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What is Scenario Planning?

Scenario planning is a powerful tool to manage strategic risks and opportunities.

Scenario planning is about being aware of what the future might be, without buying into how you want it to be. Good scenario planning enables you to have leaps of intuition that allows you to tap into the possibilities of the future, and then to put in place strategies that will be so rigorous that, no matter what actually does happen, you and your organization will be in good shape.

It is the process in which managers invent and then analyse several scenarios of plausible futures, then filter strategic decisions through these scenarios to ensure the strategies will survive any of the plausible futures, making amendments to strategies as part of the process.

The point of scenario planning is not to select the best single scenario and hope for it to become the future, nor is it to fund the most probable scenario and adapt to the changes as time goes on.

ONCE CONSTRUCTED, SCENARIOS CAN BE USEFUL TO:

·          develop strategy

·          test existing strategy

·          encourage cohesion and direction

·          initiate dialogue with stakeholders about possible or preferred futures

MISUSES

Typical misuses of scenarios include:

·          The assumption that scenarios are forecasts

·          Scenarios constructed on too simplistic a difference, such as optimistic vs pessimistic

·          Scenarios are not global in outlook

·          Scenarios are not focused on the key areas of potential impact on the organization

·          The process is treated as informational or educational rather than for participative learning

 

HISTORY OF SCENARIO PLANNING

The scenario planning concept first emerged as a military planning tool after World War 2, primarily by the U.S. Air Force. In the 1960’s, Herman Kahn, who had been part of the Air Force team developing these scenario planning tools, refined the process for business application. In the early 1970’s, scenario planning took on another dimension through the work of Pierre Wack, a planner in the London office of Royal Dutch/Shell. Pierre Wack and other planners were looking for environmental factors that might affect the oil price other than known factors such as contacts being renegotiated. They wrote up two scenarios, each with a complete set of stories, and projected financial impacts.

The first story depicted the prevailing wisdom at Shell that the oil price somehow would remain the same. The story line however emphasised that a miracle would have to happen, such as new oil fields appearing in non-Arab countries. The second scenario depicted another future, where the newly created OPEC sparked an oil price crisis, in which OPEC countries would take over Shell oilfields. This got their attention, and management revised strategies to take this possible future into account.

In October 1973, after the Yom Kippur war in the Middle East, the oil price shock occurred, and only Shell was prepared. It moved from the weakest of the 7 major oil companies to the second largest but most profitable in a few years. This got the business worlds attention, and some of Shells planners created a business advisory organization (Global Business Network:GBN) that is now one of the best known in the world for scenario planning.

Although widely used as a strategic tool over the last 20 years, a recent survey (Bain & Co, 1999) reported a decline in the number of companies who use scenario planning, with the main reason being traditional scenario planning models take too long a time frame, and that the rate of change and level of uncertainty in the immediate and short term operating environment precluded long range planning. The latest approaches to scenarios combine high depth and high quality assessments with the speed and agility required to make them more operationally useful.

A Practical Nine Step Scenario Planning Process

Step 1: Choose the Scenario User Groups

There are three distinct users of scenarios. The first step is to define which User Group is to be addressed.

User Group 1: The Global organization, Corporate Centre, or National body. This user group is responsible for the global or national strategy, and the use of scenario planning enhances strategic conversation across the Group and informs the development or revision of Board approved strategy. The types of scenarios developed with this user group are highly researched, and provide the foundations for other types of scenarios at the business unit level. The scenarios are typically developed every 2-3 years, and provide major input to strategy development.

User Group 2: Business Units or Departments. This user group has a focus to aid business-unit strategy at the departmental, regional, country or project level. These scenarios are more focused within the context of the global scenarios, and are customised as needed. Riska and opportunities are identified and impact more heavily on the operational plans. These are typically developed as required.

User Group 3: External Stakeholders This user group has a focus to structure and provide input to public debate and image management of the organization. The scenarios crafted for this user group will typically be global in nature, and will be similar to those created for the Global organization, Corporate Centre, or National body. These scenarios are used to facilitate and communicate global, country or industry specific possible futures, and have the added benefit of positioning the company as a thought leader in their industry.

Step 2: Choose the Scenario application

There are a number of potential applications for scenario analysis. Each of these applications will use similar processes, but will have a different focus

Sensitivity/Risk Assessment application. This application is for when you need to evaluate a specific strategic decision such as a major building investment or a new business development project.

