A Whole New World

The past week or so we have been doing a module on scenario planning. It was an entirely new process for me, but very interesting and stimulating. So I thought I'd share the basics with you (and prove that I don't spend all my time gallivanting around Europe!).

The basic concept behind scenario planning is that you imagine what the world would look like if X and Y happened, and then determine what the implications for your company would be in that hypothetical scenario. It's a very creative, imaginative process because you're trying to stretch your mind to envision a future that nobody has conceived. It's different than strategic planning because each scenario is highly uncertain, so you're not trying to determine a single course of action. Our background reading described it as, "The purpose of the exercise is not to come up with a forecast, because you know it will be wrong. Instead, it's to draw a circle around multiple possibilities and think about whether you are prepared to face the range of futures that might unfold." Or, said another way, scenario planning is about moving beyond the "official future."

You start scenario planning by choosing a focal question to investigate. For example, how will evolving regulation impact our Assurance business? or, how will changes in the competitive landscape impact the firm's business model? The question usually has long range consequences or deals with upcoming decisions.

Once the focal issue is defined, you brainstorm and research all the driving forces that affect and influence the focal issue. These could be in any number of areas including social (changes in population, demographics), economic (international trade, growth of emerging markets), political and technological. The driving forces you identify will either be predetermined (i.e. aging population) or uncertain (change in the value of the dollar). The predetermined driving forces are excluded from scenario planning, though if they're important the company should be including them in its strategic plan. The uncertainties are what you're concerned about for scenario planning.

Once you've identified the uncertainties affecting your issue, you choose the two most critical uncertainties and plot them on an X and Y axis. For example, you might have an X axis that is high value of the dollar at one end and low value of the dollar at the other. This could be paired with a Y axis that has a strong, capitalist economy in Russia on one end and a weak, protectionist Russian economy at the other. The 4 quadrants formed by these 2 axes create your 4 different worlds, or scenarios. For each scenario, you create a narrative or description of what the world looks like given those two particular scenarios and what events occurred to bring you to that point. The challenge is to both stretch beyond known facts and also keep the scenario plausible.

After the scenarios are defined, you assess the implications the new world would have on your company and then determine what warning signs would indicate that the world is moving to that scenario. Then, when you see these warning signs that would be the time for a company to take the scenario and begin forming a strategic plan.

If you've made it this far through this post, congratulations! I'll shift from the conceptual background and briefly highlight the results of my team's scenario planning. We were divided into 4 teams with each team responsible for creating and presenting a set of scenarios. My team decided to address the focal question, "How will the changing nature of the 21st century work environment impact our firm?" The two key uncertainties we chose were the Perception of Technology (positive or negative) and Human Connectivity, meaning the relationships and loyalty we have to our companies and fellow employees. These led to some interesting scenarios - everything from the resurgence of guilds to the establishment of a PwC University.

The most enjoyable part of this project has been all the side conversations it stimulated within our group even though they ended up being totally unrelated: Should PwC Global be investing in India? Does modernization necessarily lead to a maturity? What would happen if you could genetically engineer the perfect auditor (yeah, that would be scary)? Does the president of Bolivia always wear sweaters? ....Our group was definitely not the most efficient, but we certainly got a lot out of the project!