Wharton@Work

May 2012 | 

Scenario Planning: Where Strategy and Innovation Intersect

scenario planning

In an extremely critical report, the UK’s all-party joint committee on the national security strategy recently reprimanded its National Security Council (NSC) for getting “sidetracked into short-term crisis management.” It accused the NSC of “extraordinary” lapses in strategic horizon planning. “A good strategy is realistic, is clear on the big questions, and guides choices. This one does not,” said chair of the committee, Margaret Beckett, MP.

“Scenario planning is often thought of as a tool for innovation — and it is. But it’s also, as Margaret Beckett points out, about strategy; it’s a hedge against crisis management,” notes Roch Parayre, managing director of Decision Strategies International. “It’s hard to see through the fog in today’s highly complex, contradictory world. But in the artificial, extreme worlds of scenario planning, strategic implications of possible future realities become very clear.”

Parayre, who serves as learning director of Wharton’s Innovation for Growth: Strategies for Creating Value, continues, “Innovation opportunities are the result of changes or shocks in the environment. In the program, we ask executives to come up with plausible future scenarios that include some of those changes. The scenarios become what I call 'platforms for ideation': if the world goes in a certain direction, what would be a winning innovation? They provide a clarity that helps you to anticipate changes and possibilities.

“Innovation for Growth is about the intersection of strategy and innovation, not R&D management. Our faculty, including former innovation leaders at P&G and Lego, all have strong backgrounds in strategy. Innovation isn’t just about the new widget; it can include much larger concerns like reinventing your business model. Participants come away with this wider view. They learn processes like scenario planning that facilitate strategic thinking.”

Specifically, scenario planning can compensate for two failures in thinking: over- and underpredicting. Overpredicting is a result of overconfidence, a belief that you’re on track to handle future shocks. Underpredicting is a narrow restriction of future possibilities. According to Wharton adjunct professor Paul Schoemaker, the benefits from scenario planning are greatest when:

  1. Uncertainty is high (relative to one’s ability to predict or adjust).
  2. Too many costly surprises have occurred in the past.
  3. Insufficient new opportunities are perceived and generated.
  4. The quality of strategic thinking is low (e.g., because strategic planning has become too routinized).
  5. The industry has experienced significant change or is about to.
  6. A common language and framework is desired, without stifling diversity.
  7. Strong differences of opinion exist, each of which has its merits.
  8. Your competitors are already using scenario planning.

Martin Gelinas, global brand leader for Merck BioVentures recently attended Innovation for Growth, and notes, “Scenario planning gets talked about a lot, but very few companies use it effectively. I’ve already put a slide together on the scenarios we generated as a group in the program, and my team will be using it to initiate and frame a strategic discussion. We need to formulate strategy with these scenarios in mind.”

But Gelinas explains that scenario planning is just one of the takeaways of the program. “It was one of the best educational experiences I’ve had in my career. I’m really pleased. Usually, I think an experience like this is valuable if I can come away with one applicable idea. From Innovation for Growth, I got at least four that I’m already using. Getting back into an environment where you’re talking and learning about strategic thinking made me energized. I got fresh approaches and perspectives that are changing the way I think about my business."