Scenarios – the art of bringing the future into today’s decision making!

Turbulence is an ever-present property of most organisations’ operating environments. Thus, different applications of futurising have become important practices as we navigate towards the uncharted waters ahead. The use of scenarios has taken an important role in futurising. The scenario practice started to be recognised as an important way to prepare for what the future could bring in the post-WWII work of Herman Kahn. He was then a young defence analyst at the Rand Corporation, who started to tell brief stories to describe the many possible ways that nuclear weapons technology might be used by hostile nations. Kahn’s “thinking the unthinkable” approach pioneered the technique of “future-now” thinking in the US

See e.g. Horwath: Scenario Planning: No Crystal Ball Required, StrategicThinker 2006

In his 1984 article, Pierre Wack

Pierre Wack, Scenarios: The Gentle Art of Re-Perceiving : One Thing Or Two Learned While Developing Planning Scenarios for Royal Dutch/Shell (Division of Research, Harvard Business School, 1984).

In this article, we will reflect on how scenarios can bring value to decision making, especially in organisations where investment horizons are long. Our aim is not to elaborate on how to build scenarios or the technicalities of scenarios as such, but moreover to discuss the interfaces between scenarios and other functions in organisations, such as strategic planning, R&D, marketing and branding, HRD etc. Although scenarios can be intellectual masterpieces as such, their real value emerges when they are used to facilitate better decisions.

In our discussion, we will make a number of references to scenario projects conducted by the Finnish industrial corporation Wartsila back in 2006–10.

‘Wärtsilä’, Wartsila.com, https://www.wartsila.com. The reader might want to search the net for “wartsila power scenarios” and “wartisila shipping scenarios”. On Youtube you can watch the power scenarios on https://www.youtube.com/watch?v=ukp5qXIq5BQ and presentations of aspects of the shipping scenarios on https://www.youtube.com/watch?v=bidHYh6WKrE&list=PLC2D09D6A335A2035.

It seems to us that many managers would prefer to live in a world where forecasting could guide their decision-making. Unfortunately, forecasting is not fit for turbulent times. The models are constructed and parametrised utilising historical data. They require that the conditions in the future are similar to the ones prevailing when the models were built. Forecasts are pieces of yesterday, coming later. Scenarios are not forecasts. Working with scenarios, we manufacture alternative, plausible, and qualitatively different futures. This is done by combining trends (more or less certain developments of some issues) and different outcomes of key uncertainties in a systemic logic. The uncertainties and trends are chosen by in-depth analyses of forces that have the potential to change the contextual environment and thus alter the conditions for the future of the business. In doing this, one has to pay attention to not being too close to home; one should push the focus of analysis further out in the contextual environment. And the factors one studies should not be the ones one can control.

There are numerous examples of the successful use of scenario planning in strategy work. Naturally, there is not a onesize-fits-all approach; each strategic decision-making situation has its unique conditions that one must pay attention to when designing how to best utilize scenario planning to enhance the quality of the strategy work and the strategic decisions that come out of that work. Above, we pointed out the need to identify the relevant drivers of change. Equally important is identifying the focal issue of scenario work and the time horizon to apply for the analysis. The focal issue should preferably not be an issue under control of the organisation. In the examples from Wartsila, we did not analyse the future of their products, especially not their combustion engines. We focused on the future of power production and use and the future of shipping, respectively.

Understanding those plausible futures leads then to decisions on issues under your control. When deciding on the time horizon, at least three aspects come into play. First one has to ask how fast things are changing. In the energy business things change slowly, with the exception of occasional “crises”. Other businesses have a much more dynamic and rapidly changing context. Hard to imagine that an actor in the artificial intelligence sphere would be helped by scenarios looking 30 years into the future, which would be normal in the energy sector. A second aspect is connected to planning timelines and economic lifetimes. In the energy industry, time horizons are long. When making strategic decisions concerning an investment in a power plant or a wind power park, you are well advised to look 20 years into the future. Planning, permitting, construction, and economic lifetime together produce a time horizon that is long. Third but not least is how well one can be informed of plausible developments of the critical driving forces. If one cannot feel comfortable in stretching the time horizon, if the feeling is that it is almost like tossing the coin, then one should shorten the time so that the manufactured scenarios still feel plausible and not like science fiction.

