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Build and Use Scenarios to Navigate Uncertainty
1. Adam Gordon 1 www.adamvgordon.net
How to Build and
Use Scenarios
World Future Society
Executive Seminar, 2008
Adam Gordon, PhD
www.adamvgordon.net
2. Adam Gordon 2 www.adamvgordon.net
 Something about me
 Something about the course
 Something about the day
3. Adam Gordon 3 www.adamvgordon.net
Your aims for the course?
4. Adam Gordon 4 www.adamvgordon.net
What do we know
about scenarios?
5. Adam Gordon 5 www.adamvgordon.net
Scenarios are narratives of
alternative environments in which
today’s decisions may be played
out. They are not predictions. Nor
are they strategies. Instead they
are more like hypotheses that ask
“What if?” in a disciplined way,
forcing the acknowledgment of
new and unforeseen opportunities
or challenges for an organization.
GBN
6. Adam Gordon 6 www.adamvgordon.net
Scenarios are not predictions. They are
plausible hypotheses about the ways in
which the forces external to us might
evolve to impact us.
They capturing the range of future
conditions, opportunities, threats, and
obstacles which we cannot influence, that
affects our ability to reach our goal.
This guides our strategic thinking about
how to reach our goal, and possibly
changes how we act.
7. Adam Gordon 7 www.adamvgordon.net
Why scenarios?
Why the future?
8. Adam Gordon 8 www.adamvgordon.net
Asked what he
feared most,
the British
Prime Minister
Harold
Macmillan
responded …
“Events, dear
boy. Events.”
9. Adam Gordon 9 www.adamvgordon.net
How much strategic uncertainty do you
perceive in your industry/policy environment?
How much change will your organization
require in order to remain competitive
over the next 7 years?
Low Med High
Just
a bit
A fair
amount
Plenty &
then some
10. Adam Gordon 10 www.adamvgordon.net
Can we
predict the
future…?
11. Adam Gordon 11 www.adamvgordon.net
“Before man reaches the moon your mail will be delivered within
hours from New York to Australia by guided missiles. We stand
on the threshold of rocket mail” -- Arthur Summerfield, U.S.
Postmaster General, 1959
12. Adam Gordon 12 www.adamvgordon.net
The home computer of 2004, as predicted in 1954
13. Adam Gordon 13 www.adamvgordon.net
Predictive failure
is ubiquitous…
Your favorites…?
14. Adam Gordon 14 www.adamvgordon.net
Why exactly do we struggle
to predict the future …?
15. Adam Gordon 15 www.adamvgordon.net
Implications:
Beyond the short term or other
highly contained situations:
Change is complex, disorderly. Behavior or
outcomes can’t be reliably forecast.
We can’t reliably determine the future
…even with supercomputers.
16. Adam Gordon 16 www.adamvgordon.net
Should we ignore the future?
17. Adam Gordon 17 www.adamvgordon.net
Hamel & Prahalad
“Competing for
the Future,”
HBR, 1994
18. Adam Gordon 18 www.adamvgordon.net
We should neither predict or ignore the future.
We can and should understand driving forces
and identify critical uncertainties, and explore
how these might unfold, in order to manage
uncertainty and profit from change.
We can act to influence the future, and create
a more or less desirable future.
Key outputs:
Better decisions not better predictions
Taking control of our organization’s future
19. Adam Gordon 19 www.adamvgordon.net
Courtney, H. et al.,
“Strategy Under
Uncertainty”,
HBR, November
1997
How do scenario fit into this?
When do we use scenarios?
20. Adam Gordon 20 www.adamvgordon.net
A
B
C
?
1. Low uncertainty. Clear
view of the future.
Dependable outcome.
2. Limited set of possible
future outcomes, one
of which will occur
3. Outcomes
indeterminate, but
bounded in a range
4. A limitless range of
possible outcomes.
True ambiguity.
(Highest level of
residual uncertainty.)
