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Scenario planning, Formulation, Implementation and Effects: A review of best theory and practice by George Konstantinou Lekeas, BSc

in Mathematics

Dissertation submitted in partial fulfilment for the Degree of Master of Science in Engineering Business Management Department of Engineering University of Warwick September 1999

To my parents, Constantine and Athina, who devoted their lives to make me a better person...


The topic of this dissertation is scenario planning; it is a relatively new technique since it became popular after the oil crisis that took place in seventies. We will be looking at the formulation of scenarios- presenting the most widespread methodologies, the implementation of these methodologiesthe way those are applied in organisational settings will be discussed, and the effects on organisations. The main aim of this project, however, is to assess the suitability of scenario planning as an organisational planning tool; in addition, we will look at the three major schools of thought for scenarios and decide on which one of them delivers betters results. In order to achieve this objective an in-depth literature review was conducted, both primary and secondary, and questionnaires were sent out to a number of big commercial companies as well as to consultancy companies. Moreover, certain people whose experience in similar projects could be proven useful were conducted. The results of the research undertaken show that scenario planning is a suitable planning tool for dealing with the turbulence that characterises the present business environment; this is something we can not expect from other planning methods such as forecasts, portfolio analysis and simulation models. On the other hand, the methods mentioned before can very well be incorporated in the scenario process at specific steps ad add value to it. Simulation models offers managers a risk-free environment to test and quantify the alternative strategies and portfolio analysis can be used for an assessment of the present situation of the company at the first steps of the scenario process. Finally, forecasts have a role to play in the projection of the key elements in a scenario. On the other hand, we should not consider the implementation of the scenario methodology within a company a very easy task. In order for it to be successful, the development team should take into account a number of issues related to the number of scenarios that should be generated, the promotion and communication of them within the organisation as well as a number of other issues of equal importance. As far as the comparison of the three general scenario-generating methodologies, the conclusion is that there is no best methodology applicable in every situation. As a general rule, however, we can say that the more important a decision is for a company, the more money should be spent on the project.


I would like to thank my supervisor, Ms Athina Nicolaides, for her guidance and support throughout the project. Her help has been invaluable. I would, also, like to thank Miss Aileen Thomson for the help she offered me in this project. I want to express my thanks to the planning department of the Greek Telecommunications Industry for the information they provided me with. I am, also, grateful to all those who kindly and patiently shared with me their thoughts about the project, helping me the most to make it better.



I hereby declare that this dissertation is the result of my own work, unless otherwise stated, and the information contained has not previously been used by me for any purpose.


Table of Contents

Table of Contents
Abstract.................................................................................................... .............i Acknowledgements..............................................................................................ii Declaration..........................................................................................................iii Table of Contents................................................................................................iv List of Tables.......................................................................................................xi Table of figures.................................................................................................xiii Table of abbreviations.......................................................................................xiv Chapter 1 Project Introduction 1.1 Introduction........................................................................................1 1.2 Research Objectives...........................................................................1 1.3 Research Interests...............................................................................2 1.4 Research Methodology.......................................................................3 1.5 Chapter Layout...................................................................................4 1.6 Limitations.........................................................................................6 Chapter 2 Origins of Scenario techniques and Present trends 2.1 Origins of Scenario Techniques.........................................................7 2.1.1 Military History...................................................................7 2.1.2 Economic History................................................................8 2.2 Development of Scenario Planning after the Second World War......9 2.3 Present trends in scenario planning.................................................17


Table of Contents

2.3.1 The survey of the Conference Board Europe....................17 2.4 A movement towards new techniques for decision-making............20 2.5 Drivers of change.............................................................................23 2.5.1 Technology........................................................................24 2.5.2 Changes in societal factors................................................26 2.5.3 Global Economic Forces...................................................28 2.5.4 Political Revolutions.........................................................29 2.6 Uses of scenario planning................................................................31 2.7 Conclusions......................................................................................32 Chapter 3 The scenario process 3.1 The eight steps in a scenario process...............................................36 3.1.1 Introduction.......................................................................36 3.1.2 Task Analysis....................................................................37 3.1.3 Influence Analysis.............................................................39 3.1.4 Projections.........................................................................45 3.1.5 Grouping Alternatives.......................................................46 3.1.6 Scenario Interpretation......................................................48 3.1.7 Consequence Analysis.......................................................50 3.1.8 Analysis of Disruptive Events...........................................51 3.1.9 Scenario Transfer..............................................................53 Chapter 4 Scenario compared to other planning methods

Table of Contents

4.1 Scenarios compared to forecasting..................................................56 4.1.1 The need and dangers of forecasting.................................56 4.1.2 Comparing scenarios with forecasting..............................58 4.1.3 Conclusion.........................................................................60 4.2 Scenarios compared to portfolio analysis.........................................61 4.2.1 What is portfolio analysis?................................................61 4.2.2 Comparing scenarios with portfolio analysis....................62 4.2.3 Conclusion.........................................................................62 4.3 Comparing scenarios with simulation..............................................63 4.3.1 The need and dangers of simulation..................................63 4.3.2 Comparing scenarios with computer simulation models..63 4.3.3 Integrating simulation and scenarios.................................64 4.3.4 Conclusion.........................................................................66 4.4 Conclusion........................................................................................66 Chapter 5 Methodologies for constructing scenarios 5.1 Introduction......................................................................................68 5.2 SRI....................................................................................................68 5.2.1 Background.......................................................................68 5.2.2 Method..............................................................................69 5.3 NCRI................................................................................................72 5.3.1 Background.......................................................................72 5.3.2 The Future Mapping Method............................................72


Table of Contents

5.4 The Futures Group.........................................................................75 5.4.1 Background......................................................................75 5.4.2 Methodology....................................................................76 5.5 The French School...........................................................................78 5.5.1 Background.......................................................................78 5.5.2 Methodology....................................................................78 5.6 The European Commissions Methodology....................................81 5.6.1 Background.......................................................................81 5.6.2 Methodology.....................................................................82 5.7 The Global Business Network..........................................................83 5.7.1 Background.......................................................................83 5.7.2 Methodology.....................................................................83 5.8 The Copenhagen Institute For Future Studies..................................86 5.8.1 Background.......................................................................86 5.8.2 Methodology.....................................................................86 5.9 Computer-Driven Simulations.........................................................87 5.9.1 Background.......................................................................87 5.9.2 Methodology.....................................................................87 5.10 Comprehensive Situation Mapping (CSM)....................................88 5.10.1 Methodology...................................................................88 5.11 Battelles Basics.............................................................................88 5.11.1 Methodology...................................................................88 Chapter 6


Table of Contents

Setting up the scenario agenda in a company 6.1 Introduction......................................................................................91 6.2 Overview..........................................................................................92 6.3 Towards the scenario agenda...........................................................93 6.3.1 The two players.................................................................93 6.3.2 Defining the scope of the project and getting the information.........................................................................................................94 6.3.3 SWOT Analysis.................................................................94 6.3.4 Interviews..........................................................................97 6.3.5 Interview techniques.......................................................101 6.3.6 Interview analysis............................................................102 6.4 The scenario agenda.......................................................................103 Chapter 7 Uses of scenario planning 7.1 Introduction....................................................................................105 7.2 Scenarios in corporate planning.....................................................105 7.2.1 Introduction.....................................................................105 7.2.2 The business corporate planning strategy system...........106 7.2.3 Uses of scenarios in corporate planning..........................111 7.3 The scenario method for technology investments..........................115 7.3.1 Introduction.....................................................................115 7.3.2 The scenario method for technological decisions...........116 7.4 Customer-driven scenario planning...............................................118


Table of Contents

7.4.1 Introduction...................................................................118 7.4.2 Customer-driven scenario planning................................119 Chapter 8 Case studies 8.1 Introduction....................................................................................123 8.2 British Airways..............................................................................123 8.2.1 Introduction.....................................................................123 8.2.2 The methodology.............................................................124 8.3 Shell............................................................................................... 130 8.3.1 Introduction.....................................................................130 8.3.2 The methodology.............................................................130 Chapter 9 Discussion on findings 9.1 Introduction....................................................................................138 9.2 Scenarios compared to forecasts and simulation............................139 9.3 Advantages of introducing scenario planning to a company.........142 9.4 Pitfalls in scenario planning...........................................................147 9.5 The scenario generating method....................................................152 9.6 Remarks on scenarios.....................................................................157 9.7 The three different schools of thought for scenario planning......164 9.8 Further work...................................................................................167 Chapter 10 Conclusions


Table of Contents

Conclusions......................................................................................................169 References........................................................................................................173 Bibliography.....................................................................................................179 Appendix 1 The Brainstorming method...............................................................................185 Appendix 2 The General Electrics planning process..........................................................190 Appendix 3 Letter to organisations......................................................................................192 Appendix 4 Letter to consultancy companies.....................................................................195 Appendix 5 Questionnaire...................................................................................................197

List of Tables

List of Tables
Table 1 Questions asked in the Conference Boards survey.......................................................18 Table 2 Critical issues for incorporating forecasting in our planning system.............................22 Table 3 The four areas of change................................................................................................25 Table 4 Uses of Scenario Planning..............................................................................................32 Table 5 The eight tasks in a scenario process..............................................................................37 Table 6 Typical questions for finding solutions to problematic areas.........................................38 Table 7 Ranking system for the elements on the network matrix................................................41 Table 8 Rules for making a system succesful..............................................................................44 Table 9 Questions for constructing the consistency matrix.........................................................47 Table 10 Steps for choosing the best scenarios.........................................................................48 Table 11 Factors that are assessed during the scenario analysis................................................. 50 Table 12 The four categories of products according to the BCG matrix.....................................61 Table 13 Benefits from using simulation in the scenario process...............................................64 Table 14 Steps for integrating simulation and scenarios.............................................................65 Table 15 Guidelines for simulating scenarios successfully.........................................................66 Table 16 The three schools of thought of scenario analysis.....................................................68 Table 17 Advantages of the SRI method.....................................................................................69 Table 18 The two basic principles of the Future Mapping method.............................................73 Table 19 The terminology used in the Future Mapping method.................................................73 Table 20 Stages in a scenario project according to the Future Groups methodology................76 Table 21 The three stages in a scenario project according to the French School........................79 Table 22 Levels of influence.......................................................................................................79 Table 23 The GBN methodology................................................................................................84 Table 24 The Battelles methodology.........................................................................................89 Table 25 Parts of a SWOT analysis............................................................................................ 95 Table 26 The three categories of weaknesses..............................................................................96 Table 27 Rules for having a succesfull interview........................................................................98


List of Tables Table 28 Three questions to ask for formulating the businesss strategy..................................107 Table 29 Eught factors for evaluating our strategy....................................................................108 Table 30 The process followed in project planning...................................................................110 Table 31 Rules associated with dimensions...............................................................................116 Table 32 The eight steps of the brainstorming method..............................................................186 Table 33 Rules associated with the brainstorming method.......................................................188


Table of figures

Table of figures
Figure 1 The dangers of forecasting...........................................................................................34 Figure 2 A typical network matrix..............................................................................................40 Figure 3 System Grid...................................................................................................................42 Figure 4 Effects of disruptive events...........................................................................................52 Figure 5 Projected vs Real Demand for Ships.............................................................................58 Figure 6 The SRI Approach.........................................................................................................70 Figure 7 From scenarios to strategy.............................................................................................72 Figure 8 The Futures Group methodology...................................................................................76 Figure 9 Influence/ Dependence diagram....................................................................................80 Figure 10 The Battelles methodology........................................................................................89 Figure 11 The five levels of corporate planning........................................................................109 Figure 12 The driving forces......................................................................................................127 Figure 13 Schematic illustration of the Wild Gardens scenario..............................................128 Figure 14 Schematic illustration of the New Structures scenario...........................................128 Figure 15 The major oil exporters.............................................................................................133 Figure 16 The General Electrics planning process...................................................................190


Table of Abbreviations



Stanford Research Institute Massachusetts Institute of Technology United States General Electric Boston Consulting Group Northeast Consulting Resources Inc. Global Business Network Unified Planning Machinery


Chapter 1- Project Introduction

Chapter 1 Project Introduction

1.1 Introduction

This chapter will introduce the objectives of the project, as well as the research interests. In addition, the research methodology, which was followed for the successful completion of it will be discussed and analysed. Finally, there is a layout of the projects contents. 1.2 Research Objectives

The first objective of the project is to bring to light all the available resources for this subject in order to have a clear view for it. Scenario planning, despite the fact that as a concept it exists since the Roman times, is a relatively new method with respect to its implications on organisations. In order to achieve that objective a literature review, both primary and secondary, was conducted in the field of scenario planning,. Once this is done, the second objective is to identify and present how scenario planning is used in practice. This includes both the general scenario approach method as well as the various methodologies derived from it in order to develop scenarios. The several techniques used in each stage of the scenario approach method will also be presented.

Chapter 1- Project Introduction

The third objective concerns the practicalities of scenario planning; this refers to the process before implementing scenarios in organisational settings. It involves the formulation of the scenario team as well as the procedure that needs to be followed during the scenario workshops. Apart from the theory on scenario, it is also important to assess its implications in industries. That approach will enable us to draw conclusions upon the relationship between theory and practice. This will be done by the use of relevant case studies. Finally, it is certainly beneficial to reach a conclusion about the suitability of scenario planning as a tool for organisational planning. In addition, companies should be aware of any pitfalls involved in this approach; these will be discussed as well. 1.3 Research Interests The first research interest focuses on the comparison of the various techniques that have been developed and used by various universities and consultancy companies, in terms of the schools of thought they represent. It would be, certainly, useful to compare as many techniques as possible in the context mentioned above and draw conclusions based on these comparisons. Another important area that attracts our attention is the area of pitfalls for the companies. It is many times the case that the theory seems very simple but in practice the opposite is proven. We will, therefore, be identifying those pitfalls.

Chapter 1- Project Introduction

1.4 Research Methodology The research that was followed for the project is divided into four parts: primary literature review, secondary literature review, questionnaires and personal contacts. These are explained in more details below. As far as the primary literature review is concerned, this term is used in order to describe all literature available in public domain. A search in the universitys library was conducted; the research was extended to other universities libraries as well. Moreover, a search was conducted on the World Wide Web; this includes web sites available to the public as well as certain databases- some of them requiring subscription in order to get the information. With respect to secondary literature review, this includes sources of information not available in the public but someone has to get in touch with companies in order to get them I managed to get some information from the Greek Telecommunications Organisation; this organisation is currently undergoing a scenario-planning project. It is always useful to learn from other peoples experience from similar projects. I have conducted a number of people, both academics and from companies, who might have been involved in scenario planning projects in the past (Appendices III & IV). The purpose those projects were conducted for varied from case to case- it could be, for example, marketing or corporate planning.

Chapter 1- Project Introduction

The final form of research that I used was the formulation of certain questionnaires (Appendix V). Those questionnaires included questions on the length of a typical scenario project the company has undertaken as well as on their experiences from this procedure. 1.5 Chapter Layout This thesis consists of nine chapters, the content of which is briefly described below. The first chapter is an introductory chapter that refers to the objectives of this study; these are clearly stated along with the research interests. In addition, a description of the research methodology is included. The second chapter deals with the history of scenario planning. It traces its origins back to the Roman times and it describes its progress after the end of the Second World War. Likewise, the present trends associated with this methodology are presented along with those factors that are responsible for the rapid changes taking place, making scenario planning a very popular technique. A very strong trend was that forecasting is the method an organisation should use as a tool for planning; in fact, it was common belief that the more sophisticated a model is the more appropriately it describes the situation. The third chapter deals with that belief by comparing scenario planning with forecasting as well as with portfolio analysis and simulation. Once the need and the usefulness of scenario planning are established, we need to define the scenario approach and describe the eight steps involved in

Chapter 1- Project Introduction

that. The fourth chapter does that serving, in parallel, as an introduction for the next chapter. The various methodologies that are used by certain institutions and consultancy companies are the subject of the fifth chapter. A distinction is made between the three categories- intuitive logics, trend-impact analysis and crossimpact analysis- that the methodologies can be classified into in broad terms; each methodology is then, in turn, described. The next step is to move from the theory to the practicalities of the method; this is done in the sixth chapter. In this chapter, the procedure for undertaking a scenario project, from the formulation of the team in charge of the project to the organisation and implementation of the workshops, is described. As far as the areas within a company that scenario planning is applied, a comprehensive list should include almost all its departments; from the marketing and sales department to the R&D and planning departments. The seventh chapter gives us a flavour of the applications of scenario planning. In particular, it deals with three of them; the use of scenarios in corporate planning, for technology-related decisions and for customer-driven planning. The eighth chapter is wholly devoted to case studies in order for us to be able to compare theory with practice. The cases of British Airways, Shell and the British Telecommunications Organisation are presented and examined. It is the case, beyond any doubt, that scenario planning can give to a company many advantages; on the other hand it is often misused. These topics are assessed in the ninth chapter along with the pitfalls for companies when

Chapter 1- Project Introduction

using this methodology. Moreover, a general methodology is derived and certain recommendations are made for the way scenarios should be developed. A summary of the work done can be found in the tenth chapter, which is the final of this dissertation. This chapter will also include the conclusion that was reached along with the recommendations that were made in the previous chapter. 1.6 Limitations With respect to the limitations of the project these were, in essence, two. The first one was that no replies were received from the companies to whom the questionnaires were sent. This dispossessed us from information on the insights of scenario planning as experienced by companies in real life. Moreover, a scenario planning project is, as we will see, a lengthy task. Its duration varies, but in most of the times a period of one year or more is needed. This did not allow me to set up a case study on my own, but I had to rely on case studies already published in scientific magazines and journals.

Chapter 2-Origins of Scenario techniques & Present trends

Chapter 2 Origins of Scenario techniques and Present trends

2.1 Origins of Scenario Techniques Senecas scripts (as cited in Ute Von Reibnitz, 1988) is the first source of information when attempting to trace the origins of scenario techniques through time. It is more important to know whither events turn than to know where they come from is stated in one of his writings. The latter is an indication of how strongly his mind was occupied with possible ways in which the future can develop. The ancestors, however, of scenarios can be found in military and economic history. 2.1.1 Military History The earliest indications of scenarios can be traced in Moltkes and Clausewitzs writings at the fall of the eighteenth century. They were dealing with finding ways of an army to survive and win the war; thus they came up with proposals to attack ones enemy at its weakest point, build upon ones strong points and bear always in mind the long-term objectives. It would be useful, here, to make a distinction between strategy and tactics. The term strategy is used in order to describe long-term plans for winning the battle; people in the highest positions of the military hierarchy have developed those. On the other hand, the term tactics is used to describe the actions taking

Chapter 2-Origins of Scenario techniques & Present trends

place during the battle; those being in the middle of the hierarchy carried out the actions required; a distinction similar to the situation in a company. The scenarios of this type were visionary; there was no explanation for the way they have emerged from the present situation. They were, however, developed in order to assist the army in reacting in a right manner to strange situations; thus, the victory would be closer. 2.1.2 Economic History As mentioned above, scenarios were first applied in a military context. However at the beginning of the seventh decade of this century, we experienced a move towards their use in business applications; these was the case since models constructed on the basis of quantitative factors only were proved to be wrong especially when turning points occurred. Apart from that, Shells success in predicting the oil crisis- as a fact since the year was wrongly estimatedincreased the credibility of this method. Furthermore, two groups were formed with respect to their orientation in planning techniques; the first group had a quantitative orientation and its major representative was the Club of Rome. The second group had a qualitative approach with Shell being its main representative; we should mention here that the shift towards qualitative methods took place after the failure of quantitative forecasting. It was then when trial-and-error approaches were adopted with regard to qualitative planning. The group consisted of other important institutes as well; these were the Datar Institute- the Office for

Chapter 2-Origins of Scenario techniques & Present trends

Regional Planning and Development in France- and the Battelle Institute in Frankfurt.

Chapter 2-Origins of Scenario techniques & Present trends

2.2 Development of Scenario Planning after the Second World War The use of models as pictures of the real world is common practice; we use, for example, mathematical models in scheduling, where our objective is to achieve the best allocation of resources under certain constraints. We need, however, to make certain that real life is represented by the model we built; there are two requirements we should satisfy in order to achieve that. The first one is related to the behaviour of our model to any changes either in constraints or in the external environment; we have to make sure that these are incorporated in our model as well as any relationships between the forces that drive this behaviour. In addition, we need an abstract model that will allow us to search for evidence confirming our findings. Because of those two factors, it is very difficult to make use of forecasting methods in order to drive our strategic planning process; this is the case because the increased uncertainty of real life makes the development of an accurate model that would incorporate everything almost impossible. Since change takes place at a very fast pace, there is a need of finding a way in order to deal with uncertainty. Clausewitz- in eighteenth century- was among the pioneers in this field; his suggestion (as cited in Ringland, 1998, p. 11) was take an educated guess and then gamble that the guess was correct. This is where scenario planning comes in in order to improve our guess before gambling. As that, it passed during several stages after the Second World War, which are described, in more detail, in the remaining of this chapter.


Chapter 2-Origins of Scenario techniques & Present trends

As mentioned before, scenario planning made its first steps in a business context the years after the end of the Second World War. It was then when RAND Corporation was set up; its aim was to research new forms and ways of weapons technology. The president of RAND, Hermann Kahn, introduced a new technique; the technique of future-now thinking as the term scenario planning was not used that time. Leo Rosten was the godfather of the technique; the president of RAND accepted this term since it described in the best way what the technique was about- it was emphasising the creation of a story. At the same time, around 1947, Stanford University was setting up its own institution, the Stanford Research Institute (SRI). The aim of this institute was to offer long-term planning facilities for businesses as well as science and military consulting. The sixth decade of our century was characterised by the idea of science dominance. As an evidence for that, we can refer to a research carried out in 1966 in which twenty seven top scientists- a relatively small number for drawing conclusions upon- were asked how the world would be after twenty years to they opinion (Ringland, 1998). They gave a wide range of answers from undersea motels and factories using nuclear power as their energy source to the organisation of commercial trips to the moon. The total number of predictions was three hundred and thirty five- corresponding to fifteen predictions per person; almost all of them were proved to be wrong. We have to note, however, that the reasons responsible for that were not only scientific-


Chapter 2-Origins of Scenario techniques & Present trends

political and ecological reasons, for example, blocked the expansion of nuclear energy In the same decade, in 1968, the SRI group undertook the task of creating scenarios concerning US in year 2000 for the Office of Education (Ringland, 1998). A variety of methods were used and the result was the development of five scenarios; one of them assumed that the present situation will continue- the Official Future or surprise-free scenario whose utility will be discussed laterand the remaining four were the possible answers to the two questions that formed the basis for the scenarios. The first question was whether the society would be able to control its destiny and the second one was about the nature of the U.S. society- open or authoritarian. Likewise, work was done for the Environmental Protection Agency (EPA). This resulted in the development of ten to twelve scenarios for the future- certainly a big number of scenarios that are difficult to handle; they were built around a key concept different for each one of them, which came out of a brainstorming task- a very common method for generating ideas (its function is explained in Appendix I). Finally, as far as the era of sixties is concerned Professor Jay Forrester of the Massachusetts Institute of Technology (M.I.T) used his previous work in supply chain and demand to examine if there is any relationship between worlds population and supply and demand (Ringland, 1998). The Club of Rome model, which was developed afterwards, was based on that concept. Summarising, with respect to this decade, we can see that the pioneers in scenario planning did not have forecasting in mind. They were, rather, trying to


Chapter 2-Origins of Scenario techniques & Present trends

communicate to people the consequences of growth in order to open a debate; this was the key idea for scenarios in sixties. Moving on to seventies, a U.S. company- General Electric- was the leader company in planning. Its model consists of a mixture planning by corporate staff, computer models, forms, charts and graphs in order to anticipate the investment in business. Scenarios formed part of its planning process; the method for constructing them involved the use of Delphi method for forming panels that, in their turn, identified the critical variables for the case under consideration. Trend-impact analysis as well as cross-impact analysis methods were used afterwards in order for the interactions between critical variables and indicators to be scrutinised. The cross-impact effects among possible

developments were assessed in a qualitative way by the use of + or - signs; the developments of different scenarios follows that procedure (a schematic illustration of the procedure can be found in Appendix II). Shell was another company very well known for its planning system. At the beginning the companys planning system was dominated by numbers and the planning horizon was only five years (Wack, 1985a); however, Wack in 1967 outlined the need for long-term planning. A study was organised, following that discovery, looking at the companys future till the new millennium- further details for that study can be found in chapter eight. The finding of that study was that the stable environment would no longer be existing in the future; therefore forecasting methods could not be applied. In addition, a shift would have been made to oil producers from the Middle East; this would be


Chapter 2-Origins of Scenario techniques & Present trends

influencing the price heavily. This was, indeed, the case since the Yom Kippur war begun and the embargo imposed lead to an increase in oil price. Shell, having previously considered the problem, managed not to be heavily affected; the company became the leader in oil industry. The latter was achieved by introducing scenario planning in its planning process; this happened back in 1967 when Pierre Wack, the editor of a philosophical magazine, and Ed Newland, an Argentinean with a tension towards gambling, became the leaders of the companys planning department. The company, after the oil embargo, managed to become the strongest oil multinational company while before it Shell was the weakest one. The companies directly affected by the oil crisis first used the scenario method; these were the oil industry and car industry. A high amount of effort was put in the development of planning techniques, which do not have that importance themselves as certain principles they should incorporate, that would provide them with a secure prediction for the future. Scenario planning, however, achieved a wider recognition towards the end of seventies. It was then when it was used by most of the Fortune top 1000 companies. A variety of techniques were adopted, including multiple scenarios. It was only after the oil embargo that the vast majority of the oil companies realised the value of scenario planning; seventy five percent of those companies considered it as an option after they were hit by the embargo; those companies had to go through a cultural shock in order to adopt and accept scenario planning.


