“Unprecedented.” “Uncertain.” “Chaotic.”
These are just some of the words used to describe the environment in which we are living and trying to do business. For more than a year we’ve seen dramatic upheavals and sweeping changes across the globe, even beyond the impact of the pandemic.
How can business leaders effectively plan for the future in such an environment? Business plans and marketing plans are no sooner made than have to be scrapped as too often the predictions on which they are based fail to become reality. Not surprisingly, many have just thrown in the planning towel. They focus on their immediate environment, trying to steer their companies through today’s storm, hoping that in a few months things will return to something that feels like normal. This leaves them with no effective forward-looking plan on which to base their current actions. Others have embraced the equally fallacious approach of just sticking to a plan which they know or suspect may be already outdated or could become so when its premises turn out to be substantially wrong.
But, there is a strategic planning approach perfectly suited to unprecedented, uncertain, and chaotic times: scenario planning.
In its most basic form, scenario planning involves identifying critical areas of uncertainty, projecting possible future states in those areas, and identifying the strategic approaches that should be employed as one version of each future state begins to come to fruition. Sort of an “if A happens we do this; if B happens, we do that” type of analysis and planning.
Scenario planning has a lot in common with how chess players approach their game. Research has shown that chess masters don’t approach a game with a master plan that they rigidly execute. Nor do they just react to the moves of their opponents.
Rather, they are adept at “reading” the board at each stage of the game and hypothesizing their opponent’s likely near-future actions, and then planning accordingly. An essential skill in this is their ability to quickly identify which actions and positions are “material” to their situation and their opponent’s intentions and which are largely irrelevant. They focus on the former and pretty much ignore the rest. This helps them concentrate on tracking what’s really important and what they need to block or take advantage of.
The parallels with scenario planning in business are striking. Analysis, hypothesizing, planning and strategic actions are the essential elements in both. Both must embrace future uncertainties but still develop and execute effective plans to win. Both require constant “reading” of the evolving environment, discernment of what’s material and what’s not, and calculation of appropriate plan modifications as events unfold. Business leaders can learn a lot from chess players.
There are five basic steps you can follow to begin to implement scenario planning in your business.
Step one: Read the board
Especially in periods of dramatic change or ongoing uncertainty, it’s essential to identify those business factors that are material to the success of your business. Maybe it’s trade policy or availability of talent or specific consumer behaviors or availability of capital. Material business factors will be different for different companies at different stages in their development. Only you and your team will know what’s material to your company’s future success or failure. This kind of analysis requires both clear insight and ruthless prioritization.
Step two: Predict the futures
Not just one future, multiple futures. Once you are clear on your company’s material business factors, hypothesize about possible future states of those factors. They may be advantageous or disadvantageous to your company. In fact, it’s generally a good idea to project both best and worst cases as well as a couple of variations between those extremes. In some cases, the future state of a business factor might not be advantageous or disadvantageous. In those instances, identify different future states which would require substantially different actions or reactions on your part.
Step three: Develop your game plan
This planning should have two elements. The first is foundational strategy. Are there any actions or initiatives that will be essential regardless of which future state emerges? The second is contingent. This is the “If A happens do this, if B happens, do that” part of your strategy. Apply this approach against the possible future states of each of your material business factors. If you’ve been sufficiently ruthless in prioritizing your material business factors and have a passably reasonable set of future states, there should be only a handful of truly essential contingent strategies that emerge.
Step four: Monitor the board
Like a chess master, you must continue to read the board and note how your material business factors evolve. Do not get distracted by other changes, no matter how much drama they might create within your organization.
Step five: Modify your game plan
Scenario planning is not a one-and-done exercise. As the future begins to emerge, your plans will need to evolve. If you’ve done the homework on possible future states of your material business factors, needed modifications to your plan will be clear as you see one of those future states begin to materialize.
Scenario planning is a useful discipline that can help business leaders plan effectively in any dynamic environment. Taking a cue from masters of chess, business leaders can learn to master even the most uncertain, unprecedented, and chaotic business conditions.
Phil Johnston is a partner and senior vice president of strategy at Marcus Thomas.