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Role of Scenarios in Strategic Forecasting

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The role of scenarios in strategic foresight”
Article Summary
In the context of the global financial crisis and the turbulence that this has brought to the world economy and therefore to organisations, the article “The role of scenarios in strategic foresight” by Gill Ringland published in the journal Technological Forecasting & Social change volume 77 (9) aims to persuade the reader on the need for strategic foresight over the next decade and what role scenarios can play within strategy foresight activities in organisations (Ringland, 2010). The author predicts that organisations in the west will experience a period of great change and that they are mostly ill-prepared to deal with the rate or the enormity of this change. Ringland believes that conventional business planning will need to change and suggests the need to develop a systematic review of organisational practices that will lead to strategic foresight. This will ensure that organisations are in a position to cope and survive changes in their external environment.
Ringland begins by pointing out that the current position of the world economy shows that business and government have a significant debt burden that will take years to pay back especially in the west. In an environment of unemployment, reduced consumer spending and debt repayment, wealthy nations will recover slower than developing nations. There is also a shift in international competitiveness due to changes in labour skills and costs as well as technological advances. Added to this are pressures of environmental change, international law and the ability to access raw materials. Businesses in the west will need to weather a power rebalance from emerging businesses in developing economies by developing strategic foresight that is constantly updated.
Strategic foresight for businesses comprises of a high-quality forward view that can detect adverse conditions and explore new markets. This view needs to encompass the nature of the organisation along with values, market awareness and assets. An organisation that is successful in the development of these processes is known as a “PS-RO – a purposeful, self-renewing organisation” (Ringland, 2010).
A ‘PS-RO’ organisation has a developed plan for cost reduction, competitiveness and change using well developed qualities of insight, values, narrative, option generation as well as people and processes.
Scenarios are one way to develop strategic foresight as they provide analysis, communication and education to show the possibilities before the company, meaning ideas can be explored and can act as a catalyst for improvement and change. Scenarios provide intelligence, new options and debate up to the point of decision. The author stresses that scenarios are not forecasts, but possible futures that lie ahead.
Ringland suggests that scenarios can have a key role in the development of strategic foresight as mental models and setting the context for futures thinking (Ringland, 2010).
The author describes that scenarios as mental models can assist in strategic foresight by helping to understand complex systems, allowing for debate and use as a prompt for senior management discussions. These can also shape and create images external to the organisation and by focusing on the future they can provide a set of potential worlds which can be used to explore options and drive innovation.
Ringland asserts that scenario methodology can set the context for thinking about the future which can lead to inputs in the actual development of strategic plans. The author discusses three business case studies on the use of scenario methodology. The author concludes that organisations need strategic foresight in order to survive and in the process of developing scenarios, companies can reap the benefits of new ideas, innovation and a change in culture and opportunities.

Article Discussion and Analysis
In order to survive and renew organisations must detect the weak signals of looming opportunities and threats as early as possible and try to integrate these into strategic planning. It makes sense that organisations don’t focus and look for a single vision of the future that matches their expectations, but instead try to acquire multiple views of the future which depict various opportunities or even threats (Varum & Melo, 2010).
Traditional strategic planning and forecasting techniques lean towards inflexibility and largely fail to predict significant changes in markets or industries, especially in very dynamic business environments. The traditional planning process is by in large greeted with groans as it tends to focus on the plan itself. It is mechanical and the emphasis is not on the thinking and exploration of the future, but rather on the now or the very short term, whereas focus should be on building strategic thinking capacity. Anecdotally traditional plans focus on the forecasting for the short term, and as a result these tend to miss impending opportunities and threats which may have a significant bearing on the viability of the organisation.
Ringland discusses the volatility and turbulence of the global economy for the future as an consequence of the global financial crisis particularly in western economies, which on a quick scan of the business news shows it to be a very real challenge for organisations (BBC News, 2013; Lawrie, 2013; Walker, 2013; Wood, 2012) combined with tough business and economic conditions (Freytas-Tamura, 2012; Ryan, 2013). This turbulent business environment validates Ringland’s call for the need to augment traditional planning methods with strategic foresight to allow a forward view to develop in organisations.
