The word Scenario was originally associated to the performative arts like theatre and cinema (Ringland, 1998, Kleiner, 1996, Notten, 2002: 18).
Peter Schwartz (1991) also uses an analogy with the theatre to illustrate the reasons (and the utility) of building scenarios as a tool that allows us to improve our understanding about the challenges when we try to visualize and understand the future in an uncertain and changing environment. Schwartz invites us to be in the place of an actor:
“Imagine that you are a well-practiced actor in a repertory theater. One week you come into work and your director hands you a copy of The Tempest. You learn your part and practice it thoroughly, preparing for the performance the following month. The next week, you walk in and the director hands you Rhinoceros, by Ionesco. A very different play from Shakespeare, but no matter: You learn those lines and practice that part. The following week, the director gives you a copy of Eugene O’Neill’s Long Days’s Journey into Night.
When the night of the performance finally comes, you walk up on the stage. The stage lights come on, and you are given your first line. But you don’t know which play you are given your first line. To find out, you have to look at the scenery around you. Hopefully, you had enough sense ahead of time to talk to the stage manager and find out what each set looks like in detail — so that, by fixing on only one or two details, you will be able to tell. If there’s a palm tree, it’s the shipwreck/island setting of The Tempest. A bottle of beer on a café table suggests Rhinoceros. And a lamp, the kind you might see in a 1920s New England living room, lets you know that you’re in the O’Neill Play.” (Schwartz, 1991: 191)
Given the strong turbulence, acceleration of change and the increasing complexity of the current world, it’s difficult to know a priori which scenario will happen. In such reality, scenarios offers the possibility of preparing us to face for two or three alternative futures, being important that we try to see the signals that will make it possible for us to recognize the “play” in its global perspective before we are invited to participate in it (Schwartz, 1991).
The building of multiple alternative scenarios is justified in a reality dominated by uncertainty and a fast pace of change. If the future was predictable, we wouldn’t have this need to develop and explore scenarios, being the strategic planning and decisions based on a univocal and extrapolation-based forecast.
Scenarios differ from most of other forecasting approaches and models in two important aspects. In the first place, they usually offer a more qualitative and contextual description of how the present will be transformed into the future, instead of looking for a quantitative precision (Godet, 1993, Jouvenel, 1999, 2002, Schwartz, 1991, Porter, 1985). Secondly, scenarios try to build and explore a set of possible futures, being their occurrence plausible but not guaranteed. This capability to offer more than one “forecast”, and the presentation of a narrative is defended by some authors as being a more reasonable approach than trying to forecast or predict what will happen in the future (Schoemaker, 1985, 1995, Heijden, 1996).
There are many definitions of scenarios and arguments for their development in the extensive literature dedicated to the design and implementation of different methods and applications of scenarios.
With the purpose of highlighting some of the major characteristics or properties of scenarios we present a selected number of definitions made by different authors, which emphasize different characteristics or relevant elements for the development and use of scenarios, which are represented in the Figure below.
FIGURE 1: DISTINCTIVE FEATURES OF SCENARIOS
“Scenarios are not Predictions”
Besides the existence of many definitions of scenarios, not all coherent or compatible with each other, the idea that scenarios are not predictions congregates the consensus of the most important authors in this field (Heijden, et al, 2002, De Geus, 1997, Porter, 1995, Notten, 2002, GBN, 2004, Shell, 2004, Godet, 1993, 1997a).
Arie De Geus expressed this idea in the following way:
“Nobody can predict the future, therefore one should not try. The only relevant discussions about the future are those where we manage to shifting from the question ‘whether something will happen’ to the question ‘what should we do if it happens?’“ (De Geus, taken from “The Learning Organization and Organizational Learning,” Karan Ayas and J. Wil Foppen, eds., 1996)
De Geus referring explicitly to scenarios argues that “They are instead descriptions of hypothetical situations that can be used to consider possible future actions.” (De Geus, 1997)
In a UN report, this idea that it’s not possible to predict the future and scenarios are a tool to improve our knowledge and response capability to what might happen is also highlighted:
“However, ‘thorough’ futures research may be, we cannot predict the future by using current methods of science. The best a future researcher can do is to explore the emerging landscape of the future and to paint the images that are arising. […] Scenarios highlight the possible alternative unfolding of events. They should provide a framework of the study of alternative futures.” (UNDP Scenarios Construction Phase III of the NL TPS Process in African Futures, 1993)
It is important to underline that in 1967, Herman Kahn was already arguing that he didn’t understand scenarios as being an instrument of prediction in itself.
