergent scenarios is to picture key uncertainties on axes that frame the poles of what seems possible. A scenario frame, or matrix, forces the scenario planner to think more broadly about the future, describing alternative courses of action.
5. CONFIRM SCENARIOS AND STRESS TEST
Present, discuss and agree upon the scenarios developed in the previous step. What meaningful insights can be gleaned from the scenarios that will shape current & future decisions and actions? The goal is to create a thorough framework to stress test the strategic options against the scenarios.
6. MONITOR SIGNPOSTS AND EXECUTE STRATEGIES
Develop an “early warning” monitoring system to keep track of changes in the external environment and assess the probability of the scenarios. Obtain input from experts on key change indicators and periodically review your scenario plan to ensure its relevance in an ever-changing environment.
When applying scenario planning to your business, it’s important to take a methodical and structured approach. The degree of detail and analysis performed depends on the business and market context, and what you hope to achieve. Scenario planning can be easily scaled up or down to fit the needs of the organization.
As we emerge from a devastating year, the future is both daunting and exciting. From dramatic changes in commodity prices to wars and pandemics, we can never predict exactly what will happen and will always be surprised by the unexpected.
Businesses that take the initiative to scenario plan will be better placed to plan and prepare post-pandemic. While it isn't quite a crystal ball, it does offer a clear path forward in a tumultuous and uncertain world.
Authored by Lance Mortlock
Senior EY Strategy Partner | Haskayne School of Business Visiting Professor | Author