Before developing a strategy, organisations need to analyse and understand their environment, both as it is now and as it will be. The major focus of strategic decision-making is how best to ensure a fit between the organisation and its environment. However that fit is not static and the task is to look at likely changes in the environment.
This means management have to look to the future. They have to pose and answer the question: “What does the future hold for my organisation?”
One way to examine the future is to undertake scenario planning.
Scenario planning is a strategic tool that provides managers with a route map for the future. Using scenarios is rehearsing the future says Peter Schwartz in his book “The Art of the Long View”. By rehearsing these future scenarios an organisation can adapt to what is happening and anticipate what could happen.
So, in essence, scenario planning enhances the ability of organisations to discern what is happening in the business environment, to assess what this means for them and then take action on the basis of this new knowledge.
This white paper will describe what scenario planning involves and provide a case study to illustrate its power.
Using scenarios is rehearsing the future. You run through simulated events as if you were already living in them. You train yourself to recognise which drama is unfolding. That helps you avoid unpleasant surprises.
Preparing For an Uncertain Future
It is not easy for managers to think strategically about the future. It is a challenging and demanding process to think about what might be. The main trends may be apparent but there is a great deal of uncertainty about the future. There is also the possibility of being caught out by entirely unforeseen events.
Management often fall into the trap of expecting the future to be like the past. They think that what has gone before will continue to pertain in the future.
Management thinking may be subject to “group think” where everyone holds the same fixed view of what the future holds and has the same assessment on where their organisation is heading. As a result alternative courses of action are not considered.
Alternatively, members of the management team may have different perspectives on what the future will hold but have not really shared these with colleagues.
There is a requirement to think widely about the future environment. So when might it be appropriate for an organisation to undertake scenario planning?
- When there is a great deal of uncertainty in a market.
- If there is a history of costly and unpredicted surprises in the past, e.g. competitor entry
- In situations of significant change, for example coming out of recession.
Only a fool would make predictions – especially about the future.
Scenario Planning as a Way of Preparing For The Future
Scenario planning had its origins in military circles in the 1940s. In the early 1960s the famous futurologist, Herman Khan, began to use scenarios to describe the possible consequences of nuclear war. Gerald Piel writing, in the “Scientific American” magazine, labelled Khan’s work as “thinking the unthinkable”. Khan took this as a compliment and argued that thinking the unthinkable was the only way to keep one’s strategic vision from going stale.
Scenario planning was also used to great effect by Royal Dutch Shell to anticipate and respond to dramatic changes that have occurred in the oil industry.
Microsoft is another organisation that currently makes great use of scenario planning to ensure they fully capitalise on changes in the future environment.
Scenarios are tools for helping us to take a long view of a world of great uncertainty. Since time immemorial human beings have told stories about what is to come – they have tried to describe the future.
They are called scenarios because they are like the screenplay of a movie or “scenes” in the theatre- a series of differing views on the same general topic. Scenarios are stories about the way the world might turn out tomorrow.
These storylines provide a number of alternative plausible, logical and compelling views of the future – they are not forecasts as such, but “pictures” of possible futures. Stories that can help management recognise and adapt to the changing aspects of today’s environment.
The storylines enable management to define and assess a range of existing and alternative policies, strategies and actions.
The major use of scenarios is in understanding rather than trying to predict the future. It is about trying to create an array of plausible futures. Scenarios do not necessarily provide an accurate picture of tomorrow but enable an organisation to make better decisions about the future.
Scenarios are about making decisions today with an understanding of how they might turn out. The intention is that the decisions taken will prove to be robust under a variety of alternative futures. They should also prompt an informed dialogue and debate about strategic matters within an organisation.
Scenario planning offers a way of putting a lot of ideas and possibilities together. Scenarios start by recognising the importance of driving forces that shape the world. These can be Political, Economic, Social and Technological (see Figure 1, below):
Figure 1: Using PEST Analysis To Understand The Business Environment
Management may, and probably should, be able to identify what these elements are but the key question is how these forces combine and interact. Each driving force may well suggest more questions than answers. The possible answers don’t point to one future but to many, each with its own attributes and implications.