In his definition of scenarios Herman Kahn highlights the potential of scenarios as an instrument or an opportunity to identify the causal relations between the major elements of the phenomenon being studied and the importance of those for the decision making.
“(…) a hypothetical sequence of events constructed for the purpose of focusing attention on causal processes and decision points”.
“Scenarios aim at giving answers to two basic questions: firstly, how some assumed future state develops step by step, and secondly, what are the alternatives in each moment of decision-making to divert, facilitate or stop this development.” (Kahn, Wiener 1967, in Schnaars, 1987)
Michael Porter also argues that scenarios should not be faced as an end in itself. For him, “(…) the scenario tool is merely a framework for identifying the key uncertainties and analyzing them, not an end in itself. The process of understanding how uncertainty affects future industry structure is as important as the scenarios that are actually constructed.” (Porter, 1985: 470)
Ted Fuller expresses this idea saying that “Scenarios (…) are not predictions, but ways of illuminating possible futures. Scenarios (…) are provisional knowledge.” (Fuller, 2001)
“Reperceiving the future” and confronting our Mental Models
A characteristic that is highlighted by several authors relates to the fact that scenarios are tools that should defy or confront the way we think about the future (Godet, 1993, 1997a), the orthodoxies and mental models that are dominant in individuals and organizations (Wack, 1985, Schwartz, 1991, Heijden, 1996, De Geus, 1997).
Three important authors of the “Intuitive Logics” school (Pierre Wack, Peter Schwartz and Arie De Geus) ask these questions very sharply in definitions that they present about scenarios and Scenario Planning.
According to Wack “(…) seeing the future is about being in the right state of focus to put your finger unerringly on the key facts or insights that unlock or open understanding. Thus scenario-making is about acute perception, or better, about reperception — becoming free of old perceptions and prejudices at the same time — hence the title of his Harvard paper.“ (Tibbs, 1998: 8; “In Memory of Pierre Wack”, Netview, GBN, Vol.9., Nº1)
The reperception of reality and the discovery of strategic openings that follow the breaking of the manager’s assumptions (many of which are so taken for granted that the manager no longer is aware of them) are, after ali, the essence of entrepreneurship. Scenario planning aims to rediscover the original entrepreneurial power of foresight in contexts of change, complexity, and uncertainty.” (Wack, 1985b: 150)
“(…) a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out.” “(…) a set of organised ways for us to dream effectively about our own future.” (Schwartz, 1991: 4)
“So the real purpose of effective planning is not to make plans but to change the microcosm, the mental models that these decision makers carry in their heads. And this is what we at Shell and others elsewhere try to do.” (De Geus, 1988: 71)
The idea that scenarios are archetypes that tend to be connected to certain mental models and, by this fact, must be developed by individuals with different backgrounds and perspectives about the past, the present and the future, is evident in Rotmans and Van Asselt definition (in Notten, 2002). These authors defend that the past is something very important for the construction of scenarios.
“Scenarios are archetypal descriptions of alternative images of the future, created from mental maps or models that reflect different perspectives on past, present and future developments” (Rotmans, van Asselt, in Notten 2002: 19)
Scenarios as a Tool for Organizational Learning
According to Arie De Geus (1988) organizational learning is “the process whereby management teams change their shared mental models of their company, their markets and their competitors”. According to several authors Scenarios can be used as a tool for inquiry, reasoning and construction of mental models (Senge, 1992, Kleiner, 1994, Ross, Smith, 1994)
In this sense, Scenario Planning is increasingly used as a tool to improve the organizational learning (De Geus, 1988, Georgantzas, Acar, 1995, Kleiner, 1994, Schwartz, 1991, Heijden, 1996).