Chapter 2-Origins of Scenario techniques & Present trends

This was not the case in eighties. The use of scenario techniques was dramatically increased due to a number of reasons. A reason for that was that the oil embargo was becoming history; as mentioned above, this was the main reason that directed many companies towards the use of scenario planning. Furthermore, the beginning of the decade was characterised by a recession that led to many people made redundant- the fact that this development was not predicted led to the mistrust of scenario. Finally, people were very often confusing scenarios with forecasts; the latter already had a bad name because of their inability to predict future developments. It was because scenarios and forecasts were considered as the same thing that the same opinion was in power for scenarios as well. Ian Wilson (Wilson, 1990) outlines that the

disenchantment involved rather the area of strategic planing than scenarios. The losses of big companies- like Chrysler, General Electric, Kodak, Xerox and General Foods- contributed to that belief and a new approach to planning had to be found. Michael Porter, for example, accepts scenarios as a tool for understanding and recommends them as a form of sensitivity analysis. He defines scenarios as an internally consistent view of what the future might turn out to be- not a forecast, but one possible future outcome; the first of the three principles- internal consistency- is already mentioned in this definition (as cited in Ringland, 1998, p.24). At the same time, a number of consulting companies have been set up offering scenario planning facilities using a variety of methodologies which will be described in detail in the fifth chapter- we should


Chapter 2-Origins of Scenario techniques & Present trends

bear in mind, however, that attention should be paid to the principles rather than the methods. Shell, during this time, kept on being the leader in this field. A big amount of effort has been put into integrating scenario planning with business and strategic planning; as we will see later the scenario development team spent half its time promoting the scenarios (Wack, 1985a). Furthermore, the company established her leadership in using scenario planning by predicting successfully two crucial things for the oil business; the first was that oil will become a commodity in the future and the markets would be responsible for setting prices- neither the companies nor the producers. A trade system was specifically designed to cope with this development. The second very important prediction was that oil and gas prices could drop; this enabled Shell to sit in the corner and wait while its competitors kept buying other oil companies. After the drop of oil prices, Shell was able to take advantage of bargain prices as far as the purchasing of other companies is concerned. As far as the last decade of our century is concerned, emphasis has been placed on strategy. The context of strategy and strategic planning are different from those that were used in eighties. Nowadays, strategy is constantly under review- due to the uncertainty that dominates real world- and concerns a small number of issues- like achieving a favourable position against the competitorsmeaning something totally different from the form of operations and production planning. In addition to that there is a trend towards smaller teams that would be responsible for planning projects as well as the reach of an agreement


Chapter 2-Origins of Scenario techniques & Present trends

concerning the strategic targets between the headquarters and the members of a corporation ; these will form the basis of the business idea that needs to be articulated throughout the organisation (Van der Heijden, 1996).


Chapter 2-Origins of Scenario techniques & Present trends

2.3 Present trends in scenario planning

As mentioned above there was a shift towards strategy as being the main issue in nineties. Scenario planning is used as a tool to facilitate companies in formulating their strategy as well as for many other purposes, which are mentioned later. 2.3.1 The survey of the Conference Board Europe In order to explore further how scenario planning is used within businesses as well as the present trends, the Conference Board Europe- part of the global business and research organisation- carried out a survey among its members. The questions that were asked are those in the table following. Have you used scenarios? Was the use of scenarios useful for your organisation? If you failed using scenarios, could you indicate the most important reasons for that? How much time did you spend developing the scenarios? What did you use the scenarios for? Did you use consultants? Did you carry out an exhaustive analysis before getting into the developing stage?

Table 1 Questions asked in the Conference Boards Europe survey (Source: Ringland, 1998)


Chapter 2-Origins of Scenario techniques & Present trends

The number of companies that participated at that survey by returning the questionnaire was twenty- a rather small number for drawing conclusions; most of them gave a positive answer at the first question. The use of scenarios, however, was not always followed by success. It was a failure for a few companies and the main reasons that were identified for that was the lack of integration of scenarios with the aims of the company- British Airways and Shell, for example, used at the beginning scenarios on an experimental basis- as well as the incompatibility of the process adopted for developing the scenarios with the processes normally used from the company. With respect to the time that was spent for the development stage, this was till six months in most of the cases; however it did not exceed one year. This time should include the time needed for the preparation, the collection of data and the communication of scenarios. As far as the personnel involved in scenario projects is concerned, those were both internal staff- usually from high ranks- and consultants or people from the academia. Investment management was the major reason for their use- however after completion only 25% reported that as the main benefit, as scenario approach does deliver many other benefits as well. The scenario approach was used as well for helping companies familiarise themselves with changes in cultures, political and environmental factors. Finally, it was used in order to assist organisations in creating a new look; that will help them winning the business war.


Chapter 2-Origins of Scenario techniques & Present trends

The answer to the last question- whether exhaustive research is required or not- the answer was neither negative nor positive; it really depends on the case under consideration. However, in most of the cases, a considerable amount of time needs to be spent in collecting data for studying each of the main factors. Finally, it is becoming a common belief as time goes by that we are going through a period of great changes similar to the period of the oil shock back in seventies.


Chapter 2-Origins of Scenario techniques & Present trends

2.4 A movement towards new techniques for decision-making Since the early days of business, forecasting was the traditional approach for dealing with a variety of problems; operational, investment, inventory and so forth. In order for that to being successfully achieved, a variety of techniques were introduced; smooth and exponential average- where a weighted average was calculated using the factor- as well as ARIMA models are examples of these methods. ( Makridakis, 1998: Millet, 1991: Makridakis, 1984:Makridakis, 1989: Farnum, 1989: Thomopoulos, 1980) The techniques mentioned above have one thing in common; they are trying to use past information in order to draw conclusions for the future. They achieve it in a quantitative way, through a mathematical formula; this formula is more or less complicated, ranging from a simple calculation of the average to sophisticated recently developed statistical techniques, depending on the model. The dominant trend, however, is that the more variables a model includes, the better the better it is (Huss, 1988). Someone might argue that with those state-of-the-art statistical techniques we do not need anything else; we should be able to predict any future trend with a very high probability of getting it right. The opposite, however, is the truth; despite all those developments, statistical models do not give us the whole picture. As a result of that, they lost top managers support. The main reason for this is that their main concern was to predict the future with a certain accuracy, which is not what managers are asking from forecasting; this is where scenarios come in. A scenario can assist the


Chapter 2-Origins of Scenario techniques & Present trends

forecasting process by adding the long-view perspective; thus it is not only predicting the future but it can be used as a planning tool as well revealing the forces driving a trend. This is the area where forecasts failed to the extent that much effort was put in improving the accuracy of the model rather than identifying key variables. The identification of turning points, which is the most important application, becomes extremely difficult this way. In order for forecasting to be incorporated into planning as our main planning procedure, we have to think of the following issues: (Huss, 1988) Qualitative issues should be included in the model The macro environment should be carefully analysed Forecasting techniques proved to be incapable of predicting turning points Forecasting and planning should be used as a communication tool among departments as well By combing forecasts we get a better result The way that forecasts are related to decision-making needs to be improved

Table 2 Critical issues for incorporating forecasting in our planning system (Source: Huss, 1988)

With respect to the first point, there is a number of issues that can not be dealt with numerically; examples of such issues include cultures, changes in law, environmental issues and so forth. The classical trend in forecasting that needs to be changed- this can only happen if managers go through an education process about the dangers of forecasting- can very well be


Chapter 2-Origins of Scenario techniques & Present trends

summarised in the following sentence: If you cant count it, it doesnt count (Huss, 1988). Moreover, as far as the macro environment is concerned we have to examine it in more depth; till now in order to develop a time series model a prediction was made for each variable and the individual predictions were used. It is important, however, to look for sets of those factors since they might be a better representation of the future. It is very difficult to predict turning points with the use of forecasting techniques; this is the case since the replication of the past is their main characteristic. They are not looking at causal relationships which makes it difficult for turning points to be predicted; a task that is difficult anyway. Shell, on the other hand, by combining the predetermined events and the uncertain ones, it managed to predict the oil crisis that occurred in 1973-74; it got the year wrong but because of the expectation of such an event business plans were adjusted. With respect to the last three factors, we should note that forecast should be used as a communication tool across departments; forecasting should be done on a common assumptions base. In addition to that more than one forecasting techniques should be used and those techniques should be integrated in order to get the better result out of them. The link to planning, finally, is another important issue- since forecasts provide decision-makers only with numbers and do not help them understand the driving forces inn order to fromulate accordingly their plans.


Chapter 2-Origins of Scenario techniques & Present trends

2.5 Drivers of change While our century is approaching to its end, diverse events are taking place considering all aspects of science. The developments in science are taking place at a fast pace. Nowadays wishful thoughts of previous generations now seem more close to reality than ever. The average age, for example, would be greater, computers will change many aspects of our lives and we will, probably, be able in a few years time to have our tea or go for vacations outside of this planet. On the other hand in the field of moral values, developments are not so encouraging. There is a constant decrease of morality and corruption cases are more occurring more often than ever. In addition to that, wars are taking place at all over the planet; from Bosnia to Somalia. As a response to those developments, the United Kingdoms Open University (http1) conducted a survey to identify the drivers for future events. The project took place over the last three years and involved more than one thousand big organisations. In addition to that due to the rigorous approach followed it was made sure that the views expressed by the people involved in the project were formed after careful consideration and thought; something that increases the validity of results. Those opinions can be divided into four main categories. Those four areaspolitical, economical, technological and societal factors- that are highlighted below form the external business environment of a company and are of great importance to the planning personnel. They will be discussed in more detail in the remaining of this chapter.


Chapter 2-Origins of Scenario techniques & Present trends

Technology Society development Global Economic Forces Political Revolutions

Table 3 The four areas of change (Source: http1)

2.5.1 Technology As mentioned above, technology is the first of the four categories with respect to the drivers of change. The trend is that technology will keep growing offering more and more benefits to the society. The first area of influence is that of physical resources- the development of renewable sources of energy is part of it; the problem of availability is practically solved since technology advancements gave us the opportunity to go further in this area and even look for solutions to places outside the borders of our planet. Moreover, devices are becoming smaller and smaller; this means that less raw materials are needed in order to manufacture them. Finally due to the enormous growth of technology many services, the financial for example, have totally changed, requiring less resources. The second element of technology evolution lies in communications with Internet becoming even more popular. This will practically eliminate any problems created due to distances; we will be able to talk to our friends no matter how far they are as well as doing our business without having to travel


Chapter 2-Origins of Scenario techniques & Present trends

from our home or offices desk. The simultaneous way of talking to other people is another change emerging from the growth of communications- we will not need to wait for ays till our mail reaches its destination; furthermore we wont need to posses specialised knowledge on any issue since that would be available on the web. Finally our criteria for making friends will differ; common interests will replace the national borders due to the ease of communications. As a result of these people will change; we will depend heavily on computers for everyday life tasks and we will reach a situation that can be described from the Greek word symbiosis with computers. The average age, as mentioned above, will increase as a result of advances in medical technology. This might lead to considerations for raises in expenditure related to pensions but the truth is that since we will live longer, we will work longer as well; new jobs created by the expansion of information technology will be suitable for older people- since they will only involve typing some data on the computer- and our future will be brilliant. Space travel is our days state-of-the art technology; the first trip to the moon for tourist purposes has already been planned for the year 2015. Moreover, we are not far from the day when space colonies will be created; after all the technology needed has been around for many years, it is the political will that it is missing. Summarising, information technology, undoubtedly, has a very important role to play, given the options that it will give us in the future. As an example, Nicholas Negroponte in Being Digital (as cited in Ringland, 1998, p.41) states


Chapter 2-Origins of Scenario techniques & Present trends

that: Early in the next millennium your telephone wont ring indiscriminately; it will receive, sort, and perhaps respond to your incoming calls like a welltrained English butler. Mass media will be redefined by systems for transmitting and receiving personalised information and entertainment. Schools will change to become more like museums and playgrounds for children to assemble ideas and socialise with children from all over the world. The digital planet will look and feel like the head of a pin. As we interconnect ourselves, many of the values of the nation-state will give way to those of both larger and smaller electronic communities. We will socialise in digital neighbourhoods in which physical space will be irrelevant and time will play a different role. Twenty years from now, when you look out of a window, what you see may be five thousand miles and six time zones away. When you watch an hour of television it may have been delivered to your home in less than a second. Reading about Patagonia can include the sensory experience of going there. A book by William Buckley can be a conversation with him. 2.5.2 Changes in societal factors The development of society is the second area where changes will take place in the near future. According to the survey, the breakdown of the communityeven the breakdown of the family- is very likely to happen. This is not necessarily a problem; however we have to allow for some time before society reaches a stable point.


Chapter 2-Origins of Scenario techniques & Present trends

The form of our relationships- both in work and everyday life- will change dramatically. We will get in touch with other people through computer networks and our friends may well live thousands of miles away from us. In addition to that, this will change the way we work; our working partners will increase at a very fast pace. On the other hand these relationships will not last for long; this is the case since they will not be based on any common backgrounds. The two-thirds society remains a danger; the future will probably be bright for those who can afford adopting the new technologies; for the remaining onethird it will be a nightmare since it will keep them away from many services and facilities. This creates a danger of them moving outside the law borders, which will not be a danger for most of the nations. The second half of our century was partly characterised by the movement of feminisation; the evidence show that it will be a dominant factor in the future both at society and individual level. At society level we will soon experience a change in its values whereas at individual level we will be close to the revival of matriarchy. Another element associated with society is the lifestyle its members adopt. There will be a major change in the future with regard to that; each member of the society will be able to choose the style that best fits his needs among a wide range of choices. He will, also, be able to shift between different lifestyles very easily.


Chapter 2-Origins of Scenario techniques & Present trends

The legalisation of drugs is important as well; it will be conducted on the basis of two facts. The first fact is that certain substances are already very popular and by legalising them we would be able to control them in a better way. The second fact is that they will have to satisfy much more rigid quality requirements in order to get to the market, which will prevent many people from suffering. Finally, in the future there would be no educational borders; the education process should be an on-going procedure. Its aim should be to provide the individual with knowledge related to his interests; the view we have about education as a continuous training session is wrong. This will, of course, be facilitated by the changes in technology , which were discussed earlier. 2.5.3 Global Economic Forces As far as the global economic forces are concerned, the concept of globalisation has been around for a number of years. It means that borders or any other types of obstacles no longer exist- we are able to communicate with someone leaving in another continent as easy as we can communicate with someone leaving next door to us. This is not going to affect labours in the developed world as recent research carried out by the Open University revealed. Another key element is the demographic pressures. Earths population is estimated at twelve billion for 2025; this, however, will not affect the other resources, such as food and energy, given that their rate of growth is much bigger. The remaining problem is how these resources will be distributed

Chapter 2-Origins of Scenario techniques & Present trends

between the haves and the have-nots, so that the eighty-twenty rule will not be applied. The power of the Third World countries will go on growing and they will soon become very powerful. This will have two major impacts; the first impact would be on the problem of distribution of resources previously mentioned. The shift of power will automatically lead it towards a solution. The second impact concerns the Western countries and, in particular, the United States of America; it is the loss, on their behalf, of the worlds dominance. Finally, global economics is another issue we should consider especially in terms of international trade. This is especially applicable in the case of knowledge industries where data travel at speeds far beyond any humans mind. This flow of data can, in a very small portion of time, influence investors at the other end of the world and, this way, destabilise world markets and put national economies in danger. 2.5.4 Political Revolutions Political revolutions are the last main area where changes will occur. The main trend is decentralisation of power. One of the most important problems that will arise is the lost of faith in politicians. There are certain single issue groupings- such as people concerned with the protection of the environment represented by Greenpeace- which appear to have a great influence on people. This will result in traditional political parties having problems since, apart from that, the form of democracy becomes a debatable issue as well.

Chapter 2-Origins of Scenario techniques & Present trends

The situation described above will mostly influence the people in power, the political establishment in other words. This creates a sort of panic and may lead to unpredictable situations. The period of recovery after the revolution will also be shorter; it will probably take less than a generation to get over it. Finally, there is a common belief that our future will be better as opposed to traditional pessimistic beliefs. This is mainly due to the technological advances taking place at the second half of this century.


Chapter 2-Origins of Scenario techniques & Present trends

2.6 Uses of scenario planning Despite its rather short lifetime, scenario planning has proven to be very useful in a number of applications ranging from strategic planning to marketing; some of them have already been mentioned in the survey of Open University discussed earlier. The following table summarises, using bullet points, the uses of scenario planning. Strategic planning Developing and testing a Corporate identity Developing goals and strategies Assessing current goals and strategies Assessing Strategic Decisions Assessing operating planning (short- term or medium term) Environment monitoring Innovation planning Diversification planning Production planning Marketing planning Personnel planning Personal career planning Influence public attitudes Sensitivity and risk assessment
Table 4 Uses of scenario planning (Source: von Reibnitz, 1988)


Chapter 2-Origins of Scenario techniques & Present trends

2.7 Conclusions The characteristics of the world we live in have changed a lot during the second half of this century; we live in a much smaller world where someone from Europe is able to communicate with someone in the United States of America with the ease he communicates with his neighbour. Apart from the role of technology, there are other three elements that complete the puzzle of the new world; these are the global economic forces, the development of the society and the political revolutions to take place. The two pole system existing during the Cold War when America and Russia were fighting with worlds control being the prize does not exist any more. The replacement for that situation was not as simple as many people have expected it to be (http1, Peter Schwartz); complexity and chaos would describe it better. In an environment like the one described above, businesses will have a hard time; they will need to adjust to those changes and formulate new strategies based on the latest data available. The traditional forecasting methods failed to serve as a tool in this process; the following picture illustrates it very well.(please refer to next page)


Chapter 2-Origins of Scenario techniques & Present trends

Figure 1 The danger in forecasting (Source: Ringland, 1998)

As a result to those circumstances, a new approach had to emerge. The response to those uncertainties was the use of scenario planning; its origins date back to Seneca but the first company to realise the value of the technique and implement it was Shell (http2, Francoise Hecht). That happened back in seventies and was led by a team including Pierre Wack, a French with philosophy as his background, and Ed Newland, an Argentinean with a passion for gamble. According to Pierre Wack (as cited in http2, Francoise Hecht, p.60) Scenarios deal with two worlds: the world of facts and the world of perceptions. They explore for facts but they aim at perceptions inside the heads of decisionmakers. Their purpose is to gather and transform information of strategic significance into fresh perceptions. This transformation process is not trivial more often than not it does not happen. When it works, it is a creative

Chapter 2-Origins of Scenario techniques & Present trends

experience that generates a heartfelt Aha! from your managers and leads to strategic insights beyond the minds reach. The solution, therefore, has partly been found; scenario planning could, to some, extent count for the uncertainties present in the real world. In order for it to being successfully implemented there was a need for formulating methods, techniques and methodologies for deriving scenarios. Mainly consultancy companies involved in the generation of scenarios as well as the pioneers companies in the field did this. The following chapter introduces us to this approach by describing the general steps involved in most of scenario studies.


Chapter 3- The scenario process

Chapter 3 The scenario process

3.1 The eight steps in a scenario process 3.1.1 Introduction As mentioned above, scenario planning achieved wider recognition during the seventies, when it was recognised that due to the continuously increasing uncertainties that dominated the world another method should be used for strategic planning. The forecasting techniques, previously used, were incapable of providing the information needed; they were, therefore, abandoned and scenario planning replaced them. In order to build the scenarios, many methodologies were developed. They all, however, to some extent have eight tasks in common (Reibnitz 1988); in the remaining of this chapter we will analyse those tasks in more detail. These steps are highlighted in the following table (please refer to the next page).


Chapter 3- The scenario process

Task Analysis Influence Analysis Projections Grouping Alternatives Scenario Interpretation Consequence Analysis Analysis of Disruptive Events Scenario Transfer
Table 5 The eight tasks in a scenario process (Source: Ute von Reibnitz, 1988)

3.1.2 Task Analysis As the first step in a process, it deals with the question Where are we now?; in other words it provides a comprehensive analysis of the smaller strategic planning unit in a company. The latter is different for every company and depends on its size; if the company under consideration is a small or a mediumsized company then the strategy is formulated for the business as a whole. On the other hand, if it is a large, maybe multinational, company that manufactures many products and operates in many markets it is more advisable to build separate scenarios for each product or market. In order to carry out that task, we have to take under consideration the goals and strategies of the company, which are expressed in the form of the business idea; the significance of each one of them viewed as individual should be examined. A portion of SWOT analysis- to the extent that we only need the

Chapter 3- The scenario process

strengths and weaknesses- follows in order to identify the potential areas where problems could arise and form this way the scenario agenda. Once these problems are spotted, we have to formulate them in a question format; to do this successfully we need to remember that the way we are asking should not prompt to a specific answer, since we want to aim at managers perceptions, to stretch their mental models (Fahey-Randall, 1998, Schwartz, 1998). It is, also, important to exclude the use of problem-solving techniquessuch as cause and effect diagrams or fishbone diagrams- as means to reach the solution; this needs to be done in order not to extrapolate past events into the future but to promote alternative ways of thinking. Typical examples of such questions can be found in the following table. How can new ways for utilising our existing products be found? How can we communicate with our customers in a new way? How can economical and technological developments in our customers countries assist us?
Table 6 Typical questions for finding solutions to problematic areas (Source: Reibnitz, 1998)

At this point, it is important to decide to the time duration of the project; many companies, like British Airways underestimated it (Ringland, 1998: Moyer, 1996). This will, obviously, depend on the research and development horizon and the type of the company. Despite that, there is a simple rule for defining the time needs of the project; we add five to seven years to the period needed on behalf of the company to develop the activity under consideration. As mentioned above, we need to assess the strengths and weaknesses of the company at the beginning of the scenario project; a structured way of doing it is


Chapter 3- The scenario process

through the use of check lists. This is a way of assessing the performance of the companys departments so that any problems are automatically highlighted; the way it works is very simple- certain questions are posed and we put a tick against the box that contains the closest answer to our beliefs. It is good practice, however, to inform the members of the scenario team about that questionnaire one or two months prior to the start of the project. The project can involve either a mini scenario project that consists of two three-day workshops or a scenario project that consists of four workshops each one having duration of three to four days. There is no difference as far as the procedure followed is concerned; the time is only compressed a bit at the first approach. Finally, at the end of that step a check is carried out to ensure that the information gathered is correct; if any mistake is found, we will have to undertake this step again. 3.1.3 Influence Analysis Once the first task is completed, we move on to the influence analysis; our aim at this level is to identify the external factors of influence, to determine the degree of their influence as well as any interrelationships between them; an early sign of cross-impact analysis. A number of factors appearing in almost every project which form an example for this category are customers, competition, legislation and technology.