In looking ahead it is advisable to look beyond current horizons by taking a view, say, five to ten years into the future.
Once the factors have been identified the requirement is to ascertain the key uncertainties and their possible outcomes. These are combined to develop plausible scenarios and the storyline is fleshed out with detail, relating to events, geographies, and people. It is also a good idea to provide warning signs or indicators for each scenario.
The ideal number of scenarios to actually produce is four. With two it becomes an either or situation. With three the temptation is to opt for the middle one.
The outputs from scenario planning are:
- A set of agreed critical success factors.
- A clear understanding of the drivers for change and key uncertainties within the market.
- A set of plausible storylines for the development of the market over time.
- A set of robust strategic options to enable a business to achieve its growth plans.
Debbie Robinson, Director of Food Retail Marketing at the Co-operative Group is a committed believer in scenario planning and has used the technique to assist the Co-operative’s strategic direction:
Scenario Planning will become an essential practice for businesses as they grapple with the big issues of:
- Population Growth
- Climate Change
- Water shortages
- Increasing affluence of BRICS
- Ageing Population
- Rapidly developing technology
- Political instability
- Terrorist threat
The worry is not about growth. Growth is inevitable, but how the growth is sustained is the real challenge. Scenario planning helps businesses think creatively about the future from a variety of perspectives including social, political, economic and technological. It allows business to consider the impact of the changes that may occur. This can create competitive edge by ensuring the business is well placed to take advantage of what the future may bring. It avoids the danger of assuming that the future will be much like the present. Scenario planning is hugely flexible allowing you to consider a number of scenarios before settling on the most likely. It raises issues that may have been dormant or even non-existent in an organisation. Time plays a big part in the process as senior teams consider the issues and formulate an agreed, effective and robust strategy.
The VAiL Case Study
VAiL (Visual Art in Liverpool) is a partnership of arts organisations operating in the city of Liverpool. The key aim of the organisation is “to work together to place Liverpool as the UK’s premier city outside London for the visual arts both in perception and reality.”
The visual arts sector does not exist in a vacuum. It is constantly being challenged by major political, economic, social and technological factors outside its immediate control.
As we move into the second decade of the twenty first century the visual arts face great uncertainty. Much of the uncertainty focuses on what will happen to government funding but that is not the whole story. As will be identified later, there are various meta-trends that will also shape the future of the arts. Each of these driving forces raises questions rather than providing clear-cut answers. The outcomes point to not one future but a number of possible futures, each with its own attributes and implications for the visual arts.
VAiL took the decision to undertake a scenario planning exercise.
Participants were selected from the senior management teams within VAiL organisations and also included a representative of Business In The Arts: North West. David Seaman and Liz Barnham of Rehearsing the Future facilitated the two workshops.
In the first session participants looked at the following areas:
- Establishing the VAiL organisational idea and what is key to VAiL’s success.
- Examining the trends which impact upon VAiL, identifying the major uncertainties and their possible outcomes.
- Outlining the scenarios using plausible combinations of the outcomes.
The outcomes of the various uncertainties the participants at the workshop identified were combined to give four possible scenario outlines.
With the outline of each scenario in place, the second workshop was used to develop the narrative for the scenario stories.
For each scenario, participants described the underlying causal factors and triggers in the environment which lead to the particular outcomes that feature under each scenario. The scenarios were also given a relevant name.
The four scenarios developed with VAiL were as follows:
- The New Renaissance, The Arts Ascendant: Describes economic recovery and a positive environment in which Art and VAiL can flourish.
- The New Rationale, The Arts Transformed: Indicates reform and a new way of working for the Arts
- Breaking Up, The Arts Fragmented: Describes a tougher decentralised environment where limited funds are hotly contested
- Doomsday, The Arts Decimated: Shows a picture of severe cuts and the resulting changes and casualties in the Arts world.
