Scenario Planning: A Tool for Strategic Thinking - MIT Sloan ...

Scenario planning is a disciplined method for imagining possible futures that companies have applied to a great range of issues. Topics Strategy DevelopingStrategy subscribe-icon Subscribe Buy Share Twitter Facebook Linkedin Email WhattoReadNext TheTopMITSMRArticlesof2021 ExecutiveGuide:ConnectingWithCustomersintheAgeofAcceleration Winter2022Issue Podcast:Me,Myself,andAI Alreadyamember? Signin Notamember? Signuptoday Member Free 5freearticlespermonth,$6.95/articlethereafter,freenewsletter. Subscribe $75/Year Unlimiteddigital content, quarterlymagazine,freenewsletter,entirearchive. Signmeup Earlyinthiscentury,itwasunclearhowairplaneswouldaffectnavalwarfare.WhenBrigadierGeneralBillyMitchellproposedthatairplanesmightsinkbattleshipsbydroppingbombsonthem,U.S.SecretaryofWarNewtonBakerremarked,“ThatideaissodamnednonsensicalandimpossiblethatI’mwillingtostandonthebridgeofabattleshipwhilethatnitwittriestohititfromtheair.”JosephusDaniels,SecretaryoftheNavy,wasalsoincredulous:“GoodGod!Thismanshouldbewritingdimenovels.”EventheprestigiousScientificAmericanproclaimedin1910that“toaffirmthattheaeroplaneisgoingto‘revolutionize’navalwarfareofthefutureistobeguiltyofthewildestexaggeration.”1 Inhindsight,itisdifficulttoappreciatewhyairpower’spotentialwasuncleartosomany.Butcanwepredictthefutureanybetterthanthesedefenseleadersdid?Weareaffectedbythesamebiasestheywere.Itwasprobablyashardforthemtoevaluatetheeffectofairplanesinthe1920sasitisforustoassesstheimpactoverthenextdecadesofmultimedia,thehumangenomeproject,biotechnology,artificialintelligence,organtransplants,superconductivity,spacecolonization,andmyriadotherdevelopments.Themyopicstatementsinthesidebarremindushowfrequentlysmartpeoplehavemadethewrongassumptionsaboutthefuturewithgreatcertainty. Managerswhocanexpandtheirimaginationstoseeawiderrangeofpossiblefutureswillbemuchbetterpositionedtotakeadvantageoftheunexpectedopportunitiesthatwillcomealong.Andmanagerstodayhavesomethingthosedefenseleadersdidnothave—scenarioplanning.Unfortunately,toofewcompaniesuseit.IfonlyGeneralMotorsintheseventieshadexploredmorefullytheconsequencesofOPEC,theyuppiegeneration,globalization,environmentalism,andtheimportanceofqualityandspeedinmanufacturing;orIBMandDigitalEquipmentCorporationintheeighties,thefullimpactofthepersonalcomputer,whichpromptedthebreakdownoftheverticallyintegratedmainframebusinessandashifttowarddistributedcomputing.Otherexamplesabound:FederalExpress’sfiascosinEurope,Philips’ssetbackinelectronicmarkets(despiteitsleading-edgetechnologies),Disney’sunionandimageproblemswithitsthemeparkinFrance,Sonyinmovies,etc. GetUpdatesonTransformativeLeadership Evidence-basedresourcesthatcanhelpyouleadyourteammoreeffectively,deliveredtoyourinboxmonthly. sign up Pleaseenteravalidemailaddress Thankyouforsigningup PrivacyPolicy Scenarioplanningisadisciplinedmethodforimaginingpossiblefuturesthatcompanieshaveappliedtoagreatrangeofissues. ReadtheFullArticle Create Account BuyasaPDF Alreadyasubscriber?Signin Topics Strategy DevelopingStrategy AbouttheAuthor PaulJ.H.SchoemakeristhechairmanofDecisionStrategiesInternational,Inc.,andaprofessorinthedepartmentofoperationsandinformationmanagement,TheWhartonSchool,UniversityofPennsylvania. References 1.C.CerfandV.Navasky,TheExpertsSpeak(NewYork:PantheonBooks,1984). 