Chapter 3- The scenario process

It is, however, too difficult to work with those headlines since their meaning is different when the company under consideration changes. As a result of that, we need to identify and assess the influencing factors falling under every headline- the relative order of rank for each factor should also be defined. Once this is done, we have to assess the degree of influence each factor has on our company along with any interrelationships. The latter task is about comparing each factor with the others and is carried out with the aid of a network matrixan example of which is shown below.

Figure 2 A typical network matrix (Source: Reibnitz, 1988)

Before using it, we have to make sure that there is no overlap between the factors in terms of both function and structure. A marking system is used, afterwards, to evaluate any interrelationships; we start from left to right and

Chapter 3- The scenario process

according to the degree of influence we put one of the following numbers to the respective square. 0= no influence 1= weak influence 2= medium influence

Table 7 Ranking system for the elements on the network matrix (Source: Reibnitz, 1988)

Once this task is completed, we are interested in two sums for each factor; the sum across the row and the sum across columns. The first sum is called active total and is an indication of the degree to which one factor affects the others while the second sum is called passive total and indicates how much a factor is influenced by all the others. It is advisable, also, to justify on a separate sheet of paper the degree of influence as a mean of verification of the results. Finally, by dividing the active by the passive total we get an estimation of the degree of importance for a factor within a system. Another method we can make use of after the construction of the network matrix is the system grid; this is nothing else but an orthogonal co-ordinate system with the passive values being put on the horizontal axis and the active values being put on the vertical axis. This division enables us to form four fields with respect to the systems elements, as shown below. The first field consists of the active elements that are characterised by a high active and a low passive total; therefore we can locate them among those with a high importance ratio- these are the driving forces, the elements we should concentrate on during


Chapter 3- The scenario process

the scenario project. The second field consists of the ambivalent elements; those are the elements whom importance ratio is close enough to one- their influence to the system is almost equal to the influence they receive from the system- those values, however, are relatively high. Buffering or lesser ambivalent system elements form the next category; the importance ratio of those elements is, again, close to one but this due to their low activity and passivity. Finally, the last category consists of the passive elements; these are the elements that are heavily influenced by the others but, themselves, they have a little influence on the system. The above can be highlighted in a diagram, as following



High Active Value Low





Passive Value
Figure 3 System Grid (Source: Reibnitz, 1988)

By following this way of analysis, the network matrix at the beginning and the system grid afterwards, we need to keep in mind two rules of systems dynamics. The general concept is that the active elements should be in


Chapter 3- The scenario process

compliance with the strategy of the company in order to achieve the best results; they should be part of the business idea. We should note, here, that it would be even better if ways of creating snowfall effects could be found. As far as system dynamics is concerned, the first rule is that we need to focus on those elements that can give us the most reinforcement effect, which are the key elements that should attract our attention; most of the times, these are either active or ambivalent elements. The second rule concerns buffering and passive elements and is about not directly influencing them since their overall contribution would be small. We should note, here, that it is many times the case that a company is in no position to influence some factors like technology. The question then should be transformed to how this factor can be used in order for the company to gain competitive advantage. Apart from that, there are three common errors appearing when dealing with networking systems. The first is about the dimensions of the matrix; many people assume that if a problem is described by a large matrix then due to its complexity it wont be possible for them to deal with it. This results in causing undesired effects to the system, since we are omitting relationships between the factors that could be important. The second error is related to our anxiety for results, which is a common pitfall in scenario planning projects. It is the case many times that results are expected in a very short period of time after the implementation of the new strategy. If these do not come up, we take corrective actions; in most of the times, however, we need to wait for some time before drawing any conclusions.


Chapter 3- The scenario process

If we take any actions in the mid time, this will only result in side effects. The third error is that we try to isolate the problems and work on them separately; this can have a severe impact on the system; this is the case since changes in a number of factors- due to the interrelationships- can affect other factors of the system. In summary, being on that step we need to keep the mind what makes a system successful; the key elements are highlighted in the following box. Communicate the information to the whole company and not only to the relevant departments b Sensitivity and flexibility to both external and internal factors Maintain the balance by making use of diversification and decentralisation Receive feedback frequently Have clear objectives for the whole system b
Table 8 Rules for making a system successful (Source: Reibnitz, 1988)

With respect to the first issue, it is good practice to communicate any information to the whole company; customer complaints, for example, are equally needed to the production department as well as to the service department. As far as flexibility is concerned, we need it in order to adjust our existing strategies and create new ones for the market we operate in. Diversity and decentralisation are another key features; it is better for a company, for example, to adopt different functions with different markets rather


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than having a single marketing organisation which will depend on a few customers and suppliers with flexibility being the key issue. If the company has a decentralised structure, it is much more easier to cope with problems when these occur; diversification is a way of ensuring that the company will keep on going even if a problem appears at an individual part. It is important, also, to get feedback from the system; we should, however, bear in mind that it is better to group, for example, products in areas like communications or energy than treating each problem in isolation. We should, however, as mentioned earlier to wait for some time before evaluating it since immediate actions can cause problems. It is very important, finally, to develop an overall system of objectives for the whole company; the individual departments can then work out their individual strategies, which should be in compliance with the companys system of objectives, with the business idea. This will lead to greater opportunities for responsibility and control on behalf of the departments and will lead to higher motivation as a sense of ownership is developed. 3.1.4 Projections Once we have decided on the influencing factors at the previous step, we need to define descriptors for these factors; these will describe both the present and the future status of each factor. At this point, we should note that this description has to be done in a neuter way so that it will not prompt the participants to any specific direction, since we want to stretch their mental models, their perceptions about the outside world- one of the two worlds that


Chapter 3- The scenario process

scenarios deal with (Schwartz, 1998). In order to illustrate that, we can use technology as an example; it is better to have attitudes towards new technologies as a descriptor rather than simply acceptance of new technologies or rejection of new technologies. In addition, it has been proven by the working experience of people involved in scenario projects that if the descriptor is formulated in a neuter way this allows alternative ways in which the future will develop to come up. This is the point when we should move from descriptors to alternative descriptors; these are the alternative future developments of descriptors like acceptance or rejection of new technologies. Another type of descriptors, finally, is the clear descriptor; these are the descriptors for which the future development is pretty clear from the present point of view. In other words, these are the predetermined elements as Pierre Wack calls them (Wack, 1985a). It is good practice, however, to justify any proposal related to future developments of factors; this can be done through the use of forecasting methods, which by knowing and accepting their limitations and by formulating the right assumptions can give us a clear view to some extent. 3.1.5 Grouping Alternatives At this step, our aim is to check the combinations of alternative developments against each other for consistency, compatibility and logic; these are the three principles any scenario should incorporate. In order to do that, there are two different ways.


Chapter 3- The scenario process

The first way of doing that is comparing these alternatives within a discussion; at the end of the discussion self-consistent sets of factors should have been identified. This is a good way of dealing with the subject when the number of descriptors is relatively small; this is not always the case. In the case of a large number of descriptors, it is better to use a consistency matrix; an example of such a matrix is shown below. In order to construct the consistency matrix, the following questions should be asked.
Are two alternatives of a descriptor that apply in one field directly correlated? If not then the weighting is zero which indicates the lack of relationship; otherwise proceed to the next question.

Is that relationship free of contradiction or does it contradict itself? If it is consistent, then a positive weighting is assigned. Is it consistent and free of contradiction with or without reinforcement? If the answer is without reinforcement then we assign the value +1; in the opposite case the value assigned is +2 Is it partly or absolutely inconsistent? If it is partially inconsistent the value 1 is assigned; otherwise we assign the value 2 .

Table 9 Questions for constructing the consistency matrix (Source: Reibnitz, 1988)

We should note here that, due to practice experience, it is easier to assign values of 1 rather than values of 2.


Chapter 3- The scenario process

Once this task is completed, we follow the steps listed below; this is done by the aid of a computer program. We should stress at this point the danger that this incorporates since key qualitative issues might be neglected. On the other hand the number of scenarios that are selected at the end- two- is quite debatable; however the software fulfils the three key principles selecting the scenarios that incorporate them the most.
We calculate all the possible consistent combinations; this will lead to all the possible scenarios for the future.

Among those, we select the ones with the bigger consistencies. Among that subset, we select those which have internal stability; this means that if any disruptive events occur they do not change towards the direction of greater consistency. This gives them long-term validity. Select two scenarios that are consistent, stable and different from each other Carry out a sensitivity analysis. This means that a factor is changed and we assess the impact that this change has on the scenario

Table 10 Steps for choosing the best scenarios (Source: Reibnitz, 1998)

3.1.6 Scenario Interpretation This step deals with the analysis of scenarios we have chosen during the previous step; these are two stable and consistent, on one hand, scenarios but very different on the other hand; however, the number should not been taken for granted. The analysis will be based on the clear descriptors introduced at the


Chapter 3- The scenario process

third step; they are the descriptors whose development is pretty clear from the present. The network analysis conducted in the second step will also be helpful. There are several computer software packages in the market that can assist in the assessment of the clear descriptors in relation to the alternative ones. The amount of money, however, that will be spent on that program- if any- as well as the amount of effort that will be put in the project very much depend on the wishes of the companys directors for such a project. We should note, here, that interpreting scenarios is not an easy task; this is the case since their development in the future is not static but dynamic. This means that if the company takes certain actions, these will lead to counter responses on behalf of the competitors which might change the situation. These changes need to be taken under consideration when interpreting the scenarios. By the end of this step, we should reach at a point where we have two contrasting scenarios. We can give descriptive titles to these scenario pairs; titles like optimistic and pessimistic scenario and harmony and disharmony scenario- the titles should reflect the main planning concerns of the company; on the other hand, they should not lead the audience to think of those scenarios as good and bad. It is advisable at this point to carry out again both a network analysis and a system grid for those two different scenarios. The analysis should be based on the several future forms of the scenarios; by doing that, we can assess the following things:


Chapter 3- The scenario process

The differences between the scenarios and the present situation The dynamics of development from the present to the alternative futures; the key difference between scenarios and forecasts The difference between the two scenarios and

Table 11 Factors that are assessed during the scenario analysis (Source: Reibnitz, 1988: Fahey-Randall, 1998)

3.1.7 Consequence Analysis At this step we are looking at the results of the scenarios that were developed during the previous steps. We are looking for potential opportunities for the company as well as for risks the company might be exposed to. Their importance is, afterwards, assessed and measures and activities are designed for them. The purpose of that is for the opportunities to further exploit them and for the risks either to reduce them or convert them into opportunities. It is good practice to further extend the analysis and examine whether those opportunities and risks are related to the short or medium term or to the long term. It is this the step that is the most important during the whole process as far as strategic planning is concerned; this is the case since it is the step where we start developing the companys strategy through the assessment of opportunities and risks. This will be done by posing to the members of the scenario team the question: How would you deal with this problem if scenario A was true?. It follows, finally, from its importance that an appropriate amount of time should be allocated to that step.


Chapter 3- The scenario process

3.1.8 Analysis of Disruptive Events At this stage we are interested in the identification and analysis of any disruptive events that may occur; we need to assess their magnitude on the company and to prepare both preventive and response measures as well as formulating crisis plans. According to Seneca (as cited in Ute von Reibnitz, 1988, p. 51) If you want a man not to tremble in the face of danger, then train him early in the ways of danger. As far as the analysis of disruptive events is concerned, we have to stress that this should not be done on the basis of the likelihood of them appearing. It is a result of experience that the disruptive factors that appeared in the past were ranked from the members of the scenario team as having a very low possibility of occurring. If we take Shells case for example, the oil crisis was expected in the eighties; however it occurred in 1973. The lesson from that is that disruptive events should be considered on the basis of their magnitude, not on the basis of their probability of occurring. It is good practice, at this point, to analyse disruptive events from as many areas as possible; we should include them under headlines such as society, legislation and politics. Since we can not do anything for factors such as the Third World War it is better not to include them in our analysis. Once a disruptive event is identified, we assess its effects both on scenarios and the company. Some of these effects may lead the scenarios to develop in alternative directions; we, therefore, have the disruptive scenarios. We should


Chapter 3- The scenario process

note, however, that during the analysis process both the direct effects and the effects of the changes in the scenarios should be taken into consideration. The disruptive event analysis method presented above is, in fact, a methodology for crisis management; moreover, we are interested in the advantages the company can get from the appearance of such events. In addition, by using this methodology we can identify any special weaknesses of the company and put many effort in solving those problems. Our attitude towards these events is incorporated into the master strategy of the company. The table presented below, finally, can assist us in the identification of the effects of disruptive events.

.1.8 Analysis of Disr


Effects and on scenario ... ... ... the indirect ive Prevent se


measures ...

Figure 4 Effects of disruptive events (Source: Reibnitz, 1988)

With respect to the actions that should be undertaken by the company, they can be divided into two parts; preventive measures and response measures. As the name implies, these are measures taken in order to prevent a disruptive event from occurring. It is the result of experience that many times companies are responsible for disruptive events; in this case they should analyse their


Chapter 3- The scenario process

internal operations to check if they are preparing the ground for disruptive events to occur. The second type falls under the headline response measures; another name for them is crisis plans. In several companies people argue that it is better to formulate those plans as soon as the event occurs; it is advisable, however, to do it beforehand. 3.1.9 Scenario Transfer This is the last step of the scenario process. Its aim is to make use of the opportunities and risks already identified in previous steps in order to formulate the corporate strategy of the company as well as defining alternative ones and monitoring the environment. In order to start our analysis, we need the results of the consequence analysis study we have conducted before. We will develop the master strategy on the basis of the similar answers we got to the questions posed there. This is, however, not enough by itself; we should elaborate on those ideas that are innovative and test them to see if they are effective under both scenarios; or the number of scenarios generated, in general. In the case that we face problems, we can reformulate those activities in order to make them compatible with both scenarios. Our conclusions from the last step- analysis of disruptive events, preventive measures and response measures- should also be included in the master strategy. The strategy is, then, further divided in such a way that will help each division of the company to get specific information from the formulated


Chapter 3- The scenario process

strategy; this can include, for example, the master strategy for the R&D department or the master strategy for production. We should highlight, here, the fact that the corporate strategy is related back to where we start from at the first step to examine whether certain goals and objectives are the same or pretty similar. We are, also, interested in the existence of any weaknesses that will make the reach of certain goals impossible or any strengths that will assist us in making our strategy reality. There are two types of companies, with respect to that distinction. Some companies with conservative attitude concentrate mainly on aspects related to the strengths and much less on those aspects that require the company to undergo. On the other side, we have the companies which have a progressive attitude; those companies will be willing to change their situation in order to profit from the factors arose through the scenario process. An environmental monitoring system should be our next step; this system will serve as a tool to monitor the external developments that are of great significance to the company. In order to do that, we should use the data produced by the sensitivity analysis; we should correlate the important factors for the company with the external factors that influence them. If changes occur in those factors, relevant adjustments should be made to the companys strategy. A common mistake is that as soon as a change is observed, there is the tension on behalf of the companies to implement changes immediately on their master strategy; sometimes they drop their strategy and they rebuild it on the


Chapter 3- The scenario process

basis of a short-term change. This, however, should happen only after a lengthy monitoring period, and only if this changed has frequently occurred. It is advisable, finally, to develop a target portfolio including the targets to be reached and to compare it with the actual portfolio. The latter, however, should not under any circumstances form the basis for the development of the new target portfolio. We should, firstly, develop the scenarios, establish the main goals and then formulate the portfolio.


Chapter 4- Scenarios compared to other planning methods

Chapter 4 Scenario compared to other planning methods

4.1 Scenarios compared to forecasting

4.1.1 The need and dangers of forecasting The concept of forecasting is not new; in fact, all of us understand its necessity and implement it in our everyday lives. We all try, for example, to forecast how many time we will have to wait at a bus station or at an underground tube in order to get to our work in the morning or go to a social meeting. Sometimes our predictions are correct and we reach our destination without waiting for a long period of time; sometimes we fail to make an accurate forecast and we suffer because of that. With respect to organisations, the case is pretty much the same; forecasts are used to solve problems in many areas like operations and inventory. Moreover, many techniques are in use- these can be classified into quantitative and qualitative. The quantitative techniques are further divided into two categories: causal techniques- such as regression analysis, life cycle analysis and econometric models- and projective methods- such as the simple moving average, the exponential smoothing and the Holt-Winters and Box-Jenkins techniques (Malins, 1999). A similar classification exists for the qualitative techniques as well; these are divided into judgmental methods- such as the personal insight method, the panel consensus and the historic analogy and

Chapter 4- Scenarios compared to other planning methods

technological and environmental methods- such as the Delphi method, the curve fitting S-Curve technique and the relevance trees (Malins, 1999) As far as qualitative techniques are concerned, their way of operating is to combine experience intuition and other skills in order to derive relationships between the variables that can applied when making the forecasts. The quantitative techniques operate in a different way; they make use of sets of data to establish trends and patterns useful for projecting quantities into the future (Malins, 1999). The basic concept, however, is common for both techniques; we look at the past of the organisation to establish trends and then the likelihood of these trends continuing in the future is examined (Huss, 1988). Likewise, during the sixth and the seventh decades of this century the emphasis had been placed on the development of sophisticated models that would include as many variables as possible. According to Huss The feeling throughout this period was that the more factors which could be considered simultaneously and the better past trends and relationships could be modelled, the better the forecasts. The move toward sophistication proceeded on all terms. (Huss, 1988, p.377) Despite all those efforts, however, many times forecasts were not accurate. The figure presented below is a forecast for shipbuilding demand created by the Association of West European Shipbuilders (Van der Heijden, 1998). (please refer to the next page).


Chapter 4- Scenarios compared to other planning methods

Figure 5 Projected vs Real demand for ships (Source: Van der Heijden, 1996)

The same situation applies to qualitative techniques as well. A forecast for the price of an oil barrel was conducted in 1971, based on the Delphi technique; this technique is a group technique but the communication between members is not allowed. (Malins, 1999) The company that conducted this survey was Shell and none of the experts predicted a price higher than two dollars per barrel. (Van der Heijden, 1998) The danger lies in the critical assumption that is hidden behind forecasting; this is that the future will be like the past. By using forecasting, we can plan effectively given that the rate of change is relatively slow (Ute von Reibnitz, 1988). This, however, does not go on forever; the forecasters, therefore, should be aware of that fact and pay attention to the respective variables that can change the current situation. (Van der Heijden, 1998) 4.1.2 Comparing scenarios with forecasting There are certain differences between scenarios and forecasting; the first lies in the theory of strategic management they are associated with. The method of

Chapter 4- Scenarios compared to other planning methods

forecasting is related to the rationalist approach; according to this there is one best answer and all we have to do is find it (Van der Heijden, 1998). We, therefore, have to allocate that task to someone who is clever and computer literate to make sure he finds that answer. On the other hand, scenarios have contingency planning theory as their base: there is no best answer. It is a more processual oriented approach, which accepts the fact that the future can not be predicted, and, therefore, there is a significant amount of risk in every decision we take. Furthermore, with respect to forecasts they are done, as stated above, by experts; this keeps the decision maker away from the process as well as unaware of the uncertainties taken into account in order to arrive to the final result. We have to select the variable we want to forecast and then to concentrate on that. The scenario planner, on the other hand, has a much wider view of the business and he will address issues related to key uncertainties. Scenarios reveal the driving forces for the specified industry; the forces that can change its situation at any time. There are two additional differences between forecasts and scenarios. The first difference deals with their input to the decision-making procedure; the input we get from forecasts helps us to reach to a yes or no decision whereas it is much more difficult- if not impossible- to make such a decision on the basis of scenarios. The second difference lies in our ability to test the results afterwards. We can test the forecasted variable against its real value and draw conclusions upon the


Chapter 4- Scenarios compared to other planning methods

validity of the forecast. This is not the case with scenarios since what we are trying to achieve with them is not that; if the range of scenarios is made wide enough we can be almost certain that the future will lie somewhere in between. We need to make sure, however, that they represent our best knowledge of the present status of our company (Van der Heijden, 1998) so that they will lead to better strategies. 4.1.3 Conclusion In conclusion, there is a fundamental difference between forecasting and scenarios with respect to uncertainty. If we are interested in the short termwhere uncertainty is relatively low- we can use forecasting; in the long term, however, where uncertainty raises forecasting is no longer useful- we need to use scenario planning. The above are very well illustrated in the following paradigm given by Albert Olensak of Sun Oil (Van der Heijden, 1998, p.90) : Forecasting can be thought of as analogous to the illumination by the headlights of a car driving through a storm at night. A bit of what lies ahead is revealed, not very clearly. The driver merely tries to avoid danger and pick out enough detail to arrive at his destination intact. He needs to be prepared for sudden major obstacles, be aware of his limited view and try to adjust his speed accordingly. Obstacles will appear suddenly, and then it may be too late to adjust. The obstacles the driver must be prepared for are outside the limited view that he has. The reaction required adjusts speeds in response to limits in perception. We have to forecast.


Chapter 4- Scenarios compared to other planning methods

We couldnt drive the car with the lights switched off altogether. The important thing is to realise the limits of our view. 4.2 Scenarios compared to portfolio analysis 4.2.1 What is portfolio analysis? The portfolio analysis is a tool for assessing the companys performance and plan according to that. In order to achieve that, we concentrate on two characteristics of the product; these are the market attraction or market share and the other is the market growth. This can be done with the aid of the Boston Consulting Group (B.C.G) matrix, which is a graphical representation of the market share of a product against the market growth on a X/Y co-ordinate system (http2: Yazdani, 1998). The B.C.G matrix distinguishes among four categories of products: Dogs Cash Cow Problem Children or Question Marks Stars

Table 42 The four categories of products according to the BCG matrix (Source: Yazdani, 1998)

With respect to the categories of products mentioned above, a dog is a product that has a low market share and the market growth for this product is slow as well. A cash cow is a product that has a high market share but the


Chapter 4- Scenarios compared to other planning methods

growth rate for the market is low; in other words, it is a cash generator. In the case that the combination of low market share with high market growth appears, the product is a problem children or a question mark- we have to invest in that more money that we can generate from it. Finally, a product that has a high market share and its market is growing at high rates is a star. 4.2.2 Comparing scenarios with portfolio analysis The method described above can be used from a company in order its position against the competitors (Ute von Reibnitz, 1988). It has, however, the disadvantage that it is just a picture of the present; we can not make predictions for the future. This is because we do not know what is going to happen in the future with respect to our business units. It is common practice on behalf of the companies to establish their target portfolio based on the existing one. On the other hand, scenarios can provide us with the information needed to manage that portfolio. This is the case since we get a description of how possible futures would look like. 4.2.3 Conclusion Concluding, we see that the portfolio analysis approach is a very useful tool for the company when the question Where are we now? is posed. It can not be used, however, on its own for establishing the companys strategy. On the other hand, we can set our target portfolios on the basis of possible future developments as described by scenarios and derive our strategy from those scenarios (Ute von Reibnitz, 1988).


