What is Scenario Planning?

This paper focuses on examining definition of scenario analysis and planning. It details the aspects and processes of scenario planning. The paper also suggests how to write and craft a good scenario planning. The sources of information, which is important for developing scenario planning, are also included. To make a better understanding of the term, the paper uses different organization as examples to explain and answer each question.

What is Scenario Planning
Before defining scenario planning, it is necessary to give definition of scenario to make a better understanding of the term. According to Lynch (2003, p. 93-94), scenario are detailed and plausible views of how the business environment of an organization might develop in the future based on grouping of important environment influences and drivers of change about which there is a high level of uncertainty. For example, pub industry in the UK has changed during the past decade. Started from non-smoking area and now the pubs are facing new regulation in which pubs and nightclubs have to turn themselves into non-smoking pubs by 2008. Obviously, it is not possible to forecast precisely over the period of 10 years time that the government will write this regulation. However, pubs can imagine this happening if they look at the non-smoking area policy. Accordingly, it is a need for a pub industry to view business environment of five years or more.

Scenario planning does not make an effort to predict or forecast the unpredictable future business environment. Therefore, it considers multiple and equally plausible futures (Ringland 2003, p. 22-28). For instance, Wetherspoon starts adopting the new regulation of pub policy by turning some of its outlets into non-smoking free-house. Wetherspoon' scenario planning may see that non-smoking policy will make a decrease in numbers of customers as most of customers are smokers, so it might be better for them to adopt pioneer strategy by starting the policy before competitors. Scenarios planners also have to observe and monitors the changes till year of policy. If their idea is proven right by 2008, scenario planners build two options to solve the problems. The first option is to produce nicotine-contained drink and another alternative is to build the smoking room in Wetherspoon' outlets.

A scenario planning consists of developing possible representations of a firm's potential future that make different assumptions about forces driving the market and include different uncertainties (Kotler 2003, p. 69-70). Both private and public organizations face the business environment, which is diversity. Companies have to be prepared to cope with these changes. Marketers must be able to see future plausible changes in the business environment. They may consider a question such as 'What will we do if it happen?' Marketers have to adopt one scenario as the most possible and observe as the time passes to confirm and disconfirm such scenario. By viewing the possible future scenarios, companies will be able to develop business strategies (Kippenberger 1999, p. 32-33).

Take the recent UK airport bomb plot 10/8 as an example. The new security at the airport is stricter. The new security affects the operation of low-cost carrier as they rely on flight frequency and extra charge of luggage restriction. With the new rule, they have to permit customers to exceed 20 kilograms restriction as passengers are allowed only necessary items on board. The extra security causes delay of scheduled flights. Low-cost airlines such as EasyJet and Ryanair have to ask themselves 'What will they do if the BAA does not remove the tough security?' For instance, the scenario planners of Low-cost airline may develop new luggage restriction rule by increasing 20 kilograms to 30 kilograms instead. They can also charge £5-£10 extra money back guarantee for the on time performance instead of increasing the price to put burden on passengers.

Mains Aspects and Process of Scenario
Scenario planning is one of the marketing and strategic tools that marketers use to plan business strategies. It is another 'tool' in the 'strategist's arsenal,' which is used to predict on the assumption that if marketers cannot predict the future, then by considering a variety of them, marketers might be able to hit upon the right one (Porter 1985) (see Mintzberg 1994, p. 248-254). Scenario is not forecasting, but it is seeing the possible future structure, environment factors, and variable influences.

Scenario planning helps improving decision making by allowing more complete consideration of outcomes and their implication (Fuller-Love 2006, p. 289-305). Scenario planning is the first step to strategic planning. If strategic planning is to succeed, then the scenario must be properly factored into the organization's plan. This can be done by observing, monitoring and understanding the changes and complexity in business environment.

When the business environment encounters a high level of uncertainty, which occurs from either complexity or rapid change or both, this may make it impossible to build a single view of how environment influences might affect an organization's strategy. As a result, a distinct approach will be needed to understand the future outcomes of the environment (Cole 1997, p. 61).

Mason and Herman (2003, p. 23-31) stated that building scenario has traditionally become an outward looking process designed to extend the awareness of potential changes in the external environment. By casting strategies as scenarios, companies can gain many of the benefits of traditional scenario planning while accelerating the strategic decision making for organization in high changing environments. There are two approaches of building scenarios that are practiced by companies. The first one is building scenarios from configuration of factors. This involves with three steps – (1) identifying high-impact, high uncertainty factors in the environment, (2) identifying different possible futures by factors, and (3) building scenarios of plausible configurations of factors. Another type of developing scenarios is thematic scenario (Johnson et al 2005, p. 74-75). Figure 1 demonstrates Waterstone, the largest bookstore chain in the UK, creating scenarios from configurations of factors. The bookstore industry faces changing business environment, which is hard to predict or forecast on the basis of experience or historical analysis.

