CHAPTER 2
The latent resource
The business case for scenarios has never been stronger
World Expo 88 was a successful World’s Fair hosted by the city of Brisbane over a six-month period in 1988. The theme of the Expo, Leisure in the Age of Technology, pointed to the optimism of the day when the pre-eminent conundrum was seen to be ‘What are we going to do with all the free time technology will give us in the future?’ So how’s that working out for you? The idea of a reduced working week and increasing leisure time was hardly new, but in the late 1980s, when personal computers and mobile phones were about to go mainstream, the forecast of a leisure-rich future seemed entirely plausible. At least it did if you were simply to extrapolate from the rising influence of technology. At the same time, however, an equally powerful force was emerging, one that when combined with technology would produce a cultural shift that contrasted sharply with the leisure-rich scenario imagined. That force was materialism. With the growth of materialistic values came a culture of comparative consumption, instant gratification, debt, stress, insecurity and increased working hours. Personal identity became intertwined with material success — ‘I am what I own’, ‘I am what I earn’, ‘I am what I wear’. Perversely, over the next 20 years it was actually leisure time that was increasingly challenged as being busy (‘busy-ness’) assumed a form of social status. So rather than being the great facilitator of increased leisure, technology effectively played the role of a Trojan horse, enabling employees to videoconference 24/7 around the globe, to work from home on weekends, to answer work calls at night and to respond to emails while on holidays. ‘Busy-ness in the Age of Technology’ might have been a more appropriate Expo theme, although I acknowledge the potential marketing challenges. In 1985 Alvin Toffler wrote: I mistrust isolated trends, whether mini or mega. In a period of rapid change, strategic planning based on straight-line trend extrapolation is inherently treacherous … What is needed for planning is not a set of isolated trends, but multidimensional models that interrelate forces — technological, social, political, even cultural, along with economics.1 The utopian future foretold at World Expo 88 presents as the classic oversimplification that occurs when forces for change are viewed in isolation and their effects extrapolated linearly. Overcoming this linear perspective requires a systemic approach, one that recognises the interconnected and interactive nature of forces as drivers of change. Scenarios are detailed descriptions or stories of plausible future events and outcomes. They are stories ‘in the sense that they describe the evolving dynamics of interacting forces rather than the static picture of a single end-point future’.2 The word itself derives from the performing arts where scenarios historically provided the supporting background to a scene. These scenarios would be pinned to the back scenery as a reference for the actors, outlining the broad plot and its series of actions and events. Today scenarios in business serve a similar purpose: they provide a backdrop or framework for decision making. In a business setting, scenarios are used to generate and explore the different future environments in which an organisation may have to operate. These hypothetical backgrounds allow the organisation to consider its strategic positioning and objectives from different, future contexts. Scenario planning, then, is the process of developing strategic responses to these alternative futures. The purpose of scenarios is not to predict the future or to get the future right, but rather to enable better decisions today,3 to empower organisations to shape the future they want. Ultimately, they are a learning and reframing tool, providing learning about the drivers of change and their possible impacts, while helping you to form new perspectives on the future and your organisation’s role within it. The history of scenarios in business makes for an interesting scenario itself. It’s a story that features larger-than-life individuals, a mysterious, little-known Frenchman, a corporate success of mythical proportions, a brief period as the latest management fad, and the inevitable ‘fade away’ that seems to follow overnight celebrity. It’s an intriguing history, with its own inflection points and discontinuities, as one might expect of an intuitive process specifically designed to deal with future uncertainty. The application of scenarios in business has its genesis in the political uncertainty following World War II. US defence projects were understandably still high on government agendas and the challenge of how, and where, to focus their defence budget was a complex issue. In order to make sound judgements about their spending, departments needed to gain insights into the future political environments in which their weapons might need to be used. This uncertainty provided the platform for scenario thinking to emerge. Consequently, the US Department of Defense engaged the RAND Corporation to help it decide which projects should be funded for the development of new weapons