Strategic Foresight and Scenario Planning

A shared language for describing, visualizing, assessing, and changing business models

BMC is a one-page template for describing a new or documenting an existing business model. It is a flexible way to describe the key elements of the BM (or programs), distilling each element into one or two sentences.

It is a hands-on tool that fosters understanding, discussion, creativity, and analysis.

The goal of combining scenarios with business model innovation efforts is to help the organization prepare for the future. Applying scenario planning techniques to business model innovation forces reflection on how a model might have to evolve under certain conditions. This sharpens understanding of the model, and of potentially necessary adaptations.

• Objective and observable elements
• Scanning exercises
• Where to look?
• Trends and small (and large) signs of potentially great change
• Look back at the scenarios and the elements that support them (e.g., key uncertainties)

WHAT WOULD HAPPEN TO THE ENERGY TRANSITION IF WE WERE ABLE TO
REMOVE CO2 FROM ATMOSPHERE AT A REALLY CHEAP PRICE?

Scenario: Technology of sucking CO2 is free for companies to explore and develop.
Therefore, the world effectively cleans the atmosphere

Early Indicators:

• Collaboration efforts on open-source technology improvement (e.g., number of companies involved)
• Green consumption patterns (e.g., share of train rides, share of local food consumption)
• Environmental footprint of corporations
• Achievements on climate change goals (e.g., reversing trend of global warming)

Tool in which built scenarios are constantly benchmarked against real-world developments, to create an early warning system and a way to assess if the scenarios are still valid and plausible or in need of renewal.

This tool uses a three-step approach:
1) Define the key indicators for each scenario.
2) Determine value ranges for these indicators. Benchmarking of these ranges against actual values for the indicators reveals which scenario is closest to real-world developments.
3) Constantly monitor the indicators defined. This step is conducted by the planning team. The results are then visualized and periodically presented to decision-makers.

• Encourage managers to make their implicit assumptions about the future explicit, and to think beyond the confines of existing conventional wisdom
• Allow a firm to translate uncertainty into its strategic implications for a particular industry (technological breakthroughs, entry of new competitors and their behaviour, interest rate fluctuations,…)
• The time period should reflect the time horizon of the most important investment decisions

What Distinguishes Industry scenarios?
➢ Each scenario is a full analysis of industry structure, competitor behaviour, and the sources of competitive advantage under a particular set of assumptions about the future.
➢ The scenario tool is merely a framework for identifying the key uncertainties and  analysing them, not an end in itself

• This school of scenario planning incorporates two distinct methodologies:
    • Trend Impact Analysis (TIA)
    • Cross-Impact Analysis (CIA)

Although TIA and CIA began life as essentially standalone probabilistic forecasting tools, they generate a range of alternative futures rather than a single point naïve extrapolation of historical data, and when combined with judgments and narratives about the events in these futures, they constitute scenarios.

Simple approach to forecasting in which a time series is modified to take into account perceptions about how future events may change extrapolations that would otherwise be surprise-free.

Steps

➢ 1: Collect historical data relating to the issue being examined;
➢ 2: Surprise-free extrapolation (curve fitting);
➢ 3: Develop a list of unprecedented future events which could cause deviations from the extrapolated trend (judgement and imagination are key). These events should be plausible, potentially powerful in impact, and verifiable in retrospect;
➢ 4: Make judgments about each selected event.
     ➢ For each event estimate (1) the probability of occurrence as a function of time;     (2) the impact on the trend under study;
➢ Expert judgments are then used to identify the probability of occurrence of these unprecedented events as a function of time and their expected impact, to produce adjusted extrapolations.

• Analytical approach to the probabilities of an item in a forecasted set.
• Cross-impact questions can help illuminate perceptions about hidden causalities and feedback loops in pathways to the future.

Steps

➢ 1: Define the events to be included in the study (10-40);
    ➢ Literature search; interview key experts;
    ➢ Initial set + clustering, excluding, refining;
➢ 2: Estimate the initial probability of each event [either the probability of each event is specified assuming that the other events have not occurred, or the initial probabilities assume that the experts making the probability judgements have in mind a view of the future that includes the set of events and their likelihoods];
➢ 3: Estimate the conditional probabilities: “If event m occurs, what is the new probability of event n?” → cross-impact matrix ready for sensitivity testing or policy analysis.

• Eliminates incompatible combinations of factors and creates plausible combinations of the key variables.
• With morphological analysis, we can see various elements and dimensions in the system and develop raw scenarios for the future.