Figure 1

Shaukat and Ringland (2003, p. 20-21) explained thematic scenarios by using the UK energy sector as an example. To show the practical function of scenario planning, a workgroup was gathered at the UK Strategic Planning Society in 2003. They looked at upcoming scenarios for the UK energy industries and build three scenarios for the period of 2050. The three scenarios include cheap future, village green and brave world. Explain of each scenario by Shaukat and Ringland are as follows:

Cheap future: This scenario visualized new storage and transmission technologies reducing the importance of generation capacity and energy management. The future would be crafted by generation at the fuel source, energy imports and local storage. The government has an economic focus to its energy policy. Village Green is a scenario that will be the new form of power generation, but it will be with an unsophisticated way of keeping production at a small and local scales. The focus would be on offering subsidies and developing new format of 'green' technologies. There would also be technologies renewing and the district heating would be surveyed. The last scenario is Brave new world. It is a scenario that imagines a future with fuel cell for almost with no limit storage and many new forms of generation energy such as renewable, nuclear, hydrogen, and local generation. The society would be more industrialize, advanced in technology, customer-driven and market oriented (Shaukat and Ringland 2003, p. 20-21).

As explained in both examples of Waterstone and the UK energy sector by Shaukat and Ringland, the companies can create many scenarios. However, when it comes to decision making, companies have to focus on the most possible options. There are also factors that companies need to look at such as capital investment. This is because scenarios will have a range of affects on the industrials' diverse stakeholders. As a result, it is important for companies to work through in more detail.

Figure 2

From figure 2, it can be explained that environment summarize many different influences and the difficulty makes sense of this diversity. Also, there is a problem of complexity that takes place because many of the separate issues in the business environment are interrelated (Johnson et al 2005, p. 64-65). For example, a technology development of mobile phone is getting complex in this modern world. Nokia develops the best camera phone with excellent sound and audio system. Mobiles become a-must-have items because people can use them to check their e-mail, watch the news, download music videos, organize conference, and take pictures. This changes people life style, which then adjusts consumer behaviour and buying pattern toward digital cameras and walkman. Sony scenario planners may have to ask themselves 'What action should they take if the mobile companies keep invading its business expertise boundary?' As a result, it is important to understand these influences in business environment because it helps scenario planner developing scenario, which leads to strategy development and strategy decision making.

Conclusion
Scenario planning is an important strategic tool for companies. Marketers can see choices through scenario planning. The options can be screened by matching them to possible scenarios. It is a 'what if' approach based on the possible changes in the organization's environment (Hannsgan 2002, p. 57). Scenario planning can lead to emergency plan in order to meet the requirement of these possible future scenarios. As a result, it is important for scenario planners to observe, monitor, and imagine the possible future change of business environment.

If you found this article useful please have a look at the other articles we have written: Ansoff analysis, McKinsey 7S Framework, SWOT analysis, BCG Growth-Share Matrix, Porter's 5 Forces analysis, Product Life Cycle, Value chain analysis, Pest Analysis, Balanced Scorecard, Competitor Analysis, Critical Success Factors, Industry Lifecycle, Marketing Mix and Porter's Generic Strategies.

References

Books
Hannagan, T 2002, Mastering Strategic Management, Palgrave, New York.

Johnson, G, Scholes, K & Whittington, R 2005, Exploring Corporate Strategy, Pearson Education Limited, Essex.

Kotler, P 2003, Marketing Management, Prentice Hall, New York.

Lynch, R 2003, Corporate Strategy, Prentice Hall, London.

Mintzberg, H 1994, The Rise and Fall of Strategic Planning, Prentice Hall Europe, Hertfordshire.

Journal Articles
Fink, A, Siebe, A & Kuhle, J 2004, 'How scenario support strategic early warning processes', Foresight, vol. 6, no. 3, pp. 173-185.

Flowers, B 2003, 'The art and strategy of scenario writing', Strategy & Leadership, vol. 31, no. 2, pp. 29-33.

Fuller-Love, N, Midmore, P, Thomas, D & Henley, A 2006, 'Entrepreneurship and rural economic development: a scenario analysis approach', International Journal of Entrepreneur Behaviour & Research, vol. 12, no. 5, pp. 289-305.

Kippenberger, T 1999, 'Pitfalls in scenario planning', The Antidote, vol. 4, no. 4, pp. 32-33.

Mason, D & Herman, J 2003, 'Scenario and strategies: making the scenario about the business', Strategy & Leardership, vol. 31, no. 1, pp. 23-31.

Mason, D 2003, 'Tailoring scenario planning to the company culture', Strategy & Leadership, vol. 31, no. 2, pp. 25-28.

Rajapopal, R, 2006, 'Brand excellence: measuring the impact of advertising and brand personality on buying decisions', Measuring Business Excellence, vol. 10, no. 3, pp. 56-65.

Ringland, G 2003, 'Scenario planning: persuading operating managers to take ownership', Strategy & Leadership, vol. 31, no. 6, pp. 22-28.

Shaukat, A & ringland, G 2003, 'Imagine', Utility Week, vol. 20, no. 11, pp. 20-21.

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