Consequently the recognition of future trends and anticipation of market changes by organisations become factors in its overall competitive advantage. This capability in organisations is vital for dealing with uncertainty, adapting innovatively and rapidly to major changes, taking advantage of unforeseen opportunities and having a competitive advantage in a volatile economy (Varum & Melo, 2010). In Ringland’s article the need to progress and build an organisation’s strategic foresight is paramount in order to not only survive, but renew in the coming turbulent business environment (Ringland, 2010). However, as Ringland tacitly implies strategic foresight is not the norm because perhaps as people in organisations we indirectly expect that there will always be future continuity, we tend to hold unchallenged assumptions about the way we see the world and we don’t view systems and processes as a whole.
Strategic foresight is the ability to create and maintain a superior, articulate and functional forward view in organisations (Ringland, 2010). It is used to designate the activities and processes that assist management in the task of mapping a company’s future course of action. In strategic foresight the main goal is to promptly select drivers of change in the company’s external environment (Vecchiato, 2012). Strategic foresight in a corporate environment is further concerned with reducing the sphere of the unknown and helping to account for uncertainty in the decision-making process (Rohrbeck & Heger, 2012). Strategic foresight also gives the opportunity for mobilisation across all levels of an organisation, by allowing common deliberation of future issues within the organisation (Bootz, 2010).
In order to develop strategic foresight, several methods have been developed and Ringland focuses on scenarios. Scenarios as tools to assist with strategic foresight have the potential to give organisations different ways which to manage emergent uncertainties (Chermack, 2005) and can be used to develop robust organisational strategies.
The term was first introduced by Herman Kahn in the 1950s in association with military and strategic studies that were being conducted by the Rand Corporation. From there, as corporate planning become more multifaceted and sophisticated, scenarios were seen as a tool to assist with this increased complexity (Chermack, 2005; Mietzner & Reger, 2005). Since then scenarios have been widely used by organisations across industries given their value as a tool for analysing and gaining an understanding of key uncertainties in the external business environment (Mietzner & Reger, 2005; Vecchiato, 2012). These have also been used at national, regional and local levels by governments as a policy analysis tool to describe possible sets of future conditions (Stratigea & Giaoutzi, 2012). One organisation that introduced scenario planning early on was Royal Dutch Shell and its scenario development is seen as a benchmark for corporate scenario planning (Shell Global, n.d).
A scenario can be thought of as a ‘story’ that illustrates ideas of possible futures or aspects of a possible future. Scenarios are not predictions about the future but can be seen as mock-ups of possible futures and are generally viewed in periods of ten years or more. Traditional planning is characterised with attempts at predicting (forecasting) the one future as accurately as possible. However the strength of scenarios is that they do not describe just one future, but several possible or desirable futures that are then placed side by side, where there can be a potential selection of the best outcomes whilst circumventing pitfalls (Mietzner & Reger, 2005; Postma, Broekhuizen, & Van den Bosch, 2012; Varum & Melo, 2010).
Scenarios are descriptions of journeys to possible futures, and these reflect different assumptions about how current trends will unfold, how critical uncertainties will play out and what new factors will come into play (Postma et al., 2012). Scenarios can be used as a tool to explore and to assist with decision making as they highlight the gaps in the possible future from the present and reveal the choices available and their potential consequences. Ringland emphasises that the concept of scenarios as visions of possible futures is crucial because scenario development if not properly understood can quickly descend into forecasting the future rather than creating multiple visions of the future.
The scenario creation process follows systematic and recognisable steps, generally in four stages: defining scope, database construction, building scenarios and choosing strategic options (Mietzner & Reger, 2005). The process starts by making clear the decisions required to be made, thoroughly challenging the mental maps that shape perceptions, and tracking and collecting information from numerous sources. Analysis is then needed to identify driving forces, predetermined elements and vital uncertainties which will lead to the development of carefully composed plots representing a plausible alternative future. Then deeper analysis of the structure, systems and underlying logic behind the scenarios stories is developed to help explain these and reveal any crucial differences. Finally, the key events or turning points, which would channel the future towards one scenario rather than another, are identified (Mietzner & Reger, 2005).
