Learning from imagining the years ahead. (scenario planning) (Learning Organizations Build Knowledge Bridges) Charles W. Thomas.

Abstract: Scenario planning involves the identification of key market uncertainties and the formulation of objectives and strategies that could lead to the attainment of crucial competitive advantages across a broad range of possible scenarios. As such, scenario planning allows organizations to systematically explore changes that might occur in the future, thereby allowing them to prepare appropriate internal systems for developing strategies to help manage future change. This alternative approach to strategic planning complements and reinforces organizational learning efforts and has proven to be an effective tool for designing organizational transformation programs aimed at turning struggling companies into market leaders. It is most effective when used in concert with the five main component technologies that define organizational learning: systems thinking, personal mastery, mental models, building shared visions and team learning.

Full Text: COPYRIGHT Planning Forum 1994

Memorable quotes in notes from a top-level corporate planning meeting to introduce alternative scenario planning for the company's future business environment:

* "The key is not choosing a 'right' strategy but fostering strategic thinking"--The CEO.

* "Throw out the plan but keep the planner"--The Executive Vice President.

After listening to such profound endorsements of innovative strategic planning by the leadership, the middle manager conferees go back to their offices to revalidate the quarterly milestones for the old five-year Master Plan. What's going on here? The leadership seems to be promoting scenario thinking and organization-wide learning, but by not cancelling the old planning processes they show they are still wedded to a system that assumes that the future will be much like the past. Such a discrepancy between the preaching and the practice happens all too often.

In contrast, many corporations introduced to the learning power of scenario planning unreservedly embrace it and encourage its spread to stimulate strategic thinking at all levels. Often the corporations that actively foster strategic thinking are companies in crisis. The crisis can be externally or internally driven, for example, by a major shift in the market or an incentive system gone awry.

Why are the best "students" of the technique companies in crisis? These companies are willing to entertain systems-level, or holistic, thinking about their business because they are in trouble and conventional solutions have not worked--or have made things worse. Systems thinking is the difference between putting patches on operations or daring to envision a reinvented business competing effectively in various possible future markets. Often the only hope of survival for an organization in crisis is to reinvent itself by challenging its long-held mental models of operations, industry, and future. However, the crash course in survival learning forced by a crisis can be duplicated by an organization that wholeheartedly adopts scenario planning.

For several decades, scenario planning has taught a few organizations to be "learning planners"--to identify the crucial uncertainties of the future and learn to formulate robust goals and strategies, ones that will be advantageous in a variety of futures. When employed successfully, scenarios encourage a willingness to challenge conventional wisdom. Scenario planning allows no sacred assumptions. It is a planning method that systematically experiments with the uncertainties of the future and in so doing, complements and reinforces a company's efforts to become a learning organization.

The Barriers to Strategic Thinking

Scenario planning is inherently a learning process. Human beings are natural learners, and learning brings us satisfaction. So why aren't more large organizations institutions of eager learning? "Unfortunately, the primary institutions of our society are oriented predominantly toward controlling rather than learning, and for rewarding individuals for performing for others rather than cultivating their natural curiosity and impulse to learn," says Professor Peter M. Senge of the Massachusetts Institute of Technology and author of the business best-seller, The Fifth Discipline (New York: Doubleday, 1990).

But under the right conditions, the scenario planning process can be a learning experience for entire organizations. Scenario planning challenges the comfortable conventional wisdoms of the organization by focusing attention on how the future may be different from the present. It demands a wide-angle, systemic view of the dynamic complexities and interrelationships that will define the future operating environment. Rather than forecasting a few key business variables and then building master plans, scenario planning encourages decision makers to imagine working in various possible futures and to develop strategies that would be successful even in the event of radical changes in industries.

In other words, scenarios enlist individuals in a learning adventure into the future. But they need more than just a willingness to speculate about future possibilities. "What fundamentally will distinguish learning organizations from traditional authoritarian controlling organizations will be the mastery of certain basic disciplines," explains Professor Senge.

Scenarios and the Five Learning Disciplines

There are five "component technologies"--disciplines--identified by Senge and his colleagues at MIT that, when used in concert, facilitate organizational learning. Those disciplines are:

* Systems Thinking.

* Personal Mastery.

* Mental Models.

* Building Shared Visions.

* Team Learning.

The organization's leadership is responsible for creating an atmosphere in which the disciplines can grow and interact. Alternative scenario-based planning will help them do that; it can:

* Provide leaders with an effective and powerful tool to teach elements of the disciplines.

* Provide mutually re-enforcing connections among the disciplines.

* Develop robust strategies for the corporation that, in turn, rely on and re-enforce the disciplines.

Alternative scenario planning and the disciplines of the learning organization are complementary; each will improve the effectiveness of the other.

Systems Thinking. Systems thinking is at the heart of the learning organization. According to Senge, it is a framework for seeing interrelationships and patterns of change. The true importance of systems thinking is revealed in the following case when a company discovers unexpected problems while using scenarios to analyze new business opportunities.

