A brief introduction to Scenario Planning, a strategic planning process invented by the U.S. military, during the days of the cold war, and now widely used by organizations of all kinds, which produces realistic scenarios of potential futures, against which different strategies can be vetted.

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Scenario Planning
Steven M. Puma
Presidio School of Management
Culture, Values and Ethics (SUS6105)
Instructor: Donna Montgomery, Ph. D.
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Table of Contents
Introduction.................................................................................................................1
History of Scenario Planning ........................................................................................2
Orientation.................................................................................................................................................................... 4
Exploration ................................................................................................................................................................... 4
Scenario Creation....................................................................................................................................................... 4
Connection.................................................................................................................................................................... 7
Conclusion ...................................................................................................................8
Works Cited .................................................................................................................9
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Introduction
Scenario planning is a group‐based decision making tool, which has its roots in post‐
WWII military planning and the petroleum industry of the 1970s. Unlike its cousins,
forecasting and prediction, scenario planning does not attempt to project future
outcomes based on data from the past. These methods can often lead to “tunnel
vision”, due to their preference of one outcome over another. Instead, scenario
planning allows for more robust decisions by allowing multiple possible futures.
Scenario planning, as described by Peter Schwartz, Chairman of Global Business
Network (GBN), “…is a tool for better decision making…Business and governments
employ this tool because it helps them to make better strategic decisions.” (Ogilvy)
Presidio School of Management has chosen to teach scenario planning as part of its
Strategic Management curriculum, because of its unique ability to deal with
uncertainty in planning the future. This is a good thing, because Presidio students
and faculty face much uncertainty in meeting the many challenges of bringing
sustainability to the business world.
This paper will serve as an introduction to scenario planning as it is currently being
taught by Jay Ogilvy, Ph.D., Presidio faculty member and co‐founder of Global
Business Network. We will briefly explore the history of Scenario Planning, from its
routs in military planning to the current day. This will be followed by a step‐by‐step
walkthrough of the scenario planning process. We will conclude with a short look
into how scenario planning can be useful in the cultural change management
process.
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History of Scenario Planning
Scenario planning arose out of a need to plan for futures filled with much
uncertainty. This uncertainty is particularly magnified in military operations, which
is why scenario‐type planning can be traced back to 19‐century military planners.
Military operations, by their very nature, are fraught with all kinds of uncertainties.
Your enemy is constantly trying to deceive you and hide his movements from you.
Factors beyond your control, such as weather, frequently change. The combined
actions of thousands upon thousands of men, over vast distances, often lead to
unforeseen consequences. For these reasons, military planners often take the
approach of envisioning multiple different stories of what might happen in the
future, known as scenarios, and preparing a plan for what to do if those scenarios
come to pass. The well‐known activity of wargames is one way of practicing, in real
time, what an army will do if faced with a particular scenario.
In the post World War II U.S., the need for continuing military research,
development and planning was recognized:
“World War II had revealed the importance of technology research and development
for success on the battlefield...There were discussions among people in the War
Department, the Office of Scientific Research and Development, and industry who saw
a need for a private organization to connect military planning with research and
development decisions.” (RAND Corporation)
As a result, The RAND Corporation was formed in 1948. Among its many other
achievements, this not‐for‐profit think tank was the first to develop scenario
analysis, a precursor to scenario planning. Scenario analysis differed from scenario
planning in that utilized a probability‐based system, where a different probability
would be calculated for the possibility of each scenario taking place.
RAND employee Herman Kahn was a military strategist and systems theorist
(wikipedia.org) who worked on Scenario Analysis and was the person responsible
for using the word “scenario” to describe the future stories which were developed.
Mr. Kahn, most famous for working on nuclear war strategies, wanted to emphasize
the fact that these stories were not predictions of the future, but rather “stories to
explore”, and that the word “scenario” was a reference to Hollywood futuristic
movies. Khan later formed his own company, The Hudson Institute, where he
continued to develop scenario planning. (Van Der Heijden)
In the 1970s, scenario planning was further developed and brought into the
business world by the global petroleum company Royal Dutch Shell, where
“interest in scenarios at a more conceptual level arose with the increasing failures of
planning based on forecasts in the mid‐1960s. Scenarios were initially introduced as a
way to plan without having to predict things that everyone knew were unpredictable.