Chapter 4- Scenarios compared to other planning methods

4.3 Comparing scenarios with simulation 4.3.1 The need and dangers of simulation Everyone, especially managers, is familiar with the concept of simulation. As far as managers, in particular, are concerned there is a need of building mental models of the systems they are in charge of (Fahey-Randall, 1998). There is, however, a limit to the amount of information a human brain can commit; because of that most of us build cause and effect relationships of the factors we believe they are involved in a given situation. There is, however, a couple of drawbacks associated with that approach (Fahey-Randall, 1998). The first is related to the dominant tendency towards the development of simple reasoning for the outcomes. It is the case most of the times that one or two factors will be sufficient to explain a situation and actions should be taken against those factors if the results are not the expected ones. A second drawback is that these models are not consistent if different people within the company are asked to explain the situation. Everyone will base his answer on his point of view; a sales manager will have a different opinion from a production manager on the reasons that generate profits, for example. 4.3.2 Comparing scenarios with computer simulation models The simulation models we build on computers have much in common with the mental models described above; the main similarity is that they are both based on the relationships between significant variables. These are represented through a set of equations in the case of computer models and allow the people


Chapter 4- Scenarios compared to other planning methods

in charge to assess the implications of complex interactions among these variables. The problem with the simulation models, however, is that humans are not able to fully understand the diversity of possible future developments and incorporate them into the model (Ute von Reibnitz, 1988). Despite that, we can use simulation models in the scenario process to add value to it (Fahey-Randall, 1998). In particular we can get the following benefits by using computer modelling into the scenario process: Get a full insight view of the relationships among the models factors Assess any assumptions Obtain quantitative estimates concerning the effectiveness of various strategies under different environmental conditions

Table 13 Benefits from using simulation in the scenario process (Source: Fahey- Randall, 1998)

4.3.3 Integrating simulation and scenarios There are four steps involved in this procedure. These are presented in the following table: (please refer to the next page).


Chapter 4- Scenarios compared to other planning methods

Define the purpose of the simulation study Draw the structure of the model Test the model Use it as a learning experience
Table 14 Steps for integrating simulation and scenarios (Source :Fahey-Randall, 1998)

With respect to the first step, we need to bear in mind that a simulation study should focus only on a specific issue (Fahey-Randall, 1998). In order to realise this issue we need to be aware of the factors that affect the companys performance as well as the performance measures we will use to assess its performance and the drivers for those measures. The second step is about building the model. Once the most significant variables have been identified in the previous step, we need to decide upon their interrelationships. This can be done through a series of meetings with managers asking them to identify the type of relationship between performance measures and variables; then we need to collect data on these variables and decide on the equation we will use to model these. We, then, have to examine if the model we constructed is an accurate, as far as possible of course, picture of the real world. The importance of this task is many times underestimated and most of the effort is placed on the development of the model. The method for testing our model is to use past results as well as running it under several conditions which are unlikely to appear in real world. The final step concerns the use of scenarios as a learning experience. In this section, we test alternative strategies and we analyse the scenarios.


Chapter 4- Scenarios compared to other planning methods

4.3.3 Conclusion Concluding, we see that simulation models give us the opportunity to test different strategies under different assumptions. This can help us to a great extent; by simulating the scenarios already developed. In order, however, to implement them successfully, the following guidelines should be satisfied (Fahey-Randall, 1998). Use graphic techniques in order to ensure early involvement on behalf of the managers The structure should be simple and we should focus on a single issue We might need to use external consultants The analysis phase should be given enough time Managers should be given time to experiment with the model
Table 15 Guidelines for simulating scenarios successfully (Source: Fahey- Randall, 1998)

4.4 Conclusion In this chapter we focused on the comparison of scenario planning with three other popular planning methods: forecasting, portfolio analysis and simulation models. Each method was described briefly and was, in a way, assessed against scenario planning. Each method has its own value and can, certainly, be useful at a stage of the planning procedure. Forecasting is useful for predictions in the short term when the business environment is relatively stable, portfolio analysis is an excellent tool for understanding the present situation of the company and simulation


Chapter 4- Scenarios compared to other planning methods

models can be used to test alternative strategies. The value of scenarios, however, lies in the fact that they assist us in long-term planning and they challenge our thinking for coming up with alternative future developments. It was because of these advantages that several methodologies for constructing scenarios were developed; these are presented in the following chapter.


Chapter 5- Methodologies for constructing scenarios

Chapter 5 Methodologies for constructing scenarios

5.1 Introduction In the previous chapter we saw that the advantage of scenarios over the other planning methods is that it can provide us with a long-term view; it can be used for planning in the long term where the business environment is pretty unstable and the uncertainty is high. In particular, Michael Porter (as cited in Ringland, 1998, p.24) defined scenarios in 1985 as: an internally consistent view of what the future might turn out to be- not a forecast, but one possible outcome. There are, in general, three categories in which we can classify scenario methodologies (Ringland, 1998): Intuitive Logics Trend-impact analysis Cross-impact analysis

Table 16 The three schools of thought of scenario analysis (Source: Ringland, 1998: Fahey-Randall, 1998: Huss, 1988)

5.2 SRI 5.2.1 Background SRI consulting was one of the pioneers in the field of scenario planning; it was in the middle of the sixth decade of this century that the development of techniques for scenario planning- along with Royal Dutch Shell and General


Chapter 5- Methodologies for constructing scenarios

Electric (Ringland, 1998: Ralston, 1997: SRI International, 1999). At the fall of seventies, this methodology was revised mainly due to the needs of US companies to analyse future uncertainties related to strategic plans and investments. The development took place in close co-operation with Shell. It is a relatively simple and easy to follow procedure. Furthermore, it has the following three advantages (Ringland, 1998: Huss, 1988): It is a highly flexible procedure The identification of both the issues and their drivers plays an important role The participants have a sense of ownership

Table 17 Advantages of the SRI method (Source: Ringland, 1998)

The SRI process falls in the intuitive logics category. 5.2.2 Method The scenario process at SRI consists of six steps. It is performed from a team, whose members come from several departments of the organisation, and is illustrated at the figure below. ( please refer to the next page)


Chapter 5- Methodologies for constructing scenarios

Figure 6 The SRI approach

(Source: Ringland, 1998)

The two first steps of the process are decision-focused; the first step is to identify the strategic decision areas that we want to focus on with the scenarios. We have to note, here, that we are not interested in the macro-environment yet. The second step is about the key decision factors; the reason, to some extent, of the scenario project but, here, we are just stating the concerns of the company. These are the factors the management team is interested in knowing in order to make a better decision; it is a way of making sure that the scenarios we would end up with will focus on those issues that are relevant to the decision-making process. The analysis of the environmental forces is the next step we need to undertake. This includes the identification and mapping of all those environmental factors that will influence the business in the future. These factors can be further divided into two categories: the microenvironment forcesthese include the factors at the industry and market level- and the macro-


Chapter 5- Methodologies for constructing scenarios

environment factors- these include the factors at the social, economic, technological and political level. Each factor is, then, assessed on the basis of their severity as well as the extent to which its development can be predicted; we manage, this way, to distinguish the rather predictable factors from the uncertain ones whose alternative developments will form the basis of our scenarios. The fourth step is the most important of the whole process; it is called scenario logics. At this step, we need to identify alternative future developments; these should include the development of the drivers we have spotted at the first two steps- both those whose development can be predicted and those whose development is characterised by uncertainty. This can be done in a number of ways; we may use outside consultants, we might interview internal staff or use a combination of those two methods. Once the development of the factors of interest has become clear, we need to describe the scenarios we developed. In order to do that we will make use of the structure emerged from the previous step. The scenarios will usually consist of a narrative description of two to three pages- in order to be easy for the reader to go through them, a tabular description of the differences between them and a quantitative description of key factors (Ringland, 1998: SRI, 1999). The latter is for assisting the decision-makers to reach conclusions. The final step is about the implications of scenarios to the decision making process. The management team, in particular, should try to spot the potential outcomes of the scenarios and relate them to their businesses.


Chapter 5- Methodologies for constructing scenarios

The following figure represents the process flow from scenarios to strategy for SRI.

Figure 7 From scenarios to strategy (Source: Ringland, 1998)

5.3 NCRI 5.3.1 Background An alternative method for constructing scenarios was developed by Northeast Consulting Resources Inc. (NCRI). The company was founded in 1984 in Boston. The methodology developed is based on the Future Mapping technique, which emerged from the work done by Martin Ernst (Ringland, 1998: Mason and Wilson, 1994). 5.3.2 The Future Mapping Method In this method, there are two dominant assumptions straight from the beginning (Ringland, 1998: Mason and Wilson, 1994).


Chapter 5- Methodologies for constructing scenarios

The future is not predetermined; it depends on actions taken by many participants If an industry is after changes have to be made gaining a competitive advantage, then structural

Table 18 The two basic principles of the Future Mapping method (Source: Ringland, 1998)

In order to arrive at the scenarios, the following terminology is used: Endstates Events

Table 19 The terminology used in the Future Mapping method (Source: Ringland, 1998)

Endstates are pictures of the industry in the future; they are written in-groups of four or five. Their length is about one page and, in total, they need to incorporate all different thoughts about how the future will develop for the company. It is not necessary to be mutually exclusive and the time period they cover is about three to five years from the present. On the other hand, events are specific appearances of key trends; we should be able to answer the question whether an event took place or not. Another characteristic of an event is that there should be industry people to make it occur. As far as the format of events is concerned, they are written in sets of


Chapter 5- Methodologies for constructing scenarios

150-200; each set is given a name, a description and a date and it is written on a separate card for ease of use. We use these events as the basis for future actions. The method is based on the different issues that can be addressed by the endstates and the events related to them. These can be related to industry, political, company issues or to certain departments and functions within the company- the research and development department for example. At the beginning, four to five endstates are created along with about to two hundred events. Once this is done, we should identify the extreme events; those that are highly likely or highly unlikely. These events are, then, organised by theme and the cards are placed on a wall in chronological order. If the model revealed is not very common, it might be difficult to deal with the results; moreover many times we experience disagreements about the possibility of occurrence for an event- we shall, in this case, check if the source for this is misinterpreted information. The allocation of participants into teams is the beginning of the second phase. Each team takes an endstate and the assumption that it happened in reality is made. The task undertaken by each team is to explain how that happened; this way they need to understand the logical relationships between the events and how they developed in order to reach to the realisation of the endstate. This way a check for internal consistency can be conducted and the decision-makers will have the chance to link the paths from the present to the specific endstate their team is in charge of.


Chapter 5- Methodologies for constructing scenarios

We group, after the completion of the previous step, the selected events into themes and we develop several paths the events should go through if the endstate was real. The last task for each team is to identify an industry and a business upon which they would build a success story within the borders of the scenario. At the end of the procedure, there are two approaches we can make use of; the common features approach and the aggressive change approach. The common features approaches is about grouping the common events appearing in all scenarios and direct our investments towards them. We can use them for training purposes as well in order to train managers how to react in different situations. The aggressive change approach is about using a ranking system for the events; there are two stages in this system: attainability and desirability. This will be the basis for discussions on both the direction of the industry as well as the role of the company in it; this way we can have an overview of where the whole industry is going as well. 5.4 The Futures Group 5.4.1 Background The Futures Group is a Connecticut-based research firm for international strategy and policy .It uses the trend-impact analysis method for its scenario planning process, an illustration of which can be found in the figure below.


Chapter 5- Methodologies for constructing scenarios

Figure 8 The Futures Group methodology (Source: Ringland, 1998)

5.4.2 Methodology A typical project has three stages for the Futures Group; these stages are highlighted below (Ringland, 1998: Planning Review, 1992). Preparation Development of the scenarios # Reporting and utilisation

Table 20 Stages in a scenario project according to the Future Groups methodology (Source: Ringland, 1998)

The first stage can be further subdivided into, respectively, the definition of focus and the charting of driving forces stages. At the first sub-stage, we need to define the limits of the scenario project. This can be accomplished by asking various questions such as the length of the period we are looking into the future, the type of issues we want to raise and the variables, if any, that need to be forecasted in order to assist us in the decision-making process. The second sub76

Chapter 5- Methodologies for constructing scenarios

stage deal with the identification of the key driving forces; these are the variables that heavily influence our system and will be responsible for its development in the future. The second stage can, as well, be further subdivided in three sub-stages; these are, respectively, the scenario construction phase, the selection of alternative worlds for further analysis and the preparation of scenario-based forecasts. In the first phase we combine the alternative developments of the drivers to produce alternative future scenarios. It is sometimes the case that we do not use all of them because some are either illogical- therefore the principle of internal consistency is not fulfilled- or the possibility of them becoming true within the planning period is very small- this means that an accurate method is needed in order to decide upon their use. We, then, need to explore these results; doing that, however, is impossible. We would, therefore, limit our analysis to those futures that incorporate the most important challenges and opportunitiesthese should be in compliance with the business idea of the company. The final stage is, as mentioned above, about preparing forecasts; in particular we need to identify and isolate the driving variables so that each alternative world can become reality. We, then, need to forecast, either using a quantitative or a qualitative method, the time every significant variable needs to reach that status; in other words we quantify the results in order to assist decision-makers The final stage is the reporting and utilisation stage. At this stage, we present each scenario using graphical and text methods. The communication phase is a very important phase the personnel of the planning department at Shell spent half of its time promoting the scenarios.In addition, we need to make sure that our audience has fully understood any hidden assumptions behind the scenarios.


Chapter 5- Methodologies for constructing scenarios

The second phase is the phase where we are looking at our goals and decisions for each alternative world. We, also, need to look for those actions that reduce any risks associated with these different worlds. 5.5 The French School 5.5.1 Background Michel Godet, a French strategy specialist, was involved in scenario planning projects when being in charge of the Department of Future Studies with SEMA group (Ringland, 1998); these took place in the seventies. In the eighties he extended the methodology with the Ministry of Defence being one of the supporters of this research. A probabilistic method is used in order to calculate cross-impacts between the driving forces. 5.5.2 Methodology The approach makes use of certain computer-based tools, like MIMAC- this stands for the French words Matrice d Impacts Croises Multiplication un Classement. We can, through that tool, assess interaction effects among variables on a causal map related to a firms strategy. The methodology followed is highlighted below. There are three phases in this approach, as shown below. Build the database Analyse possibilities and reduce uncertainty Develop the scenarios


Chapter 5- Methodologies for constructing scenarios

Table 21 The three stages in a scenario project according to the French School (Source: Ringland, 1988)

At the beginning, we conduct a study to spot out all the relevent, both internal and external, factors to the company under consideration as well as its environment. The MIMAC system is, then, used in order to define the system created by those factors. We should, then, conduct a study as detailed as possible on those variables. Once this is done, we are interested in studying the extent to which each variable influences the others; this is done by the construction of a cross-impact matrix. Their influence is classifed either as binary- two possibilities : exist or not exist- or we can use a range from zero to four to estimate their influence. The influence that corresponds to any specific number is highlighted below : 0=none 1=weak 2=medium 3=strong 4=very strong
Table 22 Levels of influence (Ringland 1998)


Chapter 5- Methodologies for constructing scenarios

The results of this study are plotted on a two-axis co-ordinate system ; this determines their positions and roles and is shown in the diagram below.

Figure 9 Influence/ Dependence diagram (Source: Ringland, 1998)

We should note, however, that during the analysis we should pay attention to the current situation but not overdoing it. This is the case since by analysing past trends we can understand the dynamics of every factor but if we overempashize it we will end up extrapolating the past into the future ; which is why forecasting methods failed. The next step is to make use of the MACTOR method in order to identify the position of actors, who are those that influence the factors and shape our future, in relation to each other. In order to do that, we draw a table showing their strategies.


Chapter 5- Methodologies for constructing scenarios

The second stage of the procedure is about

scanning the range of

possibilities and reduce any uncertainties involved. We do that by analysing future possibilities against a set of hypotheses ; these could be the continuation of a trend or the appearance of a new one. This can be further broke up into several dimensions so that we can study different combinations of them ; a good way of doing it is through a morphological analysis. There is, also, available software- SMIC, for example- for reducing uncertainty ; this is done by calculating the probabilities of any different combination occuring. The last stage is the stage of development of scenarios. In this stage, we describe the path for getting from the present situation to the future. 5.6 The European Commissions Methodology 5.6.1 Background It is a strong belief that the future can not be forecasted since it is not written; what will happen in the future is not predetermined. We can, however, influence the companys policy for the future by analysing the implications of alternative developments of it. The popularity of the concept described above is continuously increasing nowadays. The Forward Studies Units Shaping Factors-Shaping Actors is one method for implementing this concept; it was first used in the study of Europe Post, which took place in 1992.


Chapter 5- Methodologies for constructing scenarios

5.6.2 Methodology Before explaining the method, it would be useful to define the two terms appearing in its definition; the shaping actors and the shaping factors. The term shaping factors is used in order to describe those issues that have a very strong impact on future outcomes. They can be regional, national or global or even sentiments (Ringland, 1998). According to Dr. Michael D. Rogers (as cited in Ringland, 1998,p. 212) they are the long-run structural factors, be they socio-economic, socio-political or cultural, that are, de facto, influencing our European futures. On the other hand, the term shaping actors is used in order to describe those players that can influence the shaping factors interactively. These could be either decision-makers or groups of individuals (Ringland, 1998). According to Dr. Michael D. Rogers (as cited in Ringland, 1998, p.213) ... they themselves can become environment makers as opposed to environment takers. Therefore, the rhythm of change- and the process of change itself- are open to influence by the leading actors. The first stage of the method is to identify the shaping factors. Their list should be as much comprehensive as possible. This can be carried out through the use of brainstorming, for example. The second stage of the scenario procedure is to identify the primary links between the most important actors and factors. This will help in understanding the dynamics of the system and identify the paths to that future.


Chapter 5- Methodologies for constructing scenarios

As a method, it bears a resemblance to the Delphi method, where a panel of experts interchange opinions. It is, however, less formal than the Delphi method but results are produced faster. Moreover, it allows divergent ideas to be heard. On the other hand, its main weakness is that each study is conducted only by a limited number of experts; their selection, therefore, is very important for getting the best results. Finally, w should note that because both the actors and the factors change rapidly, it is good practice to repeat the study in the future rather than conducting it only once; the scenario approach is a continuous assesement. 5.7 The Global Business Network 5.7.1 Background In 1987, when Peter Schwartz left Shell, he formed the Global Business Network (GBN) with Jay Ogilvy. Their aim was to help people reorganise their perceptions about alternative futures; Peter Schwartz himself is a pioneer in this field (Ringland, 1998: Schwartz, 1998). GBN had very large companies as clients pretty soon; AT&T and the International Stock Exchange are just two examples. The company moved further, however, and wanted to create a form of club. Among the first members of this club were AT&T, Volvo, Shell and many other companies. 5.7.2 Methodology The GBNs methodology is based on the following eight steps (Ringland,1998: GBN International, 1999: Schwartz, 1998):


Chapter 5- Methodologies for constructing scenarios

Identify the issue we will focus on Identify key forces Decide on driving forces Rank by importance and uncertainty Selecting the logics Developing the scenarios Study the implications Select the leading scenarios

Table 23 The GBN methodology (Source: Ringland, 1998)

It is very important to make sure that the scenarios we will develop will be of relevance to our company, to its business idea; for example if the client is an automobile company, it might be interested in the variations in energy prices. A good way of complying with that rule is to start with the decisions that the company will have to take in the near future. The second step is about listing the forces in the local environment that influence the decision. We will have to think of what will influence our decision- these could be, for example, customers or suppliers. Once the second step is completed, we need to find the driving forces in the macro-environment- political, social, economical and technological- that influence the factors previously mentioned. In addition, we should identify the forces in the microenvironment influencing the factors identified in the second


Chapter 5- Methodologies for constructing scenarios

step; some of them could be predicted and the development of some others might be uncertain. We should, then, rank them against two factors; the first factor is their degree of importance and the second factor is their degree of uncertainty. At the end of that, we would be able to identify those factors that are both critical and uncertain; scenarios will not differ, anyway, towards the predetermined elements. As mentioned above, we want to end up with scenarios that make a difference to our decision-making process. The differences between scenarios should be few so that we can develop them in detail. In order to achieve that, we have to go through the variables many times until we reach the most important ones; a graphical representation of those is, undoubtedly, a good idea since it facilitates the communication process. The best plot is the one that shows better the dynamics of the issue and communicates it effectively. The development of scenarios is the next step. We can do that by going back to the list of factors and trends we have identified in the previous steps. We decide on the development of each trend and factor within the scenario we are building and then we gather these developments in the form of narration. The narration should describe the path that connects the present with that future as well as the events that need to take place in order for the scenario to become reality; on the other hand it should not be very lengthy- two or three pages is a reasonable length.


Chapter 5- Methodologies for constructing scenarios

Once the scenarios have been developed we should consider their implications on the decision we focused on. We should check if the decision is good enough under any of the scenarios; if it is a good decision under only one scenario, then the risk we are taking is very high. In the latter case, we should try to make our strategy more robust so that if the desirable scenario does not happen, we would be able to adjust the strategy. The last step is to select the scenario indicators. These are signs that inform us that the specific scenario is closer to come true. We should also decide on certain aspects of the scenarios that will serve as the basis for monitoring them. 5.8 The Copenhagen Institute For Future Studies 5.8.1 Background Thorkil Kristensen, the former minister of finance for Denmark, along with a number of companies founded the institute in 1970 as a non-profit organisation. Scenario planning activities started in 1984 because of an American company, 3M Denmark (Ringland, 1998). 5.8.2 Methodology The participants were invited to take place in The Futures Game (Ringland, 1998). In this game, they were asked to think about the future and compare, on one hand, existing trends in the society with the development of the business and, on the other hand, to think about new trends that might come up. The next step was to spot out, through discussion, which future they thought most probable for the country the company is operating in.


Chapter 5- Methodologies for constructing scenarios

The second phase of the game is for every person to try and fit the company into the chosen future. Nowadays, however, statistical software packages are used for the analysis of trends. 5.9 Computer-Driven Simulations 5.9.1 Background The usage of simulation models is a powerful approach for companies in order to answer what-if questions. A company that offers such a facility is the Strat*X, which was founded by Jean-Claude Larreche in 1984 (Ringland, 1998). 5.9.2 Methodology The latest version of this software package is the MARKSTRAT 3. It is used by groups of sixteen to thirty people who are divided into teams of four to six members. Every team manages its own company; the other teams represent the competitors. The game can last for seven to eight decision periods- usually represented by years- with every decision taking around two and half-hours. In order, however, for a decision to be taken we need information on factors such as the market we operate in, our competitors and the companys environment; financial information is required as well. At the final stage, the performance of each team is measured against a number of factors like financial measures- share price for example- and the


Chapter 5- Methodologies for constructing scenarios

productivity of investments made in research and development (Ringland, 1998). 5.10 Comprehensive Situation Mapping (CSM)

5.10.1 Methodology This tool includes some properties of systems dynamics and systems thinking. It is very useful since we can model the argumentation process (Ringland, 1998). The technique is a simple modelling technique that simulates the environmental factors that affect a companys situation. Finally, it can be used to bridge the gap between qualitative thinking and quantitative operational research (Ringland, 1998). 5.11 Battelles Basics

5.11.1 Methodology The Battelles process is described in the following figure. (please refer to the next page)


Chapter 5- Methodologies for constructing scenarios

Figure 10 The Battelles methodology (Source: Ringland, 1998)

The method consists of seven steps (Huss, 1988); these are shown below Define the topic under consideration Identify the areas of influence Define descriptors and calculate their probabilities of occurrence Fill in the cross impact matrix Select scenarios for further development Conduct sensitivity analysis According to that method, we first define the topic under consideration and s Forecast and conduct implications

Table 24 The Batelles methodology (Source: Ringland, 1998)


Chapter 5- Methodologies for constructing scenarios

According to that method, we first define the topic under consideration and create a list of factors that influence this event- these factors are not only events but can be a range of outcomes like growth of the Gross National Product at a rate higher than four percent. We, then, assign a probability of occurrence to each factor within the time limits of our study. The next step is to write detailed reports on each descriptor; this should include the background of the descriptor as well as any future forecasts. A cross impact matrix is built afterwards. This matrix shows the impact that the occurrence of a descriptor state has to all the others; in order to do that a numerical range from 3- strong negative impact- to +3- strong positive impact is used. We, then, make use of a software package to create consistent sets and combinations of these descriptors in order to fulfil the internal consistency requirement. A scenario consists of the occurrence of one state from each descriptor. The most important scenarios are then selected for further development; the reports previously written as well as the outcomes of the software package are used for that purpose. Once they are developed, sessions are held with the managers of the company to discuss the implications that the realisation of each scenario would have for the company. The aim of these sessions is to well position the company against all those alternative futures; in other words to adjust our strategy so that we can benefit from all possible developments.


