Scenario Planning as a Way for Organisations to Sensibly Consider Possible Futures - Essay Example

Contemporary Issues in Business Introduction Scenario planning deals with containing the effects of unforeseen forces on any given business. Any business industry can be impacted by environmental, social, political, economical, or technological factors that the organisation’s executives may not have planned for. During such times of turbulence, the scenario planning initiatives that may have been planned by an organisation could easily come to play in protecting or safeguarding the business. Scenario planning can be used to generate a group of narratives that suggest potential situations in the future of a business. In contrast to business speculation, scenario planning actually makes use of rigorous discussions in order to make sure that the factors that are being discussed do not defy the given boundaries and lead to rational conclusions. In some circumstances, scenario planning can even champion the theory of considering the effects of unusual circumstances affecting the business in future. Scenario planning is a way for organisations to sensibly consider possible futures and to take appropriate decisions Scenario planning deals with assorted processes, capabilities, assets and implements that may be involved in recognising and evaluating assorted business scenarios. It also supports functions such as considering potential business-related events that may affect an organisation’s performance (Volkery and Ribeiro 2009). Organisations use scenario planning to make plans that will enable them to be more flexible in future so as to remain relevant and competitive. Scenario planning can prompt a company to make use of long or short terms plans that are either proactive or reactive. Scenario planning also supplies three platforms on which business organisations can learn more about potential operations that may benefit them. The first platform has to do with confronting uncertainty. This is beneficial because it allows organisations to be able to challenge themselves by conjuring different circumstances that would threaten the survival of the organisation; thus presenting an opportunity for the organisation’s executives to be able to come up with ways in which additional problems would be confronted and resolved. Making a scenario planning program also enables an organisation to be able to be able to better comprehend external as well as internal business related dynamics (Walton 2008). The third factor has to do with ensuring that business organisations have the opportunity to benefit from analysing the feedback when they implement the actions that are suggested. By employing scenario planning, an organisation may be able to gain a broader vision by utilising new processes as well as alternative views which help them to recognise potential opportunities as well as risks of continuing with the traditional process of planning (Wang 2009). Scenario planning also helps an organisation to be able to realise the importance of any new business techniques that may help in directing its strategic focus as well as investment decisions. The existence of a plan to deal with potential difficulties will also ensure that an organisation reacts quickly once any complications arise. These factors are all helpful toward ensuring that an organisation makes the best decisions for its present as well as future. The Importance of having Good Plans to deal with Crisis and Risk in Organisations In the recent past, the failures suffered by businesses in different industries have shown the importance of having crisis management plans. According to Van der Heijden (2005) business –related disruptions can be extremely costly for any organisation. In the modern world, problems that could affect businesses are not just limited to the stock market or the local environment. They could include natural disasters such as hurricanes and tornadoes, and man-made problems such as terrorist attacks. Other factors that could negatively affect businesses include workplace incidences such as strikes and cybercrimes. Organisations using scenario planning are well able to anticipate large scale community changes and decide on the best responses to prepare even before those changes take place. The appropriateness of using Scenario Planning as a basis for developing Risk Management and Crisis Management plans Scenario planning is important because it contributes to risk management principles. Scenario planning can help organisations to be able to deal with potential risks even before they materialise. It is also important because it helps businesses to be able to reduce potential uncertainties by bringing clarity to issues that are envisioned in a potentially chaotic future (Russell, Kortea, and Chermack 2006). Scenario planning also supports the adoption of better communication initiatives. Usually, business organisations will countenance scenario planning when they have definite problems or foresee potential problems. These problems may include stress testing different financial models, comprehending the outcomes of certain high or low impact events, or the examination of corporate strategic plans. External factors that may be considered in scenario planning have to do with subjects like capital expenses, taxes, labour costs, potential investments, regulatory developments, and the