Furthermore, the creation of a common language is the necessary precondition for organizational learning — the process by which organisms evolve in a satisfactory way and adapt to change. Aries De Geus, head of Group Planning at Shell during part of the 80’s wrote the following:
“When people play with mental models of the world they are actually creating a new language among themselves that expresses the knowledge they have acquired. And here we come to the most important aspect of institutional learning, whether it be achieved through teaching and or through play as we have defined it: the institutional learning process is a process of language development. As the implicit knowledge of each learner becomes explicit, his or her mental model becomes a building block of the institutional model. How much and how fast this model changes will depend on the culture and structure of the organization. Teams that have to cope with rigid procedures and information systems will learn more slowly than those with flexible, open communication channels. Autocratic institutions will learn faster or not at all — the ability of one or a few leaders being a risky institutional bet." (Schwartz, 1991: 205)
In other words, names, ideas and formulas that emerge from a scenario, provide a set of assumptions and a common planning horizon, under which the managers of different departments or different companies can coordinate their strategies. Scenarios should be provided with an expressive name, describing it and containing the essential of the story recounted, giving planners a framework, which enables them to reason on a wide range of possibilities.
Van der Heijden also refers to the fact that “strategic conversation” can be an effective means for transmitting organizational learning. According to Heijden informal conversations are more effective than formal processes for exchange ideas and views, such as meetings, budget systems, etc. According to Heijden because this kind of informal conversations occur spontaneously it affects the way individuals make sense of events and trends in the strategic situation. (De Geus, 1988, Heijden, 1996: 46)
Scenarios as Narratives and Stories
As mentioned above, the use of alternative scenarios for the institutional planning was popularized by Kahn and Wiener in writings on “surprise-free futures”, having been Kahn that introduced the word “scenario” in the vocabulary of strategists when he worked in RAND Corporation in the 1950s (Notten, 2002: 17).
His brand image in scenario analysis is based on a stylized narrative and it is usually referred to as “scenario writing” (Notten, 2002).
“As near as I can tell you the term scenario was first used in this sense in a group I worked with at the Rand Corporation. We deliberately chose the word to deglamorize the concept. In writing the scenarios for various situations we kept saying ‘Remember, it’s only a scenario’, the kind of thing that is produced by Hollywood writers both hacks and geniuses.” (Kahn, Herman, “The Japanese Challenge”, Thomas Y Crowell, New York 1959 as quoted by Schnaars, Steven “How to develop and use scenarios”, Long Range Planning 1987)
Writing scenarios is a highly qualitative procedure (Godet, 1993, Jouvenel, 1999, 2002, Wack, 1985, Schwartz, 1991). It comes more from the energy and courage of the author than from the computer. However, it can incorporate the results of quantitative models and simulation. Scenario writing is based on the assumption that the future is not just a mathematical manipulation of the past, but the confluence of many forces of the past, the present and the future that can be better understood if thought thinking simultaneously in a structured and creative way (Heijden 1996, Godet, 1993, 1997a, Notten, 2002).
This argument that scenarios are narratives and stories is strongly defended by Schoemaker, Van der Heijden and other authors who worked in Royal Dutch / Shell and founded the GBN with Schwartz (Schwartz, 1991, De Geus, 1997).
