The debate as to whether the current crisis will change everything, something or nothing is raging. It is not surprising as human beings have the tendency to both over- and under-predict change. The current level of uncertainty finds its expression in the flurry of scenarios supplied by think tanks, consultants and economists. Too often they are not very different from a weather forecast suggesting that the sun may or may not shine, and that the temperature may go from freezing cold to boiling hot.
To be fair, they may still be interesting, like this recent paper from the Atlantic Council which discusses three geopolitical orders scenarios post COVID-19. The first one is called ‘Great Accelerator Downwards’ and sees the U.S., Europe and China struggle to recover from the crisis from an economic perspective, with rising protectionism pitting the US against a China-Russia alliance whilst Europe loses what is left of its economic, financial and military relevance. The next one is entitled ‘China First’ and describes how China’s status in the world rises on the back of its handling of the crisis. As its economy recovers faster than elsewhere, a growing number of countries in Asia and beyond seek to be associated with its momentum whilst the U.S. falls into a soul-searching mode. In the last scenario called ‘A New Renaissance’, positive lessons are learned from the crisis and the world becomes a better place.
Such scenarios may well inform corporate-specific scenario planning, but they cannot be as valuable as the latter. Famously pioneered by Shell in the 1960s, scenario planning, briefly introduced in these notes in 2017 (see ‘Alien & Strategy’), deals with the establishment of scenarios over a chosen time horizon, with an emphasis on plausibility as opposed to probability. Furthermore, scenarios are not designed to be good or bad. Their sole objective is to represent alternative futures. They are generally limited to a maximum of three as beyond that their usefulness gets diluted.
A conversation with Normann Partners’ Rafael Ramirez, who was part of the Shell’s scenarios team and now directs the award-winning Oxford Scenarios Programme, allowed me to catalogue the main benefits from scenario planning, provided that a number of structuring rules be followed. To start with, the planning process in itself helps open executives’ minds about future outcomes. It unearths and challenges deeply held assumptions and biases, which increases a leadership team’s level of awareness, away from groupthink. Then, it allows for the identification of major sources of uncertainties and for a more accurate assessment of the pace of change. It also contributes to building a common language across an entire organization and its diverse functions. Finally, the scenarios form a basis upon which contingency plans can be developed, which contributes to greater agility: As the world moves more towards one future than to its alternatives, the shift in patterns can be readily spotted and appropriate responses can be swiftly implemented.
The perceived relevance of such tool naturally increases after every crisis and tends to fade as better times follow. Worse, pessimistic scenarios are complacently discounted during ‘normal’ times, as it appears to have happened with the pandemic scenarios drafted in the noughties in the U.S.A. on the back of 9/11 as reported in this recent Politico article.
Today, any sense of a growing macro- and microeconomic consensus about the future can only represent a false sense of certainty since the world is still in the first innings of the crisis, at least from a social, economic and political point of view. In fact, these months represent an inopportune time to make transformational strategic decisions. Instead, now is a time for scenario planning. The questions could include:
What will happen to just-in-time supply chains, and how might they be reconfigured to ‘just-in-case’?
What is the effect of fast increasing government debt levels on strategy, operations and financing?
How will ESG factors affect investment decisions and, for corporates, M&A?
More generally, what current (manufacturing) assets could become liabilities?
How could a given sector further consolidate to benefit from scale and diversification?
What does the engineer of the future look like given the digitization trends and how will it affect HR decisions?
Besides, there has now been three once-in-a-generation crises in twenty years. Scenario planning deserves to become a staple in the management tool box and, like creativity which supports it, an integral part of any operating or business system.