existing exchange rates. These factors particularly come to play when an organisation is involved in considering how to make small or large investments (Wright, van der Heijden, Burt, Bradfield, and Cairns 2008). When an organisation uses scenario planning, it is able to envisage alternative perspectives of its financial as well as business future. Scenario planning does not make it possible for an organisation to be able to correctly predict every future problem; however, it means that the business will be able to test its objectives against different future business possibilities (Wilson and Ralston 2006). The limitations and problems that can arise in managing change in an organisation Change is a difficult undertaking for any business organisation. When an organisation introduces changes, the workers may be required to take on uncomfortable new roles that they are not accustomed to (Postma and Liebl 2005). This means that their work-based lives will be less controllable or manageable. This can be quite challenging; particularly for seasoned workers who are accustomed to performing their responsibilities in definite ways. These workers are suddenly forced to become learners- which is a demotion from their former position as experts. For managers, overseeing the implementation of assorted changes can be quite difficult (Van der Heijden 2005). To ensure success, managers have to openly state the reasons why the changes are necessary, and then generate a program that allows for the smooth transition from the former business processes to the new structures. In managing change, organisational executives have to deal with hindrances such as: Barriers of Perception- The workers or personnel may be unable to identify and determine the essence of the problems that call for change. They may approach the problem with a one sided-view that does not consider all aspects of the issue in question. This inability to view the problem properly could result in misjudgements, as workers are unable to differentiate between the available and relevant information available (Whittington and Cailluet 2008). Perceptual problems are common when organisations are involved in conducting internal analysis. They may result in less than satisfactory solutions that do not really deal with the core issues. This means that the business in question could suffer from the wastage of capital as well as time resources. Emotional Barriers- When seeking to effect changes, organisations are also faced with emotional hindrances. Their workers may be risk-averse and dread the possibility of failing or committing even unintended errors (Means, Patrick, Ospina, and West 2005). They may also not have the ability to process incoming information in the new corporate structure. This will obviously mean that they prefer not to acquire new ideas, but hold onto the older ones. Workers who have to deal with such concerns are also expected to fulfil new responsibilities while working on new challenges- which is something that just adds the pressure they work under. The existence of these problems can stop workers from supporting organisational changes. Cultural Barriers- The workers of organisations may have taboos that the executives remain unaware of. This means that if such taboos are crossed by proposed changes, the workers will not be ready to support the changes (Wang 2010). For instance, there may be workers who take religious days of worship seriously. This means that they are not prepared to work on those days. Any changes that call for workers to report to their jobs on those days could result in a stalemate that adversely affects organisational functions. Cognitive Barriers- In implementing new changes, managers may unintentionally use the wrong terminology or use words with their workers that may not be sufficiently inspirational. In addition, they may not adequately support strategies or pressurise the workers enough to accept the new changes (Bradfield 2008). However, the biggest problem has to do with the lack of accurate information about the suggested changes. This can result in the ceasing of operations until further clarification while also discouraging the workers. Various theories that underpin an understanding of future scenarios to inform business thinking According to McLean (2006) scenario development can be conducted through inductive as well as deductive methods. In the deductive method, workers will move from general subjects to more specific ones, while the inductive method supports the use of a bottom-up technique. The deductive method is centred on thinking beyond what can be logically determined and reasoned, and is often used to determine how to deal with potential uncertainties. Conversely, the inductive method supports the exploration of the internal environment. Scenario planning can be used through different techniques. The expert model is the simplest technique which may include the use of a single worker or a small work-based group. In the participation model of scenario planning, a work-based group is led by an expert in the field in question, who is also usually an external facilitator. In the organisational model of scenario planning, an expert on the subject will train corporate personnel who then perform the necessary functions. The success of the project is then attributed to the organisation, and not the group that performed the actual