We are not referring to science fiction as inspiration for scenario production, which Alessandro Fergnani and Zhaoli Song, ‘The Six Scenario Archetypes Framework: A Systematic Investigation of Science Fiction Films Set in the Future’, Futures 124 (1 December 2020): 102645, https://doi.org/10.1016/j.futures.2020.102645. has good arguments for.

Properly built scenarios are very helpful for strategy work. They illuminate possibilities and highlight risks. Strategic choices can be evaluated against scenarios, new business opportunities, emerging growth trajectories, etc. In the following sections, we will highlight some additional uses of scenarios, demonstrating the potential to create even more value from an investment in the scenario work.

As Shell is recognised as probably the leading organisation in the scenario field, one has to ask why they are sharing the deep knowledge built into their scenario work with the wide public. The investment to produce, e.g., Shell’s global scenarios every fifth year is considerable. And the scenarios are widely used outside the company. The scenarios are undoubtedly creating a platform for Shell as a thought leader, and they help Shell create and participate in discussions that enhance the perception of the Shell brand.

The same kind of thinking was influencing Wartsila when the business units started to embark on their respective scenario journeys. The company was well known in shipbuilding, and their 2- and 4-stroke engines were found in a significant part of the fleets sailing the oceans. The same engines could be used for electricity production in power plants. The Power Plants division in Wartsila had a growing business focusing on clients in especially remote places, like islands. But when renewables, mainly wind and solar, started to enter the energy markets at volume, flexibility and auxiliary services became important topics. However, the Wartsila brand was not well known in the energy market; it was still heavily connected to shipbuilding and shipping. The idea of producing scenarios and using them to boost the recognition of Wartsila Power Plants as a thought leader in the energy business emerged. And the effort paid off very well. The number of new doors that opened for Wartsila Power Plants’ sales and marketing people was significant. The business has started to establish itself as a significant player in the flexible power domain.

For the Ship Power division, the challenge was not that the brand was not known, but it was mainly connected to the engines, not to the broader offering that the division was introducing to the market. So, by building scenarios of the future of shipping, Wartsila Ship Power could be recognised as a thought leader in the shipping markets, providing a broader portfolio of solutions, not only as a manufacturer of very good engines. The scenarios were widely shared. Mr. Eskola wrote, “As the leading marine solution provider, Wartsila wants to share the scenarios with stakeholders for mutual generation of new strategies and modes of cooperation. What the future will look like in reality depends on the decisions we all make, together and individually.”

Press-release 08-09-2010: Wartsila publishes Shipping Scenarios 2030

Our argument is that it pays off to build scenarios and use them, including the enormous amount of insight created in the process to enhance the brand, and to strive for thought leadership. It says that the organisation does not necessarily share all of the strategic thinking and insights from the building process, but nobody expects that. Good scenarios frame discussions for mutual advantages among stakeholders, within ecosystems. The organisation that brings the scenarios to the table has an advantage in guiding mutual efforts. And naturally, it is better to be at the table than on the menu.

Another application of scenarios is when you create a description of a desired future and engage stakeholders in the discussion to jointly reach that future. As above, the scenario as such is not the point, it is the way scenarios can help to facilitate the discussion in order to create joint actions among stakeholders. This approach, called normative scenarios, seems to gain more and more traction. Normative, or prescriptive, scenarios present a future world, mostly a preferred one, which is desirable and achievable if identified actions are taken. At the core is a compelling picture of the future, which is not science fiction but realistic and perceived as plausible. By backcasting, we then build the path from the future to the present, a methodology that ensures that actions and decisions taken today will lead to the desired future. Sharing these normative scenarios one can mobilise stakeholders to jointly embark on the mission to build the future. Among normative scenarios, one has to mention the ones that have been created by the World Business Council for Sustainable Development (WBCSD). The present version of Vision 2050: Time to Transform paints a vision of a world in which more than 9 billion people will be able to live well within planetary boundaries by 2050.

‘Vision 2050 - Time to Transform - WBCSD’, World Business Council for Sustainable Development (WBCSD), accessed 22 February 2024, https://www.wbcsd.org/Overview/About-us/Vision-2050-Time-to-Transform.

