Can we have a strategic crystal ball?

In the disruption, turbulence and uncertainty bought on by Covid-19, leaders are looking for an explicit and flexible sense of the future in order to act.  

Data and knowledge usually precede action in business. Leaders make strategic moves once they understand the business landscape sufficiently that their actions are viable within it. In order to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them and then quickly refine or reinvent as a result. Yet many of the frameworks for business planning are not designed for disruption and uncertainty on the scale of the pandemic. Predict and control approaches to corporate strategy and planning need to be supplemented with methods that account for the complexity, rather than attempt to deny it.  

Forecasts and Foresight – flip sides of the same coin 

Forecasting is probably the most well-established tool to support the front end of strategic planning. And the increasing capability to collect ever richer data has been matched by an increased confidence in and reliance on forecasting. Knowing how to match strategy to the business environment is crucial if leaders are to make decisions about which products to develop; where and how to grow; when and how to pivot. Forecasting fits our obsession with hyper-rational management techniques that try to tame complexity and conquer uncertainty. It has endured since it first came into use in the1930s because although inexact, the forecast provides a good-enough approximation to support decision-making on strategic direction and resource allocation. Until it doesn’t.  

The outcomes for businesses that place too much reliance on forecasts can be catastrophic. When current circumstances deviate so far from what was expected or what we’ve previously experienced, like now with Covid-19, forecasts leave us high and dry. Unable to predict uncertain events, they then fail to help us control what’s happening in the present or plan for what will come next. So, what does?  

In times like these, the forecast must give way to foresight. Foresight shifts our motivation from prediction to adaptation. It focusses on trying to better understand the complexity of the current environment and how issues coalesce in ways that may impact our business. This helps us not get blind-sighted by events.  

Scenario planning, the best known and widely used foresight tool, is a systematic way of looking at how the future might unfold. By exploring how issues progress economically, socially, politically and culturally, leaders can build a picture of plausible futures. By recognising and actively exploring the ways events could evolve to create a particular scenario, leaders can iteratively generate new insights and knowledge to help their organisation re-perceive their circumstances. They can then determine if the current strategy is sound or needs more robustness to perform well in any given scenario.  

Scenario planning provides insight into the forces in the environment that are driving issues forward. Most issue-mapping approaches examine these forces in isolation, but it’s how they coalesce to create unexpected outcomes that provides the richness in scenarios. By exploring how forces interact, scenarios enable an analysis of different futures. In Covid-19, for example, the interacting forces of a quickly discovered vaccine; continued government support; and increased consumer confidence would require a different strategic response than a scenario that included no vaccine; a return to austerity measures and a severe and prolonged reduction in consumer spending.  

The factors in this example are fairly obvious, but scenarios also explore the limits of the possible – where small things have big impacts. It allows leaders to explore the possible disruption caused by seemingly small things as they interact with more obvious things in the business environment, leading to a more nuanced and sophisticated appreciation of what might impact their business.  

Scenarios – a tool to bolster resilience  

There’s another very good reason from neuroscience why scenario planning is effective. When we are confronted with highly disruptive and stressful events, our threat system is activated. That is, we go into fight or flight mode. When we’re in this state, we’ve lost access to our ‘executive brain’ just when we need it most. Scenarios act as a rehearsal to real events, enabling leaders to make plans for multiple eventualities. This means that if these events do occur, they’re less stressful because they’re less surprising. This in turn provides leaders with access to their full executive functioning at the point when they need to make important business and strategic decisions.  

Scenarios also help to make leaders more responsive. When confronted with disruption and uncertainty, a great deal of time is taken up in trying to make sense of what is happening and what this means. Scenario planning enables leaders to make sense of events and issues in a calm and objective state, giving consideration to things in advance so they’re able to act more quickly and decisively if they do occur. This can be the difference between thriving and merely surviving.  

Scenarios also support our more quantitative data-driven decision making. Undertaking scenario modelling involves bringing in not just speculation about what might occur but the best available data from multiple sources. It provides a breadth of data that many companies wouldn’t typically access, so their strategic thinking is expanded. This data can then be used as an input into forecasts. 

Helping us deal in the post-Covid world  

If Covid-19 offers us anything, it is proof-absolute that VUCA is real. We are indeed living in a time that’s volatile, uncertain, complex and ambiguous. Yet the crisis that coronavirus has unleashed does not represent a one-off disruption to our business landscape. Its extremity may have jolted us, but we’ve been facing ongoing turbulence and disruption for as long as any of us has been around.  

In the last two decades we’ve seen the rise of safety insecurity following 9/11 and other acts of terrorism; we’ve witnessed the collective madness of the dot com boom followed by the dot com bust. Afterwards, even as politicians were promising no more boom and bust, banks were engaged in reckless profiteering by creating corrupt financial instruments that led to a global financial crisis. And now, the rise of populism and a collective loss in faith in expertise are happening at the same time as a climate emergency. These events were unexpected for many, but they weren’t unpredictable. Organisations that engaged with scenario planning anticipated each one as plausible and were therefore able to move quickly and decisively when events began to unfold that supported a particular scenario.  

Despite its success with business giants such as Shell, Daimler, Philips and Siemens, the business community has largely been slow to catch onto the power of scenarios, continuing to favour rational, linear planning in the hope the market will behave. Whilst still using forecasting for what it was designed for – crunching the data about the parts of our strategy we have some certainty about – we need to create space for another type of thinking and acting that accepts and works with the deep uncertainty, complexity and ambiguity of our wider environment. To do so means we would embrace rationality and creativity; seeking certainty and accepting ambiguity.