Read the sidebar: Fortune Teller
We live in uncertain times. The recession is over — but profits aren’t back. Big companies are dominant — but they seem vulnerable to scandal and drift. If strategy is all about the future, and you can’t even get a clean read on the present, then how can you make informed choices about what comes next? With so much uncertainty, strategy is futile. Right?
Wrong. The present may be murky; the future may be up for grabs. But strategy that separates what’s inevitable from what’s unknowable is the essence of the game.
Thirty years ago, Pierre Wack, a French oil executive with a personal affinity for Indian mystics, realized that strategy as it had been practiced — straight-line extrapolations from the past, forecasts captured in three-ring binders — did little to frame the choices that would define the future. The true role of strategy was to describe a future worth creating — and then to reap the competitive advantages of preparing for it and making it happen. Strategy, in other words, was about telling stories.
Under Wack’s influence, Royal Dutch/Shell learned the art of strategy as storytelling — creating scenarios about the future. Scenarios are carefully crafted tales that link certainties and uncertainties about the future to the decisions that must be made today. Scenario planning — or “scenario thinking,” as Wack called it — has made Shell an industry leader.
Scenario planning has spread from Shell to other corporate giants. Companies have learned how to frame the future by describing bookend scenarios, stories that offer vastly different trajectories and starkly opposing outcomes. But as the pace of change has accelerated, that textbook approach to scenarios has come to seem as antiquated as the old three-ring binders.
How do you frame choices when everything is up for grabs? Shell’s answer: Go back to Wack. At the offices of Royal Dutch/ Shell in London, the scenario team has given birth to TINA — There is no alternative — a strategy conceit that meets uncertainty halfway by driving a stake into the ground. TINA says, Here’s what we know about the future. Now let’s go meet it.
Wack’s Unstoppable Forces: Tendances Lourdes
In the summer of 1970, a delegation from the Club of Rome, a group of professionals, scientists, and politicians, paid a visit to the System Dynamics Group at MIT’s Sloan School of Management. The Club had a request: Help us predict the future of the world. World3, the MIT computer model, digested 120 variables before calculating that within 20 years the planet would run out of oil.
The findings were published in an unlikely best-seller, The Limits to Growth (Universe Pub, 1972). But a funny thing happened on the way to the future: The prediction turned out to be wrong, largely because in 1973, the oil industry suffered a different catastrophe — one that computer modeling could never have foreseen, but one that Pierre Wack was thinking about.
While World3 was crunching numbers, Wack was presenting a series of stories about possible futures to senior Shell executives. In one scenario, an accident in Saudi Arabia led to the severing of an oil pipeline, which in turn decreased supply. That created a market reaction that increased oil prices, allowing OPEC nations to pump less oil and make more money.
The tale spooked the executives enough to make them reexamine their assumptions about oil price and supply. Was OPEC preparing to increase oil prices? What would be the implications if they did? As a consequence, when OPEC announced its first oil embargo, Shell handled the challenges better and faster than the competition. Within two years, Shell moved from being the world’s eighth biggest oil company to being the second biggest. Scenario planning had earned its stripes.
Shell Centre, on London’s South Bank, may be the city’s dullest building, which made Wack’s presence there from 1971 to 1981 all the more charming. Wack had been strongly influenced by the mystic philosopher George Gurdjieff, who had imported a form of Sufism — a mystical branch of Islam — into the West. Gurdjieff’s teachings involved rigorous spiritual exercises, including practice in “seeing” as clairvoyants do. The art to martial arts, according to Gurdjieff, was the ability to “see” exactly where and when to strike for maximum effect.
As he drew up his first scenarios for Shell, Wack was convinced that the future could be known with the right blend of deep perception and intellectual rigor. With colleagues Ted Newland and Napier Collyns, Wack embarked on immensely detailed research that was designed to isolate the certainties, the forces at work in the world that he saw as unstoppable. He called them “tendances lourdes” — the driving forces around which he and his team could weave the myriad of uncertainties.
