Making use of scenarios

From the vague to the concrete

Scenarios can help organisations achieve 'competence' a prerequisite for survival in the knowledge economy. Oliver Sparrow offers a glossary of the various meanings applied to scenario planning and describes how best to use them in the quest to teach your business how to learn.

Much more is said about scenarios than done with them. Further the word is used in many senses. The military for example focuses on one set of ideas while policy planners apply another. This article offers a glossary in order to sort out these distinct meanings.

This article has not been written in order to add to the existing pile of analysis. It focuses on one particular type of scenario planning and assesses how this set of tools fits into the general needs of the organisation. The Chatham House Forum has worked extensively with the private and public sector and what follows is drawn from the experience we have gained from this.

Competence and the knowledge economy

Psychologists use the term 'competence' to imply the presence of three qualities in an individual or group. First the competent believe that they have insight into how their operating environment works. Second they have a relatively unambiguous set of goals (and a well-defined list of situations to avoid). Third they are socially and practically empowered to act as a consequence of their oversight and in pursuit of their goals.

Societies individuals groups and organisations may all possess competence or lack it. Arriving at competence is a negotiated non-linear social process where ways of speaking and patterns of relationship and experience gradually crystallise into something recognisable evolving and actively helpful. The possession of competence is the prerequisite of the much-lauded 'empowerment' that flat partner-seeking organisations seem to require. People in such an organisation know what will play how to talk about possibilities and with whom to talk; they know the bounds to their personal discretion and they are able to recognise a good thing when they see it. Competent organisations are often said to have a 'strategy' but only insofar as this is a pattern of dispersed understanding and relationships and any attempt to write it all down invariably ends in banality.

The OECD estimates that around half of all business output currently consists of patterns of knowledge. This will grow considerably in the next two decades not least as the framework of co-existence legal obligation and regulatory constraint becomes more complex.

Complexity arises both from the number of things that have to be taken into account and the speed at which events occur and assumptions are undermined. Connectivity and speed are guaranteed features of the future.

All of the electronic communication channels in 2000 be they radio or TV Internet or fax voice communications or automated data transactions will by 2020 occur in a single second given current rates of growth.
In parallel US firms now outsource somewhere in the order of half of all their essential activities. The consequence - and the roots of the rapid rise in B2B commerce - is the creation of something quite new. The economies of the industrial world can be seen as a vast toolkit where individual firms (as well as state agencies and other actors) serve as components. Those who wish to access this toolkit have to work in partnership and do so not merely at the level of the technical specification the signed contract and the routine process but around issues of options potential and strategic direction. It is not hard to see why this too will become more developed and more complex as the new century evolves.

The people who must oversee and systematise this complexity are not a special cadre but all of the professionals who are working in a given network. Such networks sprawl across boundaries of ownership and responsibility command and culture timeframes and interest. At issue is the means by which all of this can be synchronised. The means to approach this are an important flavour of the overall cuisine currently in development under the heading of 'knowledge management'. Scenarios are a powerful spice in this set of recipes.

Two basic questions

It is reasonable to ask what scenarios are to do in this context and how this is to be done. It is however less straightforward to separate the 'what' from the 'how' in practice. What follows has a degree of artificial purity therefore which is always missing from real projects.

What is scenario planning to do for the organisation?

Scenario planning can help an organisation to competence. It does this in three ways.

Process invariably confers legitimacy. If a project is underway with a high level reporting point at the end of it then the thoughts that it surfaces have a validity that they somehow lack when developed in isolation.
Second these legitimised thoughts have a particular flavour to them. They assess and define the broad issues and the important systems that are at play. Scenario work that is done well will offer an organisation a structured model of what matters to it and what does not. The resulting insight when communicated through the organisation organises the heterogeneous heap of bullet points that reside in most managerial heads ranking issues for their urgency and impact. It points up continua. Important variables can take on a range of values temporarily unique for each actor. If an organisation can define the variables that underpin its operating environment then it has defined the key sources of uncertainty. If it is possible to pin down the key operating variables then competitive positioning is given a meaningful structure. If it is feasible to define the key dimensions along which choice can be exercised then the options of the organisation are laid out on a map clear for all to see. This is why a matrix - mapping two independent dimensions - is such a useful tool.
Third artefacts that capture structured understanding in this way fall out of the scenario process whether by fortune or design. The scenarios themselves are of course just such artefacts. Naturally they offer a story of the world with several outcomes. In naïve organisations the aim may be to raise awareness of the scope and speed of change. In habituated enterprises however the scenarios deliver a way of thinking about the world where the key dimensions that matter to the enterprise are pointed up by the relative balances placed on these in the scenarios: For example that retailing will loom larger in national consciousness or less; car-based travel will continue to dominate or will be supplanted by age and environmentally-focused alternatives. Where the model is collective - where it reflects the considered views of the organisation as a whole - then this insight is a key source of organised simplified understanding. People note what matters and what does not. The 'strategy' of the organisation is given a context and the options which flow from this develop naturally. People are sensitised to what might be welcome and what might take the organisation forward and they have a familiar framework of ideas and terminology within which to tell others what they have found. The organisation has attained competence and the people within it can meaningfully be said to be empowered.

