Application of Scenario Planning in Strategic Planning
March 8, 2014 3 Comments
Strategic planning, as a structured and systematic process, is successful when it is leader-led and overcomes the five reasons 70% of all strategies fail. Learn how to see your plan through to success. The strategic planning process is where leaders of an organization establish the vision of the organization’s future and then develop and implement the actions necessary to achieve that future. This article expands on the strategic planning concepts addressed in Think Big, Take Small Steps and is designed to help you achieve success in your strategic planning process.
How Using Various Scenarios in Building Your Strategic Plan Helps.
“What-ifing” your current strategy or your strategic thoughts are a great ways to look for holes in your current strategy or the strategy you’re building–or both. I often use scenario planning–also referred to as “war gaming”–to get leaders to examine before they decide. It’s kind of like taking the strategy out for a test drive without putting a lot of miles on it before you buy it.
Strategic planning, more than anything else, is positioning yourself strategically to take advantage of a predicted or possible turn of events. It’s more about preparing a company for the future versus putting something in place. Today, your organization has constraints that prevent it from achieving its vision and these need to be overcome, but many of these constraints might not exist today. Scenario planning allows you to recognize threats (even the invisible ones) as opportunities and be strategically prepared to adapt to them if they occur, while still moving steadily toward your vision.
When an organization has a solid strategic direction and is moving in that manner, things may appear to occur happenstance. However, in reality, the organization is preparing for opportunity to knock and they’re opening the door quickly to it. Without an effective strategy, the door will open and you’ll be unprepared. The door will open one way or another.
Some organizations, especially extremely large ones might have elaborate war games designed that really help executives envision the future. I recommend these being designed by firms that specialize in this type of activity. For smaller organizations, or ones that are really new to strategic planning, this blog can really help design effective scenarios that help build solid strategic plans.
Scenario Planning–the “planning part”–is done at the tail end of the Organizational Assessment. The application of this tool is actually in the strategic planning session that I will talk about in the coming weeks. There are two ways that I apply scenario planning and it’s based on the organization (note: I don’t always use scenario planning). The two situations are as follows:
The organization doesn’t have a true strategic plan at this point.
The organization you’re working with is pretty new to the concept of planning. They might have a mission and vision that they’ve come up with, but there really was little thought behind it and that’s about as far as they’ve come. In this case, I normally use scenario planning to help them think strategically about the opportunities and threats they face as an organization. Obviously I pull this information from their Robust SWOT Assessment that I talked about last week. This is more along the lines of a “what if” analysis (i.e., If this were to happen, what would you have to do about it). This tests their current environment and helps them think through organizational gaps and what would need to be done about them.
The organization already has a defined strategic plan.
You may be working with an organization that has taken some time, or a lot of time, to examine and develop their strategy. If I’m coming back a year or so later to help examine the organization’s strategic plan that I helped build and then update it, I use scenario planning to validate their current mission, vision, and goals, based on the Robust SWOT Assessment. In this realm, it’s focused on answering, “Does what we have today hold true in these possible future states,” versus, “What do we do about it?” The goal is to ensure that the key aspects of mission, vision, and goals for the organization are still valid and lasting, even if something strange, yet possible happens.
So, let’s talk about what scenarios look like and what they don’t look like. First and foremost, we’re not talking about some fantastic and non-plausible what-if scenario like extraterrestrials beaming into the lobby to say hello. Scenarios have to based in a possible and plausible reality, but isn’t happening today. They can be both positive or negative and in many ways, even positive scenarios can be a risk to a company that isn’t strategically prepared.
