What is Scenario Planning?
Scenario Planning is the Strategy branch that analyzes possible future global scenarios, based on different variables, so the company can prepare itself in case they become reality.
We do Scenario Planning every day on our personal lives:
- What if this person goes to the party?
- What if not?
- What if this Job is not the best for me?
The difference between Business Scenario Planning and these “personal-life” ones is the number of variables you should take into account, and the implications they could have.
A good Business Scenario Planning should analyze at least 2 to 4 scenarios in detail so you can have a global picture about what could be about to come.
In this page, we’ll explain:
- How you should develop this analysis.
- What you should take into account.
- Useful examples about the next economic activities:
But first of all:
Is this analysis Global, Local or Particular?
A good scenario planning, analyzes global trends, not just what may happen to the company you are analyzing.
This tool is meant to analyze global contexts, and what implications could they have in your particular market.
For a small company, this Scenario analysis seems something useless, since it analyses big international relations, important commerce decisions, etc.
However, these international events affect them in the same way they affect to big corporations.
* For example: If USA decides to ban Huawey’s mobile phones in its market, a small Wisconsin distributor will suffer when he wanted to sell all the mobile phones he recently purchased.
Global events must always be taken into account, no matter the size of the company you are analyzing.
Why is Scenario Planning so important?
All the historically successful companies were ahead of their time, and the only way of guaranteeing this during the time is establishing future scenarios.
You have to regard this analysis as a chance to place your company ahead of its competitors.
But how should you develop these scenarios?
How could you analyze the global economy?
The key to success in Scenario Planning is choosing the proper variables.
Choosing the Variables defining your Environment
Your main goal is having a “Chart” that could define the Scenario alternatives you consider at a simple glance.
Like this one:
It is not easy to categorize an entire economy by using just 2 variables.
You should consider:
- Descriptive Variables.
- Generic terms.
- Broad categorizations.
So, for example, we propose you these 2 variables:
- Business Environment.
- Trading relationships.
Now, you should establish their boundaries: the two directions these variables could take.
We propose you to consider:
- Business Environment:
- No limitations; easy to start a business (direction 1).
- Very limited and strict (direction 2).
- Trading relationships:
- Worldwide open trading relationships (direction 1).
- Isolated, traditional, nationalistic economies (direction 2).
So you would have these potential scenarios:
Defining the scenarios
Once defined the variables, you should sit down and think about what the world (or at least the economy) would look like if your predictions take place.
Which 4 scenarios could we have with this definition?
As you can appreciate, some recent economical events (Brexit, and USA protectionist measures) are pushing our world towards the bottom quadrants.
Moreover, lot of people would agree that we live in a 2nd quadrant world; with plenty of super-big companies monopolizing the market).
- We don’t judge it. We just describe it.
The companies that had contemplated this scenario some years ago are surely much more prepared for what is to come.
Of course, you could choose other different variables that could describe the global economy in a different way.
For example, other variables could be:
- Environmental concerns.
- Political instability.
- Freedom of movement (across countries).
- Internet access (it may decrease).
Once you have all your scenarios defined, you have to define the Warning signals.
A Warning is a set of events that may predict that a certain scenario is likely to take place.
These warnings are difficult to establish or interpret since, things, never take place as you (or anybody) expected.
We would suggest, for this scenarios previously explained, the next Warning signals:
Again, you can appreciate how subjective and diverse these warnings can be.
Moreover, depending on the country you are, your company could be more or less affected by these scenarios.
It is not the same, owning a fast-food business on Chengdu (China) than an Import-Export company on New York.
- The first one would be barely affected by international events and the second one would be the first one suffering from international tariffs.
Hence, the best you can do is having an extent checklist that is frequently checked.
How to develop a Strategic Plan based on Scenario Planning?
The scenarios you defined can be common to practically all the economic sectors, since they define the direction the whole world, and its economy is moving towards.
Now, you should develop a strategy for each one of these scenarios or at least, define and “emergency” plan.
You’ll never get to these scenarios in one day, so you’ll have time to adapt your strategy, but be careful: the more prepared you are, the best outcome you’ll have.
We don’t want to be very theoretical with this concept, since there are infinite ways of predicting the future (based on current trends, of course) and even more alternatives to fail while doing it.
Now, we want to give you a practical approach.
How can this Strategy Tool be useful for you?
Scenario planning practical examples
Now, we’ll give you practical examples with the most common small business so you can appreciate how useful Scenario Planning can be for you.