systems.4 If scenario planning has a patriarch, then it was surely the larger-than-life Herman Kahn. Working for the RAND Corporation, Kahn began developing scenarios for the US Air Defense System Missile Command and he became known for thinking the unthinkable.5 He would later recall, We deliberately chose the word [scenario] to deglamorize the concept. In writing the scenarios for various situations we kept saying ‘Remember, it’s only a scenario’, the kind of thing that is produced by Hollywood writers.6 In particular, his work highlighted the extreme and dire consequences of nuclear war.7 Rather than claiming to forecast the future, Kahn’s scenarios were exploratory and intended to get people thinking about the future, to help overcome the ‘social inhibitions which reinforce natural tendencies to avoid thinking about unpleasant subjects’.8 While Herman Kahn was developing scenarios for the US military in the 1950s and 1960s, the Western world was going through a period of sustained and steady economic growth that lasted until the early 1970s. ‘Foresightful’ businesses, however, were aware that the good times couldn’t last forever. In the late 1960s the oil giant Shell began exploring the long-term future. Heading up these early explorations, and inspired by the approach of Herman Kahn, were Ted Newland in London and Pierre Wack in Paris. They were just in time. In the 1970s, as Western economies stagnated and inflation rose, traditional forecasting techniques proved increasingly unreliable and ineffective, rocking the confidence of business managers. The uncertainty of the times demanded another approach to forward planning. The moment had arrived for scenario planning to be embraced by the business world. Global demand for oil had risen consistently since the end of the war, and it was assumed that this trend would continue. So Wack and Newland focused their attention on the supply side. Assuming the mindsets of industry stakeholders, and roleplaying their likely responses, Wack could see that consistency of supply was not guaranteed going forward: ‘If we were Iran, we would do the same,’ he said.9 The scenario process had allowed him to foresee developments that others had not yet considered. After presenting their scenarios to senior management, Wack was handed the task of giving presentations to Shell’s operating managers around the world. ‘Be careful!’ he warned exploration and production managers. ‘You are about to lose the major part of your mining rents.’ ‘Prepare!’ he advised oil refiners and marketers. ‘You are about to become a low-growth industry.’10 And slowly behaviour at Shell did begin to change. Where previously executives did not have to consider the consequences of overinvestment, now Shell managers began to implement more adaptable and ‘frugal’ practices informed by their internal ‘energy crisis’ scenario.11 The planners had hit paydirt. In 1973 the scenario became a reality when the Yom Kippur War led to political embargos limiting the supply of oil to several countries, and oil prices rose fivefold. Pierre Wack’s work had done enough to ensure strategic preparation for such an event. ‘Emotionally prepared for the change’, Shell responded well ahead of its competitors and as a result rose from seventh to second on the profitability league table of oil companies.12 The economic value of being well prepared was calculated to be in the billions of dollars.13 In the world of scenarios, Shell’s success in the early 1970s is the stuff of legend. In fact, Shell has become something of a beacon in the field of scenario planning, producing a steady roll call of influential strategists, scenario planners and storytellers. A review of the literature on scenarios shows the proficiency of Shell alumni, dominated by pioneers like Wack14 15, Beck16, Schwartz17, van der Heijden18, de Geus19, Jaworski20 and Schoemaker.21 To this day Shell remains the standard-bearer in scenario planning, regularly producing a new set of global scenarios to guide the group’s strategic direction. From the Chief Executive down, these scenarios are communicated to all Shell employees, promoting a shared sense of environmental understanding and directional purpose. Shell’s holistic strategy development process, with its integration of global scenarios and group strategy, remains the corporate model for others to aspire to. Following Shell’s success, and meeting the need for a more effective planning method for turbulent times, scenarios basked in the corporate sun throughout the 1970s. A 1981 study of European companies by Pentti Malaska found that 88 per cent of the firms that were using scenario planning had started to do so only after the first oil shock of 1973.22 Studies by Linneman and Klein looking at the extent of scenario usage among corporations in 1977 and 1981 indicated that the method was being rapidly adopted. In fact, according to estimates based on their research, half the US Fortune 1000 industrial firms in the early 1980s were using scenario techniques in their planning process.23 24 Despite this heady beginning, it’s fair to say that the use of scenarios in business has not maintained its growth trajectory over the past 40 years. And