Summary: With the disruption and uncertainty caused by COVID19, the use of Scenario Planning can be an important tool in managing companies and could be a very useful arrow in the businessperson’s quiver. The idea of Scenario Planning is not to predict, but to anticipate and allow the firm to create the capabilities needed in the future – short or long term – to survive. The goal of Scenario Planning is to visualize the extreme points, not the DOA point, but those negative situations where positive actions can still be taken or positive situations where unexpected opportunities may arise. Grouping a series of Scenarios together can give a firm a clearer idea of where to focus their energies, develop capabilities and create strategies that will promote its long-term success.
In today’s COVID19 world, consultants and our clients are facing similar challenges: how to survive, maintain and then grow our businesses in the light of as much uncertainty as any society has faced in our Post-WWII lifetimes. One well-tried and proven tool that can “shed some light on the mist” is to use Scenario Planning. Many variations exist. I will propose a simple yet effective tool that I believe will add value and insight to most companies. [Figure 1] In this article, our focus will be on the first three steps.
Figure 1 – Overall Process
- Lay out the Key Issues to be addressed and those that a priori are This process lays the groundwork for the evaluation of the subsequent steps. Without details, lay out the three to five key issues facing the firm, example: “collapse of demand”, “unbearable fixed costs”, “supply chain disruption”, “low cash on hand”, and the like.
- Evaluate the impact of External Forces [PESTLE] or [PESTLE-D] using the standard PESTLE format(Political, Economic, Sociological, Technological, Legal and Environmental, with Demographic added)completing at least one or two forces in each of the squares. Select the top three, Tier 1, forces insofar as they impact your business.
- Generate Scenarios covering the Tier 1 Forces where the Scenario is defined as the most extreme, but realistically possible, situation: both for the positive and the negative. This defines the boundaries within which you will have to plan.
- Create an Internal and External Vision: Using tools such as SWOT (Strengths, Weaknesses, Opportunities and Threats), the internal factors such as Strengths and Weaknesses should be integrated with the external Threats and Opportunities, based on the forces identified in the PESTLE analysis.
- Integrate and visualize optimum outcomes subject to the Scenarios. If possible, integrate the Scenarios generated above into two scenarios, a positive and a negative one. An example of a negative one could be: “Demand continues to be repressed, supply chain issues strongly constrict our fulfillment capabilities and our financial situation is strongly deteriorated.” Ouch. For this, an optimum outcome might be: “Limit losses to those that our Balance Sheet can support for X years.” The more forces that can be reasonably integrated in a positive or negative scenario, the more robust that scenario will be and the more useful it will turn out to be as a guide for strategy development.
- Prepare Capability Based Strategies to achieve the outcomes defined above. Granted, in this unbelievably bad scenario, the firm will look to design a viable strategy, based either on existing or obtainable internal resources, capturable external ones, or the creation of new allies, even competitors, as legally feasible. This strategy will result in a roadmap that will have a good chance of enabling the company to survive even under what was purposely designed to be the Scenario equivalent of a 100-year flood. We consider it important to have the strategy be Capability Based because in these times it is the firm’s capabilities that define the boundaries of actions and the strategies that can be implemented.
In conclusion, although Scenario Planning does not guarantee survival or success, it is a tool that will focus managers on the issues to be faced, illuminate different external circumstances that may arise and define what a realistic roadmap could look like to guide the way forward. We hope this helps you and your clients.
Check out C2CB.co if you need a clarifying, no-obligation discussion or some pro-bono consulting help about how to get this done.