By Hunter Lovins, member of Undercurrent and founder of Natural Capitalism Solutions
The great physicist Niels Bohr is reported to have to have uttered this observation when asked his opinion of what might happen.
Nessim Taleb’s best seller, Black Swan, argues that everything that matters, in history, in your personal life, and in business is like that—you didn’t think of it until it happened, and it changed everything. These low probability, high impact events, Taleb argues are increasing.
Few, today, would be inclined to argue with him.
How is a leader to manage, then? Predictions are risky, and you’re likely to be wrong. Yet you have to make decisions, allocate money, approve or deny projects, and, well, run a business.
Years ago, Pierre Wack, a most unlikely businessperson, helped Royal Dutch Shell find a way to manage under uncertainty. Using Wack’s approach, which he called Scenario Planning, Shell was able to find plausible the collapse of oil prices in 1986, even when all the other majors had predicted that oil would rise. They understood why the fall of the Soviet Union was entirely possible when most of us assumed that the Berlin Wall would stand forever, Shell because the world’s smartest company and the richest.
You can do this too. And I can teach you how.
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Many companies create what they call scenarios: there are conservative projections, ambitious projections, and, of course, the ever popular somewhere-in-the-middle scenario. Essentially every business entering 2020 had a variant of these. And they were all wrong.
Scenarios are not predictions. They are plausible, mutually inconsistent, diverse stories about how the future might play out, based not on current assumptions, but on evaluating the factors of your business: your market, customers, suppliers, partners and such—the aspects of your world over which you have some control; and the forces: social, technological, economic, environmental and political over which you have no control. This is where pandemics lurk. In a way, what has happened was entirely predictable: scientists have warned us for years that incursions into wild lands, cuisine that includes wet markets, and the global nature of our world make a pandemic inevitable. Based on this list of factors and forces you determine two critical uncertainties. These give you a two-by-two matrix, that reveal four separate worlds. From the stories of what these worlds might mean for your organization you gain insights you could never find in high, medium and low projections.
At a scenario planning exercise I ran for a technology development and manufacturing company last fall, when participants stories were tending to the mundane, I chided them, “What if we have a pandemic…?“ The CEO rolled her eyes at my efforts to get people to create a really divergent scenario. But in the weeks that followed, the thought gnawed at her: perhaps it would be good to have extra supplies on hand, conserve cash when a Board member urged spending it, and think through what she would do it the world really did go mad.
When we repeated the exercise last week, she told this story, and how it enabled her to get the company reopened within a few days of the initial COVID closure, and how it is enabling them now to far outdistance their competitors. In last week’s redo of the scenarios, the resulting stories of the four different worlds in which the company will have to do business for the next three years were far more imaginative. And thus more useful.
Done right, scenario planning is a tool that allows you to test your strategy to see if it is truly robust. Shell calls this a “No regrets strategy.” It will get you through whatever plausible future you may find yourself in, and enable you, as the real future becomes today, to be agile, able to adjust your strategy as you see the world emerging into one of your stories. And the process is one of the best employee engagement opportunities you can ever find.
In this introduction to scenario planning, I will enable you to determine if this discipline is one that your company might want to try.
Hunter Lovins teaches scenario planning and other strategy tools at the Bard MBA in Sustainable Management. She has consulted for such companies as Royal Dutch Shell, Walmart, and Unilever, as well as for the UN and governments around the world. Author of 16 books, she helps companies, communities and countries implement more regenerative practices profitably.April 21, 2020