21
3 4
FOUR LEVELS OF UNCERTAINTY
21. Adam Gordon 21 www.adamvgordon.net
Situation analysis tools to use:
– Market research
– Cost benchmarking
– Porter’s 5 forces
– DCF/ NPV valuation
End product:
– Point forecasts
– DCF analysis
LEVEL ONE TOOLKIT
22. Adam Gordon 22 www.adamvgordon.net
A
B
C
Situation analysis tools:
– Decision / event trees
– Game theory
– “Scenarios” of the defined outcomes
End product
–- Complete description of each world
–- Dynamic path to each outcome, incl.
trigger events and market signals
–- Relative probabilities of each outcome
–- Valuation/ risk assessment of each outcome
LEVEL TWO TOOLKIT
23. Adam Gordon 23 www.adamvgordon.net
Situation analysis tools
– Scanning & trend tracking
– System dynamics
– Scenario planning
End products
– A set of scenarios
– Industry/world structure and
operating conditions in each
– Dynamic path to each scenario
– Analysis of robust strategy in each
– Strategy to enact preferred scenario, if possible
LEVEL THREE: BOUNDED UNCERTAINTY
24. Adam Gordon 24 www.adamvgordon.net
?
Situation analysis tools
– Analogy and past-references
– Visioning and visionary scenarios
End products
– Understanding of stakeholder positions
– Usable set of possible analogous
situations and precedents
– Clearer understanding of possibilities
and preferable outcomes
LEVEL FOUR: HIGH AMBIGUITY
25. Adam Gordon 25 www.adamvgordon.net
Sense that the
future is predictable
Sense of multiple
possibilities
Quantitative Qualitative
Qualitative vs Quantitative methods
“It’s better to be vaguely right than exactly wrong.”
Henley Centre
27. Adam Gordon 27 www.adamvgordon.net
1940s: Herman Kahn, is a US defense
analyst at the Rand Corporation.
Near Rand’s Southern California offices,
Kahn hangs out with screenwriters and
moviemakers, Stanley Kubrick, etc.
Kahn starts “telling stories” to describe
ways that nuclear weapons technology
might be used by hostile nations.
Herman Kahn: Rand Corp.
By the mid-1960s, Kahn’s was serving up dozens of alternative
story forecasts (often generated with mainframe computers).
Scientific American: Kahn is “thinking the unthinkable”.
28. Adam Gordon 28 www.adamvgordon.net
1970: Pierre Wack, head of planning at
Shell, France, and Ted Newland, a Shell
senior staff planner go to talk to Herman
Kahn.
They adopt and rework the method for
Shell.
Invert the central predict-and-plan culture:
Not: determine what’s most likely – plan
intensively for that.
But: assume every important outcome does
emerge – various scenarios – “what will our
challenges and best business options be in
each case?”
29. Adam Gordon 29 www.adamvgordon.net
Managers spend their time thinking
“what are the chances that X or Y or Z
will happen?” Determine which is most
likely and plan for it
They should be spending their time
thinking: “what if X happens, what’s
our strategy? What if Y happens,
what’s our strategy? …
Scenarios:
Turning prediction on its head
30. Adam Gordon 30 www.adamvgordon.net
1971: Everybody “sensed” that geo-
political change, could change the
stability of the existing “oil regime”
which oil companies had dominated for
25 years.
Shell Scenarios 1971-73.
(Pierre Wack, Scenarios: Unchartered
Waters Ahead & Shooting the Rapids,
HBR, 1985)
1971: oil is is $2
1975: oil is $13
1979: oil is $37
32. Adam Gordon 32 www.adamvgordon.net
Scenario Practice Proliferates
Usage spread far and wide:
 Research institutes
 Most Fortune 500 companies
 Many smaller firms
 Trade associations
 Militaries worldwide
 Governments
 Consultants
33. Adam Gordon 33 www.adamvgordon.net
Why a
scenario
“set”?
34. Adam Gordon 34 www.adamvgordon.net
ANALYSIS
Point prediction Scenario planning
Exploring alternative
resolution of uncertainties
that are important for the
success/failure of and
organization
35. Adam Gordon 35 www.adamvgordon.net
Exploring the cone of
plausible uncertainty
Cone Of plausible uncertainty
present
Criticalvariable
?