Chapter 6- Setting up the scenario agenda in a company

Chapter 6 Setting up the scenario agenda in a company

6.1 Introduction This chapter will deal with the practicalities of scenario planning; in other words the main issue that will concern us here is the way the scenario agenda is set in organisational settings. We have looked, so far, at scenario planning with respect to other planning methods and we have concluded that it is a suitable method for long-tem planning; it was from the seventies that many authors dealt in their articles with scenario generating methods (Durand, 1972:Duperrin and Godet, 1975:Gazes, 1976:Geshuny, 1976:Chapman, 1976: MacNulty, 1977) . On the other hand, forecasting, portfolio analysis and simulation models are not appropriate for that purpose given that the longer we look into the future, the higher the uncertainty is. We have looked, also, at certain methodologies for developing scenarios; these were divided into three main categories: intuitive logics, trend-impact analysis and cross- impact analysis. The one thing that these methodologies have in common is that they consist of a step-by-step methodology; each step was characterised by a headline such as identify the key issue or identify the driving forces. We have not, however, looked at the practical side of scenario planning to the extent that no attention was paid to how all these are implemented within an organisational context. This is the role of this chapter- to illustrate how this

Chapter 6- Setting up the scenario agenda in a company

issues are processed in an organisation as well as what ways we use in order to get the information we need. 6.2 Overview Before getting into the questions mentioned above, we have to observe that scenario planning is rather a craft than a science (Ringland, 1998: Van der Heijden, 1996). By that, we mean that each practitioner has his own rules; however, during the years that scenarios are used a set of principles has come up. It is, nevertheless, the case that practitioners have to learn from their own mistakes and make alterations to their techniques so that they have better results. Another important thing we have to bear in mind as far as scenario planning is concerned is that scenarios are always used in order to test something, that being the fit of our strategy to various future developments or any changes in the businesss environment. A scenario project should, therefore, involve an area of interest along with future developments around that issue; these developments will be described by a number of scenarios. In addition, in most of the cases there is no specific issue to begin with but the aim is to have a better understanding of what is going on in the business environment (Ringland, 1998: Van der Heijden, 1996). It is, however, better to have a question to focus on early in the process (Ringland, 1998) since that helps to put scenarios in a context. We can leave that to emerge from the process but, then, the whole team should have an in-depth knowledge of the organisation- it should consist from people within the organisation in other words.


Chapter 6- Setting up the scenario agenda in a company

The technique mentioned above could be proven useful; on the other hand there is a danger especially for big and successful organisations that they will not be able to recognise the trends-breaking signals. It is for that, that many scenario projects involve both internal staff and external consultants so that introversion will be avoided. We, therefore, have to communicate the most important characteristics of our organisation. A way of doing that is through the business idea; this can be defined as the answer to the question What is unique about this particular formula, and why are others unable to emulate it? (Van der Heijden, 1996, p.62). If, however, we choose not to communicate the business idea we need a scenario agenda in order to make sure that what we study is relevant to our project. 6.3 Towards the scenario agenda 6.3.1 The two players Before proceeding further with the scenario agenda, it is a good idea to define the two participants in a scenario planning project, the scenario planner and the client (Van der Heijden, 1996). The scenario planner is the person responsible for facilitating the scenario process. He can already be working for the organisation or he can an external consultant who will work in close association with the internal organisations staff throughout the project. Since he will be responsible for running the process, he should be dealing with tactical issues most of the times.


Chapter 6- Setting up the scenario agenda in a company

The second player is the client. By that, we mean those people who are trying to answer a strategys type question through the process; most of the times the client is the management team of an organisation. 6.3.2 Defining the scope of the project and getting the information In order for the scenario planner to proceed with the project, he needs to collect data. He has to ensure, however, that these data are relevant to the issue under consideration; it is so easy for anyone to collect large amounts of information since the business environment is so wide. In addition to that, a way should be found for the strategic agenda to be communicated; the concept of business idea, which was previously discussed, might serve this purpose quite well. As mentioned above, the first step the scenario planner has to undertake is that of collecting data on issues that are of strategic importance to the company. This information can be connected either by conducting a SWOT analysisthrough which a group brainstorming takes place- or by individual interviews. These two ways are further analysed and discussed below. 6.3.3 SWOT Analysis A SWOT analysis is a method for gathering information from the team; it can be conducted within half a day and the initials stand for Strengths, Weaknesses, Opportunities and Threats (Van der Heijden, 1996). This form of analysis is conducted, most of the times, at a workshop where the scenario planner should be the facilitator. It usually has three parts:


Chapter 6- Setting up the scenario agenda in a company

The opening or introductory part, where the importance and the target are explained to the participants A brainstorming part, where participants are requested to identify the strengths, weaknesses, opportunities and threats of the company A feedback and analysis session

Table 25 Parts of a SWOT analysis (Source: Van der Heijden, 1996)

At the introductory stage, the facilitator gives a brief description of the method. He, also, has to emphasise on the purpose of the exercise. The introduction is followed by a brainstorming session, where participants are asked to think of any aspect of the business they consider as either good or bad. The second task would be to categorise them under one of the letters S, W, O or T. A certain time allowance has been made for that. Once this time limit expires, participants are asked- one in turn- to reveal their points. We should note that at this point no discussion is allowed but one can only ask questions if he considers that his partners suggestion meaning is ambiguous. The group undertakes the task to decide whether this point fits in and how it can be described in a few words so that it can be written on the flip chart. When this process is finished, the flip charts are reviewed to make sure that nothing of interest was left out.


Chapter 6- Setting up the scenario agenda in a company

The analysis of what is written so far is the last stage of the SWOT workshop. This consists of five steps- one for each letter and one for the formulation of the scenario agenda. The first step deals with the strengths of the organisation. We should pay attention here to identify those strengths that make our clients prefer us rather than our competitors. Moving on to the second category, we should note that there are three categories of weaknesses (Van der Heijden, 1996) Symptoms Hygiene weaknesses Structural weaknesses

Table 26 The three categories of weaknesses (Source: Van der Heijden, 1996)

This distinction is essential in order to look at the real problematic areas of the company. The term symptoms is used to describe temporary weaknesses, which will disappear as soon as their causes stop being present; we can think of a decline in sales as an example. Hygiene factors are those weaknesses that are needed for running the business; an example of that type of weaknesses could be the expenditure for information systems. They do not provide a competitive advantage to the company but without them it would be very difficult for the company to resist to competition (Van der Heijden, 1996). The third type of weaknesses- the structural weaknesses- is the area the company should focus


Chapter 6- Setting up the scenario agenda in a company

on; these are the factors that should be corrected if the company wants to gain a competitive advantage. The third step is about analysing the points that came under the opportunities headline. These can be further subdivided into two types: portfolio areas and capability areas. The first are areas where the company can have profits by expanding a number of its strengths whereas the latter are areas where could develop new skills that are related to future success. The assessment of threats is the one before the last step of our analysis. It is about analysing the threats and taking actions against them since otherwise the strengths of our company might be in danger. The last step is the direct formulation of the scenario agenda. We can derive it by spotting from those data the areas where we should pay attention. If we want to proceed even further, we can rank those issues in terms of importance; the result, however, should not be more than, for example, four- broadly defined- areas so that it would be easily to tackle with them. 6.3.4 Interviews As mentioned above, the first step the scenario planner should undertake is to obtain an insight view of the organisations culture and views. We should, however, remember that the work is done under certain time limits; in other words the desirable number of iterations should be as small as possible. An effective way of doing that is through interviews (Van der Heijden, 1996). In order to get that insight, we should be aware of certain rules; these rules are presented below:


Chapter 6- Setting up the scenario agenda in a company

There should not be any constraints in the process The purpose of the interview should be explained and fully understood by the interviewee at the beginning of the process The interviewer should pay attention to what the interviewee says during the process and feed it back to him Mutual trust is very important and should be established right from the beginning

Table 27 Rules for having a successful interview (Source:: Ringland, 1998: Van der Heijden, 1996)

With respect to the first rule, it is important for the interviewer to go for the interview without having a fixed agenda. It is good practice to ask general questions concerning the business situation and just follow the flow of the conversation. The second rule is about making sure that the interviewee will be willing to share information. This will be achieved by explaining to him that the information will remain confidential and that it will be processed by subject; this way his anonymity is guaranteed. Another important factor is that the facilitator should be a good listener of what the other person says. Moreover, he should repeat those to the interviewer as a signal that he is interested in the conversation. There is a danger here, that the scenario planner might dominate the conversation by doing that; a tradeoff has to be found depending on the individuals involved in the conversation.


Chapter 6- Setting up the scenario agenda in a company

The final rule is about establishing a mutual trust relationship. As mentioned above, it is very important that the interviewee will feel free to speak; otherwise the person who conducts the interview will not get the information he wants. In order to establish that feeling it is absolutely necessary to gain the other persons trust. As far as the interview process is concerned, it can start by asking the other person how the company arrived at the present; this way we achieve both to get the personal view of the person as well as to involve him in the process. It is good practice that this question is the second one, following the introduction. Once this is done, we can start the interview process by using the so-called trigger questions. These are questions that form the starting point for a conversation but, on the other hand, the agenda of the conversation is influenced at a minimal level (Van der Heijden, 1996: Ringland, 1998). A set of questions of that kind, known as the seven questions, was found to be very effective towards that (Van der Heijden, 1996: Ringland, 1998); these are presented below. The first three questions are designed so that we can derive from the interviewer his concerns about the business environment as well as their beliefs about the uncertainties of it. These questions can be either asked directly or by using the method of the clairvoyant. The clairvoyant is a person who can see into the future; all we have to do is to ask the client to name three questions he would ask a clairvoyant if he had one in front of him. The advantage of the latter way of asking the questions is that it makes the process lighter without


Chapter 6- Setting up the scenario agenda in a company

losing the amount of information we want. The second question is introduced as soon as there is nothing to be added at the first question and, in essence, requires the development of a good scenario on behalf of the interviewee. In order to obtain that, the facilitator asks him to answer the three questions provided that the future turns out to be good in favour of the company. The next question is pretty similar; the only difference is that the interviewee is asked to answer those questions in case that the future develops in a unfavourable way for the company- this way the client reveals his worst fears about the future. We should, finally, note that the good and bad scenarios are adopted as terms only because they trigger ideas; generally, this method leads to poor quality scenarios. Once the previous questions are answered, we can move on to the next question that concerns the culture of the organisation. The client is asked to identify those events from the past that he thinks are useful and worthy to be kept as guidelines in the future. The facilitator might find details about existing organisational myths; these are stories known to everyone in the organisation and characterise its culture being, at the same time, a very effective way of communicating the organisations values. The fifth question is about the important decisions that the organisation needs to take in the short term. We should note here that there is no clear definition about the length of that period; it should be, however, sufficient to cover any major decision the company has to take. By this question, we aim at finding


Chapter 6- Setting up the scenario agenda in a company

what is troubling the clients mind at the present; these are areas that scenario can help. The major constraints imposed on the organisation, both from internal and external factors, are of interest as well. The internal constraints might be due to political issues or they might be because of the organisations culture whereas the external constraints might be from the competitors, for example. Those constraints are very useful in order to set the context for the scenario. The last question aims at spotting of the values system of the interviewer. In order to identify that, he is asked to think of a period in the future when he would have left his current position, due to either retirement or promotion, and name what he wants to be remembered for. Furthermore, if we want to remove all constraints, we can ask the client to imagine that he is in total control of the situation and answer the same question. 6.3.5 Interview techniques As far as the interview process itself is concerned, there are some issues related to it we should take into consideration. First of all, as mentioned above, the conversation should be as relaxed as possible in order for the interviewee to feel more comfortable. This raises an issue since there is a need of recording everything said for the formulation of the scenario agenda afterwards. A way of doing that is to directly record on a tape the whole conversation. The efficiency, however, of this method is under question and whether it is suitable or not for the specific situation depends very much on the culture of the organisation. The person who is interviewed may feel uncomfortable in front of


Chapter 6- Setting up the scenario agenda in a company

the tape, thinking of unpleasant situations that will emerge if tapes go to wrong hands. Another technique, which is by far the most popular, is to take notes during the interview process. In order to make it easier for the interviewer, two persons conduct the interview. They can even change roles during the interview. It is good practice for the two interviewers to compare their notes after the end of the interview; most of the times someone would have written something else than his colleague. A second issue is that of the identification of the most suitable persons for being interviewed. The problem becomes even bigger, if we think that all projects have certain time constraints. There is no magic number; however if we conduct between ten and fifteen interviews, in most of the cases this will be sufficient (Van der Heijden, 1996). Sometimes, it is better to interview more people; for example, when we want to create a sense of ownership across the management team. The analysis of the interview notes is another critical point. This includes the process of the interview notes as well as the judgement for which of them should be further processed. The criterion for this could be their relevance to the way the company reacts to signals from the outside environment. 6.3.6 Interview analysis The next step is the analysis of the interview results. The analysis is conducted in several stages. The first stage is to divide the interview notes into two categories: those concerning the organisation and those concerning the


Chapter 6- Setting up the scenario agenda in a company

environment; the criterion is whether the organisation has control over that issue or not. This division is necessary since almost every project deals with the organisations reactions to environmental changes. We should, note, here that if some statements have both an organisational and an environmental aspect, we should classify them under the environment headline. Once this step is completed, we have to further sort, cluster and link them. It is important not to have any clustering rules in advance, but do that through a cause and effect relationship. We, then, can go through the clustering process again and look for further similarities and patterns. Finally, in order to do the grouping we can make use of, for example, post-its if the number of statements is relatively small; in the opposite case a computer software package is needed. The process described above is continuously repeated until results are satisfactory; one way for checking it is whether the clusters formed are independent- in other words if an idea belongs to one and only one cluster. The analyst should illustrate any common and different views within the same cluster, as this will form the base for further discussion. 6.4 The scenario agenda The scenario agenda is the first outcome of the process mentioned above. It, generally, consists of five broad areas (Van der Heijden, 1996). These are problematic areas for the client where scenarios can be proven useful. In fact, there is no need to go beyond this number given that the areas have been chosen in a way that they are independent. If more than five themes have emerged, it is


Chapter 6- Setting up the scenario agenda in a company

good practice to involve the client in a ranking exercise so that the most important areas would be spotted. Another debatable issue is that of the organising question (Van der Heijden, 1996). This is the case since there are advantages and disadvantages associated with it. The obvious advantage is that it gives a strong focus on the project and ensures that the outcome is of high relevance to the clients concerns. On the other hand, it might cause restrictions to the thinking process since the purpose of the project is to consider alternative views of the world. Apart from the scenario agenda, a second outcome of the process is the internal agenda. This is the case since in most of the interviews, the interviewees talked about the goods and bads of their company- concerning, for example, their colleagues or the culture of the organisation- as well; this data can be used in order to understand the so-called business idea of the organisation. Finally, the team should decide on the horizon of the project; in other words how many years in the future should the project look into. This will depend on the impact that the decision will have on business; in most of the cases, however, it is around twenty years (Van der Heijden, 1996).


Chapter 7-Uses of scenario planning

Chapter 7 Uses of scenario planning

7.1 Introduction Scenarios, as opposed to other planning methods such as forecasting, simulation and portfolio analysis, give us the opportunity to look in the far future where uncertainty is very high. It is because of that fact that scenario planning was introduced and adopted in a wide range of applications; from the formulation of the corporate planning of a company to customer-driven planning and from planning for technology investments to innovation planning. In this chapter, we will focus on three areas where scenario planning is applied: the area of corporate planning, the area of technology investments and the area of customer-driven planning. 7.2 Scenarios in corporate planning 7.2.1 Introduction We are living in a rapidly changing world; the environment changes at a very fast pace, a fact recognised by every organisation. In order to cope with these changes, companies are reorienting their planning processes; there is a move from forecasts- with a strong quantitative element- that have difficulties dealing with discontinuities to more qualitative techniques (Klein and Linneman, 1981). In the context described above, the use of scenarios is constantly increasing. As an example for illustrating their utility, we can think of someone wanting to


Chapter 7-Uses of scenario planning

climb a mountain (Schoemaker, 1995). A traditional planning method would have equipped this person with a detailed map of the region; however, this is a two-dimensional map. In addition, further variables like weather conditions and any dangerous animals living in that area are ignored. Scenario planning, on the other hand, will provide this person with stories about how the elements of the system will interact so that he will be able to prepare himself in a better way against the difficulties he will face. The importance of corporate planning for a company was realised in seventies; the oil crisis was the critical event that made companies realise they had to look far into the future and formulate their strategy respectively. The emphasis on long-term planning contributed to the spread of scenarios; the first companies that applied the method were companies from the oil industry- like chemical companies- followed by the car industry since they were the first industries affected by the oil crisis (Ute von Reibnitz, 1988). 7.2.2 The business corporate planning strategy system; the five planning levels In order to describe the applications of scenarios in corporate planning it would, undoubtedly, be useful to describe a typical corporate strategy system. An illustration of this system is shown below (Millet, 1988). The first stage of this model is the corporate definition and purpose. It is essential for every company to have an identity. It emerges from the answers to the following questions: (please refer to the next page)


Chapter 7-Uses of scenario planning

What business are we in? Who are our customers? Why are we in that business?
Table 28 Three questions to ask for formulating the businesss identity (Source: Millet, 1998)

Furthermore, we should note here that this identity should derive as the combination of the external environment, which includes the customers as well as political, social, technological, legal and other issues, and the internal desires of the companys owners; these two should be identical in an ideal situation. As far as the corporate definition is concerned, we have to note that its success is measured by the degree to which it is understood by the staff and put into action. Likewise, with respect to the characteristics it should have it is important not to be too detailed and lengthy; it should be accessible to anyone in the company and it should be recognised from the moment someone enters the reception area (Ute von Reibnitz, 1988). Despite those elements, however, it is a common mistake for many companies to produce too comprehensive identities, which are very complex and the essence is lost. Once this step is completed, there is a need for defining certain goals as well as measures of performance to monitor its progress. The goals could be both long-term and short-term; they can also be qualitative or quantitative. The measures of performance can, for example, be the market share of the company, the sales volumes or the profit margins.


Chapter 7-Uses of scenario planning

The next step in the process is the identification and evaluation of strategic options. These should be in compliance with the goals set in the previous step and mainly involve the product mix and the marketing strategy of the company. The evaluation of those options comes next; this is more difficult since the options, in their generic forms at least, are more or less predetermined. In order to evaluate the options available, we can test them against macro and micro models as well as against qualitative and quantitative criteria; the culture of the company and the mix of different peoples and ideas are additional criteria for our choice. In general, however, there are eight factors against which we can select the optimal strategy; the first four are related to the external environment while the last four are related to the internal environment (Millet, 1988)- these factors are presented below. Customers response (acceptance or rejection) How it responds to predictable market conditions How competitors react to it How our allies react to this strategy If it is in compliance with the corporate definition and the goals set If it can be successfully implemented given the current resources of the company If it passes the financial risk test If it is in compliance with the managements priorities
Table 29 Eight factors for evaluating our strategy (Source: Millet, 1988)


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After this step, one strategy is chosen to be put forward. This is done, in most of the cases, by the top management. On the contrary, everyone should be involved in the implementation of the strategy. This is, in turn, put in action and the reactions from the business environment serve as feedback to the process. An alternative model for corporate planning is the five levels planning (Van der Heijden, 1996)- this is presented below.

Figure 11 The five levels of corporate planning (Source: Van der Heijden, 1996)

Strategic planning is at the top level. It is the equivalent of corporate definition and purpose in the previous model as it involves the exploration of the future and the expression of results through the business idea, which answers the three questions previously mentioned. Strategic planning takes place at both the corporate and the business level; in fact it is better to develop the business idea first and then deal with the corporate business idea- this is the case since the corporate competitive advantages are based on the businesses

Chapter 7-Uses of scenario planning

ones. The outcome of this procedure is a set of strategic objectives, which is the second step of the model described above. Each one of those objectives should be expressed in a short sentence and describe where the company would like to be at the end of the horizon year. Masterplanning is the second level of planning; it is mainly related to the strategic options part of the first system but it incorporates the managements priorities part of the second step of the first model as well. It is about linking projects together so that economies of scale can be achieved. The result of that stage is the allocation of resources across the organisation. Once this stage is completed, we can move on to project planning. The latter is conducted with project planning and incorporates parts of the two last stages of the corporate system model. In general, the team of people who would be responsible for the projects is brought together in a workshop and a facilitator is used (Van der Heijden, 1996). The process followed can be divided in the following steps: The objectives of the workshop are explained The team discusses the objectives they have to meet as well as to identify areas where action plans are required A gap analysis is conducted A list of actions need to be taken is formed Action plans are formulated The result of the workshop is reported
Table 30 The process followed in project planning (Millet, 1988)


Chapter 7-Uses of scenario planning

The next level in the planning cycle is budget planning. It involves the setting of targets as well as the development of a quantified plan for the results of the previous levels of the cycle. It incorporates every step listed in the previous model except the corporate definition step and is needed for a number of reasons. These involve the availability of resources and the need for a business plan to be presented to the stakeholders- who are the people we need to keep happy- as well as for expenditure limits. Appraisal is the last level involved; it is about the efficiency of the actions taken and is linked to the last stage, the strategy stage, of the first model. It uses the performance measures set earlier and if a significant difference occurs from the targets set, it is an indication that corrective actions should be taken. 7.2.3 Uses of scenarios in corporate planning

In the previous chapter, a typical model for formulating the firms corporate strategy was, in brief, described; likewise, a similar planning model consisting of five levels was highlighted in order to indicate the planning cycle. Scenario planning is proven to be a very effective tool, which we can use at various stages of this process. The first stage where scenarios can be used is at the development of a companys master strategy; in other words the identity of the company- its definition and purpose (Ute von Reibnitz, 1988: Millet, 1988: Van der Heijden, 1996: Fahey-Randall, 1998). In order to do that, a manager needs information on how the future business environment will unfold; how the external


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environmental factors- political, economical, technological and social- will affect the companys businesses. The method of scenarios can be employed in order to forecast to some extent the future developments; it will provide us with alternative, internally consistent, futures. We should note, here, that the purpose of scenarios is not to provide accurate answers to short-term questions; it provides us, as mentioned above, with a set of future conditions against which the company should secure itself. The utility of scenarios in that stage lies, therefore, in the fact that we reduce future uncertainties to some extent. The second area where scenarios can be used is that of evaluating goals and strategies as well as assessing the current ones (Ute von Reibnitz, 1988: Millet, 1988: Van der Heijden, 1996: Fahey-Randall, 1998). As far as the first is concerned, every company needs to test its strategies and develop, at the end, a core strategy, which would be compatible with the environmental conditions. Scenarios, as mentioned above, can be used in order to generate alternative futures; the same events can be chosen from all scenarios and build a strategy based on them. In addition, for the strategy to be more flexible, we can test our innovative actions decided after examining the first scenario against the next one; if they can be applied against that scenario as well, then we can introduce them in the core strategy. It is the case, sometimes, that we will have to modify the activities before transferring them into the other scenario; however, around two thirds of activities are, this way, transferred to the core strategy (Ute von Reibnitz, 1988).


