Scenario Planning as the Way to Sensibly Consider Positive Futures and to Take Appropriate Decisions - Literature review Example

SCENARIO PLANNING IS THE WAY FOR ORGANISATIONS TO SENSIBLY CONSIDER POSITIVE FUTURES AND TO TAKE APPROPRIATE DECISIONS

Introduction

In general, the reality reveals its influence on us by making the choices made today the background of our future state. Because of this specific, it is highly important to have the accurate view on the current situation in order to create the best future possible. For this aim, the planning of the scenarios is one of the most effective techniques to think about the current situation and its impact on the future. By working with different aspects of the reality, it shows their extreme development in the future. Because of this, the scenario planning in risk and crisis management assists the company in preventing the problems in different fields. In other words, the way organisations sensibly react to future uncertainty reveals their potential to prevent risks and crises. Because of this importance, this research provides the vision on the concept and role of scenario planning for organisations. For this aim, the presented essay critically discusses Scenario Planning and the role of scenarios in Risk Management and Crisis Management. Furthermore, it demonstrates both the effectiveness and the key disadvantages of the scenario planning. Finally, the research refers to the main barriers for the scenario planning implementation.

The concepts of Scenario Planning, Risk Management, and Crisis Management

To start with, the story of scenario planning started in the previous century because of Herbert Kahn’s fruitful activity as the representative of RAND Corporation. Currently, his approach to visualise the reality appears in different social spheres and became more popular. In order to define this concept, Johnson et al. (2008) use the description of a scenario as the “detailed and plausible views on how the business environment of an organisation might develop the future based on key drivers for change about which there is a high level of uncertainty” (p. 57). From this term, it is evident that the role of scenario planning in crucial for managing uncertainties and it is an essential part of adaptive management, or “an approach in management that takes uncertainty into account” (Peterson et al., 2003, p. 359). In other words, scenario planning appears to be a necessary measure that organisations use for their confidence in the future.

Moreover, the scenario planning refers to the strategic benefits for the company. In its definition, strategic planning is “thinking about how we can intervene in the hustle and bustle of the evolutionary process that organisations are subject to” (Heijden, 2005, p. xv). Therefore, scenario planning assists in creating the strategy for any organisation to help it adapt to the changing environment by providing the rational picture of future uncertainties. In fact, scholars characterise scenarios by noting the long-term of its predictions, the inclusion of various futures, and taking into account the needs of large public (Amer et al., 2013, p. 24). In the given circumstances, creating a good scenario means the ability to take into account all the most influential components of the current reality. For example, Sapriel (2003) states that the key task for scenario planner is to indicate the potential stakeholder reactions. Correspondingly, Wright et al. (2013) dedicate special attention in their paper to the different attitudes of the actor on unfolding events within a particular scenario (Wright et al., 2013, p. 563). In their turn, Moats et al. (2008) mention determining objectives as the preliminary stage of scenario planning before developing the detailed storyline and conducting debriefing procedure. In any case, conducting the scenario planning is a highly responsible, complicated, and beneficial technique that contemporary organisations use to deal with the future uncertainties.

As for the risk management, Heijden (2005) refers to it as one of the three uncertainties (along with structural uncertainties and unknowable) strategic planning successfully deals with (p. 93). In broader terms, scenario building means making the plan that deals with the external environment (Johnson et al., 2008, p. 57). To manage external risks, scenario-based planning uses probabilities (based on the historical performance) and creates forecasts (Heijden, 2005, p. 93). In the extreme example of climate change, avoidance of its risks and unwillingness to construct the plan of dealing with them results in severe problems for the mankind and economic activities (Berners-Lee and Clark, 2013). Thus, it is the task of contemporary scientists to conduct the scenario planning and demonstrate the negative consequences of that current climate factors will have. In this situation, scenario planning helps to reduce the future climate risks by increasing awareness of current negative drivers. For instance, the replacement of nuclear energy seems to be not possible without developing scenarios that “underline the ability of renewable energies to replace all conventional energies” (Girardet, 2007, p. 53). This enables Heijden (2005) to held an optimistic view on risk and envisions risk management planning as the basis of future profitability and the chance to demonstrate appropriate balance (p. 94). In the given example, scenario planning appears to be the necessary tool to provide confidence and reliability of any innovation. Therefore, scenario planning is an essential part of risk management.