work. Different types of scenarios that often exist in scenario planning include: Quantitative Models- Quantitative scenarios are often employed to generate yearly business forecasts (Lindgren and Bandhold 2009). The quantitative model holds that in every situation, the principle variables are identified, and the associations between them are pre-determined. There are many organisations that possess quantitative cultures. These types of organisations usually support the expression of statistical evidence to match given objectives or goals. Owing to the fact that quantitative model inputs tend to be variables such as taxes, cost of business capital and competitor spending, corporate executives in such firms may accept the results without much disagreement. The quantitative scenario is common in financial departments or divisions. Still, quantitative models tend to make assumptions that are based on the future values of the main independent variables. This suits short-term estimations. In terms of long-term predictions, the quantitative model is unsuitable because the increase of complexities inevitably results in less reliability of this type of model. According to Duinker and Greig (2007) mathematically based models are incapable of dealing in unexpected market discontinuities like those that may be caused by natural disasters or unprecedented national economy-related incidents. Quantitative models also usually contain hidden assumptions that may not necessarily encourage transparency. Probability-Based Scenarios- In business, it is unusual for ‘scenarios’ to be assigned probabilities. Probability-based scenarios are essentially a mixture of scenario planning models which are based on the mathematical assessment of all existing variables. The main users of probability-based scenarios are engineering companies as these have a basis in business realities (Chermack, van der Merwe, and Lynham 2007). Probability-based scenarios have are effective in mitigating over-simplifications of business predictions. The process used in probability-based scenarios is dependent on the assumption that many of the existing business trends will be of vital importance even in the future. This naturally means that cross-impacts will uncover all fundamental challenges. Due to the fact that probabilities are tied to the scenarios, there is a propensity to presume that it is the scenario with the greatest number of identical qualities to the presumptions of the scholars that will materialise in the near future. Moreover, this model does not often posses the power of a story. This means that it will be hard for individuals who are not contributing to the cross-impact evaluation to believe or comprehend the scenarios. Interactive (“War Gaming”) Scenarios- This kind of scenario planning is also known as ‘war gaming’. Essentially, war-gaming does not really clarify the potential happenings of the future as it does the points of interaction among definite variables that contribute towards determining the business outcomes of the future (Chermak, Bodwell, and Glick 2010). War- gaming is a model that is more “action oriented.” This type of scenario planning model is more often used by organisations such as the military as well as intelligence communities rather than the business communities. Usually, war-gaming can be created to predict potential scenarios over a few years and is used to study and examine operational, narrow strategic, or tactical subjects. This means that this model is basically narrow in scope. This model of scenario planning may also be used in the private sector in matters regarding business intelligence, marketing, or competitor analysis. It is commonly favoured when businesses are seeking to learn about future competitiveness in different industries because, if the proper regulations are used, the war-gaming model may be used to imitate prospective market conditions that an organisation may be faced with (Chermack, Lynham, and Merwe 2006). Business managers then have the opportunity to benefit from the tactical insights that they get from such qualities of this model. War- gaming is also often used as an important training device. Moreover, the war-game scenario planning model does not form a good foundation in regards to strategic thinking. Even if the ‘war-games’ are complex, they usually have a well-developed structure that calls for layers to memorise the regulations involved in participating in it. The regulations then destroy the feeling of ‘reality’ that they are created to imitate in the fast place. In addition, the individuals looking to use this scenario planning model usually try to limit the uncertainty involved even if unintentionally. Essentially, most ‘war-games’ are based on the structures that are based on the knowledge that runs business organisations today. This means that it is not enough to just ensure that the chosen war-game works; the individual in question has to ensure that there are significantly challenging evaluations of the background operating circumstances. Event-Driven (or Operational) Scenarios- Many business organisations that engage in creating scenario planning with no external assistance tend to employ the event-driven scenario. Event-driven scenarios are usually about the effect of an organisation’s action or even a potential dilemma in the business setting. However, the effect of that occurrence may have