Through Pierre Wack, who introduced the scenarios at Shell, the early attempts were
based on the Kahn philosophy.” (Van Der Heijden)
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After World War II and continuing through the early 1960s, the price of oil was
considered to be stable, and the conventional thinking in the industry was that there
was no reason for this to change. Leading the team at Shell, Pierre Wack did in‐
depth research on what factors would affect the price of oil in the future.
As the United States became more and more dependent on foreign‐imported oil, it
seemed likely to Pierre that Arab oil producers, could, and would, increase the price
of oil. “The only uncertainty was when. Once could not know for sure, but it seemed
likely to happen before 1975, when old oil price agreements were due to be
negotiated.” (Schwartz) Pierre prepared two scenarios, one with oil prices
continuing along the same historical trend, and one recounting an OPEC‐led global
oil crisis. While his analysis was thorough, the top managers at Shell did not act,
even though they understood what this meant for the company.
It was at this point that Wack understood what needed to be done: he needed to
immerse his audience in the future world of his prediction:
“In this new type of scenario, there were no more simple tales of possible futures.
Instead, Pierre described the full ramifications of possible oil price shocks. ‘Prepare!’
he told oil refiners and marketers. ‘you are about to become a low‐growth industry.’
He warned the drillers and explorers who sought new oil to get ready for the possibilty
that OPEC countries would take over their oil fields. Most importantly, Pierre vividly
pointed to the forces in the world, and what sorts of influences those forces had to
have. He helped managers imaging the decisions they might have to make as a result.
And he was just in time. In October, 1973, after the ‘Yom Kippur’ war in the Middle
East, there was an oil price shock. The ‘energy crisis’ burst upon the world. Of the
major oil companies, only Shell was prepared emotionally for the change. The
company’s executives responded quickly. During the following years, Shell’s fortunes
rose. From one of the weaker of the ‘Seven Sisters’…it became one of the two largest,
and arguably the most profitable.” (Schwartz)
In the years to come, this would become the form of scenario planning widely used
by business and government: fully fleshed‐out stories of the future, each researched
in detail and allowing the reader to envision themselves squarely in this future
world, much like the Hollywood movies from which scenario planning got its name.
(Global Business Network)
The current methodology of scenario planning taught by Jay Ogilvy at Presidio is the
same which is utilized by Global Business Network (GBN), the organization which
Jay founded in 1987 along with colleagues Peter Schwartz, former head of planning
at Royal Dutch Shell, Stuart Brand, creator of the Whole Earth Catalog, Lawrence
Wilkinson, former president of Colossal Pictures and Napier Collyns, also from Shell.
“Global Business Network was created in 1987 around a pool table in a Berkeley,
California, basement by five friends. These GBN cofounders envisioned a worldwide
learning community of organizations and individuals—a network, connected by the
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open and generous exchange of ideas, "out‐of‐the‐box" scenario thinking, ruthless
curiosity, and exciting new information technologies.” (Global Business Network)
One of the cornerstones of GBN’s success is its expansive network of “remarkable
people”, whom it utilizes as resources for inspiration, subject‐matter expertise, and
early indications of trends. These people range from artists to musicians to business
leaders to philosophers. It is access to these people that allows GBN the ability to
create scenarios that are both grounded in reality and that portray an accurate
picture of the future.
How Scenario Planning Works
A scenario planning engagement would involve several phases: Orientation,
Exploration, Scenario Creation and Connection. Training at Presidio focuses mostly
on the Scenario Creation phase, and will be the bulk of what can be outlined in this
paper in step‐by‐step detail, although the other phases will be discussed as to their
implications for the organization pursuing a scenario planning exercise. (Global
Business Network)
Orientation
The orientation phase is where the leaders of the scenario planning effort would
meet with the organization to determine the purpose and goals of the exercise, who
is to be involved and what the metrics for success will be. During this phase, a focal
issue that will drive the scenarios will be determined.
Most important in this phase will be choosing an appropriate mix of people to be
participants. For the scenarios to truly represent an accurate picture of the issues
facing the organization, the scenario development team should represent a cross‐
section of the organization, both horizontally and vertically. This will avoid the trap
of scenarios converging on the narrow point‐of‐view of one department or silo.
Exploration
The exploration phase is a preliminary information‐gathering phase. The purpose of
this phase is to examine any external content that is relevant to the focal issue. This
can be accomplished through external interviews and research.