The workshop attendees identified early warning signs i.e. the indicators that point to a particular scenario coming to pass. The attendees also mapped these against how likely each indicator was to occur and the impact each one would have on VAiL’s critical success factors. The following pages summarise the scenarios, stories and their corresponding early warning signs.
Scenario 1 - The New Renaissance –The Arts Ascendant
||Early Warning Signs
To the surprise of many, the new coalition government governs efficiently and harmoniously. Slowly and surely, the economy starts to grow again. There are cuts in public spending but the Regional Development programme escapes the cuts and even sees a modest increase in the fund available.
Galvanised to action by the excessive focus on London as the host for the 2012 Olympic Games, Liverpool as a city makes a concerted effort to reinvent itself as a centre of cultural excellence. This is an astute move as visual art becomes ultra-fashionable, and is even referred to by some clichéd commentators as “the new rock n’roll”.
uoyed by their winning performance in the World Cup, England footballers such as Wayne Rooney emulate their manager by accumulating their own collections of art.
VAiL plays a central role in this renaissance. VAiL is viewed as a pioneering and innovative organization, with arts bodies in other cities seeking to reproduce its mode of operation. Success attracts funding and VAiL has funds to run new and ambitious projects. With success comes a self-imposed accountability to see funds spent wisely, by measuring the expenditure against targets met. There is little mention of instrumentalism and art for art’s sake flourishes as the prevailing philosophy.
- Economic growth
- Government invest in culture
- Well attended VAiL meetings
- VAiL receives high press coverage. Opinion formers are positive about the Arts
- Self-measurement in general use
- Investing in RDAs for the future
- Public care about the Arts
Scenario 2 - The New Rationale –The Arts Transformed
||Early Warning Signs
The new coalition government embarks on electoral reform. The spirit of collaboration in politics results in a stress on reasonableness and rationality as predominant themes in public life. The benefits of collaboration are evident in a heightened Green agenda. There are reductions in funding for the Arts but Jeremy Hunt surprises many by fighting for the arts. Budgets are cut but not as much as was feared.
Expenditure is closely scrutinised, some positions in the Arts are made redundant and further jobs are under threat. The infrastructure starts to weaken, but there is a desire by politicians and those working in the arts to “keep things going’” At a “Save the Arts” summit the Vail model gets a lot of attention as capturing the zeitgeist of the times. The focus is redirected onto generating efficiencies through “joined up” working, and offering more creative approaches to demonstrating value for money, to satisfy the demands for return on investment in relation to funding and arrest further reductions in support.
Art organisations respond and become more entrepreneurial in their quest to increase revenue. This is evidenced by more weight being put behind alternative revenue streams such as using the visual Arts in therapy and wellbeing. There is more emphasis on fully utilising existing collections. A different mix of visual arts offer emerges, as the desire to become more revenue driven impacts on the programme. The emphasis is on survival in the short term, and medium to long term planning is put on the back burner. The government challenges the arts to produce a new model of working that is based on rationality and reasonableness. Many look to the VAiL model as the appropriate response to this challenge.
- Moderate Budget cuts
- Need for some measurement debated
- Green agenda comes to the fore
- Changing nature of offering – more support for Arts being used for wellbeing
Scenario 3 - Breaking Up – The Arts Fragmented
||Early Warning Signs
The cuts in public expenditure are savage and the arts suffer unprecedented reductions in funding. As a result a less cohesive landscape emerges for the Arts. As the RDA’s tighten their controls, central funding disappears as budgetary control is pushed out within specific sub regions and to a local level. Visual Arts organisations are forced to engage and negotiate with assorted local authorities to obtain funding, often with little success.
Competition for funding intensifies as each visual arts organisation makes a pitch for the same limited pot. It is as they say, “everyone for themselves”. Securing funding takes more time and effort and for less return. As a result organisations drift away from attending VAiL meetings in order to liaise with the disparate array of contact points necessary to secure funds for their own organisations. Arts organisations begin to splinter from both top down and bottom up in an attempt to meet conflicting demands.
