In times of constant flux, the ability to anticipate change in the business environment early on and respond to it quickly and in creative ways has become an important source of competitive advantage. Scenario planning is a proven method to increase a company’s agility. While scenarios may not be the crystal ball allowing us to predict the future with 100 percent accuracy, they do help us to look at the future in a systematic fashion, to challenge our assumptions about what may lie ahead, and prepare for a range of plausible futures.
Scenario planning basically consists of two parts: scenario development and scenario transfer.
Scenario development is a participatory process that typically takes place in workshops using different techniques, such as brain storming or relevance trees. The first step is usually to conduct an environmental analysis to determine the key drivers that will influence the future environment which the business operates in. The second (and most difficult) step is to forecast the future development of these drivers and identify and analyze the cause-effect-relations between them. Next, the drivers are grouped into “mini-scenarios” which are checked for consistency and plausibility. Finally, two to three scenarios are selected and formulated in detail.
Scenario development is very complex. Countless economic, social, technological, and ecological factors influencing the business environment need to be identified, linked together, and run through again and again. Out-of-the-box thinking and looking at the issue from every possible angle is crucial to succeed in this. That’s why, ideally, not only internal managers and specialists, but also external experts and stakeholders (e.g., customers, customers, suppliers, distributors) should participate in scenario workshops and be involved in scenario development.
The scenario transfer includes the analysis of the opportunities and risks posed by the selected scenarios and, based on that, the development of suitable strategies (Gausemeier et al., 1996). The strategic planning software SOLYP3 can support companies in this process. In SOLYP3, multiple scenarios can be entered, analyzed regarding their impact on the business, and planned in detail, so that sound alternative strategies will emerge.
And that’s how it works:
- Entering scenarios in SOLYP3
The scenarios defined top-down by the executive management are centrally entered into SOLYP3 with a title and a short description. Afterwards they are available to all strategic planning units for individual processing via digital questionnaires. In SOLYP3, a distinction is made between the base case scenario, which is the most likely future, and alternative scenarios. By default, if a planning unit does not enter any data for an alternative scenario, the data of the base case scenario will be used. This happens, for instance, if a scenario cannot be applied to a certain region or business segment. In addition, planning units have the option to create individual scenarios which cannot be edited by other planning units.
- Selecting scenarios
The person responsible for entering the data of a planning unit first needs to select the scenario her or she wants to work on. In the following example, the base case scenario is selected.
Fig. 1 Scenario selection in SOLYP3
- Business impact analysis
The next step is to perform a comprehensive analysis of the potential risks and opportunities of the scenario for the company as a whole and for the individual business areas. This is done using classical analysis tools, such as SWOT, trend, and competitor analyses. These tools can be individually combined in SOLYP3. A unique feature of SOLYP3 is that it is able to process both hard and soft data. The following two examples show trend analyses of the base case scenario and of an alternative scenario.
Fig. 2 Trend analysis of base case scenario
Fig. 3 Trend analysis of alternative scenario
- Strategy Development
Based on the business impact analysis, the next step is to develop concrete strategic goals and measures to mitigate the risks and/or take advantage of the opportunities associated with the scenario. Once all data is entered, the process is repeated for the other scenarios. This way, complete and coherent strategies are developed for all scenarios.
Reports can be generated for individual scenarios or for comparing multiple scenarios. The latter functions in SOLYP3 at the push of a button, e.g., within automatically generated diagrams.
Fig. 4 Data output as dashboard
The scenario-based approach to strategic planning is complex and time-consuming. Probably that is why many companies have shied away from pursuing this approach so far. However, especially in fast-paced industries, it is essential to be able to anticipate possible changes in the market environment early on in order to stay ahead of the competition. Special software can support businesses in this process by facilitating structured and comprehensive data collection and analysis.
Gausemeier, J., Fink, A., & Schlake, O. (1996). Szenario-Management: Planen und Führen mit Szenarien. 2nd ed. Munich: Hanser.