Any company intent on maintaining a competitive advantage intoday’s business environments must plan for multiple futures in order to ensure resilience and mitigate the growing risks of difficult-to-anticipate disruption. Current planning processes built around predictive forecasts of the probable will not be sufficient. Companies need to augment their forecasts with methods that stress proactively incorporating – rather than eliminating – uncertainty. Businesses that resist innovative thinking and processes will find themselves caught flat footed by fast-moving shifts.
There are many sources of business disruption but three stand out:
- New unconventional actors. In less than six years, Uber has disintermediated the taxi industry worldwide. Two years ago, ISIS further destabilized the Middle East by establishing a caliphate and emerging as a global terrorist threat. The rapid rise of far-right political parties in Europe is threatening the stability of the EU.
- New technologies and new applications of existing technologies. Internet of Things is a bit of both, combining existing digital technologies with data analytics to transform business processes and industries. The intersection of next-generation materials and advanced manufacturing techniques – for example, 3D and 4D printing – have the potential to create game-changing new capabilities and business models for nearly every major industry.
- New existential threats. Climate change is expected to raise sea levels, which will displace populations in low-lying areas and potentially lead to mass migrations and conflicts. The threat of the use of nuclear weapons – either deliberate or otherwise – has re-emerged and is amplified by diffusion of new technologies as well as increased geopolitical competition and instability.
The ability to respond rapidly to multidimensional disruptions is critical to driving business success. Indeed, the rate of change in today’s connected and complex world can occur faster than many conventional decision- making processes are equipped to manage.
Forecasting has long been the primary tool for identifying “known factors” to predict the future and set strategy. However, forecasts are typically based on historical trends and assumptions that are less likely to be valid for understanding the future during periods of disruption.
Consider forecasting future energy demand. Since 1990 the share of fossil fuels in total global energy consumption has held remarkably steady, at around 80 percent. The future, however, will not follow historical trends. The confluence of new technologies, geopolitical realities, market dynamics, and regulations – such as the 2016 Paris Climate Agreement – ensure the path forward for energy companies will be fraught with challenges. However, for some savvy and adaptable companies, it could also mean opportunities.
Likewise, in the automotive industry, the connected car, autonomous driving and new patterns of urban mobility are creating existential market and competitive uncertainties for some automakers.
A survey of 77 large European companies found that formal “strategic foresight” efforts add value through (1) an enhanced capacity to perceive change, (2) an enhanced capacity to interpret and respond to change, (3) influence on other actors, and (4) an enhanced capacity for organizational learning.
“Living in the Futures” by Angela Wilkinson and Roland Kupers,
Harvard Business Review,
New tools for strategic resilience
Regardless of industry, the need for resiliency in an era of disruption is driving companies to embrace scenario planning and make it an integral part of their strategic planning processes. By expanding the range of possible futures considered – from probable outcomes to less likely but plausible ones – companies can systematically develop an understanding of how to make their business strategies more resilient.
Long used by national security organizations to inform competitive strategies and anticipate threats, scenario planning allows management to test deeply held assumptions about their business and understand the various pathways along which the future may unfold, and how they should act or react to remain competitive. Scenario planning complements – but not replaces – traditional analysis, expertise and trend monitoring, and offers a nuanced view of possible future worlds.
To stress test scenarios, companies typically use “strategy” or “tabletop” gaming, also known as war gaming in the military where the methodology originated. Gaming asks stakeholders to “play out” over hours or days specific scenarios that in the real world may unfold over a span of months or years. They are especially useful in understanding the interactions between and implications of a given company’s strategy and the behaviors and decisions of customers and competitors.
One of the most important outputs of any well- executed scenario planning exercise is the identification of signposts, or indicators, that one scenario or category of scenarios is more or less likely to come to pass. When signpost identification is matched with scenario-specific hedging strategies, organizations can move to enhance resilience before the disruptions emerge and markets shift, rather than after the fact.
Elements of successful scenario planning
While scenario planning and gaming take different forms and seek to achieve different objectives, they both stress collaboration and teamwork to improve decision making by challenging assumptions and expanding the scope of alternative outcomes that the company should consider.
To get the most out of strategy gaming, organizations need to establish ground rules that create an environment free of risk or repercussions for novel thinking, encourage free exchange of ideas and opinions, and foster creativity, honesty and trust among participants. Three recommendations for successful gaming outcomes are:
- Senior management’s support to “question everything.” Participants should be given free rein to challenge long-held organizational assumptions, practices and processes. In many cases, legacy thinking inhibits companies from making necessary changes in response to disruptive competitive threats.
- Multidisciplinary teams of experts. Comprehensive analysis of future scenarios should involve a diversity of expertise and perspective from across the company and from external third parties.
- Hire a facilitator. Successful games require active – and objective – facilitation that includes moderating team and plenary discussions, and driving the teams to explore new environments.
Scenario planning and gaming are powerful tools for evaluating the complexity of new competitive threats in ways traditional tools cannot. Incorporating scenario planning into the formal strategic planning process provides a more nuanced understanding of possible futures that can reveal new opportunities and set the stage for driving competitive advantage.
Tate Nurkin is Managing Director, Consulting and Thought Leadership, IHS Aerospace, Defense and Security
Posted 7 December 2016