Liverpool as a city stagnates with an outmoded imagery prevailing. There are no clear plans to revitalise the Liverpool city brand. Manchester, too, has a hard time but manages to put together an arts body which has some good operators skilled at raising funds. As such Manchester becomes the pre-eminent city for the visual arts outside London.
- Significant Budget cuts
- Measurement on the agenda
- Change in RDA
- More competition for lottery funding
- Fall in attendance at VAiL meetings
- More rivalry to secure funds
- Individual pricing strategies
Scenario 4 - Doomsday – The Arts Decimated
||Early Warning Signs
The Conservative / Liberal coalition lasts little more than twelve months and in the resulting general election the voters return a Conservative majority on the platform of the need for strong government. The cuts in public services are the most draconian in living memory and there is rioting in the streets. Egged on by the press Jeremy Hunt is given the brief to strip administrative costs “to the bone.” Funding for the Arts runs dry as such activity is characterised as a non-essential luxury.
As an alternative to government funding the government try to encourage a more philanthropic approach the arts from the private sector which seems, at least initially, to show little enthusiasm. Within a year of the initial cuts in funding for the Arts, Arts organisations find themselves in a situation where they need to find creative ways to self-fund themselves. Free entry for all to exhibitions and galleries is impossible and admission charges become the norm. Programme diversity is sacrificed as arts organisations provide a populist offering, in order to maximise income and to meet financial targets against the tough budgets they operate with. The universal requirement is to demonstrate value for money. Arts organisations are exposed and vulnerable to this scrutiny - there are casualties in the Art world and some organisations are forced to merge to ensure survival.
Against this backdrop, the general public are voting with their feet in protest at the charges and attendance figures for the more expensive exhibitions fall dramatically over a three year period. Audiences driven from their traditional haunts turn to ‘fee-free’ digital access. As arts organisations desperately strive to retain domestic audiences, they are forced by government to generate income from tourism.
- NWDA / other RDA’s cut
- Performance targets are imposed from the top
- End to free entry
- Attrition/ mergers of Arts organizations
- More “internet” shows
- VAiL meetings are low priority for members
Scenario planning, as exemplified by Rehearsing the Future is a flexible and powerful strategic tool which is used to create storylines about the future.
Scenario planning can provide the link between thinking about the future and strategic action.
The benefits of scenario planning may be summarised as follows:
- Encourages creative strategic thinking.
- Provides management with a degree of foresight about future events and preparedness as to what action to take.
- Brings together research insights and strategy.
- Positively encourages and aligns the management team thinking.
- Tests the robustness of strategic options
- Assists with contingency planning; it forces “what if?” considerations of a situation.
- Sets out the agenda for market intelligence tracking. Sensitivity to the “early warning” elements that are precursors of favourable and unfavourable futures
A typical outcome could be confirmation that the overall strategy of the organisation is sound or that new aspects need to be developed to ensure more robustness.
Critical analysis of the proposed scenarios creates preparedness and awareness of obstacles and opportunities
Paul Smith, Executive Director of Liverpool Biennial and Chair of VAiL
Rehearsing the Future is a scenario planning service provided by David Seaman and Liz Barnham. To find out more visit the website www.rehearsingthefuture.co.uk
Recommended Further Reading
“The Art of the Long View”, Peter Schwartz, Currency Doubleday (1991)
“Learning from the Future”, Liam Fahey, Wiley (1998)
“Listening to the Future”, Daniel W. Rasmus and Rob Salkowitz, Wiley (2009)
“Scenarios: The Art of Strategic Conversation”, Kees Van Der Heijden, Wiley (1997)
“Scenario Planning: The Link between Future and Strategy”, Matts Lindgren and Hans Bandhold, Palgrave Macmillan (2003)
“Scenario Planning”, Gill Ringland, Wiley (1997)
“The Sixth Sense”, Kees Van Der Heijden, Wiley (2002)