Scenario Planning – A Key Factor for Corporate Success

Friday, 16. November 2012

An important message which I took home after the last meeting of the Horváth Strategy Network was: coherent scenario planning is a key factor for corporate success! Why is that? Well, let´s define first what scenarios are:

The purpose of scenarios is to draw the attention of the user to causal processes and decision-making points. When crafting scenarios, a hypothetical sequence of events is constructed. Thus, possible events and developments which are relevant to a particular field (e.g., population of Europe), refer to a specific period of time, or are interconnected in one way or another, form a scenario. (

Although this definition is quite theoretical, it clearly shows that scenario planning is more than just fueling the price spiral to see how the turnover will change. Rather, it requires planners to carefully think through all core aspects of strategic planning that might be affected by a particular scenario. They need to immerse themselves into these "alternative worlds" and develop alternative strategies to respond to changes in the external environment.

Scenario-based strategic planning has been criticized for being more complex and time-consuming than traditional strategic planning. However, it provides businesses with a more solid base of information, which can lead to greater planning flexibility and agility.

Let´s look at a simple example. Some core aspects of strategic planning are vision, objectives, and measures, market conditions, trends, SWOT analysis, and target figures for measuring success. Now imagine a car manufacturer who is specialized in producing sports cars and has positioned himself accordingly. Doing some market research, the manufacturer has reached to the conclusion that consumers are becoming increasingly environmentally cautious and that, in connection with rising fuel prices, this will lead to changing consumer behavior. Consequently he decides to shift his strategy from producing sports cars to producing electric cars. The new strategic goal is: "To produce an electric car that has the same reach as conventional cars with gas engines and comparable speed by the year 2020."

So, the manufacturer considered two important aspects of strategic planning: market trends and the development of objectives and measures. Maybe he even defined some target figures to measure whether the objectives have been met or not. But what about other important market conditions which need to be taken into account? Entering a new segment requires re-positioning of the brand, mixes up the businesses strength and weaknesses, and confronts it with different sets of risks. The competitive situation will shift as well.

As you can see, in order to make good strategic decisions, businesses need to take a holistic approach and try to fully understand the “scenario world” and the impact it may have on its ability to compete in the market place.