Looking Ahead with Scenario Planning

By Mal Warwick

Copyright © 2006

 

Let’s be sure we’re starting on the same page.

Given all the uncertainties, plus the fact that neither nature nor history unfolds in straight lines, plus the sheer cussedness of the human race, do you agree that it’s impossible to predict the future? Good. I was hoping so. Because that’s our jumping-off point for serious inquiry into the extraordinary opportunities and daunting challenges that will surely face us in the nonprofit sector in the decades ahead.

 
But let’s first turn our attention to a time more than thirty years ago. If you weren’t around then, you’ve surely read or heard about the OPEC oil embargo that rocked the world in that era. That earth-shaking event – the first time “underdeveloped nations” successfully ganged up on the industrial powers – took almost every observer, pundit, analyst, and intelligence agency by surprise. Even the world’s major oil companies were blindsided.

 
Except one: Royal-Dutch Shell, the Anglo-Dutch oil giant, which proceeded to reap billions in profits because it had adjusted its corporate strategy in the light of its foresight.

 

Now, how could one major energy company have anticipated the OPEC oil embargo when all its competitors were left in the dark?
Hint: Shell didn’t employ industrial spies, psychics, or improbable gadgetry out of some future Star Wars episode.

No, the secret weapon in Shell’s arsenal was an approach to developing corporate strategy called scenario planning. But now that method is no secret at all. For many years, it’s been widely used in the corporate world, by the U.S. military, by government agencies, and by some of the world’s most sophisticated nonprofit organizations. If you’d like to take a crack at it, too, read on.

For starters, don’t bother second-guessing the pundits and the trend-meisters. You don’t need to be a seer or a genius.

Forget what you “believe” about the future. It’s not important that you have any opinions at all.

Scenario planning is not an exercise in figuring out what’s most likely to happen five years from now, or ten, or twenty. Scenario planning is a strategic planning method expressly developed to test the viability of alternative strategies.

 

Through scenario planning, you can examine what results a strategy will yield under a variety of improbable circumstances.

I know: That sounds nuts. But trust me. If you invest the necessary time and forethought, this stuff works.

 
Now, I’ll admit it: Scenario planning isn’t simple. It requires an analytical mind, a broad range of knowledge, a disciplined group of people who work well together, and, frequently, a lot of time. But for those who persist and succeed, the rewards can be rich indeed.

With scenario planning, you, too, can prepare to meet the uncertainties of the future—in your nonprofit organization, your business, or in your personal life.

Not only that—it can be a lot of fun, too.

The process involves six simple steps.

Step 1. What is the question?

For starters, decide what is the biggest question your organization will have to face in the future. As scenario planning guru Peter Schwartz put it, what is it that keeps you awake nights?

Let’s consider the prospects for three hypothetical organizations:

*  a prestigious regional symphony orchestra called the Weedunotes Philharmonic;

*  the Safety Net Center, a hard-pressed urban human services organization; and

*  a visionary nationwide environmental organization called Save the Universe.

Let’s assume all three nonprofits are looking three to five years ahead – a typical span for nonprofit strategic planning. They’re all concerned about what shape they’ll be in when the year 2010 rolls around (or whether they’ll even survive that long!).

Here are some of the troubling and consequential questions the leadership of these three organizations might face:

The board and top staff of the Weedunotes Philharmonic might determine that the biggest potential threat to the orchestra’s stability is the aging of its audience and donor base. For the orchestra, the strategic question may be, “Should we invest in a costly, long-range marketing program designed to attract younger audiences – and possibly even broaden our programming?”

The Safety Net Center may face an uncertain future primarily because of impending cuts in Federal and state funding. For them, the question could be, “Should we lay off staff and cut back sharply – or should we triple our investment in donor development?”

The executive director of Save the Universe might wonder, “What will happen to our organization if our predictions of catastrophic climate change turn out to be true sooner than expected?”

Now, having narrowed down the question, we know what this particular scenario planning exercise is all about. This will permit us to conduct a series of discussions that bear less resemblance to sophomoric dormitory bull sessions – and focus instead on what’s really most important to each organization.

2. Figure out what you don’t know

Once you’ve got a handle on the Big Question, sit down and figure out the things you need to learn in order to take a crack at answering the question.

These further questions – the things you don’t know at least until you check them out – are called “strategic uncertainties.” (At least, the ones that are really important can be called that.)

You may have to do some research. You certainly will need to do a lot of thinking.

First, list the factors that your leadership must take into account in answering the strategic question you’ve posed. What are the strategic uncertainties? For example:

For the Weedunotes Philharmonic, the strategic uncertainties would include local population trends, the state of the region’s economy, and the behavior of other performing arts organizations in the area. Will the population continue to become healthier as it ages? Will the people of the region have more disposable income as the years go by? Will competition for funding and audience support from other nonprofit organizations increase in the next five years?

Board members of the Safety Net Center need to know how changes in statewide health and welfare policies will affect their clients. They need to explore the prospects and plans of the local business community over the coming half-decade. And they probably ought to consider whether other local nonprofits facing a similar crisis would be willing to join hands in a cooperative response.

If global warming suddenly brings on the catastrophic changes predicted by their own scientists, Save the Universe must weigh how public attitudes in general and donors’ feelings in particular will be affected. The leadership must take into account what climatic changes may be in store for the cities where their offices are located. They have to wonder, too, what shape the U.S. economy will be in after years of unfolding environmental catastrophe.

If you’re doing a good job, you’ll come up with lots of questions. The next task is to figure out which of these strategic uncertainties are the most important ones in the light of the decision you have to make. Pick just three or four, to avoid getting muddled. That calls for judgment – but, hey, that’s why they pay you the big bucks, isn’t it?

3. Gather the necessary information

If you’re an active, aware citizen, you’re constantly gathering information. You read newspapers, magazines, and books. You catch the news on TV or on the Web, too. You talk to people in many walks of life – at work, on the street, and in your social life. All the general knowledge you accumulate in the normal course of your life is essential as you embark on scenario planning – but it’s not enough.

To ponder the dynamics of its audience in 2005, the Weedunotes Philharmonic will need to obtain demographic information from a local business library, the Chamber of Commerce, and perhaps the Census Bureau.

The Safety Net Center may need to sit down with astute observers of state and Federal politics, perhaps including their representatives in Congress and the state legislature.

Chances are, Save the Universe’s own studies on global climate change highlight the environmental consequences and are sketchy about other aspects of the trend, such as the impact on the economy, the nonprofit sector, and U.S. society as a whole. The organization’s scenario planners will have to consult a qualified economist, at the very least.

Be careful, though. Don’t overdo it. Decision-makers in every field constantly warn that they never have “enough information.” Don’t let the research process drag on so long that the question becomes moot before you complete your analysis!

Once you’ve collected the information you need, it’s time to start putting it in context by examining what scenario planners call the “driving forces.” That’s the point where my next column will begin. Stay tuned!