36. Adam Gordon 36 www.adamvgordon.net
Mapping the cone of
plausible uncertainty
37. Adam Gordon 37 www.adamvgordon.net
LGA
The official future
Going beyond the “official future”;
challenging the dominant paradigm
38. Adam Gordon 38 www.adamvgordon.net
This is not a scenario set:
39. Adam Gordon 39 www.adamvgordon.net
1. Value-neutral
Scenario sets
40. Adam Gordon 40 www.adamvgordon.net
A wind tunnel / testbed for decisions
v.d. Heijden
The Sixth Sense
41. Adam Gordon 41 www.adamvgordon.net
How does current or intended strategy (positioning,
business model, etc.) hold up
in each scenario?
Will it provide a defensible, distinctive value that fits
with market or societal/public need?
Is there still a fit between product (service) and
environment?
What will be necessary key capabilities & positions?
What are the organizations present strengths and
weaknesses in these capabilities or positions?
A wind tunnel or testbed for decisions
42. Adam Gordon 42 www.adamvgordon.net
OR: look at the scenario and determine what
would be good strategy or a good position.
Who will be successful in this world? Why?
What resources, capabilities, business models,
and other key success factors do they possess?
Siemens
43. Adam Gordon 43 www.adamvgordon.net
From scenarios to strategy
1.Generate alternative, plausible future
model worlds
2.Test (1) current or (2) alternate
strategies against these model worlds,
Or (3) determine what would be good
business or a good position in these
model worlds
3. Understand and apply robust strategy
responses …or “take a position.”
44. Adam Gordon 44 www.adamvgordon.net
There is no “good”or “bad” scenario.
Every scenario is good for someone.
We can only have a “bad scenario”
for our current (legacy) capabilities
and investments
45. Adam Gordon 45 www.adamvgordon.net
2. Visionary
Scenarios
46. Adam Gordon 46 www.adamvgordon.net
Still exploring the cone
of plausible uncertainty
Cone Of plausible uncertainty
present
Criticalvariable
?
47. Adam Gordon 47 www.adamvgordon.net
The vision scenario is an ideal outcome – which
identifies and represents the shared hopes of a
community, group, or organization.
It is not an objective scenario. It is a story about how it
would look if everything went right.
Scenarios B, C, D in the set look at the various ways
that things could go partially or totally wrong.
There is one clearly preferred, desirable scenario.
Visionary Scenarios
48. Adam Gordon 48 www.adamvgordon.net
Shaping “a better future”
Influencing the future
through eliciting shared
preferences, wishes,
values and fears. Tells
the story of a high road,
compared to various low
roads
• Silent Spring
• No to Nukes
• “Rainbow nation”
• Zero carbon footprint
• etc
54. Adam Gordon 54 www.adamvgordon.net
Value-mapping the cone
of plausible uncertainty
Could be
better
Good!
Disaster
So-so
55. Adam Gordon 55 www.adamvgordon.net
Multiple – often adversarial –
stakeholders, including
government officials, labor
unions, business leaders, rebel
and revolutionary groups,
community organizations and
educators.
Broad involvement
56. Adam Gordon 56 www.adamvgordon.net
Vision scenarios are a tool for problem-
solving at the national or local level.
Creating a single, shared vision that satisfies
all players: the scenario that all can agree on,
that is consistent with everyone’s goals.
Create or increase alignment around a
desired future or strategic direction.
This is: “The best path forward for all”
Develop it together – buy in.
Consensus-building rationale
57. Adam Gordon 57 www.adamvgordon.net
Strategy
Implementation
(& change
management)
Action
Planning
Visionary
scenario
process works
to align the
visions and
goals of
disparate
stakeholders
Vision,
& goals
Scenarios
Vision,
& goals
Vision, &
goals
A B
58. Adam Gordon 58 www.adamvgordon.net
Raise public awareness. Create high-level
recommendations for public action.
Help develop consensus on opportunities and
threats among the wider community. Guide
improvements.
Well-publicized scenarios become a rallying
device for public participation and problem-
solving at the national or regional level.
Communications & PR purpose
59. Adam Gordon 59 www.adamvgordon.net
Consider the visionary scenario, asking: What it
would take to get from here to the vision
Identify leverage points – actions to take to
influence each scenario to make it more like the
ideal scenario.
