War Wick Thesis

‘Scenario planning, Formulation, Implementation and Effects:

A review of best theory and practice’

by

George Konstantinou Lekeas,

BSc in Mathematics

Dissertation submitted in partial fulfilment for the Degree of

Master of Science in Engineering Business Management

Department of Engineering University of Warwick

September 1999

To my parents,

Constantine and Athina,

who devoted their lives

to make me

a better person...

Abstract

i

ABSTRACT

The topic of this dissertation is scenario planning; it is a relatively new technique since it became popular after the oil crisis that took place in seventies. We will be looking at the formulation of scenarios- presenting the most widespread methodologies, the implementation of these methodologies- the way those are applied in organisational settings will be discussed, and the effects on organisations. The main aim of this project, however, is to assess the suitability of scenario planning as an organisational planning tool; in addition, we will look at the three major schools of thought for scenarios and decide on which one of them delivers betters results. In order to achieve this objective an in-depth literature review was conducted, both primary and secondary, and questionnaires were sent out to a number of big commercial companies as well as to consultancy companies. Moreover, certain people whose experience in similar projects could be proven useful were conducted. The results of the research undertaken show that scenario planning is a suitable planning tool for dealing with the turbulence that characterises the present business environment; this is something we can not expect from other planning methods such as forecasts, portfolio analysis and simulation models. On the other hand, the methods mentioned before can very well be incorporated in the scenario process at specific steps ad add value to it. Simulation models offers managers a risk-free environment to test and quantify the alternative strategies and portfolio analysis can be used for an assessment of the present situation of the company at the first steps of the scenario process. Finally, forecasts have a role to play in the projection of the key elements in a scenario. On the other hand, we should not consider the implementation of the scenario methodology within a company a very easy task. In order for it to be successful, the development team should take into account a number of issues related to the number of scenarios that should be generated, the promotion and communication of them within the organisation as well as a number of other issues of equal importance. As far as the comparison of the three general scenario-generating methodologies, the conclusion is that there is no best methodology applicable in every situation. As a general rule, however, we can say that the more important a decision is for a company, the more money should be spent on the project.

Acknowledgements

ii

Acknowledgements I would like to thank my supervisor, Ms Athina Nicolaides, for her guidance

and support throughout the project. Her help has been invaluable.

I would, also, like to thank Miss Aileen Thomson for the help she offered me

in this project.

I want to express my thanks to the planning department of the Greek

Telecommunications Industry for the information they provided me with. I am,

also, grateful to all those who kindly and patiently shared with me their

thoughts about the project, helping me the most to make it better.

Declaration

iii

Declaration I hereby declare that this dissertation is the result of my own work, unless

otherwise stated, and the information contained has not previously been used

by me for any purpose.

Table of Contents

iv

Table of Contents

Abstract.................................................................................................................i Acknowledgements..............................................................................................ii

Declaration..........................................................................................................iii

Table of Contents................................................................................................iv

List of Tables.......................................................................................................xi

Table of figures.................................................................................................xiii

Table of abbreviations.......................................................................................xiv

Chapter 1

Project Introduction

1.1 Introduction........................................................................................1

1.2 Research Objectives...........................................................................1

1.3 Research Interests...............................................................................2

1.4 Research Methodology.......................................................................3

1.5 Chapter Layout...................................................................................4

1.6 Limitations.........................................................................................6

Chapter 2

Origins of Scenario techniques and Present trends

2.1 Origins of Scenario Techniques.........................................................7

2.1.1 Military History...................................................................7

2.1.2 Economic History................................................................8

2.2 Development of Scenario Planning after the Second World War......9

2.3 Present trends in scenario planning.................................................17

Table of Contents

v

2.3.1 The survey of the Conference Board Europe....................17

2.4 A movement towards new techniques for decision-making............20

2.5 Drivers of change.............................................................................23

2.5.1 Technology........................................................................24

2.5.2 Changes in societal factors................................................26

2.5.3 Global Economic Forces...................................................28

2.5.4 Political Revolutions.........................................................29

2.6 Uses of scenario planning................................................................31

2.7 Conclusions......................................................................................32

Chapter 3

The scenario process

3.1 The eight steps in a scenario process...............................................36

3.1.1 Introduction.......................................................................36

3.1.2 Task Analysis....................................................................37

3.1.3 Influence Analysis.............................................................39

3.1.4 Projections.........................................................................45

3.1.5 Grouping Alternatives.......................................................46

3.1.6 Scenario Interpretation......................................................48

3.1.7 Consequence Analysis.......................................................50

3.1.8 Analysis of Disruptive Events...........................................51

3.1.9 Scenario Transfer..............................................................53

Chapter 4

Scenario compared to other planning methods

Table of Contents

vi

4.1 Scenarios compared to forecasting..................................................56

4.1.1 The need and dangers of forecasting.................................56

4.1.2 Comparing scenarios with forecasting..............................58

4.1.3 Conclusion.........................................................................60

4.2 Scenarios compared to portfolio analysis.........................................61

4.2.1 What is portfolio analysis?................................................61

4.2.2 Comparing scenarios with portfolio analysis....................62

4.2.3 Conclusion.........................................................................62

4.3 Comparing scenarios with simulation..............................................63

4.3.1 The need and dangers of simulation..................................63

4.3.2 Comparing scenarios with computer simulation models..63

4.3.3 Integrating simulation and scenarios.................................64

4.3.4 Conclusion.........................................................................66

4.4 Conclusion........................................................................................66

Chapter 5

Methodologies for constructing scenarios

5.1 Introduction......................................................................................68

5.2 SRI....................................................................................................68

5.2.1 Background.......................................................................68

5.2.2 Method..............................................................................69

5.3 NCRI................................................................................................72

5.3.1 Background.......................................................................72

5.3.2 The Future Mapping Method............................................72

Table of Contents

vii

5.4 The Futures Group.........................................................................75

5.4.1 Background......................................................................75

5.4.2 Methodology....................................................................76

5.5 The French School...........................................................................78

5.5.1 Background.......................................................................78

5.5.2 Methodology....................................................................78

5.6 The European Commission’s Methodology....................................81

5.6.1 Background.......................................................................81

5.6.2 Methodology.....................................................................82

5.7 The Global Business Network..........................................................83

5.7.1 Background.......................................................................83

5.7.2 Methodology.....................................................................83

5.8 The Copenhagen Institute For Future Studies..................................86

5.8.1 Background.......................................................................86

5.8.2 Methodology.....................................................................86

5.9 Computer-Driven Simulations.........................................................87

5.9.1 Background.......................................................................87

5.9.2 Methodology.....................................................................87

5.10 Comprehensive Situation Mapping (CSM)....................................88

5.10.1 Methodology...................................................................88

5.11 Battelle’s Basics.............................................................................88

5.11.1 Methodology...................................................................88

Chapter 6

Table of Contents

viii

Setting up the scenario agenda in a company

6.1 Introduction......................................................................................91

6.2 Overview..........................................................................................92

6.3 Towards the scenario agenda...........................................................93

6.3.1 The two players.................................................................93

6.3.2 Defining the scope of the project and getting the

information.........................................................................................................94

6.3.3 SWOT Analysis.................................................................94

6.3.4 Interviews..........................................................................97

6.3.5 Interview techniques.......................................................101

6.3.6 Interview analysis............................................................102

6.4 The scenario agenda.......................................................................103

Chapter 7

Uses of scenario planning

7.1 Introduction....................................................................................105

7.2 Scenarios in corporate planning.....................................................105

7.2.1 Introduction.....................................................................105

7.2.2 The business corporate planning strategy system...........106

7.2.3 Uses of scenarios in corporate planning..........................111

7.3 The scenario method for technology investments..........................115

7.3.1 Introduction.....................................................................115

7.3.2 The scenario method for technological decisions...........116

7.4 Customer-driven scenario planning...............................................118

Table of Contents

ix

7.4.1 Introduction...................................................................118

7.4.2 Customer-driven scenario planning................................119

Chapter 8

Case studies

8.1 Introduction....................................................................................123

8.2 British Airways..............................................................................123

8.2.1 Introduction.....................................................................123

8.2.2 The methodology.............................................................124

8.3 Shell............................................................................................... 130

8.3.1 Introduction.....................................................................130

8.3.2 The methodology.............................................................130

Chapter 9

Discussion on findings

9.1 Introduction....................................................................................138

9.2 Scenarios compared to forecasts and simulation............................139

9.3 Advantages of introducing scenario planning to a company.........142

9.4 Pitfalls in scenario planning...........................................................147

9.5 The scenario generating method....................................................152

9.6 Remarks on scenarios.....................................................................157

9.7 The three different ‘schools of thought’ for scenario planning......164

9.8 Further work...................................................................................167

Chapter 10

Conclusions

Table of Contents

x

Conclusions......................................................................................................169

References........................................................................................................173

Bibliography.....................................................................................................179

Appendix 1

The Brainstorming method...............................................................................185

Appendix 2

The General Electric’s planning process..........................................................190

Appendix 3

Letter to organisations......................................................................................192

Appendix 4

Letter to consultancy companies.....................................................................195

Appendix 5

Questionnaire...................................................................................................197

List of Tables

xi

List of Tables Table 1 Questions asked in the Conference Board’s survey.......................................................18

Table 2 Critical issues for incorporating forecasting in our planning system.............................22

Table 3 The four areas of change................................................................................................25

Table 4 Uses of Scenario Planning..............................................................................................32

Table 5 The eight tasks in a scenario process..............................................................................37

Table 6 Typical questions for finding solutions to problematic areas.........................................38

Table 7 Ranking system for the elements on the network matrix................................................41

Table 8 Rules for making a system succesful..............................................................................44

Table 9 Questions for constructing the consistency matrix.........................................................47

Table 10 Steps for choosing the ‘best’ scenarios.........................................................................48

Table 11 Factors that are assessed during the scenario analysis................................................. 50

Table 12 The four categories of products according to the BCG matrix.....................................61

Table 13 Benefits from using simulation in the scenario process...............................................64

Table 14 Steps for integrating simulation and scenarios.............................................................65

Table 15 Guidelines for simulating scenarios successfully.........................................................66

Table 16 The three ‘schools of thought’ of scenario analysis.....................................................68

Table 17 Advantages of the SRI method.....................................................................................69

Table 18 The two basic principles of the Future Mapping method.............................................73

Table 19 The terminology used in the Future Mapping method.................................................73

Table 20 Stages in a scenario project according to the Future Group’s methodology................76

Table 21 The three stages in a scenario project according to the French School........................79

Table 22 Levels of influence.......................................................................................................79

Table 23 The GBN methodology................................................................................................84

Table 24 The Battelle’s methodology.........................................................................................89

Table 25 Parts of a SWOT analysis............................................................................................ 95

Table 26 The three categories of weaknesses..............................................................................96

Table 27 Rules for having a succesfull interview........................................................................98

List of Tables

xii

Table 28 Three questions to ask for formulating the business’s strategy..................................107

Table 29 Eught factors for evaluating our strategy....................................................................108

Table 30 The process followed in project planning...................................................................110

Table 31 Rules associated with dimensions...............................................................................116

Table 32 The eight steps of the brainstorming method..............................................................186

Table 33 Rules associated with the brainstorming method.......................................................188

Table of figures

xiii

Table of figures Figure 1 The dangers of forecasting...........................................................................................34

Figure 2 A typical network matrix..............................................................................................40

Figure 3 System Grid...................................................................................................................42

Figure 4 Effects of disruptive events...........................................................................................52

Figure 5 Projected vs Real Demand for Ships.............................................................................58

Figure 6 The SRI Approach.........................................................................................................70

Figure 7 From scenarios to strategy.............................................................................................72

Figure 8 The Futures Group methodology...................................................................................76

Figure 9 Influence/ Dependence diagram....................................................................................80

Figure 10 The Battelle’s methodology........................................................................................89

Figure 11 The five levels of corporate planning........................................................................109

Figure 12 The driving forces......................................................................................................127

Figure 13 Schematic illustration of the ‘Wild Gardens’ scenario..............................................128

Figure 14 Schematic illustration of the ‘New Structures’ scenario...........................................128

Figure 15 The major oil exporters.............................................................................................133

Figure 16 The General Electric’s planning process...................................................................190

Table of Abbreviations

xiv

TABLE OF ABBREVIATIONS

SRI Stanford Research Institute MIT Massachusetts Institute of Technology U.S. United States G.E. General Electric B.C.G Boston Consulting Group NCRI Northeast Consulting Resources

Inc. GBN Global Business Network UPM Unified Planning Machinery

Chapter 1- Project Introduction

1

Chapter 1

Project Introduction

1.1 Introduction

This chapter will introduce the objectives of the project, as well as the

research interests. In addition, the research methodology, which was followed

for the successful completion of it will be discussed and analysed. Finally, there

is a layout of the project’s contents.

1.2 Research Objectives

The first objective of the project is to ‘bring to light’ all the available

resources for this subject in order to have a clear view for it. Scenario planning,

despite the fact that as a concept it exists since the Roman times, is a relatively

new method with respect to its implications on organisations. In order to

achieve that objective a literature review, both primary and secondary, was

conducted in the field of scenario planning,.

Once this is done, the second objective is to identify and present how

scenario planning is used in practice. This includes both the general scenario

approach method as well as the various methodologies derived from it in order

to develop scenarios. The several techniques used in each stage of the scenario

approach method will also be presented.


2

The third objective concerns the ‘ practicalities’ of scenario planning; this

refers to the process before implementing scenarios in organisational settings. It

involves the formulation of the scenario team as well as the procedure that

needs to be followed during the scenario workshops.

Apart from the theory on scenario, it is also important to assess its

implications in industries. That approach will enable us to draw conclusions

upon the relationship between theory and practice. This will be done by the use

of relevant case studies.

Finally, it is certainly beneficial to reach a conclusion about the suitability of

scenario planning as a tool for organisational planning. In addition, companies

should be aware of any pitfalls involved in this approach; these will be

discussed as well.

1.3 Research Interests

The first research interest focuses on the comparison of the various

techniques that have been developed and used by various universities and

consultancy companies, in terms of the ‘schools of thought’ they represent. It

would be, certainly, useful to compare as many techniques as possible in the

context mentioned above and draw conclusions based on these comparisons.

Another important area that attracts our attention is the area of pitfalls for the

companies. It is many times the case that the theory seems very simple but in

practice the opposite is proven. We will, therefore, be identifying those pitfalls.


3

1.4 Research Methodology

The research that was followed for the project is divided into four parts:

primary literature review, secondary literature review, questionnaires and

personal contacts. These are explained in more details below.

As far as the primary literature review is concerned, this term is used in order

to describe all literature available in public domain. A search in the university’s

library was conducted; the research was extended to other universities’ libraries

as well. Moreover, a search was conducted on the World Wide Web; this

includes web sites available to the public as well as certain databases- some of

them requiring subscription in order to get the information.

With respect to secondary literature review, this includes sources of

information not available in the public but someone has to get in touch with

companies in order to get them I managed to get some information from the

Greek Telecommunications Organisation; this organisation is currently

undergoing a scenario-planning project.

It is always useful to learn from other people’s experience from similar

projects. I have conducted a number of people, both academics and from

companies, who might have been involved in scenario planning projects in the

past (Appendices III & IV). The purpose those projects were conducted for

varied from case to case- it could be, for example, marketing or corporate

planning.


4

The final form of research that I used was the formulation of certain

questionnaires (Appendix V). Those questionnaires included questions on the

length of a typical scenario project the company has undertaken as well as on

their experiences from this procedure.

1.5 Chapter Layout This thesis consists of nine chapters, the content of which is briefly described

below.

The first chapter is an introductory chapter that refers to the objectives of this

study; these are clearly stated along with the research interests. In addition, a

description of the research methodology is included.

The second chapter deals with the ‘ history’ of scenario planning. It traces its

origins back to the Roman times and it describes its progress after the end of the

Second World War. Likewise, the present trends associated with this

methodology are presented along with those factors that are responsible for the

rapid changes taking place, making scenario planning a very popular technique.

A very strong trend was that forecasting is the method an organisation should

use as a tool for planning; in fact, it was common belief that the more

sophisticated a model is the more appropriately it describes the situation. The

third chapter deals with that belief by comparing scenario planning with

forecasting as well as with portfolio analysis and simulation.

Once the need and the usefulness of scenario planning are established, we

need to define the scenario approach and describe the eight steps involved in


5

that. The fourth chapter does that serving, in parallel, as an introduction for the

next chapter.

The various methodologies that are used by certain institutions and

consultancy companies are the subject of the fifth chapter. A distinction is made

between the three categories- intuitive logics, trend-impact analysis and cross-

impact analysis- that the methodologies can be classified into in broad terms;

each methodology is then, in turn, described.

The next step is to move from the theory to the ‘practicalities’ of the method;

this is done in the sixth chapter. In this chapter, the procedure for undertaking a

scenario project, from the formulation of the team in charge of the project to the

organisation and implementation of the workshops, is described.

As far as the areas within a company that scenario planning is applied, a

comprehensive list should include almost all its departments; from the

marketing and sales department to the R&D and planning departments. The

seventh chapter gives us a ‘flavour’ of the applications of scenario planning. In

particular, it deals with three of them; the use of scenarios in corporate

planning, for technology-related decisions and for customer-driven planning.

The eighth chapter is wholly devoted to case studies in order for us to be able

to compare theory with practice. The cases of British Airways, Shell and the

British Telecommunications Organisation are presented and examined.

It is the case, beyond any doubt, that scenario planning can give to a

company many advantages; on the other hand it is often misused. These topics

are assessed in the ninth chapter along with the pitfalls for companies when


6

using this methodology. Moreover, a general methodology is derived and

certain recommendations are made for the way scenarios should be developed.

A summary of the work done can be found in the tenth chapter, which is the

final of this dissertation. This chapter will also include the conclusion that was

reached along with the recommendations that were made in the previous

chapter.

1.6 Limitations

With respect to the limitations of the project these were, in essence, two. The

first one was that no replies were received from the companies to whom the

questionnaires were sent. This dispossessed us from information on the insights

of scenario planning as experienced by companies in real life.

Moreover, a scenario planning project is, as we will see, a lengthy task. Its

duration varies, but in most of the times a period of one year or more is needed.

This did not allow me to set up a case study on my own, but I had to rely on

case studies already published in scientific magazines and journals.

Chapter 2-Origins of Scenario techniques & Present trends

7

Chapter 2

Origins of Scenario techniques and Present trends

2.1 Origins of Scenario Techniques

Seneca’s scripts (as cited in Ute Von Reibnitz, 1988) is the first source of

information when attempting to trace the origins of scenario techniques through

time. ‘It is more important to know whither events turn than to know where

they come from’ is stated in one of his writings. The latter is an indication of

how strongly his mind was occupied with possible ways in which the future can

develop. The ‘ancestors’, however, of scenarios can be found in military and

economic history.

2.1.1 Military History

The earliest indications of scenarios can be traced in Moltke’s and

Clausewitz’s writings at the fall of the eighteenth century. They were dealing

with finding ways of an army to survive and win the war; thus they came up

with proposals to attack one’s enemy at its weakest point, build upon one’s

strong points and bear always in mind the long-term objectives.

It would be useful, here, to make a distinction between strategy and tactics.

The term strategy is used in order to describe long-term plans for winning the

battle; people in the highest positions of the military hierarchy have developed

those. On the other hand, the term tactics is used to describe the actions taking


8

place during the battle; those being in the middle of the hierarchy carried out

the actions required; a distinction similar to the situation in a company.

The scenarios of this type were visionary; there was no explanation for the

way they have emerged from the present situation. They were, however,

developed in order to assist the army in reacting in a right manner to ‘strange’

situations; thus, the victory would be closer.

2.1.2 Economic History

As mentioned above, scenarios were first applied in a military context.

However at the beginning of the seventh decade of this century, we experienced

a move towards their use in business applications; these was the case since

models constructed on the basis of quantitative factors only were proved to be

wrong especially when turning points occurred. Apart from that, Shell’s success

in predicting the oil crisis- as a fact since the year was wrongly estimated-

increased the credibility of this method.

Furthermore, two groups were formed with respect to their orientation in

planning techniques; the first group had a quantitative orientation and its major

representative was the Club of Rome. The second group had a qualitative

approach with Shell being its main representative; we should mention here that

the shift towards qualitative methods took place after the ‘failure’ of

quantitative forecasting. It was then when trial-and-error approaches were

adopted with regard to qualitative planning. The group consisted of other

important institutes as well; these were the Datar Institute- the Office for


9

Regional Planning and Development in France- and the Battelle Institute in

Frankfurt.


10

2.2 Development of Scenario Planning after the Second World War

The use of models as pictures of the real world is common practice; we use,

for example, mathematical models in scheduling, where our objective is to

achieve the best allocation of resources under certain constraints. We need,

however, to make certain that ‘real life’ is represented by the model we built;

there are two requirements we should satisfy in order to achieve that. The first

one is related to the behaviour of our model to any changes either in constraints

or in the external environment; we have to make sure that these are

incorporated in our model as well as any relationships between the forces that

drive this behaviour. In addition, we need an ‘abstract model’ that will allow us

to search for evidence confirming our findings. Because of those two factors, it

is very difficult to make use of forecasting methods in order to drive our

strategic planning process; this is the case because the increased uncertainty of

real life makes the development of an accurate model that would incorporate

everything almost impossible.

Since change takes place at a very fast pace, there is a need of finding a way

in order to deal with uncertainty. Clausewitz- in eighteenth century- was among

the pioneers in this field; his suggestion (as cited in Ringland, 1998, p. 11) was

‘take an educated guess and then gamble that the guess was correct’. This is

where scenario planning ‘comes in’ in order to improve our guess before

gambling. As that, it passed during several stages after the Second World War,

which are described, in more detail, in the remaining of this chapter.


11

As mentioned before, scenario planning made ‘its first steps’ in a business

context the years after the end of the Second World War. It was then when

RAND Corporation was set up; its aim was to research new forms and ways of

weapons technology. The president of RAND, Hermann Kahn, introduced a

new technique; the technique of ‘future-now’ thinking as the term scenario

planning was not used that time. Leo Rosten was the ‘godfather’ of the

technique; the president of RAND accepted this term since it described in the

best way what the technique was about- it was emphasising the creation of a

story.

At the same time, around 1947, Stanford University was setting up its own

institution, the Stanford Research Institute (SRI). The aim of this institute was

to offer long-term planning facilities for businesses as well as science and

military consulting.

The sixth decade of our century was characterised by the idea of science

dominance. As an evidence for that, we can refer to a research carried out in

1966 in which twenty seven top scientists- a relatively small number for

drawing conclusions upon- were asked how the world would be after twenty

years to they opinion (Ringland, 1998). They gave a wide range of answers

from undersea motels and factories using nuclear power as their energy source

to the organisation of commercial trips to the moon. The total number of

predictions was three hundred and thirty five- corresponding to fifteen

predictions per person; almost all of them were proved to be wrong. We have

to note, however, that the reasons responsible for that were not only scientific-


12

political and ecological reasons, for example, blocked the expansion of nuclear

energy

In the same decade, in 1968, the SRI group undertook the task of creating

scenarios concerning US in year 2000 for the Office of Education (Ringland,

1998). A variety of methods were used and the result was the development of

five scenarios; one of them assumed that the present situation will continue- the

‘Official Future’ or surprise-free scenario whose utility will be discussed later-

and the remaining four were the possible answers to the two questions that

formed the basis for the scenarios. The first question was whether the society

would be able to control its destiny and the second one was about the nature of

the U.S. society- open or authoritarian. Likewise, work was done for the

Environmental Protection Agency (EPA). This resulted in the development of

ten to twelve scenarios for the future- certainly a big number of scenarios that

are difficult to handle; they were built around a key concept different for each

one of them, which came out of a brainstorming task- a very common method

for generating ideas (its function is explained in Appendix I).

Finally, as far as the era of sixties is concerned Professor Jay Forrester of the

Massachusetts Institute of Technology (M.I.T) used his previous work in

supply chain and demand to examine if there is any relationship between

world’s population and supply and demand (Ringland, 1998). The Club of

Rome model, which was developed afterwards, was based on that concept.

Summarising, with respect to this decade, we can see that the pioneers in

scenario planning did not have forecasting in mind. They were, rather, trying to


13

communicate to people the ‘consequences’ of growth in order to open a debate;

this was the key idea for scenarios in sixties.

Moving on to seventies, a U.S. company- General Electric- was the leader

company in planning. Its model consists of a mixture planning by corporate

staff, computer models, forms, charts and graphs in order to anticipate the

investment in business. Scenarios formed part of its planning process; the

method for constructing them involved the use of Delphi method for forming

panels that, in their turn, identified the critical variables for the case under

consideration. Trend-impact analysis as well as cross-impact analysis methods

were used afterwards in order for the interactions between critical variables and

indicators to be scrutinised. The cross-impact effects among possible

developments were assessed in a qualitative way by the use of ‘+’ or ‘-‘ signs;

the developments of different scenarios follows that procedure (a schematic

illustration of the procedure can be found in Appendix II).

Shell was another company very well known for its planning system. At the

beginning the company’s planning system was dominated by numbers and the

planning horizon was only five years (Wack, 1985a); however, Wack in 1967

outlined the need for long-term planning. A study was organised, following that

discovery, looking at the company’s future till the new millennium- further

details for that study can be found in chapter eight. The finding of that study

was that the stable environment would no longer be existing in the future;

therefore forecasting methods could not be applied. In addition, a shift would

have been made to oil producers from the Middle East; this would be


14

influencing the price heavily. This was, indeed, the case since the Yom Kippur

war begun and the embargo imposed lead to an increase in oil price. Shell,

having previously considered the problem, managed not to be heavily affected;

the company became the leader in oil industry. The latter was achieved by

introducing scenario planning in its planning process; this happened back in

1967 when Pierre Wack, the editor of a philosophical magazine, and Ed

Newland, an Argentinean with a tension towards gambling, became the leaders

of the company’s planning department. The company, after the oil embargo,

managed to become the strongest oil multinational company while before it

Shell was the weakest one.

The companies directly affected by the oil crisis first used the scenario

method; these were the oil industry and car industry. A high amount of effort

was put in the development of planning techniques, which do not have that

importance themselves as certain principles they should incorporate, that would

provide them with a ‘secure’ prediction for the future.

