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Scenario Planning Analysis Explained
Scenario planning analysis could be considered as a way to integrate future thinking and communication which offers us plausible or possible alternative views on how the business environment in which we operate within might develop and change in the future.
With the digitally advanced era we find ourselves in, this has become more and more important where companies and business leaders need to become aware of their future business environment to be able to exploit opportunities, and also mitigate risk.
We have seen it before with well-recognised companies such as Blockbuster and Blackberry who both failed to consider what was going on around them and how global demand was shifting, leading to both companies failing to recognise a plausible possibility of a future reality and resulting in a later business decline. As we can see there are examples out there of companies who failed to look into the future so it is important we learn from these mistakes and take action.
Scenario Planning is a tool which could be leveraged by any type of business as it supports a culture of innovation, encouraging management and key leaders to expand their imagination into the future to become more competitive by leveraging all opportunities which come their way. In doing so, these people will be left in a position to become proactive rather than simply reacting to certain events.
Why is Scenario Planning Analysis important
Those business leaders who are considered as proactive, where they can see future opportunities and act in a way to exploit these are more likely to become successful. Scenario Planning effectively supports this. Looking at the good, the bad and the ugly, businesses can achieve that competitive edge by reacting quickly and decisively. Another objective of using this strategic planning tool is to become more flexible and agile in how your approach certain situations.
Benefits of a Scenario Planning Analysis
By selecting key drives, plans can be put in place to act in accordance to what the future holds and how it may impact a business. In addition to this, this process can encourage communication and collaboration amongst staff where the analysis is better completed during a team exercise. This will effectively allow teams to improve on their decision making, enhance their strategic thinking capabilities and become more aware of potential risk factors. Some of the key benefits to successfully implementing this tool has been listed below;
Advantages of Scenario Planning Analysis
- Achieve a competitive advantage
- Become proactive
- Mitigate or manage risk
- Exploit opportunities
Disadvantages of Scenario Planning Analysis
- Can be open to bias if not completed by multiple individuals
- Can be a time consuming process
- The environment can be unpredictable where outcomes such as the pandemic has shown this in the past
Key thing to remember when conducting a Scenario Planning Analysis
As briefly mentioned, because the tool is very much based on a certain individual’s imagination, it can be subjective to bias from this particular individual. Therefore, rather than a person in a management or leadership position completing this analysis, the involvement of other key people should be encouraged to ensure a high level of transparency and collaboration.
How to conduct a Scenario Planning Analysis
Step 1 – Carry out a PESTEL Analysis
There are different ways and methods online showing you how you can conduct a Scenario Planning Analysis, however the following example has broken it down in its simplest form with some examples to follow.
To make it easier for yourself, you will want to carry out a PESTEL Analysis before completing this analysis. Conducting a PESTEL Analysis will allow you to withdraw both opportunities and threats which are likely to impact your business within the external environment. By doing this external analysis, you will be able to select two key drivers which are most likely to impact your business.
Step 2 – Select and Rank the Key Driving Forces
From the PESTEL Analysis, you will select the most likely key drivers which are going to occur and impact your business. You will then place them in the top right corner of the impact/uncertainty grid, where these ‘critical scenario drivers’ are going to inform the following step of completing a Scenario Planning Analysis.
As an example, two critical scenario drivers have been identified from the PESTEL Analysis and placed within the top right corner of the grid below.
- Key Scenario Driver 1 – The rise of inflation and the risk of a global recession
- Key Scenario Driver 2 – Technology advancements offering opportunity
Step 3: Building a Scenario Matrix
Once you have selected your two critical scenario drivers, it’s time to put your creative and imagination skills into action and develop four cross dimensional worlds and build a scenario planning matrix.
For this example, we have decided to select a movie themed analysis to offer some perspective and personality to the overall analysis. The movies which have been selected are The Titanic, The Pursuit of Happiness, The Blind Side and Singing in the Rain.
Each of these movies make up the key ‘scenario worlds’.
We can also see from the grid below we have placed both critical scenario drivers to both sides of the ‘X’ axis and ‘Y’ axis, where a growing economy and a global recession represents the opposite outcomes, and growing technology and technology constraints represents another.
Within each quadrant you will also see some points on the most probable and plausible futures within each scenario world.
Step 4 – Decide on the most plausible outcome
Within this step you will want to have open communication and involve your team in discussing and deciding which scenario world is most likely to happen. It may also be a good idea to describe the world in as much detail as possible to get a clear understanding of the outcomes of each.
- ‘The Pursuit of Happiness’ presents itself as the most ideal scenario for a business with both a growing economy and high technological advancements. Within this world businesses will have more opportunities in being innovative and exploring potential opportunities. They can also spend more time and resources focusing on achieving a competitive advantage rather than managing or mitigating potential risk. With a steady growth rate and high consumer spending, businesses are also more likely to be in line with achieving their key goals and objectives.
- On the other hand, the opposite of this may have the potential to occur within ‘The Titanic’ scenario world. With a global recession occurring and technology being negatively impacted, a business can expect major uncertainty and disruption. Depending on the industry, some businesses may experience a fight for survival where they will have to focus on leveraging their strengths to stay afloat and keep ahead of the competition.
Now business leaders know the outcome of each scenario world, they can come to the decision of which is most likely to happen, allowing them to…
Step 5 – Make recommendations towards the future
Once business leaders have come to the conclusion of which scenario world they believe is most likely to occur, they are now in a strong position of strategies toward the future by exploiting opportunities or putting plans in place to manage potential events.
Within the world ‘Singing in the Rain’, we see technology flourishing with a global recession occurring. Two key strategic recommendations for this scenario may be:
- Conduct a Digital Transformation: You may want to improve your customer experience and implement a Customer Relationship Management (CRM) software system to ensure your customer loyalty levels do not drop.
- Re-structure the business: Restructuring the business and allocating new roles and responsibilities is another way a business could focus on marketing the business and ensuring revenue does not drop as result of consumer spending decreasing.
This summarises an overview of the 5 simple steps to follow when conducting a Scenario Planning Analysis.
If you enjoyed this blog article on Scenario Planning Analysis and you want some guidance on how you could apply it to your business, contact ProfileTree today. We also offer guidance and support on Business Strategy, Digital Transformation and all things Digital Marketing as well. We will look forward to hearing from you.