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Scenario Planning

This is part of the P3M2 module from the Pillar 3 Your Strategic Market Positioning.

Scenario Planning – How To Deal With Major Uncertainty In The Future Economic Environment Of Your Business

The Outline

  • Technique is not recommended for most small businesses
  • Build alternative views of the future world and test strategies in each world.
  • “Fork in the road” e.g. UK & EU
  • Collective learning for the team
  • Some foresight better than none
  • Increases awareness – Boiled Frog syndrome
  • Disruptive change may be unpredictable

First I should make it clear that I don’t recommend this for 95% of small businesses.

However if you are facing a major uncertainty in the future, it is a powerful way to help you to work through the different options and decisions.

Scenario planning involves building up detailed descriptions of “alternative worlds” made up of different key assumptions and then testing a series of strategies to see what makes sense to do regardless of what may happen and what decisions you should leave until it is clear what is happening.

Back in 2009/10 when I wrote this, I gave the examples that might include forks in the road like the UK joining the EU in the Euro and a full political union or pulling out of the European Union completely.

In 2016, the Brexit referendum gave a small majority to the idea of leaving the EU, after a dreadful campaign by both sides. Since then, the Conservative government under Its Prime Minister, Theresa May has handled a complicated situation very badly and it is still not clear what Brexit means in practical terms.

It looks like the UK/EU is heading for a situation no one wants, a badly hashed together compromise that could be the worst of all worlds. Businesses who do a lot of business with other EU countries – selling to them or buying from them – face major uncertainties regarding the Single Market and Customs Union.

UK businesses competing against other UK businesses will face the same problems but competitors in France and Germany may find they are in an advantageous position if their supply chain is with other EU countries.

Working through the different scenarios creates collective learning. Your senior management team gets to share visions of the future and each can be more alert to potential changes. Even if the developed scenarios aren’t correct, some foresight is better than none.

The Boiled Frog Analogy

There’s a story which is disgusting but makes the point about awareness.

  • If you put a frog in hot water, it will jump out immediately as it knows that things aren’t right.
  • If you put a frog in cold water and slowly heat it up, you finish with a boiled frog because each small incremental change in water temperature went unnoticed, even though the water finished up much hotter than the temperature the first frog jumped out.

Research into business decline shows these incremental changes which gradually make the market less attractive and gradually make a business weaker than competitors are a major cause of business failure.

Sorry that’s not quite true. What causes the businesses to fail is not the changes in themselves but the managers inability to notice the change or to react to it in an appropriate way.

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