CEO Best Practice: Scenario Planning

Executive Tools

• Executive Summary
• Self Assessment Checklist

Expert Practices Articles

• Scenario Planning: An Introduction
• Scenario Planning: The Process
• Benefits of Scenario Planning
• Telling Stories
• What the Future Might Look Like

Book List: Scenario Planning

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CEO Best Practice: Scenario Planning

Executive Summary

• Scenario Planning: An Introduction
• Scenario Planning: The Process
• Benefits of Scenario Planning
• Telling Stories
• What the Future Might Look Like

Scenario Planning: An Introduction

"Scenario planning isn't the same thing as strategic planning," says Vistage speaker Gideon Malherbe. "Basic strategic planning tends to address the accidents of the day, such as the decision to reduce inventory because of a downturn in the economy. Scenario planning looks at what's going to happen tomorrow. It's focused on understanding what the future will look like, so that CEOs can build their organizations accordingly."

Fellow Vistage speaker William Poppei agrees: "With scenario planning, we encourage business leaders to imagine not just one, but a variety of future possibilities. When I meet with CEOs and other senior executives, I tell them, 'Take your imagination out of the corral and let it fly!'"

The Vistage experts stress that scenario planning is an outstanding learning tool -- a way to learn about the future through a deeper understanding of the major driving forces affecting all of us today. In a group setting, executives engaged in scenario planning exchange knowledge and ideas, constructing a selection of "future stories" that expand their understanding of the current business environment and broaden their perception of future events.

"Driving forces," the most significant trends likely to affect the larger world, generally represent four categories:

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Scenario Planning: The Process

The basic approach in scenario planning is two-fold, says Malherbe:

1. Know your core competencies. The starting point for any future thinking is knowing your strengths as they exist right now. Know as well your organization's strategic advantage in the marketplace.
2. Identify forces and trends. Has your company taken the time to seriously pinpoint forces that affect your financial performance -- now and in years to come?

"In some industries, the driving forces are obvious," Malherbe says, citing, for example, the dominant influence of political and environmental sentiments on the forest industry. In the coming years, what if the environmental lobby becomes stronger or, conversely, less influential?

Poppei strongly urges participants to think out-of-the-box. A key to his approach is giving people a fundamental change to think about. "A good example is the Internet, which facilitates communication to and from any locality in the world," he says. "Now we don't need central meeting spaces any longer. How is your business different when all your customers and suppliers, as well as your competition, is in the same room and can talk to each other at the same time?"

Other guidelines to constructing scenarios:

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Benefits of Scenario Planning

"The goal of scenario planning is opening up the mind to hitherto unimaginable possibilities," Malherbe says, "while at the same time prompting business leaders to question their own basic assumptions about how the world really works."

Adds Poppei: "As a result of imagining different scenarios, the organization can more readily recognize warning signs as they unfold. By rehearsing different versions of the future, business leaders are better prepared to handle new situations as they arise. They've already examined options for actions that offer effective strategies for the future."

Other benefits of scenario planning:

• Inspires a sense of urgency about the future
• Promotes proactive leadership initiatives
• Offers a forum for CEOs and senior management to communicate their vision to different stakeholders

"By postulating different views of where your business is headed, you gain a sharper sense of the environment you're working in now," Malherbe notes. "It's a great way to avoid being overly conservative in your thinking. You don't want to limit your organization's potential in today's competitive marketplace."

Through scenario planning, a business can take these pro-active steps:

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Telling Stories

An effective "future story" also offers these advantages:

• By highlighting future warning signs (i.e., a competitor's technological innovation or a sudden drop in the stock market), a business can avoid surprises and be better prepared to adapt and act effectively.
• New strategies derived from future stories have the potential to create distinct competitive advantages.
• Generate ongoing high-level discussions about the future.

Poppei suggests starting with a frighteningly basic question: How would you plan for the five-year failure of your organization?

"Ask people in the company how they might go about destroying the business," he says. "Employees won't believe you're serious, so they won't think they actually have to do any of the things they propose. As a result, they won't limit themselves, and will give you their best ideas. After all, in their minds, the exercise is just fun. They will suggest all kinds of possibilities. And that's exactly what you want!"

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What the Future Might Look Like

"A forward-looking organization must devote resources to projecting new core competencies, new product development, new industry alliances and so on," Poppei says. "This isn't the same as restructuring and reengineering. This is consciously and deliberately exploring the outermost boundaries of what may lie ahead."

Toward that end, the Vistage experts suggest asking questions like:

• Who will our customers be five years from now?
• What channels will we use to reach these customers?
• Are our short-term priorities aligned with our long-range goals?

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