2.P.J.H.SchoemakerandC.A.J.M.vandeHeijden,“IntegratingScenariosintoStrategicPlanningatRoyalDutch/Shell,”PlanningReview20(1992):41–46. 3.C.Sunter,TheWorldandSouthAfricainthe1990’s(CapeTown,SouthAfrica:HumanandRousseauTafelberg,1987). 4.A.deJongandG.Zalm,ScanningtheFuture(TheHague,TheNetherlands:CentralPlanningBureau,SduPublishers,1992). 5.Foranincisiveanalysisofhowthehumanmindgeneratesexplanationsandpredictions,see:D.KahnemanandA.Tversky,“TheSimulationHeuristic,”inD.Kahneman,P.Slovic,andA.Tversky,eds.,JudgmentunderUncertainty:HeuristicsandBiases(NewYork:CambridgeUniversityPress,1982),pp.201–210.Foradditionalpsychologicalanalyses,see:H.Jungerman,“InferentialProcessesintheConstructionofScenarios,”JournalofForecasting4(1985):321–327;andR.M.Dawes,RationalChoiceinanUncertainWorld(NewYork:HarcourtBraceJovanovich,1988).Foraforecastingperspective,see:W.R.Huss,“AMovetowardScenarios,”InternationalJournalofForecasting4(1988):377–388.Foraconceptualandbehavioralperspective,see:P.J.H.Schoemaker,“MultipleScenarioDevelopment:ItsConceptualandBehavioralBasis,”StrategicManagementJournal14(1993):193–213.Foraconsultant’sapproachtoscenarioplanning,see:T.F.Mandel,“ScenariosandCorporateStrategy:PlanninginUncertainTimes”(MenloPark,California:SRIInternational,ResearchReport669,1982).FortheRoyalDutch/Shellapproach,see:P.Wack,“Scenarios:UnchartedWatersAhead,”HarvardBusinessReview,September–October1985,pp.72–89;andP.Schwartz,TheArtoftheLongView(NewYork:Doubleday,1991).Forscenarioplanningfromanappliedperspective,see:PlanningReview,20(1992):2and3.FortheDutchCentralPlanningBureau’swide-rangingglobalscenarios,see:DeJongandZalm(1992). 6.Forconnectingscenarioplanningtoprojectevaluation,usingMonteCarlosimulation,see:P.J.H.Schoemaker,“WhenandHowtoUseScenarioPlanning:AHeuristicApproachwithIllustration,”JournalofForecasting10(1991):549–564.Foramethodologytolinkscenariostocompetitoranalysis,corecapabilities,andstrategicvisionbuilding,see:P.J.H.Schoemaker,“HowtoLinkStrategicVisiontoCoreCapabilities,”SloanManagementReview,Fall1992,pp.67–81. 7.SeeKahnemanandTversky(1982);andA.Toffler,TheAdaptiveCorporation(NewYork:McGraw-Hill,1985).Thereareseveraltheoreticalargumentssupportingthehypothesisofunderpredictionofchangefromthestatusquo.First,anchoringonthepastorpresentwilllikelyresultinunderadjustmentawayfromthepresent.Second,theavailabilitybiaswillmakeithardtoproperlyweighnewscenarios.Third,overconfidence(withitsmultiplecauses)resultsinundulynarrowconfidencerangesregardingfuturechange.See:J.E.RussoandP.J.H.Schoemaker,“ManagingOverconfidence,”SloanManagementReview,Winter1992,pp.7–18. 8.S.P.Schnaars,Megamistakes:ForecastingandtheMythofRapidTechnologicalChange(NewYork:FreePress,1989). 