Scenario planning, however, achieved a wider recognition towards the end of

seventies. It was then when it was used by most of the Fortune top 1000

companies. A variety of techniques were adopted, including multiple scenarios.

It was only after the oil embargo that the vast majority of the oil companies

realised the value of scenario planning; seventy five percent of those companies

considered it as an option after they were hit by the embargo; those companies

had to go through a ‘cultural shock’ in order to adopt and accept scenario

planning.


15

This was not the case in eighties. The use of scenario techniques was

dramatically increased due to a number of reasons. A reason for that was that

the oil embargo was becoming ‘history’; as mentioned above, this was the main

reason that directed many companies towards the use of scenario planning.

Furthermore, the beginning of the decade was characterised by a recession that

led to many people made redundant- the fact that this development was not

predicted led to the mistrust of scenario. Finally, people were very often

confusing scenarios with forecasts; the latter already had a ‘bad name’ because

of their inability to predict future developments. It was because scenarios and

forecasts were considered as the same thing that the same opinion was in power

for scenarios as well. Ian Wilson (Wilson, 1990) outlines that the

disenchantment involved rather the area of strategic planing than scenarios. The

losses of big companies- like Chrysler, General Electric, Kodak, Xerox and

General Foods- contributed to that belief and a new approach to planning had to

be found. Michael Porter, for example, accepts scenarios as a tool for

understanding and recommends them as a form of sensitivity analysis. He

defines scenarios as “an internally consistent view of what the future might turn

out to be- not a forecast, but one possible future outcome”; the first of the three

principles- internal consistency- is already mentioned in this definition (as cited

in Ringland, 1998, p.24). At the same time, a number of consulting companies

have been set up offering scenario planning facilities using a variety of

methodologies which will be described in detail in the fifth chapter- we should


16

bear in mind, however, that attention should be paid to the principles rather than

the methods.

Shell, during this time, kept on being the leader in this field. A big amount of

effort has been put into integrating scenario planning with business and

strategic planning; as we will see later the scenario development team spent half

its time promoting the scenarios (Wack, 1985a). Furthermore, the company

established her leadership in using scenario planning by ‘predicting’

successfully two crucial things for the oil business; the first was that oil will

become a commodity in the future and the markets would be responsible for

setting prices- neither the companies nor the producers. A trade system was

specifically designed to cope with this development. The second very important

‘prediction’ was that oil and gas prices could drop; this enabled Shell to ‘sit in

the corner’ and wait while its competitors kept buying other oil companies.

After the drop of oil prices, Shell was able to take advantage of bargain prices

as far as the purchasing of other companies is concerned.

As far as the last decade of our century is concerned, emphasis has been

placed on strategy. The context of strategy and strategic planning are different

from those that were used in eighties. Nowadays, strategy is constantly under

review- due to the uncertainty that dominates real world- and concerns a small

number of issues- like achieving a favourable position against the competitors-

meaning something totally different from the form of operations and production

planning. In addition to that there is a trend towards smaller teams that would

be responsible for planning projects as well as the reach of an agreement


17

concerning the strategic targets between the headquarters and the members of a

corporation ; these will form the basis of the business idea that needs to be

articulated throughout the organisation (Van der Heijden, 1996).


18

2.3 Present trends in scenario planning

As mentioned above there was a shift towards strategy as being the main

issue in nineties. Scenario planning is used as a tool to facilitate companies in

formulating their strategy as well as for many other purposes, which are

mentioned later.

2.3.1 The survey of the Conference Board Europe

In order to explore further how scenario planning is used within businesses

as well as the present trends, the Conference Board Europe- part of the global

business and research organisation- carried out a survey among its members.

The questions that were asked are those in the table following.

Table 1 Questions asked in the Conference Board’s Europe survey

(Source: Ringland, 1998)

Have you used scenarios?

Was the use of scenarios useful for your organisation?

If you failed using scenarios, could you indicate the most important

reasons for that?

How much time did you spend developing the scenarios?

What did you use the scenarios for?

Did you use consultants?

Did you carry out an exhaustive analysis before getting into the

developing stage?


19

The number of companies that participated at that survey by returning the

questionnaire was twenty- a rather small number for drawing conclusions;

most of them gave a positive answer at the first question.

The use of scenarios, however, was not always followed by success. It

was a failure for a few companies and the main reasons that were identified

for that was the lack of integration of scenarios with the aims of the

company- British Airways and Shell, for example, used at the beginning

scenarios on an experimental basis- as well as the incompatibility of the

process adopted for developing the scenarios with the processes normally

used from the company.

With respect to the time that was spent for the development stage, this

was till six months in most of the cases; however it did not exceed one year.

This time should include the time needed for the preparation, the collection

of data and the communication of scenarios.

As far as the personnel involved in scenario projects is concerned, those

were both internal staff- usually from high ranks- and consultants or people

from the academia. Investment management was the major reason for their

use- however after completion only 25% reported that as the main benefit,

as scenario approach does deliver many other benefits as well. The scenario

approach was used as well for helping companies familiarise themselves

with changes in cultures, political and environmental factors. Finally, it was

used in order to assist organisations in creating a new ‘look’; that will help

them winning the ‘business war’.


20

The answer to the last question- whether exhaustive research is required

or not- the answer was neither negative nor positive; it really depends on the

case under consideration. However, in most of the cases, a considerable

amount of time needs to be spent in collecting data for studying each of the

main factors.

Finally, it is becoming a common belief as time goes by that we are going

through a period of great changes similar to the period of the oil shock back

in seventies.


21

2.4 A movement towards new techniques for decision-making Since the early days of business, forecasting was the traditional approach for

dealing with a variety of problems; operational, investment, inventory and so

forth. In order for that to being successfully achieved, a variety of techniques

were introduced; smooth and exponential average- where a weighted average

was calculated using the α factor- as well as ARIMA models are examples of

these methods. ( Makridakis, 1998: Millet, 1991: Makridakis, 1984:Makridakis,

1989: Farnum, 1989: Thomopoulos, 1980)

The techniques mentioned above have one thing in common; they are trying

to use past information in order to draw conclusions for the future. They

achieve it in a quantitative way, through a mathematical formula; this formula

is more or less complicated, ranging from a simple calculation of the average to

sophisticated recently developed statistical techniques, depending on the model.

The dominant trend, however, is that the more variables a model includes, the

better the better it is (Huss, 1988).

Someone might argue that with those ‘state-of-the-art’ statistical techniques

we do not need anything else; we should be able to predict any future trend with

a very high probability of getting it right. The opposite, however, is the truth;

despite all those developments, statistical models do not give us the whole

picture. As a result of that, they lost top managers support.

The main reason for this is that their main concern was to predict the future

with a certain accuracy, which is not what managers are asking from

forecasting; this is where scenarios come in. A scenario can assist the


22

forecasting process by ‘adding’ the long-view perspective; thus it is not only

predicting the future but it can be used as a planning tool as well revealing the

forces driving a trend. This is the area where forecasts failed to the extent that

much effort was put in improving the accuracy of the model rather than

identifying key variables. The identification of turning points, which is the most

important application, becomes extremely difficult this way.

In order for forecasting to be incorporated into planning as our main planning

procedure, we have to think of the following issues: (Huss, 1988)

Table 2 Critical issues for incorporating forecasting in our planning system

(Source: Huss, 1988)

With respect to the first point, there is a number of issues that can not be

dealt with numerically; examples of such issues include cultures, changes in

law, environmental issues and so forth. The classical trend in forecasting that

needs to be changed- this can only happen if managers go through an

‘education’ process about the dangers of forecasting- can very well be

Qualitative issues should be included in the model

The macro environment should be carefully analysed

Forecasting techniques proved to be incapable of predicting turning points

Forecasting and planning should be used as a communication tool among

departments as well

By combing forecasts we get a better result

The way that forecasts are related to decision-making needs to be improved


23

summarised in the following sentence: ‘ If you can’t count it, it doesn’t count’

(Huss, 1988).

Moreover, as far as the macro environment is concerned we have to examine

it in more depth; till now in order to develop a time series model a prediction

was made for each variable and the individual predictions were used. It is

important, however, to look for sets of those factors since they might be a better

representation of the future.

It is very difficult to predict turning points with the use of forecasting

techniques; this is the case since the ‘replication’ of the past is their main

characteristic. They are not looking at causal relationships which makes it

difficult for turning points to be predicted; a task that is difficult anyway. Shell,

on the other hand, by combining the predetermined events and the uncertain

ones, it managed to ‘predict’ the oil crisis that occurred in 1973-74; it got the

year wrong but because of the expectation of such an event business plans were

adjusted.

With respect to the last three factors, we should note that forecast should be

used as a communication tool across departments; forecasting should be done

on a common assumptions base. In addition to that more than one forecasting

techniques should be used and those techniques should be integrated in order to

get the better result out of them. The link to planning, finally, is another

important issue- since forecasts provide decision-makers only with numbers

and do not help them understand the driving forces inn order to fromulate

accordingly their plans.


24

2.5 Drivers of change While our century is approaching to its end, diverse events are taking place

considering all aspects of science. The developments in science are taking place

at a fast pace. Nowadays ‘wishful thoughts’ of previous generations now seem

more close to reality than ever. The average age, for example, would be greater,

computers will change many aspects of our lives and we will, probably, be able

in a few years time to ‘have our tea’ or go for vacations outside of this planet.

On the other hand in the field of moral values, developments are not so

encouraging. There is a constant decrease of morality and corruption cases are

more occurring more often than ever. In addition to that, wars are taking place

at all over the planet; from Bosnia to Somalia.

As a response to those developments, the United Kingdom’s Open University

(http1) conducted a survey to identify the drivers for future events. The project

took place over the last three years and involved more than one thousand big

organisations. In addition to that due to the rigorous approach followed it was

made sure that the views expressed by the people involved in the project were

formed after careful consideration and thought; something that increases the

validity of results.

Those opinions can be divided into four main categories. Those four areas-

political, economical, technological and societal factors- that are highlighted

below form the external business environment of a company and are of great

importance to the planning personnel. They will be discussed in more detail in

the remaining of this chapter.


25

Table 3 The four areas of change

(Source: http1)

2.5.1 Technology

As mentioned above, technology is the first of the four categories with

respect to the drivers of change. The trend is that technology will keep growing

offering more and more benefits to the society.

The first area of influence is that of physical resources- the development of

renewable sources of energy is part of it; the problem of availability is

practically solved since technology advancements gave us the opportunity to go

further in this area and even look for solutions to places outside the ‘borders’ of

our planet. Moreover, devices are becoming smaller and smaller; this means

that less raw materials are needed in order to manufacture them. Finally due to

the enormous growth of technology many services, the financial for example,

have totally changed, requiring less resources.

The second element of technology evolution lies in communications with

Internet becoming even more popular. This will practically eliminate any

problems created due to distances; we will be able to talk to our friends no

matter how far they are as well as doing our business without having to travel

Technology

Society development

Global Economic Forces

Political Revolutions


26

from our home or office’s desk. The simultaneous way of talking to other

people is another change emerging from the growth of communications- we

will not need to wait for ays till our mail reaches its destination; furthermore we

won’t need to posses specialised knowledge on any issue since that would be

available on the web. Finally our criteria for making friends will differ;

common interests will replace the national borders due to the ease of

communications. As a result of these people will change; we will depend

heavily on computers for everyday life tasks and we will reach a situation that

can be described from the Greek word ‘symbiosis’ with computers.

The average age, as mentioned above, will increase as a result of advances in

medical technology. This might lead to considerations for raises in expenditure

related to pensions but the truth is that since we will live longer, we will work

longer as well; new jobs created by the expansion of information technology

will be suitable for older people- since they will only involve typing some data

on the computer- and our future will be brilliant.

Space travel is our day’s ‘state-of-the art’ technology; the first trip to the

moon for tourist purposes has already been planned for the year 2015.

Moreover, we are not far from the day when space colonies will be created;

after all the technology needed has been around for many years, it is the

political will that it is missing.

Summarising, information technology, undoubtedly, has a very important

role to play, given the options that it will give us in the future. As an example,

Nicholas Negroponte in ‘Being Digital’ (as cited in Ringland, 1998, p.41) states


27

that: “Early in the next millennium your telephone won’t ring indiscriminately;

it will receive, sort, and perhaps respond to your incoming calls like a well-

trained English butler. Mass media will be redefined by systems for

transmitting and receiving personalised information and entertainment. Schools

will change to become more like museums and playgrounds for children to

assemble ideas and socialise with children from all over the world. The digital

planet will look and feel like the head of a pin.

As we interconnect ourselves, many of the values of the nation-state will give

way to those of both larger and smaller electronic communities. We will

socialise in digital neighbourhoods in which physical space will be irrelevant

and time will play a different role. Twenty years from now, when you look out

of a window, what you see may be five thousand miles and six time zones

away. When you watch an hour of television it may have been delivered to your

home in less than a second. Reading about Patagonia can include the sensory

experience of going there. A book by William Buckley can be a conversation

with him”.

2.5.2 Changes in societal factors

The development of society is the second area where changes will take place

in the near future. According to the survey, the breakdown of the community-

even the breakdown of the family- is very likely to happen. This is not

necessarily a problem; however we have to allow for some time before society

reaches a stable point.


28

The form of our relationships- both in work and everyday life- will change

dramatically. We will get in touch with other people through computer

networks and our friends may well live thousands of miles away from us. In

addition to that, this will change the way we work; our ‘working partners’ will

increase at a very fast pace. On the other hand these relationships will not last

for long; this is the case since they will not be based on any common

backgrounds.

The ‘ two-thirds’ society remains a danger; the future will probably be bright

for those who can afford adopting the new technologies; for the remaining one-

third it will be a nightmare since it will keep them away from many services

and facilities. This creates a danger of them moving outside the law borders,

which will not be a danger for most of the nations.

The second half of our century was partly characterised by the movement of

feminisation; the evidence show that it will be a dominant factor in the future

both at society and individual level. At society level we will soon experience a

change in its values whereas at individual level we will be close to the revival

of matriarchy.

Another element associated with society is the lifestyle its members adopt.

There will be a major change in the future with regard to that; each member of

the society will be able to choose the style that best fits his needs among a wide

range of choices. He will, also, be able to shift between different lifestyles very

easily.


29

The legalisation of drugs is important as well; it will be conducted on the basis

of two facts. The first fact is that certain substances are already very popular

and by legalising them we would be able to control them in a better way. The

second fact is that they will have to satisfy much more rigid quality

requirements in order to get to the market, which will prevent many people

from suffering.

Finally, in the future there would be no educational borders; the education

process should be an on-going procedure. Its aim should be to provide the

individual with knowledge related to his interests; the view we have about

education as a continuous training session is wrong. This will, of course, be

facilitated by the changes in technology , which were discussed earlier.

2.5.3 Global Economic Forces

As far as the global economic forces are concerned, the concept of

globalisation has been around for a number of years. It means that borders or

any other types of obstacles no longer exist- we are able to communicate with

someone leaving in another continent as easy as we can communicate with

someone leaving next door to us. This is not going to affect labours in the

‘developed’ world as recent research carried out by the Open University

revealed.

Another key element is the demographic pressures. Earth’s population is

estimated at twelve billion for 2025; this, however, will not affect the other

resources, such as food and energy, given that their rate of growth is much

bigger. The remaining problem is how these resources will be distributed


30

between the haves and the have-nots, so that the eighty-twenty rule will not be

applied.

The power of the Third World countries will go on growing and they will

soon become very powerful. This will have two major impacts; the first impact

would be on the problem of distribution of resources previously mentioned. The

shift of power will automatically lead it towards a solution. The second impact

concerns the Western countries and, in particular, the United States of America;

it is the loss, on their behalf, of the world’s dominance.

Finally, global economics is another issue we should consider especially in

terms of international trade. This is especially applicable in the case of

knowledge industries where data ‘travel’ at speeds far beyond any human’s

mind. This flow of data can, in a very small portion of time, influence investors

at the other end of the world and, this way, destabilise world markets and put

national economies in danger.

2.5.4 Political Revolutions

Political revolutions are the last main area where changes will occur. The

main trend is decentralisation of power.

One of the most important problems that will arise is the lost of faith in

politicians. There are certain single issue groupings- such as people concerned

with the protection of the environment represented by Greenpeace- which

appear to have a great influence on people. This will result in traditional

political parties having problems since, apart from that, the form of democracy

becomes a debatable issue as well.


31

The situation described above will mostly influence the people in power, the

political establishment in other words. This creates a sort of panic and may lead

to unpredictable situations. The ‘period of recovery’ after the ‘revolution’ will

also be shorter; it will probably take less than a generation to get over it.

Finally, there is a common belief that our future will be better as opposed to

traditional pessimistic beliefs. This is mainly due to the technological advances

taking place at the second half of this century.


32

2.6 Uses of scenario planning Despite its rather short ‘lifetime’, scenario planning has proven to be very

useful in a number of applications ranging from strategic planning to

marketing; some of them have already been mentioned in the survey of Open

University discussed earlier.

The following table summarises, using bullet points, the uses of scenario

planning.

Table 4 Uses of scenario planning

(Source: von Reibnitz, 1988)

Strategic planning

Developing and testing a Corporate identity

Developing goals and strategies

Assessing current goals and strategies

Assessing Strategic Decisions

Assessing operating planning (short- term or medium term)

Environment monitoring

Innovation planning

Diversification planning

Production planning

Marketing planning

Personnel planning

Personal career planning

Influence public attitudes

Sensitivity and risk assessment


33

2.7 Conclusions The characteristics of the world we live in have changed a lot during the

second half of this century; we live in a much ‘smaller’ world where someone

from Europe is able to communicate with someone in the United States of

America with the ease he communicates with his neighbour.

Apart from the role of technology, there are other three elements that

complete the ‘puzzle’ of the new world; these are the global economic forces,

the development of the society and the political revolutions to take place. The

two pole system existing during the Cold War when America and Russia were

fighting with world’s control being the prize does not exist any more. The

replacement for that situation was not as simple as many people have expected

it to be (http1, Peter Schwartz); complexity and chaos would describe it better.

In an environment like the one described above, businesses will have a hard

time; they will need to adjust to those changes and formulate new strategies

based on the latest data available. The traditional forecasting methods failed to

serve as a tool in this process; the following picture illustrates it very

well.(please refer to next page)


34

Figure 1 The danger in forecasting


As a result to those circumstances, a new approach had to emerge. The

response to those uncertainties was the use of scenario planning; its origins date

back to Seneca but the first company to realise the value of the technique and

implement it was Shell (http2, Francoise Hecht). That happened back in

seventies and was led by a team including Pierre Wack, a French with

philosophy as his background, and Ed Newland, an Argentinean with a passion

for gamble.

According to Pierre Wack (as cited in http2, Francoise Hecht, p.60) “

Scenarios deal with two worlds: the world of facts and the world of perceptions.

They explore for facts but they aim at perceptions inside the heads of decision-

makers. Their purpose is to gather and transform information of strategic

significance into fresh perceptions. This transformation process is not trivial

more often than not it does not happen. When it works, it is a creative


35

experience that generates a heartfelt ‘Aha!’ from your managers and leads to

strategic insights beyond the mind’s reach”.

The solution, therefore, has partly been found; scenario planning could, to

some, extent count for the uncertainties present in the real world. In order for it

to being successfully implemented there was a need for formulating methods,

techniques and methodologies for deriving scenarios. Mainly consultancy

companies involved in the generation of scenarios as well as the pioneers

companies in the field did this. The following chapter introduces us to this

approach by describing the general steps involved in most of scenario studies.

Chapter 3- The scenario process

36

Chapter 3

The scenario process

3.1 The eight steps in a scenario process

3.1.1 Introduction

As mentioned above, scenario planning achieved wider recognition during

the seventies, when it was recognised that due to the continuously increasing

uncertainties that dominated the world another method should be used for

strategic planning. The forecasting techniques, previously used, were incapable

of providing the information needed; they were, therefore, abandoned and

scenario planning replaced them.

In order to build the scenarios, many methodologies were developed. They

all, however, to some extent have eight tasks in common (Reibnitz 1988); in the

remaining of this chapter we will analyse those tasks in more detail. These steps

are highlighted in the following table (please refer to the next page).


37

Table 5 The eight tasks in a scenario process

(Source: Ute von Reibnitz, 1988)

3.1.2 Task Analysis

As the first step in a process, it deals with the question ‘Where are we now?’;

in other words it provides a comprehensive analysis of the smaller strategic

planning unit in a company. The latter is different for every company and

depends on its size; if the company under consideration is a small or a medium-

sized company then the strategy is formulated for the business as a whole. On

the other hand, if it is a large, maybe multinational, company that manufactures

many products and operates in many markets it is more advisable to build

separate scenarios for each product or market.

In order to carry out that task, we have to take under consideration the goals

and strategies of the company, which are expressed in the form of the business

idea; the significance of each one of them viewed as individual should be

examined. A ‘portion’ of SWOT analysis- to the extent that we only need the

Task Analysis

Influence Analysis

Projections

Grouping Alternatives

Scenario Interpretation

Consequence Analysis

Analysis of Disruptive Events

Scenario Transfer


38

strengths and weaknesses- follows in order to identify the potential areas where

problems could arise and form this way the scenario agenda.

Once these problems are spotted, we have to formulate them in a question

format; to do this successfully we need to remember that the way we are asking

should not prompt to a specific answer, since we want to aim at managers’

perceptions, to stretch their mental models (Fahey-Randall, 1998, Schwartz,

1998). It is, also, important to exclude the use of problem-solving techniques-

such as cause and effect diagrams or fishbone diagrams- as means to reach the

solution; this needs to be done in order not to extrapolate past events into the

future but to promote alternative ways of thinking.

Typical examples of such questions can be found in the following table.

Table 6 Typical questions for finding solutions to problematic areas

(Source: Reibnitz, 1998)

At this point, it is important to decide to the time duration of the project;

many companies, like British Airways underestimated it (Ringland, 1998:

Moyer, 1996). This will, obviously, depend on the research and development

horizon and the type of the company. Despite that, there is a simple rule for

defining the time needs of the project; we add five to seven years to the period

needed on behalf of the company to develop the activity under consideration.

As mentioned above, we need to assess the strengths and weaknesses of the

company at the beginning of the scenario project; a structured way of doing it is

How can new ways for utilising our existing products be found?

How can we communicate with our customers in a new way?

How can economical and technological developments in our customers’ countries assist us?


39

through the use of check lists. This is a way of assessing the performance of the

company’s departments so that any problems are automatically highlighted; the

way it works is very simple- certain questions are posed and we put a tick

against the box that contains the closest answer to our beliefs. It is good

practice, however, to inform the members of the scenario team about that

questionnaire one or two months prior to the start of the project. The project can

involve either a ‘ mini scenario project’ that consists of two three-day

workshops or a ‘scenario project’ that consists of four workshops each one

having duration of three to four days. There is no difference as far as the

procedure followed is concerned; the time is only compressed a bit at the first

approach.

Finally, at the end of that step a check is carried out to ensure that the

information gathered is correct; if any mistake is found, we will have to

undertake this step again.

3.1.3 Influence Analysis Once the first task is completed, we move on to the influence analysis; our

aim at this level is to identify the external factors of influence, to determine the

degree of their influence as well as any interrelationships between them; an

early sign of cross-impact analysis. A number of factors appearing in almost

every project which form an example for this category are customers,

competition, legislation and technology.


40

It is, however, too difficult to work with those headlines since their meaning

is different when the company under consideration changes. As a result of that,

we need to identify and assess the influencing factors falling under every

headline- the relative order of rank for each factor should also be defined. Once

this is done, we have to assess the degree of influence each factor has on our

company along with any interrelationships. The latter task is about comparing

each factor with the others and is carried out with the aid of a network matrix-

an example of which is shown below.

Figure 2 A typical network matrix


Before using it, we have to make sure that there is no overlap between the

factors in terms of both function and structure. A marking system is used,

afterwards, to evaluate any interrelationships; we start from left to right and


41

according to the degree of influence we put one of the following numbers to the

respective square.

Table 7 Ranking system for the elements on the network matrix


Once this task is completed, we are interested in two sums for each factor;

the sum across the row and the sum across columns. The first sum is called

‘active total’ and is an indication of the degree to which one factor affects the

others while the second sum is called ‘passive total’ and indicates how much a

factor is influenced by all the others. It is advisable, also, to justify on a

separate sheet of paper the degree of influence as a mean of verification of the

results. Finally, by dividing the active by the passive total we get an estimation

of the degree of importance for a factor within a system.

Another method we can make use of after the construction of the network

matrix is the system grid; this is nothing else but an orthogonal co-ordinate

system with the passive values being put on the horizontal axis and the active

values being put on the vertical axis. This division enables us to form four

fields with respect to the system’s elements, as shown below. The first field

consists of the active elements that are characterised by a high active and a low

passive total; therefore we can locate them among those with a high importance

ratio- these are the driving forces, the elements we should concentrate on during

0= no influence

1= weak influence

2= medium influence


42

the scenario project. The second field consists of the ambivalent elements;

those are the elements whom importance ratio is close enough to one- their

influence to the system is almost equal to the influence they receive from the

system- those values, however, are relatively high. Buffering or lesser

ambivalent system elements form the next category; the importance ratio of

those elements is, again, close to one but this due to their low activity and

passivity. Finally, the last category consists of the passive elements; these are

the elements that are heavily influenced by the others but, themselves, they

have a little influence on the system.

The above can be highlighted in a diagram, as following

Figure 3 System Grid


By following this way of analysis, the network matrix at the beginning and

the system grid afterwards, we need to keep in mind two rules of systems

dynamics. The general concept is that the active elements should be in

Low High

High

Active Value

Low

Passive Value

Active Ambivalent Buffering Passive


43

compliance with the strategy of the company in order to achieve the best

results; they should be part of the business idea. We should note, here, that it

would be even better if ways of creating ‘snowfall’ effects could be found.

As far as system dynamics is concerned, the first rule is that we need to focus

on those elements that can give us the most reinforcement effect, which are the

key elements that should attract our attention; most of the times, these are either

active or ambivalent elements. The second rule concerns buffering and passive

elements and is about not directly influencing them since their overall

contribution would be small. We should note, here, that it is many times the

case that a company is in no position to influence some factors like technology.