When doing scenario planning, try to come up with five ideas and then get the leader of the organization to whittle them down to three. Three fit nicely on one PowerPoint slide and three can effectively cover what you need leaders to think about. The purpose of the scenario planning activity is to drive discussion around whether the organization is prepared and/or if the current strategy needs to evolve. The actual scenarios should come from the organizational assessment and specifically the SWOT. Following are some ideas and examples of potential scenarios:
- Natural Disaster. I worked with a housing privatization program that was providing long-term leases to developers to build and provide back housing to military. Part of their program involved a “lock box” that set aside monies for upgrades and improvements. Several of these privatized communities existed along coastal areas that could be susceptible to a natural disasters, like a hurricane. The threat of this occurrence had been mentioned more than once in interviews, so I had the leadership discuss how truly prepared they were for another Katrina-like hurricane, which significantly damaged several communities at once. It allowed them to examine their risk mitigation structure, their lock box strategy, and evolve their approach as a result of their strategic plan.
- Government Interaction. Most (if not all) organizations are impacted by government regulations and more and more these cause challenges for companies. Specifically, financial and environmental regulations can challenge the status quo of any company. Those that are normally impacted, are adequately dealing with the “now.” In scenario planning, you could consider throwing in a government regulation curve ball that really changes the operational landscape and see if they are prepared for these types of changes.
- Growth or Decline. Often we think commiserate over the potential quick loss of customers and market share, but quick growth can be just as difficult for an unprepared organization, even though it might seem like a good thing. Unpredicted growth and decline scenarios make the leadership think about how they will deal with this possibility and if they have the right strategies in place. Of course, I make these scenarios as realistic as possible, based on what I have learned in the assessment.
- Budgetary Constraints. Every organization deals with budget issues, especially if you’re working as a subset of a bigger organization. A perfect storm example would be the result of the Troubled Asset Relief Program (TARP) and the Affordable Care Act (ACA) on government budgets. Organizations that didn’t strategically plan for this, say four years ago, now are being caught unprepared as things like sequestration and government shut downs occur. Those that looked at their crystal balls four years ago could have been planning to absorb the potential funding impacts through strategic positioning and planning.
- Mergers and Acquisitions. I don’t care how good or bad your company is doing, this can almost always be a threat. If you’re part of a bigger organization and there is redundancy, then the threat can be very real. In today’s world, if I were working with say a governmental support service organization, I would definitely be examining the possibility of all military and government support services merging into one organization. This happened with the Defense Finance and Accounting Service (DFAS) back in 1991. With today’s push to downsize and cut, these types of mergers are very likely. Basically, if your operations has any redundancy or is aligned with another part of an organizational process, consider yourself at risk and scenarios can really help leadership think through the threat and possibly turn it into an opportunity.
- Employee Turnover. An increase in employee turnover because of a lack of engagement or due to a highly tenured staff, will always impact an organization. If you are at threat because of these factors, things like single points of failure become a significant threat. If you have poorly documented knowledge, then training will be an issue. Aggressive hiring with a quick turn over can be costly and really slow operations. Obversely, an organization that experiences high turnover and suddenly sees a drop, can experience different issues.
- Sourcing Decisions. What you do today might be ripe for outsourcing, or you may have all your outsourcing eggs in one basket. These types of threats are much more prevalent today than ever. Also, you may have outsourced too much and your culture and focus on the customer is starting to slip. All of these things can lead to some pretty interesting leadership discussions.
As you can see, there are many things that you could discuss as long as you have done your organizational assessment homework. Just coming up with fantastic scenarios without understanding the current situation won’t really be helpful to leaders. These were simply examples of ones that I’ve used before–there are many other possibilities.
One of the important and difficult things about scenario planning is that it will probably make leadership uncomfortable. You’re probably highlighting a risk that they would rather ignore. Good strategic plans put all the issues on the table and require intestinal fortitude of leaders to openly examine and prepare. This tool helps them make the harder decisions.
The bottom line to scenario planning is that it is a tool for the organization to prove or disprove their current state and then decide what to do about it. I present it for discussion near the front part of the strategic planning session, but I build it here in the organizational assessment phase.
So, 70% of all plans fail to some level; however, by following these guidelines you can help ensure your strategic plan will be one of the 30% successes that everyone reads about.