where scenarios are applied, often their format bears little resemblance to the process introduced by Pierre Wack and his colleagues at Shell. Perhaps overall the history of scenarios in business is defined by underachievement, their lack of impact underpinned by an enduring ‘identity crisis’ that continues to prevent scenarios from driving business strategy and innovation as they should. Instead, scenarios remain a somewhat fuzzy and largely misunderstood concept. Even today, most corporate managers would struggle to answer the most basic questions about scenarios: What are they? What is their purpose? How do you create them? How do you use them? What can they do for me? And until these questions can be answered consistently, prospective scenario planners will continue to have just the one famous success from 1973 to point to in support of their claim, ‘Look, it does work!’ The research of Malaska, Linneman and Klein supports the logic of a correlation between the usage of scenarios and perceived environmental volatility. If this is the case, then today’s uncertainty provides the opportunity for scenarios once again to be recognised as an idea whose time has come. And it’s true, scenarios are enjoying a resurgence in public interest judging by the increased number of publications and available public works.25 26 Suitable conditions might be enough to get the scenario foot in the planning door; however, the ongoing perceived value of the scenarios has not been sufficient to maintain this footing once conditions stabilised. So if the current intellectual interest in scenarios is to translate into sustained corporate adoption, then scenarios must overcome the misperceptions and hurdles that have plagued their effectiveness thus far, namely: When I put forward my proposal to the Managing Director at Foster’s for a new role specifically focused on the future, my original job title suggestion was Environmental Scanning Manager. My recommendation was quite intentional: I wanted the role to be taken seriously, so I deliberately avoided the words futurist or foresight. It wasn’t to be, though, and later that month I became the group’s inaugural Foresight Manager. In the eyes of my (half-serious?) colleagues I was now the resident fortune teller, palm reader, crystal ball gazer (insert cliché of choice here). The truth behind their jibes points to one of the reasons for the lack of scenario usage in business: serious attempts to understand the future are confused with efforts to predict, and since prediction isn’t possible, scenarios are either dismissed as an exercise in futility or else just not taken seriously.27 ‘Can’t predict, so why bother?’ seems to be the attitude, as those who carry the futurist title are regarded with a scepticism usually reserved for snake oil salesmen. The other factor undermining the use of scenarios is the association of the future with fantasy and science fiction, something the cartoon series The Jetsons has a lot to answer for. Before a scenario planning project with the multinational Kraft I sat in a briefing with internal managers and some representatives from an external marketing agency. After explaining that we were about to enter a two-day scenarios workshop to explore how consumer behaviours and needs might evolve over the next 10 years, one of the marketers deadpanned, ‘Is that where you make up stories about flying cars and robot maids?’ He wasn’t trying to be funny; he just had very little idea about scenarios. In his mind anything to do with the future just had to involve flying cars, right? Scenarios can be complex because they take time. They’re complex because they involve many variables. They’re complex because they require intensive research. They’re complex because they’re intuitive, subjective and qualitative. They’re complex because they involve imagining circumstances that don’t yet exist. And they’re complex because they explicitly deal with uncertainty, providing alternatives to provoke answers, rather than the answers themselves. Yet leaders prefer the illusion of certainty. It allows them to act quickly and decisively, to convey perceptions of control. ‘Just give me a number,’ they plead28, preferring to outsource judgement rather than exercising their own. To those conditioned to receiving serious information in tables and graphs29, the qualitative nature of scenarios can appear lightweight, not grounded in reality and merely adding to the ‘noise’. From the resultant impasse between manager and methodology, between certainty and uncertainty, simplicity and perceived complexity, scenarios rarely emerge a winner. Scenarios, particularly longer-term scenarios, are victims of the short-term agendas driven by organisations and their key stakeholders. With CEOs being rewarded for achieving annual targets, shareholders demanding higher dividends, and governments seeking re-election every three or four years, it’s little wonder initiatives with a longer-term focus are rarely stamped ‘Urgent’. We see this short-termism in the following exchange between then Victorian premier John Brumby and 3AW Melbourne radio announcer Neil Mitchell in 2008. To provide some context, Victoria had been suffering from a long drought and its residents had been on water restrictions for several years. The two men are discussing the merits of building another dam to help support Victoria’s water supply. John Brumby: People say, gee, why didn’t you build a dam? You know the Thomson Dam [Melbourne’s biggest] was, from the time it was announced to the time it filled, was 14 years. So, if people say, ‘Well, where’s the dam today?’ it should have been built when Jeff Kennett was Premier. [Jeff Kennett led the previous state government from 1992 to 1999.] People say, ‘Build a dam’, as if that’s going to fix the problem tomorrow. It’s not. Neil Mitchell: But will it fix the future, help the future? John Brumby: What, 12 or 14 years away? . . . We’re talking about problems now. Regardless of the rights or wrongs of building another dam, what stands out in this conversation is the former premier’s attitude towards the future. His argument is not that he doesn’t want another dam; rather, he has an issue with the length of time it takes to build that dam. Inside corporations this attitude translates to: ‘We’re too busy dealing with today’s realities to worry about tomorrow’s possibilities; the future can look after itself’. Within this culture of immediacy scenarios suffer from a perceived lack of relevance to today’s business priorities. The result is an ongoing cycle of crises and crisis management, as the company is forced to cope with the inconvenient arrival of unconsidered futures. And it’s true, within this operating context of immediacy, scenario benefits are absolutely too far away. The whole purpose of scenarios is to do the thinking and planning before the horse has bolted. Somewhat counterintuitively, the best time to undertake a scenario process is when there is no pressing need, when operating conditions are relatively stable. Note that these were the circumstances enjoyed by the oil industry prior to the 1972 Shell scenarios. In all likelihood, if scenarios had been originally proposed at Shell after the 1973 oil crisis they would never have been endorsed. Stability offers the luxuries of time and clarity of mind, both essential to the corporate benefits that then flow from a successful scenario planning exercise. ‘Hi Steve, we’re holding an upcoming conference / workshop / planning retreat. The theme is Building Better Futures / Winning the Future / Innovating for the Future . . . ‘We’d like you to facilitate a session looking at the next 10 years for our industry and the strategic opportunities for our company — it’s a very important session. ‘Oh, and can you do this within three hours?’ Such a request will be familiar to anyone who has consulted in the field of scenario planning. It reveals that while there might be a corporate appetite for understanding the future, rarely is this matched with a willingness to invest the time needed. In some respects, this focus on the here and now is almost childlike. In the early 1970s psychologist Walter Mischel led a series of studies at Stanford University on delayed gratification that became known as the Stanford marshmallow experiment.30 In these studies, children aged three to five were offered a choice between receiving one small reward immediately (a marshmallow, a cookie or a pretzel), or two small rewards if they waited 15 minutes. Of the 600 participants, only one-third were able to control their desires long enough to get the larger reward. Subsequent studies found that children who were willing to wait for what they wanted tended to achieve better long-term outcomes in terms of test scores, education levels, and physical health. Just like small children, managers often struggle with delayed gratification. Their desire for the immediate ‘sugar hit’ consistently overrides their quest for better long-term outcomes: ‘Scenarios take too long. We need a strategy [or a new product] now, not in six months’ time.’ But this corporate impatience, exhibited in the form of a short-term, myopic focus, comes at a price. Ongoing strategic surprises ensure organisations are so busy responding to unforeseen external changes that they rarely give themselves the opportunity to think seriously about the broader or longer-term future. With their focus on putting out the latest ‘fire’, or meeting the next short-term target, it’s no wonder many exist in a state of ‘temporal exhaustion’.31 As sociologist Elise Boulding correctly diagnosed, if one is mentally out of breath all the time from dealing with the present, there is no energy left for imagining the future32 (see figure 2.1, overleaf). Figure 2.1: an exhausting reinforcing loop Ignoring a broader or longer-term outlook, organisations can exist in a state of perpetual firefighting, constantly responding to strategic surprises. The result of this temporal exhaustion is inefficiency in the form of wasted time, money and resources. In effect, the organisation chooses to take the indirect route to the future, unaware of what’s ahead, unsure of where it’s going and without due consideration of the consequences of its decisions. In this respect, companies tend to approach the future much like a sailing boat tacking into the wind, lurching from one idea to the