The question then should be transformed to how this factor can be used in order

for the company to gain competitive advantage.

Apart from that, there are three common errors appearing when dealing with

networking systems. The first is about the dimensions of the matrix; many

people assume that if a problem is described by a large matrix then due to its

complexity it won’t be possible for them to deal with it. This results in causing

undesired effects to the system, since we are omitting relationships between the

factors that could be important.

The second error is related to our ‘anxiety’ for results, which is a common

pitfall in scenario planning projects. It is the case many times that results are

expected in a very short period of time after the implementation of the new

strategy. If these do not come up, we take corrective actions; in most of the

times, however, we need to wait for some time before drawing any conclusions.


44

If we take any actions in the mid time, this will only result in side effects. The

third error is that we try to isolate the problems and work on them separately;

this can have a severe impact on the system; this is the case since changes in a

number of factors- due to the interrelationships- can affect other factors of the

system.

In summary, being on that step we need to keep the mind what makes a

system successful; the key elements are highlighted in the following box.

b

b

Table 8 Rules for making a system successful


With respect to the first issue, it is good practice to communicate any

information to the whole company; customer complaints, for example, are

equally needed to the production department as well as to the service

department. As far as flexibility is concerned, we need it in order to adjust our

existing strategies and create new ones for the market we operate in.

Diversity and decentralisation are another key features; it is better for a

company, for example, to adopt different functions with different markets rather

Communicate the information to the whole company and not only to the ‘relevant’

departments

Sensitivity and flexibility to both external and internal factors

Maintain the balance by making use of diversification and decentralisation

Receive feedback frequently

Have clear objectives for the whole system


45

than having a single marketing organisation which will depend on a few

customers and suppliers with flexibility being the key issue. If the company has

a decentralised structure, it is much more easier to cope with problems when

these occur; diversification is a way of ensuring that the company will keep on

going even if a problem appears at an individual part.

It is important, also, to get feedback from the system; we should, however,

bear in mind that it is better to group, for example, products in areas like

communications or energy than treating each problem in isolation. We should,

however, as mentioned earlier to wait for some time before evaluating it since

immediate actions can cause problems.

It is very important, finally, to develop an overall system of objectives for the

whole company; the individual departments can then work out their individual

strategies, which should be in compliance with the company’s system of

objectives, with the business idea. This will lead to greater opportunities for

responsibility and control on behalf of the departments and will lead to higher

motivation as a sense of ownership is developed.

3.1.4 Projections

Once we have decided on the influencing factors at the previous step, we

need to define ‘descriptors’ for these factors; these will describe both the

present and the future status of each factor. At this point, we should note that

this description has to be done in a neuter way so that it will not prompt the

participants to any specific direction, since we want to stretch their mental

models, their perceptions about the outside world- one of the two worlds that


46

scenarios deal with (Schwartz, 1998). In order to illustrate that, we can use

technology as an example; it is better to have attitudes towards new

technologies as a descriptor rather than simply acceptance of new technologies

or rejection of new technologies.

In addition, it has been proven by the working experience of people involved

in scenario projects that if the descriptor is formulated in a neuter way this

allows alternative ways in which the future will develop to come up. This is the

point when we should move from descriptors to alternative descriptors; these

are the alternative future developments of descriptors like acceptance or

rejection of new technologies. Another type of descriptors, finally, is the clear

descriptor; these are the descriptors for which the future development is pretty

clear from the present point of view. In other words, these are the

predetermined elements as Pierre Wack calls them (Wack, 1985a).

It is good practice, however, to justify any proposal related to future

developments of factors; this can be done through the use of forecasting

methods, which by knowing and accepting their limitations and by formulating

the right assumptions can give us a ‘clear’ view to some extent.

3.1.5 Grouping Alternatives

At this step, our aim is to check the combinations of alternative

developments against each other for consistency, compatibility and logic; these

are the three principles any scenario should incorporate. In order to do that,

there are two different ways.


47

The first way of doing that is comparing these alternatives within a

discussion; at the end of the discussion self-consistent sets of factors should

have been identified. This is a good way of dealing with the subject when the

number of descriptors is relatively small; this is not always the case.

In the case of a large number of descriptors, it is better to use a consistency

matrix; an example of such a matrix is shown below.

In order to construct the consistency matrix, the following questions should

be asked.

Table 9 Questions for constructing the consistency matrix

(Source: Reibnitz, 1988) We should note here that, due to practice experience, it is easier to assign

values of –1 rather than values of –2.

Are two alternatives of a descriptor that apply in one field directly correlated? If not then the weighting is

zero which indicates the lack of relationship; otherwise proceed to the next question.

Is that relationship free of contradiction or does it contradict itself? If it is consistent,

then a positive weighting is assigned.

Is it consistent and free of contradiction with or without reinforcement? If the answer is

without reinforcement then we assign the value +1; in the opposite case the value

assigned is +2

Is it partly or absolutely inconsistent? If it is partially inconsistent the value –1 is

assigned; otherwise we assign the value –2 .


48

Once this task is completed, we follow the steps listed below; this is done by

the aid of a computer program. We should stress at this point the danger that

this incorporates since key qualitative issues might be neglected. On the other

hand the number of scenarios that are selected at the end- two- is quite

debatable; however the software fulfils the three key principles selecting the

scenarios that incorporate them the most.

Table 10 Steps for choosing the ‘best’ scenarios


3.1.6 Scenario Interpretation

This step deals with the analysis of scenarios we have chosen during the

previous step; these are two stable and consistent, on one hand, scenarios but

very different on the other hand; however, the number should not been taken

for granted. The analysis will be based on the clear descriptors introduced at the

We calculate all the possible consistent combinations; this will lead to all the possible scenarios for the future.

Among those, we select the ones with the bigger consistencies.

Among that subset, we select those which have internal stability; this means that if any

disruptive events occur they do not change towards the direction of greater consistency.

This gives them long-term validity.

Select two scenarios that are consistent, stable and different from each other

Carry out a sensitivity analysis. This means that a factor is changed and we assess the

impact that this change has on the scenario


49

third step; they are the descriptors whose development is pretty clear from the

present. The network analysis conducted in the second step will also be helpful.

There are several computer software packages in the market that can assist in

the assessment of the clear descriptors in relation to the alternative ones. The

amount of money, however, that will be spent on that program- if any- as well

as the amount of effort that will be put in the project very much depend on the

wishes of the company’s directors for such a project.

We should note, here, that interpreting scenarios is not an easy task; this is

the case since their development in the future is not static but dynamic. This

means that if the company takes certain actions, these will lead to counter

responses on behalf of the competitors which might change the situation. These

changes need to be taken under consideration when interpreting the scenarios.

By the end of this step, we should reach at a point where we have two

contrasting scenarios. We can give descriptive titles to these scenario pairs;

titles like optimistic and pessimistic scenario and harmony and disharmony

scenario- the titles should reflect the main planning concerns of the company;

on the other hand, they should not lead the audience to think of those scenarios

as ‘good’ and ‘bad’.

It is advisable at this point to carry out again both a network analysis and a

system grid for those two different scenarios. The analysis should be based on

the several future forms of the scenarios; by doing that, we can assess the

following things:


50

Table 11 Factors that are assessed during the scenario analysis

(Source: Reibnitz, 1988: Fahey-Randall, 1998)

3.1.7 Consequence Analysis

At this step we are looking at the ‘results’ of the scenarios that were

developed during the previous steps. We are looking for potential opportunities

for the company as well as for risks the company might be exposed to. Their

importance is, afterwards, assessed and measures and activities are designed for

them. The purpose of that is for the opportunities to further exploit them and for

the risks either to reduce them or convert them into opportunities. It is good

practice to further extend the analysis and examine whether those opportunities

and risks are related to the short or medium term or to the long term.

It is this the step that is the most important during the whole process as far as

strategic planning is concerned; this is the case since it is the step where we

start developing the company’s strategy through the assessment of opportunities

and risks. This will be done by posing to the members of the scenario team the

question: ‘How would you deal with this problem if scenario A was true?’.

It follows, finally, from its importance that an appropriate amount of time

should be allocated to that step.

The differences between the scenarios and the present situation

The dynamics of development from the present to the alternative futures; the key

difference between scenarios and forecasts

The difference between the two scenarios and


51

3.1.8 Analysis of Disruptive Events

At this stage we are interested in the identification and analysis of any

disruptive events that may occur; we need to assess their magnitude on the

company and to prepare both preventive and response measures as well as

formulating crisis plans. According to Seneca (as cited in Ute von Reibnitz,

1988, p. 51) “ If you want a man not to tremble in the face of danger, then train

him early in the ways of danger”.

As far as the analysis of disruptive events is concerned, we have to stress that

this should not be done on the basis of the likelihood of them appearing. It is a

result of experience that the disruptive factors that appeared in the past were

ranked from the members of the scenario team as having a very low possibility

of occurring. If we take Shell’s case for example, the oil crisis was expected in

the eighties; however it occurred in 1973. The lesson from that is that

disruptive events should be considered on the basis of their magnitude, not

on the basis of their probability of occurring.

It is good practice, at this point, to analyse disruptive events from as many

areas as possible; we should include them under headlines such as society,

legislation and politics. Since we can not do anything for factors such as the

Third World War it is better not to include them in our analysis.

Once a disruptive event is identified, we assess its effects both on scenarios

and the company. Some of these effects may lead the scenarios to develop in

alternative directions; we, therefore, have the disruptive scenarios. We should


52

note, however, that during the analysis process both the direct effects and the

effects of the changes in the scenarios should be taken into consideration.

The disruptive event analysis method presented above is, in fact, a

methodology for crisis management; moreover, we are interested in the

advantages the company can get from the appearance of such events. In

addition, by using this methodology we can identify any special weaknesses of

the company and put many effort in solving those problems. Our attitude

towards these events is incorporated into the master strategy of the company.

The table presented below, finally, can assist us in the identification of the

effects of disruptive events.

.1.8 Analysis of Disr

Figure 4 Effects of disruptive events


With respect to the actions that should be undertaken by the company, they

can be divided into two parts; preventive measures and response measures. As

the name implies, these are measures taken in order to prevent a disruptive

event from occurring. It is the result of experience that many times companies

are responsible for disruptive events; in this case they should analyse their

... ... ... ...

Effects

on the

scenario

Direct

and

indirect

Prevent

ive

Respon

se

measures


53

internal operations to check if they are preparing the ground for disruptive

events to occur.

The second type falls under the headline response measures; another name

for them is crisis plans. In several companies people argue that it is better to

formulate those plans as soon as the event occurs; it is advisable, however, to

do it beforehand.

3.1.9 Scenario Transfer

This is the last step of the scenario process. Its aim is to make use of the

opportunities and risks already identified in previous steps in order to formulate

the corporate strategy of the company as well as defining alternative ones and

monitoring the environment.

In order to start our analysis, we need the results of the consequence analysis

study we have conducted before. We will develop the master strategy on the

basis of the similar answers we got to the questions posed there. This is,

however, not enough by itself; we should elaborate on those ideas that are

innovative and test them to see if they are effective under both scenarios; or the

number of scenarios generated, in general. In the case that we face problems,

we can reformulate those activities in order to make them compatible with both

scenarios. Our conclusions from the last step- analysis of disruptive events,

preventive measures and response measures- should also be included in the

master strategy.

The strategy is, then, further divided in such a way that will help each

division of the company to get specific information from the formulated


54

strategy; this can include, for example, the master strategy for the R&D

department or the master strategy for production. We should highlight, here, the

fact that the corporate strategy is related back to where we start from at the first

step to examine whether certain goals and objectives are the same or pretty

similar. We are, also, interested in the existence of any weaknesses that will

make the reach of certain goals impossible or any strengths that will assist us in

making our strategy reality.

There are two types of companies, with respect to that distinction. Some

companies with conservative attitude concentrate mainly on aspects related to

the strengths and much less on those aspects that require the company to

undergo. On the other side, we have the companies which have a progressive

attitude; those companies will be willing to change their situation in order to

profit from the factors arose through the scenario process.

An environmental monitoring system should be our next step; this system

will serve as a tool to monitor the external developments that are of great

significance to the company. In order to do that, we should use the data

produced by the sensitivity analysis; we should correlate the important factors

for the company with the external factors that influence them. If changes occur

in those factors, relevant adjustments should be made to the company’s

strategy.

A common mistake is that as soon as a change is observed, there is the

tension on behalf of the companies to implement changes immediately on their

master strategy; sometimes they drop their strategy and they rebuild it on the


55

basis of a short-term change. This, however, should happen only after a lengthy

monitoring period, and only if this changed has frequently occurred. It is

advisable, finally, to develop a target portfolio including the targets to be

reached and to compare it with the actual portfolio. The latter, however, should

not under any circumstances form the basis for the development of the new

target portfolio. We should, firstly, develop the scenarios, establish the main

goals and then formulate the portfolio.

Chapter 4- Scenarios compared to other planning methods

56

Chapter 4

Scenario compared to other planning methods

4.1 Scenarios compared to forecasting

4.1.1 The need and dangers of forecasting

The concept of forecasting is not new; in fact, all of us understand its

necessity and implement it in our everyday lives. We all try, for example, to

forecast how many time we will have to wait at a bus station or at an

underground tube in order to get to our work in the morning or go to a social

meeting. Sometimes our predictions are correct and we reach our destination

without waiting for a long period of time; sometimes we fail to make an

accurate forecast and we suffer because of that.

With respect to organisations, the case is pretty much the same; forecasts are

used to solve problems in many areas like operations and inventory. Moreover,

many techniques are in use- these can be classified into quantitative and

qualitative. The quantitative techniques are further divided into two categories:

causal techniques- such as regression analysis, life cycle analysis and

econometric models- and projective methods- such as the simple moving

average, the exponential smoothing and the Holt-Winters and Box-Jenkins

techniques (Malins, 1999). A similar classification exists for the qualitative

techniques as well; these are divided into judgmental methods- such as the

personal insight method, the panel consensus and the historic analogy – and


57

technological and environmental methods- such as the Delphi method, the

curve fitting S-Curve technique and the relevance trees (Malins, 1999)

As far as qualitative techniques are concerned, their way of operating is to

combine experience intuition and other skills in order to derive relationships

between the variables that can applied when making the forecasts. The

quantitative techniques operate in a different way; they make use of sets of data

to establish trends and patterns useful for projecting quantities into the future

(Malins, 1999).

The basic concept, however, is common for both techniques; we look at the

past of the organisation to establish trends and then the likelihood of these

trends continuing in the future is examined (Huss, 1988). Likewise, during the

sixth and the seventh decades of this century the emphasis had been placed on

the development of sophisticated models that would include as many variables

as possible. According to Huss “The feeling throughout this period was that the

more factors which could be considered simultaneously and the better past

trends and relationships could be modelled, the better the forecasts. The move

toward sophistication proceeded on all terms”. (Huss, 1988, p.377)

Despite all those efforts, however, many times forecasts were not accurate.

The figure presented below is a forecast for shipbuilding demand created by the

Association of West European Shipbuilders (Van der Heijden, 1998). (please

refer to the next page).


58

Figure 5 Projected vs Real demand for ships

(Source: Van der Heijden, 1996)

The same situation applies to qualitative techniques as well. A forecast for

the price of an oil barrel was conducted in 1971, based on the Delphi technique;

this technique is a group technique but the communication between members is

not allowed. (Malins, 1999) The company that conducted this survey was Shell

and none of the experts predicted a price higher than two dollars per barrel.

(Van der Heijden, 1998)

The danger lies in the critical assumption that is hidden behind forecasting;

this is that the future will be like the past. By using forecasting, we can plan

effectively given that the rate of change is relatively slow (Ute von Reibnitz,

1988). This, however, does not go on forever; the forecasters, therefore, should

be aware of that fact and pay attention to the respective variables that can

change the current situation. (Van der Heijden, 1998)

4.1.2 Comparing scenarios with forecasting There are certain differences between scenarios and forecasting; the first lies

in the theory of strategic management they are associated with. The method of


59

forecasting is related to the rationalist approach; according to this there is one

best answer and all we have to do is find it (Van der Heijden, 1998). We,

therefore, have to allocate that task to someone who is clever and computer

literate to make sure he finds that answer. On the other hand, scenarios have

contingency planning theory as their base: there is no best answer. It is a more

processual oriented approach, which accepts the fact that the future can not be

predicted, and, therefore, there is a significant amount of risk in every decision

we take.

Furthermore, with respect to forecasts they are done, as stated above, by

experts; this keeps the decision maker away from the process as well as

unaware of the uncertainties taken into account in order to arrive to the final

result. We have to select the variable we want to forecast and then to

concentrate on that. The scenario planner, on the other hand, has a much wider

view of the business and he will address issues related to key uncertainties.

Scenarios reveal the driving forces for the specified industry; the forces that can

change its situation at any time.

There are two additional differences between forecasts and scenarios. The

first difference deals with their input to the decision-making procedure; the

input we get from forecasts helps us to reach to a yes or no decision whereas it

is much more difficult- if not impossible- to make such a decision on the basis

of scenarios.

The second difference lies in our ability to test the results afterwards. We can

test the forecasted variable against its real value and draw conclusions upon the


60

validity of the forecast. This is not the case with scenarios since what we are

trying to achieve with them is not that; if the range of scenarios is made wide

enough we can be almost certain that the future will lie somewhere in between.

We need to make sure, however, that they represent our best knowledge of the

present status of our company (Van der Heijden, 1998) so that they will lead to

better strategies.

4.1.3 Conclusion In conclusion, there is a fundamental difference between forecasting and

scenarios with respect to uncertainty. If we are interested in the short term-

where uncertainty is relatively low- we can use forecasting; in the long term,

however, where uncertainty raises forecasting is no longer useful- we need to

use scenario planning.

The above are very well illustrated in the following paradigm given by

Albert Olensak of Sun Oil (Van der Heijden, 1998, p.90) : “ Forecasting can be

thought of as analogous to the illumination by the headlights of a car driving

through a storm at night. A bit of what lies ahead is revealed, not very clearly.

The driver merely tries to avoid danger and pick out enough detail to arrive at

his destination intact. He needs to be prepared for sudden major obstacles, be

aware of his limited view and try to adjust his speed accordingly. Obstacles will

appear suddenly, and then it may be too late to adjust. The obstacles the driver

must be prepared for are outside the limited view that he has. The reaction

required adjusts speeds in response to limits in perception. We have to forecast.


61

We couldn’t drive the car with the lights switched off altogether. The important

thing is to realise the limits of our view”.

4.2 Scenarios compared to portfolio analysis

4.2.1 What is portfolio analysis?

The portfolio analysis is a tool for assessing the company’s performance and plan according to that.

In order to achieve that, we concentrate on two characteristics of the product;

these are the market attraction or market share and the other is the market

growth. This can be done with the aid of the Boston Consulting Group

(B.C.G) matrix, which is a graphical representation of the market share of a

product against the market growth on a X/Y co-ordinate system (http2:

Yazdani, 1998).

The B.C.G matrix distinguishes among four categories of products:

Table 42 The four categories of products according to the BCG matrix

(Source: Yazdani, 1998)

With respect to the categories of products mentioned above, a dog is a

product that has a low market share and the market growth for this product is

slow as well. A cash cow is a product that has a high market share but the

Dogs

Cash Cow

Problem Children or Question Marks

Stars


62

growth rate for the market is low; in other words, it is a cash generator. In the

case that the combination of low market share with high market growth

appears, the product is a problem children or a question mark- we have to invest

in that more money that we can generate from it. Finally, a product that has a

high market share and its market is growing at high rates is a star.

4.2.2 Comparing scenarios with portfolio analysis The method described above can be used from a company in order its

position against the competitors (Ute von Reibnitz, 1988). It has, however, the

disadvantage that it is just a picture of the present; we can not make predictions

for the future. This is because we do not know what is going to happen in the

future with respect to our business units. It is common practice on behalf of the

companies to establish their target portfolio based on the existing one.

On the other hand, scenarios can provide us with the information needed to

manage that portfolio. This is the case since we get a description of how

possible futures would look like.

4.2.3 Conclusion Concluding, we see that the portfolio analysis approach is a very useful tool

for the company when the question ‘Where are we now?’ is posed. It can not be

used, however, on its own for establishing the company’s strategy. On the other

hand, we can set our target portfolios on the basis of possible future

developments as described by scenarios and derive our strategy from those

scenarios (Ute von Reibnitz, 1988).


63

4.3 Comparing scenarios with simulation

4.3.1 The need and dangers of simulation Everyone, especially managers, is familiar with the concept of simulation. As

far as managers, in particular, are concerned there is a need of building mental

models of the systems they are in charge of (Fahey-Randall, 1998). There is,

however, a limit to the amount of information a human brain can commit;

because of that most of us build cause and effect relationships of the factors we

believe they are involved in a given situation.

There is, however, a couple of drawbacks associated with that approach

(Fahey-Randall, 1998). The first is related to the dominant tendency towards

the development of simple reasoning for the outcomes. It is the case most of the

times that one or two factors will be sufficient to explain a situation and actions

should be taken against those factors if the results are not the expected ones.

A second drawback is that these models are not consistent if different people

within the company are asked to explain the situation. Everyone will base his

answer on his point of view; a sales manager will have a different opinion from

a production manager on the reasons that generate profits, for example.

4.3.2 Comparing scenarios with computer simulation models

The simulation models we build on computers have much in common with

the mental models described above; the main similarity is that they are both

based on the relationships between significant variables. These are represented

through a set of equations in the case of computer models and allow the people


64

in charge to assess the implications of complex interactions among these

variables.

The problem with the simulation models, however, is that humans are not

able to fully understand the diversity of possible future developments and

incorporate them into the model (Ute von Reibnitz, 1988). Despite that, we can

use simulation models in the scenario process to add value to it (Fahey-Randall,

1998).

In particular we can get the following benefits by using computer modelling

into the scenario process:

Table 13 Benefits from using simulation in the scenario process

(Source: Fahey- Randall, 1998)

4.3.3 Integrating simulation and scenarios

There are four steps involved in this procedure. These are presented in the

following table: (please refer to the next page).

Get a full insight view of the relationships among the model’s factors

Assess any assumptions

Obtain quantitative estimates concerning the effectiveness of various strategies

under different environmental conditions


65

Table 14 Steps for integrating simulation and scenarios

(Source :Fahey-Randall, 1998)

With respect to the first step, we need to bear in mind that a simulation study

should focus only on a specific issue (Fahey-Randall, 1998). In order to realise

this issue we need to be aware of the factors that affect the company’s

performance as well as the performance measures we will use to assess its

performance and the drivers for those measures.

The second step is about building the model. Once the most significant

variables have been identified in the previous step, we need to decide upon their

interrelationships. This can be done through a series of meetings with managers

asking them to identify the type of relationship between performance measures

and variables; then we need to collect data on these variables and decide on the

equation we will use to model these.

We, then, have to examine if the model we constructed is an accurate, as far

as possible of course, picture of the real world. The importance of this task is

many times underestimated and most of the effort is placed on the development

of the model. The method for testing our model is to use past results as well as

running it under several conditions which are unlikely to appear in real world.

The final step concerns the use of scenarios as a learning experience. In this

section, we test alternative strategies and we analyse the scenarios.

Define the purpose of the simulation study

Draw the structure of the model

Test the model

Use it as a learning experience


66

4.3.3 Conclusion Concluding, we see that simulation models give us the opportunity to test

different strategies under different assumptions. This can help us to a great

extent; by simulating the scenarios already developed. In order, however, to

implement them successfully, the following guidelines should be satisfied

(Fahey-Randall, 1998).

Table 15 Guidelines for simulating scenarios successfully

(Source: Fahey- Randall, 1998)

4.4 Conclusion In this chapter we focused on the comparison of scenario planning with three

other popular planning methods: forecasting, portfolio analysis and simulation

models. Each method was described briefly and was, in a way, ‘assessed’

against scenario planning.

Each method has its own value and can, certainly, be useful at a stage of the

planning procedure. Forecasting is useful for predictions in the short term when

the business environment is relatively stable, portfolio analysis is an excellent

tool for understanding the present situation of the company and simulation

Use graphic techniques in order to ensure early involvement on behalf of the

managers

The structure should be simple and we should focus on a single issue

We might need to use external consultants

The analysis phase should be given enough time

Managers should be given time to experiment with the model


67

models can be used to test alternative strategies. The value of scenarios,

however, lies in the fact that they assist us in long-term planning and they

challenge our thinking for coming up with alternative future developments.

It was because of these advantages that several methodologies for

constructing scenarios were developed; these are presented in the following

chapter.

Chapter 5- Methodologies for constructing scenarios

68

Chapter 5

Methodologies for constructing scenarios

5.1 Introduction In the previous chapter we saw that the advantage of scenarios over the other

planning methods is that it can provide us with a long-term view; it can be used

for planning in the long term where the business environment is pretty unstable

and the uncertainty is high. In particular, Michael Porter (as cited in Ringland,

1998, p.24) defined scenarios in 1985 as: “ an internally consistent view of

what the future might turn out to be- not a forecast, but one possible outcome”.

There are, in general, three categories in which we can classify scenario

methodologies (Ringland, 1998):

Table 16 The three ’schools of thought’ of scenario analysis

(Source: Ringland, 1998: Fahey-Randall, 1998: Huss, 1988)

5.2 SRI

5.2.1 Background SRI consulting was one of the pioneers in the field of scenario planning; it

was in the middle of the sixth decade of this century that the development of

techniques for scenario planning- along with Royal Dutch Shell and General

Intuitive Logics

Trend-impact analysis

Cross-impact analysis


69

Electric (Ringland, 1998: Ralston, 1997: SRI International, 1999). At the fall

of seventies, this methodology was revised mainly due to the needs of US

companies to analyse future uncertainties related to strategic plans and

investments. The development took place in close co-operation with Shell. It is

a relatively simple and easy to follow procedure. Furthermore, it has the

following three advantages (Ringland, 1998: Huss, 1988):

Table 17 Advantages of the SRI method


The SRI process falls in the intuitive logics category.

