First – if you’re not thinking about your company’s strategy in terms of scenarios, then you should.
Second – did you know that the optimum number of scenarios is a minimum of four?
One scenario is the official view, a view of the future that offers no dissent and invites no curiosity. (Most companies rely on this.)
Two scenarios imply a false binary. It’s Growth or Stagnation, Good or Bad, Some Success or Lotsa Success. These never outline the uncertainties, risks, and opportunities inherent in a fast-moving future.
Three scenarios seems like an improvement in variety over one and two scenarios – but it’s a trap. Invariably three scenario explorations will break down into Optimistic, Pessimistic, and Somewhere In Between. This results in the cognitive bias of a false moderate choice. Just because a future seems more moderate or plausible does not make it more likely. Also, cognitive bias will then cause decision makers to downplay the more “extreme” scenarios, failing to plan for potential benefits or losses that would result.
Four scenarios is the minimum optimum number. By creating this level of variation, you are forced to include a larger number of uncertainties, think them through in more detail, and create more nuanced views of potential futures.
Here is a tool we find most useful at Competitive Futures, the Impact-Probability Matrix. The four major scenarios in each quadrant break down along the lines of assumed probability of the emerging future, as well as its relative effect on the company, were it to come to fruition.
Low-probability/Low-impact: In the face of major strategic-level trends changing the world (global GDP driven by emerging economies, artificial intelligence, Millennials abandoning automobiles, etc.) the least likely future is one where nothing changes. If you start looking at potential impacts of something that shows up on executive radar, then you may include scenarios around “it’s not that big a deal – just a flash in the pan.”
High-probability/Low-impact: These are scenarios where, yes, a given trend does change things, but the impact is more of a constant pressure than a revolution. Sure, some incremental change is required and does bear exploration, but it’s not a revolution in business.
High-probability/High-impact: Strategic shift scenarios are where you explore what it would mean if things really did work in a completely different way. What is mobile Internet does change the nature of retail forever? What if the next generation just doesn’t care about home ownership to the same degree and is comfortable sharing cars rather than owning them outright? This is where serious contemplation needs to happen in the board room.
Low-probability/High-impact: This is where the wildcards live, even Nassim Nicholas Taleb’s famous Black Swans – scenarios that result from fat-tail risk. Sure, they may not be likely or even predictable, but the impact might be the end of a corporation or national economy. What if everybody was lying about the real risk in the mortgage market? What if the Eurozone broke up and Russia invaded Estonia? What if all over America’s coal companies went bankrupt simultaneously? As we saw in September of 2001 and October of 2008, extreme, unlikely scenarios do in fact occur. While you can’t predict their emergence outright, you can always explore where the major risks – and opportunities! – lie for your organization. Feel free to get a little wild. After all, the world is frequently wild – just read history.
Think scenarios and start with four – but don’t stop there. No decision was ever ruined by thinking out potential futures with more rigor and creativity.
Learn more about scenarios for business planning
At Competitive Futures, scenarios are our business. If you would like to include even more sophisticated techniques into your strategic decisions, we can offer the following resources.
Download the foresight book bundle
We recommend two books by Competitive Futures’ Managing Director Eric Garland, Future, Inc.: How Businesses Can Anticipate and Profit from What’s NEXT, and How to Predict the Future…and WIN! Both are available for immediate download and provide in-depth explanations of how to get started with trend analysis.
Attend our master class on scenarios
We produce master classes on foresight techniques in major cities around the world, classes that have been enjoyed and implemented by hundreds of executives at major corporations and government agencies around the world. Our program Future Intelligence: How to Integrate Foresight into Real-World Management is available in four-hour, eight-hour, and two-day packages. The course is designed to get professionals up to speed on the techniques of professional future studies, and has helped executives provide value to their employers and advance their careers.
Order a Three Trends Report
Competitive Futures offers both syndicated and custom-made reports that explore the top three trends facing your industry. Check the shop for existing titles, or order one tailor-made for your company.
Check the Datalab
Looking for important trends to jump start your strategic thinking? Check out the Datalab, our curated blog of the trend data we are actively analyzing for our own clients.
Ask us anything!
Curious about scenarios or any other part of strategic intelligence? Ask away!
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