In its turn, the crisis is the critical unlikely situation that has a potentially massive threat on the organisation (Moats et al., 2008, p. 399). In the case of crisis management, Heijden et al. (2002) note that scenario planning springs from military techniques during the wars; therefore, the scenarios appear in the case of “war game” simulations as crisis situations (p. 121). In this context, the early stage of scenario planning development was the response to the crisis situation in the international relations (Bradfiled et al., 2005). Correspondingly, Bradfield et al. (2005) indicate of the crisis management as an essential part of the scenario planning; these authors refer to the “civil defence exercises” that simulate future crisis situation and check the response potential (p. 796). To put these opinions together, scenario planning is the essential measure in response to the unwillingness to face any crisis in the future. Thus, the scenario planning not only manages the risk situation but also serves as the tool to prevent more catastrophic crisis situation by estimating the current potential of an organisation.

Advantages and Disadvantages of Scenario Planning

As the key advantage of scenario planning, it is evident that this technique provides learning as the ability of any organisation to adapt to the changing future environment (Heijden, 2005). In the opinion of Moats et al. (2008), scenario planning is the best measure to help organisational leaders understand their environments better and avoid disasters. Thus, it helps the company to become “more flexible and more innovative” (Amer et al., 2013, p. 23). Because the scenarios deal with the uncertainties as unavoidable realities, they concentrate on the associated events (like macroeconomic conditions) and causes that result in a long-term effectiveness (Cardoso and Emes, 2014, p. 26). In other words, creating the scenarios is a good learning technique for the organisation. While discussing the potential benefits, Heijden et al. (2002) also mention that scenario planning helps to identify both uncertainties and certainties about the future and “rehearse” the future through creating specific “trigger events” (p. 63-65). In fact, multiple futures within scenario planning procedure helps the organisation to overcome the challenge of diversity within the company and provide enhanced perception (Heijden et al., 2002). In the given circumstances, scenario planning serves as the rational tool that organisations use in order to understand the future and make it more predictable. As Amer et al. (2013) discuss this point, scenario planning has a positive influence on the decision-making procedure and identification of the new problems within the organisation (p. 25). To put it simply, scenario plan is the model of the company’s future that helps it to change the future by correcting its current behaviour.

On the contrary, the failures of scenario planning are not popular in the literature. In this context, Wright et al. (2013) discuss the tendency to describe success stories of the scenario planning only. However, the organisational context indicates of certain inconsistencies with the scenario planning. Among the key flaws, the heavy reliance on the control during scenario planning is a crucial disadvantage. As the constructive critic to the strict procedure of scenario planning, the flow model described by Seddon enters the stage. In the situation of fast-changing external conditions, Seddon (2005) describes the example of Toyota as the type of management that eliminates overconsumption and addresses the needs of each customer directly. As a result, the company demonstrates more profits and stability. In fact, this success indicates of the conflict between control and innovativeness for scenario planning. In the case of Toyota, the whole system design represents the optimisation of the resource spending as the basis of its “economy of flow” (Seddon, 2005). In their turn, Heijden et al. (2002) note that the process of the scenario planning reveals its heavy reliance on the scenario itself instead of benefiting from the process of its creation (p 3). In practice, this means that scenario planning as the part of the risk and crisis management tends to an emphasis on the future problems and distract the organisational attention from the process problems. Since the purpose of creating the scenario means the willingness to control the future, heavy reliance on the future within the scenario distracts the organisation from solving its current problems. At the same time, the nature of future disables scenarios’ ability to control it. In this context, Johnson et al. (2008) raise the issue of unpredictable situations that scenario planning cannot deal with (p. 57). In other words, scenario plans are not that useful when there exist multiple key drivers that have an effect on corporate success (Johnson et al., 2008, p. 58). In addition, it is hard to choose the appropriate scenario planning methodology due to the variety of available models (Cardoso and Emes, 2014, p. 37). These features differentiate scenarios from the forecasts and reduce its ability to identify the likelihood and access the uncertainties (Amer et al., 2013). Even though most scholars emphasise on the benefits of scenarios comparing to the forecasts (Cardoso and Emes, 2014; Johnson et al., 2008; Heijden et al., 2002), it is evident that scenarios provide less confidence and clarity about the future. Therefore, scenario planning falls back in terms of extra control procedure and inability to make a concrete decision about the future uncertainties.