When they looked at the Middle East, the team saw oil-rich nations that were too small to absorb the wealth that they were generating. That growing surplus of cash would have to be reinvested. But where? No bank asset or piece of real estate could appreciate in value as fast as the oil in the ground. And if more oil stayed in the ground to keep the price high, the value would only increase. Wack and his team perceived the emergence of OPEC and the rising price of oil to be tendances lourdes that would drive the global system for the next 10 years.
Since those early successes, Shell’s scenario unit — now called Global Business Environment (GBE) — has produced three new scenarios each year. The exercise has produced more than its share of insights. A decade after Wack’s OPEC scenarios, his successor, Peter Schwartz, identified Mikhail Gorbachev — not even a politburo member at that time — as a reformer who would lead the Soviet Union through sweeping changes. While the rest of the West was stunned in 1989 by the sudden fall of communism in that region, Shell was wondering why the process had taken so long. With Collyns and three others, Schwartz later cofounded the influential Global Business Network and turned scenario planning into a commercial venture with his how-to guide, The Art of the Long View (Doubleday, 1991).
But as scenario planning has broken into the mainstream, Wack’s original emphasis on perception and intuition has been diluted. For many companies, the work of identifying driving forces has become just another bullet point on a formulaic guide to building scenarios. “Many of the people using scenarios are doing so in a trivial way with little impact,” says Schwartz. “The risk is that as more people do scenario planning, it will be done poorly, and the credibility of the method will suffer.”
TINA Checks In
In the summer of 1995, Roger Rainbow was pacing the floor of Wack’s old office. Shell’s reputation was in tatters. Television viewers had just seen footage of the company turning high-pressure fire hoses on Greenpeace protesters as they clung to the Brent Spar, a redundant rig that Shell wanted to ditch in the North Atlantic. Just as disturbing were news reports from the Niger Delta, where much of Shell’s oil was drilled. The Nigerian government was quashing a peaceful uprising against the company. It was an ugly international situation that culminated in the government’s hanging of Ogoni leader Ken Saro-Wiwa.
As GBE leader, Rainbow felt that somehow, scenario planning had to address the new as-yet-unnamed reality that was catching Shell off guard. The last round of scenarios in 1992 had acknowledged the forces of globalization and liberalization being felt around the world. To Rainbow, it seemed clear that those two forces were now irresistible. No alternative model competed with the emerging consensus about the value of open markets. What’s more, the consensus had gathered strength through the globalizing influence of technology. Shell and companies like it would be in the spotlight as never before. Markets would be global — but so would protest movements.
Globalization. Liberalization. Technology. A power-trio supergroup for the late 1990s. “In an offhand way, Roger began saying, ‘There is no alternative to these forces,’ ” recalls Betty Sue Flowers, scenario editor for Shell for the last four rounds. ” ‘TINA.’ I wrote it up that way, with the understanding that the name would be taken out in the final edit. But it stuck.”
TINA. There is no alternative. TINA issued an ultimatum. Manage the challenges and grasp the opportunities that she presented — or fail. TINA would enable businesses to gain power and influence. But with that newfound power would come both responsibility and accountability, a requirement to wield that power as a force for good in the world. Not all multinational companies would welcome such a role. But whether they liked it or not, it would be expected of them.
“These forces were so powerful and all shaping that there was no alternative for Shell but to deal with them as a number-one priority and to make a strategic response,” recalls Rainbow, who is now semiretired, splitting his time between homes in Spain and England. “In a world of uncertainty, scenarios provide focus on things you can’t duck.”
TINA Goes to Work
Over time, the GBE team found TINA to be a liberating and empowering concept. “We all argued against TINA vociferously, but we came to see her strengths,” says Ged Davis, Rainbow’s deputy at the time.