Strategy Evaluation. This application of scenario planning is used to test existing strategies and to make any amendments that would strengthen the strategy as well as deal with the issues raised within the scenarios.

Strategy Development. This application of scenario planning adds value to the more traditional strategic planning process by ensuring the planning group is actually looking to the future to assist in developing strategies now. More detail of the steps required to undertake these applications and examples of how nonprofit organizations have used them can be found in our Strategic Planning Workbook

Step 3: Choose the participants

It is essential to create a scenario planning team that is able to suspend “prevailing wisdom” and be willing to create possible futures based on trends and critical uncertainties.

This team should consist of two or three key decision makers (usually the Chief Information Officer as well as the key strategic thinkers in the organization, sometimes the CEO and Board Chairman), and some relevant staff. It has been suggested that sometimes a new staff member is useful, as they don’t yet know the “prevailing wisdom”. A functional scenario planning team would be between four and six people.

Some of the criteria to consider include:

 People with comprehensive knowledge of the organization and its environment

 Men and women with varied roles

 People of different ages

 Suppliers, strategic partners and major customers

Step 4: Information search and Plausible Futures Analysis

This step requires high quality information and research to determine the driving forces of change and critical uncertainties at work in the organizations working environment. It is assumed that the people participating in the scenario planning are at the leading edge of knowledge about the industry or issue at hand, or at least have done extensive research prior to the scenario planning process.

One of the simplest and most effective ways of tapping into the possible futures is by using a modified backcasting process (what we have termed a Plausible Futures Analysis). This involves the scenario planning team asking questions and posing possibilities about the external environment now, in five years, and in ten years. We tend to go no further than ten years as most people have difficulty imaging possible plausible futures in ten years, let alone any longer time frames.

Step 5: Identify Key Driving Forces

Based on the information search, the first task in writing the scenarios is to look for driving forces of the macro-environment that become evident from the information search. Look for the common themes running through your information search. Look for predetermined components, those features that look as if they are going to persist under any scenario. They might include population statistics, demographics, and technology components. There are likely to be four or five of these key driving forces.

Step 6: Identify critical uncertainties

One of the key benefits of scenario planning is in identifying those factors that do not seem obvious and can’t be discerned just from looking at trend analysis. Critical uncertainties are important as they form the basis for writing the scenarios, where you say “Oh wow, if that happened what would we do?” One method to identify the important critical uncertainties is to rank the key factors and driving forces on the basis of two criteria: the degree of potential to occur, and the degree of impact if it does occur.

The point is to identify those three or four factors and trends that are most important and most uncertain. These factors then form the basis for the scenarios.

Step 7: Write scenarios

Identify the three or four key critical uncertainties, and give them a short name that describes the underlying issues eg Global Impact Scenario, Mobile Future Scenario. Brainstorm the possible future that may be, under each of these scenarios. Suspend any judgement about good, bad, preferred or disastrous. Look at that scenario from different viewpoints of your Board, your leadership team, customers/clients, funding agencies, other key stakeholders. What might the future look like under these circumstances?

The goal is to select plot lines for the scenarios that lead to different choices and actions and then relate these to the strategic plan. The scenario can be anything from one page to three or four pages of description, with a summary of the key aspects of that scenario.

It is recommended that there be either two scenarios or four. If there is an uneven number, there is a great tendency to choose the middle scenario as the most likely.

Step 8: Analyse implications of scenarios for strategies

The scenarios can now be used to test the strategies of the organization. This is best done done as part of the strategic planning session whilst the strategies are being developed, and also after the strategies have been developed. The aim is to develop actions that make the strategy robust across all scenarios. If the strategy looks good in only one or two scenarios, then it is a high risk.

Step 9: Select leading indicators and measures

A few indicators should be chosen to monitor the scenario and its impact on the strategies. The logical plot lines built into the scenario should allow relevant leading indicators to be identified and measured.

Summary

Scenario planning is the development of several varied scenarios of equally plausible futures with the aim to bring forward surprises and unexpected leaps of understanding. 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. The value of strategic planning lies in the process of making strategic decisions that will be sound for all plausible futures. No matter what future takes place, an organization is more likely to be ready for it and influential in it, if it has seriously considered scenarios. 