“Scenarios (…) are stories describing the current and future states of the business environment.” (Heijden, 1996: 7)
“Focused descriptions of fundamentally different futures presented in coherent script-like or narrative fashion.” (Schoemaker. 1993: 195)
“Scenarios are stories about how the future might unfold for our organizations, our issues, our nations, and even our world.” Importantly, scenarios are not predictions. Rather, they are provocative and plausible stories about diverse ways in which relevant issues outside our organizations might evolvesuch as the future political environment, social attitudes, regulation, and the strength of the economy.” (Scearce, Fulton, 2004: 7)
According to these authors, facing scenarios as narratives and stories is the best way for people to understand scenarios, stimulating not only their interpretation and appropriation in cognitive terms but also their emotional implications. These are considered fundamental elements to make the critical connection or link between the scenarios (anticipation) and the decision making (action). (Wack, 1985a, Godet, 1993: 24, Godet, 1997a: 14–15)
Scenarios and Decision Making
The decisional (or strategic) nature of scenarios or their more exploratory nature is an important distinction, which strongly influences the design process, being also dependent on the purposes and objectives of the project to be made.
However, the capability to link scenarios with the decision-maker and the decision making process is simultaneously a very important and difficult purpose to reach in many Scenario Planning projects (Wack, 1985a, Godet, 1993, Wilson, 2000, 2003).
There are several definitions of scenarios that emphasize their importance as a tool to help in the strategic making process, being those definitions more related to the authors that use scenarios mainly in business and organizational contexts.
“Scenarios help managers structure uncertainty when (1) they are based on a sound analysis of reality, and (2) they change the decision makers’ assumptions about how the world works and compel them to reorganize their mental model of reality.” (Wack, 1985a: 74)
“Scenarios are a tool for helping managers plan for the future — or rather for different possible futures. They help us focus on critical uncertainties. On the things we don’t know about which might transform our business. And on the things, we do know about in which there might be unexpected discontinuities. They help us understand the limitations of our ‘mental maps’ of the world — to think the unthinkable, anticipate the unknowable and utilize both to make better strategic decisions.” Shell International Energy Needs, Choices and Possibilities: Scenarios to 2050 (2001) http://www2.shell.com/home/media-en/downloads/scenarios.pdf
“Scenarios are narratives of alternative environments in which today’s decisions may be played out. They are not predictions. Nor are they are strategies. Instead they are more like hypotheses of different futures specifically designed to highlight the risks and opportunities involved in specific strategic issues.” (Ogilvy, Schwartz, 1998: 57)
“That part of strategic planning which relates to the tools and technologies for managing the uncertainties of the future (Ringland, 1998). Scenarios are possible views of the world, providing a context in which managers can make decisions (Ringland, 2002, in Nicol, 2002: 29)
“(…) scenarios can be described as instruments which aid decision-makers by providing a context for planning and programming, lowering the level of uncertainty and raising the level of knowledge. This is done in relation to the consequences of actions which have been taken or will be taken in the future. (Masini, 1993: 90)
The Importance of the Strategic Focus
It’s very important to be as clear as possible in defining the problem and, in particular, to make sure that the question doesn’t generate any kind of ambiguity, and the field of analysis is clearly delimited.
This is the first question to answer, since we can generate multiple types of scenarios and consider different methodologies to study different subjects or systems with a broad range of scopes.
The definition of the strategic focus of a Scenario Planning project is a critical decision for its success. Among the reasons that we can identify, we can highlight the following ones:
It allows us to anchor and filter all the creative process of information gathering and analysis;
It facilitates the definition of the environment(s) that surrounds and interacts with the strategic focus of the scenario process.
It is important to note that the delimitation and definition of the focus of a Scenario Planning exercise is always a critical decision whenever the project privileges a decisional or strategic approach (Schwartz, 1991, Schoemaker, 1985, Heijden, 1996). However, that decision is not always an easy task, being possible to make that decision in many different ways.
In this sense, the methodology proposed by Michel Godet (1993, 1997a), can be applied to a company, a region, a country, or at a global level, depending of course on the question to be studied.
Michael Porter (1985) and Peter Schwartz (1991) directed their methodologies to the strategic planning in companies, arguing Porter (1985) that the scenarios traditional used in strategic planning, which include macro-economic and macro-political factors, denominated by the author as Macro-scenarios or Worldviews, besides their relevance, are too general to be useful in the development of a strategy in one given industry.
Schwartz (1991) defends the same idea, in the sense that scenarios built around macro-environment differences (vd. strong or weak economic growth) will not be able to highlight the key questions or differences that a company will need to face.
