Leading up to 2020, executives were already grappling with rising disruptive technologies, changing business models, and rivals emerging from unexpected places. Throw in a global pandemic, and the future seems about as predictable as a game of Rock, Paper, Scissors with a hundred hands.
While some were poised to respond to the turbulence that coronavirus introduced to business environments, most were not. Traditional approaches to strategic planning have largely been unsuited to Covid times and have left companies vulnerable. So, what are businesses to do in an environment changing so quickly that strategic plans end up getting thrown out the window?
Enter scenario planning, a form of planning that leverages what you don’t know to bring multiple hypothetical futures into view. Scenario planning allows you to:
1. Gain insight into the key drivers of a situation
2. Embrace and control uncertainty
3. Recognize the assumptions your organization has been making
4. Expose your false sense of security
Sound uncomfortable? Good! Scenario planning isn’t new, but it is newly relevant in the age of coronavirus and beyond. Some industries and businesses have already adopted scenario planning for Covid—if you’re in any way connected to a college or university, you’ve likely received an email from the administration detailing the potential options for coming back to campus in the 2020-2021 academic year. Macalester College in St. Paul, Minnesota, for example, distributed a list of six scenarios in early May. Each scenario proposes slight variations on the structure of the school year (e.g., semesters, “blocks,” trimesters), how many classes each faculty member will teach, and when the community will return to campus, all with the goal of having as much in-person learning as possible.
Scenario planning is an invaluable tool if you’re trying to determine what the future might look like for your business. While the coronavirus has ramped up our understanding of uncertainty to the extreme, companies will always grapple with blind spots and unknowns. Here are five steps you can take to prepare your business for unknowns beyond the pandemic:
1. Identify the trends affecting your business
What are the major factors affecting how your business functions and how your customers are making decisions? The PESTLE framework helps identify relevant trends both internally and externally. For example, environmental trends in healthcare could be interpreted literally (e.g., pollution patterns), or more broadly in terms of trends that could affect the market (e.g., aging populations in Europe). Combine the two approaches to trend identification and you’ll get a more holistic view of what’s relevant to you and how changes in the world might affect your business.
2. Separate what you know from what you don’t know
Identify the assumptions you’re making and expose your major blind spots. Interviewing key stakeholders to uncover how they envision the future of the business might help expose where some of these assumptions lie. Determine your commonly accepted “truths” and rigorously challenge them—maybe some of these “truths” are actually unknowns.
3. Map it out
At this point, you likely have a long list of trends, assumptions, and unknowns. Now it’s time to prioritize. Identify the trends that are highly uncertain and most impactful. The most straightforward scenario grids look at the crossing of two major trends. For example, a bank might want to think about the increasing use of digital channels and the different approaches to win customer loyalty. Turning these two trends into a matrix gives us four scenarios:
Scenario planning is all about telling a compelling story, so it can be helpful to give each scenario a memorable name and fill in the details of what each reality might look like.
The scenario matrix is a flexible tool—you may want to consider more than two trends at once, or maybe it’s helpful to look at two matrices side by side. Some museums, for example, have been planning post-Covid reopening scenarios using three axes—programs, operations, and funding—in worst-case, middle-case, and best-case situations.
4. Don’t ignore the worst-case scenario
The point of scenario planning is to identify all possible outcomes, even if they are less-than-ideal. Don’t focus in on the likeable, focus on the likely. Forcing yourself to make difficult decisions, confront uncomfortable realities, and look at situations realistically might result in mapping out a scenario that you hate, but it will help you prepare for that worst case and allow you to mitigate its effects ahead of time.
5. Keep adapting
Effective scenario planning requires flexibility. One of the major benefits of the strategy is that it allows you to see how a single idea might play out across multiple hypothetical futures. You can use this tool as a way to develop ideas that will win even when unexpected changes occur, but you’ll need to continue to adapt your plans with changing trends. Track your customers’ Jobs to be Done, or core motivations, behind the choices they’re making. Earlier this year, a top priority for consumers was protecting themselves and their loved ones, which often meant hunkering down and not venturing outdoors for weeks. Now, many people are suffering from cabin fever and feel the need to get out and socialize in a way that feels safe for them. Continue to track these trends—what’s sticking? What’s continuing to change? Did you make any assumptions that are now false? Has that made any of your scenarios impossible or irrelevant?
We are facing a lot of uncertainty, and no one can say what the future will look like for sure. But with the right tools, uncertainty doesn’t have to be panic-inducing. By leveraging what we don’t know and committing to flexibility, we can chart a way forward that minimizes unnecessary risk and allows for quick adaptation in any scenario.
Kayla Servin provided editorial support to this post.
Click for a series of working papers on managing a business through the coronavirus crisis.