Chapter 7-Uses of scenario planning

With regard to the assessment of current goals and strategies, it is important for every company to check on a continuous basis its strategies against developments taking place in the business environment. In order to do that, we can develop the scenarios on an individual basis; once this is done, we can check our strategy against them. This is done by the aid of the so-called scenario descriptor list (Ute von Reibnitz, 1988); that consists of the descriptors- the driving forces in other words- of each scenario along with their possible development. We can, afterwards, rate our current strategy against each scenario; the rating procedure should not be strictly quantitative but it can include qualitative elements as well such as our beliefs on the degree to which the strategy will be sufficient against the scenario under consideration. Because of their use in the evaluation of the companys strategy, scenarios can provide us with information on various subjects (Millet, 1988). The first area in which we can get additional information on is the area of marketing. In particular, we should be able to identify any trends in demand for the existing products and services of the company. If the results from different scenarios show a high variation, then actions should be taken against it; this issue should be addressed in parallel with the formulation of the companys master strategy. A second important area we should consider is that of the external environmental conditions; companies do need to know whether market conditions, for example, will favour them in the promoting of their products or not and formulate accordingly their market strategy. A company that produces alcoholic drinks for example should go through scenarios where regulations are


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very strict for its products and an official campaign is launched against the effects of alcohol in our health. Furthermore, scenarios can be used for the identification of new product opportunities. It might be the case that the demand for a product is not growing or, even worse, is declining; in that case, a substitute product might be found. This will be done by considering the customers needs in the future so that we can adjust our strategy. An important factor that can give competitive advantage to a company is the use of new technology; however this is related to high levels of expenditure along with human resources management and plant layout issues that need to be resolved. These technological considerations should be included in the firms strategy and can be addressed by scenarios. Furthermore, it should be-undoubtedly- useful if the company could have information on competition; this includes both similar products or services as well as substitute ones. We can develop scenarios where we would be able to incorporate our competitors major strengths and weaknesses and foresee how the future will unfold; it is a good idea to view those scenarios in combination with the scenarios on the business environment so that we will have the whole picture. Finally, scenarios can give us an idea about the uncertainties that a company will face in the future. This type of information is essential in order to decide on the amount of flexibility we should allow for in our master strategy; this will, of course, depend on the companys culture as well (Millet, 1988). If the


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developed scenarios show a high level of variation, then its strategy should be characterised by a high level of flexibility as well. It is, however, good practice to keep a close eye to the developments and formulate a contingency plan in order to respond to changes. 7.3 The scenario method for technology investments 7.3.1 Introduction

Technology is a very important asset for a company; therefore, any decision concerning its technological infrastructure is crucial and needs to be carefully examined. This is the case since if the choice of investing in a new technology is correct, the company is gaining competitive advantage against its competitors by using state-of-the-art technology; on the other hand, if we take the wrong decision the companys future is in risk. The best choice, however, we can make is a technology that can be successfully used by the company in several future markets (Fahey-Randall, 1998). If the choice is made only on the basis of some either financial or production capacity measures, it is highly probable that those responsible for the project will fail to anticipate potential future market opportunities. This is the role that scenarios will play; to help managers evaluate the technology needed for future products.


Chapter 7-Uses of scenario planning

7.3.2 The scenario method for technological decisions The first step we need to undertake in a scenario-based technology investment project is to scan the business environment- political, technological, social and economical- in order to identify trends, issues and factors that could affect our business; these factors are called business drivers (Fahey-Randall, 1998). It is important not to place borders on that initial activity; it is, also, important not to judge the influence of the factors at this stage. Once this is done, the results need to be clustered in order to define the dimensions around which our scenarios will be built. These are macrolevel issues that will define the planning environment (Ute von Reibnitz, 1988: Fahey-Randall, 1998). Furthermore, there are certain rules associated with dimensions; these are presented below (Fahey-Randall, 1998). (please refer to the next page) They should be defined at the macrolevel We should not be able to predict how they will unfold in the future; their development should be characterised by uncertainty Our organisation should not be able to control these factors

Table 31 Rules associated with dimensions (Source: Fahey-Randall, 1998)

The next step after the spotting of dimensions is to put them in a matrix from where we will be selecting the scenarios. It is, also, important to select the


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smaller possible number of scenarios that incorporate both the opportunities and the threats that our business will face in the future. We should, note, here that including technology in the business drivers category can create many problems; this is the case since we face difficulties defining the technology dimension when the developed scenario will be used for technology decisions. This is the case since it is very difficult to define that dimension; we can try some headlines like high growth of technology or low growth of technology but it is highly unlikely that all future technologies will grow at the same pace. Scenarios, on the other hand, should provide us with information on the businesses and customers needs so that we can anticipate the products demand as well as the emerging technologies. If the project horizon is, however, extended- about ten to twenty years- then specific information on technology decision making is required (Fahey-Randall, 1998). In addition, there are certain trends that should be included in every scenario- these are issues like interest rates and inflation. Moreover, effort should not only be put in finding numerical expressions for those drivers but in assessing any existing interrelationships as well. The culture of the organisation should also be tested; it should not be an obstacle for certain assumptions- that competitors will need to invest heavily in information technology in order to enter the market (FaheyRandall, 1998). The next step is to take those alternative worlds as reality and to anticipate which products should the potential customers want. They should, then, try to


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work out technologies for producing those products. The latter can be achieved in two ways. The first way of doing that is to identify a common set of technologies in order to produce the common products in all scenarios. However, it does not allow us to understand the route followed in order to end up with this product list. Another approach to that issue is to identify a set of totally new products; these products should be needed in all scenarios. This is, then, used to evaluate alternative technology solutions. We should end up with a core set of technologies which will accommodate the future demand; our finally step is to link that set to the strategic objectives of the company. Summarising, we see that the scenario approach for technological decision making can offer many benefits to the company under consideration. It gives the company the opportunity to incorporate the future customers needs to their technological planning. Moreover, in the case of big changes in technologytechnological discontinuities- those companies will act at a much faster pace and with much higher confidence than its competitors. Scenario planning can, therefore, give companies a competitive advantage. 7.4 Customer-driven scenario planning 7.4.1 Introduction As time goes by, we are experiencing major changes in markets; especially nowadays the development and popularity of Internet has made possible for


Chapter 7-Uses of scenario planning

everyone to make his shopping from anywhere around the world. The effect of markets globalisation has attracted the attention of many companies and can be viewed as an opportunity for a company to expand its business; there are many questions, however, raised- for example about the security of transactions over the Internet. In addition to that, changes have taken place in the area of customers needs. The role of customer-driven scenario planning is to help companies overcome such difficulties as well as communicating these changes within the organisation, making it capable of taking actions against them. 7.4.2 Customer-driven scenario planning As mentioned above, customer-driven scenario planning address issues like how market segments or distribution channels will change and unfold in the future; in addition we are interested in knowing the impact that changes in our customers behaviour in the future will have on our business. Finally, we would like to know who would be our new future competitors to whom our loyal customers will turn to (Fahey-Randall, 1998). This planning approach is different from the traditional one; this distinguishes between predetermined events and critical uncertainties. The distinction is done on the basis of the extent to which the development of a factor is predictable or not; critical uncertainties, on the other hand, can not be predetermined but can be thought of as questions requiring answers (Wack, 1985a). In order to get best results, it is better to concentrate on a small number of uncertainties, which have a heavy impact on our business.


Chapter 7-Uses of scenario planning

We, then, use those uncertainties as the basis of our scenarios. In order to construct our scenarios, we combine different developments for each one of the key drivers; we should, of course, be careful so that these scenarios are internally consistent- in other words, the developments of the key drivers do not contrast. One of those scenarios, however, should be surprise-free; in other words the development of the key drivers will be according to the corporate planning. This is necessary in order to keep the scenario planning project going if we present totally new to the managers the most probable development is that they will lack confidence in the method, as in the Shells case. As far as customer-driven scenario planning is concerned, we can distinguish between three phases: those are the constructing, exploring and responding phases (Fahey-Randall, 1998). These are illustrated in the following figure. At the first phase, we are at the beginning seeking answers to questions related to our customer base; these include questions on the spotting and definition of our customers and the categorisation of them. Another set of questions we might address at this stage is about the priorities of our customers categories as well as how the identity of the customers belonging in the category which leads the others can change. If we are in the manufacturing of sports shoes business this category might, for example, be the athletes. We should note, here, that the best criterion for conducting the categorisation is the behaviour of customers (Fahey-Randall, 1998). Moreover, we shall consider the possibility of new distribution channels emerging as this will affect the way our customers reach our product; if they


Chapter 7-Uses of scenario planning

change attitude towards the traditional distribution channels, we should be in place to accommodate that change. Finally, we should pay attention to how the critical uncertainties identified in scenarios will affect our clients. The second phase of a customer-driven scenario project is, as mentioned above, the exploration phase. The key questions that need to be answered here are the identification, on one hand, of ways we can keep on meeting our clients needs profitably and, on the other hand, whether we should expect other competitors appearing on the scene. (Ute von Reibnitz, 1988: Fahey-Randall, 1998). The analysis should be conducted in each customer segment, as these are defined by the previous step. We should, now, put ourselves in the place of the customers and assess any competitive prepositions. We should, though, be aware of the fact that sometimes the preposition itself is not a threat but if two or more are combined, this might form a threat- videos and video rental clubs is a good example (Fahey-Randall, 1998). The third phase of the project is the responding phase; in that, we are concerned with ways of responding effectively to the changes identified in the previous steps. There are three types of response, which can be summarised by the following headlines: just do it, place your bets and monitor closely. The first approach is related to issues common in all scenarios that will almost certainly occur; therefore, we should start thinking about actions needed against them. The second category consists of issues that are very important in the scenario they appear; we have to prepare ourselves in case they occur. Finally, the last


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category includes those trends that can not be dealt with at the present due to very high uncertainty; they should, however, be closely monitored.


Chapter 8-Case Studies

Chapter 8 Case Studies

8.1 Introduction We have, so far, studied the theoretical aspects of scenario planning; how it emerged, why it is superior to other planning methods, some of its applications in industries and its main generating methods. On the other hand, in order to have the whole picture in front of us, we need to study how scenario planning was applied in a specific companys context. In this chapter, therefore, we will concentrate on two real life examples; the cases presented are the British Airways and respectively. 8.2 British Airways 8.2.1 Introduction British Airways was, some years ago, a state-owned company with its accounts showing that it was losing money; since then many things changed. The company is, now, generating profit and is a publicly listed airline (Moyer, 1996: Ringland, 1998). It was, however, due to the Gulf War that a recession appeared; the airline industry, as a whole, lost 10 billion in that period while British Airways still had profits. The financial results of 1995 indicated a turnover of 7177 million the Shells, which is the pioneer in this field cases


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with a profit, before taxation, of 452 million; moreover, it is flying 36 million people to 194 destinations in 82 countries (Moyer, 1996). The industrys environment, however, is very turbulent and is constantly changing; therefore traditional short-term planning techniques. Likewise, it is difficult for managers to look far into the future leaving their current job aside; the official planning horizon is, anyway, four years. Because of these difficulties, the corporate strategy department decided to introduce the scenario planning methodology in 1994; a description of the methodology followed follows. 8.2.2 The methodology The process was divided into two parts; the first part was called the scenario development phase while the second was called the scenario workshops. DeAnne Julius, the chief economist of the company, was responsible for the first phase. A development team was formulated; it consisted of eight people whose origins were from the corporate strategy, the government affairs and the marketing departments- in addition to them an external consultant was used at that phase of the project. The group of people mentioned above started working in March 1994 and finished at the end of October 1994. Furthermore, it was considered important to gain top management support for the project. In order to obtain that support, a group of fourteen people, directors and senior managers from all the major departments of the company, was formed; it was called the Halo Group. Their task was to review the


Chapter 8-Case Studies

activities undertaken by the development team and give their opinion and advice at the end of each of the major project tasks. The first step the development team needed to undertake was the identification of the external factors that influence their business- the airline business. The method used was to conduct individual interviews with managers in charge of various departments; in addition, five group interviews were held with specialists from areas such as air transport regulation and information systems for the airline industry (Moyer, 1996: Ringland, 1998). The

interviewees were asked to respond to a set of questions, which was designed beforehand- detailed notes were taken under the condition that the name of the interviewee will not be revealed. These notes were used in order for the Official Future to be defined; this was, basically, a summary of the assumptions already made by the managers of British Airways. Likewise, the external issues were classified into three main categories; these were the predetermined elements, the key uncertainties and the driving forces- the latter being issues that directly affect the industry such as developments in information technology. A debate followed and eleven of those issues were chosen for further research. The Halo Group approved that findings- to the extent that they reflected the official thinking of the company about how the future would look like. Once the issues were identified, there was a need for predicting how they will unfold in the future; the understanding of the critical points that contribute towards a certain development direction was essential. Every member of the


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development team was assigned one or more issues for further investigation; they were supposed to conduct more research as well to contact consultants in order to develop their theory about how the specific issue will emerge in the future. The next meeting of the development team took place in the middle of July in 1994; they discussed what they have found so far and decided on the relationship between growth and governance being the main issue. They, also, decided that two stories would be developed covering a time horizon of ten years; the writing started in July of 1994. The outcome, at the beginning, was draft stories as well as some slides that highlighted the main points in a graphical format. The initial audience was other team members and experts on these issues; a presentation took place at the Chairmans Committee as well in order to ensure approval. As internal consistency is a major request for scenarios, the final version of the stories was written by the consultant and finalised and approved by the Chief Economist who was in charge of the project. The Halo Group gave its approval to those stories as well. In the meantime, numerical data were collected in areas like traffic and economic growth in order to see how they will unfold in each story. The development team decided that the levels of world economic growth would be similar at the end of the horizon year; the decision was taken in order to avoid people from thinking that the stories built are each others opposite- a major pitfall in scenario planning projects.


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Finally, two scenarios were produced; both had as starting points four driving forces- these were technology, education, world trade and finance.

Figure 22 The driving forces (Source: Ringland, 1998: Long Range Planning, 1996)

The first scenario was given the title Wild Gardens (Moyer, 1996: Ringland, 1998); in that it is not possible to build new structures of governance. The shape of the future is the result of a continuous battle between winners and losers; a schematic illustration of this scenario can be found in the figure below (please refer to the figure below).


Chapter 8-Case Studies

Figure 13 Schematic illustration of the Wild Gardens scenario (Source: Ringland, 1998: Long Range Planning, 1996) The second scenario was given the title New Structures (Moyer, 1996: Ringland, 1998); in that it is possible to find shared values and new ways of organising. The latter ensures that growth will continue at a manageable way. A schematic illustration of the second scenario can be found in the figure below.

Figure 14 Schematic illustration of New Structures (Source: Ringland, 1998: Long Range Planning, 1996)


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The second phase of the project comprised the scenario workshops; these were lead by Rod Muddle who was the Head of the Planning Department and the representative of Corporate Strategy in the planning process (Moyer, 1996: Ringland, 1998). In order to design and run the workshop phase, a team of five facilitators was employed; work begun in June of 1994. The following two months were devoted to training and the first four trial workshops took place in October 1994. The participants in those workshops were supposed to hear and discuss the scenarios; these should be used in order to test current strategies and develop new ones. This was accomplished by making use of brainstorming or other ideas generating techniques; the ideas were recorded and the most popular were summarised into short strategic statements. Once this was done, the established strategies were checked against both scenarios; if a strategy worked well against one scenario but not as well against the other, a discussion session followed about how it could be improved. A discussion, finally, on actions required for this strategy to take place followed and feedback was gathered. The first potential participants were directors and senior managers who were responsible for the major areas of the business plan. They were targeted and, then, the facilitation team met with them in order to explain the benefits and volunteer to organise the workshop. Everyone, however, in the company could attend the workshop and plan its objectives; on the other hand targeted customers had priority over other individuals. The output of the workshops was confidential and the notes were received about a week after the workshop. The


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feedback was received after about one month of the workshop and a meeting with the client was held in order to prioritise actions, if needed. Finally, with respect to the Halo Group it continued to play an important role at this phase too. The workshop process had to get their approval as well as the targeted clients approval. In addition, they received feedback on the progress of the workshops; many of its members were early clients anyway. The amount of effort, finally, required to set up a workshop was about four to five mandays. 8.3 Shell 8.3.1 Introduction Shell, most specifically The Royal Dutch/Shell group of companies, is the pioneer of scenario planning. It was its planning department, led by Wack and Newland at the time, in early seventies that introduced that technique as a response to the high uncertainty that characterised the oil business and made things very difficult for traditional forecasting methods. At the following pages, a description of how the company moved from the Unified Planning Machinery (UPM) planning method to scenarios can be found. 8.3.2 The methodology First of all, we need to understand that the uncertainty is not a statistical deviation from a known distribution of events; it is rather a basic feature of the business environment (Wack, 1985a). An appropriate planning method should, therefore, be found.


Chapter 8-Case Studies

As far as Shell is concerned, a new planning system- the Unified Planning Machinery- was introduced in 1965; its task was to provide planning details for the whole of the companys activities- from drilling for oil till delivering it to the gas station. The planning horizon of the system was six years; the first year should be planned in detail whereas the next five years in more general terms. It was very soon realised, however, that due to the long lead times that characterise the oil business the planning horizon should be expanded. The company, therefore, decided to conduct a study about the business environment till the year 2000. The study revealed that many changes will take place in the oils market; some of them were that there will be a switch from buyers market to sellers market and that the oil companies will become less flexible and reactive to changes (Wack, 1985a). A new planning method had, therefore, to be used. As a response to that, twelve of the major companies in the Shell group were asked to look ahead for fifteen years as a planning exercise. Pierre Wack was at the time working for the French department of Shell; in addition he was familiar with the scenario approach of Herman Kahn, the president of RAND corporation (Wack, 1985a). It was then that the first scenarios were generated. There were, first of all, two uncertainties associated with France; the first was the availability of the major oil competitor- natural gas - and the second uncertainty was the way the French government would manage energy which at that time was in favour of the national companies against multinationals. On the other hand, as a member


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of the European Community it would have to comply with the European Communitys policy, which was characterised by liberalisation. We, therefore, have two options available for the governments policy- stay as it is or adopt the liberalisation policy- and two options for the availability of gas- low or high. By combining those we can get four scenarios; these were the first scenarios produced in 1970. It was, however, only in 1972 when the methodology of scenario planing was expanded to the central offices and some large companies of the group. In 1973, it was recommended as the official planning procedure and the old planning system- the Unified Planning Machinery- stopped existing. The scenarios previously mentioned fulfilled the basic request; they were internally consistent. On the other hand, no action could be taken on behalf of the management team; the reason for that was that only the raw uncertainties were presented and combined without the forces that drive their development. This is the reason why they should be restructured in order to incorporate those forces- these are the so-called second generation scenarios. The first step undertaken was to study in further detail the important factors for Shell businesses; those were the oil producers, the consumers and the companies. There were important behavioural differences since self-interest determined their concerns and actions (Wack, 1985a). In the case of Saudi Arabia, for example, the income for the oil production would have been so high that it would have not been possible for the government of that country to spend all of it. A certain amount of money would, therefore, have to go to the bank


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where it is, by far, more insecure than being under the ground in the form of crude oil. (Wack, 1985a) The oil producers were, then, analysed one by one according to their oil reserves and their ability to spend the money they get in a productive way. It was clear that their interests were different; those conflicting interests will, of course, be reflected to their strategies. The results are shown in the following matrix (please refer to the following page) .

Reserves Limited Ample

Group I Libya Limited Absorptive Capacity Group III Algeria Ample Venezuela Indonesia Nigeria Iraq Iran Qatar

Group II Saudi Arabia Abu Dhabi Kuwait

Group IV

Figure 15 The major oil exporters (Source: Wack, 1985a)


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Further to that analysis, two families of scenarios were produced each one consisting of three scenarios. The A-group of scenarios projected that a disruption in the oil supply will happen at the same time with the Teheran price agreement in 1975- apparently the timing was wrong since it occurred in 1973. The reasoning, however, for this prediction was very well structured; on one hand the oil producing companies would have either reaching their technical limits or it would be better for them to leave the crude in the ground for financial reasons. Likewise, by the end of 1975 the oil price would significantly increase. This predetermined element was the cause for the development of three scenarios, which comprised the A-family of scenarios. These were the most probable outcomes; however, because they were not in line with the official view at the company they were not so effective; an indication of how important is for the Official Future- or surprise-free scenario- to be incorporated in the family of generated scenarios. In response to that, the B-family of scenarios was developed. The basic assumption was that somehow a sufficient energy supply would be available (Wack, 1985). The first scenario of that family- the B1 scenario- projected that it would take ten years of low economic growth in order for oil supply and demand to match. On the other hand, this was impossible since the industrialised countries considered the rise of unemployment unacceptable and from 1972 onwards signs of an economic boom were evident.


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The second scenario of this family was based on the words of William Ogburn (as cited in Wack, 1985, p.83): There is much stability in society...Social trends seldom change their directions quickly and

sharply...Revolutions are rare and evolution is the rule. It was a rather simplistic scenario where everything possible would happen; the oil producers will keep on producing the oil and the consumers will lower the consumption rates. The third scenario was called the three miracles scenario; this was the case since in order for that to come true three miracles were needed (Wack, 1985). The first one was that the reserves necessary to meet the 1985 demand would be found in each of the oil producing countries simultaneously; the chance assigned to that event happening by the companys experts was almost equal to zero. The second miracle was associated with socio-political reasons; it was stating that the oil producing countries would produce as much oil as was required by the customer. The third miracle, finally, stated that there would be no need for oil above the forecasted demand. The above mentioned scenarios were quantified in terms of volume, price and impact on both producers and consumers. The management team decided to take actions immediately; they asked the operating companies of the group to assess their strategies against two A-family scenarios using B2 scenario as a sensitivity check. The scenarios were, also, presented to other managers within the company as well; at the beginning there was a feeling that most of them appreciated the technique but after a few months there was no change in most


Chapter 8-Case Studies

of the decision centres of Shell. This lead the people in charge of the planning department to realise that the scenarios they had to produce would have to challenge the managers microcosm. The next generation of scenarios was the 1973 scenarios; as time passed by. The disruption in oil supply seemed to be a predetermined event; more details were not known- such as the time it will occur and the future price for a barrel of oil- but all the signs indicated it will occur. It was, therefore, incorporated into the surprise-free scenario. In addition, some of the previous generations scenarios were abandoned; more specifically the B-family. This was the case since the first scenario was impossible to take place since a boom in the economies was the main characteristic of this time. Furthermore, the three-miracle scenario- the B3- was also abandoned since, as the name suggests, in order for it to take place three highly unprobable events had to happen. The B2 scenario was an artificial construct anyway. Because of that boom in economies, it was difficult to convince managers to stop the expansion strategy, two phantom scenarios were created- those were considered illusions by the planning team (Wack, 1985). In the first scenario the discontinuity would delay for five years while in the second scenario it would delay for fifteen years- the choice of times was not made in random since they were representative for the oil business. A five years period is needed for a new oil facility to produce results whereas fifteen years are needed to amortise it (Wack, 1985). They were developed to serve as a utility loss


Chapter 8-Case Studies

function for Shell if in the name of planning for the discontinuity it did not build the refineries. There were only two alternatives which could prevent discontinuity from occurring; the first was the discovery of new oil resources in places when absorbing revenues would not be a problem and a control- either political or military- of the oil producers countries from the consuming countries. Both had a very low, almost equal to zero, probability of occurring so they were not considered further. Finally, attention was focused on three elements of the business environment; the first one was that alternative fuels options will develop at a very slow pace. Moreover, even if other fuels were used for generating power this would not be bad news for the oil producing countries since it was a low-value market. Furthermore, the use of coal for heating would result in very high expenses and the possibility of using oil for transport was very low since the expenditure associated with it was very high. The second element was accidents that occur due to many reasons- political, internal even physical events such as earthquakes- were considered as being part of the game. The final element was the relationship between the price and the volume of oil produced.


