"An organization's ability to learn, and translate, that learning into action rapidly, is the ultimate competition advantage" ~Jack Welch.
The heightened disruption caused by COVID-19
Despite numerous warnings over the last decade from various leading international experts at organizations like the World Economic Forum, CSIS and others leaders failed to recognize the signals of a potential global pandemic.
Having failed to learn, the world is now plagued with the disruptive forces of COVID-19, causing social and economic upheaval at a scale we've not seen in decades. Furthermore, some view the business environment as becoming increasingly uncertain. As measured by the Economic Policy Uncertainty Index, a metric developed jointly by researchers at several prominent business schools, uncertainty daily was elevated in 2020 to record levels.
Volatility, uncertainty, complexity, and ambiguity (VUCA) create a need for continual adaptation and change within organizations. Traditional business models just don't cut it. Firms must find ways to manage the rate, turbulence, and magnitude of this change in new and different ways to stay ahead.
Scenario planning can help organizations react and adapt to VUCA forces differently. It’s a structured process for businesses to explore and think about the future. It provides tools to explore our understanding of the external world, understand drivers, options, risks, dynamics more purposefully, and think through 'possible realities.' Leaders develop a set of possible scenarios that explain different stories about how the multiple futures might unfold. These scenarios can help organizations deal with the external risks, threats, and uncertainties of VUCA environments.
Choose your own adventure (purpose)
We know from research and practice that scenario planning can help with ongoing action-orientated organizational learning, including supporting new mental models, enabling better decisions, and driving enhanced performance. For example, the global oil giant Shell has used scenario planning to help the organization learn from volatile global oil markets over several decades with success. There appears to be a clear and logical connection between using scenario methods and enhancing learning from the external environment.
The scenario planning categories of the purpose model outlined below nicely illustrates various outcomes that can be achieved from this management tool based on different organizational needs. Whether it's making sense of the company's external environment, anticipating strategic market changes or stress testing the strategy to ensure rigour and flexibility, scenario planning adds value as part of the planning process in many ways. The model also provides clues around achieving a higher level of impact when using scenarios through ongoing action – enabling the ability to truly learn from the environment – considered the panacea in high-performance organizations.
Source: Adapted from George Burt and Kees van der Heijden (2003, 2004)
Organizational learning explained
Unpacking what it takes to learn is vital, and four factors affect the probability that organizational learning will occur when using scenario planning, including:
(1) A corporate culture conducive to learning,
(2) A strategy that allows flexibility,
(3) An organizational structure that allows innovation and new insights and
(4) Environmental context.
Specifically, learning requires both change and stability between learners and the environment. Too much stability within an organization can be dysfunctional and create little incentive to learn and change. However, too much change and turbulence make it difficult for learners to map the environment.
Learning at a deeper level requires shifts in mindsets and a challenge of assumptions. A rewire of actors' webs and beliefs and habits of action enable change at a deep-rooted level. Failure to do so, particularly during this COVD-19 pandemic, risks severe consequences and even business failure. Scenario planning can aid learning through casual relationship understanding, anticipatory learning capability, internal capability development, and encouragement of teaming and collaboration.
A journey of maturing over time
Success is not jumping in the deep end but treating the application of scenario planning like a journey of maturing organizational capabilities over time. You start by getting good at formalizing environmental sense-making, evolve to more strategic applications such as anticipation and testing, and end with deep organizational learning.
External VUCA, such as COVID-19, creates an extreme operating environment for leaders, and ongoing improvement is essential. We must take organizational learning more seriously to build more resilient organizations ready for the next disruptive event. Scenario planning offers a management tool to help organizations learn through a continuous action-driven process. Ideas are formulated and constantly tested in the market to understand impact and opportunity. The cyclical nature of learning and redesign with frequency ensures that responses reflect the evolving external context. As our current COVID-19 impacted environment evolves, an organization's ability to learn continuously could be the key driver in achieving high performance.
Authored by Lance Mortlock (Senior EY Strategy Partner & Haskayne School of Business Visiting Professor).