Strategic Scenario Planning

Planning season has arrived for many companies, and it couldn’t be more different from that of past years. Gone are the days of linear trend extrapolation exercises that produce base, upside, and downside cases. Strategists who now face the most profoundly uncertain times in their careers are creating disaster scenarios that would have been unthinkable until recently, and they are making the preservation of cash integral to their strategies. Most strategists are avoiding the obvious mistakes of planning as usual or, conversely, eliminating essential strategy development activities or even strategic planning itself.

Nonetheless, strategists remain deeply and understandably concerned that the priorities emerging from the annual planning rituals won’t address the demands of today’s tumultuous environment. Most companies will have to consider more variables and involve more decision makers than they have in the past. Strategists will also need to place a greater emphasis on measurement—the only way to recognize when changing conditions merit quick strategic adjustments.

Be Realistic About Scenario Planning

The art of strategy, in defense, involves understanding possible futures to inform present decisions. Change, volatility, and uncertainty are perennial challenges to the defense strategist that are likely to increase in the coming years. Liddell Hart, perhaps the foremost thinker on military strategy in the twentieth century, writes, “To move along the line of natural expectation consolidates the opponent’s balance and thus his resisting power. In strategy and tactics, the longest way around is often the shortest way home.

In a highly uncertain environment, the advantages of scenario planning are clear: since no one base case can be regarded as probable, it’s necessary to develop plans on the assumption that several different futures are possible and to focus attention on the underlying drivers of uncertainty. Today’s pervasive uncertainty complicates scenario-planning efforts: the number of variables at play—and the range of plausible outcomes—have exploded in the past year. Consider, for example, the predicament of an industrial supplier that is not only heavily exposed to commercial development but also has many government customers.

Since the heart of scenario planning—crafting a number of strategies for different outcomes—has become significantly more complex. Similarly, as the process of reviewing business units gets under way, a company can inculcate an appreciation of the threats it faces and of its collective strategic response by inviting executives from a number of divisions to participate in the proceedings—rather than hold one-off events between the senior team and the leader of each individual unit.