Scenario planning analysis is essential for any business. You need to know the steps you want to consider while conducting a scenario plan and analysis within your business. Still, first, you should consider it as a way to integrate future thinking and community communication. It offers plausible and possible alternative views on how your business environment might develop and change.
So let’s take a look into the future of your business and see what is ahead of us, what needs to be prepared for, and how to be proactive and act in a way to either exploit opportunities or even, at times, minimise some of the risks that are out there as well. Moreover, this has become even more important with the digitally advanced era we find ourselves in.
As a business leader, you need to become more aware of the future business environment to exploit these opportunities and mitigate risk. But not only that, you don’t want to be left behind in terms of your competitors exploiting these opportunities. So, let’s get started.
Scenario Planning Analysis
Suppose we think back towards the Blockbuster and BlackBerry era, where both companies failed to consider what was happening around them regarding how global demand was shifting and how their customers and buying habits were also changing. Both companies failed to recognise a possible or plausible future reality, resulting in a later business decline.
So if you don’t actually become aware of the scenarios that may take place in the future, you can miss opportunities. You can actually see your company falling behind in those of your competitors. Let’s dig deeper into the steps to consider while going through the process.
Scenario Planning Steps
The first step in the process is pretty simple. You are going to have to go through a PESTLE analysis, an acronym for political, economic, social, technological, environmental and legal. These are basically the factors that have the potential to influence or impact the business or industry that you are operating within. So, carrying out the PESTLE analysis is the first stage of scenario planning. However, as mentioned, this will be the critical first step to determine what key factors will make up the next step of the scenario process.
So you need to select and rank the critical driving forces during the next step. This step starts with your PESTLE analysis, which you conducted previously; you will then select the most likely key drivers which will come out of your findings then. So which key driver or factor is most likely to occur and impact your business? You will categorise each of these factors into where they are likely to fall in terms of impact and uncertainty towards your business.
You want to focus on the factors you will put into the right-hand category regarding the critical scenario drivers: high impact and uncertainty. And these critical scenario drivers are going to inform the following step of completing a scenario planning analysis.
So, if you were to conduct a pay style analysis just in terms of a general one towards any type of business, you could see from the conducted analysis that you have two key drivers. Number one will be the economic factor with the rise of inflation and the global recession risk. The other will be in addition to technology in terms of the advancements of your business’s worldwide opportunity then.
The next step is going to ask you to build a scenario matrix. And within this step, we would actually encourage you to get the involvement of your team members as much as possible because you want to have some sense of transparency with clear communication levels built throughout this, as this will help you conclude with the overall decision on what scenario is most likely to be the outcome.
So you can see towards the top, you have a growing technology, and the opposite of that towards the bottom is technology constraints. Concerning the first point from the PEST analysis regarding the critical scenario factor of technology, two possible outcomes are obviously utterly different. But this is how you would categorise the scenario planning matrix.
Examples of Scenario Planning
Let’s say we have four movies Titanic, The Pursuit of Happyness, Blind Side, and Singing in the Rain. For The Pursuit of Happyness, businesses can expect a range of opportunities and positive business growth. They are reaching their goals and objectives, and their customer satisfaction and employee satisfaction are at an ultimate high. So there are no complaints in this department.
There is Singing in the Rain, which will get the most plausible and possible outcome regarding growing technology and a global recession. This makes it the one that we will be left with in terms of innovation thriving and technology continuing to grow. However, at the same time, there will be a decrease in customer demand due to the global recession, with a reduced risk taken within the company as well.
For Blind Side, the economy is growing, but there will be technology constraints. So that is another area that will be a problem in terms of consumer demand increases, which is obviously a positive thing. Still, you are going to see a failure to match this consumer demand through the lack of the available technology.
Finally, there is Titanic. Regarding the sinking ship, where there are no opportunities, you will have a global recession, and technology constraints. Therefore, you are going to have to strategise towards surviving, which is unpreferable. In this case, you failed to recognise the future, low productivity and a possible business decline. So that concludes the four scenario worlds in terms of what each scenario could mean for your business.
This will entirely depend on your business and the industry in which you operate, as many businesses will find themselves in different scenarios based on how they reach customers; it is essential that you are already tailoring this towards your own needs and understanding, exactly where you are likely to go, and how you can become proactive and act to exploit these opportunities and minimise any risk.
The last step leaves you in a position to decide which is the most plausible or possible world to get the outcome of your four scenarios.
In this step, we still encourage involvement, communication and the team-building initiative by letting other people give their ideas and point of view regarding where they believe is most likely to be the most plausible option. Try to get everyone to have an open discussion on this topic, as this is one of the things that you might have to take the initiative off by going into as much detail as possible when it comes to describing each of the four worlds, as this will offer clarity into which one is most likely to happen.
As briefly mentioned, we had mentioned that the pursuit of happyness in terms of a global recession and technology advancing is most likely to happen in the future. So this is the most plausible world from our own perspective. And from that perspective, we can then develop strategies and make recommendations for the future. Now that we understand where we are and where we are going let’s start thinking about how we will get there and how we will put the plans in place to exploit our opportunities.
Suppose we remain within the context of The Pursuit of Happyness, what can we do to ensure that we are advancing ourselves in terms of our own company? We continue to grow and adapt to the new ways of the future environment.
One of the things we are going to mention is the likes of conducting a digital transformation, looking at transforming your business and taking on new technology, exploiting technology and using it to your own advantage to either meet new customer demands or grow your business internally, or you could restructure your business entirely in terms of changing your operation, your workflows and the way you are doing things to match the new technology.
There’s a range of opportunities there on how you want to strategise, but this basically summarises the final step.