In 1973, the US was caught in the grip of a crisis – the oil embargo. Gas prices jumped +300% overnight. Economic and political turmoil was the norm. During this time, many firms, including the oil companies, were on the verge of failing. Yet during this time, one company – Royal Dutch/Shell – thrived and grew. While others panicked, Shell executed a plan that had previously been rehearsed should such a crisis emerge. A plan that was based on one of many possible futures Shell considered during its regular planning process. Through this planning process, Royal Dutch/Shell had foreseen the possible formation of OPEC and the resulting shift of control for the world oil supply.
In today’s terms, we are dealing with our own set of challenges and unforeseen futures such as new technologies, foreign competitors, etc.
Is your company “thriving” or “panicking”?
Many executives are being caught by surprise. Strategies and plans are being undone by unexpected changes – changes in the economy, technology and regulations that define the “playing field”. While being blindsided, executives (and their boards) often make sudden and reactionary changes, which in the end exacerbate the original problem. “If we had only known what was going on,” they eventually say, “we could have avoided this crisis.”
To avoid the turmoil, businesses need a better way to predict the future.
What does the future hold? It is the age-old question that businesses attempt to answer during the annual strategic planning process. Most strategies are severely constrained by the unpredictability of events – not to mention the unconscious process of aligning (more like aiming) the strategy to a single future. The resulting strategy has built in blind spots – the product of taking for granted that some things can’t or won’t happen. We don’t need to look far for never-before-contemplated events such as the failure of Enron or the bankruptcy of Worldcom. Not having foreseen these surprise events, management teams are at a loss for ways to act when the turmoil hits.
The majority of management teams base their view of the future on an extrapolation of past results (e.g. last years revenue) that they then project toward some future date. The reality is the future cannot be predicted with any certainty. Just as an old Arab proverb says, “He who predicts the future lies even if he tells the truth.”
To be better prepared to respond to the market chaos, management teams need to question their assumptions about everything and to realize they need to plan for multiple futures. The point is not to find the most probable future and “bet the company” on it. Instead, businesses need to identify a range of possible futures (scenarios) that, once understood, help it make better strategic decisions.
For some reason, even when a business looks at multiple futures, there is an almost irresistible temptation to choose one scenario over the others. Unfortunately, reality does not follow even the best predictions. The purpose of a business going through the scenario planning exercise is to help management suspend their disbelief thereby allowing them to truly believe that almost anything might take place. Then and only then can management prepare for what they don’t think is going to happen.
To help you prepare for your possible scenarios, honestly answer the following questions:
- What is the “perfect” future for your business?
- What are the 5 challenges you will face if the “perfect” future comes to pass? (e.g. lack of skilled workers)
- What would be the indicators that predict your “perfect” future is about to emerge? (e.g. consumer spending grows, new IPOs are brought to market)
- What is the “nightmare” future for your business? (e.g. orders for your existing product/service market drops with no likelihood of recovery for quite some time)
- What are the 5 challenges you will face if the “nightmare” future came to pass? (e.g. industry wide purchasing freeze resulting in a significant decline in your revenue)
- What would be the indicators that predict your “nightmare” future is about to emerge? (e.g. housing values drop, unemployment begins to rise, interest rates increase)
- What strategies would you implement that would better prepare you for both futures?
No matter what future takes place, the business will be better able to respond – and ultimately influence the future – if it has thought seriously about its perfect, nightmare and most likely scenarios.
Note: This post was originally posted on August 23, 2003 on the Killer Innovations site. As I was reviewing some of the old blog postings, I felt this was appropriate given the challenges of today that I felt it was worth the effort to repost it …. link to original post