A large durable goods manufacturer was losing market share to some new competitors and felt that much of the trouble was its slow introduction of new technology (once its hallmark competitive advantage). While one management team began to study and redesign the company's process for product development, from market assessment to R&D, another team began a scenario project to look at future customer needs. The four separate divisions of the company involved in the multiple scenario examination of future customer needs began to produce a lengthy and intriguing list of new product ideas. The on-going joke at the workshops was how happy the vice president of research was going to be because all the divisions were making plans to support new hires in his area. Both the new product ideas and the strengthening of the research department were identified as solutions to the company's flagging market share.

Eventually the heads of Research, Operations and Human Resources joined the scenario exercise. They had just completed their reorganization plan and wanted to stress-test it in the scenarios. One of their fears was confirmed when they saw the scenario-contingent forecasts of the availability of science and engineering graduates. It was going to be a stretch to hire the people they needed, but they thought that could be addressed with an in-house training program run by senior engineers--a classic "robust strategy" that would work no matter how the future evolved. Or so it seemed until we ran some superficial decision games in each world, and the vice president of research watched in horror as all those terrific "company-saving product ideas" created more and more demands for his services, requiring that his senior engineers redouble both their research time and their training time. The problems were totally unmanageable in the scenario that assumed the conditions of high economic vitality and low graduation rates in science, but the vice president of research saw trouble looming no matter which future was examined.

A fresh look was taken at the "new product decisions" being made in each scenario. It became evident very quickly that a pattern likely to emerge "in real life" was being simulated in each future scenario. Because new product innovation was considered the key driver of growth, each division showed a tendency to pass on every new idea, qualified or not, to corporate R&D. The final robust strategy, therefore, involved better qualification of new products and getting the divisions to share some R&D costs, which reduced their tendency to send frivolous ideas to corporate R&D.

Personal Mastery. The discipline of personal mastery focuses the learning part of the "learning organization" where it belongs--on the individual. Senge takes great care not to anthropomorphize organizations. Organizations do not learn; individuals do. Organizations learn through their individual members. "People with high levels of personal mastery are continually expanding their ability to create the results in life they truly seek. From their quest for continual learning comes the spirit of the learning organization," says Senge.

One of the most fascinating elements of the discipline of personal mastery is the notion of creative tension. Creative tension results from the gap that exists between our vision of what we want to be and the reality of today. Learning organizations nurture and benefit from the power of this personal creative tension. Creative tension is introduced into strategic planning at the business systems level when the enduring future Critical Success Factors for an industry are identified. Those critical success factors are a benchmark against which a firm can evaluate its current strengths and weaknesses and measure the long-term utility of its current core competencies. The gap between the reality of today and the critical success factors of the future results in creative learning tension for the organization.

Mental Models. "Mental models are deeply ingrained assumptions, generalizations, or even pictures or images that influence how we understand the world and take action," says Senge. Particularly confining mental models can come from a lack of systems level thinking, from a tendency to view the business environment in narrow terms without the dynamics and complexities that heighten our sense of uncertainty. Those mental models can prevent us from understanding--even seeing--new opportunities. Here's an example of how a real company (we've changed the name) overcame its static mental model.

In the late 1980s, MissileTech Aerospace watched its traditional markets slip away on the front pages of the daily newspapers. Its traditional "up market" high technology business tradition seemed in double jeopardy; for one reason, fewer missiles were being bought by the U.S. government, and for another, the West's potential conflicts with third world dictators didn't seem to require ultra sophisticated missiles. Up until now MissileTech's concept of the future business environment had been defined by a few key variables--U.S. Armed Service procurement master plans and NATO inter-operability initiatives. In their search to understand the uncertainties they faced, MissileTech embarked on an alternative scenario planning exercise. At first, their expectations were that the scenarios would define for them the range of variability to be expected in the traditional market forecast measures; in other words, how high or how low the volume and what kinds of weapons their traditional customers would want.

The MissileTech's management team was in for harder work than they thought and some surprises awaited them. On two levels, the scenarios forced the management team into systems level thinking about their business. First, each scenario was rich in detail and complexity concerning the dynamic operating assumptions and interrelationships among the variables and actors both in the defense procurement arena and in general global business activities. It was not possible to think about missile procurement without appreciating the macro-environmental forces operating on the society. That in turn started them thinking about opportunities that emerged from broader market patterns, rather than just their narrow traditional customers. Second, the alternative scenario treatments of the forces for change impressed upon them the remarkable variability with which trends could combine to produce extremely different but quite plausible business environments. They learned to see their business from a much broader, more integrated macro-level perspective.

The challenges to be faced were still immense for a defense company, but the future did not look nearly so bleak or confining now. As a result of their new systems perspective, some "at-arms-length" customers began to be seen as partners; a traditional global competitor became a natural strategic ally; and an entirely new business partnership venture has been launched using proprietary sensor technologies in a very profitable sector of the civilian economy.