Get the message out! Get sign-ups and join-ups…
Robustness:
Common leverage points across scenarios to
induce the ideal
From visionary scenarios to strategy
60. Adam Gordon 60 www.adamvgordon.net
Value-neutral scenarios
Do scanning & trend
tracking. Isolate key
uncertainties
Develop a scenario
architecture
Consider the worlds that
emerge
Develop a strategy that is
robust across all worlds.
How do we survive and
profit, given what could
plausibly happen?
Scenario logics compared
Visionary scenarios
Do scanning & trend tracking
Listen to all needs and
preferences
Find a future that we all agree
on. Make this one scenario
Chart divergence(s) from this
ideal future, incl. the present
trajectory
Make strategies to bring us
closer to this ideal future
How do we make this scenario
come true?
62. Adam Gordon 62 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
63. Adam Gordon 63 www.adamvgordon.net
Project Parameters
A. Time horizon?
B. Who is involved?
C. Informing a specific decision or
a general view of coming
terrain?
64. Adam Gordon 64 www.adamvgordon.net
Scenarios only provoke genuine learning
and strategies when they answer genuine
concerns.
Figuring out the key question or important
uncertainties is a crucial step. The scenario
must be build around the uncertainties that
matter to decision makers. (What would be
really useful to know?)
If the group doesn't care about the question
they're trying to answer, the rest of the
exercise is a waste of time.
65. Adam Gordon 65 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
66. Adam Gordon 66 www.adamvgordon.net
Chart key patterns, relationships and forces
in the organisational and transactional
environment.
• Market research
• Industry analysis – 5 Forces model, etc.
• Industry competitive dynamics
• Competitor intelligence
• Value chain analysis
• System dynamics and feedback loops
• … and any other status quo tool you like
Define the static picture:
Status quo of market and industry environment
67. Adam Gordon 67 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
69. Adam Gordon 69 www.adamvgordon.net
us
culture
environment
values
macro
economics
technology
govt. &
policy
business
international
relations
Infinite futures
OUTSIDE-IN THINKING
Organizations
are most often
“event-takers”
or “trend-takers”
– not makers.
70. Adam Gordon 70 www.adamvgordon.net
Driver(s) Trend(s) Outcome(s)
Friction
Blocker(s)
71. Adam Gordon 71 www.adamvgordon.net
Drivers, blockers, and
trends in the future of
your sector or industry?
72. Adam Gordon 72 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
73. Adam Gordon 73 www.adamvgordon.net
Predetermined elements vs. uncertainties
1. What is the suggested effect of
change driver or trend?
(outcome at scenario-time limit)
We are sure
(if and what)
We are unsure
(if and what)
2. Will a change occur, and turn into
an outcome in our industry that we
can be reasonably sure about?
Predetermined
element
Uncertainty
74. Adam Gordon 74 www.adamvgordon.net
Predetermined elements
and critical uncertainties
in the future of your sector
or industry?
75. Adam Gordon 75 www.adamvgordon.net
2005 Scenarios for Credit Unions:
Certainties:
• Customer knowledge continues to
improve dramatically
• Baby boomers redefine aging and
retirement
• Credit union consolidation continues
• Expansion of fields of membership
• Non-bank financial services providers
increase share
• Credit unions are increasingly
embraced as “trusted mediator”
• Internet banking increases
• Telephone banking increases DSI
76. Adam Gordon 76 www.adamvgordon.net
Uncertainties have polarities
UK LGA
77. Adam Gordon 77 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
78. Adam Gordon 78 www.adamvgordon.net
Which
uncertainties
are most
important to
(have most
impact on)
the industry
environment?
Ranking uncertainties:
2
3
2
3
5
4
1
2
1
1
79. Adam Gordon 79 www.adamvgordon.net
Certainties
enter every
scenario
Uncertainties
vary across
the scenarios
Doing uncertainty and importance at same time
Low impact items
seldom enter the
scenarios
80. Adam Gordon 80 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
81. Adam Gordon 81 www.adamvgordon.net
Select scenario logic
Most important uncertainties
“2 by 2” “Fork in the road”
A
B
C
D
A B
C D
Structured
randomization
82. Adam Gordon 82 www.adamvgordon.net
Uncertainty 1 (A)
Uncertainty 1 (B)
Uncertainty 2 (A) Uncertainty 2 (B)
“2 by 2” Matrix
Each quadrant
points to a different
future operating
environment for the
organization
83. Adam Gordon 83 www.adamvgordon.net
Scenario
PlanningWhat
does the
world look
like in
each
quadrant?
