Planning for various scenarios in business

The current business environment is replete with examples of large, well established companies and brands getting obliterated because they failed to read the changes in the business environment — technology being the latest entrant.

Many external forces have become simultaneously volatile: political, social, technological, regulatory and the economic.

At the same time internal forces are also increasingly turning volatile — with constant newsfeed about leadership changes, (ineffectively) managed and unmanaged attrition, and strife over industrial relations, and so on.

The question here is: How can organisations, large or small, first survive these storms?

In the game of cricket, when batting conditions get challenging, only those with good technique and temperament continue to do well.

Similarly, the need to stick to business basics becomes the only option to survive a storm. Besides, it is extremely unlikely that there will be any let-up in these stormy conditions giving way to stability in demand, supply and costs.

Scenario planning has been credited to Herman Kahn — a game theorist. It has been practised and honed by Shell for several decades to drive a shared view of the world across its complex organisation.

It has thought of several plausible scenarios, including the oil crisis in 1973 and the price drops in 1986, and climate change-related imperatives for an energy company; it had appropriate strategic responses in place well before these events unfolded, giving it a competitive advantage.

In the words of Peter Voser (Shell’s CEO 2009-2013) through scenario planning, Shell is able to maintain intellectual agility with operational flexibility.

The foremost requirement is that the organisation must show intent to take control of the evolving situation in an objective and purposeful manner.

Organisations need to develop these capabilities in the current environment, that is, develop four or five plausible business scenarios and have detailed business plans developed for each of them.

These plans need to be specific to each scenario and they need to be at a level of detail that make them actionable. Needless to say, organisations that can do this type of planning will stay ahead of the others.

The leadership team needs to spend time converging on what these scenarios are likely to be.

For instance, the auto industry in India occasionally sees a spurt in demand; is it because of access to “cheaper” finance and/or reduction in replacement cycle?

Now, consider the scenario of customers choosing to hang on to their cars a little longer; the industry may suddenly see a pile-up of inventory across the supply chain if they do not have an “action plan” that they can execute well.

In 1984, a Detroit auto major envisaged four scenarios (a number that is neither too small nor too large) as a combination of oil prices (will go up or down significantly) and evolving customer values. It was well prepared with detailed plans to execute on product development, depending on which of the scenarios was unfolding.

The leadership needs to keep its ears close to the ground to pick up the early signals and decide which of the envisaged scenarios is likely to play out.

It is difficult to recommend a specific rhythm to developing scenarios.

But the leadership needs to update or discard scenarios on an ongoing basis to remain nimble.

Organisations that have a hands-on leadership, which is objective and decisive with a bias for action based on scenario plans, stand a better chance than the others in today’s environment.

The writer is Managing Partner at CorEssentials

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