Scenario Planning As A Spur To Entreprenurial Thinking

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 leverages existing organizational learning.

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.

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