specific strategic implications. Event-driven scenarios are usually connected to “real-world” business concerns and have some level of uncertainty. They are not able to provide extensive coverage of the ambiguities and business uncertainties because they are only designed to illuminate a single familiar but tough problem. Event-driven scenarios usually function in a business’s ‘comfort zone’ and are usually used in sectors such as the public health industry. They can easily supply a decision maker with a group of potentially pertinent operational business options. Strategic Management (or Alternative Futures) Scenarios- This is probably the most all-inclusive type of scenario planning model that is used. This is because strategic management scenarios can be alternatively used to generate business strategies or function as learning tools in a business organisation (Bishop, Hines, and Collins 2007). They tend to challenge the traditionally accepted assumptions that are held by business enterprises when tackling uncertainty. Planners who utilise this model benefit because they can exercise a lot of creativity in an analytical environment. Strategic management scenarios, though, are not appropriate for organisations trying to deal with or handle short-term survival concerns. The implementation of their suggestions usually calls for accepting the principle of the planning technique which holds that a portfolio approach towards the subject of strategic thinking is more beneficial than a business forecast. Conclusion Scenario planning techniques or models are powerful devices that are employed by organisations to deal with contextual challenges while making the most of potential opportunities. Scenarios essentially create alternative financial as well as business views of the future for different organisations. They do this by determining the most potential as well as existing significant events, and discovering their motivations, and then suggesting different perspectives on how the business world functions. When an organisation takes part in using scenario planning, it is able to explore how to face the future as a financially successful business. References Bishop, P., Hines, A. & Collins, T. (2007) ‘The current state of scenario development: an overview of techniques’, Foresight, vol. 9, no. 1, pp. 5-25. Bradfield, R. M. (2008) ‘Cognitive barriers in the scenario development process. Advances in Developing Human Resources, vol. 10, no. 2, pp. 198-215. Chermak, T. J., Bodwell, W. & Glick, M. (2010) ‘Two strategies for leveraging teams toward organisational effectiveness: scenario planning and organisational ambidexterity’, Advances in Developing Human Resources, vol. 12, no. 1, pp. 137-156. Chermack, T. J., Lynham, S. A. & Merwe, L.V. D. (2006) ‘Exploring the relationship between scenario planning and perceptions of learning organisation characteristics’, Futures, vol. 38, no. 7, pp. 767–777. Chermack, T. J., van der Merwe, L. & Lynham, S. A. (2007) ‘Exploring the relationship between scenario planning and strategic conversation quality’, Technological Forecasting and Social Change, vol. 74, no. 3, pp. 379- 390. Duinker, P.N. & Greig, L.A. (2007) ‘Scenario analysis in environmental impact assessment: improving explorations of the future’, Environmental Impact Assessment Review, vol. 27, no.3, pp. 206–219. Lindgren, M. & Bandhold, H. (2009) Scenario planning – the link between future and strategy, Palgrave Macmillan, Houndmills. McLean, G. N. (2006) Organisation development: practices, processes, principles, Berrett-Koehler, San Francisco. Means, E., Patrick, R., Ospina, L. & West, N. (2005) ‘Scenario planning: a tool to manage future water utility uncertainty’, Journal AWWA, vol. 97, no. 10, pp. 68-75. Postma, T. J. B. M. & Liebl, F. (2005) How to improve scenario analysis as a strategic management tool? Technological Forecasting & Social Change, vol. 72, no. 2, pp. 161-173. Russell, F., Kortea, R. F. & Chermack, T. J. (2006) ‘Changing organisational culture with scenario planning’, Futures, vol. 39, no. 6, pp. 645–656. Van der Heijden, K. (2005) Scenarios: the art of strategic conversation, John Wiley & Sons, Chichester. Volkery, A. & Ribeiro, T. (2009) ‘Scenario planning in public policy: understanding use, impacts and the role of institutional context factors’, Technological Forecasting & Social Change, vol. 76, no. 9, pp. 1198-1207. Walton, J. S. (2008) ‘Scanning beyond the horizon: exploring the ontological and epistemological basis for scenario planning’, Advances in Developing Human Resources, vol. 10, no. 2, pp. 147- 165. Wang, J. (2009) ‘Exploring the strategic role of human resource development in organisational crisis management’, Human Resource Development Review, vol. 8, no. 1, pp. 22-53. Wang, J. (2010) ‘Crisis management in higher education: what have we learned from Virginia Tech? Advances in Developing Human Resources, vol. 12, no. 5, pp. 552-572. Whittington, R. & Cailluet, L. (2008) ‘The crafts of strategy’, Long Range Planning, vol. 41, no. 3, pp. 237-374. Wilson, I. & Ralston, W. (2006) Scenario planning handbook: developing strategies in uncertain times, Southwestern Educational Publishing, Boston. Wright, G., van der Heijden, K., Burt, G., Bradfield, R. & Cairns, G. (2008) ‘Scenario planning interventions in organisations: an analysis of the causes of success and failure’, Futures, vol. 40, no. 3, pp. 218-236. Read More