Scenario Development

➢ Decompose the system into components, each with a number of possible configurations
➢ The components must be the most independent possible and cover all of the studied system.
➢ There are as many possible solutions as combinations of configurations.
    ➢ Example: A system with 4 components, each one with 4 configurations: 4*4*4*4=256 possible combinations → the “space of possibilities” or morphological space
➢ A “path” that associates one configuration for each component constitutes the backbone of a possible scenario.

• Method for scenario building that results in two extreme scenarios
• These scenarios go beyond the normal optimistic and pessimistic by allowing planners to better and more fully explore the effects of extreme event interactions when there is a high degree of uncertainty about future events.
• A third scenario can be detailed: an extrapolation of the present often called the ‘status quo’ scenario.

Backcasting gives you a chance to look through the front windscreen seeing clearly the road ahead, as well as the tools to imagine the best possible destination where you could arrive and thrive

• Relation between the scenarios and the backcasts.One desired endpoint is chosen for 2050, and strategies are developed to achieve that endpoint.
• Each strategy needs to be effective in the context of one of the four scenarios by working backwards from 2050 to the present. This is done for each scenario, thus creating four backcasts.

• Focus on uncertainties
• Generates several but logical pictures of the future
• Takes disruptions into consideration
• Unites quantitative and qualitative
• Underlines risks
• Starts from complex to simple
• Adopts a global approach

• Nature: a dynamic process

• Purpose: to organize and structure a foresight project

• Components: four interrelated stages

• Format: circular without a single starting or entry point

• Flow: cyclical and iterative

• System: each stage’s outputs are inputs of the next one

• Define the perimeter of the project
• Set the focal issue and the time horizon
• Describe the work environment and assess the attitude of the organization towards future thinking
• Compose the team and assign subject-matter experts
• Identify the audience as well as the stakeholders

• The issue or question that will guide your scenario thinking and building process
• Make it as objective as possible
• Add supporting questions
• The relevant emerges; it creates a platform for discoveries and explorations; it allows you to “anchor" the discussions and questions

Potential starting points / challenges:
Decision: "digital"; on / off; go / no-go (e.g., Investing or not investing);
Strategic development / test a possible strategic direction - where should our organization / unit invest, in which markets, ...; Shall we get smaller in order to get stronger?
Rethinking the core business - "so far we have been successful, will we continue like this?“;
Exploratory (usually leads to a broader focal issue like "The future of [insert market/strategic context] in [insert geography]") - learning and sharing process and results.

• What will the store of the future look like?

• What will the future of the European energy market look like?

• How will car ownership look like in the future?

Contextual - driving Forces:

Political, Economic, Social

Transactional - Focal Issue - key factors

Clients, Communities, Competitors

One rule: consider the long term as the sufficient time period for changes in historical relations and trends: not too distant in time so one can still think strategically about the future and build scenarios; but also not so close to the present in order to avoid a simple and too conservative projection of past and present structures and drivers;

1. Retrospective and Peripheral view 360°
2. Outside-in thinking
3. Actors games
4. Multiple perspectives
5. The Long Term and "the Long View"

Quality of Decision Making

• Provides guidance for strategic actions being taked today - not only what to do, but how and when to do it
• Provides useful information for actors whose decisions consider long-term developments
• Allows for decisions to be based on a wider societal debate and a greater variety of knowledge sources

Impact of Decision-Making

• Creates commitment among actors to support future-oriented visions
• Encourages stakeholders to join forces to achieve common goals

Ability to reat to future changes

• Allows for knowledge and ideas to flow more freely, enhancing innovation and the capacity to design and manage non-routine events
• Increase risk awareness and provides a basis for more effective contingency planning and appropriate forms of resilience
• May result in new decision-making processes in organisations

1. A clear or unclear problem with no clear solution
2. Medium to high uncertainty surrounding the key issue
3. Organization that is open to change
4. Following necessary resources:
   1. A credible leader for the process, who takes responsibility
   2. time to dedicate to the process
   3. resources for external facilitation and support

ENGAGE IN SCENARIO THINKING

Agility = Sensitivity * Unity * Fluidity

Perceive - Strategic Sensitivity

Seeing and Framing opportunities and threats in a new way - in time

Commit - Leadership Unity

Collective decision-making and commitment

Execute - Resource Fluidity

Fast and efficient resource mobilization, redeployment

• Describe and deepen the understanding of the context of the topic. Integrate and explore data sources.

• Perform a strategic intelligence scanning (collect ideas and insights, organize information, collect data on past and current trends, research on sources of change).

• Explore patterns of change (Trends and Megatrends, Uncertainties and Pre-determined Elements, Weak Signals and Emergent Issues, Wild Cards and Black Swans).