Scenario Planning As A Strategic Tool And How To Use It In Business

Let us assume that you are planning to go on mountain trekking. You have the map chalked out in front of you for making the climb. But is that really enough? A 2D map doesn't indicate the perils of the earth like crevices and steep rocks.

Moreover, it completely ignores elements that determine your journeys like natural calamities, the weather, mortal combatants like wild animals, and other hikers. This keeps your planning incomplete. When you take the uncertain into consideration and plan beforehand, you prepare yourself for the contingencies. This is exactly what scenario planning is.

What Is Scenario Planning In Marketing?

Every business is prone to contingencies that may arise out of the blue and damage the reputation or health of a company. Scenario planning is the method of imagining the possible emergencies that may arise and taking protective measures to keep the company safe.

It is one of the many tools that the marketing team of a company uses as a part of strategic planning to compensate for errors in decision making. More the imaginative capability of a marketing manager, the better are the chances of tackling unexpected opportunities that may come along.

That brings us to the question as to what is the process of developing scenario planning.

How To Use Scenario Planning In A Business?

Since scenarios reflect possible futures and not specific strategies, it is crucial that you consider external factors into the process for a more practical understanding. Stakeholders like suppliers, industry regulators, consumers, and employees should be taken into account. You can also consider trends that others have developed. For example, you can consider Zalm and de Jong’s 4 factors which are a global shift, global crisis, European renaissance, and balanced growth.

The process of building a shared framework for scenario thinking is a tedious one. Here are the steps that you need to follow to develop realistic scenarios and come up with appropriate solutions to tackle them.

Define the Scope

The first thing that needs to be done is to set the scope of analysis of the company in terms of the products they deal in, the markets they foray into and the technologies they use. You need to consider events like product life cycles, competitors’ horizons, political situations, and emergencies. Next, you need to study the past ten-year cases of uncertainty pertaining to the factors you have considered. Make sure that you anticipate a progressive amount of change throughout the years for a practical approach.

Identify the stakeholders

Consider all the business participants who will be affected if any of the thought scenarios occur. Most important stakeholders include shareholders, suppliers, customers, the government and the potential contenders. Identify the current designations they hold in the company and determine how their interests have changed over time. Try to study why and how has their behavior changed.

Identify the ongoing trends

The trends that you must consider are political, economic, technological, and industrial trends that can directly affect the business. Briefly explain how the patterns can influence your organisation. Categorise the influence it may have in three heads: positive, negative, or uncertain and plan accordingly.

Construct initial scenarios

Once you identify the trends and the contingencies, put all the positive elements in one scenario and all the negatives in another. Accordingly, start building theories around the possibilities. But keep in mind that they are not full-fledged scenarios until you take internal consistency and the possible reactions of major stakeholders into account.

Develop Learning Scenarios

After you check for plausibility and consistency of the scenarios, create general themes and identify strategically relevant ones. Organise the possible outcomes and trends around them. According to the plausibility of the trends, you can decide which deserve more weight and which ones can be given lesser importance.

Identify Research Needs

At this point, you need to conduct research on the uncertainties and trends to flesh out your understanding. This would help you find the blind spots of the company. Try to learn beyond the fringes of the industry the company belongs to. This will help you to prepare to face the new technologies that are yet to come in your industry. For example, developments in multimedia, computers, telecommunication, entertainment, and databases are some of the innovations that you must consider.

Develop quantitative models

After completing the research, reexamine the internal consistencies of the scenarios and imagine different outcomes of the key uncertainties. Managers tend to use a formal quantitative model to keep implausible scenarios at bay. These models can also help you assess the consequences of the scenarios in terms of growth rate, price behavior, market shares, etc.

Evolve toward Decision Scenarios

Before you finally take definitive measures and base your marketing decision on them, you must reiterate. Start by considering the reasons why you have come up with the scenarios again. If you are sure about the plausibility of the factors, then work on the scenarios that you want to use to test your strategies. But if you find an inconsistency in even one of them, then we suggest that you retrace the steps mentioned above once again.

The Importance Of Scenario Planning As A Strategic Tool

Scenario planning is used as a technique that can be used to make individual decisions. But it is in a corporate world that scenario building and planning finds its firm ground. Vision building using strategic planning by the marketing team of a company can help the organisation approach future emergencies pragmatically without letting them take a toll on the health of the business.

Here is how businesses can benefit from scenario planning:

The middle ground

The predictions of a marketing manager may not always be accurate. The two most common errors that managers tend to do while making decisions is under-prediction and over-prediction of change. Change is a constant in our lives, and often managers consider the future without the rate of change. Scenario planning helps in bridging the gap between under-prediction and over-prediction.

More possibilities

Scenario planning expands the range of possibilities while keeping a reality check on the situation we build. It builds a solid plan on the basis of the things we believe about something and all those elements that we consider uncertain. Scenario building takes the momentum, and the continuity of the world and gives us solutions accordingly.

Face the uncertain

Surprises can be costly for a business and making big bets can be a fool’s folly in a business. If the industry that a company belongs to is about to witness significant change, then scenario planning prepares the company to cope with the transition efficiently. It helps a company in handling what is to come without minimum effects.

Examples Of Successful Scenario Planning

For years, companies have used scenario planning to deal with the unknowable forces of business. Here are some of the most successful companies that have used and are still using scenario planning.

Shell – Formerly known as Royal Dutch, the company has used scenario planning since the early 1970s to generate and evaluate its strategic options. Shell has always been better in forecasting about the trends of the oil industry, thus surpassing most major oil companies. The company was the first to see the overcapacity in the tanker business and Europe’s petrochemicals.

Apple – We already know that the company is dependent on chips from Intel. This makes it a big risk for the company. If IBM slips, the entire kingdom of Apple could slip with it. To manage such a risk, Apple has been using scenario planning to identify a range of potential outcomes. Ever since it has been taking measures to keep itself on the winning end regardless of the outcome. It is obsessing about competitors, and keeping itself flexible to move quickly with market shifts, should a competitor take an action that could jump it into the lead.

Rolls-Royce – After the share prices of the company plummeted down by an abysmal 50% between 2014 and 2015, the automotive company realised it needed a better way to be prepared for the worst-case scenario. So they resorted to scenario planning. They researched on a range of topics they thought could affect the automobile industry in the future. They created hypothetical future scenarios based on research.

When you try to do scenario analysis and planning, keep in mind that you have to be careful of the relevance of the situation. Make sure that they connect directly with the organisational goals. Maintain consistency in your case study and come up with practical solutions that are possible to achieve. Create an equilibrium and make sure that the planning strategies stand the test of time.

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