 

 

Creating Strategic Awareness From Your Vision Statement

When was the last time you heard someone say “Our Vision statement truly guides all our strategic decision making”or“Our vision statement is what holds the organization together”. Or“People really get our vision and work with us to achieve that vision”?

One of the most powerful tools for creating strategic awareness in your organization is your Vision statement.

A Vision statement is an expression of what your organization would like to see as a possibility and a future for the community and stakeholders you serve. Having created the Vision statement, then all decisions, projects and services can be filtered through the vision statement to assess whether they are truly “Vision-driven” and hence creating the strategic awareness of possible futures and the impact that your organization desires.

A Vision statement has traditionally been where an organization has stated what its core values and core purposes are for the organization, maybe with some values thrown in for good measure. This is essentially inward looking and all about the organization.

This is why most Vision statements work against strategic awareness. They are too often about the vehicle of delivery, the nonprofit organization. Our point of view is that the Vision statement should be about the future your organization wishes to create for the community and stakeholders you wish to impact. The vision could start of with something like…”Our vision is for a community where….”

Creating a Vision statement is quite simple and easy. It is usually done as part of the nonprofit strategic planning process, as one of the first exercises of the strategic plan facilitation

The planning group (consisting of various people who have points of view about the organization that truly matter to the organization) are asked the question:

“What is the future we would wish for our community (not for this organization!)”

“What lasting legacy would we desire for our community?”

“Who is the community we are servicing? Will they change? Do we need a broad or narrow description of our community?”

These questions will assist to get at the core essence of why the organization was created in the first place. This should take no more than about an hour. The days of Vision fatigue are over (you’ve heard about this, when large groups of people meet over lengthy periods of time to debate wordsmithing of something that no-one will ever use?).

Here are some examples of Vision statements that create strategic awareness and future possibility:

“We value a community where there is confidence in aged care, where cultural diversity is truly celebrated and family and community remain connected.” –World class regional Aged Care facility specializing in multicultural care

“Our vision is for an ethical environment where training and employment services lead future requirements, career pathways are valued equally, safety and security is paramount and people and teams are motivated to excel.” Large and innovative training and employment organization

These Vision statements have “oomph”, they get at what the organization strives to create, it represents why the founders created the organization, and why Board members choose to sit on the Board.

The next discussion then should be about how well we map our existing programs against the key elements of our Vision statement, and how we “walk the talk”. This discussion, at both Board and staff level, should focus on the strategic issues that are raised, and the awareness that is required to drive the organization towards creating the future and the possibilities that the Vision articulates.

Here are eleven things you can do to create strategic awareness from your Vision statement.

1. Have the vision statement on each Board agenda to remind the Board why they are meeting

2. Encourage the Chairman and other Directors to use the Vision statement to assist in gaining clarity around a discussion or decision, and to create greater strategic awareness around the issue

3. Describe in the annual report how you are using the Vision statement to drive the organization forward, and provide stories that illustrate the “walking the talk”.

4. Embed discussion of the Vision statement into the Board induction program with new directors, and how the organization uses the Vision statement

5. Use the Vision statement as the first point of discussion and filter at your strategic planning session. 

6. Ensure that all strategies and actions from the strategic plan directly align with the Vision statement. 

7. Evaluate how the Board understands and uses the Vision statement as part of your Board evaluation process. 

8. Evaluate how key stakeholders perceive the Board understands and uses the Vision statement as part of your Board evaluation process

9. Embed the key elements of the Vision statement into the performance management framework of staff, especially senior leadership

10. Ensure that all new projects specifically address the key elements of the Vision statement. 

11. Revisit the Vision statement annually as part of your annual strategic plan review, and ask the questions: “Does this still represent the essence of what we want to create?” “Has anything changed that will necessitate a change in our Vision statement?"

If you are able to show that all the above are in place, then you are truly a vision-driven organization, strategically aware, a social innovator, an organization that makes a difference in all it does, and an organization that is creating a better place for the stakeholders who have placed their trust in you.

Are you and your Board willing to be the social innovators that your Vision statement invites you to be?

Embedding ethics into nonprofit strategic planning

We have had over thirty years experience in sitting through incredibly tortuous nonprofit strategic planning sessions, reading thousands of strategic plans that were nothing more than wish-lists, and advising Boards and senior leadership teams who viewed the strategic plan as a necessary management evil that really didn't make much of a difference.

