ONE of the key management functions in any corporation is to formulate a business strategy to help the corporation reach the desired goals and objectives. The highest level goals and objectives are often outlined in the statements on the vision, mission, and shared values of the company.
Business strategy is planning about the future, hoping to realise certain outcomes and achieving certain stated objectives. However, there are real challenges associated with business strategy and planning. It is important to know how to mitigate the risks of uncertainties inherent in strategy formulation.
A business strategy defines the methods and tactics needed within the context of the given environment and challenges to achieve the goals and objectives of the particular business. The strategy will guide many of the organisational decisions, such as the hiring of new employees, the procurement of additional equipment and resources and allocation of existing resources.
A business strategy helps different departments work together, ensuring that decisions made at the departmental level support the overall direction of the company, thereby helping to achieve the vision.
One can allocate a lot of resources and time to ensure the plans and strategies are the best possible but even the best of plans are vulnerable to any change or shift in the future business environment which could render the strategy and action plans ineffective or even obsolete.
So a strategy and business plan that does not take into account of possible change or shift in the business environment is not a robust one. In fact, a change in circumstances or shift in fundamentals could make it impossible to follow through the original strategy.
Therefore, a real challenge in the strategic planning process is how to cater for any change or shift in the environment, often beyond the planning horizon. Change cannot be ignored as it is almost a certainty, and its happening is just a matter of timing or the time horizon it will unfold. Actually, change is happening all the time, like the ebb of the sea and the flow of the winds.
As Heraclitus, a Greek philosopher, has been quoted as saying “change is the only constant in life”. Well not quite but relating to the subject of this article, it drives home the point strongly. There are other constants as stated in the famous quote, “Nothing is certain except death and taxes” — said to have originated from Benjamin Franklin in 1789.
Knowing the inevitability of change but the uncertainty of its timing of occurrence, how does one prepare for it in the strategy and planning process? This brings to mind the title of this article — the need to not just imagine but also to reimagine or decipher the plausible scenarios of the future.
Obviously, it’s not an easy thing to do. We are no oracles or soothsayers. We can’t predict the future. Fortunately, there are tools and approaches that can be used for this purpose.
One of the useful tools to cater for change or shift in the business environment is what is termed as ‘scenario planning’. One of the global companies which has developed, practised and fine-tuned this capability is Shell company.
I remember being among the handful of staff members selected to be the first generation and pioneers to adopt and practise scenario planning in Petronas. We were the fortunate ones who were given face to face and hands-on coaching and training in the philosophy, approach and techniques of scenario planning by the early founder-practitioners of the art of scenario planning in Shell.
We got trained by the very best in the business in our office in Kuala Lumpur. Kind of says a lot about how bloody minded Petronas was about capability building and skills mastery. One of the secrets behind Petronas’ success.
All those pioneers have since left or retired from the corporation. But knowing Petronas, I believe they would have developed successor practitioners of the art of scenario planning to ensure sustainable long-term competitiveness.
Scenario planning is a structured process to develop a set of plausible future scenarios that could unfold if certain identified or imagined conditions or assumed developments should materialise.
There are specific steps and tools to take in developing scenarios. Take for example, in one of those sessions back then we were trying to understand the possible shift that would happen to the business landscape that would affect the success of Petronas.
After going through the various steps and approaches, the team tasked with developing the scenarios came up with three plausible scenarios as follows:
- One World, Their World
- World of Bubbles
- Status Quo World
One World, Their World Scenario: This scenario postulated that the world will evolve into a unipolar world, and into a world dominated by one group of countries or a small group who will call the shots in basically all aspects, especially in the business arena.
The obvious strategic issue then was how to manage and formulate strategies for the business to ensure sustainable success and long-term relevancy if such a shift were to occur.
This scenario is akin to the concept of The New World Order we hear of nowadays.
Back then, we already saw or imagined what is happening today through a structured thinking process which leverages on the scenario planning approach.
In the real world of business where decisions and investments have to be made on the basis of the best information available at that time and coupled with the fact that major investment decisions once made are irreversible, scenario planning methodology can be combined with real options analysis to help identify what to do in the future; or to help guide the timing of the decision to exercise a real option.
The scenarios developed can provide an important input in the process of evaluating real options for the future. It’s like strategising now for a plausible future that may happen by having some possible options available whilst implementing real-time strategies and plans at the same time. It’s about dynamic strategy, planning and execution.
The term “Their World” was meant to refer to the scenario where the “One World” is created for the benefit of the members of the club of elite members who only deals mainly amongst and between themselves to the exclusion of others. So, if you are not a member or participant in the One World, you will be at a disadvantage such as due to trade barriers, tariffs, executive orders, exclusions and even boycott.
World of Bubbles Scenario: The World of Bubbles scenario imagined a world divided or broken up into different discrete groupings or trade blocks. This was also a real possibility back then as countries were intent on groupings along regional lines. The challenges that such a plausible future presented were no less daunting.