5.2.2 Method The scenario process at SRI consists of six steps. It is performed from a

team, whose members come from several departments of the organisation, and

is illustrated at the figure below. ( please refer to the next page)

It is a highly flexible procedure

The identification of both the issues and their drivers plays an important role

The participants have a sense of ‘ownership’


70

Figure 6 The SRI approach (Source: Ringland, 1998)

The two first steps of the process are decision-focused; the first step is to

identify the strategic decision areas that we want to focus on with the scenarios.

We have to note, here, that we are not interested in the macro-environment yet.

The second step is about the key decision factors; the reason, to some extent,

of the scenario project but, here, we are just stating the concerns of the

company. These are the factors the management team is interested in knowing

in order to make a better decision; it is a way of making sure that the scenarios

we would end up with will focus on those issues that are relevant to the

decision-making process.

The analysis of the environmental forces is the next step we need to

undertake. This includes the identification and mapping of all those

environmental factors that will influence the business in the future. These

factors can be further divided into two categories: the microenvironment forces-

these include the factors at the industry and market level- and the macro-


71

environment factors- these include the factors at the social, economic,

technological and political level. Each factor is, then, assessed on the basis of

their severity as well as the extent to which its development can be predicted;

we manage, this way, to distinguish the rather predictable factors from the

uncertain ones whose alternative developments will form the basis of our

scenarios.

The fourth step is the most important of the whole process; it is called

scenario logics. At this step, we need to identify alternative future

developments; these should include the development of the drivers we have

spotted at the first two steps- both those whose development can be predicted

and those whose development is characterised by uncertainty. This can be done

in a number of ways; we may use outside consultants, we might interview

internal staff or use a combination of those two methods.

Once the development of the factors of interest has become clear, we need to

describe the scenarios we developed. In order to do that we will make use of the

structure emerged from the previous step. The scenarios will usually consist of

a narrative description of two to three pages- in order to be easy for the reader

to go through them, a tabular description of the differences between them and a

quantitative description of key factors (Ringland, 1998: SRI, 1999). The latter

is for assisting the decision-makers to reach conclusions.

The final step is about the implications of scenarios to the decision making

process. The management team, in particular, should try to spot the potential

outcomes of the scenarios and relate them to their businesses.


72

The following figure represents the process flow from scenarios to strategy

for SRI.

Figure 7 From scenarios to strategy


5.3 NCRI

5.3.1 Background An alternative method for constructing scenarios was developed by Northeast

Consulting Resources Inc. (NCRI). The company was founded in 1984 in

Boston. The methodology developed is based on the Future Mapping technique,

which emerged from the work done by Martin Ernst (Ringland, 1998: Mason

and Wilson, 1994).

5.3.2 The Future Mapping Method In this method, there are two dominant assumptions straight from the

beginning (Ringland, 1998: Mason and Wilson, 1994).


73

Table 18 The two basic principles of the Future Mapping method


In order to arrive at the scenarios, the following terminology is used:

Table 19 The terminology used in the Future Mapping method


Endstates are pictures of the industry in the future; they are written in-groups

of four or five. Their length is about one page and, in total, they need to

incorporate all different thoughts about how the future will develop for the

company. It is not necessary to be mutually exclusive and the time period they

cover is about three to five years from the present.

On the other hand, events are specific appearances of key trends; we should

be able to answer the question whether an event took place or not. Another

characteristic of an event is that there should be industry people to make it

occur. As far as the format of events is concerned, they are written in sets of

The future is not predetermined; it depends on actions taken by many

participants

If an industry is after gaining a competitive advantage, then structural

changes have to be made

Endstates

Events


74

150-200; each set is given a name, a description and a date and it is written on a

separate card for ease of use. We use these events as the basis for future actions.

The method is based on the different issues that can be addressed by the

endstates and the events related to them. These can be related to industry,

political, company issues or to certain departments and functions within the

company- the research and development department for example.

At the beginning, four to five endstates are created along with about to two

hundred events. Once this is done, we should identify the ‘extreme’ events;

those that are highly likely or highly unlikely. These events are, then, organised

by theme and the cards are placed on a wall in chronological order. If the model

revealed is not very common, it might be difficult to deal with the results;

moreover many times we experience disagreements about the possibility of

occurrence for an event- we shall, in this case, check if the source for this is

misinterpreted information.

The allocation of participants into teams is the beginning of the second

phase. Each team takes an endstate and the assumption that it happened in

reality is made. The task undertaken by each team is to explain how that

happened; this way they need to understand the logical relationships between

the events and how they developed in order to reach to the realisation of the

endstate. This way a check for internal consistency can be conducted and the

decision-makers will have the chance to link the paths from the present to the

specific endstate their team is in charge of.


75

We group, after the completion of the previous step, the selected events into

themes and we develop several paths the events should go through if the

endstate was real. The last task for each team is to identify an industry and a

business upon which they would build a success story within the borders of the

scenario.

At the end of the procedure, there are two approaches we can make use of;

the common features approach and the aggressive change approach. The

common features approaches is about grouping the common events appearing

in all scenarios and direct our investments towards them. We can use them for

training purposes as well in order to train managers how to react in different

situations. The aggressive change approach is about using a ranking system for

the events; there are two stages in this system: attainability and desirability.

This will be the basis for discussions on both the direction of the industry as

well as the role of the company in it; this way we can have an overview of

where the whole industry is going as well.

5.4 The Futures Group

5.4.1 Background The Futures Group is a Connecticut-based research firm for international

strategy and policy .It uses the trend-impact analysis method for its scenario

planning process, an illustration of which can be found in the figure below.


76

Figure 8 The Futures Group methodology


5.4.2 Methodology A typical project has three stages for the Futures Group; these stages are

highlighted below (Ringland, 1998: Planning Review, 1992).

#

Table 20 Stages in a scenario project according to the Future Groups methodology


The first stage can be further subdivided into, respectively, the definition of focus and the charting of driving forces stages. At the first sub-stage, we need

to define the limits of the scenario project. This can be accomplished by asking various questions such as the length of the period we are looking into the future,

the type of issues we want to raise and the variables, if any, that need to be forecasted in order to assist us in the decision-making process. The second sub-

Preparation

Development of the scenarios

Reporting and utilisation


77

stage deal with the identification of the key driving forces; these are the variables that heavily influence our system and will be ‘responsible’ for its

development in the future. The second stage can, as well, be further subdivided in three sub-stages; these

are, respectively, the scenario construction phase, the selection of alternative

worlds for further analysis and the preparation of ‘scenario-based’ forecasts. In

the first phase we combine the alternative developments of the drivers to

produce alternative future scenarios. It is sometimes the case that we do not use

all of them because some are either illogical- therefore the principle of internal

consistency is not fulfilled- or the possibility of them becoming true within the

planning period is very small- this means that an ‘accurate’ method is needed in

order to decide upon their use. We, then, need to explore these results; doing

that, however, is impossible. We would, therefore, limit our analysis to those

‘futures’ that incorporate the most important challenges and opportunities-

these should be in compliance with the business idea of the company. The final

stage is, as mentioned above, about preparing forecasts; in particular we need to

identify and isolate the driving variables so that each alternative world can

become reality. We, then, need to forecast, either using a quantitative or a

qualitative method, the time every significant variable needs to reach that

status; in other words we quantify the results in order to assist decision-makers

The final stage is the reporting and utilisation stage. At this stage, we present

each scenario using graphical and text methods. The communication phase is a

very important phase – the personnel of the planning department at Shell spent

half of its time promoting the scenarios.In addition, we need to make sure that

our audience has fully understood any hidden assumptions behind the scenarios.


78

The second phase is the phase where we are looking at our goals and decisions

for each alternative world. We, also, need to look for those actions that reduce

any risks associated with these different worlds.

5.5 The French School

5.5.1 Background

Michel Godet, a French strategy specialist, was involved in scenario planning

projects when being in charge of the Department of Future Studies with SEMA

group (Ringland, 1998); these took place in the seventies. In the eighties he

extended the methodology with the Ministry of Defence being one of the

supporters of this research. A probabilistic method is used in order to calculate

cross-impacts between the driving forces.

5.5.2 Methodology

The approach makes use of certain computer-based tools, like MIMAC- this

stands for the French words ‘Matrice d’ Impacts Croises Multiplication à un

Classement’. We can, through that tool, assess interaction effects among

variables on a causal map related to a firm’s strategy.

The methodology followed is highlighted below.

There are three phases in this approach, as shown below.

Build the database

Analyse possibilities and reduce uncertainty

Develop the scenarios


79

Table 21 The three stages in a scenario project according to the French School


At the beginning, we conduct a study to spot out all the relevent, both

internal and external, factors to the company under consideration as well as its

environment. The MIMAC system is, then, used in order to define the system

created by those factors. We should, then, conduct a study as detailed as

possible on those variables.

Once this is done, we are interested in studying the extent to which each

variable influences the others; this is done by the construction of a cross-impact

matrix. Their influence is classifed either as binary- two possibilities : exist or

not exist- or we can use a range from zero to four to estimate their influence.

The influence that corresponds to any specific number is highlighted below :

Table 22 Levels of influence (Ringland 1998)

0=none

1=weak

2=medium

3=strong

4=very strong


80

The results of this study are plotted on a two-axis co-ordinate system ; this

determines their positions and roles and is shown in the diagram below.

Figure 9 Influence/ Dependence diagram


We should note, however, that during the analysis we should pay attention to

the current situation but not overdoing it. This is the case since by analysing

past trends we can understand the dynamics of every factor but if we over-

empashize it we will end up extrapolating the past into the future ; which is why

forecasting methods failed.

The next step is to make use of the MACTOR method in order to identify the

position of actors, who are those that influence the factors and shape our future,

in relation to each other. In order to do that, we draw a table showing their

strategies.


81

The second stage of the procedure is about scanning the range of

possibilities and reduce any uncertainties involved. We do that by analysing

future possibilities against a set of hypotheses ; these could be the continuation

of a trend or the appearance of a new one. This can be further broke up into

several dimensions so that we can study different combinations of them ; a

good way of doing it is through a morphological analysis. There is, also,

available software- SMIC, for example- for reducing uncertainty ; this is done

by calculating the probabilities of any different combination occuring.

The last stage is the stage of development of scenarios. In this stage, we

describe the path for getting from the present situation to the future.

5.6 The European Commission’s Methodology

5.6.1 Background

It is a strong belief that the future can not be forecasted since it is not written;

what will happen in the future is not predetermined. We can, however,

influence the company’s policy for the future by analysing the implications of

alternative developments of it.

The popularity of the concept described above is continuously increasing

nowadays. The Forward Studies Unit’s ‘Shaping Factors-Shaping Actors’ is

one method for implementing this concept; it was first used in the study of

Europe Post, which took place in 1992.


82

5.6.2 Methodology

Before explaining the method, it would be useful to define the two terms

appearing in its definition; the shaping actors and the shaping factors.

The term shaping factors is used in order to describe those issues that have a

very strong impact on future outcomes. They can be regional, national or global

or even sentiments (Ringland, 1998). According to Dr. Michael D. Rogers (as

cited in Ringland, 1998,p. 212) “ they are the long-run structural factors, be

they socio-economic, socio-political or cultural, that are, de facto, influencing

our European futures”.

On the other hand, the term shaping actors is used in order to describe those

players that can influence the shaping factors interactively. These could be

either decision-makers or groups of individuals (Ringland, 1998). According to

Dr. Michael D. Rogers (as cited in Ringland, 1998, p.213) “... they themselves

can become environment makers as opposed to environment takers.

Therefore, the rhythm of change- and the process of change itself- are open to

influence by the leading actors”.

The first stage of the method is to identify the shaping factors. Their list

should be as much comprehensive as possible. This can be carried out through

the use of brainstorming, for example.

The second stage of the scenario procedure is to identify the primary links

between the most important actors and factors. This will help in understanding

the dynamics of the system and identify the paths to that future.


83

As a method, it bears a resemblance to the Delphi method, where a panel of

experts interchange opinions. It is, however, less formal than the Delphi method

but results are produced faster. Moreover, it allows divergent ideas to be heard.

On the other hand, its main weakness is that each study is conducted only by a

limited number of experts; their selection, therefore, is very important for

getting the best results.

Finally, w should note that because both the actors and the factors change

rapidly, it is good practice to repeat the study in the future rather than

conducting it only once; the scenario approach is a continuous assesement.

5.7 The Global Business Network

5.7.1 Background

In 1987, when Peter Schwartz left Shell, he formed the Global Business

Network (GBN) with Jay Ogilvy. Their aim was to help people reorganise their

perceptions about alternative futures; Peter Schwartz himself is a pioneer in this

field (Ringland, 1998: Schwartz, 1998).

GBN had very large companies as clients pretty soon; AT&T and the

International Stock Exchange are just two examples. The company moved

further, however, and wanted to create a form of club. Among the first members

of this club were AT&T, Volvo, Shell and many other companies.

5.7.2 Methodology

The GBN’s methodology is based on the following eight steps

(Ringland,1998: GBN International, 1999: Schwartz, 1998):


84

Table 23 The GBN methodology


It is very important to make sure that the scenarios we will develop will be of

relevance to our company, to its business idea; for example if the client is an

automobile company, it might be interested in the variations in energy prices. A

good way of complying with that rule is to start with the decisions that the

company will have to take in the near future.

The second step is about listing the forces in the local environment that

influence the decision. We will have to think of what will influence our

decision- these could be, for example, customers or suppliers.

Once the second step is completed, we need to find the driving forces in the

macro-environment- political, social, economical and technological- that

influence the factors previously mentioned. In addition, we should identify the

forces in the microenvironment influencing the factors identified in the second

Identify the issue we will focus on

Identify key forces

Decide on driving forces

Rank by importance and uncertainty

Selecting the logics

Developing the scenarios

Study the implications

Select the leading scenarios


85

step; some of them could be predicted and the development of some others

might be uncertain.

We should, then, rank them against two factors; the first factor is their degree

of importance and the second factor is their degree of uncertainty. At the end of

that, we would be able to identify those factors that are both critical and

uncertain; scenarios will not differ, anyway, towards the predetermined

elements.

As mentioned above, we want to end up with scenarios that make a

difference to our decision-making process. The differences between scenarios

should be few so that we can develop them in detail. In order to achieve that,

we have to go through the variables many times until we reach the most

important ones; a graphical representation of those is, undoubtedly, a good idea

since it facilitates the communication process. The best plot is the one that

shows better the dynamics of the issue and communicates it effectively.

The development of scenarios is the next step. We can do that by going back

to the list of factors and trends we have identified in the previous steps. We

decide on the development of each trend and factor within the scenario we are

building and then we gather these developments in the form of narration. The

narration should describe the path that connects the present with that future as

well as the events that need to take place in order for the scenario to become

reality; on the other hand it should not be very lengthy- two or three pages is a

‘reasonable’ length.


86

Once the scenarios have been developed we should consider their

implications on the decision we focused on. We should check if the decision is

good enough under any of the scenarios; if it is a good decision under only one

scenario, then the risk we are taking is very high. In the latter case, we should

try to make our strategy more robust so that if the desirable scenario does not

happen, we would be able to adjust the strategy.

The last step is to select the ‘scenario indicators’. These are signs that inform

us that the specific scenario is closer to come true. We should also decide on

certain aspects of the scenarios that will serve as the basis for monitoring them.

5.8 The Copenhagen Institute For Future Studies

5.8.1 Background

Thorkil Kristensen, the former minister of finance for Denmark, along with a

number of companies founded the institute in 1970 as a non-profit organisation.

Scenario planning activities started in 1984 because of an American company,

3M Denmark (Ringland, 1998).

5.8.2 Methodology

The participants were invited to take place in ‘The Futures Game’ (Ringland,

1998). In this game, they were asked to think about the future and compare, on

one hand, existing trends in the society with the development of the business

and, on the other hand, to think about new trends that might come up. The next

step was to spot out, through discussion, which future they thought most

probable for the country the company is operating in.


87

The second phase of the game is for every person to try and ‘fit’ the company

into the chosen future. Nowadays, however, statistical software packages are

used for the analysis of trends.

5.9 Computer-Driven Simulations

5.9.1 Background

The usage of simulation models is a powerful approach for companies in

order to answer ‘what-if’ questions. A company that offers such a facility is the

Strat*X, which was founded by Jean-Claude Larreche in 1984 (Ringland,

1998).

5.9.2 Methodology

The latest version of this software package is the MARKSTRAT 3. It is used

by groups of sixteen to thirty people who are divided into teams of four to six

members. Every team manages its own company; the other teams represent the

competitors.

The game can last for seven to eight decision periods- usually represented by

years- with every decision taking around two and half-hours. In order, however,

for a decision to be taken we need information on factors such as the market we

operate in, our competitors and the company’s environment; financial

information is required as well.

At the final stage, the performance of each team is measured against a

number of factors like financial measures- share price for example- and the


88

productivity of investments made in research and development (Ringland,

1998).

5.10 Comprehensive Situation Mapping (CSM)

5.10.1 Methodology

This tool includes some properties of systems dynamics and systems

thinking. It is very useful since we can model the argumentation process

(Ringland, 1998). The technique is a simple modelling technique that simulates

the environmental factors that affect a company’s situation.

Finally, it can be used to bridge the gap between qualitative thinking and

quantitative operational research (Ringland, 1998).

5.11 Battelle’s Basics

5.11.1 Methodology

The Battelle’s process is described in the following figure. (please refer to

the next page)


89

Figure 10 The Battelle’s methodology


The method consists of seven steps (Huss, 1988); these are shown below

According to that method, we first define the topic under consideration and s

Table 24 The Batelle’s methodology


Define the topic under consideration

Identify the areas of influence

Define descriptors and calculate their probabilities of occurrence

Fill in the cross impact matrix

Select scenarios for further development

Conduct sensitivity analysis

Forecast and conduct implications


90

According to that method, we first define the topic under consideration and

create a list of factors that influence this event- these factors are not only events

but can be a range of outcomes like growth of the Gross National Product at a

rate higher than four percent.

We, then, assign a probability of occurrence to each factor within the time

limits of our study. The next step is to write detailed reports on each descriptor;

this should include the background of the descriptor as well as any future

forecasts.

A cross impact matrix is built afterwards. This matrix shows the impact that

the occurrence of a descriptor state has to all the others; in order to do that a

numerical range from –3- strong negative impact- to +3- strong positive impact

– is used. We, then, make use of a software package to create consistent sets

and combinations of these descriptors in order to fulfil the internal consistency

requirement.

A scenario consists of the occurrence of one state from each descriptor. The

most important scenarios are then selected for further development; the reports

previously written as well as the outcomes of the software package are used for

that purpose.

Once they are developed, sessions are held with the managers of the

company to discuss the implications that the realisation of each scenario would

have for the company. The aim of these sessions is to well position the

company against all those alternative futures; in other words to adjust our

strategy so that we can benefit from all possible developments.

Chapter 6- Setting up the scenario agenda in a company

91

Chapter 6

Setting up the scenario agenda in a company

6.1 Introduction

This chapter will deal with the ‘practicalities’ of scenario planning; in other

words the main issue that will concern us here is the way the scenario agenda is

set in organisational settings. We have looked, so far, at scenario planning with

respect to other planning methods and we have concluded that it is a suitable

method for long-tem planning; it was from the seventies that many authors

dealt in their articles with scenario generating methods (Durand, 1972:Duperrin

and Godet, 1975:Gazes, 1976:Geshuny, 1976:Chapman, 1976: MacNulty,

1977) . On the other hand, forecasting, portfolio analysis and simulation models

are not appropriate for that purpose given that the longer we look into the

future, the higher the uncertainty is.

We have looked, also, at certain methodologies for developing scenarios;

these were divided into three main categories: intuitive logics, trend-impact

analysis and cross- impact analysis. The one thing that these methodologies

have in common is that they consist of a step-by-step methodology; each step

was characterised by a headline such as identify the key issue or identify the

driving forces.

We have not, however, looked at the practical side of scenario planning to

the extent that no attention was paid to how all these are implemented within an

organisational context. This is the role of this chapter- to illustrate how this


92

issues are processed in an organisation as well as what ways we use in order to

get the information we need.

6.2 Overview

Before getting into the questions mentioned above, we have to observe that

scenario planning is rather a craft than a science (Ringland, 1998: Van der

Heijden, 1996). By that, we mean that each practitioner has his own rules;

however, during the years that scenarios are used a set of principles has come

up. It is, nevertheless, the case that practitioners have to learn from their own

mistakes and make alterations to their techniques so that they have better

results.

Another important thing we have to bear in mind as far as scenario planning

is concerned is that scenarios are always used in order to test something, that

being the fit of our strategy to various future developments or any changes in

the business’s environment. A scenario project should, therefore, involve an

area of interest along with future developments around that issue; these

developments will be described by a number of scenarios. In addition, in most

of the cases there is no specific issue to begin with but the aim is to have a

better understanding of what is going on in the business environment

(Ringland, 1998: Van der Heijden, 1996). It is, however, better to have a

question to focus on early in the process (Ringland, 1998) since that helps to

put scenarios in a context. We can leave that to emerge from the process but,

then, the whole team should have an in-depth knowledge of the organisation- it

should consist from people within the organisation in other words.


93

The technique mentioned above could be proven useful; on the other hand

there is a danger especially for big and successful organisations that they will

not be able to recognise the trends-breaking signals. It is for that, that many

scenario projects involve both internal staff and external consultants so that

introversion will be avoided. We,

therefore, have to communicate the most important characteristics of our

organisation. A way of doing that is through the ‘business idea’; this can be

defined as the answer to the question “ What is unique about this particular

formula, and why are others unable to emulate it?” (Van der Heijden, 1996,

p.62). If, however, we choose not to communicate the business idea we need a

scenario agenda in order to make sure that what we study is relevant to our

project.

6.3 Towards the scenario agenda

6.3.1 The two players

Before proceeding further with the scenario agenda, it is a good idea to

define the two participants in a scenario planning project, the scenario planner

and the client (Van der Heijden, 1996). The scenario planner is the person

responsible for facilitating the scenario process. He can already be working for

the organisation or he can an external consultant who will work in close

association with the internal organisation’s staff throughout the project. Since

he will be responsible for running the process, he should be dealing with

tactical issues most of the times.


94

The second player is the client. By that, we mean those people who are trying

to answer a strategy’s type question through the process; most of the times the

client is the management team of an organisation.

6.3.2 Defining the scope of the project and getting the information

In order for the scenario planner to proceed with the project, he needs to

collect data. He has to ensure, however, that these data are relevant to the issue

under consideration; it is so easy for anyone to collect large amounts of

information since the business environment is so wide. In addition to that, a

way should be found for the strategic agenda to be communicated; the concept

of business idea, which was previously discussed, might serve this purpose

quite well.

As mentioned above, the first step the scenario planner has to undertake is

that of collecting data on issues that are of strategic importance to the company.

This information can be connected either by conducting a SWOT analysis-

through which a group brainstorming takes place- or by individual interviews.

These two ways are further analysed and discussed below.

6.3.3 SWOT Analysis

A SWOT analysis is a method for gathering information from the team; it can

be conducted within half a day and the initials stand for Strengths, Weaknesses,

Opportunities and Threats (Van der Heijden, 1996).

This form of analysis is conducted, most of the times, at a workshop where

the scenario planner should be the facilitator. It usually has three parts:


95

Table 25 Parts of a SWOT analysis


At the introductory stage, the facilitator gives a brief description of the

method. He, also, has to emphasise on the purpose of the exercise.

The introduction is followed by a brainstorming session, where participants

are asked to think of any aspect of the business they consider as either good or

bad. The second task would be to categorise them under one of the letters S, W,

O or T. A certain time allowance has been made for that.

Once this time limit expires, participants are asked- one in turn- to reveal

their points. We should note that at this point no discussion is allowed but one

can only ask questions if he considers that his partner’s suggestion meaning is

ambiguous. The group undertakes the task to decide whether this point fits in

and how it can be described in a few words so that it can be written on the flip

chart. When this process is finished, the flip charts are reviewed to make sure

that nothing of interest was left out.

The opening or introductory part, where the importance and the target are

explained to the participants

A brainstorming part, where participants are requested to identify the

strengths, weaknesses, opportunities and threats of the company

A feedback and analysis session


96

The analysis of what is written so far is the last stage of the SWOT

workshop. This consists of five steps- one for each letter and one for the

formulation of the scenario agenda.

The first step deals with the strengths of the organisation. We should pay

attention here to identify those strengths that make our clients prefer us rather

than our competitors.

Moving on to the second category, we should note that there are three

categories of weaknesses (Van der Heijden, 1996)

Table 26 The three categories of weaknesses


This distinction is essential in order to look at the real problematic areas of

the company. The term symptoms is used to describe temporary weaknesses,

which will disappear as soon as their causes stop being present; we can think of

a decline in sales as an example. Hygiene factors are those weaknesses that are

needed for running the business; an example of that type of weaknesses could

be the expenditure for information systems. They do not provide a competitive

advantage to the company but without them it would be very difficult for the

company to resist to competition (Van der Heijden, 1996). The third type of

weaknesses- the structural weaknesses- is the area the company should focus

Symptoms

Hygiene weaknesses

Structural weaknesses


97

on; these are the factors that should be corrected if the company wants to gain a

competitive advantage.

The third step is about analysing the points that came under the opportunities

headline. These can be further subdivided into two types: portfolio areas and

capability areas. The first are areas where the company can have profits by

expanding a number of its strengths whereas the latter are areas where could

develop new skills that are related to future success.

The assessment of threats is the one before the last step of our analysis. It is

about analysing the threats and taking actions against them since otherwise the

strengths of our company might be in danger.

The last step is the direct formulation of the scenario agenda. We can derive

it by spotting from those data the areas where we should pay attention. If we

want to proceed even further, we can rank those issues in terms of importance;

the result, however, should not be more than, for example, four- broadly

defined- areas so that it would be easily to tackle with them.