Based on our experiences, we have seen the following major flaws in over eighty percent of the strategic plans we have reviewed.

  • The planning team is either made up of only staff, only the nonprofit Board, or only Board and staff. This is a fundamental flaw is it focuses on only one or two points of view (Board and/or staff) and ignores other critical points of view about the Embedding ethics into nonprofit organization that may impact on its direction. The planning team should be made of those people whose points of view are critical to the organizations future: the Board, key staff, outside experts or opinion leaders, key stakeholders, etc

 

  •  There is no scanning, environmental analysis, scenario building, or what we term "backcasting". This in turn leads to nonprofit strategies that are, essentially, just more of the same. True strategy takes into account what might happen in the future, and measures strategic impact on these possible futures. True strategic planning is based on questions, not on preconceived answers.

 

  • There are no timelines around the achievement of the strategies and the resultant action plans. If there is a timeline there is either no start date (just a finish date) or no finish date (just a start date). My personal favourite is the "ongoing" description of a timeline (Translated as: don't know if we are getting there, but let's keep going).

 

  • There are no success measures, or if there are, then they are too vacuous to be measured, and don't measure the true indicators of what would be termed success.

 

  •  The risks associated with each of the strategies are not identified and dealt with.

 

  •  The impact of ethics is not considered as part of the planning process.

 

This article focuses on the last point, where the impact of ethical considerations on strategies is not considered.

There have been numerous examples in the past few years of the strategic mismanagement of organizations and the resultant devastating impact on shareholders, the business environment and the community generally. The business decisions that arose out of traditional strategic planning scenarios have often resulted in an angry consumer base, cries of foul play from industry regulatory watchdogs, and general negative publicity resulting from a disenchanted public.

Far from minimizing the negative effects of change, strategic planning often exacerbates the problem by ignoring the ethical implications of any proposed strategies. In the current environment, where nonprofit governance and ethics are under increasingly closer scrutiny, any major organizational decision should consider the ethical dimension. Ethics should not be viewed as a "right" or "wrong" concept, but rather as an issue that can, in fact, provide strategic advantage to an organization if the issues are recognized and dealt with strategically. The most effective way to ensure this ethical dimension is considered, is to embed a consideration of ethics into the nonprofit strategic planning process from the outset.

The strategic planning process typically leads the planning group through the visioning, SWOR (Strengths Weaknesses Opportunities Risks) analysis, strategy setting and action planning stages. The more sophisticated strategic plans will then shape the Board's agenda, and lead to the development of staff and Board performance measures.

Ethical implications of proposed action plans need to be considered at the action planning stage. Identifying and analyzing ethical implications of proposed action plans can add robustness to your strategic planning that will add value to the actions and protect the nonprofit organization.

We have found that the best way to describe ethics is by utilising the following four words: rights, obligations, fairness and integrity. These four words have energies underlying them that seem to get at the basis of ethical considerations

THE ACTION PLANS SHOULD INCLUDE THE FOLLOWING ELEMENTS

• Name of Strategy

• Action Plan description

• Scope of action plan

• Resources required

• Start date

• Finish date

• Project Manager

• Success measure

• Ethical implications

• Risks

 

A SAMPLE ACTION PLAN MIGHT LOOK LIKE:

ActionPlan.jpg

 

 

Once the ethical implications (rights, obligations, fairness and integrity) have been identified, then their implications and management can be rewritten into the Scope section of the action plan.

The ethical implications of rights, obligations, fairness, and integrity are essential ingredients of any strategic planning process. The future of our organizations, the people they represent, and the wider community can only be strengthened by embedding ethics into the nonprofit strategic planning process.

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Your Vision statement is more than a catchphrase; it's a call to arms. As a conscious CEO, making use of your Vision statement as a strategic tool is one of the most powerful ways to align your organization's actions with its purpose. 

In fact, your Vision statement can and should be used in every Board meeting to drive strategic conversation.

If you do not have a Vision statement, start by asking 'What are the top 3-5 intents that captures the spirit of this organization?' These 'intents' should be non-negotiable.

Over time, and if used correctly, this statement should spur the behaviors and actions that will create the desired future for your organization.

 

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