A fractured world will have a lot more complexities and requirement which may be different or even opposite to each other. As a global company or one contemplating to be a global corporation, more complexities and different requirements are major issues and have to be taken into account when developing the corporate strategy.
The World of Bubbles is a likely scenario if the One World, Their World scenario fails to materialise for some reason or other. The permutations of a World of Bubbles could result in several groupings of countries bound together by common aspirations and interests.
The forces and underlying developments already exist or are emerging to drive such a development towards more regional based groupings or bubbles.
Alternatively, the world could evolve into just two bubbles represented or dominated by China and the United States. Europe will no longer be an independent grouping but will be split along the lines of pro-China or pro-United States, forming subsets of the two main bubbles.
Alternatively, the bubbles could evolve into a grouping of three sets of bubbles where the countries not aligned to either of the United States led bubble or the China led bubble are bound together in a grouping of separate bubble made up of the “non-aligned” countries as conceptualised by the Non-Aligned Movement (NAM) idea.
The Status Quo World: This scenario assumed no change or shift was likely to happen in the planning horizon. It’s the business as usual world and our planning assumptions should hold. This scenario was like the “control experiment” model and hence a safer, “not to be unduly concerned about scenario”.
Since those three scenarios were developed, others were also formulated over the years. Every few years, a new set of plausible futures or scenarios are developed building on the past scenarios and reimagining the future.
For example, today, we are aware of a major shift that is affecting the whole world and has major implications to business as well as all other aspects of life on Earth. I am referring to climate change due to the global warming phenomenon, which is the major and fundamental shift facing the whole world today, and a recurring topic of discussion in many fora and has been covered a few times in articles I have written for this paper.
To ignore this major shift in a scenario planning exercise is ignoring the obvious. Like the proverbial frog under the coconut shell. Small shell that is.
Just very recently, I read a report in The Malay Mail quoting a statement from the World Health Organisation (WHO) which raised an alarm about a present major shift that is unfolding.
Something that all businesses have to take into account in terms of scenario planning about the future and the now. Ignoring this present danger is as good as committing ‘hara-kiri’. The relevant extracts are given below.
Quote:
GENEVA, April 4 — A full 99 per cent of people on Earth breathe air containing too many pollutants, the World Health Organization said today, blaming poor air quality for millions of deaths each year.
Fresh data from the UN health agency showed that every corner of the globe is dealing with air pollution, although the problem is much worse in poorer countries.
“Almost the entire global population (99 per cent) breathes air that exceeds WHO air quality limits, and threatens their health,” the agency said in a statement.”
Unquote
Creating a business strategy that’s in line with the vision that you have adopted for your organisation, company or grouping takes time and efforts to develop. It will be very useful and will enrich you strategic positioning if you know how to develop alternative scenarios about the future and use these to “speak” to your strategies and business plans.
Properly developed, the sheer breadth and depth of perspective gained from your scenarios of plausible futures will inspire many successful partnerships and initiatives that you can leverage on. Scenarios can help guide you to make the right decisions or to select the right partnerships, field of play, country or region where you can be best positioned.
As plausible and challenging descriptions of the future landscape that you will be embarking on, the scenarios that you have developed will help stretch your thinking and help you to make crucial choices in times of uncertainty and transitions.
Something very pertinent in the present as we grapple with tough energy and environmental issues and fundamental shifts due to Climate change.
The ability to imagine and reimagine the future is a skill and competency that we cannot do without. It’s unimaginable for any business or organisation of any form to not indulge in scenario planning as they prepare for the future.
The reality is that every single decision in your organisation tends to be a choice under a degree of uncertainty; and in practice, what we end up doing is basing our choices on possible outcomes and best case predictions about where the future is going to go or how things will unfold. And that’s where scenario planning becomes a useful tool.
Obviously, the plausible scenarios to be developed can be at different levels of degree of granularity — from a macro and global level as discussed in this article or at a more specific and narrower level suited to the intended purpose of developing the sets of alternative scenarios. For example, a set of alternative scenarios could be develop to cover a particular industry or specific product, and so on.
The tools used to do the analysis are the same, such as the PEST Analysis approach, but the focus of the application of the tools can be different, depending on the level or degree of granularity and specificity of analysis that is required. But in all scenario planning assessments, the focus is to identify the shift or likely changes in the future that could affect existing or current perception of the context or business circumstance and so on.
The shift could be dramatic or tectonic in nature, with different timelines of occurrence but the failure to understand the change that would emerge can be fatal to the business.
There are many well-known brands and big companies which disappeared altogether or were swallowed up by other existing companies or by new ones which did not even exist when those big companies were reigning as giants who appeared unbeatable in their heydays.
Social values and imperatives could change or technological progress emerge that will change how the game will be played. The disruptive role of new technology or business models is for real and the failure to anticipate such changes or emerging shift will be fatal to those without the necessary insight. The role of scenario planning is the key to understanding plausible futures.