6.3.4 Interviews

As mentioned above, the first step the scenario planner should undertake is to

obtain an insight view of the organisation’s culture and views. We should,

however, remember that the work is done under certain time limits; in other

words the desirable number of iterations should be as small as possible. An

effective way of doing that is through interviews (Van der Heijden, 1996). In

order to get that insight, we should be aware of certain rules; these rules are

presented below:


98

Table 27 Rules for having a successful interview

(Source:: Ringland, 1998: Van der Heijden, 1996)

With respect to the first rule, it is important for the interviewer to go for the

interview without having a fixed agenda. It is good practice to ask general

questions concerning the business situation and just follow the flow of the

conversation.

The second rule is about making sure that the interviewee will be willing to

share information. This will be achieved by explaining to him that the

information will remain confidential and that it will be processed by subject;

this way his anonymity is guaranteed.

Another important factor is that the facilitator should be a ‘good listener’ of

what the other person says. Moreover, he should repeat those to the interviewer

as a signal that he is interested in the conversation. There is a danger here, that

the scenario planner might dominate the conversation by doing that; a ‘trade-

off’ has to be found depending on the individuals involved in the conversation.

There should not be any constraints in the process

The purpose of the interview should be explained and fully understood by the

interviewee at the beginning of the process

The interviewer should pay attention to what the interviewee says during the

process and feed it back to him

Mutual trust is very important and should be established right from the

beginning


99

The final rule is about establishing a mutual trust relationship. As mentioned

above, it is very important that the interviewee will feel free to speak; otherwise

the person who conducts the interview will not get the information he wants. In

order to establish that feeling it is absolutely necessary to gain the other

person’s trust.

As far as the interview process is concerned, it can start by asking the other

person how the company arrived at the present; this way we achieve both to get

the personal view of the person as well as to involve him in the process. It is

good practice that this question is the second one, following the introduction.

Once this is done, we can start the interview process by using the so-called

‘trigger questions’. These are questions that form the starting point for a

conversation but, on the other hand, the agenda of the conversation is

influenced at a minimal level (Van der Heijden, 1996: Ringland, 1998). A set of

questions of that kind, known as ‘ the seven questions’, was found to be very

effective towards that (Van der Heijden, 1996: Ringland, 1998); these are

presented below.

The first three questions are designed so that we can derive from the

interviewer his concerns about the business environment as well as their beliefs

about the uncertainties of it. These questions can be either asked directly or by

using the method of the clairvoyant. The clairvoyant is a person who can see

into the future; all we have to do is to ask the client to name three questions he

would ask a clairvoyant if he had one in front of him. The advantage of the

latter way of asking the questions is that it makes the process ‘lighter’ without


100

losing the amount of information we want. The second question is introduced as

soon as there is nothing to be added at the first question and, in essence,

requires the development of a ‘good’ scenario on behalf of the interviewee. In

order to obtain that, the facilitator asks him to answer the three questions

provided that the future turns out to be good in favour of the company. The next

question is pretty similar; the only difference is that the interviewee is asked to

answer those questions in case that the future develops in a unfavourable way

for the company- this way the client reveals his worst fears about the future. We

should, finally, note that the ‘good’ and ‘bad’ scenarios are adopted as terms

only because they trigger ideas; generally, this method leads to poor quality

scenarios.

Once the previous questions are answered, we can move on to the next

question that concerns the culture of the organisation. The client is asked to

identify those events from the past that he thinks are useful and worthy to be

kept as guidelines in the future. The facilitator might find details about existing

organisational ‘myths’; these are stories known to everyone in the organisation

and characterise its culture being, at the same time, a very effective way of

communicating the organisation’s values.

The fifth question is about the important decisions that the organisation needs

to take in the short term. We should note here that there is no clear definition

about the length of that period; it should be, however, sufficient to cover any

major decision the company has to take. By this question, we aim at finding


101

what is troubling the client’s mind at the present; these are areas that scenario

can help.

The major constraints imposed on the organisation, both from internal and

external factors, are of interest as well. The internal constraints might be due to

political issues or they might be because of the organisation’s culture whereas

the external constraints might be from the competitors, for example. Those

constraints are very useful in order to set the context for the scenario.

The last question aims at spotting of the values system of the interviewer. In

order to identify that, he is asked to think of a period in the future when he

would have left his current position, due to either retirement or promotion, and

name what he wants to be remembered for. Furthermore, if we want to remove

all constraints, we can ask the client to imagine that he is in total control of the

situation and answer the same question.

6.3.5 Interview techniques

As far as the interview process itself is concerned, there are some issues

related to it we should take into consideration. First of all, as mentioned above,

the conversation should be as relaxed as possible in order for the interviewee to

feel more comfortable. This raises an issue since there is a need of recording

everything said for the formulation of the scenario agenda afterwards.

A way of doing that is to directly record on a tape the whole conversation.

The efficiency, however, of this method is under question and whether it is

suitable or not for the specific situation depends very much on the culture of the

organisation. The person who is interviewed may feel uncomfortable in front of


102

the tape, thinking of unpleasant situations that will emerge if tapes go to wrong

hands.

Another technique, which is by far the most popular, is to take notes during

the interview process. In order to make it easier for the interviewer, two persons

conduct the interview. They can even change roles during the interview. It is

good practice for the two interviewers to compare their notes after the end of

the interview; most of the times someone would have written something else

than his colleague.

A second issue is that of the identification of the most suitable persons for

being interviewed. The problem becomes even bigger, if we think that all

projects have certain time constraints. There is no ‘magic’ number; however if

we conduct between ten and fifteen interviews, in most of the cases this will be

sufficient (Van der Heijden, 1996). Sometimes, it is better to interview more

people; for example, when we want to create a sense of ownership across the

management team.

The analysis of the interview notes is another critical point. This includes the

process of the interview notes as well as the judgement for which of them

should be further processed. The criterion for this could be their relevance to

the way the company reacts to signals from the outside environment.

6.3.6 Interview analysis

The next step is the analysis of the interview results. The analysis is

conducted in several stages. The first stage is to divide the interview notes into

two categories: those concerning the organisation and those concerning the


103

environment; the criterion is whether the organisation has control over that

issue or not. This division is necessary since almost every project deals with the

organisation’s reactions to environmental changes. We should, note, here that if

some statements have both an organisational and an environmental aspect, we

should classify them under the environment headline.

Once this step is completed, we have to further sort, cluster and link them. It

is important not to have any clustering rules in advance, but do that through a

cause and effect relationship. We, then, can go through the clustering process

again and look for further similarities and patterns. Finally, in order to do the

grouping we can make use of, for example, post-its if the number of statements

is relatively small; in the opposite case a computer software package is needed.

The process described above is continuously repeated until results are

satisfactory; one way for checking it is whether the clusters formed are

independent- in other words if an idea belongs to one and only one cluster. The

analyst should illustrate any common and different views within the same

cluster, as this will form the base for further discussion.

6.4 The scenario agenda

The scenario agenda is the first outcome of the process mentioned above. It,

generally, consists of five broad areas (Van der Heijden, 1996). These are

problematic areas for the client where scenarios can be proven useful. In fact,

there is no need to go beyond this number given that the areas have been chosen

in a way that they are independent. If more than five themes have emerged, it is


104

good practice to involve the client in a ranking exercise so that the most

important areas would be spotted.

Another debatable issue is that of the ‘organising question’ (Van der Heijden,

1996). This is the case since there are advantages and disadvantages associated

with it. The obvious advantage is that it gives a strong focus on the project and

ensures that the outcome is of high relevance to the client’s concerns. On the

other hand, it might cause restrictions to the thinking process since the purpose

of the project is to consider alternative views of the world.

Apart from the scenario agenda, a second outcome of the process is the

internal agenda. This is the case since in most of the interviews, the

interviewees talked about the ‘goods’ and ‘bads’ of their company- concerning,

for example, their colleagues or the culture of the organisation- as well; this

data can be used in order to understand the so-called ‘business idea’ of the

organisation.

Finally, the team should decide on the horizon of the project; in other words

how many years in the future should the project look into. This will depend on

the impact that the decision will have on business; in most of the cases,

however, it is around twenty years (Van der Heijden, 1996).

Chapter 7-Uses of scenario planning

105

Chapter 7

Uses of scenario planning

7.1 Introduction

Scenarios, as opposed to other planning methods such as forecasting,

simulation and portfolio analysis, give us the opportunity to look in the far

future where uncertainty is very high. It is because of that fact that scenario

planning was introduced and adopted in a wide range of applications; from the

formulation of the corporate planning of a company to customer-driven

planning and from planning for technology investments to innovation planning.

In this chapter, we will focus on three areas where scenario planning is

applied: the area of corporate planning, the area of technology investments and

the area of customer-driven planning.

7.2 Scenarios in corporate planning

7.2.1 Introduction

We are living in a rapidly changing world; the environment changes at a very

fast pace, a fact recognised by every organisation. In order to cope with these

changes, companies are reorienting their planning processes; there is a move

from forecasts- with a strong quantitative element- that have difficulties dealing

with discontinuities to more qualitative techniques (Klein and Linneman, 1981).

In the context described above, the use of scenarios is constantly increasing.

As an example for illustrating their utility, we can think of someone wanting to


106

climb a mountain (Schoemaker, 1995). A traditional planning method would

have equipped this person with a detailed map of the region; however, this is a

two-dimensional map. In addition, further variables like weather conditions and

any dangerous animals living in that area are ignored. Scenario planning, on the

other hand, will provide this person with stories about how the elements of the

system will interact so that he will be able to prepare himself in a better way

against the difficulties he will face.

The importance of corporate planning for a company was realised in

seventies; the oil crisis was the critical event that made companies realise they

had to look far into the future and formulate their strategy respectively. The

emphasis on long-term planning contributed to the spread of scenarios; the first

companies that applied the method were companies from the oil industry- like

chemical companies- followed by the car industry since they were the first

industries affected by the oil crisis (Ute von Reibnitz, 1988).

7.2.2 The business corporate planning strategy system; the five

planning levels

In order to describe the applications of scenarios in corporate planning it

would, undoubtedly, be useful to describe a typical corporate strategy system.

An illustration of this system is shown below (Millet, 1988).

The first stage of this model is the corporate definition and purpose. It is

essential for every company to have an identity. It emerges from the answers to

the following questions: (please refer to the next page)


107

Table 28 Three questions to ask for formulating the business’s identity

(Source: Millet, 1998)

Furthermore, we should note here that this identity should derive as the

combination of the external environment, which includes the customers as well

as political, social, technological, legal and other issues, and the internal desires

of the company’s owners; these two should be identical in an ideal situation.

As far as the corporate definition is concerned, we have to note that its

‘success’ is measured by the degree to which it is understood by the staff and

put into action. Likewise, with respect to the characteristics it should have it is

important not to be too detailed and lengthy; it should be accessible to anyone

in the company and it should be recognised from the moment someone enters

the reception area (Ute von Reibnitz, 1988). Despite those elements, however, it

is a common mistake for many companies to produce too comprehensive

identities, which are very complex and the essence is lost.

Once this step is completed, there is a need for defining certain goals as well

as measures of performance to monitor its progress. The goals could be both

long-term and short-term; they can also be qualitative or quantitative. The

measures of performance can, for example, be the market share of the company,

the sales volumes or the profit margins.

What business are we in?

Who are our customers?

Why are we in that business?


108

The next step in the process is the identification and evaluation of strategic

options. These should be in compliance with the goals set in the previous step

and mainly involve the product mix and the marketing strategy of the company.

The evaluation of those options comes next; this is more difficult since the

options, in their generic forms at least, are more or less predetermined. In order

to evaluate the options available, we can test them against macro and micro

models as well as against qualitative and quantitative criteria; the culture of the

company and the mix of different peoples and ideas are additional criteria for

our choice. In general, however, there are eight factors against which we can

select the optimal strategy; the first four are related to the external environment

while the last four are related to the internal environment (Millet, 1988)- these

factors are presented below.

Table 29 Eight factors for evaluating our strategy

(Source: Millet, 1988)

Customers response (acceptance or rejection)

How it responds to predictable market conditions

How competitors react to it

How our allies react to this strategy

If it is in compliance with the corporate definition and the goals set

If it can be successfully implemented given the current resources of the

company

If it ‘passes’ the financial risk test

If it is in compliance with the management’s priorities


109

After this step, one strategy is chosen to be put forward. This is done, in most

of the cases, by the top management. On the contrary, everyone should be

involved in the implementation of the strategy. This is, in turn, put in action and

the reactions from the business environment serve as feedback to the process.

An alternative model for corporate planning is the ‘five levels planning’ (Van

der Heijden, 1996)- this is presented below.

Figure 11 The five levels of corporate planning


Strategic planning is at the top level. It is the equivalent of corporate

definition and purpose in the previous model as it involves the exploration of

the future and the expression of results through the business idea, which

answers the three questions previously mentioned. Strategic planning takes

place at both the corporate and the business level; in fact it is better to develop

the business idea first and then deal with the corporate business idea- this is the

case since the corporate competitive advantages are based on the businesses’


110

ones. The outcome of this procedure is a set of strategic objectives, which is the

second step of the model described above. Each one of those objectives should

be expressed in a short sentence and describe where the company would like to

be at the end of the horizon year.

Masterplanning is the second level of planning; it is mainly related to the

‘strategic options’ part of the first system but it incorporates the ‘management’s

priorities’ part of the second step of the first model as well. It is about linking

projects together so that economies of scale can be achieved. The result of that

stage is the allocation of resources across the organisation.

Once this stage is completed, we can move on to project planning. The latter

is conducted with project planning and incorporates parts of the two last stages

of the corporate system model. In general, the team of people who would be

responsible for the projects is brought together in a workshop and a facilitator is

used (Van der Heijden, 1996). The process followed can be divided in the

following steps:

Table 30 The process followed in project planning (Millet, 1988)

The objectives of the workshop are explained

The team discusses the objectives they have to meet as well as to identify

areas where action plans are required

A gap analysis is conducted

A list of actions need to be taken is formed

Action plans are formulated

The result of the workshop is reported


111

The next level in the planning cycle is budget planning. It involves the

setting of targets as well as the development of a quantified plan for the results

of the previous levels of the cycle. It incorporates every step listed in the

previous model except the corporate definition step and is needed for a number

of reasons. These involve the availability of resources and the need for a

business plan to be presented to the stakeholders- who are the people we need

to ‘keep happy’- as well as for expenditure limits.

Appraisal is the last level involved; it is about the efficiency of the actions

taken and is linked to the last stage, the strategy stage, of the first model. It uses

the performance measures set earlier and if a significant difference occurs from

the targets set, it is an indication that corrective actions should be taken.

7.2.3 Uses of scenarios in corporate planning

In the previous chapter, a typical model for formulating the firm’s corporate

strategy was, in brief, described; likewise, a similar planning model consisting

of five levels was highlighted in order to indicate the planning cycle. Scenario

planning is proven to be a very effective tool, which we can use at various

stages of this process.

The first stage where scenarios can be used is at the development of a

company’s master strategy; in other words the identity of the company- its

definition and purpose (Ute von Reibnitz, 1988: Millet, 1988: Van der Heijden,

1996: Fahey-Randall, 1998). In order to do that, a manager needs information

on how the future business environment will unfold; how the external


112

environmental factors- political, economical, technological and social- will

affect the company’s businesses. The method of scenarios can be employed in

order to ‘forecast’ to some extent the future developments; it will provide us

with alternative, internally consistent, futures. We should note, here, that the

purpose of scenarios is not to provide accurate answers to short-term questions;

it provides us, as mentioned above, with a set of future conditions against which

the company should secure itself. The utility of scenarios in that stage lies,

therefore, in the fact that we reduce future uncertainties to some extent.

The second area where scenarios can be used is that of evaluating goals and

strategies as well as assessing the current ones (Ute von Reibnitz, 1988: Millet,

1988: Van der Heijden, 1996: Fahey-Randall, 1998). As far as the first is

concerned, every company needs to test its strategies and develop, at the end, a

core strategy, which would be compatible with the environmental conditions.

Scenarios, as mentioned above, can be used in order to generate ‘alternative’

futures; the same events can be chosen from all scenarios and build a strategy

based on them. In addition, for the strategy to be more flexible, we can test our

innovative actions decided after examining the first scenario against the next

one; if they can be applied against that scenario as well, then we can introduce

them in the core strategy. It is the case, sometimes, that we will have to modify

the activities before transferring them into the other scenario; however, around

two thirds of activities are, this way, transferred to the core strategy (Ute von

Reibnitz, 1988).


113

With regard to the assessment of current goals and strategies, it is important

for every company to check on a continuous basis its strategies against

developments taking place in the business environment. In order to do that, we

can develop the scenarios on an individual basis; once this is done, we can

check our strategy against them. This is done by the aid of the so-called

scenario descriptor list (Ute von Reibnitz, 1988); that consists of the

descriptors- the driving forces in other words- of each scenario along with their

possible development. We can, afterwards, rate our current strategy against

each scenario; the rating procedure should not be strictly quantitative but it can

include qualitative elements as well such as our beliefs on the degree to which

the strategy will be sufficient against the scenario under consideration.

Because of their use in the evaluation of the company’s strategy, scenarios

can provide us with information on various subjects (Millet, 1988). The first

area in which we can get additional information on is the area of marketing. In

particular, we should be able to identify any trends in demand for the existing

products and services of the company. If the results from different scenarios

show a high variation, then actions should be taken against it; this issue should

be addressed in parallel with the formulation of the company’s master strategy.

A second important area we should consider is that of the external

environmental conditions; companies do need to know whether market

conditions, for example, will favour them in the promoting of their products or

not and formulate accordingly their market strategy. A company that produces

alcoholic drinks for example should go through scenarios where regulations are


114

very strict for its products and an official campaign is launched against the

effects of alcohol in our health.

Furthermore, scenarios can be used for the identification of new product

opportunities. It might be the case that the demand for a product is not growing

or, even worse, is declining; in that case, a substitute product might be found.

This will be done by considering the customers needs in the future so that we

can adjust our strategy.

An important factor that can give competitive advantage to a company is the

use of new technology; however this is related to high levels of expenditure

along with human resources management and plant layout issues that need to be

resolved. These technological considerations should be included in the firm’s

strategy and can be addressed by scenarios.

Furthermore, it should be-undoubtedly- useful if the company could have

information on competition; this includes both similar products or services as

well as substitute ones. We can develop scenarios where we would be able to

incorporate our competitors major strengths and weaknesses and ‘foresee’ how

the future will unfold; it is a good idea to view those scenarios in combination

with the scenarios on the business environment so that we will have the whole

picture.

Finally, scenarios can give us an idea about the uncertainties that a company

will face in the future. This type of information is essential in order to decide on

the amount of flexibility we should allow for in our master strategy; this will, of

course, depend on the company’s culture as well (Millet, 1988). If the


115

developed scenarios show a high level of variation, then its strategy should be

characterised by a high level of flexibility as well. It is, however, good practice

to keep a close eye to the developments and formulate a contingency plan in

order to respond to changes.

7.3 The scenario method for technology investments

7.3.1 Introduction

Technology is a very important asset for a company; therefore, any decision

concerning its technological infrastructure is crucial and needs to be carefully

examined. This is the case since if the choice of investing in a new technology

is correct, the company is gaining competitive advantage against its competitors

by using state-of-the-art technology; on the other hand, if we take the wrong

decision the company’s future is in risk.

The best choice, however, we can make is a technology that can be

successfully used by the company in several future markets (Fahey-Randall,

1998). If the choice is made only on the basis of some either financial or

production capacity measures, it is highly probable that those responsible for

the project will fail to anticipate potential future market opportunities. This is

the role that scenarios will play; to help managers evaluate the technology

needed for ‘future products’.


116

7.3.2 The scenario method for technological decisions

The first step we need to undertake in a scenario-based technology

investment project is to scan the business environment- political, technological,

social and economical- in order to identify trends, issues and factors that could

affect our business; these factors are called business drivers (Fahey-Randall,

1998). It is important not to place borders on that initial activity; it is, also,

important not to ‘judge’ the influence of the factors at this stage.

Once this is done, the results need to be clustered in order to define the

dimensions around which our scenarios will be built. These are macrolevel

issues that will define the planning environment (Ute von Reibnitz, 1988:

Fahey-Randall, 1998). Furthermore, there are certain rules associated with

dimensions; these are presented below (Fahey-Randall, 1998). (please refer to

the next page)

Table 31 Rules associated with dimensions

(Source: Fahey-Randall, 1998)

The next step after the spotting of dimensions is to put them in a matrix from

where we will be selecting the scenarios. It is, also, important to select the

They should be defined at the macrolevel

We should not be able to predict how they will unfold in the future; their

development should be characterised by uncertainty

Our organisation should not be able to control these factors


117

smaller possible number of scenarios that incorporate both the opportunities

and the threats that our business will face in the future.

We should, note, here that including technology in the business drivers

category can create many problems; this is the case since we face difficulties

defining the technology dimension when the developed scenario will be used

for technology decisions. This is the case since it is very difficult to define that

dimension; we can try some headlines like ‘high growth of technology’ or ‘low

growth of technology’ but it is highly unlikely that all future technologies will

grow at the same pace.

Scenarios, on the other hand, should provide us with information on the

businesses’ and customers’ needs so that we can anticipate the product’s

demand as well as the emerging technologies. If the project horizon is,

however, extended- about ten to twenty years- then specific information on

technology decision making is required (Fahey-Randall, 1998). In addition,

there are certain trends that should be included in every scenario- these are

issues like interest rates and inflation. Moreover, effort should not only be put

in finding numerical expressions for those drivers but in assessing any existing

interrelationships as well. The culture of the organisation should also be tested;

it should not be an obstacle for certain assumptions- that competitors will need

to invest heavily in information technology in order to enter the market (Fahey-

Randall, 1998).

The next step is to take those alternative worlds as reality and to anticipate

which products should the potential customers want. They should, then, try to


118

work out technologies for producing those products. The latter can be achieved

in two ways.

The first way of doing that is to identify a common set of technologies in

order to produce the common products in all scenarios. However, it does not

allow us to understand the route followed in order to end up with this product

list.

Another approach to that issue is to identify a set of totally new products;

these products should be needed in all scenarios. This is, then, used to evaluate

alternative technology solutions. We should end up with a core set of

technologies which will accommodate the future demand; our finally step is to

link that set to the strategic objectives of the company.

Summarising, we see that the scenario approach for technological decision

making can offer many benefits to the company under consideration. It gives

the company the opportunity to incorporate the future customers’ needs to their

technological planning. Moreover, in the case of big changes in technology-

technological discontinuities- those companies will act at a much faster pace

and with much higher confidence than its competitors. Scenario planning can,

therefore, give companies a competitive advantage.

7.4 Customer-driven scenario planning

7.4.1 Introduction

As time goes by, we are experiencing major changes in markets; especially

nowadays the development and popularity of Internet has made possible for


119

everyone to make his shopping from anywhere around the world. The effect of

markets globalisation has attracted the attention of many companies and can be

viewed as an opportunity for a company to expand its business; there are many

questions, however, raised- for example about the security of transactions over

the Internet. In addition to that, changes have taken place in the area of

customers’ needs.

The role of customer-driven scenario planning is to help companies

overcome such difficulties as well as communicating these changes within the

organisation, making it capable of taking actions against them.

7.4.2 Customer-driven scenario planning

As mentioned above, customer-driven scenario planning address issues like

how market segments or distribution channels will change and unfold in the

future; in addition we are interested in knowing the impact that changes in our

customers behaviour in the future will have on our business. Finally, we would

like to know who would be our new ‘future competitors’ to whom our loyal

customers will turn to (Fahey-Randall, 1998).

This planning approach is different from the traditional one; this

distinguishes between predetermined events and critical uncertainties. The

distinction is done on the basis of the extent to which the development of a

factor is predictable or not; critical uncertainties, on the other hand, can not be

predetermined but can be thought of as questions requiring answers (Wack,

1985a). In order to get best results, it is better to concentrate on a small number

of uncertainties, which have a heavy impact on our business.


120

We, then, use those uncertainties as the basis of our scenarios. In order to

construct our scenarios, we combine different developments for each one of the

key drivers; we should, of course, be careful so that these scenarios are

internally consistent- in other words, the developments of the key drivers do not

contrast. One of those scenarios, however, should be ‘surprise-free’; in other

words the development of the key drivers will be according to the corporate

planning. This is necessary in order to keep the scenario planning project going

– if we present totally new to the managers the most probable development is

that they will lack confidence in the method, as in the Shell’s case.

As far as customer-driven scenario planning is concerned, we can distinguish

between three phases: those are the constructing, exploring and responding

phases (Fahey-Randall, 1998). These are illustrated in the following figure.

At the first phase, we are at the beginning seeking answers to questions

related to our customer base; these include questions on the spotting and

definition of our customers and the categorisation of them. Another set of

questions we might address at this stage is about the priorities of our customers’

categories as well as how the identity of the customers belonging in the

category which ‘leads’ the others can change. If we are in the manufacturing of

sports shoes business this category might, for example, be the athletes. We

should note, here, that the best criterion for conducting the categorisation is the

behaviour of customers (Fahey-Randall, 1998).

Moreover, we shall consider the possibility of new distribution channels

emerging as this will affect the way our customers reach our product; if they


121

change attitude towards the ‘traditional’ distribution channels, we should be in

place to accommodate that change. Finally, we should pay attention to how the

critical uncertainties identified in scenarios will affect our clients.

The second phase of a customer-driven scenario project is, as mentioned

above, the exploration phase. The key questions that need to be answered here

are the identification, on one hand, of ways we can keep on meeting our clients’

needs profitably and, on the other hand, whether we should expect other

competitors’ appearing on the scene’. (Ute von Reibnitz, 1988: Fahey-Randall,

1998).

The analysis should be conducted in each customer segment, as these are

defined by the previous step. We should, now, put ourselves in the place of the

customers and assess any competitive prepositions. We should, though, be

aware of the fact that sometimes the preposition itself is not a threat but if two

or more are combined, this might form a threat- videos and video rental clubs is

a good example (Fahey-Randall, 1998).

The third phase of the project is the responding phase; in that, we are

concerned with ways of responding effectively to the changes identified in the

previous steps. There are three types of response, which can be summarised by

the following headlines: just do it, place your bets and monitor closely. The first

approach is related to issues common in all scenarios that will almost certainly

occur; therefore, we should start thinking about actions needed against them.

