"Uncertainty today is not just an occasional, temporary deviation from a reasonable predictability; it is a basic structural feature of the business environment."Pierre Wack, Scenarios: Uncharted Waters Ahead, Harvard Business Review, Sept 1985
Scenario planning has been championed as a strategic tool for senior management teams confronting uncertain futures. At its core, it is a structured tool for telling stories about tomorrow. In telling these stories, we can confront the limits of our habitual thinking and open the door to new and unexpected paths for our business. As Diana Scearce and Katherine Fulton of the Global Business Network noted in their guide to scenarios for the nonprofit space, scenarios are “provocative and plausible stories about diverse ways in which relevant issues outside our organizations might evolve.” [What if? p.7]
These stories are usually built around the intersection of two factors that impact the business. In the classic application of scenario planning done by Shell in the 1960s, Pierre Wack and his team looked at four possible scenarios that could emerge from the interaction of the impact of Shell France having to conform to EU regulations and the availability of gas (high or low availability) [Uncharted Waters]. These scenarios explored both the known unknowns and the unexpected unknowns. By combining two different vectors, scenarios address the complex interactions that occur in the business environment and give senior teams the opportunity to consider multiple possible futures.
Scenarios are also good at exposing assumptions often left unexamined. As Shell pointed out in their scenario guide, building scenarios that combine the perspectives of different teams and knowledge holders, bring to light our natural biases and assumptions. [Scenarios: An Explorer's Guide, p 16] In the Shell France example, legal teams and those focused on capacity planning would have to work together to define the four scenarios. These teams had different knowledge and approached the world in different ways. Bringing these together into a meaningful single story describing a potential future helped both teams understand their own biases and those of their collaborators.
Ultimately, scenarios are seen as giving businesses the ability “to respond to a dynamic business environment by strategizing in a way that allows them to prepare for multiple futures, with multiple strategies.” [Oliver and Parrett] In their analysis of strategic planning, Oliver and Parrett noted that scenarios help teams “make sense of the competitive environment, [and] identify and prioritise the forces that are creating the most uncertainty and find strategic solutions to multiple future scenarios.” It has also been noted that scenario planning increases an organisation’s strategic flexibility, particularly around their ability to allocate and reallocate resources quickly and the ability to take actions in response to changes in the landscape. [Bouhalleb and Smida]
There is a problem with scenario planning, however. The problem is paradigm shifts, those infrequent but revolutionary disruptions in the environment. Here the number of possible scenarios get too big for us to meaningly detail them and then decide how to respond to them.
The term “paradigm shift” gained popularity in the English-speaking world as a result of a book by Thomas Kuhn, The Structure of Scientific Revolutions. In the book, Kuhn attempts to make sense of a radical discontinuity between various scientific understandings. He saw that Plato and the Greeks were intelligent, yet their physics made no sense to him in 1960’s America. Out of his exploration of this discontinuity, he developed a framework for how radical transformation happens.
Key to this is the idea of a paradigm. Kuhn defines a paradigm as a “world view” that guides a group of people in how they act in the world. The paradigm is built around a particular question and is based on an agreed approach to answering this question. For a long time, people in the paradigm work and improve their responses to the paradigm’s question. They discover new things and change the world as a result of their discoveries. For example, in intellectual property law in the 1960s, there was much discussion about whether computer software should be protected by copyright, patent, a new form of intellectual property or nothing. The result of the applications of various paradigms to computer programs is the development of the open source movement and a new business model.
At a certain point, there is a new question that emerges,one that the paradigm’s tools cannot answer. There is a period of struggle and growing doubt as the old tools are tried again and again, but the new question is not adequately answered. It is at this point that a paradigm shift begins.
To arrive at any type of meaningful answer people begin proposing new tools and ideas to address the question. This triggers a reaction from those who still believe in the old paradigm’s question and answers. Polarisation occurs and, with it, conflict. Eventually, the new paradigm, answering its question with its tools, becomes the dominant one and everyone settles down into the work of elaborating the paradigm.
In a paradigm shift, there are increasing levels of uncertainty as more and more disruptions occur. Each disruption, in and of itself, is a challenge, but their interactions with one another create even more uncertainty. In our 3A Foundations workshop, we identify a starting set of 24 different disruptions. That produces 276 possible grids of interacting disruptions. Each grid contains 4 scenarios, so that is just over 1,100 possible scenarios.
While traditional scenario planning has focused on probable scenarios as a way to reduce the number that need to be addressed, the radical disruption of a paradigm shift means that we don’t know what scenarios are probable, possible or unlikely.
As business leaders, we have to be prepared for any possibility. After all, how many people predicted that Brexit, Covid and the Russia/Ukraine war would all happen at more or less the same time?
In a period of paradigm shift, when prediction is an even less exact art, what can senior teams do to lead their companies through the uncertainty? They can focus on building their business’ adaptability. The aim is to be able to respond to any situation with the minimum of effort.This comes by building knowledge, processes, technologies and resource networks that support the company’s sensitivity to the external environment coupled with strengthening its internal resilience.
Equipping the organisation to practice adaptive strategy readies the company for uncertainty. Being confident to respond to the uncertainty means accepting that we will not know what tomorrow will bring. The mindset of leadership here is key, as leaders must manage the fear and discomfort that this brings across the organisation To do so, leaders will, first of all, need to understand and manage their own fear. The more that they can move from that place of fear and of the paralysis that comes when facing into the unknown, the more they will be able to empower their companies to see this moment as an opportunity, as opposed to a threat.
In a paradigm shift, there is conflict until a new paradigm emerges. As a result, businesses need to be more and more sensitive to what is happening in the wider environment. Innovations and disruptions are likely to come from outside the existing market and the organisation’s near set of known competitors. They are answering new questions with new tools. If a business can identify this new, possible paradigm, they can be more prepared for it.
It is here that scenarios are of value. If the senior team have identified a particular disruption and can build a few scenarios around it, they can start to develop some hypotheses to test out. Once these have been validated, they inform the strategic direction of the company, until the situation changes.
Regardless of the direction the scenarios indicate, the company needs to be prepared for the unexpected. Internal resilience is more than risk management. It is creating a culture that is open to uncertainty, that sees the opportunities as well as the risks and has the processes, technology and resources in place to pivot and adapt as needed. We have identified four key themes toward developing this resilience:
Within each of these themes, the goal is to continually move the dial toward greater resilience. It does not matter where the business starts, each step toward greater resilience brings value.
We are in the middle of a paradigm shift of the scale of the Industrial Revolution. It is a time of constant uncertainty and disruption where traditional strategic planning tools, like scenario building, are of limited value. Instead, businesses need to focus on becoming more adaptive. This involves being more attentive and sensitive to the world beyond the immediate market and sector. This increased attention helps senior teams pick up the signs of where the paradigm shift is going: what are the new questions that companies will need to answer in order to have relevance in the future.
In order to answer the new paradigmatic question and prosper in the constant disruption that comes with the transition from one paradigm to another, companies need to build up their inner resilience through an ongoing programme of “moving the dial” toward greater agility, purpose-driven activity, capacity to learn and creation of vision-based value.
This is the challenge that all businesses face now. While it may seem daunting, it is a journey of a thousand small steps that start with a commitment to adapt.