War games, contingency planning, thought experiments all provide potential glimpses into the future that can help distribute knowledge, test reactions and improve flexible thinking. I’m a fan.
So it was with some interest I noticed Business Horizons’ recent issue on entrepreneurship included a paper that strongly argues scenario planning not only prepares a corporation for external disruptive events, but it can improve an organization’s overall entrepreneurial capacity.
Scenario planning has long been used to prepare for emergency events. Since the 9/11 terror attacks corporate use of scenario and contingency planning increased from 38% to over 70% of executives surveyed, again primarily as a means of preparing for external disruptive (exogenous) shocks. In the article, Beyond risk mitigation: Enhancing corporate innovation with scenario planning, William J. Worthington, Jamie D. Collins and Michael A. Hitt, show that “advanced use of scenario planning can help firms go beyond innovative responses to more complex repositioning of their strategy.”
In one example they explain how Goodyear Tire & Rubber Company uncovered synergies and competitive advantages that could be built into their supply chain while developing emergency responses to potential regional conflicts. They improved their everyday business by being prepared for a crises.
“The process used to create the scenarios aids firms in exploring the environment while exploiting their resources and capabilities (March, 1991). This may require companies to shift their perspective of scenario planning from risk mitigation to opportunity recognition. Recognizing that uncertainty in the firm’s environment is an indicator of potential opportunities is an essential insight for executives (McMullen & Shepherd, 2006). In particular, we believe that firms can use scenario planning for exogenous shocks to identify unique opportunities.” Worthington, Collins & Hitt, Beyond risk mitigation: Enhancing corporate innovation with scenario planning.
The authors call this “an opportunity to innovate.”
On occasion I’ve run into the question of whether entrepreneurs and innovators ‘discover’ or ‘create’ opportunities. In the paper Discovery and Creation: alternative theories of entrepreneurial action, Sharan A. Alvarez and Jay B. Barney argue that different strategies are necessary depending on whether opportunities are ‘discovered’ or ‘created’. For example, leadership might be based more on expertise than charisma when opportunity is discovered. Decision making may be more iterative and incremental when opportunities are created versus a risk assessment philosophy for discovered. In their view, management strategies to leverage ‘discovery’ vs ‘creation’ appear to differ, possibly to the point of contradiction.
To a certain extent this is language play, but from a practical standpoint for a firm trying to jump-start innovative processes it indicates a need to travel multiple strategic pathways. Come to the rescue scenario planning.
It stretches the collective imagination in ways that spreads knowledge and learning.
It creates an environment where decision making and opportunity observation can be spread throughout an organization.
What kind of scenarios are you thinking about?
Scenario Planning is a great tool for working through the Uncertainty Paradox. Identify possible scenarios. Work through solutions. Discover commonalities. Pre-position for the future.
This is a different way of stroking innovative fires within a company from more individualized efforts like Google’s 80/20 rule. It encourages teamwork, a philosophy of opportunity detection, a working structure for dealing with both opportunities and disruptions, and quite possibly a better management attitude towards learning from failure.
In today’s environment it’s easy to focus on financial disruptions, working on plans to simply get through the current crises. Scenario planning can go much further than that. Technological and pricing attacks from competitors. Changes in consumer tastes. Political disruptions. Employee defections.
All pieces in your own personal company war game.
Fred, Great post as usual. One of the things I deeply miss from the corporate world is the opportunity to engage in scenario planning. I’ve found that as a freelancer, it’s very hard to brainstorm with one brain, and it’s tricky bringing in outside wisdom, because there isn’t that same shared experience that comes from battling the elements on the same team. Nevertheless, scenario planning is crucial to anyone making a living in the worlds of SEO and social media. What will Google look like in three years? What will Twitter look like in one year? How will mobile computing affect blogs? The questions are endless and the outcomes are often highly speculative. Given the uncertainty and instability of the global marketplace, I can’t imagine other businesses are any easier to predict.
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Fred, I really like your slice into scenario based planning. I’ve used it a lot to help companies make critical strategic decisions when the future environment is highly uncertain. Your suggesting it is a creativity tool is a really fun way to look at the tool from a different angle. Certainly the 2008 recession has dramatically upped both the uncertainty in most markets as well as the need for innovation. The tricky think about scenario based planning is to keep the scenarios from being caricatures (a la the way the far left and the far right describe the ‘other’ side). You want each scenario to be richly described, quite possible, with elements of realism and imagination in each. What are your scenarios for the future of our economy Fred?
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Hi Brad, A company certainly has to be open to the exercise for it to have any impact. Social media (and most industries facing digitization of content) is a great example of having to position a company for a variety of outcomes, placing bets and putting in place structures that are adaptable to a variety of future scenarios. One advantage you have coming in as an outside consultant is the focused thinking on those alternative futures that can provide good strategic foundations for a company to act on. What will Google Do? Nobody can be sure, including Google. So you have to prepare for a variety of options.
Hi Kay, Good point about the danger of scenarios becoming caricatures. Usually that is an indication that you haven’t gone deep enough into the thought process so richness is a key as you mention. As far as the economy goes, your more qualified to answer that than I. One client and I have been reviewing how to deal with shifts in customer mix that will occur as various stimulus programs hit various industries and then recede. There is a real concern that following the wave in investment things could seriously stall next year as research was pushed forward to take advantage of the money leaving funnels empty for a while (a bit like what happened to auto sales this summer).
Fred,
If individuals in any organization are not challenged or stimulated to think outside of the square, then their potential for creative thought and continuous improvement will be limited.
But excercises which force individuals and groups to really think about issues which may be confronted by their company in greater depth really challanges those people to come up with proactive solutions and ideas for the continuous improvment in the way processes and procedures are performed. scenario planning is one such exercise.
.-= Andrew´s last blog ..Google books – let a wonderful innovation go full steam ahead =-.
Hi Andrew, One thing that struck home from the article was the power of seeing how there can be common reaction elements that develop from looking at various scenarios. By having folks work through the exercises it both greases the procedures so they operate smoothly and also strengthens those common elements. Lots of potential improvements.