In the article the author reasons that the scenario methodology itself as described above can assist organisations with not only setting a context for thinking about the future but also assist with current planning (Ringland, 2010). This is because the use of scenario techniques and methodology provides an opportunity to open up the minds of people in organisations to previously unimaginable possibilities and challenge the internal beliefs of an organisation. Scenario methodology can compel managers to rethink the logic and assumptions on which current and past strategy has been founded.
The development of scenarios means challenging the norms and expectations that are taken for granted about the organisation and the environment it operates in. Re-perceiving the organisation and its environment is a main characteristic of scenarios where participants have to question their basic assumptions of the world and alter their mental models (Mietzner & Reger, 2005). Mental models are deeply held assumptions that shape how we understand the world around us. Generally mentals models are in our subconscious and we aren’t fully aware of how these influence our day to day behaviour (Chermack, 2005).
In the article Ringland argues that scenarios can be used as mental models, however mental models are ingrained with pre-existing schemas and world views which can be hard to overcome especially if these have worked well in the past (Rohrbeck, 2012). It is clear that if scenarios are to be used as mental models then rigorous challenge must be applied to pre-existing mental models so that alternative futures can be identified with the scenarios.
Scenarios are suitable tools in which to recognise 'weak signals' of potential change, technological discontinuities or disruptive events and give the ability to organisations of including these in long range planning. This then leads to the organisation being better prepared to handle new situations rather than knee jerk planning decisions. Scenarios can also function beyond the planning aspect by improving communication both internally and externally by leading to the creation of a common language for dealing with strategic issues and by opening strategic conversations within an organisation (Mietzner & Reger, 2005).
Ringland does emphasise the positive role of scenarios in strategic foresight, however scenarios are not without problems, in particular the time consuming nature of its development and the considerable preparation required especially in data and information collection. Careful selection of suitable participants is also essential as there is a need for participants to have a deep understanding and knowledge regarding the subject to be explored in order for meaningful discussion to occur (Postma et al., 2012).
Strategic foresight in the article is seen as positive and valuable; nevertheless it can be questioned as to whether there is value creation from strategic foresight itself. Given the high cost of running strategic foresight activities for example scenario analysis, it is imperative that foresight activities are designed with committed individuals, that there is a high level of communication and participation internally in the organisation, and that the expected value contribution is defined up-front (Rohrbeck, 2012). This will allow for strategic foresight to identify relevant change, trigger and challenge innovation and contribute to overcoming dominant mental maps, which leads to a more robust organisation when dealing with change and uncertainty.

Practical Implications
In all organisations, managers are faced with three central questions when thinking about the future of their organisation: what is our present situation, where do we need to go from here and how do we get there (Thompson, Peteraf, Gamble, & Strickland, 2012)?
Managers first need to evaluate the current position, not only in terms of the industry it is in, but its own organisational performance, strengths and weaknesses. The question of ‘where do we need to go from here’ drives managers to make choices about where the organisation should be headed, and the ‘how do we get there’ challenges them to craft and execute a strategy which is capable of moving the organisation in the intended direction where it will grow its business and improve its financial and market performance (Thompson et al., 2012).
However from a manager’s point of view, complexity and uncertainty are key issues that arise whenever any exploration or strategy development occurs for the future, as the future can be vague with only weak signals being present to indicate where industries are moving to. Foresight activities can aid organisations by giving the ability to explore and think about the uncertain future and stimulate creative thinking before the future happens.
The overall purpose of scenario building is to assist in considering what possible futures might look like, how they might come about and why this might happen. These articulated possibilities of futures then force new decisions as fresh considerations surface and reframe existing decisions, by providing a new setting to re-examine existing decisions. Scenario building also identifies contingent decisions by exploring what an organisation might do if certain circumstances arise from the future possibilities.
Strategic foresight and its many tools can be employed to make better long term decisions, support product and organisational innovation, identify alternative courses of actions and assist with deciphering the weak signals of emerging technology (Rohrbeck & Heger, 2012). In turn this will assist organisations to answer the key central questions in strategy of what is our present situation, where do we need to go from here and how do we get there in order to thrive and succeed in any business environment.