Scenario Creation
The scenario creation process will go through the following steps:
1. Brainstorming factors and forces: The first step is a brainstorming process
to uncover all of the key factors and environmental forces in relation to the
focal issue. Usually, someone will be selected as a “scribe”, who will write
down, on a white board or flip chart, all of the factors and forces generated
by the group. It is important, at this point in the process, not to kill off
creativity be judging and evaluating ideas as they are being generated. It is
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best simply to generate a large amount of good thinking, no matter how
outlandish it may seem.
2. Ranking critical uncertainties: The goal of this step is to identify two (2)
“critical uncertainties” out of the list of factors and forces facing the
organization. They will form the axes upon which the four scenarios will be
based. These critical uncertainties will be those factors or forces that are
both most uncertain and most important.
It is useful, at this point, to talk about why we should choose factors that are
both “uncertain and important”. If an item were to be highly important, yet
highly certain, then it would hold true in all circumstances, and thus is not in
need of much study. If something is of either high or low certainty, yet of
little importance, then we are simply wasting time by considering it. The
critical uncertainties, of both high importance and high uncertainty, are those
factors with which we can gain the most insight and value by considering
their implications through multiple scenarios.
The process for identifying the critical uncertainties is as follows:
• Each team member is allocated 25 “votes”. These can come in the
form of poker chips, sticky dots, etc.
• Team members will allocate their 25 votes individually, based on their
evaluation of which factors are critical uncertainties.
• Individuals can only cast a maximum of five votes per item.
• There is no need to worry about redundancies.
• After counting up the allocation of votes, related factors and forces
should be clustered under the top scoring items.
The team should continue this process until the two factors are identified. It
is important to note that in the presence of a highly influential individual,
such as a CEO or manager, hidden voting may be the best course of action, to
ensure that the voting is not skewed.
3. Label the axes: Taking the critical uncertainties chosen by the group, a 2x2
matrix is formed, one uncertainty on each axis. The axes form a continuum of
uncertainty, and are the boundaries for each of the four scenarios. As an
example, one axis may be labeled “Rate of change in climate”, which can
range from “slow” to fast” and the other may be labeled “Government
approach to climate change”, which can range from “do nothing” to
“aggressive intervention”. The four scenarios are then logically arranged
accordingly. This is shown in the following graphic:
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Important in the choice of proper axes is making sure that they are
completely independent of each other, and thus can be arranged crosswise to
each other. Keep in mind that scenario development is an iterative process,
as is shown in Figure 1. The idea is to continually update and improve as the
process goes on, creating a more useful tool as you proceed. At this stage, it is
important to come up with a concept in which each scenario sheds light on
the focal issue, and is both plausible and meaningful.
4. Headlining: Now, the group will turn its attention to the four different
scenarios in turn, and attempt to develop stories for each. Considering the
first scenario, each team member will think up a “headline” that might be
found in a newspaper during the early years of the scenario. These should be
written down on Post‐It Notes, and shared with the group. The group should
consider each headline in turn and evaluate for consistency and plausibility.
The headline should then be placed on the chart for the specific scenario.
This process should be repeated for the middle years and the end years of
the scenario.
A second round of headlining should be completed for the beginning, middle
and end years of the scenario. This time, each team member should write
down three headlines, one specific to each of the two axes and one squarely
in the middle.
5. Writing the story: The team will begin to take the headlines and generate a
story around them. The group should focus on uncovering the underlying
trends that tie the various pieces of the story together. Particular emphasis
should be given to how these trends apply to the business of the
organization. Professor Ogilvy reminds us that scenarios should use familiar
themes as plots, such as winners and losers, crisis and response, good news
and bad news, evolutionary change, revolutionary change or cycles.
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6. Refine the story: This final phase of scenario creation involves taking the
proposed story lines in each of the scenarios, and fleshing them out with as
much detail as time and resources permit. For some organizations, this part
of the process can take months and consist of in‐depth analyses in all parts of
the organization’s business. It is important to take advantage of whatever
subject matter experts that the team has access to, whose input will be
invaluable to introducing those details which will bring realism to the
scenario.
Figure 1: Scenario Development Process. Source: Ogilvy, James A., Developing Scenarios: Scenario
DevelopmentFor Presidio School of Management. Powerpoint. San Franicsco, 15 February 2008.
