Auditing the Future

auditing the futureWhile strategy is a vision of how to win the future, much of the audit committee’s work deals with monitoring past performance against pre-existing standards and expectations. This effort gives an important edge for behavior monitoring, but does it give us control over plans or intentions for the future? What if we could foresee and audit events before they happen? How can we pass judgement on something that is still only a sparkle in someone’s mind? Where would we begin auditing the future?

If strategy represents a plan for the future, then scenarios can be used to test the viability of that strategic plan in a range of possible and plausible future contexts. Strategic decisions are made in accordance to situational context. Not too long ago, you looked out the window before you headed out the door and reacted by grabbing your umbrella or rain slicker. It probably does not qualify as a decision, but it would be an example of scenario planning in a rudimentary form.

We test our tactics and strategies and modify our behavior against hypothetical scenarios all the time. However, when most of us make an effort to really look into the future, we do not get much past the window. The looming uncertainties of the future are difficult to explore because most of us lack a comprehensive and systematic approach, as well as the structured discipline necessary to undertake an adequate exploration of the complexity.

Yet exploration of the future deserves a better effort: Google has found a positive correlation between societies that take more time to search about the future and wealth in that particular society. Perhaps, then, better capabilities of exploring the future with our mind’s eye would result in the extraction of more value: By understanding the deeper consequences of the possible contexts of the future in which our strategies will be judged, we set ourselves up for increased opportunities of success.

Taking time to build strategies brings us closer to the future. We build upon what we know from our experiences, fill in the gaps of what we don’t know, and make our best attempt to configure structures, resources, networks, and initiatives to optimize our position for future gain. Diciplined strategic scenario planning enables us to remain in contact with the future longer and more effectively, and the better we practice future foresight, more often we will get it right.

If executives are accountable to the board for their performance, and boards are accountable to the owners to ensure the organization’s ongoing success, then strategies for the future should be considered carefully, together. Through scenario planning, the audit committee can offer executives a future-oriented stress-test to uncover risks and define measures to protect against the pitfalls that will be inherent in different operating contexts. Auditing the future through scenario planning helps organizations to collaborate in developing agile, robust, and resilient strategies and achieving success in the long-, medium-, and short-term.

We are amidst an era of uncertainty and desperate times call for drastic measures. As the pressure mounts in tough times, the average CEO tenure gets shorter. Scenario analysis–backed by the audit committee–can provide a safe space for a more comprehensive vetting of ideas and constructively help executives to be better at what they are paid to do: Think.

Forecasting vs. Scenario Planning

Strategic Planning Strategy DevelopmentFew will win the future in an increasingly competitive, complex, and interdependent world. Leaders need to think harder, plan better and run faster. We have to guess more about the future and be right more often.

Most of the tangible information that we have about the future comes through forecasting trends & variables that anticipate  input prices, rates, operating costs and volume within a range of sensitivity. These extrapolations are essential to short-term planning efforts. However, scenario planning typically takes a long-term horizon, adding an imaginative dimension to planning activities, based on systematically flexing the hypothetical.

The strategic scenario planning process supports decision makers and their teams in mapping strategic action and defining success in a range of possible and plausible futures. Scenario planning differs from forecasting in that it does not extrapolate variables, but is built into uncertainty logics, and shaped by the megatrends that are critical to the organization or business unit. Scenario development, planning and deployment are process tools used by top leaders to improve strategic conversations, real option generation and decision quality.

If we do not imagine or consider the hypothetical via scenario planning, we run the risk of being blindsided by surprises unseen while forecasting

Forecasting and scenario planning should not be thought of as juxtaposed forces, but rather complementary tools for better strategy development and higher-quality decisions amid the complexity of the future. They both provide input into planning and capital allocation: from investments in assets to operational activities to setting prices and executing experiments.

There is an intricate relationship between quality strategic thinking and organizational survival. Firms that rely solely on forecasting may fall into the trap of thinking that the future will be extrapolated from the past. Firms that rely solely on scenario planning may ignore history and overestimate change in the short-run. Firms taking an overly sideways-looking approach to strategy development by constantly benchmarking against the competition may forget to innovate.

What is the proper mix of strategic planning processes in the firms? That should be developed by the leaders. Trends & Scenario Group has developed a strategy development process that integrates forecasting and scenario planning with other well known tools such as SWOT, Porter’s 5 Forces, Blue Ocean Strategy and more so that each tool gets deployed at the proper time in the process so as to maximize effectiveness. An outline of Trends & Scenario Group’s strategy process can be found here.