Beliefs exist in all organisations. They are conclusions about how the world works. Beliefs become very potent if we regard them as truths. When this happens, we tend, according to Carolyn Taylor, to close off from new information that could challenge or negate our beliefs.

Carolyn Taylor, ‘Organisational Beliefs and the Impact on Culture’, Human Synergistics (blog), 29 March 2017, https://www.humansynergistics.com/blog/culture-university/2017/03/28/the-unseen-force-that-s-shaping-your-culture-every-day/.

This view is extremely useful when a business is entering less explored territories. In Wartsila Power Plants, this was the case in ancillary services, services needed to make up for the fluctuation of power generation by wind and solar generation. Scenarios were built for the US market. This was very insightful as the US is not one power market; the states differ a lot. It was also particularly important to understand California’s very stringent emission regulations. They were, to use a term from Bill Sharpe “pockets of the future in the present.”

Bill Sharpe, Three Horizons (Triarchy Press, 2020).

The previous example pointed to organisational learning. But scenario work also enhances individual learning. We were asked to run a scenario project for Wartsila Power Plants on the topic of the future of emissions. Although the topic as such was extremely interesting and important, even more important was that the project was designed to enhance individual capabilities to think broader, see further, and cope with uncertainties. Alongside the assignment to produce scenarios, we were asked to pay special attention to the development of the individuals in the team. As the culture is heavily engineering-focused, it was extremely fruitful for the participants to learn that you cannot plan everything and that things do not always follow your plan. To raise the horizon to see further out in the contextual environment, recognise that many things that happen, despite your planning activities, and develop the ability to be prepared for what may come. On the individual level, this also has a positive impact on the perception of signals of what might happen. Having made the journey to plausible futures, one has triggered the perceptive system to recognise also weaker signals. You have created what David Ingvar calls “a memory of the future”.

D. H. Ingvar, ‘“Memory of the Future”: An Essay on the Temporal Organisation of Conscious Awareness’, Human Neurobiology 4, no. 3 (1985): 127–36.

The role of the link between scenarios and HRD has been explored e.g. by Chermack, Lynham & van der Merwe.

Thomas J. Chermack, Susan A. Lynham, and Louis van der Merwe, ‘Exploring the Relationship between Scenario Planning and Perceptions of Learning Organisation Characteristics’, Futures 38, no. 7 (1 September 2006): 767–77, https://doi.org/10.1016/j.futures.2005.12.010.

There is an obvious need to follow Wack’s call for re-perceiving in times of rapid change and increased complexity, such as ours. Manager’s mental model becomes a dangerously mixed bag: enormously rich detail and deep understanding that can coexist with dubious assumptions, selective inattention to alternative ways of interpreting evidence, and illusionary projections. In these times, the scenario approach has leverage to make a difference argues Wack.

Learning and re-evaluation can also happen on specific issues. Working on the Power scenarios, the future of solar panels as a significant alternative for large scale power production was not clear. The arguments were raised against wider use mainly based on the costs of the panels. No-one doubted the technological feasibility, but could economics ever play in favour of solar? In a world dominated by nuclear and coal fired power plants, this new kid on the block had not yet reached volume. Unit costs remained high. But what if the costs came down? Could national subsidies create more demand, thus bringing production costs per unit down? Could other interventions talk in favour of solar power? Letting constructive disagreement flourish, learning took place and the team started to see how solar power might play a significant role in some scenarios. Scenario production is a good arena for learning. As the future is unknown to all, everybody has to learn and re-evaluate previous positions.

Every organisation is a system of power and political structures. This does impact every exploration into the unknown. Strong cultures of “command and control” might foster single-loop learning processes, mainly achieving adaptation and correction goals. But what if you start to question the assumptions underlying many of your strategic beliefs, if you realize the boundaries in your mental models and start to up- and timeframe your thinking? In a double loop learning process, you might see something new coming at you in the future, not only another yesterday. Embarking on a scenario endeavour, you start to ask yourself questions like: What if we knew less and learn more? What if we knew less and imagined more? These “what if” questions can trigger a process leading to an expanded intellectual realm. Richard Normann in Reframing Business

Richard Normann, Reframing Business: When the Map Changes the Landscape (John Wiley & Sons, 2001).