For these examples, we’ll maintain both the 2 Variables and the 4 scenarios we showed you before:
e-Commerce - Scenario Planning example
Imagine you have an e-commerce business that buys and sells different products.
You then decide to develop a Scenario Planning so you can be prepared for whatever happens in the future.
Finally you establish the 4 scenarios previously described.
Where are you heading?
After a careful analysis, you find out that the whole world is moving towards:
- More protectionist national economies.
- Different countries are protecting their “national” production.
- More boundaries.
- Nationalist movements take place.
- However, it will be very easy to start a business (through internet, for example).
What should you do in this situation?
Since there is an increase in “national” feelings, you decide to:
- Highlight, within your country, that the products you sell are produced or distributed by a national company.
- You start to sell certain nationalist-ed products; like objects with flag decorations, T-Shirts with your country’s color…
On the other hand, since not everybody is happy with the national-feeling increase, you also decide to:
- Start a different brand, highlighting, precisely how international your products are.
- Associate multicultural values to your products.
This strategy seems a bit controversial but check the main media companies:
- They all have different TV channels, Newspapers and radio programs covering the entire political spectrum.
Blogging - Scenario Planning example
Now, you are a Blogger.
You have a successful Blog that is properly monetized by:
- Placing Ads.
- Selling e-books.
- Assessing your users at certain topics.
Since you don’t want to lose your position, you then decide to develop a Scenario Planning analysis.
You then determine, according to the Warnings you established that the world is moving towards:
- An open society, despite certain small nationalist movements.
- A more diverse economy.
- A blended international society.
You, then decide to:
- Start focusing on Topics that may affect people from other countries rather than focusing just on yours.
- Talk about how other cultures may see the Topics you used to write about.
- Develop more “business collaborations” with other content-generators.
- Be a guest at a Podcast from other country.
- Help your users to develop their Blogging activity worldwide.
As soon as you users perceive that you have interpreted properly the current world situation, they will start engaging much more with your content.
Be careful: you don’t have to agree or not to agree with your forecasts; you only have to decipher them properly and act consequently, that is all.
The last thing you want is seeing what you would like to see.
- Leave the politics at your closet. Now, we’re talking about Business.
Programming - Scenario Planning example
Now, you are a programmer.
Lets say you are a php and CSS programmer.
You create customized WordPress themes for your clients from all around the world.
Again, since you are in a good position, you decide to develop a Scenario Planning so you can predict what may come in the future.
You check your Warning signals and you predict that the world is moving towards:
- A much more regulated economy.
- The Internet-based economy will be under threat.
- Protecting all the data.
- Some countries will be even blocked from Internet.
- Overall World economy instability and distrust.
*Check how nowadays, lots of countries are increasingly worried about data protection.
With this horizon, you expect to:
- Not be able to maintain your current workload in the future.
- Have much more complications:
- Data handling.
- Tax increase.
- Distrust from other countries’ companies.
Then, you decide to:
- Start offering your services in your own city; to small companies at fair prices.
- So you diversify your income sources.
- Change the way you work:
- You start accepting crypto-currencies as payment method.
- Moreover, you ask for half of the payment in advance.
- Looking for allies in other programming sectors, so you’ll have more chances of finding new trustable clients.
By doing this, as soon as the “problems” come, you’ll be much better prepared than your competitors.
- You’ll have a new income source that won’t be affected by Internet turbulences.
- You’ll have an improved pool of clients cherry-picked by their reliability.
- By accepting crypto-currencies you may gain flexibility.
* This situation is similar to what happened to certain websites:
- In the past, they were ranked by the number of Keywords they had; nothing else.
Suddenly, Google changed everything, prioritizing good contents, and only the websites that adopted Google requirements quickly remained at the Top of the Ranking.
This is something similar but more focused on international restrictions.
Be always prepared.
Scenario Planning is a Strategy branch that focuses on the Global economy in order to find out what is about to come and what the world will look like.
By properly choosing 2 variables and defining their boundaries, you’ll be able to categorize any potential scenario.
Among the infinite valid variables you may find, we propose you:
- Business Environment.
- How easy is to start a new business?
- Trading relationships.
- How the global market is regarding their national commercial relations.
One important thing you must never forget is not mixing politics with your Business: if you don’t like where the world is moving towards, keep calm and try to adapt you and your business to what is to come. Nothing else.