9.DeJongandZalm(1992). 10.Lookingatthepastisatwo-edgedsword.Itmayundulyanchorustooldtrendsandrealities,orthingsmayseemmorepredictableinhindsightthantheywereatthetime.However,examiningthevariabilityandunpredictabilityofthepastmayalsohelpusconstructbroaderscenarios.Forexample,mostcompaniesdonotplanforthekindofturmoilthattheyhavewitnessedoverthepastdecade.Theforcesthatcausedpastturmoil(frompoliticaltotechnological)shouldbestudiedinordertoappreciatebetterthesystem’scomplexityandunpredictability.See:J.Gilovich,“SeeingthePastinthePresent:TheEffectofAssociationstoFamiliarEventsonJudgmentsandDecisions,”JournalofPersonalityandSocialPsychology40(1981):797–808;andB.Fischhoff,“Hindsight≠Foresight:TheEffectofOutcomeKnowledgeonJudgmentunderUncertainty,”JournalofExperimentalPsychology:HumanPerceptionandPerformance1(1975):288–299. 11.M.Godet,ScenariosandStrategicManagement(London:ButterworthsScientific,Ltd.,1987). 12.SchoemakerandvanderHeijden(1992). 13.Forexamplesofdecisionscenarios,see:P.Hawken,J.Ogilvy,andP.Schwartz,SevenTomorrows(NewYork:BantamBook,1982). 14.R.C.BlattbergandJ.Deighton,“InteractiveMarketing:ExploitingtheAgeofAddressability,”SloanManagementReview,Fall1991,pp.5–14. 15.C.W.KirkwoodandS.M.Pollack,“MultipleAttributeScenarios,BoundedProbabilities,andThreatsofNuclearTheft,”Futures,February1982,pp.545–553. 16.Schoemaker(1991). 17.Sunter(1987). 18.Forexamplesofthisapproach,see:Schwartz(1991). 19.Forstatisticalelaborationandsomeconsistencytests,see:Schoemaker(1991). 20.Schoemaker(1993). 21.RussoandSchoemaker(1992). 22.Schoemaker(1993). 23.Researchhasshownthatgeneratingreasonsoftenimprovesprobabilitycalibration,evenifthesubjectsgeneratetheirownreasons.See:A.Koriat,S.Lichtenstein,andB.Fischhoff,“ReasonsforConfidence,”JournalofExperimentalPsychology:HumanLearningandMemory6(1980):107–118.However,Schoemakershowsthatifsubjectsareaskedtogeneratereasonsforextremeoutcomes,theirconfidencerangesmayactuallyshrink(insteadofstretch)becauseofincredulityaboutthereasonsgenerated.See:Schoemaker(1993). 24.A.TverskyandD.Kahneman,“Extensionalvs.IntuitiveReasoning:TheConjunctionFallacyinProbabilityJudgments,”PsychologicalReview90(1983):293–315. 25.Schoemaker(1993). 26.KahnemanandTversky(1982),p.207. 27.RussoandSchoemaker(1992). 28.A.deGeus,“PlanningAsLearning,”HarvardBusinessReview,March–April1988,pp.70–74;andP.Senge,TheFifthDiscipline(NewYork:Doubleday,1990). 29.J.E.RussoandP.J.H.Schoemaker,DecisionTraps(NewYork:Doubleday,1989). 30.Wack(1985). Acknowledgments IwouldliketothankJ.EdwardRussoforhisincisivecomments;LizBromberg,DougFreiberg,KevinHolme,StevenSaleh,andTimWicksforvaluableassistanceinresearchingtheadvertisingcase;GaryBillings,JanHomans,andotherswithinInterpublicforsharingtheirviewsonthepastandfutureofadvertising;andAllisonGreenforeditorialadvice. Tags: Decision-Making,ManagerialPsychology,PredictionTools,StrategicPlanningModel Reprint#: 3622 MoreLikeThis AddacommentCancelreplyYoumustsignintopostacomment.Firsttimehere?Signupforafreeaccount:Commentonarticlesandgetaccesstomanymorearticles.