The second category consists of issues that are very important in the scenario

they appear; we have to prepare ourselves in case they occur. Finally, the last


122

category includes those trends that can not be dealt with at the present due to

very high uncertainty; they should, however, be closely monitored.

Chapter 8-Case Studies

123

Chapter 8

Case Studies

8.1 Introduction

We have, so far, studied the theoretical aspects of scenario planning; how it

emerged, why it is ‘superior’ to other planning methods, some of its

applications in industries and its main generating methods. On the other hand,

in order to have the whole picture in front of us, we need to study how scenario

planning was applied in a specific company’s context. In this chapter, therefore,

we will concentrate on two ‘real life’ examples; the cases presented are the

British Airways and the Shell’s, which is the pioneer in this field cases

respectively.

8.2 British Airways

8.2.1 Introduction

British Airways was, some years ago, a state-owned company with its

accounts showing that it was losing money; since then many things changed.

The company is, now, generating profit and is a publicly listed airline (Moyer,

1996: Ringland, 1998).

It was, however, due to the Gulf War that a recession appeared; the airline

industry, as a whole, lost £10 billion in that period while British Airways still

had profits. The financial results of 1995 indicated a turnover of £7177 million


124

with a profit, before taxation, of £452 million; moreover, it is flying 36 million

people to 194 destinations in 82 countries (Moyer, 1996).

The industry’s environment, however, is very turbulent and is constantly

changing; therefore traditional short-term planning techniques. Likewise, it is

difficult for managers to look far into the future leaving their current job aside;

the official planning horizon is, anyway, four years.

Because of these difficulties, the corporate strategy department decided to

introduce the scenario planning methodology in 1994; a description of the

methodology followed follows.

8.2.2 The methodology

The process was divided into two parts; the first part was called the ‘scenario

development’ phase while the second was called the ‘scenario workshops’.

DeAnne Julius, the chief economist of the company, was responsible for the

first phase. A development team was formulated; it consisted of eight people

whose origins were from the corporate strategy, the government affairs and the

marketing departments- in addition to them an external consultant was used at

that phase of the project. The group of people mentioned above started working

in March 1994 and finished at the end of October 1994.

Furthermore, it was considered important to gain top management support

for the project. In order to obtain that support, a group of fourteen people,

directors and senior managers from all the major departments of the company,

was formed; it was called the ‘Halo Group’. Their task was to review the


125

activities undertaken by the development team and give their opinion and

advice at the end of each of the major project tasks.

The first step the development team needed to undertake was the

identification of the external factors that influence their business- the airline

business. The method used was to conduct individual interviews with managers

in charge of various departments; in addition, five group interviews were held

with specialists from areas such as air transport regulation and information

systems for the airline industry (Moyer, 1996: Ringland, 1998). The

interviewees were asked to respond to a set of questions, which was designed

beforehand- detailed notes were taken under the condition that the name of the

interviewee will not be revealed.

These notes were used in order for the ‘Official Future’ to be defined; this

was, basically, a summary of the assumptions already made by the managers of

British Airways. Likewise, the external issues were classified into three main

categories; these were the predetermined elements, the key uncertainties and the

driving forces- the latter being issues that directly affect the industry such as

developments in information technology. A debate followed and eleven of

those issues were chosen for further research. The Halo Group ‘approved’ that

findings- to the extent that they reflected the official thinking of the company

about how the future would look like.

Once the issues were identified, there was a need for ‘predicting’ how they

will unfold in the future; the understanding of the critical points that contribute

towards a certain development direction was essential. Every member of the


126

development team was assigned one or more issues for further investigation;

they were supposed to conduct more research as well to contact consultants in

order to develop their theory about how the specific issue will emerge in the

future.

The next meeting of the development team took place in the middle of July

in 1994; they discussed what they have found so far and decided on the

relationship between growth and governance being the main issue. They, also,

decided that two stories would be developed covering a time horizon of ten

years; the writing started in July of 1994.

The outcome, at the beginning, was draft stories as well as some slides that

highlighted the main points in a graphical format. The initial audience was

other team members and experts on these issues; a presentation took place at

the Chairman’s Committee as well in order to ensure approval. As internal

consistency is a major request for scenarios, the final version of the stories was

written by the consultant and finalised and approved by the Chief Economist

who was in charge of the project. The Halo Group gave its approval to those

stories as well.

In the meantime, numerical data were collected in areas like traffic and

economic growth in order to see how they will unfold in each story. The

development team decided that the levels of world economic growth would be

similar at the end of the horizon year; the decision was taken in order to avoid

people from thinking that the stories built are each other’s opposite- a major

pitfall in scenario planning projects.


127

Finally, two scenarios were produced; both had as starting points four driving

forces- these were technology, education, world trade and finance.

Figure 22 The driving forces

(Source: Ringland, 1998: Long Range Planning, 1996)

The first scenario was given the title ‘Wild Gardens’ (Moyer, 1996:

Ringland, 1998); in that it is not possible to build new structures of governance.

The shape of the future is the result of a continuous battle between winners and

losers; a schematic illustration of this scenario can be found in the figure below

(please refer to the figure below).


128

Figure 13 Schematic illustration of the ‘Wild Gardens’ scenario


The second scenario was given the title ‘New Structures’ (Moyer, 1996:

Ringland, 1998); in that it is possible to find shared values and new ways of

organising. The latter ensures that growth will continue at a manageable way. A

schematic illustration of the second scenario can be found in the figure below.

Figure 14 Schematic illustration of ‘New Structures’



129

The second phase of the project comprised the scenario workshops; these

were lead by Rod Muddle who was the Head of the Planning Department and

the representative of Corporate Strategy in the planning process (Moyer, 1996:

Ringland, 1998). In order to design and run the workshop phase, a team of five

facilitators was employed; work begun in June of 1994. The following two

months were devoted to training and the first four trial workshops took place in

October 1994.

The participants in those workshops were supposed to hear and discuss the

scenarios; these should be used in order to test current strategies and develop

new ones. This was accomplished by making use of brainstorming or other

ideas generating techniques; the ideas were recorded and the most ‘popular’

were summarised into short strategic statements. Once this was done, the

established strategies were checked against both scenarios; if a strategy worked

well against one scenario but not as well against the other, a discussion session

followed about how it could be improved. A discussion, finally, on actions

required for this strategy to take place followed and feedback was gathered.

The first potential participants were directors and senior managers who were

responsible for the major areas of the business plan. They were targeted and,

then, the facilitation team met with them in order to explain the benefits and

volunteer to organise the workshop. Everyone, however, in the company could

attend the workshop and plan its objectives; on the other hand targeted

customers had priority over other individuals. The output of the workshops was

confidential and the notes were received about a week after the workshop. The


130

feedback was received after about one month of the workshop and a meeting

with the client was held in order to prioritise actions, if needed.

Finally, with respect to the Halo Group it continued to play an important role

at this phase too. The workshop process had to get their approval as well as the

targeted clients’ approval. In addition, they received feedback on the progress

of the workshops; many of its members were early clients anyway. The amount

of effort, finally, required to set up a workshop was about four to five man-

days.

8.3 Shell

8.3.1 Introduction

Shell, most specifically The Royal Dutch/Shell group of companies, is the

pioneer of scenario planning. It was its planning department, led by Wack and

Newland at the time, in early seventies that introduced that technique as a

response to the high uncertainty that characterised the oil business and made

things very difficult for traditional forecasting methods. At the following pages,

a description of how the company moved from the ‘Unified Planning

Machinery’ (UPM) planning method to scenarios can be found.

8.3.2 The methodology

First of all, we need to understand that the uncertainty is not a statistical

deviation from a known distribution of events; it is rather a basic feature of the

business environment (Wack, 1985a). An appropriate planning method should,

therefore, be found.


131

As far as Shell is concerned, a new planning system- the Unified Planning

Machinery- was introduced in 1965; its task was to provide planning details for

the whole of the company’s activities- from drilling for oil till delivering it to

the gas station. The planning horizon of the system was six years; the first year

should be planned in detail whereas the next five years in more general terms.

It was very soon realised, however, that due to the long lead times that

characterise the oil business the planning horizon should be expanded. The

company, therefore, decided to conduct a study about the business environment

till the year 2000. The study revealed that many changes will take place in the

oil’s market; some of them were that there will be a switch from buyer’s market

to seller’s market and that the oil companies will become less flexible and

reactive to changes (Wack, 1985a).

A new planning method had, therefore, to be used. As a response to that,

twelve of the major companies in the Shell group were asked to look ahead for

fifteen years as a planning exercise. Pierre Wack was at the time working for

the French department of Shell; in addition he was familiar with the scenario

approach of Herman Kahn, the president of RAND corporation (Wack, 1985a).

It was then that the first scenarios were generated. There were, first of all,

two uncertainties associated with France; the first was the availability of the

major oil competitor- natural gas - and the second uncertainty was the way the

French government would manage energy which at that time was in favour of

the national companies against multinationals. On the other hand, as a member


132

of the European Community it would have to comply with the European

Community’s policy, which was characterised by liberalisation.

We, therefore, have two options available for the government’s policy- stay

as it is or adopt the liberalisation policy- and two options for the availability of

gas- low or high. By combining those we can get four scenarios; these were the

first scenarios produced in 1970. It was, however, only in 1972 when the

methodology of scenario planing was expanded to the central offices and some

large companies of the group. In 1973, it was recommended as the official

planning procedure and the old planning system- the Unified Planning

Machinery- stopped existing.

The scenarios previously mentioned fulfilled the basic request; they were

internally consistent. On the other hand, no action could be taken on behalf of

the management team; the reason for that was that only the raw uncertainties

were presented and combined without the forces that drive their development.

This is the reason why they should be restructured in order to incorporate those

forces- these are the so-called second generation scenarios.

The first step undertaken was to study in further detail the important factors

for Shell businesses; those were the oil producers, the consumers and the

companies. There were important behavioural differences since self-interest

determined their concerns and actions (Wack, 1985a). In the case of Saudi

Arabia, for example, the income for the oil production would have been so high

that it would have not been possible for the government of that country to spend

all of it. A certain amount of money would, therefore, have to go to the bank


133

where it is, by far, more insecure than ‘being’ under the ground in the form of

crude oil. (Wack, 1985a)

The oil producers were, then, analysed one by one according to their oil

reserves and their ability to spend the money they get in a productive way. It

was clear that their interests were different; those conflicting interests will, of

course, be reflected to their strategies. The results are shown in the following

matrix (please refer to the following page) .

Figure 15 The major oil exporters

(Source: Wack, 1985a)

Reserves

Limited Ample

Absorptive

Capacity

Limited

Ample

Group I

Libya

Qatar

Group II

Saudi Arabia

Abu Dhabi

Kuwait

Group III

Algeria Nigeria

Venezuela Iraq

Indonesia Iran

Group IV


134

Further to that analysis, two families of scenarios were produced each one

consisting of three scenarios. The A-group of scenarios projected that a

disruption in the oil supply will happen at the same time with the Teheran price

agreement in 1975- apparently the timing was wrong since it occurred in 1973.

The reasoning, however, for this prediction was very well structured; on one

hand the oil producing companies would have either reaching their technical

limits or it would be better for them to leave the crude in the ground for

financial reasons. Likewise, by the end of 1975 the oil price would significantly

increase.

This predetermined element was the cause for the development of three

scenarios, which comprised the A-family of scenarios. These were the most

probable outcomes; however, because they were not in line with the official

view at the company they were not so effective; an indication of how important

is for the ‘Official Future’- or surprise-free scenario- to be incorporated in the

family of generated scenarios.

In response to that, the B-family of scenarios was developed. The basic

assumption was that somehow a sufficient energy supply would be available

(Wack, 1985). The first scenario of that family- the B1 scenario- projected that

it would take ten years of low economic growth in order for oil supply and

demand to match. On the other hand, this was impossible since the

industrialised countries considered the rise of unemployment unacceptable and

from 1972 onwards signs of an economic boom were evident.


135

The second scenario of this family was based on the words of William

Ogburn (as cited in Wack, 1985, p.83): “There is much stability in

society...Social trends seldom change their directions quickly and

sharply...Revolutions are rare and evolution is the rule”. It was a rather

simplistic scenario where everything possible would happen; the oil producers

will keep on producing the oil and the consumers will lower the consumption

rates.

The third scenario was called the ‘three miracles scenario’; this was the case

since in order for that to come true three miracles were needed (Wack, 1985).

The first one was that the reserves necessary to meet the 1985 demand would

be found in each of the oil producing countries simultaneously; the chance

assigned to that event happening by the company’s experts was almost equal to

zero. The second miracle was associated with socio-political reasons; it was

stating that the oil producing countries would produce as much oil as was

required by the customer. The third miracle, finally, stated that there would be

no need for oil above the forecasted demand.

The above mentioned scenarios were quantified in terms of volume, price

and impact on both producers and consumers. The management team decided

to take actions immediately; they asked the operating companies of the group to

assess their strategies against two A-family scenarios using B2 scenario as a

sensitivity check. The scenarios were, also, presented to other managers within

the company as well; at the beginning there was a feeling that most of them

appreciated the technique but after a few months there was no change in most


136

of the decision centres of Shell. This lead the people in charge of the planning

department to realise that the scenarios they had to produce would have to

challenge the manager’s microcosm.

The next generation of scenarios was the 1973 scenarios; as time passed by.

The disruption in oil supply seemed to be a predetermined event; more details

were not known- such as the time it will occur and the future price for a barrel

of oil- but all the signs indicated it will occur. It was, therefore, incorporated

into the surprise-free scenario.

In addition, some of the previous generation’s scenarios were abandoned;

more specifically the B-family. This was the case since the first scenario was

impossible to take place since a boom in the economies was the main

characteristic of this time. Furthermore, the three-miracle scenario- the B3- was

also abandoned since, as the name suggests, in order for it to take place three

highly unprobable events had to happen. The B2 scenario was an artificial

construct anyway.

Because of that boom in economies, it was difficult to convince managers to

stop the expansion strategy, two ‘phantom’ scenarios were created- those were

considered illusions by the planning team (Wack, 1985). In the first scenario

the discontinuity would delay for five years while in the second scenario it

would delay for fifteen years- the choice of times was not made in random

since they were representative for the oil business. A five years period is needed

for a new oil facility to produce results whereas fifteen years are needed to

amortise it (Wack, 1985). They were developed to serve as a utility loss


137

function for Shell if in the name of planning for the discontinuity it did not

build the refineries. There were only two alternatives which could prevent

discontinuity from occurring; the first was the discovery of new oil resources in

places when absorbing revenues would not be a problem and a control- either

political or military- of the oil producers countries from the consuming

countries. Both had a very low, almost equal to zero, probability of occurring so

they were not considered further.

Finally, attention was focused on three elements of the business environment;

the first one was that alternative fuels options will develop at a very slow pace.

Moreover, even if other fuels were used for generating power this would not be

bad news for the oil producing countries since it was a low-value market.

Furthermore, the use of coal for heating would result in very high expenses and

the possibility of using oil for transport was very low since the expenditure

associated with it was very high. The second element was accidents that occur

due to many reasons- political, internal even physical events such as

earthquakes- were considered as being ‘part of the game’. The final element

was the relationship between the price and the volume of oil produced.

Chapter 9- Discussion on findings

138

Chapter 9

Discussion on findings

9.1 Introduction

It is commonly accepted that we are living in a turbulent environment where

change occurs at a fast pace. The same applies to the business environment as

well since many of the factors that contribute to its shape keep changing. As an

example, we can think of the wide spread of Internet- an application originally

developed for military purposes in sixties- which has now become part of our

everyday life. Many businesses have adopted Internet for doing business and

their products are accessible online - Argos is a good example. Furthermore,

many companies have adopted this method as complementary to the traditional

way of selling whereas for others this is the only way for contacting their

customers.

In addition, technology- in general- is advancing at a very fast pace. We are,

nowadays, capable of setting and achieving targets that we did not even dare to

think of in the past- the first tourist trip to the moon scheduled for 2010 is a

perfect example of such a situation. The situation is not different in the case of

business technology as well; automation and robotics is replacing manpower in

almost every task; the purpose for that is, however, a debatable issue.

In an environment like the one described above, managers need to

understand that forecasting techniques are not able to assist them any more in

the planning process on their own. This is the case since- no matter how


139

sophisticated these techniques are- they extrapolate the past into the future

making the silent assumption that tomorrow will be like yesterday. A new tool

has, therefore, to be used.

Scenario planning, despite the fact that it was known since the Roman times

(Ringland, 1998), it was ‘reinvented’ as far as the business context is concerned

after the oil shock in 1973; between 1977 and 1981 the use of scenario as a

business forecasting tool was widely accepted (Schnaars, 1987). Pierre Wack,

as the head in the planning department of Shell, managed to transform the

company from the weakest oil multinational before the oil shock to the

strongest one after it (Mercer, 1995) by introducing scenario planning.

Despite that, there is still space for scenario planning to expand as a method.

In a survey conducted by the Turku school of Economics (Malaska et al, 1984)

among 1100 companies, it came out that only 36% used scenario planning. This

figure is smaller than the respective one for U.S. companies in 1981 but higher

than the figure in 1977, which was 22% (Linneman and Klein, 1983). In this

chapter, we will discuss the advantages of the scenario method compared with

forecasting and we will try to answer the question about which scenario-

generating method is the best. In addition, we will be discussing the benefits an

organisation can get by employing scenario planning as well as any pitfalls

involved in the method.

9.2 Scenarios compared to forecasts and simulation

Since the end of the Second World War, there was a very powerful trend in

favour of forecasting as far as business planning was concerned. It was a strong


140

belief that through forecasting methods- either quantitative or qualitative- we

can get answers to every question that is troubling us. Moreover, our answer

can be even more accurate if we combine a number of forecasting techniques or

if we take advantage of the advances in computers technology in order for the

calculations to be performed in a faster and more accurate way. We would,

thus, be able to have a picture of what the future is going to look like and adjust

our planning accordingly.

In real life, however, things are quite different; forecasting techniques, as a

whole, extrapolate the past into the future- they make the vital assumption that

trends will not change. On the other hand, the oil embargo came as a proof that

this is not always the case; likewise, many other examples of forecasting

failures are known (Beck, 1982: Zentner, 1982).

The reason for that is that the business environment is characterised by high

uncertainty as opposed to the stable environment that forecasting techniques

need in order to deliver ‘good’ results. There is, therefore, a need to look for

alternative planning techniques.

Scenario planning is a technique that let us cope with that uncertainty. This is

the case since it provides us with a framework of possible alternative futures

against which our strategy can, and should, be tested. British Airways and

Shell, as mentioned in the previous chapter, used it for that purpose and the

implementation was successful for both companies. Shell became the strongest

oil multinational company after the embargo (Mercer, 1995) and British


141

Airways came out of the recession profitable while the other airline companies

have lost a lot of money.

It happens many times, however, that scenarios are misinterpreted and

considered as forecasts. This is not true for a number of reasons (Beck, 1982).

First of all, the results of the forecast are based on probabilities’ distributions-

either theoretical or defined by the user- whereas a scenario is a description of a

possible future on the basis of grouping internally consistent developments of

some of its variables.

Furthermore, in the case of forecasting the ‘silent assumption’ that we have

taken into consideration every possible variable is made. On the other hand, this

is not the case with scenarios which present a number of the key factors that

will influence our business in the future as well as the way this is going to

happen.

Another difference between forecasting and scenarios is the ‘ proportion’ that

each has in the decision making process. A forecast is regarded as an expert’s

judgement, a ‘black box’, which should be either accepted or rejected. On the

contrary, scenarios play an educational role; they help the manager

understanding the drivers of the future, by understanding what causes the

change and not just spotting it, and test the company’s strategy against a set of

possible future outcomes.

We shall note, however, that what mentioned above does not imply that

forecasting should not be used. On the contrary, forecasting was applied in the

British Airways case study as a mean to see how data will evolve in the future


142

once the framework was set; we can predict the predetermined elements and

quantify the decisions taken for the alternative developments of the other

factors. We should, on the other hand, be aware of the constraints of the method

and use it in the appropriate framework.

As far as simulation models are concerned, they are useful and within a

certain context they can be of value to a company; as we saw in the previous

chapter, Shell used simulation models once the scenarios framework was set. It

is, on the other hand, not advisable to use simulation alone since that will give

us only one possible future outcome. We can make use of simulation models as

a learning tool, so that managers can experiment with the scenarios developed

and specify courses of action to be taken.

9.3 Advantages of introducing scenario planning to a company

As mentioned earlier, it was only after the oil shock that scenario planning

gained wide acceptance in the business world. A few, only, years earlier in a

survey of forecasting methods conducted by three researchers-Chambers,

Mullick and Smith- and published in the Harvard Business Review, scenarios

were included as ‘visionary forecasts’ (Chambers, Mullick and Smith, 1971).

The authors of the survey define scenarios as (Chambers, Mullick and Smith,

1971 ):” subjective guesswork and imagination: in general the methods used are

not scientific... a set of possible scenarios about the future prepared by a few

experts in light of past events”.

Since then, two decades have passed and the popularity of scenarios has

dramatically increased. According to a survey carried out among the Fortune


143

1000 companies (Linneman and Klein, 1983), thirty five per cent of them used

scenarios- allowance was made for bias caused by non-respondents to the

questionnaire. This widespread of the scenario technique came as a result of the

many benefits it delivers to an organisation (Thomson, 1999).

The first advantage is related to the external business environment. By

applying scenario analysis techniques, a company would be able to identify and

interpret any ‘dangerous’ trends and signals and take actions against them. This

was the case for both Shell and British airways, whose case studies were

mentioned in the previous chapter; Shell became very early aware that it will

face the oil embargo situation and actions were taken against it. The result was

that, after the embargo, the company was the strongest multinational oil

company worldwide (Mercer, 1995). Moreover, British Airways managed to be

a profitable company at the end of the recession period before the Gulf War

(Moyer, 1996). The company’s planning procedure, in essence, changes from

being reactive to changes in the external business environment to being

proactive, shaping the organisations strategy so that it will benefit from these

changes; in other words it gives the company a competitive advantage.

Apart from those actual examples, we can back up that argument with the use

of statistical data as well. According to a survey (Malaska et al., 1984) twenty

four per cent of the users believe that scenario’s planning contribution to

strategic planing was essential, while fifty nine per cent finds it helpful. In other

words, a percentage of users as high as eighty four percent have a positive

opinion about scenarios in relation to strategic planning. Furthermore, forty six


144

per cent of scenario users stated that they would enhance the use of scenarios

within their company (Malaska et al., 1984).

A second advantage of scenario planning is that it allows for users to test

their existing strategies and decide upon whether they fit the future conditions

of their businesses or alterations should be made to them. It can serve, in other

words, as a ‘test-bed’ for the existing strategies (Van der Heijden, 1996: Bood

and Postma, 1997). We should note, however, that in order for scenario

planning to succeed as far as this target is concerned, there is a need on behalf

of the company to establish a close link between the environmental monitoring

system and the planning procedure (Ute von Reibnitz, 1988).

One of the most important advantages a company can get from scenario

planning is that it stretches and challenges the mental models of the managers.

It is natural for every person to form a ‘microcosm’ in his own mind and view

the outside world through this model. This personal view of the future

eliminates the possible futures one can conceive (Fahey-Randall, 1998: Bood

and Postma, 1997). This is the case with Shell where the first scenarios were

not paid the attention they should; Pierre Wack’s experience (Wack, 1985a,b) is

that in order for a scenario to be successful, it should aim at changing the

manager’s microcosm.

Moreover, the scenario technique allows managers to fully understand the

key drivers. This is the case because when a key factor is identified, the logic of

scenarios is to look behind that trend and identify the forces that drive its

development. We need to understand that this is a crucial element of the


145

process. In the British Airways case study, once the key issues were identified,

further research was conducted for each one of them in order to identify and

quantify to some extent the forces that drive their outcome- the same applied

for Shell as well.

A scenario project can, also, give early warnings about future product

opportunities (Ute von Reibnitz, 1988); this is the case since during the scenario

project, we are identifying the forces that ‘are responsible’ for the development

of the key drivers, as stated above. In fact, there are certain scenario projects

that are especially developed for marketing purposes (Ute Von Reibnitz, 1988:

Fahey-Randall, 1998: Meijer, Van der Duin and Abeln, 1998). British Telecom

and Philips are two very good examples of companies that looked ‘into the

future’ for bringing tomorrow’s products today and cultivate the demand for

those products.

The area of communications within the company is another area where a

company can benefit from the use of scenario planning methods. First of all,

many people from several departments within the company take place in a

scenario project where the interrelations between the key forces are explored

and discussed. This, therefore, allows for people in different departments to

understand the effects of factors, whose control might be not their

responsibility.

Secondly, the communication process itself between the departments is

improved. It is the case in many companies that the departments work in

isolation, a fact that makes things even more difficult. In a scenario project,


146

however, people from all departments participate; intercommunication is, thus,

facilitated. This is, also, very helpful for changing managers’ mental models ,

since they can realise the effects of a factor on other departments as well, which

is essential in order for the project to be successfully completed (Wack,

1985a,b).

Another benefit we can get from scenario planning is that there is a wide

acceptance of the results. If forecasting methods are used, then doubts might

exist since the predicted figure came out from a ‘black box’. It was the result of

a sophisticated mathematical technique that few people are able to test and

understand. Moreover, an outside consultant who looks only at numbers and

ignores- or, simply, is not interested in- some important aspects of the

company, the so-called insights, conducts many times this task. Likewise, there

are many factors that can not be quantified and the latest failures of these

methods (Beck, 1982: Zentner, 1982) gave forecasting a bad reputation. On the

other hand, everyone is involved in a scenario project, especially the managers-

this is crucial for the success of the project. As a result of that, the process is

transparent to everyone and all in the company have a chance to make their

contribution which gives to the scenario’s results a global acceptance within the

company’s context.

Finally, scenarios can assist in the articulation of the business idea- we can

think of it as something broader than the mission statement of the company. An

essential requirement for scenarios, as it will be discussed later, is to comply

with the business idea. However, this is many times only expressed by the


147

mission statement and is misunderstood. During a scenario project, the business

idea is explored and communicated to the participants, either in the scenario

workshops or during the interview process.