Given that the future is inherently uncertain it is after all the future, any organisation that has developed the capability to understand and build a view of what possible futures may look like, is surely better prepared to adapt and thrive in whatever future may be coming around the corner. References (APA 6th)
BBC News. (2013, April 25). Eurozone in crisis in graphics, BBC News. Retrieved from http://www.bbc.co.uk/news/business-13359367
Bootz, J-P. (2010). Strategic foresight and organizational learning: a survey and critical analysis. Technological Forecasting and Social Change, 77(9), 1588-1594. doi: 10.1016/j.techfore.2010.06.015
Chermack, T. J. (2005). Studying scenario planning: theory, research suggestions, and hypotheses. Technological Forecasting and Social Change, 72(1), 59-73. doi: 10.1016/j.techfore.2003.11.003
Freytas-Tamura, Kimiko. (2012, August 16). Global recovery: who can drive the recovery?, BBC News. Retrieved from http://www.bbc.co.uk/news/business-18815595
Lawrie, Eleanor. (2013, August 16). Market uncertainty as fear of QE tapering intensifies, FT Adviser. Retrieved from http://www.ftadviser.com/2013/08/16/investments/economic-indicators/market-uncertainty-as-fear-of-qe-tapering-intensifies-uCDH8BnS9K3D68ZtIaKd0J/article.html
Mietzner, D., & Reger, G. (2005). Advantages and disadvantages of scenario approaches for strategic foresight. International Journal of Technology Intelligence and Planning, 1(2), 220-239. Retrieved from http://wohlstandfueralle.com/documents/StragegicForesight.pdf
Postma, T. J. B. M., Broekhuizen, T. L. J., & Van den Bosch, F. (2012). The contribution of scenario analysis to the front-end of new product development. Futures, 44(6), 642-654. doi: 10.1016/j.futures.2012.02.001
Ringland, G. (2010). The role of scenarios in strategic foresight. Technological Forecasting and Social Change, 77(9), 1493-1498. doi: 10.1016/j.techfore.2010.06.010
Rohrbeck, R. (2012). Exploring value creation from corporate-foresight activities. Futures 44(5), 440-452. doi: 10.1016/j.futures.2012.03.006
Rohrbeck, R., & Heger, T. (2012). Strategic foresight for collaborative exploration of new business fields. Technological Forecasting and Social Change, 79(5), 819-831. doi: 10.1016/j.techfore.2011.11.003
Ryan, Philip. (2013, July 31). Why economic and currency volatility present double trouble for emerging market investors, FT Adviser. Retrieved from http://www.ftadviser.com/2013/07/31/investments/economic-indicators/why-economic-and-currency-volatility-present-double-trouble-for-emerging-market-investors-sKMLfjlr9clD30Qz0b4OII/article.html
Shell Global. (n.d.). Shell Scenarios – Shell Global. Retrieved from http://www.shell.com/global/future-energy/scenarios.html
Stratigea, A., & Giaoutzi, M. (2012). Linking global to regional scenarios in foresight. Futures, 44(10), 847-859. doi: 10.1016/j.futures.2012.09.003
Thompson, Arthur A. , Peteraf, Margaret Ann , Gamble, John , & Strickland, A. J. . (2012). Crafting and executing strategy: the quest for competitive advantage : concepts and cases. New York NY: McGraw-Hill Irwin.
Varum, C. A., & Melo, C. (2010). Directions in scenario planning literature – a review of the past decades. Futures, 42(4), 355-369. doi: 10.1016/j.futures.2009.11.021
Vecchiato, R. (2012). Strategic foresight: matching environmental uncertainty. Technology Analysis and Strategic Management, 24(8), 783-796. doi: 10.1080/09537325.2012.715487
Walker, Andrew. (2013, August 14). The eurozone is growing again, but don't pop any corks yet, BBC News. Retrieved from http://www.bbc.co.uk/news/business-23692107
Wood, Jonathan. (2012, October 23). The young and the restless, BBC News. Retrieved from http://www.bbc.co.uk/news/business-19997182

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