As scenarios convey a description of the future context of your business, they also raise the question what type of new products, services, solutions, etc. will play a role in the futures described by the scenarios. Anecdotal evidence of this is the reaction of a Wartsila marketing manager when he was introduced to the Power scenarios, “Damn! We do not have a product portfolio for this.” The link to R&D and innovation activities is obvious. On the other hand, we see that many request to the innovation and R&D functions emerge from sales and marketing. In the competitive situation, sales and marketing want to improve the competitiveness of the company’s offerings in the present situation. This leads to a focus on incremental improvements, not necessarily securing long term success. This, together with unguided idea generation, has the potential to make the front end of the innovation funnel fuzzy.

An example to overcome this challenge is found in Shell, and the company’s Game Changer innovation process.

Rafael Ramírez, Leo Roodhart, and Willem Manders, ‘How Shell’s Domains Link Innovation and Strategy’, Long Range Planning 44, no. 4 (1 August 2011): 250–70, https://doi.org/10.1016/j.lrp.2011.04.003.

When evaluating both progress in innovation funnels and what might come out from them, scenarios can play a role. At different decision gates in the funnel, scenarios can be deployed as conditions in wind tunnels in which the emerging concepts are tested. The future business context in which the new concept should produce expected value is presented by scenarios. Altering the conditions in the wind tunnel, using different scenarios, one gets a proper indication of potential success and risks. It is also interesting to look at an example how scenarios influence competence development within R&D. In work with a major truck manufacturer, we analyse the competencies needed within R&D to meet the challenges of developing the trucks for the future. Several technology competence areas were identified, such as power electro technology, tribology, steel fatigue, etc. Each technology area was broken down into adequate technologies. These technologies were then evaluated against the company’s scenarios. The result was a map of technologies and competence to master them that were required regardless of scenario and those that were scenario specific. Based on this, a technology road map was created. It included investment plans and a follow-up mechanism. The work also initiated joint ventures and collaboration with technological universities. Using scenarios ensured that the truck manufacturer was prepared to develop solutions for different futures and to be agile in switching development work, when the future turned out to be different.

In our Wartsila case, both the Power and the Shipping scenarios were utilized by Wartsila Industrial Operations, which was the production and R&D division. At the core of both market divisions offering was the combustion engines, with their fuel, emission etc. challenges. The scenarios was contrasted against the present R&D and production strategies, calling for necessary adjustments and new prioritizations.

In many cases scenarios are also helpful in developing the offering as such. They can make the offering more robust against changes in the business environment, and as in the case of Wartsila’s service division, the scenarios were helpful also in understanding location challenges. In many cases geo-political and other global developments are included in scenarios as uncertainties in the contextual environment. Thus they are well suited to inform a global service organisation of e.g. how global shipping routes might develop, does making in harbour service very efficient if your service entity is located in right spots. The scenarios also inform you about how shipbuilding might develop in different parts of the world, and how energy demand can develop. Then, you are better informed when making decisions of where to be located.

One frequently used illustration in the scenario field is the onion-like graph, developed from the writings of Kees van der Heijden. The contextual environment surrounding the transactional environment, incorporating the actors, which surrounds the focal actor. Very logical. At the same time, the future of most focal actors is to a great deal determined by the future of its customers. Can it be that focusing on the focal actor, our organisation, might lead to an insufficient understanding of what lies ahead?

Let us take a brief look at some big companies that might have looked at the wrong futures. General Motors was for 100 years a dominant company in the automotive industry. Focusing on profiting from financing, they did not pay attention to the changing landscape and the new demands from customers. Bankruptcy was the consequence for one of the world’s biggest companies. Kodak, one of the world’s biggest film companies, did focus and protect its film business although they recognized and invested in digital solutions. The focus on their traditional core led Kodak to file for bankruptcy in 2012. A third similar example could be Nokia. The company did not recognize the potential of smartphones; perhaps, they had a hard time connecting to their customers. A major downfall and restructuring followed. These examples have strong connections to consumer markets. They also point out that focusing heavily on your own future may be an activity that focuses on a soon obsolete business. In industrial markets, we see that for most B2B activities there is a small number of customers that form the core of the business. Disconnecting from the future of already a few might have profound consequences. Being too close to home might lead us to focus on the wrong futures, our owns instead of those of our customers.