9.4 Pitfalls in scenario planning

As mentioned earlier, the implementation of scenario planning on behalf of a

company can deliver many advantages to it as far as a wide range of activities is

concerned; from testing alternative strategies to stretching the managers’ mental

models. However, there are certain pitfalls associated with a scenario project

(Fahey-Randall, 1998). These can be further distinguished in process pitfalls

and content pitfalls, the difference being that process pitfalls refer to the way

the project is conducted whereas the content pitfalls refer to where scenarios are

focusing.

Before analysing these pitfalls, we should notice that scenarios are to be used

in situations where the high levels of uncertainty almost ‘prohibit’ the use of

other techniques. This was not the case, unfortunately, with the Greek

Telecommunications Organisation where the implementation of scenario

planning was rejected on the grounds of uncertainty that dominated the

telecommunications industry. The organisation made use of the Delphi

technique instead; however, we should be aware of its constraints- a short time

before the oil embargo experts were sure that the price of a barrel of oil would

never exceed the amount of two dollars (Van der Heijden, 1996).

With respect to the process pitfalls, it is crucial to gain top management’s

support for the scenario project in order to have the best results. In addition,


148

these are the people who will take the critical decisions at the end of the

process, these are who will develop the company’s strategy. If they are not

convinced that scenario planning can deliver benefits to the company, there is

no meaning in going on with it. As an example of that, we can recall the Shell’s

case (Wack, 1985a,b); the first six scenarios did not get the necessary attention

from the managers resulting in their ignorance with regard to the planning

process. On the other hand, in the British Airways case study (Ringland, 1998:

Moyer 1996) the people responsible for the project formed the Halo Group

managing, this way, to get top management’s support. In fact, this is the

solution to this problem; to get the senior managers involved in the project as

early as possible.

A second process pitfall is associated with the lack of creative thinking,

resulting in poor inputs. As mentioned above, one of the advantages of the

scenario process is that it stretches the mental models of the managers.

However, many times it is difficult for people to think effectively about the

outside environment; on the other hand this may be due to the microcosm they

have built into their minds (Bood and Postma, 1997). The people in charge of

the scenario project- either internal staff or outside consultants- should be very

careful avoiding this pitfall otherwise scenarios’ contribution to strategy will be

very small. A way of doing that could be to expand the project’s information

resources; in other words other people than managers who have a relationship

with the company under consideration, like suppliers or workers, could be

interviewed about the factors that shape the external environment of the


149

company in the future. This is the case with British Airways, where interviews

involved outside experts as well -the technology experts (Ringland, 1998:

Moyer, 1996).

Another pitfall is that many times the proportion of staff personnel and line

managers in the scenario team is not equal but the number of staff personnel in

the team is bigger (Fahey-Randall, 1998). This is not so effective and may

mislead the scenarios since it is the line managers who know their area better

and they can address the main areas where the scenario should focus. It is,

therefore, important that line managers are approached and their support is

gained. This can be accomplished by referring to the various benefits

concerning the decision-making procedure as well as the placement of the

company in a competitive position against its competitors.

It is sometimes the case that people expect from the scenario method to

deliver much more than possible or have misunderstood the role of scenario

planning. It is sometimes, for example, expected that results will occur within a

short period of time. On the other hand, it is expected that plans will come out

of the scenario process, which is not true. That is not true, since the change of

managers’ microcosms is needed (Bood and Postma, 1997: Fahey-Randall,

1998)- which, in most of the cases, is a lengthy task. In addition, we should not

forget that scenarios aim at making decision-makers realise how the critical

factors will unfold in the future; they can be used as ‘test-beds’ for the various

strategies (Van der Heijden, 1996) but they do not produce plans- the decision-

makers should undertake that task.


150

Since the scenario planning is a new experience for many organisations- as

mentioned earlier the increase in scenarios’ popularity took place after the oil

shock- many times people are confused about their roles. In order to avoid that,

it is advisable to hold an introductory workshop at the beginning of the process

when we will explain to the participants their role within the project’s context

(Van der Heijden, 1996). In addition, we can guide the members of the

workshop by assigning several tasks to them.

We should not forget that the managers who participate in the project are

busy people whose time is valuable (Meijer, Van der Duin and Abeln, 1998). In

order to commit them in the project process, we need to provide those people

with a clear plan where the various steps should be identified in terms of their

duration. On the other hand, we should be careful with the duration of certain

tasks, like the time needed for collecting data; it should not be underestimated.

An example for that is the experience that British Airways encountered with

their scenario project; they realised that allowance should be made for the

collection of data and the development of models for those data (Ringland,

1998: Moyer, 1996).

A debatable issue in the scenario literature involves the number of scenarios

that should be generated. In most of cases, many scenarios are needed in order

to cover all the possible developments of the factors that influence the

organisation that is undertaking the project. However, it is very difficult for the

human brain to handle many scenarios (Schnaars, 1987: Mercer, 1995: Beck,

1982: Fahey-Randall, 1988:Wack, 19885a,b); the ‘best’ number of scenarios to


151

be generated is ‘around’ three. We should, however, be careful since three

scenarios might be conceived as the pessimistic option, the ‘forecast’ and the

optimistic one whereas two scenarios might be considered as the good and the

bad case. In the case of Shell (Wack, 1985a,b) the initial number of scenarios-

six- was too big and was reduced on the way whereas in the British Airways

case the number of scenarios generated was only two.

Finally, it is observed that companies fail linking scenarios to their planning

process; in 1981 six per cent of the Fortune 1000 United State firms were using

scenarios only on an experimental basis while thirty five per cent did not use

them on a regular basis (Linneman, 1983). In addition the first scenarios at

Shell were developed on an experimental basis (Wack, 1985a,b). The solution

lies on persuading managers about the advantages their company can get by

fully integrating scenario planning in its planning process.

Moving on to the content pitfalls, the first one is related to the time in the

future scenarios are looking into. In general, they should be looking in the long-

term, where this could be defined as the period of time in which if changes

occur, these will affect the business of the organisation we are looking at. There

is no predetermined length, however; it can be anything as small as one week if

it is a financial firm or some years if it is a chemical or an oil company.

A second content pitfall is that sometimes participants pay much attention to

current trends resulting, this way, to simply extrapolating the past into the

future. This might be due to the fact that they sometimes feel uncomfortable

addressing unknown issues; in order to avoid that- this was the case in both our


152

case studies- the brainstorming process is followed. However, we have to make

sure that the rules underlying the validity of the process are faithfully followed.

Another pitfall, closely related to the one discussed above, is that many times

the view expressed by the company’s managers is not as diverse as it should be,

to the extent that the full range of developments has not been fully covered. The

problem is most of times, located to the manager’s microcosm and to the

mental models they have built about the outside world (Fahey-Randall, 1998:

Bood and Postma, 1997).

During the scenario process, one step is to combine the likely future

developments of the key factors in order to get the whole picture. We should,

however, be careful so that the developed scenarios are internally consistent.

This means that two or more future developments should not be contradictory

both in terms of logic as well as in terms of the relation of the resulting actions

with the business idea of the organisation (Van der Heijden, 1996).

9.5 The scenario generating method

The task of anticipating the future is closely related to management tasks;

moreover, it is essential that planning is conducted in a way that short-term and

long-term goals are balanced. It follows that any short-term action should not

be decided in isolation, but should be viewed as part of a project that serves a

long-term objective (Zentner, 1982).

In order to fulfil this requirement, managers should be, somehow, able to

anticipate the future; they should be able to recognise the changes taking place

in the company’s external environment and adjust accordingly its strategy.


153

Scenario planning is a tool than can assist managers in this task; its record, as

far as long-range planning is concerned, is much better than that of forecasting

techniques (Van der Heijden, 1998:Zentner, 1982:Beck, 1982).

The literature of scenario planning is rich in terms of scenario generating

methods; we can find methods ranging from sophisticated mathematical models

to purely intuitive approaches. These can be broadly classified in three

categories; these categories are the intuitive logics, the cross-impact analysis

and the trend-impact analysis (Ringland, 1998: Fahey-Randall, 1998). In the

remaining of this chapter we will refer to the conclusions drawn after the

review of the literature as well as the two case studies in chapter eight. We will,

also, refer to the appropriate time scope for a scenario, whether the use of

outside consultants is advisable, the most appropriate number of scenarios to be

generated and, finally, the communication of scenarios.

As far as scenario-generating methods are concerned, both academics and

consultancy companies have established many methods. Moreover, many

companies- like Shell- have developed their own methods for developing

scenarios. However, it is not compulsory to follow a certain predetermined

method (Mercer, 1995: Malaska et al., 1984: Linneman and Klein, 1983:

Schnaars, 1987); neither British Airways nor Shell used any method already

developed.

It is, on the other hand, very important for the approach towards scenario

planning that we will adopt to encompass the three basic principles that

scenarios should fulfil. The first principle deals with internal consistency. This


154

means that the developments of the various factors within each scenario should

not contradict each other. As an example of that, we can think of a scenario

where the factors are employment, inflation and interest rates. If inflation would

be high, then employment would be high as well; moreover, if inflation is high

then interest rates should be high as well. On the other hand, if employment is

high, then interest rates should be low (Schoemaker, 1995). This means that the

inclusion of inflation, employment and interest rates with the developments

mentioned above would, inevitably, lead to an internally inconsistent scenario.

The second principle that every scenario should encompass is that it should

have a positive possibility of occurrence- by definition negative possibilities do

not exist so what we are really looking for here is the plausibility of the

scenario. In other words, our story should not only be internally consistent but

its realisation should also be possible. A scenario, for example, that projects no

development for Internet should be carefully considered since under present

conditions it seems rather impossible to come true. We should not, of course,

forget that scenarios should stretch our mental models for the future or that a

new technology may replace it; however it looks rather impossible for that

scenario to come true.

Finally, we should not forget that the most important people in a company

are the stakeholders and we need to ‘keep them happy’ since they are investing

their money in the company. Scenarios, therefore, should comply with their

interests; in other words, they should be in line with the business idea of the

company under consideration. In the case of British Airways, for example, the


155

scenario team should report to the Halo Group after the end of each phase of the

project.

With respect to scenario generating methods, as mentioned before there are

many methods available in the scenario literature developed by either

academics or consultancy companies. In practice, however, as the two case

studies of British Airways and Shell clearly illustrate there is no best method. A

general method, however, can be derived -consisting of six steps.

The first step deals with the organisational issue scenarios are trying to

resolve. It is very helpful to begin the scenario project with a specific question

in hand, otherwise the project might become very wide. In the case of British

Airways, for example, scenarios were introduced as an alternative planning

method against a highly turbulent environment. However, after the collection of

data further research was needed in order to identify the key organisational

issue around which scenarios will be built. In the case of Shell, the question

was what the future environment for the company will look like.

Once the key issue has been identified, the key external factors that shape the

company’s future should be identified. This task can be carried through by

conducting interviews or by group ideas generating methods such as

brainstorming; there are some hidden dangers involved, of course, to which we

will refer to in detail later in this chapter.

The third step is about organising the issues that arose from the previous task

and categorise them in two categories; these categories are the predetermined

elements and the uncertainties. The predetermined elements can be defined as


156

“the events that have occurred or that almost certainly will occur but whose

consequences have not yet unfolded” (Wack, 1985a, p.77). On the other hand

we have the uncertain elements, which are issues we can not predict whether

they will occur or not and, if they occur, what their consequences will be. This

is the approach undertaken by Shell, whereas in the case of British Airways a

further distinction was made between key uncertainties and driving forces, the

difference being that the latter are issues that if they change the whole industry

is fundamentally affected (Ringland, 1998: Moyer, 1996).

Once this is done, we need to project the developments of these factors in the

future. This, again, can be done by collecting data and applying forecasting

techniques to them or through interviews with experts on these issues, either

from within the company or from outside. As far as the two case studies in

chapter eight are concerned, British Airways allocated the further investigation

of the issues to the members of the development team who carried out the

research. In the case of Shell, on the other hand, the analysis of the oil

producing countries as well as that of the oil consuming countries was

conducted by planners analysts.

The fifth step is about combining the outcomes from the previous step. The

objective, here, is to create alternative futures; we should not forget, however,

that these futures should fulfil the three principles previously mentioned-

internal consistency, plausibility and compliance with the business idea. In

order, of course, for this to become true the people in charge of the project


157

should have an in-depth understanding not only of the issue but of the driving

forces of it as well. This is the case in both Shell and British Airways.

The final step is about writing the scenarios and describing how from the

starting point, which is the present, we will arrive at the endstate, which is the

time horizon of the project. Once this step is reach, the decision-makers should

decide and formulate the strategy they will follow in order to give their

organisation a competitive advantage against its rivals in the future.

9.6 Remarks on scenarios

The process described above is, of course, a general process that can deliver

results as long as the three principles for the scenarios generated are fulfilled-

these are internal consistency, plausibility and compliance with the business

idea. In addition to those, however, we need to make some more remarks

concerning the process in general.

The first thing we need to observe is the time length of the scenarios, the

period of time they are looking into the future. It is widely accepted that

scenarios perform much better than forecasts in the long run; the question is, of

course, if a strict definition exists for the long run. There is no such definition

and the length of the period of time we need to construct scenarios for differs

from company to company. As a rule of thumb, this period should be long

enough to cover changes that can affect the business; this might be a number of

weeks for a financial services company to several years for an oil company.

The second remark concerns the use of brainstorming as a technique for

generating ideas, details for which can be found in Appendix I. This technique


158

is used for identifying the key factors and project how they will develop in the

future. It is a very good way of generating ideas and is many times used in

practice; on the other hand, there are some drawbacks associated with it. We

need, firstly, to ensure that there is no dominant person in the team who will not

the other people express their opinion on the subject. Moreover, no criticism

should be raised against the other peoples’ ideas; this is very important for a

scenario project since people are expected to break the trends and express

revolutionary ideas about the future. Finally, it is good practice to record every

idea heard so that we will not miss anything.

Another equally important method for gaining insights and identifying

possible futures for the key drivers is the interview method; British Airways

used that method extensively. There are, however, certain things we need to

keep in mind considering the interview process. The first is about the trade-off

between not guiding the conversation and having a predetermined set of

questions. The interviewer’s role during the interview process should be that of

the facilitator, feeding back to the interviewee his opinions and asking any

clarifying questions, if needed. The anonymity of the person who is interviewed

is also important in order for him to be able to freely express his opinion.

Furthermore, it is desirable that the interviewers team should comprise of two

people so that at the end of the process they can compare their notes and

analyse them.

As far as the British Airways case study is concerned, several interviews

were held both with people from within the company as well as with outside


159

consultants, academics and people from the government. A team of two people

held these interviews and their duration was ‘satisfactory’- about one hour.

Furthermore, the anonymity of the information’s source enabled the persons

interviewed to express their opinions in a more freely way. However, the

interviews were conducted with a predetermined set of questions; on the one

hand this is good since it helps in categorising the answers easily but on the

other hand it might have influenced the flow of the conversation.

The use or not of outside consultants is another debatable issue. In a survey,

whose results were published in 1981 (Klein and Linneman, 1981), carried out

among the Fortune 1000 industrial companies, the use of consultants was not

widespread. A sample of eight companies was chosen from the authors as

representative in order to illustrate the holding concepts. A percentage as high

as seventy five per cent of these companies did not use consultants at all

whereas the remaining two used them mainly for data gathering purposes; we

should not, of course, forget that the survey was carried out almost two decades

from now.

In the case of British Airways, outside consultants were used to some extent

in order to identify the key external issues as well as for projecting their future

development. On the other hand, it would be useful to involve outside

consultants in the scenario process for two reasons. The first reason is that they

can provide us with an outside view, with a more global perspective since they

are not involved in the day to day running of the business; their specialisation in

one subject will, also, be a great help towards identifying how this factor will


160

develop in the future. The second reason is associated with the stretching of the

managers mental models (Fahey- Randall, 1998). We need to question things

they take for granted and widen their perspective for the future; outside

consultants can perform that task very well.

Another debatable issue is that of the number of scenarios that should be

generated. (Ringland, 1998: Klein and Linneman, 1981: Moyer, 1996:Malaska

et al, 1984: Linneman and Klein, 1983: Zentner, 1982: Beck, 1982: Wack,

1985a,b). The case of generating only one scenario is, by definition, rejected

since we end up with a single-line forecast. Our choice, however, should be

made on the basis of that, on the one hand, we should include in the scenarios

the most important factors and that, on the other hand, the human brain can not

deal with too many factors. That was the case for the first generation scenarios

at Shell, which were too many-six- to be analysed.

. It is suggested that the maximum number of scenarios should not be greater

than five (Ringland, 1998). However, in the case of three scenarios we risk

them being considered as the forecast, the pessimistic case and the optimistic

case so that people will prefer to go with the middle scenario (Ringland, 1998).

In the case of two scenarios, as in the British Airways case, there is a risk that

they would be considered as good and bad, as the optimistic and the pessimistic

scenario. If we choose to develop two scenarios, we shall emphasise that there

is no distinction like the one mentioned above. This is what British Airways did

when they decided that the world economic growth levels would be the same

for both scenarios, making them complementary. The ‘ideal’ number seems to


161

be between two and three; it really does depend on the case under

consideration.

An issue of equal, if not bigger, importance is that of the promotion and

communication of the scenarios. We should not forget that the development

team in Shell spent half of its time promoting rather than developing scenarios,

whereas in the case of British Airways the Halo Group was formed. In order to

communicate better the results of the project we can adopt graphical techniques

for ease of understanding; this would make things easier for people involved in

numerical oriented businesses such as computer business. Another important

fact is the headline of the scenario; this should be representative of its context

and it should not mislead the audience.

In addition, the length of the scenarios is of equally importance. In other

words, scenarios should be written in a narrative style that clearly explains the

path between the starting point and the endstate. The length should neither be

too short that scenario becomes a summary, nor too long so that scenario

becomes a book. A length of around five pages should, in most of the times, fits

both requirements.

A common element in many scenario projects is the development of a

‘surprise-free’ scenario or the ‘official future’ scenario; this is the scenario

where every assumption the company made about the future comes true- it is an

extension of the current corporate planning. This is not done in random, of

course; furthermore, it did happen both at British Airways and at Shell. It is a

good practice and the reason behind it is that we aim at stretching managers’


162

mental models by scenarios. However, if we present them from the very

beginning something that is totally out of their perspective, then the method

would be rejected and we would not have any results.

As mentioned above, in order for the company to be successful, the actions

taken in the short-term should be part of a long-term plan. This stresses that

scenarios should be fully integrated in the planning process instead of projects

being set-up on an experimental basis, as was the case in British Airways and

Shell. In a survey carried out among U.S. industrial companies (Linneman and

Klein, 1983) it was found that only seven per cent of the companies used

scenarios on an experimental basis; however, thirty six per cent stated that they

use scenarios but not very often. Moreover, thirty four per cent stated that they

use scenarios often but they are not integrated in their planning process and

only the remaining twenty five per cent stated that they use scenarios often and

that they are integrated in their planning process. We need to realise that

scenarios can only deliver their full benefits when they become the official

corporate planning procedure.

Scenarios require the support of the top management in order to be

successfully implemented; it is so because these are the people who will be

affected by them. We, thus, need to convince them that it setting up the scenario

project is a good idea. This, in British Airways, was faced by the formation of

the Halo Group while at Shell time was spent for promoting the scenarios.

It is, also, important to create to managers a sense of ownership for the

scenario project, to involve them in that from the very beginning. This way they


163

will not view it as something strange but they will be engaged in it. Moreover,

they will much more easily trust the results of a process in which they were

directly involved. This explains, partly, the formation of the Halo Group where

the development team had to report the results every time a phase of the project

finished.

As mentioned in the scenario generating method, once the driving forces are

identified we need to project their developments in the future. This is a task,

whose length is usually underestimated as highlighted by the case of British

Airways. We, therefore, need to realise that this can be a lengthy task and make

the necessary time allowances.

In the case that scenarios are not fully integrated in our planning process,

then people are occasionally involved in them and then return to their usual

tasks. However, when the communication phase comes they might have

returned to their previous tasks. This creates problems since they need to

commit more of their time in order to revise their notes and do the presentation-

this is what happened at British Airways. The answer to that could be the

formulation of a team, which will constantly be dealing with scenario projects.

We should not forget that managers are busy people with many problems to

resolve; in other words, their time is valuable. This means that if we decide to

commit their time, for example through a simulation game during the project,

we should bear in mind that the best guideline is to keep it as short as possible-

close to half a day (Meijer, Van der Duin and Abeln, 1998).


164

Finally, we have to note that it should be better if scenarios do not include

plans for anticipating future surprises as this is a very difficult task on its own;

neither of the scenarios described in the case studies chapter ended with a

proposal for strategy formulation. In fact, there are two approaches for doing

so; the first is to formulate a strategy taking into consideration the whole range

of scenarios, while the second formulates a strategy for a scenario and then

checks it for the remaining scenarios- the British Airways approach. Since we

want our company to be protected against any potential future development,

maybe the first approach is better.

9.7 The three different ‘schools of thought’ for scenario planning

Scenario planning is, without doubt, a very efficient method for long-term

planning. The years following the oil crisis, which was the turning point for

companies from forecasting techniques to scenario planning, experienced the

formulation of three ‘schools of thought’ for this new technique; these were the

intuitive logics, the trend-impact analysis and the cross-impact analysis. In the

remaining of this chapter, the advantages and disadvantages of each method

will be presented and a judgement will be made as to whether there is any link

between methods and situations; in other words if under a specific situation a

given method delivers better results.

The first approach, the intuitive logics one, is based on the idea that there is a

complex set of external factors influencing the key decisions of a factory

(Fahey-Randall, 1998: Huss and Honton, 1987). There are a number of

advantages associated with this method, the first being that the methodology is


165

relatively easy to follow. It does not involve any mathematical probabilistic

concepts and it becomes, this way, easy to follow and communicate.

It was previously mentioned that the intended audience of scenarios should

be early involved in the process and, this way, a sense of ownership would be

established. The intuitive logics approach fulfil this requirement since they get

involved in selecting and analysing the environmental factors.

Another equally important purpose that the scenario methodology needs to

serve is that of challenging the managers’ mental maps. The approach under

consideration does that in two ways; firstly, discussions on the impact of

environmental factors are encouraged rather than leaving that task to a

computer. Likewise, it encourages lateral thinking, which is essential for

anticipating ‘surprises’ in the future environment (Fahey-Randall, 1998: Huss

and Honton, 1987: Wack, 1985a,b).

On the other hand, there are certain limitations this method has. The first

limitation is related to the nature of the method since it is not ‘mathematically-

oriented’. This may cause math literate people- in industries like the computer

industry for example- to be reluctant against it (Ringland, 1998).

The previously mentioned fact can cause other problems as well. The

forecasting techniques, which were previously used, got employees used in an

arithmetic environment which now has to be changed; there are cultural

problems involved in that transmission.

There is a second limitation related to the nature of the technique. This is that

it requires much of the managers’ time; as mentioned above, managers are very


166

busy people who can not afford spending much of their time on a project

neglecting their remaining obligations.

With respect to the trend- impact analysis, it has the advantage of combining

former forecasting techniques- such as time- series data- with qualitative

factors, making the transmission to the new way of thinking much easier. In

addition, it stretches the mental models of the future by forcing participants to

identify the environmental forces; their importance and likelihood of

appearance are also assessed.

Apart from these advantages, this method has drawbacks as well. It does not

take under consideration the interrelationships between the factors that affect

the business; nothing exists in isolation and the effects of interrelationships may

be of great importance to the company under consideration. Moreover, in order

to implement a method falling under that category we need time-series data as

mentioned above; therefore we will have to implement it for a decision or a

variable we already have historical data.

Finally, with respect to the cross-impact method it incorporates what is

lacking from the trend-impact analysis method; it looks at the interrelationships

between variables. Furthermore, as far as INTERAX- one of the most popular

cross-impact analysis methods- is concerned it has the additional advantage of

delivering scenarios which at the end of each time period can be interactively

modified by the user. Moreover, it has a built-in database of events and trends

forecasts and it can easily be updated. Another popular method that falls under

this category- the BASICS method- has the advantage that it can deliver a


167

number of scenarios that are already distributed according to their possibilities

of coming true and allows for higher degrees of flexibility. The program,

finally, can run on a personal computer.

As far as the disadvantages of this approach are concerned, INTERAX has a

high set-up cost and it does not take into account which scenarios are more

likely to occur (Huss and Honton, 1987). In addition, it bases the events that

appear in the first interval on the probabilities entered by the user and it does

not pay any attention to the likelihood of that combination appearing. The

BASICS method delivers the results at the end of the planning horizon- the user

has to link them himself.

Concluding, the three methods for generating scenarios described above have

their own advantages and disadvantages. The Intuitive logics approach, for

example, might be more flexible and qualitative oriented but on the other hand

one may say that it lacks the rigidity of the other two approaches, which have

the mathematical element in them; the set-up cost for INTERAX, however, is

high. This could be justified by a direct proportional relationship between

expenditure and accuracy. However, there is no best technique for every

application and all of them can be applied in order to solve different problems.

9.8 Further work

This dissertation covered the historical development of scenario planning as

well as its emerging methodologies and the implementation of a scenario

project within a company. Apart from that, there are some questions on which

further research can be conducted; these are presented below.


168

It would be useful to look for a technique that will incorporate the advantages

of the three scenario schools of thought mentioned above and minimise their

differences. Moreover, we can look at whether a specific scenario technique is

best for a certain industry branch.

We can, also, conduct a survey similar to that conducted by Linneman and

Klein and see how the characteristics and the percentage of organisations that

have adopted the scenario planning method has changed. It should,

undoubtedly, be useful to look at how the adoption of this approach changed

those organisations compared to those who have not integrated scenario

planning in their planning process. Moreover, it would be interesting to look at

this issue from a human resources angle: to examine the changes that emerged

from the adoption of scenario planning as the ‘official’ planning technique and

how these can be managed.

Chapter 10- Conclusions

169

Chapter 10

Conclusions

A traditional and very popular, till nowadays, definition of business is that

‘Business is all about making money’. If the previous statement holds truth- and

it certainly does- then the key task of managers is to give their company a

competitive position against its rivals; for that, it is crucial to ensure that the

company under consideration reacts faster to changes than its competitors. In

order, however, to complete this task successfully they need information about

the outside environment; they need to understand the driving forces and how

they are going to unfold into the future.