“How can you be sure that the differences that distinguish your scenarios will really make a difference to your business or your life? The best way is to start with the important decisions that have to be made and the mind-set of the management making them.” (Schwartz, 1991: 241)
However, we shouldn’t conclude that scenarios must only be used for the corporate or industrial strategic planning and that macro scenarios can’t be relevant or useful. On the contrary, some of the main studies using scenarios methodologies that had major impacts all over the world, had been precisely world-wide scenarios, among which we can underline the report “Interfuturs”, (1979), or the study of Meadows et. al, “Limits to Growth” (1972).
The Relevance of the Time Horizon
The decision about the time horizon of a Scenario Planning project it’s an important question since all the subsequent work is influenced by and depends on such a decision (vd. the result of scanning activities, the identification and categorization of drivers of change, and the selection of uncertainties, Weak Signals and wildcards, which can be different depending on the time horizon defined). (Schwartz, 1991, Heijden, 1993, Wilson, 2000, Scearce, Fulton, 2004, Schoemaker, 1985, Shell, 2003)
Although Scenario Planning can be applied from medium to long run time horizons, which can be considered as the enough time frame, so that historical changes in the relations and trends may occur (Jouvenel, 1999, 2002: 10), the exact definition of the time horizon of a Scenario Planning process is a “negotiable” issue, being possible to extend it or to shorten it depending on the objectives and specific potential benefits of the work to be made (Jouvenel, 1993, 2002: 10, Godet, 1993, Scearce, Fulton, 2004).
It is frequent to say that the ideal time horizon of a Scenario Planning work is the horizon of “ruptures” or “discontinuities” (Jouvenel, 1999, 2002: 10). However, sometimes there isn’t a rupture that we can clearly identify and define, but a succession of micro-ruptures that eventually can originate a new dynamic or even a new paradigm. (Jouvenel, 1999, 2002: 10)
According to Jouvenel (1999, 2002: 10), the time horizon should be chosen based on the following criteria:
the inertia of the system and the need to discern the “effect periods”, generators of turbulences that make the proper understanding of the system difficult;
the reaching of the decisions to be made, and the means available. It’s useless to take an action or decision, if you don’t have the means to put it in place;
the degree of rivalry and motivation of the actors.
the notion of long run should not be faced as an absolute concept, being important to determine exactly in what measure scenarios are the preferable option to other methodologies. A rule of thumb can be to consider the long run as the time horizon where changes in the historical trends and relations can occur (Jouvenel, 1999, 2002, Godet, 1993).
Scenario analysis seems to present significant advantages over more quantitative methods when the assumptions of stability that sustain the model can’t be assured (Godet, 1993, 1997a).
Scenario analysis present important advantages over quantitative methods when the uncertainty is strong, and the historical relationships are unstable. In these circumstances, the traditional forecasting models, such as the econometrics and time-series-based models have a poor performance, since those approaches are based on historical data (Godet, 1993).
Linneman and Klein (1983) point out that most of the companies that used Scenario Planning in the end of 1970s used a time horizon of five years. The responsible managers for the strategic planning in Xerox Corp. argued that the most appropriate time horizon for the scenarios they were making was fifteen years. Zentner (1982) highlighted also that Shell’s scenarios had a time horizon of fifteen years, and frequently even longer. This author pointed out that the scenario content became gradually more diffused as the time horizon was extended.
It seems that the ideal time horizon for a Scenario Planning project is specific to the industry, product or market being studied. Some authors observe that long- and short-term forecasts are not absolute terms. Linneman and Kennel (1979) suggest that the test to decide on the time horizon could be determined by the response to the following question: “until when, in the future, the company is compromising its resources?”
The System and the Uncertainties
As mentioned above, for the implementation of a Scenario Planning process, the definition of the problem, the questions that we want to answer, as well as the choice of the time horizon are fundamental decisions for the construction of the system of the phenomenon to be studied.