The customer as the core of strategic thinking is not a new idea. Personally, I have had the benefit of being a colleague to pioneering consumer centric strategic thinkers as the late “management guru” Richard Normann and Professor Christian Grönroos. Appreciating that the success of an organisation is dependent on the success of its customers is key. And even broader, it is a question of the success of the value creating system that the company is part of, a system of interactions between actors like customers, suppliers, etc.

It seems to me that a very fruitful futurising approach is to focus on the future of the value creating logic and its dynamic systemic future properties. This would naturally increase the complexity of the analysis, but at the same time reveals more potential opportunities and risks. A futurizing approach like this would also redirect the strategic conversation. The key strategic task would be the design and reconfiguration of roles and relationships among the constellation of actors to mobilize the creation of value in new forms and by new players. Guided by our understanding of plausible futures, the organisation would design and develop its own value creating system, which has customers as a very central position. Shifting the focal actor of the analysis from the own organisation to its customers, or its value creating system, will also enable engagement in more strategic dialogues with stakeholders, thus enhancing the understanding of what might come at you, given that one has the proper processes and competencies to interpret signals.

To build scenarios for plausible futures of our customers is central for contemporary strategic planning. Doing so brings a better understanding how we can continuously support our customers, and other actors in our value creating system, to prosper and make good in times to come.

Scenario-building approaches deal mostly with the changes coming from the contextual environment. We build scenarios from plausible outcomes of technologies, macroeconomics, changing consumer behaviour, etc. These approaches seldom incorporate how actors in the transactional environment might drive change, seizing opportunities, and sometimes create new maps that might change the landscape. Fortunately, we start to see fruitful analyses incorporating iterative interaction between the contextual and transactional environments. Naturally, this is more demanding, but the approach does pay off. We might understand coming moves of major players, perhaps our most important customers, and emergence of disruptors from the start-up field. Perhaps the new Teslas, Amazons, Facebooks, and alike would pop-up in the analysis.

As advocated above, scenario planning is very useful not only for strategizing, but for a number of different aspects. And fortunately, there is also scientific evidence of the benefits of foresight. World Economic Forum notes that despite its long history, surprisingly little has been done to empirically examine its actual benefits for organisations and their decision-makers. With this in mind, and recognizing the importance of building an evidence-based understanding and implementation of foresight, WEF extracted key results from scientific research, condensed into five main points:

Alex Fergnani and Olivier Woeffray, ‘Why Corporate Foresight Matters According to Research’, World Economic Forum, 19 September 2023, https://www.weforum.org/agenda/2023/09/strategic-foresight-research-insights/.

But these benefits do not come automatically. There are a number of requirements that should be met in order to get the value from scenario planning. Meyerowitz, Lew and Svensson

Danielle Meyerowitz, Charlene Lew, and Göran Svensson, ‘Scenario-Planning in Strategic Decision-Making: Requirements, Benefits and Inhibitors’, Foresight 20, no. 6 (1 January 2018): 602–21, https://doi.org/10.1108/FS-04-2018-0036.

If scenarios are to fulfil all the roles we have outlined above, and more, then the requirement is that the scenarios are good, that the meat at least the following criteria:

List from the Oxford Scenario Program.

Scenarios, independent of how well manufactured they are, do not make decisions for you. They inform the decision maker of how various uncertainties and trends in a systemic way can produce alternative, plausible future contextual environments that might come at the decision maker. Hopefully our reasoning can enhance the reader’s strategic conversation.

Scenarios can be intellectual masterpieces, and they can be fantastic works of art. But the most important thing is that they help us to perceive and re-perceive what might lie ahead, give us the courage to cope with the inherent uncertainty of the future and foster a vivid and constructive strategic conversation in the organisation. In the article, we have elaborated on the use of scenarios in some different managerial contexts. The benefits are obvious, but still there are issues making the use less frequent than we would expect. One issue is about incentive systems. Traditionally, management is incentivised to deliver on the present strategy. That reduces attention to and discussions of alternative developments of the contextual environment. Another aspect is our inherent optimism, as demonstrated by Kahneman and Tversky in their Nobel prize-winning research, see, e.g., Kahneman.

Daniel Kahneman, Thinking, Fast and Slow (Farrar, Straus and Giroux, 2011).