The Best and Worst Strategic Board Meetings

It’s that time of the year again to prepare for the annual fall board meeting. In many boards, this meeting has its focus on strategy. Some of these may last only a couple of hours, while some boards will take a two day retreat to dive deep into the depths of strategic futures.

The trend is clear: Boards are taking more time and an increasing role in strategy development and risk management. Brad Feld, in his post The Best Board Meetings, says that a board’s time is better spent working on “forward-looking” issues such as strategy and risk, but board culture is often locked on “backward-looking” issues such as results.

Adding to this, Margaret Hefferman in My Best and Worst Board Meetings, warns against “unfettered exploration” in the boardroom, or that precious time should be organized in order to extract value through constructive arguments. To free up time for the strategic conversation, Feld suggests that you get the administrative procedures out of the way first and fast. Send out documents beforehand so that the formalities can be finished before the complexities of scenario planning emerge.

Enter Scenario Planning:

Scenario planning puts forth a range of possible futures that an organization may find itself operating in. This method for strategy development and risk analysis takes a long-term approach focusing on corporate longevity. In scenario planning, the conversations about the future are disciplined and delimited so that real strategic options can be framed and vetted.

Board members are chosen for their brainpower, and those brains need to be put to use. By using board time to confirm and expand assumptions and possible trajectories, the board will have the advantage of maximizing the opportunities and confronting the challenges of the future before they emerge. Finally, the board will feel appreciated when their anticipations are heard, their time is used wisely, and their brainpower is flexed.

Suggestions for scenario planning in the board meeting:

1) Before the board meeting, practice and refine your scenarios with your day-to-day strategic staff. Undertake the process to ensure that critical uncertainties are relevant to today’s business idea and the industry.

2) Present the board with the exercise and a hollow uncertainty matrix. If there are more than eight participants at the meeting, split them into groups to discuss the content of the scenarios.

3) Assign the scenarios to people to present in under 5 minutes. After each is presented, ask the questions: “What events lead us to this future?” and “What can we do to maximize our impact in this scenario?”

4) Frame the remaining prominent agenda items in the context of the conversations that have just taken place and postpone those that do not fit for a board meeting that is not focusing on strategy.

boardroom strategy scenario planning

source: McKinsey Global Survey results: Governance since the economic crisis

Scenario Planning: Slippery When Wet

scenario planning best practicesIn his blog post, Criticisms of scenario planning as undertaken by law departments, Rees Morrison Esq. has put forth  8 considerations regarding the effectiveness of scenario planning. Below you will find my comments taking each point in turn. 

  1. Little empirical evidence exists that compares the vaunted method to other methods of strategic planning.  We always read about Royal Dutch Shell, but not much else.


I agree that scenario planning has little empirical evidence- perhaps due to its future-oriented nature. However scenario planning remains the third most commonly used strategic planning tool after SWOT and Stakeholder analysis. It has demonstrated staying power over time while management philosophy sees many fads come and go. Scenario planning is a process tool for strategic thinking.

  1. Participants may not be able to think creatively, out of the box.  They are much more likely to extrapolate from the present but in a world full of unanticipated interactions, straight-line projections often go awry.


Each of us possess creative capabilities. The role of the scenario planner is to create a safe space for deliberation. Part of the challenge to the strategic team is to be able to “suspend disbelief”. Although the “devil’s advocate” is appreciated, the general council should be a good sport and allow the process to unfold rather that interjecting pragmaticism. There comes a time for the reality check in the process, but it is more appropriate after the scenarios have been developed.

  1. Interactions are not considered.  It is one thing to assume one change and carry out the implications; it is much more difficult yet realistic to introduce other things that would respond to that change and interact with it.


Systems thinking is a major part of scenario planning, and the process should start with a map of the complex interactions that are at play. We should be mindful that when we look into the future it changes the present, and that changes everything else.

  1. The scenario planners probably don’t go out far enough.  Major trends take a long time to unfold, yet most people don’t have visibility several years out.


Best practices suggest that scenarios should be built at a minimum of 10 years or 2 business cycles out in order to smooth out the tendencies of the present.  Major (mega)trends are used to stage and guide the process and to create a shared framework of the “known knowns”. Scenarios are then built upon the uncertainties that are relevant to the case and could have a large potential impact.

  1. To imagine the future is especially challenging for lawyers, many of whom are risk-averse, skeptical, competitive, and find it easy to attack someone else’s “far-fetched” idea.


These challenges are ever-present in scenario planning and are not limited to the lawyer. The far-fetched ideas, however, are the golden eggs of scenario planning. Offering the space to entertain such ideas encourages developmental and strategic thinking and is the core of scenario planning.