The Barriers to Implementing Scenario Planning

Among the obstacles to the successful scenario planning implementation, Heijden et al. (2002) mention poor controls, immature management style, and failure to create and communicate purpose (p. 16). Correspondingly, the connection of scenario planning with the Business Idea increases both its complexity and importance for the company (Heijden, 2005). In this broader context, the key barriers of the scenario planning implementation deal with both subjective and objective factors.

On the one hand, personal factor plays the crucial role during the scenario planning process. Here, Brandfield et al. (2005) discuss the concept of “disciplined intuition” that represents the subjective nature of the scenario planning. In their turn, Petersen et al. (2002) also note the constraints of local or expert knowledge and overestimating the ability to control the future (p. 365). In practice, these peculiarities lead to the typical mistakes that root in the human nature. For example, experts are likely to produce “optimistic,” “pessimistic,” and “middling” scenarios and managers tend to use the neutral one in their business practice (Johnson et al., 2008, p. 57). In fact, the appearance of this situation signalises of the confirmation bias or an inability to take into account the “variety and surprise” (Petersen et al., 2003) of the future risks and potential crises. In any case, the personality plays the key role in making either good or bad scenario plan. Since the business practice deals with the “new and unique insight” (Heijden, 2005, p. 75), the requirements of creativity and causality are important during the making of an effective scenario. As the practice shows, scenario planners mostly rely on intuitive causality instead of the conceptual probability (Heijden, 2005, p. 3-4). In addition, it is hard for them to achieve the requirement of creativity, or provide untypical thinking about possible complex and uncertain futures (Peterson et al., 2003, p. 359). Because of these problems, the scenario planner turns into the key implication in the context of scenario planning.

On another hand, the organisation as a whole can impose certain barriers to the successful scenario planning. Even though the scenario planning process is the result of “the debating and learning” (Johnson et al., 2008, p. 57), the organisational constraints can limit these benefits and push the multiple views into conflict. In this context, Petersen et al. (2002) refer to the unfavourable environment for demonstrating personal critical thinking as “the biggest traps of scenario planning.” Hence, organisational biases and routine can affect managerial thinking regardless of their own personal attributes (Heijden et al., 2002). Furthermore, Heijden et al. (2002) refer to the “sense of purpose” (p. 3) as the necessary element to create a good scenario for the organisation. In general, this means the importance of the proper understanding of the overall success that is hard to achieve due to the complexity of the organisations themselves. In addition, Heijden et al. (2002) raise the issue of identity assumptions that limit adequate organisational thinking dramatically. On this aspect, Petersen et al. (2002) indicate the different interest groups presence that complicates the decision making and effective scenario planning process. Finally, it is not always possible to find all the necessary data for the scenario planning (Cardoso and Emes, 2014). Here, the problem of the resource scarcity enters the stage. To put all these problems together, the organisation as the system provides certain limits to the effective scenario planning.

Conclusion

In sum, the paper demonstrates the meaning and the key features of the scenario planning by noting its connection to the risk management and crisis management. Firstly, it turns evident that planning the scenarios is a learning technique the organisations use in order to estimate their current condition and clarify future uncertainties. In this context, risks and crises are the most important problems scenario plans aims to manage. Secondly, the scenario-planning approach demonstrates both advantages (in terms of strategic benefits and understanding the macroeconomic context) and disadvantages (in terms of too strict control and lack of confidence). Thus, it is important to consider the inability of scenario to create a concrete response to future uncertainties and reduce the willingness to control the future. Finally, the reality shows that scenario planning has certain barriers for its effective implementation. In fact, these limits spring from both the human nature (as it depends on the intuition and personal awareness of a scenario planner) and the organisational structure (since the organisation has its specific rules, is a complex structure, and has its own limits). In short, the effective scenario planning should consider the key features of the approach and its potential barriers. Otherwise, the scenario plan cannot play its role as an appropriate tool for Risk Management and Crisis Management.