Definition of the term scenario
Towards a change in paradigm
Characteristics of scenarios and methods of scenario building
Scenarios as a strategic planning tool
A vast amount of literature on scenario planning has been published at the latest since the successful Royal Dutch/Shell scenarios at the beginning of the 1970s, either in the form of case-studies, publications on scenario techniques or scenario typologies. The literature shows that scenario planning is used across many types of organisations and industries now, and that different approaches to the scenario building process have developed. Furthermore, the functions of scenarios have developed over time. Scenarios are now widely seen as a tool for strategic planning, instead of solely giving a future outlook. After a short definition of the term scenario as it is used here, I will show that the scenario approach is about to depart from a prevailing paradigm, before examining in more detail the scenario characteristics and methods. Finally, I will explore the notion of scenario planning as a useful strategic planning tool and its application in practise. In the conclusion I will summarise the main aspects of the scenario literature and indicate potential fields of interest for future research.
In my research I included a wide array of journals in an attempt to reflect a spectrum of different opinions. Those journals included both electronic journals and hard copies. Within these journals I looked for articles on the methodologies, characteristics, and typologies of scenarios as well as case studies. Hence, some of my search keywords were ‘scenario planning’, ‘strategic planning’, ‘futures research’, and ‘scenario methodologies’. In addition I searched the Internet for articles on the subject and for institutions and networks involved in scenario studies. I also followed up on references in some of those articles found. My research furthermore included two books. In order to achieve a deeper understanding of the topic I also read articles dealing with related topics. This included articles about organisational learning, methodological approaches in economy vs. psychology and decision making.
Definition of the term “scenario”
The term scenario is used in many different fields. Originally it comes from the world of theatre, where it describes the outline of a play. It is also used for movies, in military language, and the field of statistics. The Oxford Advanced Learner’s dictionary (1989: 1128) offers two definitions for the expression scenario: 1) “written outline of a film, play, etc. with details of the scenes and plot”, 2) “imagined sequence of future events”. The latter definition describes how the term scenario is used in the sense discussed here. Scenarios do not try to predict the future, rather they “present alternative images of the future.” (Schwartz, 1998: 6)
Probably the first who used the term scenario in connection with planning was Herman Kahn. He gave the following definition: “Scenarios are narrative descriptions of the future that focus attention on causal processes and decision points”. (Kahn & Wiener, 1967)
However, there is no common, single definition as to what scenarios in strategic planning are. A series of definitions, often merely variations of one and the same, is available in the literature. Scenarios are “a script-like characterisation of a possible future presented in considerable detail, with special emphasis on causal connections, internal consistency, and concreteness” (Schoemaker, 1991: 549 – 550), “plausible descriptions of future conditions with which the organisation could be faced” (Becker, 1989: 41), “a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out” (Schwartz, 1998: 4), “a narrative description of a consistent set of factors which define in a probabilistic sense alternative sets of future business conditions” (Huss, 1988: 378).
Some authors (Becker, 1989; Jungermann & Thuring, 1987, Coates, 2000) make a distinction between scenarios as a picture of the future at a certain point in time (similar to a photograph), and scenarios showing the evolution of circumstances leading to a specific future (similar to a film). Those authors consider the latter as preferred with regards to the decision making in strategic management. Many others (Wack, 1985b, Schoemaker 1991, van der Heijden, 1996) see the description of pathways to different possible futures as an essential part of the scenario itself. “Good scenarios present more than an end-state description, but especially highlight the dynamics” (Schoemaker, 1991: 550) Here, I will draw on the latter definition of scenarios. However, all authors emphasise that scenarios need to be plausible and internally consistent to be accepted and useful. (e.g. Hamilton, 1981, Schoemaker, 1991, Millett & Randles, 1986)
Towards a change in paradigm
Traditional forecasting techniques, such as trend analysis and time series forecasting, generally extrapolate trends from a rationalistic perspective, thereby often relying on simplifying models. They usually take a limited view on the world by determining how selected variables will develop, e.g. economic forecasting is commonly detached from social and political forecasting and is further “fragmented into technological, demographic and other forecasts” (Godet, 1982: 294).
Proponents (Schoemaker 1991, Schwartz, 1998, van der Heijden, 2004, Hamilton, 1981) of the scenario approach argue that forecasting techniques that extrapolate a certain trend or past history into the future may well work in rather stable times. Traditional forecasts are “usually constructed on the assumption that tomorrow’s world will be much like today’s” (Wack, 1985: 73) and therefore fail to anticipate changes in the environment. However, in an ever faster changing, more complex world where political, economic, technological, ecological and social issues are interwoven and increasingly influence each other, on a regional, national and global level, forecasts are likely to “fail when they are needed most: in anticipating major shifts in the business environment” (Wack, 1985a: 73). A changed environment requires adjusted methods to plan for the future. (Wack, 1985a, van der Heijden, 2004) That is, the now more complex problem of planning for an ongoing business asks for “different methods and a changed paradigm from traditional planning”. (Rotmans, van Asselt, Anastasi, Greeuw, Mellors, Peters, Rothman & Rijkens, 2000: 3) This shift in paradigm should be from rational methodologies which accept no uncertainties to more intuitive methodologies, allowing some ambiguity and “semi-rationality” (Schoemaker, 1991: 551). Schwartz explains it this way:
“It is a common belief that serious information should appear in tables, graphs, numbers, or at least sober scholarly language. But important questions about the future are usually too complex or imprecise for the conventional languages of business and science. Instead we use the language of stories and myths. Stories have a psychological impact that graphs and equations lack. Stories are about meaning; they help explain why things could happen in a certain way. They give order and meaning to events – a crucial aspect of understanding future possibilities.” (Schwartz, 1998: 37 – 38)
Schwartz (1998: 38) continues that with today’s higher complexity of the world the truth can not only be captured in law-like theories or simple “solvable equations”, but that the “dominant belief in a deterministic and reliably quantifiable truth has begun to yield”. “There are now many ways of knowing.” (Schwartz, 1998: 38)
The scenario approach does not reject quantitative data completely, but warn to be cautious with it, as “statistics are flawed by errors” (Godet, 1982: 294). Scenarios complement traditional forecasts, with qualitative data like the behaviour of relevant actors, the “development of new relationships”, or “possible changes in trends”. (Godet, 1982: 294) Since forecasting concerns future decisions, and it therefore lacks empirical data by definition, the scenario approach recognises the dependence on human judgement. (Hogarth & Makridakis, 1981) The scenario technique draws on findings, inputs and skills from a variety of experts in different fields at a time and so tries to address some mental, psychological biases, as “information acquisition biases” or the “failure to seek disconfirming evidence” (Hogarth and Makridakis, 1981: 115).