  1. Some planning exercises, on their face neutral and objective, are in fact ideological, political, power plays aimed to reach a predetermined end.


Absolutely. Scenario planning is used to break the dominant paradigm and help groups evolve their mental models to embrace other ways of thinking. Navigating power is a key challenge in scenario planning, and often there is some lag time before the predetermined end is destabilized. Scenario planning’s power comes from asking better questions and providing a framework to organize answers.

  1. The leaders of the group, and the members, may make no effort to put on the table what they take for granted or will not address elephants in the room.  Unstated or unchallenged assumptions warp the accuracy of scenarios.


This relates closely to number 6 above. One of the key components in scenario planning is to make explicit our assumptions about the future. Each of us has a vision for the future, and each one is different from the next. Furthermore, each scenario will have implications for the individual whose role will be different depending on which scenario comes to pass.

  1. Like all group efforts, success is more likely if a skilled facilitator guides the group and even more so if there is training for the group members.


Agreed. There are steps in the process that should begin before the workshop, and having participants use time on pre-reads, exercises and surveys will enhance the outcome of the scenario planning workshop. For more information you can visit the scenario planning playbook.

Imagine you are the pilot of a space plane…

strategic scenario planning strategyImagine you are the pilot of a space plane. As you leave the Earth’s atmosphere, your plane accelerates in the frictionless and gravity-free environment.  Fast and getting faster, you find yourself entering an asteroid field. What will determine success?

 

First, your plane must be agile enough to avoid the easy-to-avoid objects. Second, your plane must be robust enough to take a few blows and adjust accordingly. Third, if an object is too menacing, you must re-invent capabilities to warp into another dimension.


As we accellerate into the unknown, our foresight and strategic competencies will determine our survival. Scenario planning minimizes the impact of surprises on the business model by practicing the future. Depending on the scenario, the proper strategic response may be call for agility, robustness, or resilience. Are you prepared?

Why do growth strategies falter?

culture growth strategy scenario planning

Culture eats strategy for breakfast. In a panic, changing the strategic agenda is much easier than convincing other minds to follow a particular strategic avenue. Why has that particular avenue been chosen? Probably because you are accountable for the growth strategy, and it is your prerogative to analyze the options and choose among them.

However, this top-down style and the managers that deploy them are in a high risk situation. The leaders of the future understand that TIME is our most scarce resource and that unilaterally forcing an agenda is futile on a stubborn-as-a-mule culture.

Fortunately, there is a better way. The strategic process and strategizing buys time and helps bring the future closer to the present. But to change a culture, the team must be brought through the process so that they can come to share the same conclusions as you have. Recognizing that your team also has a lot at stake in the strategy process and allowing them the space to contribute creates more agile, robust and resilient strategies. Meanwhile the burden of accountability is delegated to the team and the manager is put into the facilitator role.

In his reply to this question Why do growth strategies falter? Mr. Barbour points to scenario planning as an alternative to growth strategies. The dialogue-based scenario planning process accomplishes this cultural change through a facilitated strategy development process so that the motivations behind the strategy become explicit and understood.

When was the last time you took a serious look into the future? How far did you get? The complex interdependent system we are a part of holds a different baseline scenario for each individual. Through scenario planning, we are able to talk about the future in a structured framework that unites the power of each individual’s mental model. Only as a group can we dedicate ourselves to see deeper and further into the future.

Done properly, growth strategies such as Blue Ocean and Porter’s Diamond are incorporated into the dialogue-based scenario planning process. These tactical elements contribute to bring the future closer to the present and buy time. Here are some resources to get started with scenario planning:

Scenario Planning for Clients Providing B2B Services

b2b scenario planning for business

In a recent scenario planning engagement, a client that provides services to the CFOs of large companies asked if we should build the scenarios from the perspective of the target client. This would reveal the motivations that could drive the behaviors of the CFOs, allowing for better anticipation of their needs. By building the scenarios from the CFOs’ perspectives, the client argued, the scenario planning exercise would enable them to put on their shoes and experience the effects of each scenario on their psyche.

The answer to this is both yes and no. A set of scenarios encompasses the contextual environment, in which the transactional environment is embedded. Scenarios depict developments in the world around us, and therefore the scenario is shared by the client and target CFOs simultaneously. Therefore a scenario is comprehensive as a solution and can be explored through an actor analysis deconstruction.

An even better option is to invite your clients into your scenario planning session. Then instead of speculating on what they may or may not be compelled to do in a given scenario, you can make them a partner in the process to collectively shape a better future together. If unable to draw clients into the process, role playing by the participants is also an option. For more on client integration and understanding customer needs in scenarios, see this paper.

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