Chapter 9- Discussion on findings

Chapter 9 Discussion on findings

9.1 Introduction It is commonly accepted that we are living in a turbulent environment where change occurs at a fast pace. The same applies to the business environment as well since many of the factors that contribute to its shape keep changing. As an example, we can think of the wide spread of Internet- an application originally developed for military purposes in sixties- which has now become part of our everyday life. Many businesses have adopted Internet for doing business and their products are accessible online - Argos is a good example. Furthermore, many companies have adopted this method as complementary to the traditional way of selling whereas for others this is the only way for contacting their customers. In addition, technology- in general- is advancing at a very fast pace. We are, nowadays, capable of setting and achieving targets that we did not even dare to think of in the past- the first tourist trip to the moon scheduled for 2010 is a perfect example of such a situation. The situation is not different in the case of business technology as well; automation and robotics is replacing manpower in almost every task; the purpose for that is, however, a debatable issue. In an environment like the one described above, managers need to understand that forecasting techniques are not able to assist them any more in the planning process on their own. This is the case since- no matter how


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sophisticated these techniques are- they extrapolate the past into the future making the silent assumption that tomorrow will be like yesterday. A new tool has, therefore, to be used. Scenario planning, despite the fact that it was known since the Roman times (Ringland, 1998), it was reinvented as far as the business context is concerned after the oil shock in 1973; between 1977 and 1981 the use of scenario as a business forecasting tool was widely accepted (Schnaars, 1987). Pierre Wack, as the head in the planning department of Shell, managed to transform the company from the weakest oil multinational before the oil shock to the strongest one after it (Mercer, 1995) by introducing scenario planning. Despite that, there is still space for scenario planning to expand as a method. In a survey conducted by the Turku school of Economics (Malaska et al, 1984) among 1100 companies, it came out that only 36% used scenario planning. This figure is smaller than the respective one for U.S. companies in 1981 but higher than the figure in 1977, which was 22% (Linneman and Klein, 1983). In this chapter, we will discuss the advantages of the scenario method compared with forecasting and we will try to answer the question about which scenariogenerating method is the best. In addition, we will be discussing the benefits an organisation can get by employing scenario planning as well as any pitfalls involved in the method. 9.2 Scenarios compared to forecasts and simulation Since the end of the Second World War, there was a very powerful trend in favour of forecasting as far as business planning was concerned. It was a strong


Chapter 9- Discussion on findings

belief that through forecasting methods- either quantitative or qualitative- we can get answers to every question that is troubling us. Moreover, our answer can be even more accurate if we combine a number of forecasting techniques or if we take advantage of the advances in computers technology in order for the calculations to be performed in a faster and more accurate way. We would, thus, be able to have a picture of what the future is going to look like and adjust our planning accordingly. In real life, however, things are quite different; forecasting techniques, as a whole, extrapolate the past into the future- they make the vital assumption that trends will not change. On the other hand, the oil embargo came as a proof that this is not always the case; likewise, many other examples of forecasting failures are known (Beck, 1982: Zentner, 1982). The reason for that is that the business environment is characterised by high uncertainty as opposed to the stable environment that forecasting techniques need in order to deliver good results. There is, therefore, a need to look for alternative planning techniques. Scenario planning is a technique that let us cope with that uncertainty. This is the case since it provides us with a framework of possible alternative futures against which our strategy can, and should, be tested. British Airways and Shell, as mentioned in the previous chapter, used it for that purpose and the implementation was successful for both companies. Shell became the strongest oil multinational company after the embargo (Mercer, 1995) and British


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Airways came out of the recession profitable while the other airline companies have lost a lot of money. It happens many times, however, that scenarios are misinterpreted and considered as forecasts. This is not true for a number of reasons (Beck, 1982). First of all, the results of the forecast are based on probabilities distributionseither theoretical or defined by the user- whereas a scenario is a description of a possible future on the basis of grouping internally consistent developments of some of its variables. Furthermore, in the case of forecasting the silent assumption that we have taken into consideration every possible variable is made. On the other hand, this is not the case with scenarios which present a number of the key factors that will influence our business in the future as well as the way this is going to happen. Another difference between forecasting and scenarios is the proportion that each has in the decision making process. A forecast is regarded as an experts judgement, a black box, which should be either accepted or rejected. On the contrary, scenarios play an educational role; they help the manager understanding the drivers of the future, by understanding what causes the change and not just spotting it, and test the companys strategy against a set of possible future outcomes. We shall note, however, that what mentioned above does not imply that forecasting should not be used. On the contrary, forecasting was applied in the British Airways case study as a mean to see how data will evolve in the future


Chapter 9- Discussion on findings

once the framework was set; we can predict the predetermined elements and quantify the decisions taken for the alternative developments of the other factors. We should, on the other hand, be aware of the constraints of the method and use it in the appropriate framework. As far as simulation models are concerned, they are useful and within a certain context they can be of value to a company; as we saw in the previous chapter, Shell used simulation models once the scenarios framework was set. It is, on the other hand, not advisable to use simulation alone since that will give us only one possible future outcome. We can make use of simulation models as a learning tool, so that managers can experiment with the scenarios developed and specify courses of action to be taken. 9.3 Advantages of introducing scenario planning to a company As mentioned earlier, it was only after the oil shock that scenario planning gained wide acceptance in the business world. A few, only, years earlier in a survey of forecasting methods conducted by three researchers-Chambers, Mullick and Smith- and published in the Harvard Business Review, scenarios were included as visionary forecasts (Chambers, Mullick and Smith, 1971). The authors of the survey define scenarios as (Chambers, Mullick and Smith, 1971 ): subjective guesswork and imagination: in general the methods used are not scientific... a set of possible scenarios about the future prepared by a few experts in light of past events. Since then, two decades have passed and the popularity of scenarios has dramatically increased. According to a survey carried out among the Fortune


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1000 companies (Linneman and Klein, 1983), thirty five per cent of them used scenarios- allowance was made for bias caused by non-respondents to the questionnaire. This widespread of the scenario technique came as a result of the many benefits it delivers to an organisation (Thomson, 1999). The first advantage is related to the external business environment. By applying scenario analysis techniques, a company would be able to identify and interpret any dangerous trends and signals and take actions against them. This was the case for both Shell and British airways, whose case studies were mentioned in the previous chapter; Shell became very early aware that it will face the oil embargo situation and actions were taken against it. The result was that, after the embargo, the company was the strongest multinational oil company worldwide (Mercer, 1995). Moreover, British Airways managed to be a profitable company at the end of the recession period before the Gulf War (Moyer, 1996). The companys planning procedure, in essence, changes from being reactive to changes in the external business environment to being proactive, shaping the organisations strategy so that it will benefit from these changes; in other words it gives the company a competitive advantage. Apart from those actual examples, we can back up that argument with the use of statistical data as well. According to a survey (Malaska et al., 1984) twenty four per cent of the users believe that scenarios planning contribution to strategic planing was essential, while fifty nine per cent finds it helpful. In other words, a percentage of users as high as eighty four percent have a positive opinion about scenarios in relation to strategic planning. Furthermore, forty six


Chapter 9- Discussion on findings

per cent of scenario users stated that they would enhance the use of scenarios within their company (Malaska et al., 1984). A second advantage of scenario planning is that it allows for users to test their existing strategies and decide upon whether they fit the future conditions of their businesses or alterations should be made to them. It can serve, in other words, as a test-bed for the existing strategies (Van der Heijden, 1996: Bood and Postma, 1997). We should note, however, that in order for scenario

planning to succeed as far as this target is concerned, there is a need on behalf of the company to establish a close link between the environmental monitoring system and the planning procedure (Ute von Reibnitz, 1988). One of the most important advantages a company can get from scenario planning is that it stretches and challenges the mental models of the managers. It is natural for every person to form a microcosm in his own mind and view the outside world through this model. This personal view of the future eliminates the possible futures one can conceive (Fahey-Randall, 1998: Bood and Postma, 1997). This is the case with Shell where the first scenarios were not paid the attention they should; Pierre Wacks experience (Wack, 1985a,b) is that in order for a scenario to be successful, it should aim at changing the managers microcosm. Moreover, the scenario technique allows managers to fully understand the key drivers. This is the case because when a key factor is identified, the logic of scenarios is to look behind that trend and identify the forces that drive its development. We need to understand that this is a crucial element of the


Chapter 9- Discussion on findings

process. In the British Airways case study, once the key issues were identified, further research was conducted for each one of them in order to identify and quantify to some extent the forces that drive their outcome- the same applied for Shell as well. A scenario project can, also, give early warnings about future product opportunities (Ute von Reibnitz, 1988); this is the case since during the scenario project, we are identifying the forces that are responsible for the development of the key drivers, as stated above. In fact, there are certain scenario projects that are especially developed for marketing purposes (Ute Von Reibnitz, 1988: Fahey-Randall, 1998: Meijer, Van der Duin and Abeln, 1998). British Telecom and Philips are two very good examples of companies that looked into the future for bringing tomorrows products today and cultivate the demand for those products. The area of communications within the company is another area where a company can benefit from the use of scenario planning methods. First of all, many people from several departments within the company take place in a scenario project where the interrelations between the key forces are explored and discussed. This, therefore, allows for people in different departments to understand the effects of factors, whose control might be not their responsibility. Secondly, the communication process itself between the departments is improved. It is the case in many companies that the departments work in isolation, a fact that makes things even more difficult. In a scenario project,


Chapter 9- Discussion on findings

however, people from all departments participate; intercommunication is, thus, facilitated. This is, also, very helpful for changing managers mental models , since they can realise the effects of a factor on other departments as well, which is essential in order for the project to be successfully completed (Wack, 1985a,b). Another benefit we can get from scenario planning is that there is a wide acceptance of the results. If forecasting methods are used, then doubts might exist since the predicted figure came out from a black box. It was the result of a sophisticated mathematical technique that few people are able to test and understand. Moreover, an outside consultant who looks only at numbers and ignores- or, simply, is not interested in- some important aspects of the company, the so-called insights, conducts many times this task. Likewise, there are many factors that can not be quantified and the latest failures of these methods (Beck, 1982: Zentner, 1982) gave forecasting a bad reputation. On the other hand, everyone is involved in a scenario project, especially the managersthis is crucial for the success of the project. As a result of that, the process is transparent to everyone and all in the company have a chance to make their contribution which gives to the scenarios results a global acceptance within the companys context. Finally, scenarios can assist in the articulation of the business idea- we can think of it as something broader than the mission statement of the company. An essential requirement for scenarios, as it will be discussed later, is to comply with the business idea. However, this is many times only expressed by the


Chapter 9- Discussion on findings

mission statement and is misunderstood. During a scenario project, the business idea is explored and communicated to the participants, either in the scenario workshops or during the interview process. 9.4 Pitfalls in scenario planning As mentioned earlier, the implementation of scenario planning on behalf of a company can deliver many advantages to it as far as a wide range of activities is concerned; from testing alternative strategies to stretching the managers mental models. However, there are certain pitfalls associated with a scenario project (Fahey-Randall, 1998). These can be further distinguished in process pitfalls and content pitfalls, the difference being that process pitfalls refer to the way the project is conducted whereas the content pitfalls refer to where scenarios are focusing. Before analysing these pitfalls, we should notice that scenarios are to be used in situations where the high levels of uncertainty almost prohibit the use of other techniques. This was not the case, unfortunately, with the Greek Telecommunications Organisation where the implementation of scenario planning was rejected on the grounds of uncertainty that dominated the telecommunications industry. The organisation made use of the Delphi technique instead; however, we should be aware of its constraints- a short time before the oil embargo experts were sure that the price of a barrel of oil would never exceed the amount of two dollars (Van der Heijden, 1996). With respect to the process pitfalls, it is crucial to gain top managements support for the scenario project in order to have the best results. In addition,


Chapter 9- Discussion on findings

these are the people who will take the critical decisions at the end of the process, these are who will develop the companys strategy. If they are not convinced that scenario planning can deliver benefits to the company, there is no meaning in going on with it. As an example of that, we can recall the Shells case (Wack, 1985a,b); the first six scenarios did not get the necessary attention from the managers resulting in their ignorance with regard to the planning process. On the other hand, in the British Airways case study (Ringland, 1998: Moyer 1996) the people responsible for the project formed the Halo Group managing, this way, to get top managements support. In fact, this is the solution to this problem; to get the senior managers involved in the project as early as possible. A second process pitfall is associated with the lack of creative thinking, resulting in poor inputs. As mentioned above, one of the advantages of the scenario process is that it stretches the mental models of the managers. However, many times it is difficult for people to think effectively about the outside environment; on the other hand this may be due to the microcosm they have built into their minds (Bood and Postma, 1997). The people in charge of the scenario project- either internal staff or outside consultants- should be very careful avoiding this pitfall otherwise scenarios contribution to strategy will be very small. A way of doing that could be to expand the projects information resources; in other words other people than managers who have a relationship with the company under consideration, like suppliers or workers, could be interviewed about the factors that shape the external environment of the


Chapter 9- Discussion on findings

company in the future. This is the case with British Airways, where interviews involved outside experts as well -the technology experts (Ringland, 1998: Moyer, 1996). Another pitfall is that many times the proportion of staff personnel and line managers in the scenario team is not equal but the number of staff personnel in the team is bigger (Fahey-Randall, 1998). This is not so effective and may mislead the scenarios since it is the line managers who know their area better and they can address the main areas where the scenario should focus. It is, therefore, important that line managers are approached and their support is gained. This can be accomplished by referring to the various benefits concerning the decision-making procedure as well as the placement of the company in a competitive position against its competitors. It is sometimes the case that people expect from the scenario method to deliver much more than possible or have misunderstood the role of scenario planning. It is sometimes, for example, expected that results will occur within a short period of time. On the other hand, it is expected that plans will come out of the scenario process, which is not true. That is not true, since the change of managers microcosms is needed (Bood and Postma, 1997: Fahey-Randall, 1998)- which, in most of the cases, is a lengthy task. In addition, we should not forget that scenarios aim at making decision-makers realise how the critical factors will unfold in the future; they can be used as test-beds for the various strategies (Van der Heijden, 1996) but they do not produce plans- the decisionmakers should undertake that task.


Chapter 9- Discussion on findings

Since the scenario planning is a new experience for many organisations- as mentioned earlier the increase in scenarios popularity took place after the oil shock- many times people are confused about their roles. In order to avoid that, it is advisable to hold an introductory workshop at the beginning of the process when we will explain to the participants their role within the projects context (Van der Heijden, 1996). In addition, we can guide the members of the workshop by assigning several tasks to them. We should not forget that the managers who participate in the project are busy people whose time is valuable (Meijer, Van der Duin and Abeln, 1998). In order to commit them in the project process, we need to provide those people with a clear plan where the various steps should be identified in terms of their duration. On the other hand, we should be careful with the duration of certain tasks, like the time needed for collecting data; it should not be underestimated. An example for that is the experience that British Airways encountered with their scenario project; they realised that allowance should be made for the collection of data and the development of models for those data (Ringland, 1998: Moyer, 1996). A debatable issue in the scenario literature involves the number of scenarios that should be generated. In most of cases, many scenarios are needed in order to cover all the possible developments of the factors that influence the organisation that is undertaking the project. However, it is very difficult for the human brain to handle many scenarios (Schnaars, 1987: Mercer, 1995: Beck, 1982: Fahey-Randall, 1988:Wack, 19885a,b); the best number of scenarios to


Chapter 9- Discussion on findings

be generated is around three. We should, however, be careful since three scenarios might be conceived as the pessimistic option, the forecast and the optimistic one whereas two scenarios might be considered as the good and the bad case. In the case of Shell (Wack, 1985a,b) the initial number of scenariossix- was too big and was reduced on the way whereas in the British Airways case the number of scenarios generated was only two. Finally, it is observed that companies fail linking scenarios to their planning process; in 1981 six per cent of the Fortune 1000 United State firms were using scenarios only on an experimental basis while thirty five per cent did not use them on a regular basis (Linneman, 1983). In addition the first scenarios at Shell were developed on an experimental basis (Wack, 1985a,b). The solution lies on persuading managers about the advantages their company can get by fully integrating scenario planning in its planning process. Moving on to the content pitfalls, the first one is related to the time in the future scenarios are looking into. In general, they should be looking in the longterm, where this could be defined as the period of time in which if changes occur, these will affect the business of the organisation we are looking at. There is no predetermined length, however; it can be anything as small as one week if it is a financial firm or some years if it is a chemical or an oil company. A second content pitfall is that sometimes participants pay much attention to current trends resulting, this way, to simply extrapolating the past into the future. This might be due to the fact that they sometimes feel uncomfortable addressing unknown issues; in order to avoid that- this was the case in both our


Chapter 9- Discussion on findings

case studies- the brainstorming process is followed. However, we have to make sure that the rules underlying the validity of the process are faithfully followed. Another pitfall, closely related to the one discussed above, is that many times the view expressed by the companys managers is not as diverse as it should be, to the extent that the full range of developments has not been fully covered. The problem is most of times, located to the managers microcosm and to the mental models they have built about the outside world (Fahey-Randall, 1998: Bood and Postma, 1997). During the scenario process, one step is to combine the likely future developments of the key factors in order to get the whole picture. We should, however, be careful so that the developed scenarios are internally consistent. This means that two or more future developments should not be contradictory both in terms of logic as well as in terms of the relation of the resulting actions with the business idea of the organisation (Van der Heijden, 1996). 9.5 The scenario generating method The task of anticipating the future is closely related to management tasks; moreover, it is essential that planning is conducted in a way that short-term and long-term goals are balanced. It follows that any short-term action should not be decided in isolation, but should be viewed as part of a project that serves a long-term objective (Zentner, 1982). In order to fulfil this requirement, managers should be, somehow, able to anticipate the future; they should be able to recognise the changes taking place in the companys external environment and adjust accordingly its strategy.


Chapter 9- Discussion on findings

Scenario planning is a tool than can assist managers in this task; its record, as far as long-range planning is concerned, is much better than that of forecasting techniques (Van der Heijden, 1998:Zentner, 1982:Beck, 1982). The literature of scenario planning is rich in terms of scenario generating methods; we can find methods ranging from sophisticated mathematical models to purely intuitive approaches. These can be broadly classified in three categories; these categories are the intuitive logics, the cross-impact analysis and the trend-impact analysis (Ringland, 1998: Fahey-Randall, 1998). In the remaining of this chapter we will refer to the conclusions drawn after the review of the literature as well as the two case studies in chapter eight. We will, also, refer to the appropriate time scope for a scenario, whether the use of outside consultants is advisable, the most appropriate number of scenarios to be generated and, finally, the communication of scenarios. As far as scenario-generating methods are concerned, both academics and consultancy companies have established many methods. Moreover, many companies- like Shell- have developed their own methods for developing scenarios. However, it is not compulsory to follow a certain predetermined method (Mercer, 1995: Malaska et al., 1984: Linneman and Klein, 1983: Schnaars, 1987); neither British Airways nor Shell used any method already developed. It is, on the other hand, very important for the approach towards scenario planning that we will adopt to encompass the three basic principles that scenarios should fulfil. The first principle deals with internal consistency. This


Chapter 9- Discussion on findings

means that the developments of the various factors within each scenario should not contradict each other. As an example of that, we can think of a scenario where the factors are employment, inflation and interest rates. If inflation would be high, then employment would be high as well; moreover, if inflation is high then interest rates should be high as well. On the other hand, if employment is high, then interest rates should be low (Schoemaker, 1995). This means that the inclusion of inflation, employment and interest rates with the developments mentioned above would, inevitably, lead to an internally inconsistent scenario. The second principle that every scenario should encompass is that it should have a positive possibility of occurrence- by definition negative possibilities do not exist so what we are really looking for here is the plausibility of the scenario. In other words, our story should not only be internally consistent but its realisation should also be possible. A scenario, for example, that projects no development for Internet should be carefully considered since under present conditions it seems rather impossible to come true. We should not, of course, forget that scenarios should stretch our mental models for the future or that a new technology may replace it; however it looks rather impossible for that scenario to come true. Finally, we should not forget that the most important people in a company are the stakeholders and we need to keep them happy since they are investing their money in the company. Scenarios, therefore, should comply with their interests; in other words, they should be in line with the business idea of the company under consideration. In the case of British Airways, for example, the


Chapter 9- Discussion on findings

scenario team should report to the Halo Group after the end of each phase of the project. With respect to scenario generating methods, as mentioned before there are many methods available in the scenario literature developed by either academics or consultancy companies. In practice, however, as the two case studies of British Airways and Shell clearly illustrate there is no best method. A general method, however, can be derived -consisting of six steps. The first step deals with the organisational issue scenarios are trying to resolve. It is very helpful to begin the scenario project with a specific question in hand, otherwise the project might become very wide. In the case of British Airways, for example, scenarios were introduced as an alternative planning method against a highly turbulent environment. However, after the collection of data further research was needed in order to identify the key organisational issue around which scenarios will be built. In the case of Shell, the question was what the future environment for the company will look like. Once the key issue has been identified, the key external factors that shape the companys future should be identified. This task can be carried through by conducting interviews or by group ideas generating methods such as brainstorming; there are some hidden dangers involved, of course, to which we will refer to in detail later in this chapter. The third step is about organising the issues that arose from the previous task and categorise them in two categories; these categories are the predetermined elements and the uncertainties. The predetermined elements can be defined as


Chapter 9- Discussion on findings

the events that have occurred or that almost certainly will occur but whose consequences have not yet unfolded (Wack, 1985a, p.77). On the other hand we have the uncertain elements, which are issues we can not predict whether they will occur or not and, if they occur, what their consequences will be. This is the approach undertaken by Shell, whereas in the case of British Airways a further distinction was made between key uncertainties and driving forces, the difference being that the latter are issues that if they change the whole industry is fundamentally affected (Ringland, 1998: Moyer, 1996). Once this is done, we need to project the developments of these factors in the future. This, again, can be done by collecting data and applying forecasting techniques to them or through interviews with experts on these issues, either from within the company or from outside. As far as the two case studies in chapter eight are concerned, British Airways allocated the further investigation of the issues to the members of the development team who carried out the research. In the case of Shell, on the other hand, the analysis of the oil producing countries as well as that of the oil consuming countries was conducted by planners analysts. The fifth step is about combining the outcomes from the previous step. The objective, here, is to create alternative futures; we should not forget, however, that these futures should fulfil the three principles previously mentionedinternal consistency, plausibility and compliance with the business idea. In order, of course, for this to become true the people in charge of the project


Chapter 9- Discussion on findings

should have an in-depth understanding not only of the issue but of the driving forces of it as well. This is the case in both Shell and British Airways. The final step is about writing the scenarios and describing how from the starting point, which is the present, we will arrive at the endstate, which is the time horizon of the project. Once this step is reach, the decision-makers should decide and formulate the strategy they will follow in order to give their organisation a competitive advantage against its rivals in the future. 9.6 Remarks on scenarios The process described above is, of course, a general process that can deliver results as long as the three principles for the scenarios generated are fulfilledthese are internal consistency, plausibility and compliance with the business idea. In addition to those, however, we need to make some more remarks concerning the process in general. The first thing we need to observe is the time length of the scenarios, the period of time they are looking into the future. It is widely accepted that scenarios perform much better than forecasts in the long run; the question is, of course, if a strict definition exists for the long run. There is no such definition and the length of the period of time we need to construct scenarios for differs from company to company. As a rule of thumb, this period should be long enough to cover changes that can affect the business; this might be a number of weeks for a financial services company to several years for an oil company. The second remark concerns the use of brainstorming as a technique for generating ideas, details for which can be found in Appendix I. This technique


