Future focus: Scenario planning for an uncertain future

By Gihan Perera

In an increasingly uncertain world, Gihan Perera explains the three-step process of using ‘scenario planning’ to map the future of your business.

In 1965, the oil company Royal Dutch Shell started its department of Long-Term Studies in its London headquarters. The term ‘department’ is an exaggeration, because Ted Newland, who was given the lead role in this area, said: “I was placed in a little cubicle on the 18th floor and told to think about the future.”

With the help of Jimmy Davidson, Newland started by delivering a ‘Year 2000’ study report, and then a series of reports projecting long-term outlooks for the company.

Rather than trying to make clear, precise predictions (an impossible task, anyway), their group explored a series of alternative futures, and developed plausible stories for how Shell could respond in each scenario.

The first round of these scenarios was completed and presented to senior management in 1971. These are some of the scenarios they presented:

• In 1973: 'Crisis Scenario’ – an impending energy gap causes oil prices to spiral rapidly upwards, and oil-producing governments nationalise their industry to exert control.
• In 1977: ‘Carter Miracle’ – U.S. President Jimmy Carter’s leadership restores confidence, leading to stronger international trade and investment.
• In 1989: ‘Sustainable World’ – An emphasis on clean fuels leads to a radical transformation of the industry.
• In 2001: ‘Business Class’ – Powerful business leaders exert more influence than governments, and lead the world towards greater economic integration and prosperity.

Since that time, Shell’s scenario planners have continued to deliver this service, with more than 30 rounds of scenario planning over the years.

The purpose of scenario planning is not to predict the future, but to identify multiple future scenarios. It’s still an important part of Shell’s strategic planning, and it’s a powerful tool for every organisation – especially now.

In the last few months, I’ve helped many of my clients with scenario planning to guide them through an uncertain future. It helps them to have my external perspective, but you can also do this exercise yourself – following this three-step process.

One of the common tools futurists use for this purpose is PESTLE analysis, where you assess external factors in the environment that could affect your future. Here are some examples:

• Political: Federal and state policies, stimulus packages, foreign trade policy, labour law, political stability in other parts of the world.
• Environmental: Climate change, sustainability, ethical investing.
• Social: Health impact of the COVID-19 pandemic, demographics, working from home, generational preferences
• Technological: AI, automation, robo-advice, RPA (robotic process automation).
• Legal: Compliance, FASEA, changes to regulation, early withdrawal of super funds.
• Economic: Interest rates, recession, global economic recovery.

This isn’t an exhaustive list, but it’s a good starting point to spark ideas for yourself. ‘PESTLE’ is just an acronym to help your thinking, so don’t try to find an equal spread across all six areas.

Also consider specific scenarios that might only apply to your business – for example, the retirement of a key staff member, a merger or takeover, a coming change in ownership, and so on.

Classify the scenarios into four groups, depending on how likely they are and whether they are short-term scenarios:

1. Imminent and certain: Some scenarios are both highly likely (if not already happening) and have a short-term impact. Obviously, you need to plan for them and act immediately.
2. Long-term but certain: Some scenarios are inevitable, but not in the short-term. These should inform your strategic direction, even if you don’t make immediate plans for them.
3. Imminent but unlikely: Other things seem unlikely now, but will have an immediate impact if they happen. It’s risky to ignore them altogether, but keep them on the radar and stay alert in case they suddenly appear on the horizon.
4. Long-term and unlikely: Finally, some things are speculative and long-term. It’s usually safe to ignore these scenarios now, and revisit them in your next round of strategic planning.

Look at the first two categories and choose the combination of most likely scenarios. This will be your ‘most likely future’, and you’ll use this to craft your strategic plan.

For example, your most likely future might include (just as an example): successful suppression of COVID-19 in Australia, global GDP shrinking by 3 per cent, another Commonwealth-funded economic stimulus package, a deferral of the Superannuation Guarantee increase, and Generation Y moving to regional Australia for lifestyle reasons.

You can now create a strategic plan – let’s call this your Plan A – based on your most likely future.

Put most of your effort into fleshing out this plan, but also map out a Plan B and Plan C, based on other plausible futures. For example, if your Plan A depends on Australia controlling COVID-19 successfully, you might have a Plan B if there’s another large wave of the virus.

Identify the events that will trigger you switching plans, and be prepared to switch to your alternative plans if those events occur.

It’s not easy to operate in an uncertain environment, but that’s our ‘new normal’ now.

In a fast-changing world, it’s impossible to predict the future, so don’t try to build detailed plans for the long-term. Aim for flexibility, rather than accuracy. Imagine multiple futures, assess their plausibility, and keep your options open.

During this pandemic, you might have heard people say: “We’re all in the same boat.” That’s not true. We’re all in the same storm, but we’re in different boats, navigating our way through the storm.

As a leader, you can’t control the storm and you might be stuck with the boat you’re in. But you can influence the way you lead your people and your organisation through that storm – and that will determine your success.

Gihan Perera is a business futurist, speaker, and author who works with business leaders to help them lead and succeed in an uncertain but exciting future. He is the author of ‘The Future of Leadership’ and ‘Disruption By Design’.