Scenario planning is something of a misnomer. Organisations need to understand what they are about. Internal complexities may present options. The outside world may be poorly understood and is anyway changing. Each of these presents options to the prepared mind. In almost every organisation of any size such options have to be surfaced through a collective process rather than an individual one. It is all too complex for a single person to oversee steer or change. The processes of gaining understanding of defining areas of vagueness and uncertainty or arriving at options and action are therefore collective. What is required is teams of wilful professionals who inhabit the companies in the knowledge economy to synchronise their efforts and pool their understanding. Often this has to be done across boundaries of ownership responsibility time-spans and interest.

How is scenario planning to be done so as to fulfil these roles?

Ideas are being taken from the realm of the cloudy to the specific. People are being engaged from across boundaries within and beyond the organisation. Nobody is strictly in control of this yet what emerges from it will cause change affect interest and subvert the establishment.

If it does not do this then it will have failed. To achieve these ends negotiation of permission to act is required. It requires design organisation and oversight. The outcome needs to connect with conventional resource allocation procedures to internal and external communications and to the means by which innovation is fostered and people are trained selected and rewarded. This is in brief the new approach that is needed to management in the knowledge economy and not 'scenario planning' as a separate entity. Achieving scenarios in isolation without a vestige of these connections is as useless as an electronic widget developed in advance of its software or indeed with batteries not included.

Here then is a six-step check-list which seems to answer these needs. New practitioners will need to start with a project in which they can demonstrate their utility and then spiral out to broader things. That is not to say that they do one step in the checklist - to develop scenarios on an away-day and then hide them away in a filing cabinet for example - but rather that they complete the entire process for an isolated non-critical part of the organisation.

Step One: Designing the process

The design process asks three questions: What are we producing and for whom? What is the time frame for this development and how will the management for whom we are doing this oversee and feel safe with this process? What resources will we need for all six steps?

The first question is the most important to negotiate. A good end product is as follows.

To have achieved an agreed view of the workings of the internal and external environment of the organisation as this pertains to change.
To have embodied this in some form of communications material ('scenarios' but also 'options'?).
Crucially to have defined what knowledge lacking but which is needed in order to take better choices and to have defined who is to be responsible for getting this.
To have suggested a link between the formal outcomes and the formal decision-taking processes. Premises on which numerical planning are to be run can be given sensitivity ranges. Key ideas in the scenarios are a part of the formal evaluation process. It is however important not to bureaucratise or otherwise vitiate the ideas that are involved in order to fit in with the necessary counting of beans.

Step Two: Permission to act

Many middle managers make the mistake of developing scenarios in isolation and then looking for someone to whom to 'sell' the outcome. This is a mistake for two reasons. One is the self-evident issue of 'who ordered that?' The concerns of middle management may strike few chords elsewhere. Stronger outcomes may be seen to usurp senior management function. The other issue is that of gaining co-operation from line staff whose resources and attention are being sought for seemingly peripheral matters.

Senior management imprimatur is most easily gained when the process that is proposed appears to answer to central concerns seems likely to deliver tangible outcomes and appears open to oversight and control. A realistic and costed plan is a sine qua non complete with management review points. The product should be defined: A set of research priorities set by the management team scenarios or options for the organisation a product aimed at the outside world. A very useful product for some organisations is an innovation workshop aimed to get suppliers or collaborators to look ahead in a complex world and dream 'what might be'. Shareholders too enjoy a management that shows competence and oversight and which is prepared to share some of this with them.

Agreement to act needs to come with directions to the organisations: That they should collaborate that collaboration will look as follows that the outcome will affect them in one way but not in others which they might dread. A strong team needs to be assembled; strong in the sense of being representative of the knowledge base strong in the sense of carrying weight internally strong in the sense of being dedicated to the task. A project of this sort takes considerable effort. Too much part-time working slows the process and weakens the insight. Discussion across a team on the corporate intranet will not alone deliver the goods. The process needs a manager who is responsible for time management resources and ultimate content.

Step Three: Developing the model

Those who give permission also need to recognise the outcome and to see themselves in it. Closed management teams may use common words in obscure ways. (The author was puzzled by reference to 'handling exposure' in one organisation by which the management team meant the exact opposite: 'Attain complete secrecy'.) The scenario team need to inform themselves with these idiosyncrasies and with current pre-occupations if only to reference and then ultimately to discount these. To fail to do so is to be seen to be 'out of the loop' and therefore of no account. Interview techniques are very helpful in achieving this insight and ownership. Who is to be permitted such exposure may however set important parameters as to who can be invited to join the team.