84. Adam Gordon 84 www.adamvgordon.net
Identify the fork.
Make a scenario that
explores each path.
Shell “People &
Connections:
Scenarios to 2020”
Today
Fork-in-the-road: one critical uncertainty
85. Adam Gordon 85 www.adamvgordon.net
A special
case of
Fork-in-
the-Road:
“The official
future” vs. a
diverging path
86. Adam Gordon 86 www.adamvgordon.net
DIVERGENCE FROM THE OFFICIAL FUTURE
1. Start by articulating the official future — the
future that your organization is planning for.
2. What must be true for this future to be
realised? What assumptions are necessary?
3. Reverse these assumptions.
4. Develop stories of the future that diverge from
the official future in plausible ways.
87. Adam Gordon 87 www.adamvgordon.net
The official future vs.
divergence from it,
in the future of your
sector or industry?
88. Adam Gordon 88 www.adamvgordon.net
Structured randomization
89. Adam Gordon 89 www.adamvgordon.net
Do Wildcard Scenarios Separately
• Pandemic
• Flood
• Fire
• Terror attack
• Ethnic cleansing
• Civil war
• National war
• Eco Disaster
• Banking collapse
• Economic Crisis
90. Adam Gordon 90 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
91. Adam Gordon 91 www.adamvgordon.net
Stories about world of future stakeholders / customers:
1. Create human interest. Provide context for
potential events
2. Balance imagination and plausibility
3. Show cause and effect
Put people – stakeholders or customers – in the story.
Scenarios are alternative stories of how what is valuable
to people or how they access that value may change
(threats and opportunities).
Write up scenario stories – scenario media
92. Adam Gordon 92 www.adamvgordon.net
Accenture: Future of Europe 2008
94. Adam Gordon 94 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
95. Adam Gordon 95 www.adamvgordon.net
Test the model worlds
Reality check to ensure that stories aren't just
science fiction.
A. LOGICAL ANALYSIS
Is there a plausible chain of events, actions, and
counter-reactions that could lead to this future?
What other actions would have to take place to
make it plausible?
B. ACTOR (STAKEHOLDER) ANALYSIS
Walk through the scenarios from every point of
view. Who would support the scenario emerging.
Who would block the scenario or try to change it?
96. Adam Gordon 96 www.adamvgordon.net
5. rank
uncertainties
6. Select
scenario
logic
7. Flesh out
scenario
worlds
8. Write
scenario
stories
9. Test
A. Define
D. Use
C. Build B. Explore
10. Develop
strategy
implications
12. Renew
11. CommunicateSteps in
making
scenarios
2. Define
industry/sector
status quo
1. Define
project
parameters
3. Identify trends
& driving forces
4. Determine
uncertainties &
their polarities
97. Adam Gordon 97 www.adamvgordon.net
Do we assign probabilities to the scenarios?
Why? Why not?
Scenarios are not predictions. You have not
“got it right” if the world comes to pass as
stipulated in one of your scenarios.
You have got it right if the set as a whole
captures the outcomes that emerge
Avoid returning to the predictive mindset.
Probability?
98. Adam Gordon 98 www.adamvgordon.net
Strategy is not just defensive.
If the organization is strong in
capabilities, resources, or positions, for
the scenario set:
How do we grow / exploit this in the
future? What are the new applications
of existing capabilities?
In each scenario, what is the leverage
action that best leverages our current
capabilities, positions, distinctiveness
for that scenario?
Leveraging existing capabilities
99. Adam Gordon 99 www.adamvgordon.net
Using any or all of the techniques
mentioned, build a set of scenarios
to help your organization manage
its 5-15 year horizon.
Be ready to present your work to
the group.
Making scenarios: your turn
100. Adam Gordon 100 www.adamvgordon.net
Adam Gordon, PhD
www.adamvgordon.net
mail@adamvgordon.net