Connection
Once the scenarios are created, the team can focus on how to connect the scenarios
to the strategy of the organization. Scenarios can be presented to management, and
strategy can be based upon them.
There are four basic strategies which can be employed to deal with a world based in
the scenarios which have been generated:
• Bet the Farm: This strategy assumes that one of the four scenarios is the
“right” scenario, and represents the future, as it will actually unfold. Thus, the
organization tailors its strategy completely for this one future. This type of
strategy is very high risk.
• Core/Satellite: This method places a heavier emphasis on one scenario over
the other three, but has some built‐in methods for dealing with the
possibility of other scenarios arising. The strategy associated with this
method would be based firmly on that one scenario, but includes contingent
strategies if the organization finds itself in one of the other quadrants.
• Hedge Your Bets: This strategy assumes that the organization has an equal
chance of finding itself in any one of the four futures. It creates simultaneous
strategies, each focused on a different scenario. This is similar to a product
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manufacturer creating four different products, hoping one wins. This
strategy will probably create a win, but at a high cost.
• Robust: Like the hedging strategy, the organization also assumes that all
possible futures have an equal chance of arising and plans accordingly. The
difference is that only one strategy is used, not multiple strategies. Royal
Dutch Shell uses robust strategies when evaluating new projects:
“each project is evaluated economically against a set of, say, two or three
scenarios, so two or three performance outcomes are generated, one for each
scenario. And a decision on whether to go ahead with the project is made on
the basis of these multiple possible outcomes, instead of one go/no‐go number.
The aim is to develop projects that are likely to have positive returns under any
of the scenarios.” (Van Der Heijden)
Once strategies are determined, the team can focus on developing “early indicators”,
which are specific metrics that the company uses to determine what scenario the
organization is in at a particular time. Having a network of subject‐matter experts
can be particularly handy in completing this task.
Conclusion
In my week two forum post, I alluded to the fact that scenario planning could be
used as a tool to uncover the cultural leanings of an organization without engaging
in a process of specifically studying the culture directly. I think that scenario
planning offers us this opportunity by allowing us to see a microcosm of the
corporate culture in action. On the flip side of that, scenario planning can be a
lengthy and involved process, depending on how it is implemented. It can be a
workshop run over two weekends, or it can be a lengthy strategic process spanning
months. Obviously, if your real goal is simply to find out how an organization’s
culture works, you may want to choose the shorter variety.
By observing how an organization approaches the scenario planning process we can
observe all three levels of culture, as established in Edgar Schein’s Corporate Culture
Survival Guide: Artifacts, Espoused Values and Shared Tacit Assumptions.
We are able to observe artifacts through the very act of participating in the physical
space and observing the dress, surroundings, atmosphere and meeting style. We can
observe espoused values during the orientation and exploration phases of the
scenario planning process, by availing ourselves of all of the readily available
information that the company provides. Shared tacit assumptions will make
themselves known by the way that the team members proceed with the scenario
creation exercise itself. There are many opportunities to observe the culture in
operation, from the topics they choose to study, to the way that the team members
interact with each other, to the way they choose to implement the results.
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Works Cited
Global Business Network. GBN ‐ About History. 2004. 21 10 2008
<http://www.gbn.com/AboutHistoryDisplayServlet.srv>.
—. GBN Services Consulting ‐ Scenario. 2004. 21 10 2008
<http://www.gbn.com/ServicesScenarioConsultingDisplayServlet.srv>.
Ogilvy, James A. Creating Better Futures: Scenario Planning as a Tool for a Better
Tomorrow. New York: Oxford University Press, Inc., 2002.
—. Developing Scenarios: Scenario Development for Presidio School of
Management. Powerpoint. San Franicsco, 15 February 2008.
RAND Corporation. History and Mission. 27 May 2008. 6 October 2008
<http://www.rand.org/about/history/>.
Schwartz, Peter J. The Art of the Long View. New York: Random House, Inc., 1996.
Van Der Heijden, Kees. Scenarios: The Art of Strategic Conversation. Chinchester:
John Wiley & Sons, 2005.
wikipedia.org. Herman Kahn. 30 September 2008. 6 October 2008
<http://en.wikipedia.org/wiki/Herman_Kahn>.
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