In 1965, the oil company Royal Dutch Shell started its department of Long-Term Studies in its London headquarters. The term “department” is an exaggeration, because Ted Newland, who was given the lead role in this area, said, “I was placed in a little cubicle on the 18th floor and told to think about the future.”
With the help of Jimmy Davidson, who recruited him, Newland started by delivering a “Year 2000” study report, and then a series of reports projecting long-term outlooks for the company.
Rather than trying to make clear, precise predictions (an impossible task, anyway), their group explored a series of alternative futures, and developed plausible stories for how Shell could respond in each scenario.
The first round of these scenarios was completed and presented to senior management in 1971. Since then, Shell’s scenario planners have continued to deliver this service, with more than 30 rounds of scenario planning over the years.
For example, these are some of the scenarios they presented:
- In 1973: “Crisis Scenario” – an impending energy gap causes oil prices to spiral rapidly upwards, and oil-producing governments nationalise their industry to exert control.
- In 1977: “Carter Miracle” – U.S. President Jimmy Carter’s leadership restores confidence, leading to stronger international trade and investment.
- In 1989: “Sustainable World” – An emphasis on clean fuels leads to a radical transformation of the industry.
- In 2001: “Business Class” – Powerful business leaders exert more influence than governments, and lead the world towards greater economic integration and prosperity.
Over half a century, scenario planning continues to provide valuable support to the organisation’s high-level strategic planning and decision-making.
Here’s the Point
In a fast-changing world, it’s impossible to predict the future, especially beyond the short term. After a certain point, it doesn’t make sense to keep gathering data for a better prediction, because you get caught in paralysis by analysis, and soon reach the point of diminishing returns.
Aim for flexibility rather than accuracy.
Imagine multiple futures, assess their plausibility, and keep your options open.
Not all future scenarios are equally likely, so don’t treat them all with the same degree of importance or urgency. Identify as many scenarios as possible, but don’t treat them all the same way.
The Shell team decided they would only consider scenarios that were plausible, while other scenario planners recommend assigning probabilities to the scenarios.
If you don’t have the resources to conduct in-depth scenario planning (and most organisations don’t), a simple – but still effective – method is to classify the scenarios by two criteria: how likely they are and whether they will have a short-term impact.
This means you can classify the scenarios into four groups, depending on where they fit according to these two dimensions:
You then deal with them differently:
- Imminent and certain: Act now! You will face some scenarios that are both highly likely (if not already happening) and with short-term impact. Obviously, you need to plan for them and act immediately.
- Long-term but certain: Inform strategy. Some scenarios are inevitable, but not in the short term. These should inform your strategic direction, even if you don’t make immediate plans for them.
- Imminent but unlikely: Keep on radar. Other things seem unlikely now, but will have an immediate impact if they happen. It’s risky to ignore them altogether, but keep them on the radar and stay alert in case they suddenly appear on the horizon.
- Long-term and unlikely: Ignore for now. Finally, some things are speculative, and even if they happened, won’t affect you in the short term. It’s usually safe to ignore these scenarios now, and revisit them in your next round of strategic planning.
Do this scenario planning exercise regularly. It’s not just useful – it’s part of your responsibility as a leader.
Organisations who do this kind of scenario planning usually do it only at the most senior levels. But there’s no reason you can’t apply the same process to teams and projects as well.
Thinking Ahead
- What high-priority (immediate impact and certain) scenarios have you been ignoring, but you know you should be acting on them?
- What “Bright Shiny Objects” have been distracting you, but aren’t likely to have an immediate impact?
- How can you make scenario planning a habit for yourself and your team?
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