next, in a constant cycle of doing, undoing and redoing (see figure 2.2, overleaf). Figure 2.2: where are we headed? Much like a sailing boat heading upwind, organisations tend to ‘tack’ their way into the future through an inefficient cycle of doing, undoing and redoing. Yes, scenarios take time. But the new perceptions generated by this process are the reward for your patience. They deliver a clarity about the future that alleviates your exhaustion in the present, helping you to act with confidence and a cohesive purpose. Informed from a new perspective, the organisation minimises resource-wasting deviations and externally imposed disruptions as it takes the more direct route to the future (see figure 2.3). Figure 2.3: taking a more direct route to the future Scenarios optimise performance by flattening out inefficient deviations, thereby freeing up resources to invest in strategic thinking and innovation. While scenarios take time, they also actually save time — and better still, they optimise time. To borrow from futurist Joel Barker, ‘Speed is useful only if you are running in the right direction’.33 Effective scenarios point you in the right direction. ‘In my experience,’ observes former Shell employee Napier Collyns, ‘scenario planning is an interpretive practice — it’s really closer to magic than technique … Look long enough, hard enough, and the pieces will fall into place.’34 Developing scenarios is often referred to as an art, rather than a science. It’s an intuitive practice that can produce surprising results, not a linear process where conclusions are obvious or predetermined. And it’s this intuitive aspect that provides their strategic advantage. Internally generated scenarios produce a corporate asset in the form of a unique perspective of the future that cannot be replicated by competitors. But this intuitive trait is also a weakness. It means that there are almost as many ways of building and planning with scenarios as there are practitioners.35 It also means that the field is characterised by inconsistency and confusion. Reliance on intuition also implies that benefits can’t be assured — scenarios don’t come with a money-back guarantee. As a result, the experience can often leave a hollow feeling in its wake. And it’s little wonder. Read plenty of books on scenarios and you will emerge with a vague understanding of the broad process. That’s the easy part. Much harder to achieve is an original insight into the future that leads to better decisions — the critical measure of scenario success. Insights don’t just appear in the final chapter of the literature; scenarios are not a colour-by-numbers exercise. Thus, their intuitive aspect ensures that the pointy-end value of scenarios relies as much on the skills of the personnel involved as it does on the process itself. And this causes ongoing wariness among managers who are averse to ‘magic’ in the workplace and seek nothing more than consistency and guaranteed performance when choosing how best to allocate their budgets and resources. From my experience, the main reason scenarios fail to gain a solid footing within organisations is a lack of integration both with internal strategy and innovation processes, and with managerial priorities. Instead, when they are used, scenarios are often trialled as stand-alone activities, sitting outside internally established strategy and innovation processes. With the best of intentions, the future is explored, scenarios are developed, insights might be gained, and then … nothing. Typically, the lack of integration with other recognised processes condemns these forays to novel, one-off episodes. ‘We tried that — it was interesting, but nothing came of it,’ declare frustrated managers, as the future is cast off as a creative indulgence for less urgent times. In the absence of this integration, managers rightly question the value of scenarios around three key criteria: From personal experience, it’s clear that scenarios must be linked back to organisational strategy and innovation if they are to prove either useful or sustainable. So, on the surface at least, it appears that the long-term success of scenarios relies on this level of integration. However, to assume that this dependence operates in one direction only is to seriously understate the empowering capacity of scenarios. On the contrary, the relationship is co-dependent; if anything, in a turbulent environment the long-term success of the organisation relies more on scenario integration than the other way around. It is simply not enough for scenarios to be integrated into, or to sit alongside, established company processes; scenarios should drive strategic planning and innovation. They are fundamental to future business success (see figure 2.4). Figure 2.4: mutual dependence Integration with internal processes is essential for scenarios to be successful and fundamental to future business performance in a turbulent environment.
Introducing scenarios
Scenarios in business: a mixed history
Golden years
A second coming?
SCENARIOS ARE NOT TAKEN SERIOUSLY
SCENARIOS ARE COMPLEX
SCENARIO BENEFITS ARE TOO FAR AWAY
SCENARIOS TAKE TOO LONG
SCENARIOS LACK CONSISTENCY
SCENARIOS ARE NOT INTEGRATED
