Scenario planning and the Pandemic
Both form a perfect conjugation. This Pandemic stressed the relevance of scenario planning as a strategic tool for businesses
Is there anything predictable in this world? For sure. But we cannot foresee a lot of events that may influence our lives. For example, it is impossible to predict if our marriage will last forever or if we will get married two, three or four times or even if we will ever become widowers. However, to be prepared for the future, whatever it might be, different scenarios will give us a better chance to overcome the challenges ahead. Why would it be different when we talk about business?
For many, the future might seem fuzzier than before due to the speed of technological change, economic interdependence and mounting political instability. In middle of XX century, the notion of the VUCA (volatile, uncertain, complex and ambiguous) world made political and economic leaders to embrace the practice of the scenario planning as a strategic tool for decision making.
With the Pandemic, I hear more and more about this strategic planning approach, which fascinates me!
Since the beginning of the Pandemic I have been observing deep societal transformations. It feels like everything changes, we experience shifts and new directions under extreme uncertainty. Transformations about the way we work, we connect with our family, socialize with friends and community, even simple habits like shopping and fitness, or for travelling, culture and leisure such as visiting a museum or another country. It doesn`t stop there, I witness shift in the way we collaborate, parent, feel and function. New habits, behaviours, restrictions, needs and wants are coming up and we don`t know what will stay or not.
In fact, the Pandemic is affecting everything, from politics to economy, including public health, education and big systems like cities. The Virus impact and spread in the months ahead is something we cannot control. As Ursula Von der Leyen (European Commission President) said recently: “We don´t have yet the full picture when it comes to the effectiveness of treatments and vaccines on new strains. But we do know these variants will continue to emerge. And we do know that we need to anticipate and prepare immediately.”
This is why scenario planning is essential for companies to survive and thrive.
How does scenario planning work?
In a nutshell, and in a simplistic explanation: after sensing the world, collecting information and observing trends and megatrends, as well as identify weak signals and other indicators, like critical uncertainties, adding (for some cases) a small number of the wild cards (also called BlackSwans and now Green Swans too), usually 4 scenarios of the future are generated, and structured. Often the four scenarios are based on two axis from crossing two “critical uncertainties”. It is also important to consider the knowns (what we know already, like the date of a future event, for example: the Olympics), the known-unknowns (such as: there will be a lottery number next week, but we don’t know which) and the unknown-unknowns (everything we cannot predict since we do not even know what it is).
Today all kinds of industries and sectors are working with scenario planning in order to be prepared for different possibilities. I found an interesting example: a group of universities explored four medium-term scenarios for Higher Education, which are:
Scenario 1: A new way of learning surges. The e-learning platforms are effective and distance learning becomes the norm.
Scenario 2: E-learning platforms are ineffective and students cannot have in class lectures because of the Pandemic
Scenario 3: The end of public funding for universities
Scenario 4: Everything goes back to normal (business as usual)
This group of Higher Education institutions, is considering the impact of each scenario on their own organization, from a disruptive future (e-learning becomes the norm or the end of public funding), to the safe “back to normal” and the worse scenario: no e-learning and no in class at the same time. The aim is to create strategies that take into account all the four scenarios.
I wonder what will our businesses do with scenarios like this?
Let’s have a look at a different sector: retail
I found the inspiration from the article “Scenario Planning: Strategies, Steps and Practical Examples” (published on Oracle NetSuite Medium page, on May 14, 2020). In this article Ali Rumi explains why the established wholesale distributor Tar Heel Direct was somehow prepared for this Crisis. Before the Pandemic, the company was already using scenario planning. The CFO prepared three scenarios for crisis: green, yellow and red based on bulk orders. Each scenario listed several mitigating actions, using bulk orders as a metric to trigger each action and sequence.
When the Pandemic emerged and the market dropped, and Tar Heel Directs hiftedthe operations into their worst-case scenario: red. Given the situation, the company has set milestones for every 30 days. Tar Heel Direct also looked to the future of retail (Scenario planning applied again) and explored new alternative revenue sources. The company spotted an opportunity in the small and niche businesses, operating at reduced capacity and challenged to move partial loads. The projection was that a transportation service would bring revenues up to 80%, which would move Tar Heel Direct into a better scenario.
Agile companies are more prepared to face the Pandemic impacts
One of the things the Corona Virus made crystal clear was that most businesses were ill-prepared for the scenario we are living in. This also shows that most are unfamiliar with scenario planning practices. In fact, few of us were expecting a virus alone could turn the world upside down.
On the other hand, even without a strategic approach to deal with uncertainties like the scenarios, business with an agile culture are more likely to survive over disruption, such as the current caused by the pandemic.
This business culture is based on a “design and adapt” boosting their ability to adapt faster with a less-than-perfect customer experience today rather than a perfect one next month approach to their products and markets.
To truly benefit from scenario planning, it requires organizational flexibility.
Collaboration also plays an important role:
To build scenarios and apply these to planning, companies need to gather as critical and diverse sets of information, from diverse sources. Today one might dig from data sets and data mining, but there is always a limit to what one can access and identify. Collaborative organizations have a higher chance to do this job, by involving stakeholders and tap into collective intelligence, even for SMEs, which can plug into different networks and support or anticipate quick shifts through uncertainty.
One tends to consider uncertainties as part of far-fetched scenarios. This pandemic has helped me to understand that things can shift dramatically and the future might not happen as planned.… I like to think we can build scenarios, and get ready for the unexpected, what about you?