These preconditions having been met the team operates in three phases. In the first of these they define what seem to them to be the key areas of concern. This list will vary with the specific issues that face the organisation but examples of sufficient breadth might be technology industry structure customer interests international relations and law or shareholder expectations. Consider what a study commissioned by - let us say - the car industry might have made of these topics as seen from 1980 looking to 2000. Today's list would however likely be stronger on issues that focus on customers partners knowledge and its husbandry than upon the relatively well-understood factors that governed change in the past twenty years.

The second phase is now commissioned. Each topic is constituted as a separate team with a formal leader membership a remit and a reporting date. The aim is to understand the topic as it pertains to the organisation over a relevant time frame. A good interval of time is two-and-a-half product life cycles in commerce or the equivalent administration periods in government. Too long an interval makes 'anything possible' while to short allows current pre-occupations to undermine concern with structural change. Teams may consist of the scenario group wearing a different hat at each thread with some occasional outsiders but would ideally be made up of completely new people headed by or reported by a scenario team member.

The third phase develops as these teams report. In essence the team take what has been learned and synthesise this. They are looking for the key dimensionality a concept that was explored above. They sort factors that are going to change no matter what from contingent features. For example we shall have better telecommunications by 2020 than we have now. We shall have more old people in the West and more educated people everywhere. A giant meteor strike might invalidate these assumptions but for practical purposes it is more helpful to see them as predetermined than as variables. It is often the case that these alone define a world so different that little more need be said. However scenario variables might be that - let us say - an industry's future will be dominated by scale or by niche market presence. This might be achieved by financial engineering or alternatively by primarily technological and marketing brilliance. The four quadrants that this suggests point to at least several alternative futures options sets of risks for the organisation.

This is an iterative creative process whereby a structure is gradually developed from an uncertain cloud of disconnected concepts. Many ideas will fail and many corporate preoccupations will be seen as parochial ill-defined or ill-considered.

Step Four: Exposure and redesign

These ideas in draft form and with some supporting material must be exposed to those who have the right to veto them. This step often becomes a short cut back to the drawing board for the team. Indeed teams can become introverted and obsessive just like management teams!

Once there is general consensus as to the way forward it is helpful to try the basic ideas out on representatives of very distinct perspectives: Other nationalities union officials customers suppliers practitioners regulators and the regulated. Their views will show up the parochial and the inadequate.

Step Five: Finalising the product building the media

It is important to keep in mind what a successful outcome would 'look like': A series of coffee mornings or a website a board presentation or a strategy document a glossy publication aimed at analysts or a set of guidelines for project planning and budget approval. It may be that all of these are required or none.

Step Six: Promulgation and winnowing

The aim of scenario (or any) planning should be to attain competence in the sense used earlier. This requires three minimal products.

One of these is a board level presentation to be cascaded down the organisation. This should have high production values should show that it is embedded in fact and should display 'joined-up' thinking. That is to say those emerging from such a presentation should feel privileged to have attended should have a new insight on the world and should feel confident in the analysis.

The second product consists of feedback both immediate and over time. That is people should have the opportunity to take the ideas and try them on for size. A workshop should end up with a product such as a prioritised list of things to find out or investigate with a group agreeing to become involved and someone taking responsibility for bringing this together. There should be something beyond the satisfaction of creative enthusiasm to reward them for doing this.

The third product is often the most contentious. It consists of the means by which scenario thoughts are to be embedded in the appraisal and approval process. In human resource terms succession planning should take account of the world(s) that the scenarios anticipate. Annual appraisal parameters should be designed around the similar features. In project terms the management team should expect projects that came before it to at least nod at the scenario variables: Thus 'social responsibility' so 'continual re-engineering'. Project economics should be assessed against scenario-consistent ranges: For margins tax take economic growth pension funding customer loyalty. Such variables should ideally be negotiated by and with the scenario team thus giving them real power in the organisation and thus making their product of genuine interest.

Organisations that practice scenario planning may expend considerable effort on a book (or a positive library of books) on websites and the like. These are evidently a good thing to have but they do not substitute for legitimacy for workshops for embedding in the decision process and above all for good ideas.

The boiling down of all of the complexity and muddle of real life into a set of simple ideas is hugely empowering. One hears managers saying that this or that would never work under 'market quickstep'. Scenarios are helpful in that they capture the key variables and describe recognisable end-states that these might reach. It is important to keep the number of scenarios small (never ever more than three of them) and to give them memorable names. These become a litmus paper which the organisation uses to test new ideas. One had best be right in one's analysis.

All of this exposure and debate is an important source of information for the next round of scenario planning. The world does not stand still and former works of genius stand idle on the shelf. Scenarios need to be renewed on a two-to-three year cycle. Typically new work will not discard what has been done but will build upon it. Presentations develop a growing body of understanding within the organisation something which is inalienable by outsiders and which confers real advantage. The organisation has learned how to learn.

Oliver Sparrow is the director of the Chatham House Forum. He can be contacted at: ohgs@chatham.demon.co.uk