It was till recently that the only equipment managers were armed with in this

‘business war’ was a number of forecasting techniques; they had to choose

from a wide range of them- from simple techniques to very sophisticated

computerised ones. Despite their popularity, however, they proved to be

insufficient; moreover, they were wrong at the times they were mostly needed.

The methods were not to blame, of course; they were functioning on the basis

that the future will, more or less, be like the past. The reason behind their

failure as planning techniques was the necessity for long-range planning, along

with the resulting uncertainty that the long view causes.

The answer to this problem was a technique that existed from the Ancient

Roman times and was firstly used for military purposes; despite that, the use of

scenario planning by Shell and its success of predicting the oil embargo in

seventies made it popular in the business world as well. It can be used for


170

many other purposes apart from developing the company’s strategy; these

include the assessment of current strategies, the assessment of risk in

investment and technology decisions, the projection and promotion at the

present of products that customers will need in the future and so forth.

The advantages that the adoption of the scenario technique in planning

delivers to the company are invaluable, the gaining of competitive advantage

being one of them. We, also, have to encounter the real understanding of the

drivers behind the trends- in other words the real understanding of the nature

and the reasons of change- and the stretching of managers’ mental models

about the outside world. Moreover, advantages include the better

communication of results and the sense of ownership, since the result is not a

single number that came out of a ‘black box’ but a list of alternative plausible

futures to the formation of which everyone has contributed.

We should not, on the other hand, forget that the conveyance from

forecasting to scenario planning is not simple; the organisation has to go

through a ‘cultural shock’ and this can, sometimes, cause reactions.

Furthermore, we need to understand that a scenario project can not be

implemented on an experimental basis; we should view our short-term actions

as part of the implementation of a long-term strategy that should be assessed on

a continuous basis. We, therefore, need scenario planning to be at the heart of

the company’s planning procedures.

Moving on to the implementation of a scenario project, there is a question

concerning the persons who will carry out this activity; we have to choose


171

between internal staff, consultants and a combination of the two. The latter

seems to be the best solution, since the scenario team will be formed from

people who know the culture of the company and from outsiders who, free from

the day-to-day running of the business- will help with their expertise. They will

highlight those aspects that for various reasons internal staff is not able to

pinpoint. Furthermore, the implementation of a scenario project is based on the

interaction among the participants as well as about their ideas about the

company. These will form the basis on which- with the help of historical data or

experts- the alternative futures will be built. We need, thus, to ensure that

through a brainstorming session or during an interview the participants are

freely expressing their opinions and these are carefully and clearly recorded.

The second phase is the phase of constructing the scenarios. In order to

facilitate this procedure, a number of methodologies have been developed,

mainly from consultancy companies and academic institutions. The question,

however, which one is the best does not have a clear answer; my opinion,

however, is that the choice of method does not matter that much as to ensure

that three basic principles are fulfilled by the scenarios. They should not contain

driving forces with contradicting developments, they should have a

‘reasonably’ high probability of occurrence and they should be in line with the

interests of the stakeholders; in other words, with the business idea. We should,

also, take into consideration the number of scenarios we will finally generate.

The last phase, in broad terms, is the communication phase; we need to pass

the results throughout the company as different people took part at different


172

stages of the activity. As a general rule, we will have to adopt graphical

techniques and be very careful when choosing the headlines of the stories since

they have to truly represent the context of the story. The presentation can be

enriched by some brief scenario games.

Summarising, scenario planning is a useful technique that can be used for

long-range planning as well as for many other purposes and deliver many

advantages to the company that adopts it. We should bear in mind, however, the

inherent weakness of pinpointing scenarios successes; the question, for

example, whether Shell would have done better if it had not incorporated

scenario planning in its planning procedures or not can not easily been

answered. On the other hand, if we all agree that uncertainty will characterise

the future business environment, then another technique than the crystal ball

should be found in order to cope with it. Scenario planning, under a number of

critical issues we should take into account that were discussed earlier, fits all

the requirements to be that technique. We need, finally, to realise Yogi’s Berra

words: “The future ain’t what it used to be” (Ringland, 1998, p.191).

References

173

References

Beck W., P., ‘Corporate Planning for an Uncertain Future’, Long Range

Planning, 15, No.4, 1982, p.12-21

Betteley Gordon, Mettrick Neville, Sweeney Edward and Wilson, David,

‘Using Statistics in Industry: Quality Improvement Through Total Process

Control’, Prentice Hall, 1994, ISBN:0-13-457862-7

Bood Robert and Postma Theo, ‘ Strategic Learning with Scenarios’, European

Management Journal, 15, No.6, 1997, p.633-647

Boroush A., Mark, and Charles W., Thomas, ‘Alternative Scenarios for the

Defense Industry After 1995’, Planning Review, May-June 1992

Cardullo W., Mario, P.E., ‘Technological Entrepreneurism: Enterprise

ormmation, Financing and Growth’, Research Studies Press Ltd., 1999, ISBN:

0-863880-223-0

Cazes Bernard, ‘The future of work: An outline of a method for scenario

construction’, Futures, October 1976, p.405-410

Chambers C. John, Mullick K. Satinder and Smith D. Donald, ‘How to choose

the right forecasting technique’, Harvard Business Review, July-August 1971,

p.45-74

Chandler John and Cockle Paul, ‘Techniques of Scenario Planning’, McGraw-

Hill Book Company (UK) Limited, 1982, ISBN: 0-07-084570-0

Chapman F. Peter, ‘A Method for Exploring the Future’, Long Range Planning,

p.2-11

References

174

Duperrin C., J. and Godet M., ‘ SMIC 74- A method for constructing and

ranking scenarios’, Futures, August 1975, p.302-312

Durand Jacques, ‘ A new method for constructing scenarios’, Futures,

December 1972, p. 325-330

Fahey-Randall, ‘Learning from the future: Competitive Foresight Scenarios’,

John Wiley & Sons, Inc., 1998, ISBN: 0-471-30352-6

Farnum, Nicholas, La Verne R. and Stanto W., ‘Quantitative forecasting

methods’, Boston:DWS-Kent Pub. Co, 1989, ISBN: 0-534-916-864

Featherstone, Anthony, ‘Quality, Reliability and Maintenance Module Notes’,

Warwick Manufacturing Group, 1999

Georgantzas C., Nicholas, Acar William, ‘Scenario-Driven Planning’,

Greenwood Publishing Group, 1995, ISBN:0-899-308-252

Gershuny J., ‘The choice of scenarios’,Futures, December 1976,p. 496-508

Ghosh C., B, and Nee Y., A., ‘ Strategic Planning- A Contigency Approach-

Part 1: The Strategic Analysis’, 16, No.4, 1983, p.93-103

Global Business Network, http://www.gbn.org/usingScen.html, visited 20/08/1999

Godet, Michel and Roubelat, Fabrice, ‘Creating the Future: The Use and

Misuse of Scenarios’, Long Range Planning, 29, No.2, 1996, p.164-171

Goodwin Paul, Wright George, ‘Decision Analysis for Management Judgment’,

Wiley, 1998, ISBN: 0-471-97496-X

Hecht, Francoise, ‘The aha! Factor’, Director, 50, No. 12, London, July 1997,

p.59-60

References

175

Heijden van Der, Kees, ‘Scenarios: The Art of Strategic Conversation’, John

Wiley & Sons, 1996, ISBN: 0-471-96639-8

http://www.dist-ed.whc.edu/facmats/sami/mba9/sld001.htm, visited 20/08/1999

http://www.wired.com/wired/scenarios/build.html, visited 22/09/1998

Huss R, William, ‘A move toward scenario analysis’, International Journal of

Forecasting,4, 1988, p.377-388

Huss R., William and Honton J., Edward, ‘Scenario Planning- What style

should you use?’, Long Range Planning, 20, No.4,1987, p. 21-29

Klein E., Harold and Linneman E., Robert, ‘The Use of Scenarios in Corporate

Planning- Eight Case Histories’, Long Range Planning, 14, October 1981, p.

69- 77

Linneman E., Robert and Klein E., harold, ‘The Use of Multiple Scenarios by

U.S. Industrial Companies: A Comparison Stidy, 1977-1981’, Long Range

Planning, 16, No. 6, 1983, p. 94-101

MacNulty Ralph A. Christine, ‘Scenario Development for Corporate Planning’,

Futures, April 1977, p.128-138

Makridakis, Spyros and Wheelwright C. Steven, ‘Forecasting methods for

management’, Wiley, 1989, ISBN:0-471-600-636

Makridakis S. et al., ‘The forecasting accuracy of major time series methods’,

Wiley, 1984, ISBN: 0-471-903-272

Makridakis Spyros, Wheelwright C. Steven and Hyndaan J. Rob, ‘Forecasting

methods and applications’, Wiley, 1998, ISBN:0-471-532-339

References

176

Makridakis Spyros and Wheelwright C. Steven, ‘Interactive Forecasting:

univariate and multivariate methods’, London, ISBN: 0-816-254-168

Malaska P., Malmiviirta M., Meristo T. and Hansen S.-O., ‘Scenarios in

Europe- Who Uses Them and Why?’, Long Range Planning, 17, No.5, 1984,

p.45-49

Malins, Morag, ‘Logistics and Operations Management Module Notes’,

Warwick Manufacturing Group, 1999

Mante-Meijer Enid, van der Duin and Abeln Muriel, ‘Fun with Scenarios’,

Long Range Planning, 31, No.4, 1998, p. 628-637

Mason, David, and Wilson G., Robert, ‘Scenario Based Planning: Decision

Model for the Learning Organisation’, Planning Review, 22, March-April 1994

Mendell S. Jay, ‘Nonextrapolative methods in business forecasting; Scenarios,

Vision and Issues Management’, Quorum Books, 1985,ISBN: 0-89930-066-9

Mercer, David, ‘Predictable Futures- The drivers for change’, Open

University, http://oubs.open.ac.uk/future/OUBS/papers/futures.html, visited 22/09/1998

Mercer David, ‘Scenarios made easy’, Long Range Planning, 28, No.4, 1995,

p.81-86

Millet, Stephen and Hanton J. Edward, ‘A manager’s guide to technology

forecasting and strategy analysis methods’, Columbus, Ohio: Battelle Press,

1991, ISBN: 0-935-470-638

Millet, Steven, ‘Battelle’s Scenario Analysis of a European High Tech Market’,

Planning Review, 20, No.2, 1992

References

177

Millet M., Stephen, ‘How Scenarios Trigger Strategic Thinking’, Long Range

Planning, 21, No.5, 1988, p.61-68

Moyer, Kathy, ‘Scenario Planning at British Airways- A case study’, Long

Range Planning, 29, No.2,1996, p.172-181

Reibnitz, Ute Von, ‘Scenario Techniques’, McGraw-Hill Book Company

GmbH, 1988, ISBN: 3-89028-220-2

Ringland, Gill, ‘Scenario Planning’, John Wiley & Sons, 1998: ISBN:0-471-

97790-X

Schnaars P., Steven, ‘ How to Develop and Use Scenarios’, Long Range

Planning, 20, 1987, p. 105-114

Schoemaker H., Paul J., ‘How to link Strategic Vision to Core Capabilities’,

Sloan Management Review, Fall 1992, p. 67-81

Schoemaker J. H., Paul, ‘Scenario Planning:: A Tool for Strategic Thinking’,

Sloan Management Review, 36, No. 2, Winter 1995, p.25-40

Schwartz, Peter, ‘The New World Disorder’,

http://www.gbn.org/Scenarios/Disorder.html, visited 22/09/1998

Schwartz, Peter, ‘The Art of the Long View’, John Wiley & Sons, 1998, ISBN:

0-471-97785-3

SRI consulting, http://www.sriconsulting.com/ipas/sp.html, visited 20/08/1999

Thomopoulos T., Nick, ‘Applied forecasting methods’, Prentice-Hall, 1980,

ISBN: 0-130-401-390

Thomson, Aileen, ‘The Management of Change’, Warwick Manufacturing

Group, 1999

References

178

Wack Pierre, ‘Scenarios: uncharted waters ahead’, Harvard Business Review,

63,No.6, Nov-Dec 1985a, p.72-89

Wack Pierre, ‘Scenarios: Shooting the rapids’, Harvard Business Review, 63,

No. 6, Nov-Dec 1985b, p.139-150

Yazdani, Baback, ‘Product Design and Development Module Notes’, Warwick

Manufacturing Group, 1998

Zentner D., Rene, ‘Scenarios, Past, Present and Future’, Long Range Planning,

15, No. 3, 1982,p. 12-20

Bibliography

179

Bibliography

Amara, R. and Lipinski J., A., ‘Business Planning for an Uncertain Future:

Scenarios and Strategies’, Pergamon, 1983

Anonymous, ;Scenario Planning’, Business Europe, 38, No.5, p. 9-11

Anonymous, ‘Scenarios for Europe’, Business Europe, 38, No.5, p.9-10

Anonymous, ‘Scenario planning back in vogue’, Crossborder Monitor, 6,

No.17, p.3

Arnold Anestad, Mary, ‘The power of pictures’, Credit Union Management,

22, No.5, p.16

Boldwing, Howard, ‘Working smart’, CIO, 11, No.17, p.86

Checkland B., P., ‘Systems Thinking, Systems Practice’, John Wiley and Sons,

1981, ISBN: 0-471-279-110

Clevenger, Ernest, ‘Year 2000 woes are likely to beset TPAs’, National

Underwriter, 102, No. 38, p.10,14

Corall, Sheila, ‘Scenario Planning: a strategic tool for the future’, Managing

Information, 5, No.9, November 1998, p. 34-35, 39

Coy, Brian, ‘Scenario Planning’, Chartered Secretary, November 1997, p. 23-

25

Elkington, John and Trisoglio, Alex, ‘Developing realistic scenarios for the

Environment: lessons from Brent Spar’, Long Range Planning, 29, June 1996

Epstein H., Jeffrey, ‘Scenario Planning: An Introduction’, The Futurist, 32,

No.6, p.50-51

Bibliography

180

Flood L., Robert, ‘Dealing with Complexity: An Introduction to the theory and

applications of System Science’, Plenum Pub. Corp.,2nd edition, 1993, ISBN: 0-

306-442-99X

Georghiou, Luke, ‘The UK Technology Foresight Programme’, Futures, 28,

May 1996

Godet, Michel, ‘Scenarios and Strategic Management’, Butterworths, 1987

Godet, Michel, ‘Crisis in Forecasting and the Emergemce of the ‘Prospective’

Approach’, Pergamon, 1979, ISBN:0-080-224-873

Godet, Michel, ‘From Anticipation to Action: A Handbook of Strategic

Perspective’, United Nations Educational Scientific and Cultural Organisation,

ISBN: 9-231-028-324

Godet, Michel, and Roubelat , F., ‘Creating the Future: the use and misuse of

scenarios’, Long Range Planning, 29, February 1996

Islei, Gerd, Lockett Geoff and Nande Peter, ‘Judgemental modelling as an aid

to scenario planning and analysis’, Omega, 27, No.1, p.61-73

Kahn, Herman, and Weiner J. Anthony, ‘The Year 2000: a framework for

speculation on the next thirty years’, Macmillan Publishing, 1967

Koonce Richard, ‘How is your view of the future?’, Bank Marketing, 30, No.5,

p.18

Landolt Cox, Sara,’Cornerstore of success’, Credit Union Management, 22,

No.4, p.10-11

Larson F., Charles, ‘Industrial R&D in 2008’, Research Technology

Management,41, No.6, p.19-24

Bibliography

181

Legare L., Thomas, ‘Strategic Dialogue’, Marketing Research, 10, No.1, p.14-

19

Marshall, Jeffrey, Peering into a conjectured future’, US Banker, 108, No.11,

p.53-56

Meadows H., Donella, Meadows L., Dennis, and Randers, Jorgen, ‘Beyond the

Limits’, 1992

Mintzberg, Herny, ‘The Fall and Rise of Strategic Planning’, Harvard Business

Review, January-February 1994b

Negroponte, Nicholas, ‘Being Digital’, Hodder & Stoughton, 1995

Painter H., Diann, ‘The business economist at work: Mobil corporation’,

Business Economics, 34, No.2, p.52-54

Perrottet M., Charles, ‘Scenarios for the future’, Management Review, 85,

No.6, January 1996, p.43-46

Pickard, Jane, ‘New training bodies focus on skill gaps’, People Management,

4, No.10, p.15

Porter, Michael, ‘Competitive Advantage’, New York: Free Press, 1985

Porter, Michael, ‘Competitive Advantage of Nations’, Macmillan Press Ltd,

1998,ISBN: 0-333-736-427

Pratt, Courtney, ‘Planning Noramda’s future’, Research Technology

Management, 42, No.1, p.15-18

Quinn, Lucia Luce, and Mason H., David, ‘How Digital Uses Scenarios to

Rethink the Present’, Planning Review, November- December 1994

Bibliography

182

Rainey Gerald, ‘Planning for the inevitable’, Credit Union Magasine, 65, No.2,

p.43-44

Randall, Doug, ‘ Consumer Strategies for the Internet: Four Scenarios’, Long

Range Planning, 30, No.2, April 1997

Ritson, Neil, Scenario planning in action’, Management Accounting, 75,

No.11, December 1997, p.24-26, 28

Ruotolo, Frank,’Y2K calamity. A blessing in disguise?’, Chief Executive, 41,

No.1, p.10-11

Schoemaker H. J., P., and Van der Heijden, Cornelius, ‘Intergrating scenarios

into strategic planning at Royal Dutch/Shell’, Planning Review, 20, No.3, May-

June 1992

Schrieffer, Andreyy, ‘Getting the most out of scenarios: advice from experts’,

Planning Review, 23, No. 5, September- October 1995, p.33-35

Schwartz, Peter, ‘Composing a Plot for your Scenario’, Planning Review, May-

June 1992

Senge M., Peter, ‘Mental Models’, Planning Review, 20, No.2, March-April

1992, p.4-10, 44

Simpson G., Daniel, ‘Key lessons for adopting scenario planning in diversified

companies’, Planning Review, 20, No.3, May-June 1992, p.0-17, 47-48

Slaughter A., Richard, ‘Foresight Beyond Strategy’, Long Range Planning, 29,

1996, p.156-163

Stont, David, ‘Use and abuse of scenarios’, Business Strategy Review, 9, No.2,

Summer 1998, p.27-36

Bibliography

183

Taylor, Bernard, ‘The Return of Strategic Planning- Oncce More with Feeling’,

Long Range Planning, 30, March 1997

Tenaglia, Mason and Noonan, Patrick, ‘Scenario-based Strategic Planning: A

Process for Building Top Management Consensus’, Planning Review, 20, No.2,

March-April 1992, p. 12-19

Tucker, Kerry, ‘Scenario planning’, Association Management, 51, No.4, p. 70-

75

Appendix 1

184

APPENDIX 1

Appendix 1- Brainstorming

185

Appendix 1

The Brainstorming method We can define brainstorming as being a group activity that is applicable in a

wide range of problems. It is concerned with the generation of as much ideas

possible in a given, short in most of the cases, period of time. We do not

discourage anyone from expressing his ideas; on the contrary every member of

the group is encouraged to elaborate on other people’s ideas.

This technique has a number of advantages. Firstly, it can provide us with a

wide range of ideas on a subject; therefore the chance of identifying the cause

of a problem or a new opportunity is increased. Moreover, with respect to the

way the brainstorming task is carried out, it gives the participants the chance to

generate ideas free of the stress that a formal meeting would have caused.

Finally, most of the times the task involves people from various departments;

therefore all voices are heard and intercommunication is facilitated.

The brainstorming method has certain drawbacks as well. Because of the fact

that it is a rather informal method, participants may think of the procedure as a

casual one. Moreover, since no criticism is allowed we might end up at the end

of the session with a big number of ideas that is difficult to sort out.

The general steps followed in a typical brainstorming project are as following

(Featherstone, 1999: Yazdani, 1998: Betteley et al., 1994): (please refer to next

page)


186

Table 32 The eight steps of the brainstorming method

(Source: Featherstone, 1999)

As far as the first step is concerned, it deals with the selection of the team.

The ideal number of persons participating should be from six to ten. In addition,

it should be formed in a way that its members will come from many different

areas- in order to maximise the breadth of ideas- and no excessively dominant

characters or easily influenced people should be included.

Once the team is formed, the person in charge of the project would have the

responsibility of inform the other members of the issue under consideration.

This step will last as long as needed so that every participant has fully

understood the problem.

The process- as every other process- should run under certain rules; the

‘chairman’ would have to communicate them to the members of the group and

make sure they all follow them. We should note, however, that there is no need

Select the team

Define the issue under consideration

Inform the rest of the team on the rules that will be followed

Generate ideas

Record these ideas

End the meeting

Discuss the ideas generated

Formulate action plans based on these ideas


187

for him to be over protective since the free-form nature of the technique is

crucial.

Once this is done, everything is ready for the session to begin. We should

allow each member in turn to contribute his idea or, if they wish, to pass. The

ideas should be recorded in such a way that every member of the group has

access to them at any time of the meeting; a flipchart would, definitely, be a

good idea for that.

It is sometimes the case that these sessions are held under specific time

constraints; once the limits are reached, the session has to end. An alternative

reason for the end of the session might be that none of the participants has any

new idea to contribute

There is a need after the end of the session for discussing the results. We

should bear in mind that we should rather seek for new ideas based on the

existing ones than start rejecting them; the latter can be the cause for verbal

fighting between the members of the team. It is, therefore, better to hold this

session at a later date so that the discussion will rather concentrate on the ideas

themselves than on the persons who proposed them.

The final stage of a brainstorming session deals with the formulation of

action plans. This should be done in a way that addressees the key issues.

The brainstorming has, as mentioned above, some rules associated with it;

this happens in order to ensure that everyone will contribute to the conversation

and none will be neglected. These rules are presented in the table below.


188

Table 35 Rules associated with the brainstorming method

(Source: Featherstone, 1999)

Everyone should contribute his ideas in turn; this way we ensure that none

dominates the meeting. It is allowed to pass on one’s turn.

During the generation of ideas, no criticism is allowed

We should record every idea heard

No one should dominate the discussion phase

Appendix 2

189

APPENDIX 2

Appendix 2- G.E. planning process

190

Appendix 2

The General Electric’s planning process

Figure 16 The planning process of General Electric

(Source: Georgantzas and Acar, 1995)

Appendix 3

191

APPENDIX 3

Appendix 3- Letter to organisations

192

Dear Sir or Madam:

My name is George Konstantinou Lekeas and I am doing my MSc in

‘Engineering Business Management’ at the Warwick Manufacturing Group,

which is part of the University of Warwick. As a part of my degree

requirement, I am supposed to write a dissertation on scenario planning; I

would be grateful to you if you could provide me with information on that

subject related to your company.

I would be grateful if you could provide me with information related to the

following subjects.

You can mail your answer to the following postal address:

Thanking you in advance for your consideration, I shall be telephoning

you in a few days to ask if it will be possible to have not more than half an

George Konstantinou Lekeas Claycroft 1, Flat 3, Room1 Gibbet Hill Road University of Warwick Coventry CV4 7AL United Kingdom

The use, if any, of scenario planning in your business

Any experience of scenario projects you could share with me

The reason you use scenario planning for

Appendix 3- Letter to organisations

193

hour of your time in order to share your experience of Scenario Planning

implementation.

Sincerely,

George Konstantinou Lekeas Course Member, Full-time MSc in Engineering Business Management

Appendix 4

194

APPENDIX 4

Appendix 4- Letter to consultancy companies

195

Dear Sir or Madam:

My name is George Konstantinou Lekeas and I am doing my MSc in

‘Engineering Business Management’ at the Warwick Manufacturing Group,

which is part of the University of Warwick. As a part of my degree

requirement, I am supposed to write a dissertation on scenario planning; I

would be grateful to you if you could provide me with information on that

subject related to your company.

I would be grateful if you could provide me with information related to the

following subjects.

You can mail your answer to the following postal address:

Thanking you in advance for your consideration, I shall be telephoning

you in a few days to ask if it will be possible to have not more than half an

George Konstantinou Lekeas Claycroft 1, Flat 3, Room1 Gibbet Hill Road University of Warwick Coventry CV4 7AL United Kingdom

The ‘identity’ of your customers

The method you use

Any case studies I could use in my dissertation

Appendix 4- Letter to consultancy companies

196

hour of your time in order to share your experience of Scenario Planning

implementation.

Sincerely,

George Konstantinou Lekeas Course Member, Full-time MSc in Engineering Business Management

Appendix 5

197

APPENDIX 5

Appendix 5-Questionnaire

198

Appendix 5

Questionnaire

QUESTIONNAIRE

Please fill in the following details; they are very useful for our study. (The

Job/Title field refers to the person who will complete the questionnaire).

Company...........................................Date / /

Branch...............................................Job/Title.......................................................

...

1. Has your company used scenario planning in the past? (Please tick the

appropriate box)

Yes No

2. How much time did you spend developing the scenarios? (Please tick the

appropriate box)

1. <6 months 3. <3 years

2. 1 year 4. >3 years

3. Did you use consultants? (Please tick appropriate box)

Exclusively Not at all With

internal staff

4. Which method did you follow? (Please tick the appropriate box)

Appendix 5-Questionnaire

199

1. Intuitive Logics 2. Cross-impact analysis

3. Trend-impact analysis 4. Other(please specify)

5. What reason did you use the scenarios for? (Please tick the appropriate box)

1. Developing strategies 2. Testing existing strategies

3. Technology decisions 4. Marketing purposes

5. Other (please specify)

6. What is your opinion about the forecasting methods? (Rank them from 1-5;

1=worthless, 5=adequate)

Rank Unable to classify

7. How often do you use scenarios? (Please tick the appropriate box)

Experimentally Not regularly

Always

8. Was the use of scenarios a success?

Yes Partly No

9. If no, can you indicate the reason?

1. No customisation of the process 2. Lack of integration with

planning 3. Lack of time 4. Other

(please specify)

War Wick Thesis

Documents

Transcript of War Wick Thesis