Building Shared Visions. A vision statement declares what you want to be, and it also implies that the organization will make a commitment to doing what it takes to make the necessary changes. However, visions can't be mandated or established by a memo. Shared visions emerge from personal visions and a concomitant sense of shared purpose and dedication. As a result, shared vision is tied to personal learning and mastery. Like the other disciplines, shared vision is crucial to the formation of the learning organization. As Senge defines it:

In a corporation, a shared vision changes people's relationship with the company. It is no longer "their company"; it becomes "our company." A shared vision is the first step in allowing people who mistrust each other to work together. It creates a common identity.

Scenario planning activities can play an active and synergistic role in vision formation. The previously cited example of the MissileTech experience is a case in point. However, it is not a crucial role; nor should scenario planning be expected to "develop" a vision. As in the MissileTech case, the alternative scenario environments provided a stimulating backdrop that elevated thinking beyond the immediate and mundane. The scenarios didn't create a corporate vision; people did. At MissileTech the scenarios were used as a learning and communications tool to share the stimulation and experience.

There are two standard ways that companies begin the process of exploring new goals and strategies in alternative scenarios. The first, discussed previously, is to "stress-test" the current strategies in the future environments to see how they hold up. That is a very useful and concrete approach. A second, and more heuristic path, is to "transplant" the corporate vision into the alternative future scenarios and explore the goals and strategies necessary to make the vision a business reality.

Team Learning. "Teams...are becoming the key learning unit of organizations," says Senge. The element that makes a team work, that imparts productive energy and purpose to a team is "alignment." In a well-aligned team there is a commonality of direction and a harmonization of individual visions into a greater whole. The outcome of alignment, says Senge, is the difference between the diffused light from a bulb and a well-aimed laser.

To proceed toward more efficacious team learning and alignment organizations must learn to hold meetings in which true dialogue can emerge. These conditions are recommended:

* All participants must "suspend" their assumptions.

* All participants must regard one another as colleagues.

* There must be a facilitator who is responsible for the context of the dialogue.

Taken together, these conditions are a near-perfect definition of a scenario workshop in which the participants explore the strategic setting of a future business environment. Suspension of assumptions is a key element of the experience. In the course of an "explore-a-world" workshop, we have moved the strategy team into an entirely different operating environment--five, ten, sometimes as far as twenty-five years into the future. The time and effort taken to immerse the group into "the future"--casting aside conventional assumptions--pays a major dividend. They become an autonomous group "cast adrift" in the future. Under the influence of the future, exhilarated by new possibilities, corporate politics and personal job protecting agendas are left in the past. "How do we work together here? How do we fashion strategies that will guarantee our competitive advantages?" These questions become central themes of a new creative group dynamic.

Collegiality is a foundation of well-run scenario planning exercises. To facilitate an evolution into the future, it is not uncommon to strip away position titles at the conference room door. And role playing is one tool that can be used to expedite the transformation. However, that is not always necessary. Since organizational structures are fair game in most scenario planning efforts, many participants from the outset take a "corporate" view of issues, devoid of the constraints and mental models imposed by "position."

The facilitator role in scenario planning is crucial. Its two important functions are stimulator and umpire. Insider or consultant, the facilitator must be responsible for the group discussions remaining "true" to the "future" they are in. These "world" meetings take on a life of their own; creative energy--even excitement--typically dominates the room.

Alternative scenario meetings such as these quickly become "greater than the sum of their parts." For example, the collegiality that emerges in the meetings doesn't evaporate when they're over. People returning to their usual jobs often have entirely new relationships with many colleagues. Team learning took place; people saw the power of alignment. This attitudinal change occurred because the team work took place on the "neutral" ground of future scenarios. Future scenarios are relatively unencumbered by today's business problems and antagonisms. They are plausible but not painfully "real," and they provide a safe stage to play out the combination of team learning and strategic insight.

Conclusions

Scenario-based planning and the disciplines and philosophy of the learning organization have a natural synergy. Each complements the strengths and approaches of the other. Corporations that have moved in the direction of becoming learning organizations will find that scenariobased planning "fits like a glove" and re-enforces the learning disciplines. On the other hand, many organizations will find that scenario planning provides an easy-to-introduce and value-added passageway toward becoming a learning organization.

Strategic Planning: What's the State of the Practice?

Planning Review is planning a special issue that will review and critique current strategic planning theory and practice. We're looking for answers to such questions as:

* What does strategic planning mean in the current environment?

* How is the content and process of strategic planning changing?

* What is the current role of the planner, and how is it evolving?

* Do planners have a future?

* Which companies are on the cutting edge?

* What is the impact of software on the content and process of strategic planning?

* How does strategic planning help or hinder opportunity identification, organizational learning, and strategy execution?

* How is planning evolving on the Pacific Rim? In Europe?

* Does planning give smaller companies significant advantages?

* What tools, techniques, and methodologies are most valuable? How are they used?

Your participation--in the form of advice, articles, cases, reports on your experiences, and research (formal or informal)--is eagerly sought. Send material to Robert M. Randall, Managing Editor, Planning Review, 320 Riverside Drive, New York, N.Y. 10025.