One of the major advantages of the scenario methodology is precisely connected to the opportunity and help it offers for structuring, systematizing and reasoning about the specific reality that we are analyzing.
The construction of this system places some challenges:
It is important to cover, as much as possible, the whole system to be studied. This implies not to ignore important elements or variables that can have fundamental links for the evolution of the system (the so called “missing links”) (Godet, 1993, 1997a);
As a theoretical and conceptual construction, some doubts can emerge about the inclusion of certain elements that can be in the frontier of the system. Scenario analysis implies, necessarily, a strong connection to the defined strategic focus and objectives of the study (Godet, 1993, Heijden, 1996, Schoemaker, 1985, 1995).
It’s with this intention that Michael Porter (1985) in the methodology that he proposes for the construction of industrial scenarios uses his model of the five strategic forces that can characterize and influence a specific industrial structure. On the basis of this structure, we can analyse the existing competitiveness level, offering this analysis the capability to delineate the more appropriate strategies.
This approach of the industrial structure used by Porter, serves as a starting point for the construction of scenarios, in particular, as a “framework” for the organization and identification of the so called “scenarios variables”.
The advantage of this approach is based on the amplitude that the conceptual framework developed and tested by the author provides, making possible that the phenomenon is studied in a systemic and highly methodical way, and making more difficult to ignore structural elements.
Another way to make the delimitation and to build the system to be studied is proposed by Michel Godet (Godet, 1993: 76–77, Godet, 1997b: 97–98), and included in what he calls the “Structural Analysis”.
In this case, the delimitation of the system is not so methodical, in the sense that his approach is intended to be more flexible and applicable to different types of focus, with different scopes and characteristics, and also to different objectives.
Thus, in this case, aiming not to ignore important variables, the proposed procedure is somehow exploratory, being the initial identification of variables made in a more open way, grouping the variable in categories that don’t need to be defined in any “framework” in the beginning of the process.
One of the advantages of this way of making the delimitation and construction of the system is that we can include in the initial listing of variables some elements that can go against our mental models or orthodoxies that, in a more predefined “framework”, could be ignored more easily. This is the reason that leads Godet to suggest the use of methods that stimulate creativity and imagination (Godet, 1993, 1997a).
The identification and selection of the crucial or key uncertainties is one of the most important and decisive points of any scenario method, since it will be around these uncertainties that the scenarios will be build.
However, not all the authors attribute to crucial uncertainties the same role in the process of scenario development. It seems that there is a distinction between the methodologies proposed by authors as Peter Schwartz and Michael Porter and authors of the so-called French school of “La Prospective”.
Causality and “Final Images” versus “Pathways”
Scenarios can either privilege the evolution of the present into the future, or just describe how the future will be. That is, they can be longitudinal or transversal. The initial definition of scenarios proposed by Kahn and Wiener is focused on the analysis of longitudinal scenarios.
Some definitions consider scenarios as being a description of final states, while other authors concentrate more in the way to arrive to those end states.
It’s in the context of this distinction that Jungermann and Turing (1988) distinguish between “snapshot scenarios” and “chain scenarios”.
“Snapshot scenario: First, consider a “snapshot scenario”, i.e., a description of a possible state of affairs at the time horizon. As an example, take the situation in a private household in 25 years as effected by information technology. Which inferences are needed to construct such a scenario?
Chain scenario: Consider now the case of a “chain scenario”, i.e., a sequence of causally or conditionally related actions and events. For example, we might want to describe how certain information and communication techniques might actually bring about certain effects on private life.” (Jungermann, Turing, 1988: 127)
Kahn and Wiener (1967) consider that snapshot scenarios can’t even be considered as scenarios, calling them “alternative futures”. The approach given by these authors to the causal processes is also found in other authors.
Eric Jantsch in his definition of scenarios emphasizes this question of the causality and the logical sequence of events that allows us to understand how we can arrive to a certain future situation.
“(…) scenarios are attempts to set up a logical sequence of events in order to show how, starting from the present situation, they may evolve step by step.” (Jantsch, 1967: 180)