“TINA dramatizes the situation, creates atmosphere, and leads to more emotional investment in the outcome,” says Flowers, who is now director of the LBJ Library and Museum at the University of Texas at Austin. “TINA is in-your-face. People immediately respond, ‘But there’s always an alternative!’ TINA raises the temperature and the stakes, enabling you to do a lot of intense work in a short period of time. Scenario building is a dramatic exercise where you make up a script and cast the actors. When TINA comes on stage, the drama begins.”
The GBE team offered Shell two scenarios — called Just Do It and Da Wo — for exploiting the forces of TINA. In the first, success would come to those who took advantage of quick-moving opportunities in a world of hypercompetition. The successful Just Do It company would permit full expression of individual creativity and foster new ways of doing business and solving problems.
In the second scenario, countries and companies would discover that success demanded a committed investment in relationships of trust. In that world, Da Wo (big me) organizations would owe their success to understanding that individual welfare is linked to the welfare of the whole.
Those are the options, TINA said. Which one will you choose? Shell management had already embarked on a reorganization program designed to replace the company’s own complex matrix of national fiefdoms with four global businesses: exploration and production, downstream gas and power, oil products, and chemicals. The introduction of TINA gave impetus to the change process as Rainbow took his scenarios to the front line.
Rainbow listened in on the conversation as employees got to know TINA. “TINA and the 1995 scenarios were powerful in that they helped people talk about the tone of the company and the ways in which Shell had to change,” Rainbow says. “To have a conversation, you need a common language. And TINA was hugely helpful in encapsulating a complex set of ideas within a simple phrase.”
Changing the direction of a company like Shell is like altering the course of one of its supertankers. Scenario planners are also loath to plot a straight line between cause and effect. But seven years after the Brent Spar and Nigeria, Shell has reclaimed the accolade of being one of the most admired companies, globally and in Britain, in separate surveys by Fortune and the UK business magazine Management Today.
Shell has made steady progress toward becoming a Just Do It, slimmed-down oil company, sorting out its portfolio, increasing capital efficiency, and cutting costs at a rate of $4 billion a year. On the Da Wo scorecard, Shell now publishes reports on its environmental and social record. It will invest $1 billion in renewable energy in the next five years, and it has spent millions to engage with environmentalists and human-rights groups.
TINA Grows Up
Even the unchangeable is subject to change. At Shell, TINA has taken on a life of her own. In the 1998 scenarios, she returned more powerful than ever. TINA operated at two levels: TINA Above, which worked at the level of markets, financial systems, governments, and other wide-reaching institutions; and TINA Below, which worked at the level of individual people, who, in many parts of the world, were becoming wealthier, better educated, and freer to choose.
In the latest scenarios, published at the beginning of the year, TINA has matured further. In the tradition of all inspired storytellers, Ged Davis, now GBE’s vice president, has expanded TINA’s tale to include the three R’s: regulations, restraint, and rules. Those three local forces will modify the ubiquitous forces of globalization, liberalization, and technology.
In Davis’s version of TINA and the three R’s, people want the efficiencies that market liberalization brings. But they also want appropriate regulation to assure things like continuity of electricity supply at a reasonable price. Technology has a powerful forward momentum, but the applications of, say, biotechnology and nanotechnology raise ethical dilemmas. And while technology is pushing out the boundaries of what it means to be human, globalization is pulling in the boundaries of culture and family. The result: local resistance to an inrush of unfamiliar ideas, products, and services from multinational companies.
“We argued about TINA again last year and whether we should leave her out of the new scenarios,” says Davis. “We decided not to, because behind TINA there is something more fundamental, even if the original definition is redundant. It’s extremely valuable to gain clarity about what is really predetermined and what is uncertain. TINA is the essence of good scenario planning. So TINA lives on.”
Ian Wylie (firstname.lastname@example.org) is a Fast Company contributing editor based in England. Read the Shell scenarios on the Web (www.shell.com/scenarios).