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is used for identifying the key factors and project how they will develop in the future. It is a very good way of generating ideas and is many times used in practice; on the other hand, there are some drawbacks associated with it. We need, firstly, to ensure that there is no dominant person in the team who will not the other people express their opinion on the subject. Moreover, no criticism should be raised against the other peoples ideas; this is very important for a scenario project since people are expected to break the trends and express revolutionary ideas about the future. Finally, it is good practice to record every idea heard so that we will not miss anything. Another equally important method for gaining insights and identifying possible futures for the key drivers is the interview method; British Airways used that method extensively. There are, however, certain things we need to keep in mind considering the interview process. The first is about the trade-off between not guiding the conversation and having a predetermined set of questions. The interviewers role during the interview process should be that of the facilitator, feeding back to the interviewee his opinions and asking any clarifying questions, if needed. The anonymity of the person who is interviewed is also important in order for him to be able to freely express his opinion. Furthermore, it is desirable that the interviewers team should comprise of two people so that at the end of the process they can compare their notes and analyse them. As far as the British Airways case study is concerned, several interviews were held both with people from within the company as well as with outside


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consultants, academics and people from the government. A team of two people held these interviews and their duration was satisfactory- about one hour. Furthermore, the anonymity of the informations source enabled the persons interviewed to express their opinions in a more freely way. However, the interviews were conducted with a predetermined set of questions; on the one hand this is good since it helps in categorising the answers easily but on the other hand it might have influenced the flow of the conversation. The use or not of outside consultants is another debatable issue. In a survey, whose results were published in 1981 (Klein and Linneman, 1981), carried out among the Fortune 1000 industrial companies, the use of consultants was not widespread. A sample of eight companies was chosen from the authors as representative in order to illustrate the holding concepts. A percentage as high as seventy five per cent of these companies did not use consultants at all whereas the remaining two used them mainly for data gathering purposes; we should not, of course, forget that the survey was carried out almost two decades from now. In the case of British Airways, outside consultants were used to some extent in order to identify the key external issues as well as for projecting their future development. On the other hand, it would be useful to involve outside consultants in the scenario process for two reasons. The first reason is that they can provide us with an outside view, with a more global perspective since they are not involved in the day to day running of the business; their specialisation in one subject will, also, be a great help towards identifying how this factor will


Chapter 9- Discussion on findings

develop in the future. The second reason is associated with the stretching of the managers mental models (Fahey- Randall, 1998). We need to question things they take for granted and widen their perspective for the future; outside consultants can perform that task very well. Another debatable issue is that of the number of scenarios that should be generated. (Ringland, 1998: Klein and Linneman, 1981: Moyer, 1996:Malaska et al, 1984: Linneman and Klein, 1983: Zentner, 1982: Beck, 1982: Wack, 1985a,b). The case of generating only one scenario is, by definition, rejected since we end up with a single-line forecast. Our choice, however, should be made on the basis of that, on the one hand, we should include in the scenarios the most important factors and that, on the other hand, the human brain can not deal with too many factors. That was the case for the first generation scenarios at Shell, which were too many-six- to be analysed. . It is suggested that the maximum number of scenarios should not be greater than five (Ringland, 1998). However, in the case of three scenarios we risk them being considered as the forecast, the pessimistic case and the optimistic case so that people will prefer to go with the middle scenario (Ringland, 1998). In the case of two scenarios, as in the British Airways case, there is a risk that they would be considered as good and bad, as the optimistic and the pessimistic scenario. If we choose to develop two scenarios, we shall emphasise that there is no distinction like the one mentioned above. This is what British Airways did when they decided that the world economic growth levels would be the same for both scenarios, making them complementary. The ideal number seems to


Chapter 9- Discussion on findings

be between two and three; it really does depend on the case under consideration. An issue of equal, if not bigger, importance is that of the promotion and communication of the scenarios. We should not forget that the development team in Shell spent half of its time promoting rather than developing scenarios, whereas in the case of British Airways the Halo Group was formed. In order to communicate better the results of the project we can adopt graphical techniques for ease of understanding; this would make things easier for people involved in numerical oriented businesses such as computer business. Another important fact is the headline of the scenario; this should be representative of its context and it should not mislead the audience. In addition, the length of the scenarios is of equally importance. In other words, scenarios should be written in a narrative style that clearly explains the path between the starting point and the endstate. The length should neither be too short that scenario becomes a summary, nor too long so that scenario becomes a book. A length of around five pages should, in most of the times, fits both requirements. A common element in many scenario projects is the development of a surprise-free scenario or the official future scenario; this is the scenario where every assumption the company made about the future comes true- it is an extension of the current corporate planning. This is not done in random, of course; furthermore, it did happen both at British Airways and at Shell. It is a good practice and the reason behind it is that we aim at stretching managers


Chapter 9- Discussion on findings

mental models by scenarios. However, if we present them from the very beginning something that is totally out of their perspective, then the method would be rejected and we would not have any results. As mentioned above, in order for the company to be successful, the actions taken in the short-term should be part of a long-term plan. This stresses that scenarios should be fully integrated in the planning process instead of projects being set-up on an experimental basis, as was the case in British Airways and Shell. In a survey carried out among U.S. industrial companies (Linneman and Klein, 1983) it was found that only seven per cent of the companies used scenarios on an experimental basis; however, thirty six per cent stated that they use scenarios but not very often. Moreover, thirty four per cent stated that they use scenarios often but they are not integrated in their planning process and only the remaining twenty five per cent stated that they use scenarios often and that they are integrated in their planning process. We need to realise that scenarios can only deliver their full benefits when they become the official corporate planning procedure. Scenarios require the support of the top management in order to be successfully implemented; it is so because these are the people who will be affected by them. We, thus, need to convince them that it setting up the scenario project is a good idea. This, in British Airways, was faced by the formation of the Halo Group while at Shell time was spent for promoting the scenarios. It is, also, important to create to managers a sense of ownership for the scenario project, to involve them in that from the very beginning. This way they


Chapter 9- Discussion on findings

will not view it as something strange but they will be engaged in it. Moreover, they will much more easily trust the results of a process in which they were directly involved. This explains, partly, the formation of the Halo Group where the development team had to report the results every time a phase of the project finished. As mentioned in the scenario generating method, once the driving forces are identified we need to project their developments in the future. This is a task, whose length is usually underestimated as highlighted by the case of British Airways. We, therefore, need to realise that this can be a lengthy task and make the necessary time allowances. In the case that scenarios are not fully integrated in our planning process, then people are occasionally involved in them and then return to their usual tasks. However, when the communication phase comes they might have returned to their previous tasks. This creates problems since they need to commit more of their time in order to revise their notes and do the presentationthis is what happened at British Airways. The answer to that could be the formulation of a team, which will constantly be dealing with scenario projects. We should not forget that managers are busy people with many problems to resolve; in other words, their time is valuable. This means that if we decide to commit their time, for example through a simulation game during the project, we should bear in mind that the best guideline is to keep it as short as possibleclose to half a day (Meijer, Van der Duin and Abeln, 1998).


Chapter 9- Discussion on findings

Finally, we have to note that it should be better if scenarios do not include plans for anticipating future surprises as this is a very difficult task on its own; neither of the scenarios described in the case studies chapter ended with a proposal for strategy formulation. In fact, there are two approaches for doing so; the first is to formulate a strategy taking into consideration the whole range of scenarios, while the second formulates a strategy for a scenario and then checks it for the remaining scenarios- the British Airways approach. Since we want our company to be protected against any potential future development, maybe the first approach is better. 9.7 The three different schools of thought for scenario planning Scenario planning is, without doubt, a very efficient method for long-term planning. The years following the oil crisis, which was the turning point for companies from forecasting techniques to scenario planning, experienced the formulation of three schools of thought for this new technique; these were the intuitive logics, the trend-impact analysis and the cross-impact analysis. In the remaining of this chapter, the advantages and disadvantages of each method will be presented and a judgement will be made as to whether there is any link between methods and situations; in other words if under a specific situation a given method delivers better results. The first approach, the intuitive logics one, is based on the idea that there is a complex set of external factors influencing the key decisions of a factory (Fahey-Randall, 1998: Huss and Honton, 1987). There are a number of advantages associated with this method, the first being that the methodology is


Chapter 9- Discussion on findings

relatively easy to follow. It does not involve any mathematical probabilistic concepts and it becomes, this way, easy to follow and communicate. It was previously mentioned that the intended audience of scenarios should be early involved in the process and, this way, a sense of ownership would be established. The intuitive logics approach fulfil this requirement since they get involved in selecting and analysing the environmental factors. Another equally important purpose that the scenario methodology needs to serve is that of challenging the managers mental maps. The approach under consideration does that in two ways; firstly, discussions on the impact of environmental factors are encouraged rather than leaving that task to a computer. Likewise, it encourages lateral thinking, which is essential for anticipating surprises in the future environment (Fahey-Randall, 1998: Huss and Honton, 1987: Wack, 1985a,b). On the other hand, there are certain limitations this method has. The first limitation is related to the nature of the method since it is not mathematicallyoriented. This may cause math literate people- in industries like the computer industry for example- to be reluctant against it (Ringland, 1998). The previously mentioned fact can cause other problems as well. The forecasting techniques, which were previously used, got employees used in an arithmetic environment which now has to be changed; there are cultural problems involved in that transmission. There is a second limitation related to the nature of the technique. This is that it requires much of the managers time; as mentioned above, managers are very


Chapter 9- Discussion on findings

busy people who can not afford spending much of their time on a project neglecting their remaining obligations. With respect to the trend- impact analysis, it has the advantage of combining former forecasting techniques- such as time- series data- with qualitative factors, making the transmission to the new way of thinking much easier. In addition, it stretches the mental models of the future by forcing participants to identify the environmental forces; their importance and likelihood of appearance are also assessed. Apart from these advantages, this method has drawbacks as well. It does not take under consideration the interrelationships between the factors that affect the business; nothing exists in isolation and the effects of interrelationships may be of great importance to the company under consideration. Moreover, in order to implement a method falling under that category we need time-series data as mentioned above; therefore we will have to implement it for a decision or a variable we already have historical data. Finally, with respect to the cross-impact method it incorporates what is lacking from the trend-impact analysis method; it looks at the interrelationships between variables. Furthermore, as far as INTERAX- one of the most popular cross-impact analysis methods- is concerned it has the additional advantage of delivering scenarios which at the end of each time period can be interactively modified by the user. Moreover, it has a built-in database of events and trends forecasts and it can easily be updated. Another popular method that falls under this category- the BASICS method- has the advantage that it can deliver a


Chapter 9- Discussion on findings

number of scenarios that are already distributed according to their possibilities of coming true and allows for higher degrees of flexibility. The program, finally, can run on a personal computer. As far as the disadvantages of this approach are concerned, INTERAX has a high set-up cost and it does not take into account which scenarios are more likely to occur (Huss and Honton, 1987). In addition, it bases the events that appear in the first interval on the probabilities entered by the user and it does not pay any attention to the likelihood of that combination appearing. The BASICS method delivers the results at the end of the planning horizon- the user has to link them himself. Concluding, the three methods for generating scenarios described above have their own advantages and disadvantages. The Intuitive logics approach, for example, might be more flexible and qualitative oriented but on the other hand one may say that it lacks the rigidity of the other two approaches, which have the mathematical element in them; the set-up cost for INTERAX, however, is high. This could be justified by a direct proportional relationship between expenditure and accuracy. However, there is no best technique for every application and all of them can be applied in order to solve different problems. 9.8 Further work This dissertation covered the historical development of scenario planning as well as its emerging methodologies and the implementation of a scenario project within a company. Apart from that, there are some questions on which further research can be conducted; these are presented below.


Chapter 9- Discussion on findings

It would be useful to look for a technique that will incorporate the advantages of the three scenario schools of thought mentioned above and minimise their differences. Moreover, we can look at whether a specific scenario technique is best for a certain industry branch. We can, also, conduct a survey similar to that conducted by Linneman and Klein and see how the characteristics and the percentage of organisations that have adopted the scenario planning method has changed. It should, undoubtedly, be useful to look at how the adoption of this approach changed those organisations compared to those who have not integrated scenario planning in their planning process. Moreover, it would be interesting to look at this issue from a human resources angle: to examine the changes that emerged from the adoption of scenario planning as the official planning technique and how these can be managed.


Chapter 10- Conclusions

Chapter 10 Conclusions
A traditional and very popular, till nowadays, definition of business is that Business is all about making money. If the previous statement holds truth- and it certainly does- then the key task of managers is to give their company a competitive position against its rivals; for that, it is crucial to ensure that the company under consideration reacts faster to changes than its competitors. In order, however, to complete this task successfully they need information about the outside environment; they need to understand the driving forces and how they are going to unfold into the future. It was till recently that the only equipment managers were armed with in this business war was a number of forecasting techniques; they had to choose from a wide range of them- from simple techniques to very sophisticated computerised ones. Despite their popularity, however, they proved to be insufficient; moreover, they were wrong at the times they were mostly needed. The methods were not to blame, of course; they were functioning on the basis that the future will, more or less, be like the past. The reason behind their failure as planning techniques was the necessity for long-range planning, along with the resulting uncertainty that the long view causes. The answer to this problem was a technique that existed from the Ancient Roman times and was firstly used for military purposes; despite that, the use of scenario planning by Shell and its success of predicting the oil embargo in seventies made it popular in the business world as well. It can be used for

Chapter 10- Conclusions

many other purposes apart from developing the companys strategy; these include the assessment of current strategies, the assessment of risk in investment and technology decisions, the projection and promotion at the present of products that customers will need in the future and so forth. The advantages that the adoption of the scenario technique in planning delivers to the company are invaluable, the gaining of competitive advantage being one of them. We, also, have to encounter the real understanding of the drivers behind the trends- in other words the real understanding of the nature and the reasons of change- and the stretching of managers mental models about the outside world. Moreover, advantages include the better

communication of results and the sense of ownership, since the result is not a single number that came out of a black box but a list of alternative plausible futures to the formation of which everyone has contributed. We should not, on the other hand, forget that the conveyance from forecasting to scenario planning is not simple; the organisation has to go through a cultural shock and this can, sometimes, cause reactions. Furthermore, we need to understand that a scenario project can not be implemented on an experimental basis; we should view our short-term actions as part of the implementation of a long-term strategy that should be assessed on a continuous basis. We, therefore, need scenario planning to be at the heart of the companys planning procedures. Moving on to the implementation of a scenario project, there is a question concerning the persons who will carry out this activity; we have to choose


Chapter 10- Conclusions

between internal staff, consultants and a combination of the two. The latter seems to be the best solution, since the scenario team will be formed from people who know the culture of the company and from outsiders who, free from the day-to-day running of the business- will help with their expertise. They will highlight those aspects that for various reasons internal staff is not able to pinpoint. Furthermore, the implementation of a scenario project is based on the interaction among the participants as well as about their ideas about the company. These will form the basis on which- with the help of historical data or experts- the alternative futures will be built. We need, thus, to ensure that through a brainstorming session or during an interview the participants are freely expressing their opinions and these are carefully and clearly recorded. The second phase is the phase of constructing the scenarios. In order to facilitate this procedure, a number of methodologies have been developed, mainly from consultancy companies and academic institutions. The question, however, which one is the best does not have a clear answer; my opinion, however, is that the choice of method does not matter that much as to ensure that three basic principles are fulfilled by the scenarios. They should not contain driving forces with contradicting developments, they should have a reasonably high probability of occurrence and they should be in line with the interests of the stakeholders; in other words, with the business idea. We should, also, take into consideration the number of scenarios we will finally generate. The last phase, in broad terms, is the communication phase; we need to pass the results throughout the company as different people took part at different


Chapter 10- Conclusions

stages of the activity. As a general rule, we will have to adopt graphical techniques and be very careful when choosing the headlines of the stories since they have to truly represent the context of the story. The presentation can be enriched by some brief scenario games. Summarising, scenario planning is a useful technique that can be used for long-range planning as well as for many other purposes and deliver many advantages to the company that adopts it. We should bear in mind, however, the inherent weakness of pinpointing scenarios successes; the question, for example, whether Shell would have done better if it had not incorporated scenario planning in its planning procedures or not can not easily been answered. On the other hand, if we all agree that uncertainty will characterise the future business environment, then another technique than the crystal ball should be found in order to cope with it. Scenario planning, under a number of critical issues we should take into account that were discussed earlier, fits all the requirements to be that technique. We need, finally, to realise Yogis Berra words: The future aint what it used to be (Ringland, 1998, p.191).




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Appendix 1



Appendix 1- Brainstorming

Appendix 1 The Brainstorming method

We can define brainstorming as being a group activity that is applicable in a wide range of problems. It is concerned with the generation of as much ideas possible in a given, short in most of the cases, period of time. We do not discourage anyone from expressing his ideas; on the contrary every member of the group is encouraged to elaborate on other peoples ideas. This technique has a number of advantages. Firstly, it can provide us with a wide range of ideas on a subject; therefore the chance of identifying the cause of a problem or a new opportunity is increased. Moreover, with respect to the way the brainstorming task is carried out, it gives the participants the chance to generate ideas free of the stress that a formal meeting would have caused. Finally, most of the times the task involves people from various departments; therefore all voices are heard and intercommunication is facilitated. The brainstorming method has certain drawbacks as well. Because of the fact that it is a rather informal method, participants may think of the procedure as a casual one. Moreover, since no criticism is allowed we might end up at the end of the session with a big number of ideas that is difficult to sort out. The general steps followed in a typical brainstorming project are as following (Featherstone, 1999: Yazdani, 1998: Betteley et al., 1994): (please refer to next page)


Appendix 1- Brainstorming Select the team Define the issue under consideration Inform the rest of the team on the rules that will be followed Generate ideas Record these ideas End the meeting Discuss the ideas generated Formulate action plans based on these ideas
Table 32 The eight steps of the brainstorming method (Source: Featherstone, 1999)

As far as the first step is concerned, it deals with the selection of the team. The ideal number of persons participating should be from six to ten. In addition, it should be formed in a way that its members will come from many different areas- in order to maximise the breadth of ideas- and no excessively dominant characters or easily influenced people should be included. Once the team is formed, the person in charge of the project would have the responsibility of inform the other members of the issue under consideration. This step will last as long as needed so that every participant has fully understood the problem. The process- as every other process- should run under certain rules; the chairman would have to communicate them to the members of the group and make sure they all follow them. We should note, however, that there is no need


Appendix 1- Brainstorming for him to be over protective since the free-form nature of the technique is crucial. Once this is done, everything is ready for the session to begin. We should allow each member in turn to contribute his idea or, if they wish, to pass. The ideas should be recorded in such a way that every member of the group has access to them at any time of the meeting; a flipchart would, definitely, be a good idea for that. It is sometimes the case that these sessions are held under specific time constraints; once the limits are reached, the session has to end. An alternative reason for the end of the session might be that none of the participants has any new idea to contribute There is a need after the end of the session for discussing the results. We should bear in mind that we should rather seek for new ideas based on the existing ones than start rejecting them; the latter can be the cause for verbal fighting between the members of the team. It is, therefore, better to hold this session at a later date so that the discussion will rather concentrate on the ideas themselves than on the persons who proposed them. The final stage of a brainstorming session deals with the formulation of action plans. This should be done in a way that addressees the key issues. The brainstorming has, as mentioned above, some rules associated with it; this happens in order to ensure that everyone will contribute to the conversation and none will be neglected. These rules are presented in the table below.


Appendix 1- Brainstorming

Everyone should contribute his ideas in turn; this way we ensure that none dominates the meeting. It is allowed to pass on ones turn. During the generation of ideas, no criticism is allowed We should record every idea heard No one should dominate the discussion phase

Table 35 Rules associated with the brainstorming method (Source: Featherstone, 1999)


Appendix 2



Appendix 2- G.E. planning process

Appendix 2 The General Electrics planning process

Figure 16 The planning process of General Electric (Source: Georgantzas and Acar, 1995)


Appendix 3



Appendix 3- Letter to organisations

George Konstantinou Lekeas Claycroft 1, Flat 3, Room1 Gibbet Hill Road University of Warwick Coventry CV4 7AL United Kingdom

Dear Sir or Madam: My name is George Konstantinou Lekeas and I am doing my MSc in Engineering Business Management at the Warwick Manufacturing Group, which is part of the University of Warwick. As a part of my degree requirement, I am supposed to write a dissertation on scenario planning; I would be grateful to you if you could provide me with information on that subject related to your company.

I would be grateful if you could provide me with information related to the following subjects. The use, if any, of scenario planning in your business Any experience of scenario projects you could share with me
You can mail your answer to the following postal address:

The reason you use scenario planning for

Thanking you in advance for your consideration, I shall be telephoning you in a few days to ask if it will be possible to have not more than half an


Appendix 3- Letter to organisations

hour of your time in order to share your experience of Scenario Planning implementation. Sincerely,

George Konstantinou Lekeas Course Member, Full-time MSc in Engineering Business Management


Appendix 4



Appendix 4- Letter to consultancy companies

George Konstantinou Lekeas Claycroft 1, Flat 3, Room1 Gibbet Hill Road University of Warwick Coventry CV4 7AL United Kingdom

Dear Sir or Madam: My name is George Konstantinou Lekeas and I am doing my MSc in Engineering Business Management at the Warwick Manufacturing Group, which is part of the University of Warwick. As a part of my degree requirement, I am supposed to write a dissertation on scenario planning; I would be grateful to you if you could provide me with information on that subject related to your company.

I would be grateful if you could provide me with information related to the following subjects. The identity of your customers
You can mail your answer to the following postal address:

The method you use

Any case studies I could use in my dissertation

Thanking you in advance for your consideration, I shall be telephoning you in a few days to ask if it will be possible to have not more than half an


Appendix 4- Letter to consultancy companies

hour of your time in order to share your experience of Scenario Planning implementation. Sincerely,

George Konstantinou Lekeas Course Member, Full-time MSc in Engineering Business Management


Appendix 5



Appendix 5-Questionnaire

Appendix 5 Questionnaire

Please fill in the following details; they are very useful for our study. (The Job/Title field refers to the person who will complete the questionnaire). Company...........................................Date / /

Branch...............................................Job/Title....................................................... ...

1. Has your company used scenario planning in the past? (Please tick the appropriate box) Yes No

2. How much time did you spend developing the scenarios? (Please tick the appropriate box) 1. <6 months 2. 1 year 3. <3 years 4. >3 years

3. Did you use consultants? (Please tick appropriate box) Exclusively internal staff 4. Which method did you follow? (Please tick the appropriate box) Not at all With


Appendix 5-Questionnaire

1. Intuitive Logics 3. Trend-impact analysis

2. Cross-impact analysis 4. Other(please specify)

5. What reason did you use the scenarios for? (Please tick the appropriate box) 1. Developing strategies 3. Technology decisions 5. Other (please specify) 6. What is your opinion about the forecasting methods? (Rank them from 1-5; 1=worthless, 5=adequate) Rank Unable to classify 2. Testing existing strategies 4. Marketing purposes

7. How often do you use scenarios? (Please tick the appropriate box) Experimentally Always Not regularly

8. Was the use of scenarios a success? Yes Partly No

9. If no, can you indicate the reason? 1. No customisation of the process planning (please specify) 3. Lack of time 2. Lack of integration with 4. Other